Elliott, P.J.D v The Deputy Commissioner of Taxation

[1990] FCA 235

JUDGMENT No. ..&???:/..,9&

INCOME TAX - considerations applicable to the granting of interlocutory relief in respect of notices under s.264 of the Income Tax Assessment Act - serious question to be tried that notices were not on their true construction limited to documents *relatingw to the "income or assessment" of particular persons.

Income Tax Assessment Act, 1936 s.264

PATRICK JAMES DYMOCK ELLIOTT h ORS V . THE DEPUTY COMMISSIONER OF
TAXATION

NG 245 of 1990

Burchett J.
Sydney

30 May 1990

IN THE FEDERAL COURT OF AUSTRALIA	) )
NEW SOUTH WAL$S DISTRICT REGISTRY )	NO. G 245 of 1990

)

GENERAL DIVISION 1

BETWEEN:

Applicants

AND:  THE DEPUTY COMMISSIONER OF
TAXATION

Respondent

CORAM: Burchett J.
PLACE: Sydney

DATE : 30 May 1990

REASONS FOR JUDGMENT

BURCHETT J.

In this matter the applicants seek interlocutory relief pending the hearing of an application which they have made under 5.5 of the Administrative Decisions (Judicial Review) Act 1977. In question is the validity of a series of notices, in identical form, issued by the Deputy Commissioner of ~axatibn in purported

pursuance of s.264 of the Income Tax Assessment Act 1936. For	the purposes of these reasons, it is sufficient to set out
relevant portions of one of these notices. The notice to Mr Elliott is headed: "NOTICE PURSUANT TO SECTION 264 OF THE INCOME TAX ASSESSMENT ACT". It continues:

"I, Denis J. Cortese, the person for the time being occupying the office of Deputy Commissioner of Taxation, Sydney, the delegate of the Commissioner of Taxation pursuant to an

instrument of delegation under section 8 of the Taxation Administration Act 1953, and as suchzentitled to exercise the powers of the Commissioner under section 264 of the Income Tax Assessment Act 1936, require t o

produce the documents described	the
schedule :

1.     In relation to the income or assessment of :-

(a) David Jones Limited

for the period from 1 July 1980 to 30
June 1989.

2.    To Andrew Clayton Morrow, one of my officers hereby authorised by me in that behalf.

3.     At the Australian Taxation Office, Level

2, Centrepoint, 100 Market Street,

Sydney.

4.     On or before Monday, 14 May 1990 at 4:00 Pm

And, I further require you to attend and give evidence on oath:

1.     In relation to the income or assessment 0f:l

(a) David Jones Limited
( b ) David Jones Australia Pty Limited
( C ) David Jones Finance & Investments Pty

Ltd

( d ) The Adelaide Steamship Company

Limited

(e) Adsteam Finance & Investments Pty ~ t d

. . .

( g ) Xiphoid Pty Ltd

for the period from 1 July 1980 to 30 June
1989.

2.    Before either or both Andrew Clayton Morrow, and Vicki Lee Flyght whom I authorise in that behalf and whom I authorise to administer an oath for that purpose.

3.    At the Australian Taxation Office, at Level 2, Centrepoint, 100 Market Street, Sydney.

4.    On Mondy 21 May 1990 at 10:OO am.

3-

SCHEDULE

In this schedule:

(1) "document" has the same meaning as it does in s.25 of the Acts Interpretation Act 1901 and "documents" has a corresponding meaning.

(2) "the relevant companies" means:

(i) Xiphoid Pty Ltd

(ii) Yoruba Pty Ltd

(iii) Zenana Pty Ltd

(iv) Natcorp Pty Ltd now
Yendys-Pappin No. 1 Pty Ltd

(V) Actraint No. 25 Pty Lty

(vi) Bstylic Pty Lty

(vii) L.O.E.C. Pty Ltd

(viii) Eighth Dictum Pty Ltd

(ix) Gresco Nominees Pty Ltd

(X) Natcorp Nominees Pty Ltd

(xi) Bermond Investments Pty Ltd

(xii) Aljezur Pty Ltd

(xiii) C.U. Nominees Pty Ltd

(xiv) Garden City Shopping Centre Pty Ltd

(XV) Grandwealth Pte [sic] Ltd

(xvi) Oldham Private Ltd

(xvii) Highspot Investments Pte [sic] Ltd

You are required to produce all the following books, documents and other papers which are in your custody or under your control:

(a)	Office and personal diaries covering the period from 1 July 1980 to 30 June 1988.
(b)	Appointment books covering the period
from 1 July 1980 to 30 June 1988.
(C) Any document relating t	o the

incorporation, purchase and where appropriate, the winding up of any of the relevant companies or, any proposal to incorporate, purchase or wlnd up any of the relevant companies.

(d)	Any document relating to the issue of any share or the redemption of any share in any of the relevant companies or any proposal relating to the issue of any share or the redemption of any share in any of the relevant companies.
(e)	Any document relating to the acquisition or disposal of any interest in any share

in any of the relevant companies or any proposal relating to the acquisition or

-disposal of any interest in any share in

any of the relevant companies.

(f)	Any document relating to the declaration of any dividend by any of the relevant companies or any proposal relating to the declaration of any dividend by any of the relevant companies.
(g)	Any document recording any advice relating to:

(i) the incorporation or purchase of,

(li) the winding up of,

(iii) the issue or redemption of any - -

share in,

(iv)  the acquisition or disposal of any share in,

(V) the declaration of any dividend

by r

any of the relevant companies, or

(vi)  any proposal to do any of (i) to

( V ) above,

(h)	Any document recording any indemnity, undertaking or assurance glven by any person or entity concerning the involvement of any persons or entities as shareholders and/or directors of any of the relevant companies, and any document relating to any such indemnity, undertaking or assurance, and any document recording any advice relating to any such indemnity, undertaking or assurance.
(i)	Any document relating to the acquisition or disposal of any interest in any share, or any interest in any right or option in any interest in any share, by any of the relevant companies.
(j)	Any document relating to the receipt of any dividend by any of the relevant companies.
(k)	Any document recording any advice relating to the acquisition or disposal, or any proposal for the acquisition or disposal, of any interest in any share, or any interest in any right or optlon in any interest in any share and any receipts by any of the relevant companies.

(1) Any correspondence and COPY

correspondence and any document relating
correspondence between, on the one hand, such correspondence and copy

any person or entity and, on the other hand, the Corporate Affairs Commission of any State relating to any of the relevant companies.

(m)	Any document relating to the application referred to in the Director's minutes of Xiphoid Pty Ltd dated 4 June 1987, by Gresco Nominees Pty Ltd for one $1 "C" Class redeemable preference share and the subsequent allotment of that share on 18 June 1987.
(n)	Any document relating to the declaration and subsequent payment by Xiphoid Pty Ltd on 18 June 1987 of a preference dividend of $500,000 on the one 'C' Class redeemable preference share.

(0) Any correspondence and COPY

correspondence and any document relating to any such correspondence and copy correspondence between, on the one hand, yourself and, on the other hand, any of Messrs J. Spalvins, M. Kent, D. Hobbs, J. Simmonds, B. Walsh, R. Tiley, E. Dick, R. Lewis and G. Hill, Mrs J. Griffin, David Jones Australia Limited, David Jones Limited, The Adelaide Steamship Company ~imited, David Jones Finance h Investments Pty Limited, Adsteam Finance

6 Investments Pty Limited, Morgan

Grenfell Australia Limited, Messrs Blake Dawson Waldron, solicitors and Messrs Bowie Wilson, Miles & CO, accountants, or any partner or employee of the latter two firms.

Dated: This Thirtieth day of April 1990.

[signature]

D.J. Cortese

Deputy Commissioner of Taxation

TAKE NOTICE that a person who, when and as

required pursuant to section 264 of the Income

Tax Assessment Act, refuses or fails to-

*	furnish information
*	attend and give evidence
h	produce a book, document or paper take an oath or make an affirmation

to the extent that the person is capable of so

doing is guilty of an offence.

X

PENALTY not exceeding $2,000, first offence;

$4,000, second offence; $5,000 and/or 12 months imprisonment or $25,000 for a company, for subsequent offences.

(Refer to sections 8C, 8D, 8E and 8ZF of the
Taxation Administratron Act, 1953.)"

It may be noted that some of the companies referred to in the schedule as "the relevant companies" are not companies mentioned in the body of the notice, and also that the two lists of companies in the body of the notice, introduced in each case by the words "In relation to the income or assessment of", are identical.

Section 264(1) provides:

"The Commissioner may by notice in wrlting require any person, whether a taxpayer or not, including any officer employed in or in connexion wlth any department of a Government or by any public authority -

(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

whatever in his custody or under his control produce all books, documents and other papers relating thereto."

A number of arguments were advanced as establishing that there was a serious question to be tried. The first was that the notices were in a form, so far as they sought the production of documents, which is not authorized by s.264. The second argument was that the decision to issue the notices was an improper

exercise of the power because, it was said, the power was exercised for an impermissible purpose and involved an -. impermissible mode of examination of the person to be examined. Finally, counsel urged that the time limited by each notice was so short as, in the circumstances, to demonstrate that the decision to issue the notice was so unreasonable that no reasonable person could have made such a decision.

In Commissioner of Taxation of the Commonwealth of Australia v. The Australia and New Zealand Banking Group Limited ( "Smorgon's" case) (1979) 143 CLR 499 at 525 Gibbs A.C.J. said:

"The next question that arises is whether the notices given to the Bank were sufficient in form. To be valid a notice to produce documents under s.264(l)(b) must of necessity identify with sufficient clarity the documents which are required to be produced. However the notice must in my opinion go further: it must show the person to whom it is addressed that any document which he is required to produce is one whose production the Commissioner is entitled to require. Where a notice is addressed to a taxpayer who is required to produce documents which relate to his own income or assessment, the very description of the documents (for example, 'your books of account1) may be enough to show that the notice is within the power conferred by the section. Where however the notice is addressed to one person, requiring him to

must show that those documents relate to the	produce the documents of another, the notice
income or assessment of a particular person, who must be identified. The power is confined to giving a requirement of a particular kind - a requirement to produce documents relating to the income or assessment of some person - and a notice requiring the production of documents not so related is beyond the scope of the
power . "

In the same case at 536-538, Mason J. said:

"The Commissioner's power to require production under s.264(l)(b) is limited to documents relating to a person's income or assessment. Consequently, the Commissioner may not legally require the production of all the contents of a specified box or even all the documents therein, but only such of them as relate to a person's income or assessment. For this reason there is a fatal defect in the short form of notice addressed to the Bank dated 23rd February 1977 as it does not describe the documents required to be produced except by reference to their location.

What par.(l)(b) has in mind is that a notice may be given requiring the recipient to produce 'all books, documents and other papersp in his custody or control 'relating thereto', that is, to the income or assessment of the person whose name is stated in the notice. It is then for the recipient to decide for himself, difficult though the task may be, which of the documents answer the description. If his decision is wrong he exposes himself to prosecution and penalty.

It is not in dispute that a notice given under para.(l)(b) may validly require the production of something less than all the books, documents and other papers in the custody or control of the recipient relating to the income or assessment of the named person. It may, for example, specify particular documents. Such a notice, if correctly drawn, will make it clear that the requirement extends to the particular documents because they are included in the class of documents of

which the Commissioner is authorized to

require production.

As the Commissioner's coercive power to require production is limited, any notice given in exercise of the power must in terms conform to the statutory limitations if it is to be valid. It will in my view conform to those limitations only if it clearly confines the documents to be produced to the class of which the Commissioner is authorized to require production, though it may go on to include particular documents on the footing that they fall within that class. If not so limited, the notice fails on its face to express the limitation which the section places on the Commissioner's authority.

Because the exercise of the power casts onerous obligations on the recipient of a notfce, and because the recipient (not being the taxpayer) is only justified, vis-a-vis the taxpayer, in producing the taxpayer's documents without his consent in response to a valid demand, it is for the Commissioner so to formulate his notice that this limitation on his authority is drawn to the attention of the recipient."

This case was cited by Spender J. in Clarke v. Deputy Federal Commissioner of Taxation (1989) 89 ATC 4521, where he considered the validity of a notice under 5.264 containing the requirement:

"I do further require you to produce ... all Trust Account Cash Books for [a particular entity] for the period 1 January 1980 to 30 June 1987 in your custody or under your control .. . . This information is sought in relation to the income or assessment of [certain named persons and entities] for the period 1 January 1980 to 30 June 1987."

Spender J. at 4526 said:

"In my opinion, the sec.264 notice of 4 October

1988 is invalid, as being too wide.

In my opinion, the notice requires the production of all the trust account cash books of Mr ClarkelsTrm from 1 January 1980 to 30

June 1987, whether they relate to the income or assessment of the Wilsons and their related entities or not. So much is plain from the terms of the notice. ... The final sentence did not limit the extent of the production required, but purported to give the justification for the width of the request."

It is at least arguable that the present notices suffer
from precisely the same vice. If one eliminates full stops and
capital letters, which (as the notice has been set out) ignore

. .

the requirements of grammar, syntax and the apparent meaning of the notice, i,t contains a requirement "to produce the documents described in the schedule in relation to the income or assessment of [each of certain named companies1 for the period from 1 July 1980 to 30 June 1989 to [an officer of the Deputy Commissioner] at [his office] on or before [a time on 14 May 19901." When the substance of the notice is set out in this way it becomes apparent that, as a matter of correct usage of language, the documents which are its subject are unqualified. The words "In relation to the income or assessment of" form an adverbial phrase linked with the words "require you to produce". Not only does the structure of the sentence indicate this understanding of it, but if the expression in question had been intended to have rnstead an adjectival effect of marking out certain documents, as a matter of ordinary Engllsh idiom, the present participle "relating" would have been substituted for "in relatlon to". The documents are "described in the schedule"; they are not described by the words in the body of the notlce qualifying only the requirement to produce.

Lest it be thought that the niceties of English idiom

form an unlikely guide to the meanlng of such a notice, it ought

substitute for the present participle in the statute, "relating",	to be pointed out that the draftsman has deliberately chosen to
which would be appropriate if the expression limited the documents referred to in the notice, the words "in relation to" which naturally introduce an adverbial phrase having a different function. Unless it was the meaning he intended which led the draftsman to transform the language in this way, a choice to make such a departure from the statute would be irrational and confusing. ~t is interesting to note that the very same change of the statutory language occurred in the notice in Clarke, where beyond any doubt the words "in relation to the income or assessment of" were not adjectival and did not limit the documents the subject of the notice, but formed an adverbial phrase qualifying the demand itself.
On this basis, there is a strong argument it cannot, in the words of Mason J., be said of each notice that "it clearly confines the documents to be produced to the class of which the Commissioner is authorized to require production". On the contrary, the documents are all those "described in the schedule", and the reference to "income or assessment of" certain companies merely indicates the basis on which the Deputy Commissioner saw himself as entitled to require their production.
If there is room for argument about this, merely to say that is
not enough to save the notices, since they lack the clarity which is required for them to be valid according to Mason J's formulation. To make, in relation to a particular subject matter, a demand for specified documents is not the same thing as to make a demand only for documents which do in fact relate to
to be tried upon the first point argued. This point, however, if that subject matter. For these reasons, I think there is a serious questlon
it were successful at a final hearing, would not render the notices wholly bad, as it would not affect the severable requirement to attend and give evidence.

. .

It was argued that the purpose of each entire notice was outside the statutory purpose. However, I was unable to find any evidence to raise a serious question that the notices sprang from any illegitimate purpose. It was then contended that the admitted intention of the Deputy Commissioner to have one Prof. Marks, as well as a solicitor of the Australian Government Solicitor's Office, present at the taking of oral evidence vitiated the notices. So far as concerns the suggestion, which was made by the applicants, that Prof. Marks would not owe any obligation of secrecy under s.16, not being an "officer" within the meaning of the section, I think, by virtue of s.l6(1A), if the Commissioner engages Prof. Marks to advise him in relation to the examination, Prof. Marks will be an officer for the purposes of s.16. But subs.(lA) will make him an officer only for those purposes, not generally, whereas s.264 authorizes a requirement to "give evidence . . . before any officer" - and Prof. Marks is not, in the ordinary sense, an officer. However, I do not think the intention in question can affect the validity of the notlces, as distinct from any proceedings which may eventually ensue. It is only the validity of the notices which has been called lnto question at this stage.

Finally, it was submitted that the decision to issue the notices was unreasonable in the relevant sense because of the short time allowed, bearing in mind that the notices did not merely require the giving of evidence, but, on their face, demanded the production of broad categories of documents going back for a period of some nine or ten years. I think there is much to be said for the proposition that the time allowed for research of such magnitude was unreasonably short, but the grant

. .

of an interlocutory injunction in relation to the requirement in respect of cfbcuments will, of course, remove the difficulty. Since I propose to grant such an interlocutory injunction, I do not think it would be a proper exercise of my discretion to grant the further injunction sought in respect of the taking of evidence at times which will not then involve any serious problem.

When considering the exercise of my discretion in regard to the matter as to which I have found a serious question to be tried, I would of course normally look particularly at the balance of convenience. In a case of this kind, that points strongly in favour of the applicant since, if the notices are once complied with, the whole point of the applicants1 case will disappear. There is, however, a further and broader consideration which I think should influence the exercise of my discretion. The power conferred on the Commissioner of Taxation by s.264 is a strong one, which parliament has judged necessary for a particular purpose, and has limited to evidence and documents relevant to the execution of that purpose. Unless the courts are vigilant to ensure that the use of such a power is

kept within the lines parliament has drawn, infractions of

liberty of a kind quite unacceptable in a democracy are liable to

occur. Clarkels case demonstrates that it cannot be assumed the officers of the Commissioner will always observe those limits if the courts fail to protect citizens whose ordinary rights are infringed. Where a sufficient case is made out within the principles governing interlocutory relief, which apply generally in the law so as to affect all persons who may be sued for relief, not just the Commissioner of Taxation, the court should not be sluggish in responding.

For these reasons, which I now deliver, I did on 11 flay 1990 grant interlocutory relief to restrain the Deputy Commissioner of Taxation from enforcing the notices, so far as they relate to the production of documents, but I declined to grant interlocutory relief against enforcement of the requirement that persons attend to give evidence in accordance with the notices.

I certify that this and the preceding thirteen (13) pages are a true copy of the Reasons for Judqment herein of hls

Counsel for the Applicant:	Mr R.F. Edmonds
Solicitors for the Applicant:	Messrs Blake Dawson Waldron
Counsel for the Respondent:	Mr G.T. Johnson

Solicitors for the Respondent:  Australian Government

Solicitor

Date of hearing:  11 May 1990