Re Eighth Oupan Pty Ltd v Deputy Commissioner of Taxation [1986] FCA 49 (6 March 1986)

FEDERAL COURT OF AUSTRALIA

Re: EIGHTH OUPAN PTY. LTD.
And: DEPUTY COMMISSIONER OF TAXATION
No. VG243 of 1985
Income Tax

COURT

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY
GENERAL DIVISION
Smithers J.
Keely J.
Lockhart J.

CATCHWORDS

Income tax - Administrative law - application for order of review under Administrative Decisions (Judicial Review) Act 1977 relating to decision to issue a notice under s. 264 of the Income Tax Assessment Act 1936 - whether application fails to disclose a reasonable cause of action, is frivolous, vexatious and an abuse of process of the Court.

Administrative Decisions (Judicial Review) Act 1977: s. 5.

Income Tax Assessment Act 1936: s. 264.

Federal Court Rules: Order 20 rule 2.

General Steel Industries Inc. v. The Commissioner for Railways (NSW) [1964] HCA 69; (1964) 112 CLR 125.

Dey v. Victorian Railways Commissioners [1949] HCA 1; (1949) 78 CLR 62.

Smorgon v. Federal Commissioner of Taxation (1979) 79 ATC 4039.

HEARING

MELBOURNE
6:3:1986

ORDER

The appeal be dismissed.

The appellant pay the costs of the respondent of the appeal.

NOTE: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

DECISION

I will ask Mr. Justice Lockhart to deliver the first judgment.

This is an appeal from the judgment of a single judge of this Court

(Northrop J.) in which his Honour dismissed an application for review made by the appellant, Eighth Oupan Pty. Limited, under the Administrative Decisions (Judicial Review) Act 1977 (the "Judicial Review Act").

2. On 3 August 1984 the Deputy Commissioner of Taxation, pursuant to s. 264 of the Income Tax Assessment Act 1936 (the "Assessment Act"), in the form which it then took, issued and served on the appellant a notice in writing requiring it to attend before a named officer of the Australian Taxation Office and produce specified documents in its custody or under its control as trustee of a number of trusts named in the notice.

3. Section 264 then provided:

"264.(1) The Commissioner may by notice in writing
require any person, whether a taxpayer or not,
including any officer employed in or in connexion
with any department of a Government or by any
public authority -

(a) to furnish him with such information as
he may require; and

(b) to attend and give evidence before him or
before any officer authorized by him in
that behalf concerning his or any other
person's income or assessment, and may
require him to produce all books,
documents and other papers whatever in
his cusotdy or under his control relating
thereto.

(2) The Commissioner may require the
information or evidence to be given on oath and
either verbally or in writing, and for that purpose
he or the officers so authorized by him may
administer an oath.

(3) The regulations may prescribe scales of
expenses to be allowed to persons required under
this section to attend.

4. The appellant responded by writing a letter dated 24 August 1984 to the Deputy Commissioner, which, so far as relevant, said:

"The Company is conscious of its obligations under
the Act and has no intention of acting other than
in accordance with law. However, the Company has
been advised to seek from you information regarding
the purpose of the inquiries so that it may be
satisfied that they are properly authorised by
Section 264 and that it (i.e. the Company) would
not, in replying, be breaching its fiduciary
obligations and its duty of confidentiality to a
number of persons, including the Beneficiaries of
the various trusts.

Your reply is awaited. In the meantime, it is
assumed that the Notice is 'adjourned'.

This letter should not be taken as in any way
conceding the validity of the whole or any part of
the said Notice."

5. The Deputy Commissioner replied by letter dated 7 September 1984 which in essence stated that the purpose of the enquiries which gave rise to the issue of the section 264 notice was to assist him to determine the income derived and the expenditure incurred by the appellant as trustee of various trusts. The letter went on to say that the "prosecution action" relating to the matter would be deferred to allow the appellant additional time to comply with the requirements of the notice. The time fixed in the notice having then expired, a new time was fixed for compliance with the notice.

6. A letter was then written by the appellant to the Deputy Commissioner of Taxation on 19 September 1984, which said, so far as relevant:

"The Company has sought further legal advice and
has been advised that your said reply of the 7th
September, 1984 is too vague, abstract, imprecise
and nebulous and that, accordingly, the assurances
the Company was hoping to obtain have not been
provided.

The Company therefore again requests to be advised
by you of the purpose of the enquiries so that the
Company may be satisfied of the matters set out in
the Company's letter of the 24th August, 1984.

The Company also gives notice that it is about to
make application pursuant to the Administrative
Decisions (Judicial Review) Act seeking reasons for
your decision."

7. A letter of 25 September 1984 was sent from the solicitors for the appellant to the Deputy Commissioner enclosing a document expressed to be a notice under the provisions of the Judicial Review Act. That document asked the Deputy Commissioner to furnish a statement in writing setting out findings on material questions of fact, referring to the evidence or other material on which the findings were based and giving the reasons for the decision or decisions set out in a schedule to that document. I shall refer to the schedule because it is the decisions there identified which the appellant sought to have reviewed in this case.

8. The schedule provides:

"The decision to exercise certain powers and
functions in order to require the attendance of the
applicant (by a 'proper officer') details of which
are set out in a Notice addressed to the applicant
dated 3rd August, 1984, a copy of which is attached
hereto as Attachment A.

In respect of each and every trust referred to in
Attachment A, the decision to enquire into the
income and/or assessment of the petitioner as
trustee thereof.

In respect of each and every book, document and
paper referred to in Attachment A, the decision to
require the production thereof.

The decision to make the request to attend, set out
in a letter to the petitioner dated 7th September,
1984 a copy of which is attached hereto as
Attachment B.

The decision to state the purpose of various
enquiries, which purpose is described more fully in
the second paragraph of Attachment B.

In respect of each and every book, document and
paper referred to in 3 above, the decision to
require the production thereof on 21st September,
1984."

9. The Deputy Commissioner sent a statement to the appellant pursuant to s. 13 of the Judicial Review Act under cover of a letter dated 20 December 1984. The letter said, so far as relevant, that the taxpayer was required to attend on 3 January 1985 before a named officer of the Australian Taxation Office and there produce the books, papers and documents specified in the notice and that failure to attend and produce the documents would result in legal proceedings being instituted.

10. The section 13 statement gave a detailed statement of findings on material questions of fact and reasons for the relevant decisions. It is not necessary to set out the terms of the section 13 statement.

11. On 18 January 1985 these proceedings were commenced by the appellant. The appellant sought the review of what were said to be six decisions, being in essence those which I have already described. The application for review stated the grounds upon which the review was sought by adopting what the learned primary Judge described as a "scattergun" approach and stated nine grounds and eight sub-grounds. These statements substantially echo the language of the relevant sections of the Judicial Review Act. The application is, I think, a prolix and singularly uninformative document. Pursuant to orders of the Court the Deputy Commissioner sought particulars of the grounds of review and these were furnished on 3 April 1985.

12. In the meantime, on 22 February 1985, the Deputy Commissioner had filed a notice of motion pursuant to Order 20 Rule 2 of this Court's Rules, seeking the dismissal of the application on the grounds that it failed to disclose a reasonable cause of action, was frivolous and vexatious and an abuse of the process of the Court. Pursuant to an order of this Court, the Deputy Commissioner gave particulars to the appellant of the grounds stated in the notice of motion.

13. The primary Judge heard the Deputy Commissioner's notice of motion to dismiss the proceedings. It is necessary, I think, to state in some detail the course followed by his Honour in his reasons for judgment. His Honour treated the decision numbered 1 in the application, that is the decision to issue the notice under section 264 of the Assessment Act, as the essential decision and regarded the decisions numbered 2 and 3 as not being decisions to which the Judicial Review Act applied except to the extent that they merged with or formed part of the decision numbered 1.

14. His Honour found that the Deputy Commissioner was not bound by the rules of natural justice in the process of issuing and serving section 264 notices in general and in this case in particular. His Honour dealt with the decisions numbered 4, 5 and 6 in the application. He said that insofar as they were separate and distinct from the decision to issue and serve the section 264 notice, they:

"Appear to support the contention of counsel for
the Deputy Commissioner that the application is
frivolous, vexatious and is an abuse of the process
of the Court."

15. The primary Judge reviewed the evidence before him. He referred to an affidavit filed on behalf of the appellant by Mr. Leon Gorr, a director of the appellant and a member of the firm of solicitors acting for the appellant, Messrs. Herbert, Geer and Rundle.

16. His Honour summarised Mr. Gorr's affidavit and said, inter alia, that much of the affidavit was directed to a defence to certain assertions made in a document released by the Deputy Commissioner of Taxation pursuant to the Freedom of Information Act 1982 and to that extent his Honour was of the opinion that the affidavit was not then relevant. His Honour said that Mr. Gorr asserted in his affidavit that various matters, including those already referred to, indicated an attitude of bias and prejudice by the Deputy Commissioner towards him, his firm and those associated with him including the appellant. His Honour noted Mr. Gorr's assertion that the notice under section 264 directed to the appellant was part of a campaign of harassment. The document to which I have just referred is a memoradum, internal to the Australian Tax Office, dated 26 September 1984 titled "Prio Prosecutions". I do not propose to set out the terms of the document or indeed a note that appears below it, except to say that it notes, amongst other things, that a notice under section 264 of the Assessment Act had been issued to Mr. Gorr on 8 August 1984 requiring him to furnish the Commissioner with certain information, that the taxpayer had not furnished the information required or provided reasons for non-compliance. The author of the document recommends prosecution. The last paragraph of the memorandum stated:

"It should be noted that the taxpayer is a member
of a firm of solicitors (Herbert, Geer and Rundle)
who are major promoters of tax avoidance schemes.
This firm has on many occasions attempted to
frustrate investigations conducted by this office
by either refusing to comply with section 264
notices or responding by providing completely
inadequate information."

17. The primary Judge reviewed the evidence before him on the notice of motion to dismiss the application. He stated the well established tests governing motions to dismiss proceedings pursuant to rules of court akin to this Court's Order 20 Rule 2. He referred in particular to the judgment of Barwick C.J. in General Steel Industries Incorporated v. The Commissioner for Railways (New South Wales) [1964] HCA 69; (1964) 112 CLR 125.

18. His Honour noted that the onus upon the Deputy Commissioner was a high one. His Honour noted that the grounds relied upon by the appellant for the review of the decisions were:

"that there had been a breach of the rules of
natural justice in connection with the making of
the decisions, that procedures that were required
by law to be observed in connection with the making
of the decisions were not observed, that the Deputy
Commissioner did not have jurisdiction to make the
decisions and that the making of the decisions was
an improper exercise of the powers conferred by the
Assessment Act."

19. His Honour dealt with a submission by counsel for the appellant that the matters relied on to substantiate the grounds of attack against the relevant decisions were solely internal to the Australian Taxation Office and could be ascertained only by discovery and interrogatories. His Honour dealt with the contention of counsel that the Court should not exercise the powers conferred by Order 20 Rule 2 before discovery had been obtained and interrogatories administered and answered. His Honour noted the submission of counsel that there were real questions to be determined and that the motion should be refused. His Honour noted again that the Deputy Commissioner carried a high onus in an application of this kind.

20. His Honour said that, although in proceedings under the Judicial Review Act discovery and interrogatories may be ordered, they are not ordered as of course. His Honour said that the appellant was seeking to interrogate the Deputy Commissioner and to ransack his documents in the hope of making a case and that its conduct was mere fishing.

21. The primary Judge said that the material contained in Mr. Gorr's affidavit did not constitute evidence to support any of the contentions made on behalf of the appellant, and that he was satisfied that the appellant had not shown any basis for its claim under the Judicial Review Act. He said that he was satisfied that the proceedings were:

"in the nature of a fishing expedition by which
Eighth Oupan Pty. Ltd. is attempting to delay the
production of the documents enumerated in the
notice under s. 264 of the Assessment Act. In my
opinion, the application fails to disclose a
reasonable cause of action, is frivolous, vexatious
and is an abuse of the process of the Court."

22. His Honour then dismissed the application with costs.

23. An objection to the competency of the application for judicial review had been filed by the Deputy Commissioner, but in the circumstances his Honour did not find it necessary to consider it.

24. In argument before us, counsel for the appellant stated the grounds upon which the appellant now relies in support of its case. In so doing, counsel refined somewhat the arguments upon which the appellant placed reliance before the primary Judge. The case as outlined before us may be summarised by saying that the Deputy Commissioner, when deciding to issue the section 264 notice and in deciding to undertake an enquiry into the income of the appellant as a trustee, was motivated, not by permissible and legitimate reasons, but on the basis of an assumption that because the appellant was associated with Messrs. Herbert Geer and Rundle, solicitors, who engaged in the practice of formulating tax avoidance schemes, he, the Deputy Commissioner, was entitled to embark on the investigatory process inherent in section 264. Counsel submitted further that it may be inferred from the evidence that the Deputy Commissioner in taking the course he did was influenced by impermissible considerations, namely, that Messrs. Herbert Geer and Rundle had, on many occasions, attempted to frustrate investigations conducted by the Deputy Commissioner either by refusing to comply with section 264 notices or by responding with completely inadequate information. Counsel submitted that the Deputy Commissioner invoked section 264 for the purpose of harassing the appellant and others associated with it, and he placed, in furtherance of that submission, reliance upon various matters which it is unnecessary for me in this brief summary to restate; but I have taken them all into account.

25. Counsel for the appellant abandoned the arguments put by his predecessor below in support of the contention that the appellant was entitled to a hearing before the Deputy Commissioner before the investigatory powers conferred by section 264 could be invoked.

26. These grounds of attack upon the relevant decisions of the Deputy Commissioner find their genesis in the internal memorandum of the Deputy Commissioner to which I have already referred. Although that memorandum refers to a notice under section 264 which is not the notice the subject of these proceedings and is dated 26 September 1984, that is about six weeks after the date of issue of the notice in question here, I am content to assume for present purposes that the Deputy Commissioner, when deciding to issue the section 264 notice with which this case is concerned, did hold the view or entertain the suspicion, that Messrs. Herbert Geer and Rundle were major promoters of tax avoidance schemes, and that firm had on many occasions attempted to frustrate investigations conducted by the Australian Taxation Office by either refusing to comply with section 264 notices or by providing completely inadequate information. I am content to assume also, for present purposes, that Mr. Gorr took strong exception to this attitude of the Deputy Commissioner.

27. None of these considerations, in my view, assist the appellant in this case and no basis has been established for the assertion that the Deputy Commissioner acted in some way improperly in making any of the decisions under challenge.

28. Section 264 empowers the Commissioner of Taxation to make a "roving enquiry" into the income or assessment of a particular taxpayer and for that purpose to have produced to him such documents as relate to that income or assessment: Smorgon v. The Federal Commissioner of Taxation (1979) 79 ATC 4039, especially in the judgment of Gibbs A-C.J. at pp 4044 and 4046.

29. There is no substance in the submission by counsel for the appellant that the primary Judge, although saying that he applied the principles mentioned by Barwick C.J. in the General Steel Case, in fact failed to have regard to them. Nor is there substance in the challenge to his Honour's judgment that he placed undue weight upon the fact that the appellant proposed to seek discovery and to interrogate the Deputy Commissioner.

30. It was faintly suggested by counsel for the appellant that the Court is not at liberty to determine any questions of fact when hearing applications to dismiss proceedings pursuant to Order 20 Rule 2. This is, I think, plainly wrong. Sub-rule 2(2) of Order 20 itself authorises the Court to receive evidence on the hearing of an application for an order under the Rule. Whether evidence is received in such an application, of course, depends upon the issues and grounds of the application in a particular case. Sometimes the question will be whether pleadings disclose a reasonable course of action, and in such a case, little if any evidence may be required. General Steel is itself an example of a case of that kind, but in other cases evidence is essential to support the application for summary dismissal. An example of such a case is Dey v. Victorian Railways Commissioners [1949] HCA 1; (1949) 78 CLR 62; a case which contains the classic statements of the law governing applications for summary dismissal, especially in the judgment of Sir Owen Dixon.

31. In my opinion it was open to the primary Judge to conclude that this case is in the nature of a fishing expedition by which the appellant is attempting to delay the production of the documents specified in the section 264 notice. No ground has been established for interfering with his Honour's findings that the application failed to disclose a reasonable cause of action, was frivolous, vexatious and an abuse of the Court's process. Indeed, I find myself in full agreement with his Honour's conclusions.

32. I would add finally that everything which could possibly have been said in support of the appeal has been said both in chief and in reply by counsel for the appellant.

33. I would dismiss the appeal with costs.

I agree with Lockhart J. that the appeal should be dismissed with costs and with the reasons which his Honour has given.

I agree also. I would just like to add generally, that when this case started in January 1985 the document referred to in Mr. Gorr's affidavit headed "Prio Prosecutions" was not then known to the appellant. At that stage the appellant was making allegations without foundation of any kind. On receiving the document on 1 March, an attempt was made to use it as evidence that the Commissioner, in issuing the notice under section 264 in August 1984, did not do so for the purposes of administering the Assessment Act in an endeavour to protect the revenue and ensure that people, who should pay their tax, paid it, but for some personal animus to harass the applicant.

2. Far from that being so, it seems to me that the matters apparently believed by the Commissioner and set forth in the document "Prio Prosecutions" would found a very good basis for the Commissioner's decision that in relation to this particular applicant it was desirable that a full investigation instituted by a notice under section 264 should be conducted.

3. It was, as I understood it, sought to say that it was arguable that the period set forth in the notice for the production of the documents was too short, and that that in itself was some evidence that the Commissioner was acting for the purposes of harassment and not for the purpose of administering the Assessment Act properly. To my mind it is not arguable that that period is the slightest evidence of harassment, and the best evidence of that is that the Commissioner was responsive to requests made by the appellant between August and January to extend the time for compliance with the notice and that extensions were given from time to time. Accordingly, I agree in the reasons for judgment and the proposed order of Lockhart J..

4. I would merely add one further observation, namely, that the Commissioner was of the opinion that there was danger of frustration by the applicant of the processes under the Assessment Act designed to enable the Commissioner to obtain the necessary information required for the purposes of administering the Assessment Act properly. It must be said that in this particular case there has been a very substantial frustration in relation to this particular notice which was given in August 1984. That was followed by protestations by the applicant of a desire to comply with the law but that suffered a metamorphosis by the generation of all kinds of reasons as to why the notice should not be complied with, and it has been frustrated, therefore, since August 1984 till March 1986, which is a very substantial frustration.

5. In the next memorandum concerning "Prio Prosecutions" it may not be unlikely that the successful frustration practised by the appellant in relation to this particular notice will be recorded as further evidence to justify opinions similar to those which were expressed in that document.

6. The order of the Court is that the appeal be dismissed with costs.