In the Matter of the Corporations Law and in the Matter of Confitt Constructions Pty Ltd (in Liquidation) ACN 010 137 390; Deputy Commissioner of Taxation, Peter Shiels v David Lewis Clout - [1998] QSC 280

IN THE SUPREME COURT
OF QUEENSLAND
Application 8761 of 1997
IN THE MATTER of The Corporations Law

- and -

IN THE MATTER of Confitt Constructions Pty Ltd (in Liquidation) ACN 010 137 390

BETWEEN:
DEPUTY COMMISSIONER OF TAXATION
First Applicant
AND:

PETER SHIELS
Second Applicant
AND:

DAVID LEWIS CLOUT
Respondent

CATCHWORDS: CORPORATIONS LAW - oral examination - s.16(3) ITAA - taxation officer not required to divulge matter except when necessary for purpose of carrying into effect the provisions of the ITAA - exception to be given a liberal construction - where litigation would come within exception examination stage also falls within exception - Re Fortex Pty Ltd (1986) 86 ATC 4351, Hutchins v FCT ,(1986) 86 ATC 4549, Norper Investments Pty Ltd v DCT (1977) 77 ATC 4211, FCT v Nestle Australia Ltd (1986) 69 ALR 445, Simionato Holding Pty Ltd v FCT (No.2) (1995) 95 ATC 4720 considered.

Counsel:P Bickford for applicants.
D Savage for respondent.

Solicitors:Australian Government Solicitor for applicants.
Tucker & Associates for respondent.

Hearing Date: 9 December 1998.

JUDGMENT - WILLIAMS J

Judgment delivered 15 December 1998

On 8 September 1998 Registrar White made an order for the public examination of certain persons in the course of the winding up of Confitt Constructions Pty Ltd. Consequent upon that order the Deputy Commissioner of Taxation and Peter Shiels (a Taxation officer employed by the Commonwealth of Australia) were served with summonses requiring them to attend “before the Magistrates Court ... to be examined on oath about the examinable affairs of Confitt”. They were also “directed to produce to the Magistrates Court ... the following books and records ... all correspondence ... to and from the Company or its Directors, in relation to the Company’s indebtedness to the Deputy Commissioner of Taxation ... memoranda of documents in relation to repayment of the company’s indebtedness to the Deputy Commissioner of Taxation ... copies of all invoices, statements of account, receipts ... issued to the company by the Deputy Commissioner of Taxation ...”.
The applicants have now sought to appeal from the decision of the Registrar and seek to have the summonses set aside. Strictly the appeal is some days out of time, but the question of law raised is an important one and the substantive arguments addressed to the court should be considered on their merits. If the argument of the applicants is valid then an extension of time should be granted.
The contention of the applicants is that an order such as that made cannot be directed to either of them because of s.16 of the Income Tax Assessment Act principally subsection (3). Reference was also made to some provisions of the Taxation Administration Act 1953 (for example s.3C(2)) but the argument on each side concentrated on s.16.
Relevantly for present purposes s.16 provides:
“(1)In this section, unless the contrary intention appears:
...
“Officer” means a person who is or has been appointed or employed by the Commonwealth ... and who by reason of that appointment or employment, or in the course of that employment, may acquire or has acquired information respecting the affairs of any other person, disclosed or obtained under the provisions of this Act or any previous law of the Commonwealth relating to income tax;
...
(2)Subject to this section, an officer shall not either directly or indirectly, except in the performance of any duty as an officer, and ... while he is ... an officer, make a record of, or divulge or communicate to any person any information respecting the affairs of another person acquired by the officer as mentioned in the definition of “officer” in subs.(1).
(3)An officer shall not be required to produce in Court any return, assessment or notice of assessment, or to divulge or communicate to any Court any matter or thing coming under his notice in the performance of his duties as an officer, except when it is necessary to do so for the purpose of carrying into effect the provisions of this Act or any previous law of the Commonwealth relating to Income Tax.”
There is no doubt that each applicant, particularly Shiels, has acquired information in respect of the taxation affairs of Confitt as a result of carrying out the duties of his office. The contention of the applicants is that compliance with the summonses would necessarily entail each of them breaching s.16(3). It is clear from the judgments of Dixon CJ and the Full Court in Canadian Pacific Tobacco Company Limited v Stapleton (1952) CLR 1 that s.16(3) does not prohibit an officer from giving evidence or otherwise divulging information of the type prescribed. All the section does is afford protection to such an officer from being required (that is compelled) to do so. As Williams J said therein at 11 the subsection “is concerned only with compellability and not with competency”.
Dixon CJ was of the view that the expression “except in the performance of any duty as an officer” in subs.(2) ought to receive “a very wide interpretation”. He did not give specific consideration to the phrase “except when it is necessary to do so for the purpose of carrying into effect the provisions of this Act” in subs.(3), but consistently with his general approach that should also, in my respectful opinion, be given a liberal construction.
There have been a number of recent cases in which judges have been called upon to consider the application of s.16(2) and (3) and the circumstances in which an officer may be required to produce evidence to a court. It is necessary to refer to those decisions in some detail.
Enderby J in Re Fortex Pty Limited (1986) 86 ATC 4351 had to consider the operation of s.16(2) on an appeal by the taxpayer against the Commissioner’s disallowance of certain deductions claimed. He ruled that that subsection did not prevent a divulging or communicating by production of documents by an “officer” if the Court, in the exercise of its judgment, considered that the administration of justice required it. His reason for so holding was expressed at 4357 where he said: “Such an inspection would be a divulging or communicating of information to another person but it would be a divulging or communicating done as an incident to the performance of his duty as an officer because those duties, in my opinion, extend to complying with orders of a court in the conduct of litigation such as this in which the respondent is a party.” He also considered the operation of s.16(3) and said at 4359 in relation thereto:
“Similarly in my opinion, in such circumstances, s.16(3) does not operate to prevent production to the court. It may so operate in other circumstances but not these. ... I am also of the opinion that the subsection does not prevent the court ordering that in the interests of justice and the proper fair hearing of an appeal, a litigant such as the applicant should have inspection of the documents if the court considers them relevant and necessary. The court’s order makes the divulging or communicating necessary for the purpose of carrying into effect the provisions of the Act.”
Next is the decision of Jenkinson J in Hutchins v Federal Commissioner of Taxation (1986) 86 ATC 4549. The court was there concerned with appeals under the Taxation (Unpaid Company Tax) Assessment Act. The taxpayer sought discovery of documents from the Commissioner. Relevantly the judge said at 4553: “The prosecution of such a proceeding as each of these appeals is could not in my opinion be doubted to be carrying into effect those provisions [of the Income Tax Assessment Act], and compliance with an order of the Court whether made at or before the trial, to divulge to the Court information relevant to the subject of the proceeding is, in my opinion, necessary for the purpose of carrying those provisions into effect. ... But if such an order be made, compliance with that order by the respondent or by one of his officers at his direction will be in the performance of his duty as an “officer”, within the meaning of that word in s.16 and therefore will not involve any contravention of the prohibition contained in s.16(2).”
Needham J arrived at a similar conclusion in Norper Investments Pty Limited v Deputy Commissioner of Taxation (1977) 77 ATC 4211. The Commissioner petitioned for the winding up of the taxpayer company, and it then caused a subpoena to issue requiring production of documents by the Commissioner relating to the taxpayer company. At 4212 of the judgment the following passage appears:
“In my opinion the issue of the process by the Commissioner, while it is a process available to him under the Companies Act, is an act done by him for the purpose of carrying into effect a duty imposed on him under the Act of collecting taxation as it is assessed. I think it would be quite unreal to say that he was, in issuing a petition, not performing that duty which is imposed upon him under the Act.”
Of somewhat more importance is the decision of the Full Court of the Federal Court in Federal Commissioner of Taxation v Nestlé Australia Ltd (1986) 69 ALR 445. The taxpayer had sought judicial review of two decisions made by the Commissioner refusing to extend time for payment of income tax. During the course of the proceedings an order was made for the Commissioner to discover documents recording steps taken during the course of the investigation. At 451 the Court said:
“Proceedings for review of decisions of the Commissioner ... are designed to ensure that any error of law which may vitiate or effect a relevant decision may be corrected by the review process, thus ensuring the tax is imposed and collected lawfully. The exception to the prohibition imposed by s.16(3) thus encompasses the production of documents by an “officer” or his divulging or communicating matters and things to a court in proceedings of this kind.”
They had earlier (at 450) noted that the process of review “enables this court to determine whether the decision under challenge is lawful in the sense that it is within the power conferred on the Commissioner ... or whether the prescribed procedures have been followed or whether the general rules of law including adherence to the principles of natural justice have been observed.” The procedure of judicial review was one way of ensuring that tax was levied and collected according to law.
At 451 the Court cited with approval the decisions in Norper and Hutchins.
The final decision to which I refer is that of von Doussa J in Simionato Holding Pty Ltd v Federal Commissioner of Taxation (No 2) (1995) 95 ATC 4720. There the Commissioner had accessed the taxpayer’s bank records by relying on s.263 of the Income Tax Assessment Act, and then made the information so obtained available to the liquidator of the taxpayer company for use in the conduct of examinations of officers of the company pursuant to the provisions of the Corporations Law. The taxpayer challenged the validity of the Commissioner’s conduct on a number of grounds, one of which was that there was a breach of s.16(2). That submission was rejected essentially on the ground that the communication was in performance of a duty of an officer to maximise the return to creditors generally, and the Commonwealth in particular. The following passages from the judgment are relevant:
“In the present case the collection and recovery of tax was the purpose of the exercises of power ... under s.263. In my opinion the fact that Mr Merritt was seeking to gather information in an investigation aimed at “maximising the return to creditors including the Commonwealth” of the companies in liquidation does not change the purpose. When the companies were placed into liquidation, the Commonwealth became an unsecured creditor in the liquidation, along with any other unsecured creditors. Rights under the general law to otherwise recover the tax debts were superseded by the right to prove in the liquidation as an unsecured creditor, and a share in the dividends, if any, paid in the liquidation to unsecured creditors. The duty to get in assets of the companies then lay with the liquidator: s.478 of the Corporations Law, as did the obligation to investigate the existence and extent of the assets. ... Steps taken to maximise the return to creditors including the Commonwealth by assisting the liquidator were proper and appropriate steps for the Commonwealth to improve the recovery of revenue from the liquidations.” (4727)
It can thus be seen that the courts have given a liberal interpretation to the phrase “except when it is necessary to do so for the purpose of carrying into effect the provisions of this Act”. The passages quoted tend to suggest that whenever the Commissioner, or an “officer”, is involved in litigation in which the validity of an assessment or the validity of a payment of tax are in question then the Commissioner and the “officer” are carrying into effect the provisions of the Act, and if the court orders that it is necessary for them to divulge the information in question there is no breach of s.16.
In each of the cases referred to the nature of the proceedings in the court was relevant to the conclusion reached. I was somewhat concerned as to whether or not the examination by a liquidator of company officers and others pursuant to the provisions of the Corporations Law could be said to be a procedure for the purpose of carrying into effect the provisions of the Income Tax Assessment Act, but I have been persuaded by the reasoning of von Doussa J that, at least in the circumstances before him, such an examination could be so regarded.
This case is, however, somewhat different. The liquidator is seeking to question the lawfulness of the payment by Confitt of moneys to the Commissioner; he is essentially examining the lawfulness of the payment or payments with a view to recovering those moneys for the benefit of the creditors generally. If actual proceedings were commenced by the liquidator to recover those payments (say as a voidable preference) then the Commissioner and his “officers” would clearly be carrying into effect the provisions of the Income Tax Assessment Act by defending the claim. In that situation, consistently with the decisions referred to above, the court could order in the interests of justice the divulging of the information which would then be a divulging or communication necessary for the purpose of carrying into effect the provisions of the Act (namely the retention of moneys received by way of payment of income tax).
If that is so then it is difficult to see why the position should be different at the examination stage. The examination is being conducted because the retention of the money in question is under threat; if the Commissioner then established that the payment received was lawful (for example, was not a preference) the revenue benefits because the money can be retained in the hands of the Commissioner. Clarification of the legal position at that stage could well result in significant savings to the revenue because additional legal costs would not be incurred.
I have therefore come to the conclusion that the divulging of information by either applicant in the course of being examined by the liquidator in the Magistrates Court would not constitute a breach of s.16(3) where it could be said that what they were doing was “necessary ... for the purpose of carrying into effect the provisions of” the Income Tax Assessment Act.
I do not know, nor is there any need for me to know, what precise questions the liquidator proposes to ask each of the applicants, nor what particular documents may be encompassed by the general description referred to in the summons. It may well be that divulging information in response to a particular question or divulging information by producing a particular document might fall outside the scope of the exception in s.16(3) and amount to a breach thereof. Nothing that I have said should be taken to preclude either applicant from refusing to divulge particular information or produce a particular document if there is good reason for concluding that to do so would not be covered by the exception as I have defined it. In that regard I would merely make passing reference to the different categories of documents referred to by Enderby J in his judgment in Fortex.
Even if I came to the view that there was validity in the argument put forward on behalf of the appellants I would be reluctant to set aside the summonses. There are probably a number of questions which the liquidator could direct to each of the applicants, the answer to which would not involve any breach of s.16(3). Such questions and answers may not advance the liquidator’s position very far, but if they are considered relevant he should not be deprived of the opportunity of asking them. Further, if either applicant declined to answer a particular question or produce a particular document by relying on s.16(3) that might provide a basis for the liquidator believing that his prospects of success in, for example, a preference action were good. Perhaps also one ought not assume that the Commissioner would not authorise his “officer” to divulge particular information (cf. Canadian Pacific v Stapleton).
In the circumstances I have reached the conclusion that the applicants have not made out a case for the setting aside of the summonses. In those circumstances it is not necessary to consider the extension of time.
The application will be dismissed with costs.