Citibank Ltd v Commissioner of Taxation

Re: CITIBANK LIMITED
And: COMMISSIONER OF TAXATION
No. G1020 of 1988
Income Tax - Injunctions

COURT

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
Lockhart J(1).

CATCHWORDS

Income Tax - exercise by the Commissioner of Taxation through his officers of powers pursuant to s. 263 of the Income Tax Assessment Act - whether a form of authority used by officers of the Commissioner is a valid authority pursuant to s. 263.

Injunctions - whether there is a reasonably arguable question and a serious issue to be tried - balance of convenience in making interlocutory orders.

Administrative Decisions (Judicial Review) Act 1977 (Cth)

Income Tax Assessment Act 1936 (Cth): s. 263

Judiciary Act 1903 (Cth): s. 39B

HEARING

SYDNEY

#DATE 16:6:1988

Counsel for the Applicant: Mr. D.H. Bloom QC with Dr. G. Flick

Solicitors for the Applicant: Mallesons Stephen Jaques

Counsel for the Respondent: Mr. R. Roberts

Solicitors for the Respondent: Australian Government Solicitor

ORDER

The respondent, by his servants and agents, with all reasonable possible speed deliver to the Australian Government Solicitor all copies and notes of or from documents, books, papers, or copies thereof, taken or made on 15 June 1988 from the premises of the applicant at 1 Margaret Street, Sydney, to be held by the Australian Government Solicitor until further order.

The respondent, by his servants and agents, with all reasonable possible speed deliver to the Australian Government Solicitor all documents, records or things, whether in the nature of documents or otherwise, compiled, taken or made from material mentioned in the first order as a result of the visit to the applicant's premises mentioned in the first order to be held by the Australian Government Solicitor until further order.

The respondent file and serve on or before 4.00pm on 20 June 1988 an affidavit or affidavits deposing to the steps taken to comply with the first and second orders.

The respondent be restrained from taking any further steps to attend at the applicant's premises pursuant to s. 263 of the Income Tax Assessment Act until further order.

The applicant file and serve by 10.00am on 20 June 1988 any further affidavits on which it proposes to rely in relation to its application for interlocutory relief and that any drafts of the said affidavits be handed to counsel for the respondent as soon as possible before that time.

The respondent file and serve any affidavits on which he proposes to rely by 4.00pm on Tuesday, 21 June 1988, and that he serve upon the solicitors for the applicant, on or before the same time and day, drafts of any affidavits which have not been sworn but which he proposes to use in the case.

The costs of the application be reserved.

The fourth order made by the Court on 16 June 1988 be terminated. In its place the Court substitutes as from now an order that the respondent be restrained from taking any further step to attend at the applicant's premises pursuant to s. 263 of the Income Tax Assessment Act under the authorities pursuant to which the respondent or any of his officers, servants or agents attended at the applicant's premises on 15 June 1988 until further order.

The fifth order made on 16 June 1988 is varied so that it will henceforth read as follows: The applicant file and serve by 10.00 am on 20 June 1988 any further affidavits on which it proposes to rely in relation to its application for interlocutory relief and any drafts of the said affidavits be handed to counsel for the respondent as soon as possible before that time; and the applicant file and serve also by that time a statement of the issues in the case in relation to its claim for interlocutory relief as the applicant perceives them.

The sixth order made on 16 June 1988 is varied so that it will henceforth read as follows: The respondent file and serve any affidavits on which he proposes to rely and which he is able to have sworn together with drafts of unsworn affidavits on or before 12 noon on Tuesday, 21 June 1988.

The matter is adjourned until Tuesday, 21 June 1988 at 2.15 pm.

Liberty be reserved to the parties to apply on reasonable notice.

JUDGE1

Late this afternoon the Court sat to deal with an urgent application on behalf of Citibank Limited ("Citibank") seeking orders by notice of motion restraining the respondent, the Commissioner of Taxation ("the Commissioner"), from further executing any authority pursuant to s. 263 of the Income Tax Assessment Act 1936 ("the Act") to enter Citibank's premises and take copies of documents from those premises. Orders are also sought on an interlocutory footing requiring the respondent to return to the applicant all documents which were seized by the respondent from the applicant at its premises. That seizure took place in circumstances I will mention in a moment. Other consequential orders were also sought.

This matter out of the purported exercise by the Commissioner through his officers of powers pursuant to s. 263 of the Act, when on 15 June 1988 some 34 officers of the Tax Department and locksmiths entered premises of Citibank in Sydney for the purposes of taking copies and removing copies of documents relating to what is referred to in the evidence as a form of tax avoidance scheme involving the use of redeemable preference shares whereby income which would normally be taxed in Australia as interest is converted in an overseas tax haven into income from dividends. It seems that this particular scheme has been under investigation by the Commissioner for some time and in his view has been in wide use.
There is evidence before the Court, by affidavit supplemented by oral evidence, as to the circumstances in which entry was made to Citibank's premises, search conducted and copies of documents obtained. It is not the function of the Court at this stage of the case to make any definitive or final findings of fact or law especially where, as here, there is some conflict on critical matters.
The orders are sought by Citibank in the course of a substantive application, which was also filed tonight, by which application Citibank challenges the decision of the respondent or his officers to exercise the powers pursuant to s. 263 of the Act by attending the applicant's premises and copying documents and taking such copies away. Citibank also challenges the conduct of the officers of the respondent as to the manner in which the search was carried out. The complaint is based in part upon the Administrative Decisions (Judicial Review) Act 1977 and in part upon s. 39B of the Judiciary Act 1903. I need not dwell on the grounds of the application or on the particulars set out in the application.
It appears from the evidence and from what I have been told by counsel for the Commissioner that the search undertaken on 15 June 1988 was one stage in a larger scale search which the Commissioner proposes in relation to premises of Citibank. The operation mounted on 15 June was itself a large one involving entry onto more than one floor of Citibank's premises at 1 Margaret Street, Sydney.
First, it is submitted that there is a real question to be tried as to whether any or any relevant authorities were produced by officers of the Commissioner, pursuant to s. 262(2) of the Act, upon request being made by or on behalf of Citibank for production of such authorities. I am satisfied that there is sufficient issue of fact on that question to give rise to a reasonably arguable or serious question to be determined as a matter of fact.
There is also some question as to whether the form of authority, of which I have in evidence a form of authority produced by an officer of the Commissioner in the course of the search, is a valid authority pursuant to s. 263 of the Act. Specifically, there is a question whether an authority in the general terms in which the one produced in evidence is expressed, not being limited to a particular circumstance or occasion or particular premises and extending to s. 263 of the Income Tax Assessment Act together with other taxation legislation, is the kind of authority which is contemplated by s. 263. I have reached no firm view and make no findings with respect to that question. I am satisfied there is a reasonably arguable question and a serious question to be tried as to whether the authority in issue is a valid authority.
There is also a question whether or not some of the documents taken by the officers of the Commissioner and some of the copies of the documents taken by those officers from the premises of Citibank on 15 June include documents to which a legitimate claim for legal professional privilege may attach. The evidence as to this question is at the present moment rather lean.
There is also a question whether the search conducted by officers of the Commissioner was lawfully conducted or conducted in an unreasonable way. I make no comment on that question except to say that I do not propose to base my orders on any submissions of counsel in relation to that question.
I am satisfied that the balance of convenience is the dominant consideration that arises at this stage of the case. That issue is related, as it sometimes is, to the question of whether there exists a prima facie case or serious question to be tried. They are not always distinct questions. I am satisfied that sufficient has been made out to support the orders which I propose to make.
I am conscious of the fact that the revenue has to be protected and that it is in the public interest that the respondent, the Commissioner of Taxation, be able to exercise the powers duly conferred upon him by law of entry into premises, access thereto, and the taking of books, documents or papres from those premises. In my view the Commissioner should not be unduly impeded in the exercise of public functions which are exercised pursuant to statute.
On the other hand one must weigh the fact that the wide powers conferred by s. 263 of the Act necessarily involve interference with the rights or liberty of members of the community, be they individuals or corporations, and the Courts must be careful to ensure that the statutory powers of the Commissioner are exercised according to law.
On balance I am of the view that the Court should intervene at this stage of the matter. I propose to have the matter listed before a judge of the Court next week for the purpose of allowing the matter to proceed on a full interlocutory basis. In the meantime I propose to make orders based on certain undertakings offered by the parties. Counsel have discussed the precise form of orders and undertakings that ought to be made and proferred respectively.
The Court orders that the respondent, by his servants and agents, with all reasonable possible speed deliver to the Australian Government Solicitor all copies and notes of or from documents, books, papers, or copies thereof taken or made on 15 June 1988 from the premises of the applicant at 1 Margaret Street, Sydney, to be held by the Australian Government Solicitor until further order.
Secondly, the Court orders that the respondent, by his servants and agents, with all reasonable possible speed deliver to the Australian Government Solicitor all documents, records or things, whether in the nature of documents or otherwise, compiled, taken or made from material mentioned in the first order as a result of the visit to the applicant's premises mentioned in the first order to be held by the Australian Government Solicitor until further order.
Thirdly, the Court orders that that respondent file and serve on or before 4.00pm on 20 June 1988 an affidavit or affidavits deposing to the steps taken to comply with the first and second orders.
Fourthly, the Court orders that the respondent be restrained from taking any further steps to attend at the applicant's premises pursuant to s. 263 of the Income Tax Assessment Act until further order.
Fifth, the Court orders that the applicant file and serve by 10.00am on 20 June 1988 any further affidavits on which it proposes to rely in relation to its application for interlocutory relief and that any drafts of the said affidavits be handed to counsel for the respondent as soon as possible before that time.
Sixth, the Court orders that the respondent file and serve any affidavits on which he proposes to rely by 4.00pm on Tuesday, 21 June 1988, and that he serve upon the solicitors for the applicant, on or before the same time and day, drafts of any affidavits which have not been sworn but which he proposes to use in the case.
Seventh, the Court orders that the costs of the application be reserved.
The Court notes the following undertakings by the parties and others offered through their counsel:
First, the applicant gives the usual undertaking as to damages;
Second, an undertaking by the Australian Government Solicitor that he will not until further order make available to the respondent, his servants or agents, any of the documents or things delivered to the Australian Government Solicitor in accordance with the first and second orders of the Court or divulge the contents thereof to any person except counsel instructed by the Australian Government Solicitor except for the purpose of obtaining instructions from the Australian Taxation Office in relation to this matter;
Third, an undertaking by the applicant that it will deliver to its solicitors, Messrs. Mallesons Stephen Jacques, all documents in the possession of the applicant's Legal Department or Tax Department touching or concerning redeemable preference share arrangements as identified in annexure "B" to the affidavit of Colin James Willmot sworn 16 June 1988 and filed in this matter;
Fourth, an undertaking by Messrs. Mallesons Stephen Jacques that they will not deliver up or part with the possession of the documents mentioned in the third undertaking until further order of the Court.
At the conclusion of making these orders, the court was asked by counsel for the respondent to stay the fourth order made by the court, restraining the respondent from taking any further steps to attend at the premises of Citibank pursuant to s. 263 of the Act until further order of the Court. The Court refused the application for a stay, and counsel for the respondent asked that the Court give reasons for that decision. I shall now do so.
24. In any cases of this kind between citizen and state, since we live in an imperfect world, no interlocutory orders can be perfect. The Court does its best to mould the orders made to suit the justice of the case and the interests of all parties. As I have observed earlier in this judgment I am very conscious of the fact that the Revenue of this country must be protected and must not be frustrated in its endeavours to pursue the legitimate exercise of powers conferred upon the respondent under the Act. I am conscious of the fact that the respondent on occasions exercises those powers in difficult circumstances. I am also conscious of the fact that the rights of citizens of this community must be protected, be they individuals or corporations.
The course which I have taken is to adopt, as best I can, a form of order to ensure that the respondent's powers under s. 263 of the Act are not frustrated to the point where the intervention of the Court renders their further exercise unreal or impractical. I am mindful of the fact that to allow the actions of the respondent to go unrestrained or unimpeded at this stage of these proceedings could involve considerable jeopardy for the applicant.
I have made clear earlier in my reasons for judgment that I have no idea of who will succeed in this case when the matter is finally resolved. All that the Court can do is to assess as best it can whether the applicant for an interlocutory injunction has a reasonably or seriously arguable case on the material which the Court has before it. Above all, the Court must relate that material to the question of the balance of convenience, which is the primary consideration at this stage of the case. Questions of whether there is a prima facie case or a serious question to be tried and questions of the balance of convenience are related in some cases, of which this matter is an example. The emphasis that is to be placed upon one question or the other shifts as time advances in the course of a hearing of a case. All that has happened on this occasion is that the Court has as best it can, sought to do justice between the parties until the Court may properly hear this matter on a fuller interlocutory footing or on a final basis if that is the parties' wish.
Nothing has been said which in my view indicates that the orders made by the Court could operate as some permanent detriment to the respondent in the exercise of his powers under s. 263 of the Act in this case, if the order that is in question stands. It is said that, if the respondent is not able to proceed to exercise his powers, for example by attending tomorrow at the premises of Citibank and taking copies of documents that may be relevant to the exercise of his powers then in some way the documents which he seeks may be surreptitiously removed by Citibank. The specific documents sought by the respondent have not been disclosed to me, nor has the class or character of those documents. There is no evidence before me that there is a likelihood or even a remote possibility that a course of removal would be taken by the applicant. I would observe that we are dealing with a large corporation in the form of Citibank, which no doubt will continue to act as it has thus far in this matter on the advice of respected and well known solicitors.
Those briefly are the reasons why I refuse the application to stay until tomorrow the fourth order made by the Court.
ON 17 JUNE 1988 THE MATTER WAS RELISTED TO ALLOW FURTHER SUBMISSIONS AS TO THE APPROPRIATE FORM OF INTERLOCUTORY ORDERS. AFTER HEARING FURTHER AFFIDAVIT AND ORAL EVIDENCE, LOCKHART J. DELIVERED THE FOLLOWING JUDGMENT.

17 June 1988

LOCKHART J.
This afternoon an affidavit of Douglas Franklin Booth sworn on 17 June 1988 has been read in Court. That affidavit touches various matters but so far as is presently relevant states that the respondent is concerned to obtain further access to the premises of Citibank in Margaret Street, Sydney, to determine whether and if so what documents are in existence relating to what has been described in some parts of the evidence as a scheme, in others as an arrangement, involving the use of redeemable preference shares. The details of that scheme or arrangement are summarized succinctly in para. 3 of Mr. Booth's affidavit and elsewhere in the evidence.
Oral evidence was given in today's proceedings by Mr. Williams, a partner in the firm of solicitors representing Citibank. As the evidence has unfolded at this early stage of the case it appears clear to me that upon the conclusion of the proceedings today the documents which remain in the possession of Citibank and which fall within the description of documents touching or concerning the redeemable preference share arrangement in issue will pass into the hands of solicitors acting for Citibank and be kept by those solicitors in their premises. It will be the solicitors acting for Citibank who will determine whether the documents which they are shown and which they otherwise inspect fall within the description of documents touching or concerning the redeemable preference share arrangement. The task of determining whether the documents answer to the description of scheme documents or not is a task which is most readily performed by lawyers, particularly those who are familiar with the applicant's affairs. I could think of few, if any, more practical ways of collecting and collating all the relevant documents than that which it is proposed to implement on behalf of the applicant. Such documents will be in the hands of solicitors who are officers of the court. The solicitors will, of course, honour whatever undertakings are given, as no doubt will Citibank itself.

Then there arises the question of determining which of the documents that pass into the possession of solicitors acting for Citibank are subject to a legitimate claim for legal professional privilege. Again, the best way of determining that question is at least initially for that claim to be determined by the solicitors for the applicant. That, according to the evidence, will be done.
It is, of course, important that proper lists be prepared of documents that pass into the possession of solicitors acting for Citibank and that a separate list be prepared of such of those documents as are the subject of a claim for legal professional privilege, and that a copy of those lists be furnished to the Australian Government Solicitor. That should be done as soon as possible and certainly before Tuesday, 21 June 1988, when the matter is to be heard by another Judge of this Court.
In those circumstances I do not think it would be right as a holding measure - which is all that I am considering now - to allow the further search of the premises of Citibank pursuant to the authorities issued to officers of the respondent and for the purposes mentioned in the evidence.
The proceedings today have allowed the parties an opportunity to make submissions as to whether the orders made yesterday by the Court should be revised. In order to implement the revision of the arrangements that were the subject of orders made and undertakings given yesterday, it will be necessary for the fourth order - that is the injunction imposing a restraint upon the respondent from taking any further steps to attend at the premises of Citibank pursuant to s. 263 of the Act - to be varied so as to make it clear that the restraint operates, not generally, but rather in relation to the authorities which were exercised by officers of the Commissioner for the purposes of conducting the search that is impugned in these proceedings. Some appropriate words of limitation will therefore have to be inserted in that order.
The third undertaking given by Citibank - to the effect that documents in the possession of Citibank's Legal Department or Tax Department touching or concerning the redeemable preference share arrangement will be delivered to Messrs. Mallesons Stephen Jaques - will require some modification. Enough has been said in the course of discussion in today's proceedings to indicate broadly how that modification should be framed.
Counsel for Citibank has indicated in Court today that the applicant undertakes to the Court in substitution for the third undertaking given in proceedings yesterday that it will deliver to Messrs. Malleson, Stephen and Jaques forthwith all documents, discs, or things in the possession of the applicant touching or conerning the redeemable preference shares arrangement as identified in paragraph 3 of the affidavit of Douglas Franklin Booth sworn 17 June 1988 and filed herein.
I further order that the fourth order made by the Court on 16 June 1988 be terminated. In its place the Court substitutes as from now an order that the respondent be restrained from taking any further step to attend at the applicant's premises pursuant to s. 263 of the Act under the authorities pursuant to which the respondent or any of his officers, servants or agents attended at the applicant's premises on 15 June 1988 until further order.
The fifth order made on 16 June 1988 is varied so that it will henceforth read as follows:

The applicant file and serve by 10.00 am on 20 June 1988 any further affidavits on which it proposes to rely in relation to its application for interlocutory relief and that any drafts of the said affidavits be handed to counsel for the respondent as soon as possible before that time; and that the applicant file and serve also by that time a statement of the issues in the case in relation to its claim for interlocutory relief as the applicant perceives them.
Having regard to the fact that the further hearing of these proceedings is now to commence at 2.15 pm on 21 June 1988 rather than on 22 June, the sixth order made on 16 June 1988 is varied so that it will henceforth read as follows:

The respondent file and serve any affidavits on which he proposes to rely and which he is able to have sworn together with drafts of unsworn affidavits on or before 12 noon on Tuesday, 21 June 1988.
The matter is adjourned until Tuesday, 21 June 1988 at 2.15 pm. I reserve liberty to the parties to apply on reasonable notice.

[1988] FCA 363

16 JUNE 1988