Re Geoffrey Walter Edelsten v Commissioner of Taxation [1989] FCA 13 (7 February 1989)

FEDERAL COURT OF AUSTRALIA

Re: GEOFFREY WALTER EDELSTEN
And: COMMISSIONER OF TAXATION
No. G 882 of 1988
FED No. 4
Administrative Law

COURT

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES REGISTRY
GENERAL DIVISION
Einfeld J.(1)

CATCHWORDS

Administrative Law - application to set aside or vary a departure prohibition order - judicial review of decision to issue and of decision not to set aside departure prohibition order - jurisdiction - scope of departure prohibition order - denial of natural justice - effect of bankruptcy on tax liability.

Taxation Administration Act 1953: ss 14S, 14T, 14U, 14V, 14Y

Administrative Decisions (Judicial Review) Act 1977: S 5(1), S 11

Judiciary Act 1903: S 39B

HEARING

SYDNEY
7:2:1989

Applicant appeared in person

Counsel and solicitors for J.R. Sackar QC with D.B. McGovern the applicant instructed by Australian Government
Solicitor

ORDER

The amended application is dismissed.

The applicant to pay the respondent's costs.

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

DECISION

Section 14S of the Taxation Administration Act 1953 (the Act) makes provision for the Commissioner of Taxation to prohibit, in certain circumstances, a taxpayer from leaving Australia, by issuing what is called a Departure Prohibition Order (DPO). This is an application by Geoffrey Edelsten to set aside or vary a DPO issued against him on 16 December 1986 by a Deputy Commissioner of Taxation. The application also seeks judicial review of the decision to issue the DPO and of the decision of 18 April 1988 not to vary or revoke the DPO. The applicant also asks for an order requiring the Deputy Commissioner to vary or revoke the DPO.

2. The DPO was served on the applicant while he was attending the offices of the Taxation Department to discuss other matters. It is in the following terms:

Pursuant to sub-section 14S(1) of the Taxation
Administration Act 1953, I, IAN BRUCE CARMODY, delegate of
the Commissioner of Taxation, believing on reasonable
grounds that it is desirable to do so for the purposes of
ensuring that GEOFFREY WALTER EDELSTEN, a person subject to
the tax liability referred to in the Schedule, does not
depart from Australia for a foreign country without -
(a) wholly discharging the tax liability; or
(b) making arrangements satisfactory to me for the tax
liability to be wholly discharged,
hereby prohibit the departure of GEOFFREY WALTER EDELSTEN
from Australia for a foreign country.

The tax liability mentioned in the Schedule was $1,530,679.79.

3. On 21 September 1987 the applicant was made bankrupt on his own petition. This bankruptcy was later annulled and a sequestration order made on the petition of Full Point Pty Limited on 10 March 1988. At the time of the first bankruptcy, the applicant's passport was delivered to his trustee, and to the applicant's knowledge is still in his possession. According to the applicant, the trustee is willing to return the passport to enable the applicant to travel overseas, provided that this would benefit creditors. The applicant is at present a PAYE taxpayer.

4. Section 14T of the Act provides for the variation or revocation of a DPO. Requests for variation were made by the applicant in June and July of 1987 to permit him to travel overseas for the stated purpose of researching a film. A third request was made on 25 March 1988 to permit the applicant to obtain registration as a medical practitioner in Vanuatu or Israel. It is the decision on this request together with the original decision to issue the DPO in December 1986 which are presently in issue.
The decision to issue the DPO - jurisdiction

5. A threshold question which arises on this aspect of the case is the jurisdictional basis of these proceedings. Three possibilities have been proposed:
(1) Section 14V of the Taxation Administration Act

6. This provides:

14V(1) A person aggrieved by the making of a departure
prohibition order may appeal to the Federal Court of
Australia or the Supreme Court of a State or Territory
against the making of the departure prohibition order.
14V(2) This section has effect -
(a) subject to chapter III of the Constitution; and
(b) notwithstanding anything contained in section 9 of
the Administrative Decisions (Judicial Review) Act
1977.

7. Section 14X provides that a court hearing an appeal under section 14V against the making of a departure prohibition order may, in its discretion -

(a) make an order setting aside the departure prohibition order;
or
(b) dismiss the appeal.

8. Although this Court clearly has jurisdiction under section 14V, it is unclear whether it is a hearing de novo or a hearing by way of judicial review. This was considered by Young J in Dalco v Commissioner of Taxation (unreported 13 October 1987) at page 2 of the judgment:

It is to be noted that s 14V does not set out what sort of
appeal the court is hearing. There are many possibilities.
The appeal can be by way of judicial review. The appeal can
be a rehearing, it can be a hearing de novo or it can be
some sort of an amalgam of those types of appeals.
Accordingly, the initial question is what sort of appeal has
the legislature in mind in s 14V?
The position is complicated by the fact that two avenues of
appeal are delineated in s 14V, one to the Federal Court and
the other to this court or any other State or Territorial
Supreme Court. This court and most of the other Supreme
Courts have plenary powers . . .
(p 3) It is a different case with a Federal Court because
the Federal Court system is not so flexible. Under chapter
III of the Constitution the Federal Court exercises the
judicial power of the Commonwealth and there is a very
clearly defined distinction between judicial review and
rehearing an administrative matter. Despite the fact that
some persons involved in these matters may have two
commissions which enable them to do one thing under one
commission and another thing under another commission
generally speaking the Federal Court may only deal with an
appeal by way of judicial review.
It is significant that s 14V(2) makes the section subject to
chapter III of the Constitution. It just seems to me to
recognise that an appeal to the Federal Court has to be read
down to dealing only with matters of judicial review, but
that an appeal to a Supreme Court may be wider.

9. This point is also made by Woodward J in T v Federal Commissioner of Taxation (1986) 86 ATC 4894 at 4895:

In my view the scheme of the Act is clear. It provides for
a person who is made the subject of a departure prohibition
order to challenge the making of that order in a court of
law. Section 14V of the Act . . . . . . means that a court has
jurisdiction to entertain an appeal against the making of an
order, provided that court does not exceed the judicial
powers of the Commonwealth by becoming involved in
administrative decision-making. The point is underlined by
sec.14X . . . .

10. It thus appears on these authorities that the power of the Court under section 14V is limited to a judicial review of the decision.
(2) Section 5(1) of the Administrative Decisions (Judicial Review) Act (ADJR Act)

11. There appears to be no question in principle that the decision is also judicially reviewable under the ADJR Act. The only significant distinction between this and the court's powers under section 14V may be in the remedies which the court can give.

12. However, the respondent submitted that I should refuse to entertain the application, or to grant relief, under the ADJR Act, because of the lapse of nearly two years between the issue of the order and the ADJR Act application. The respondent conceded that the strict 28 day time limit prescribed by subsections (1)(c) and (3)(b)(iii) of section 11 does not apply to this decision, but I am not sure that the concession was correct. In any event, the applicant relied on an alleged undertaking to him by a Deputy Commissioner that the DPO would be revoked or varied when he wished to travel overseas.

13. However, the respondent made no such submission in relation to the Taxation Administration Act. Because section 14V of that Act involves the same types of considerations as would be dealt with under section 5(1) of the ADJR Act and any different remedies would in my view have no effect on the result of this particular case, it seems to me unnecessary to resolve the issues concerning the delay in making this application. For the purpose of examining the substantive issues which distinctively apply to the ADJR Act, I am prepared to proceed on the assumption that this is an appropriate application to entertain or that it would be appropriate to grant an extension of time.
(3) Section 39B of the Judiciary Act

14. Again there seems little doubt that mandamus would in principle be an available remedy but I cannot see a reason why it should be used here when there is ample scope available elsewhere. In the circumstances of this case, it does not seem necessary to determine the appropriateness of mandamus.
The scope of a DPO

15. The DPO was issued under section 14S(1) of the Act. This provides:

14S(1) Where -
(a) a person is subject to a tax liability; and
(b) the Commissioner believes on reasonable grounds that
it is desirable to do so for the purpose of ensuring
that the person does not depart from Australia for a
foreign country without -
(i) wholly discharging the tax liability; or
(ii) making arrangements satisfactory to the
Commissioner for the tax liability to be
wholly discharged,
the Commissioner may, by order in accordance with the
prescribed form, prohibit the departure of the person from
Australia for a foreign country.
14S(2) Subject to sub-section (3), a departure prohibition
order remains in force unless and until revoked under
section 14T or set aside by a court.

16. The purpose of this section was considered by Young J in Dalco (above). His Honour stated at page 8:

Section 14T gives the clue that the matters which spark the
making of a s.14S order are that the recoverability of tax
will be affected by the departure of the taxpayer from
Australia. Accordingly, once the Commissioner is satisfied
that the tax is completely irrecoverable then it cannot be
the case that collection of the tax will be affected by the
taxpayer going outside Australia and the raison d'etre for
making the order has gone so that the order must be revoked.
I am of the view that that is the way that one approaches
the section. The Commissioner is to believe on reasonable
grounds that it is desirable to stop a person leaving
Australia because it is necessary to collect the tax that is
owed to the government and that that discharging of the tax
liability will be affected by the person going overseas.

17. In other words, it is only the possibility or likelihood that the taxpayer's departure from Australia would adversely affect the revenue that there should be under this Act a restriction on the right of an individual in a free society to travel without bureaucratic impediment. The power to issue a DPO may not be exercised penally or for other purposes.
Review of the decision

18. The applicant seeks judicial review of the original decision to issue the order on the following grounds:

(i) irrelevant considerations were taken into account
(ii) relevant considerations were not taken into account
(iii) discretionary power was exercised
. in bad faith
. at the direction or behest of others
. without regard to the merits of the case
(iv) the exercise of the power was so unreasonable that no reasonable
person could have so exercised the power.

19. The decision in question was made by Mr Ian Carmody, the Deputy Commissioner of Taxation. In making the decision, Mr Carmody had regard to written submissions compiled by an auditor Mr Barford to which were annexed additional comments by his supervisor, Mr Thurlow. Mr Barford listed the following considerations in support of his recommendation that a DPO be issued:

(1) the large taxation debt of the applicant and associated entities
(2) negligible personal assets and non-ownership of a residence in
Australia
(3) marriage to an Australian citizen who was considered to be
prepared to leave the country on a temporary or permanent basis
(4) the apparent organisation of the Edelsten group so as to be
maintainable by associates
(5) media reports referring to the applicant's intention to open
businesses overseas
(6) persistent rumours that the applicant intended to reside
overseas and trips by his accountant and personal manager to
Hong Kong
(7) review of the applicant's right to practise medicine by the
Medical Tribunal
(8) possible interest in his activities by the Health Insurance
Commission and the Corporate Affairs Commission
(9) possible concealment of assets
(10) attempts to liquidate known assets, such as shares in a company
called Powerplay International, and his substantial home at
Dural, and the transfer of assets to associated entities
(11) the issue of a notice under section 218 of the Income Tax
Assessment Act to the Health Insurance Commission directing all
monies payable to the applicant to be directed to the Tax Office
(12) the involvement of the applicant in civil and criminal court
actions
(13) suggestions of previous attempts to avoid creditors

Similar considerations were mentioned by Mr Thurlow.

20. Mr Carmody was cross-examined as to the weight given to these factors. He stated that the perceived intentions of the applicant's wife were not a serious consideration nor was great weight given in isolation to the media reports. The other factors were all taken into consideration to one degree or another. Mr Carmody was aware that the house in Dural was not personally owned, but could not remember if there were enquiries as to the shares.

21. The applicant submitted that some of the facts in Mr Barford's written reasons were inaccurate and therefore irrelevant considerations. In particular he alleged that:

(i) he was not under review by the Medical Tribunal, the Health
Insurance Commission or the Corporate Affairs Commission at the
time of the making of the DPO
(ii) there was no concealment of assets
(iii) the Powerplay International shares were vendor restricted and
therefore could not be disposed of until June 1988. Both the
shares and the Dural property were owned by a discretionary
trust
(iv) there had been no previous attempt to avoid creditors
(v) the tax debt was not as alleged

22. The applicant also claimed that the following relevant considerations were not taken into account:

(i) the applicant's involvement in the establishment of three new
medical centres and active partnership interests
(ii) change in asset position between June 1984 and December 1986
(iii) a motor vehicle accident in which he was injured, and his
resulting incapacitation existing at December 1986

23. He further claimed that the decision was unreasonable as Mr Carmody had failed to obtain up-to-date information.

24. There are some grounds for the applicant's assertions but the respondent submitted nevertheless that there was ample evidence of a tax debt in December 1986 and factors were building up which suggested that the applicant was planning to leave the country. The respondent admitted that there was a dispute as to the actual debt owing but claimed that this is irrelevant in this case as once the assessment is issued there is liability in law: Winter v Federal Commissioner of Taxation 85 ATC 4654, where Lee J of the New South Wales Supreme Court stated at 4658:

Likewise, when the matter is brought on appeal, the court
entertaining the appeal has regard to that liability as
appearing in the assessment and no question can be raised as
to the existence of that liability where it is shown to be
the liability expressed in the notice of assessment: Income
Tax Assessment Act sec.177,201 (F.J. Bloemen Pty Ltd v F.C.
of T. 81 ATC 4280:(1981) 35 ALR 104)

25. Similarly in Deputy Federal Commissioner of Taxation v Mackey 82 ATC 4571 at 4574, Moffit P. stated:

The policy of s 201 is that when an assessment has been
made, the Deputy Commissioner has a right to have the tax
paid, despite the pendency of an appeal.

26. The respondent said that the evidence revealed the applicant to be manipulating his assets so as to produce the impression that he had no control over them, contrary to the facts. The respondent said that this provided more than adequate reason for believing that the applicant's continued presence in Australia may well result in a considerable payment to the revenue of the true and undeniable debt. The respondent in any case submitted that it is permissible for the Commissioner to have regard to considerations extraneous to the immediate tax debt. He referred in this regard to the following passages in Winter (above):

I do not propose to go into the detail of the evidence here,
as it is unnecessary to do so. In my opinion, the evidence
given by the plaintiff, far from showing that the
Commissioner's opinion was not properly grounded in reason,
confirms the reasonableness of the belief of the
Commissioner that a departure prohibition order should be
made. What the evidence disclosed was the participation by
the plaintiff in all the alleged trusts' activities and the
ability on his part to transact substantial
business . . . . . (4665)
On the material which the Commissioner had before him, it
was in my view, plainly open to him to take the view that
the plaintiff might well be disposing of assets, whether
trust assets or not, and arranging his affairs to the
disadvantage of the Commissioner. In regard to the tax
liability, he was entitled to consider that, in view of the
size of the liability and the pressure of the legal
proceedings involving substantial claims for damages, the
plaintiff at least could see a need to avoid the tax
liability, as well of course as the liabilities involved in
the litigation in which he was a party . . . . . .
Finally the Commissioner, in my view, was entitled to have
due regard to the fact that the plaintiff had no dependants
and was free to move about as he wished, subject of course
to the normal human influences, arising from his mother and
his sister being resident in Australia . . . . . . (4666)

I accept the respondent's submissions on these matters.

27. The applicant finally submitted that there was a denial of natural justice in that he was not given an opportunity to be heard before the order was issued. This point was considered by Young J in Dalco (above at p 9) but his Honour considered that the extensive review provisions in the Act militated against there being a right to be heard in advance:

The legislature gives various rights of appeal to the
taxpayer, as I have indicated above, not only under s 14V.
The scheme of the Act appears to be that the Commissioner
can make this decision administratively, and it may be,
without hearing anybody, on suspicion and without giving his
reasons, but that the matter is of such great moment that
the Commissioner's opinion is not to be conclusive but is
able to be reviewed in the ways in which I have indicated
and in particular the reviewing court is to have a
discretion about whether it will make the order to set aside
the Commissioner's certificate or not.

28. I would respectfully add that to give an intended recipient of a DPO advance notice of its imminent issue may rob the whole procedure of efficacy by providing the person with an opportunity to leave the country before the order can be issued. In this case that may have been difficult because the applicant's passport was apparently not in his hands, although it may very well have been accessible to him. Nonetheless, the principle remains intact and I cannot believe that natural justice would intervene to prevent or forestall the making of a duly reviewable order designed to stop a possible fraud on the revenue, thus effectively frustrating the whole procedure. I therefore reject the applicant's submissions in this regard. The applicant has not established that the requisite error of law was made in the issue of the DPO.
The decision not to revoke or vary - jurisdiction

29. Section 14T of the Act provides that application can be made to the Commissioner for the variation or revocation of a DPO. Section 14U says that the Commissioner may issue a departure authorization certificate in specified circumstances. In the case of an unsuccessful application, the sections give the Federal Court no right to revoke the order. Section 14Y(1) provides rather that:

Applications may be made to the Administrative Appeals
Tribunal for review of decisions of the Commissioner under
Section 14T or 14U.

30. This point was considered by Woodward J in T v Federal Commissioner of Taxation (above). His Honour stated at 4895:

Once an order is made, and it is not challenged as having
been improperly made, detailed provision exists in sec. 14T
and 14U for the Commissioner to revoke or vary the order or
to issue a "departure authorization certificate". If the
person the subject of the order is dissatisfied with the
Commissioner's response to an application pursuant to either
of these sections, sec 14Y(1) . . . . . (exists) . . . . .
There can be no doubt that, in the circumstances of this
case, this is the course which the applicant should have
followed. He wants to have the exercise of an
administrative discretion reviewed, not on any legal grounds
but on the basis that an unfair or inappropriate decision
has been reached. The Administrative Appeals Tribunal may,
of course, exercise all the powers and discretions that are
conferred on the Commissioner by sec. 14T and 14U. This
Court may not.

31. The respondent concedes that the Court may hear a judicial review application under the ADJR Act. However, as a right of appeal to the Tribunal is provided by the Act, this court would be justified in refusing to grant such an application. Section 10(2)(b)(ii) of the ADJR Act provides:

(2) Notwithstanding sub-section (1) -
(b) the Court may, in its discretion, refuse to grant an
application under section 5, 6 or 7 that was made to
the Court in respect of a decision, in respect of
conduct engaged in for the purpose of making a
decision, or in respect of a failure to make a
decision, for the reason -
. . . . . .
(ii) that adequate provision is made by any law
other than this Act under which the
applicant is entitled to seek a review by
the Court, by another court, or by another
tribunal, authority or person, of that
decision, conduct or failure.

32. Whether this Court can or should refuse to entertain an application on this ground, as Woodward J implies, is not necessary to be decided here. This is because one reason for permitting this applicant to proceed wholly in this court is the desirability that this entire matter be dealt with in one proceeding as far as possible, to avoid duplication and unnecessary expense. In any event, having regard to the arguments advanced and substantive relief sought in relation to this aspect of the case, the better course for the applicant, if successful, would thus appear to be an order in the nature of mandamus under section 39B of the Judiciary Act 1903. This provides this Court with jurisdiction to deal with

. . . . any matter in which a writ of mandamus or prohibition
or any injunction is sought against an officer or officers
of the Commonwealth.

The attack on the decision

33. The provision in section 14T that DPOs may be varied or revoked is posited by subsection (1) on the prerequisite that the tax liabilities of the person concerned have been wholly discharged and

(a) . . . . the Commissioner is satisfied that it is likely
that the tax liabilities to which the person may
become subject in respect of, or arising out of,
matters that have occurred will be -
(i) wholly discharged; or
(ii) completely irrecoverable; or
(b) the Commissioner is satisfied that the tax
liabilities to which the person is subject are
completely irrecoverable . . . .

34. Subsection (3) provides that these requirements may be satisfied by arrangements for the relevant payments to be made, presumably at some time in the future.

35. The applicant submitted that the effect of bankruptcy is that the Commissioner is bound as a matter of law to revoke the DPO. The applicant argued that bankruptcy either causes the debt to become wholly discharged in terms of paragraph (a), or alternatively that the effect of bankruptcy is that the debt becomes completely irrecoverable in terms of paragraph (b). Although the Commissioner retains a right of proof in the bankrupt's estate, the applicant said that the debt is no longer a personal debt, and there is therefore no liability for it on the part of the taxpayer.

36. The applicant referred in this regard to the judgment of the High Court in Clyne v Deputy Commissioner of Taxation [1984] HCA 44; (1984) 154 CLR 589 at 594:

The effect of the bankruptcy, however, is that the debtor is
no longer obliged to pay his creditors; indeed he is
disabled from doing so. If he offered payment they could
not safely accept it; their right is a right of proof
against the estate.

37. He also referred to the remarks of Young J in Dalco (above) at 13-14:

Accordingly, the Commissioner is protected so far as tax
recovery is concerned, not only by the undertaking given to
the Federal Court, but also by the provisions of the
Bankruptcy Act so that even if the speculative event
occurred and the time overseas was used by the taxpayer to
re-arrange his affairs then upon his return to Australia
(which the prosecuting authority seems to think is most
likely) adequate steps can be taken to protect the
Commissioner, so far as collection of tax is concerned, by
anything that had happened whilst overseas. Of course, it
is always open to the wit of man to work at some secret way
of dealing with property, but the consequences of s 14S,
depriving an Australian of his basic rights, to my mind, are
not to be affected by mere speculation.

38. The respondent replied that bankruptcy does not discharge the debtor from liability, because the whole of the debt owed to the judgment creditor does not need to be completely irrecoverable from the taxpayer to found a sequestration order. In any case he argued that the debt is not completely irrecoverable as the Commissioner can file a proof of debt in the bankruptcy. The respondent further submitted that the debt is not wholly discharged by the bankruptcy. He argued that the combined effect of sections 14S and 14T is that a DPO in relation to a bankrupt has an automatic three year life unless it is clear that the bankruptcy will not produce anything. The respondent said that section 14S would only apply to some bankrupts and section 14T would only be satisfied at the end of the bankruptcy as that is when the bankrupt becomes wholly discharged.

39. It should also be noted that in Clyne (above), Gibbs CJ, Murphy J, Brennan J and Dawson J stated at 594:

Amounts which were owed by a debtor at the date of the
bankruptcy may, notwithstanding his bankruptcy, still be
described as debts, and the Act refers to them as such:
see, e.g. ss.58(3), 84(1), 85(1), 86(1), 153(1), 154(1)(b).
They are "debts" from which the bankrupt is not released
until he is discharged from bankruptcy: s.153. However, in
our opinion, they are no longer debts "still owing" within
the meaning of s.52(1)(c). Although, as was rightly
observed in the Federal Court, one dictionary meaning of
"owing" is "that is yet to be paid", the word connotes a
sense of obligation to make the payment.

40. The respondent argued that the High Court in Clyne was not meaning to suggest that once a sequestration order is made, the individual's liabilities are at an end. Whatever arrangements are made under the bankruptcy will have a direct effect on the creditors. It would be a contradiction in terms, it was submitted, that someone could be an undischarged bankrupt and yet be wholly discharged from liability to any creditor.

41. In my opinion, Clyne does not support the submission that bankruptcy by operation of law causes the bankrupt's debts to become wholly discharged or completely irrecoverable in terms of section 14T. The applicant's contrary argument means that no bankrupt who was at the time of bankruptcy in debt to the Taxation Commissioner, could ever be the subject of a DPO, even if the Commissioner was "satisfied" within the meaning of the section that by preventing the bankrupt from leaving the country, the whole or a substantial amount of the taxation debt could be identified and recovered with his assistance. It would also mean that a person who became bankrupt on his own (debtor's) petition with an outstanding taxation liability could thereby avoid a DPO, even if the Commissioner believed that all or some of the tax liability could be recovered if the bankrupt was kept in Australia or if the debtor's petition was fraudulently issued or otherwise voidable.

42. That cannot be how section 14T is intended to be read. It speaks of tax "liabilities" not "debts" as the High Court addressed in Clyne. I do not think that Clyne requires me to find that the applicant's tax liabilities are spent or non-existent merely by reason of his bankruptcy. Nor, as I understand it, does Clyne compel a finding that the Commissioner is bound to be satisfied that the applicant's liabilities are completely irrecoverable by reason only of his bankruptcy. The applicant's argument fails.

43. It is thus not necessary to choose between the suggested jurisdictional bases for intervention or to deal with the respondent's alternative argument that the applicant's future tax liabilities by reason of his current status as a PAYE taxpayer would also defeat this application.

44. The application as amended is dismissed with costs.