Re A Taxpayer and Commissioner of Taxation

[2004] AATA 398

Administrative

Appeals

Tribunal

 

DECISION AND REASONS FOR DECISION [2004] AATA 398

ADMINISTRATIVE APPEALS TRIBUNAL      )

)          No   QT2002/262

TAXATION APPEALS DIVISION		)
Re		A TAXPAYER

Applicant

And   COMMISSIONER OF TAXATION

Respondent

DECISION

Tribunal Senior Member McCabe

Date19 April 2004

PlaceBrisbane

Decision The Tribunal declines to make an order under s35(2) Administrative Appeals Tribunal Act.
The Tribunal directs the proceedings be held in private, pursuant to s14ZZE Taxation Administration Act 1953. 

..................Sgd.......................

SENIOR MEMBER

CATCHWORDS

PRACTICE AND PROCEDURE – privilege against self-incrimination is a reasonable excuse not to answer questions under s62(b) Administrative Appeals Tribunal Act 1975

PRACTICE AND PROCEDURE – applicant applied for order under s35(2) Administrative Appeals Tribunal Act 1975 – order would prevent respondent disclosing to prosecuting authorities or anyone else evidence gathered from witness in the proceeding – order would not prejudice respondent – order would prevent respondent from fulfilling statutory duty – order would undermine public confidence in the administration of justice – request for order dismissed

Taxation Administration Act 1953 (Cth)

Administrative Appeals Tribunal Act 1975 (Cth)

Income Tax Assessment Act 1936 (Cth)

Public Interest Advocacy Centre and Department of Community Services and Health (1989) 11 AAR 231

Drake and Minister for Immigration and Ethnic Affairs (No 2) (1979) 2 ALD 634

Sullivan v Department of Transport (1978) 20 ALR 323

Clements v Independent Indigenous Advisory Committee [2003] FCAFC 143

Pochi and Minister for Immigration and Ethnic Affairs (1979) 26 ALR 247

Australian Postal Commission v Hayes (1989) 87 ALR 283

Re Sheepskin and Opal Exporters and Export Development Grants Board (1984) 6 ALD 594

Meridian Global Funds Management Asia Ltd v Securities Commission [1995] 2 AC 500

Stergis v Boucher (1989) 20 ATR 591

REASONS FOR DECISION

19 April 2004 Senior Member McCabe

1.      The applicant has appealed a series of objection decisions made by the Commissioner of Taxation. The applicant is a company. It has asked the Tribunal for directions that will preserve the confidentiality of evidence given before the Tribunal.

2. To that end, the applicant has exercised its rights under s 14ZZE of the Taxation Administration Act 1953 to require that the hearing be held in private. There is no difficulty with that request. But it also wishes to lead evidence from a witness who is an officer of the company. The applicant says the witness can provide evidence that will assist its case against the Commissioner. The officer in question refuses to give evidence unless he receives adequate assurances his evidence will not be disclosed to prosecutors who have already preferred charges against him. Those charges apparently arose out of the factual situation considered in this case.  Although the charges were subsequently dropped, the officer believes his evidence in these proceedings could be used against him were the charges to be reinstated.

3. The applicant asks the Tribunal to make orders under s 35(2) of the Administrative Appeals Tribunal Act 1975 that will have the effect of preventing the Commissioner disclosing to prosecutors or anyone else any of the evidence gathered from the officer in these proceedings. Such orders would presumably prevent the Commissioner or the Tribunal from providing evidence (such as the transcript of evidence or any documents provided by the officer) in response to a summons issued in connection with any criminal charges that might subsequently be laid against the officer.

4. The Tribunal has never gone that far before in making orders under s 35(2). That does not mean the power does not exist, of course. Purvis J held in Public Interest Advocacy Centre and Department of Community Services and Health (1989) 11 AAR 231 that the Tribunal could order the disclosure of evidence be restricted “to uses in or for the purposes of the proceeding”: at 233. In any event, Mr Hack, SC for the Commissioner conceded the Tribunal had the power to make the orders sought by the applicant in this case. He conceded the orders would bind the Commissioner and the Tribunal and prevent any evidence gathered from the officer during the proceedings from being disclosed to anyone, including prosecuting authorities.

5. The officer has obtained his own legal advice that apparently says orders in the terms sought by the applicant would provide him with adequate protection. I raised some reservations during submissions about whether orders would be as effective as the officer appears to believe: for example, I note that if the Tribunal’s decision were appealed, all of the material on the Tribunal’s file – including the transcript of the officer’s evidence – would be forwarded to the Federal Court: s 46 of the Administrative Appeals Tribunal Act 1975. Once part of the Federal Court’s file, the evidence would be accessible to the prosecuting authorities unless and until a confidentiality order was made by the Court. The officer’s solicitors were apparently untroubled by that prospect.

6. I am therefore required to decide whether or not orders should be made under s 35(2). I was assisted by the submissions of Mr Hack, SC and Mr Robertson of counsel at two directions hearings. Both parties also provided written submissions.

The Tribunal’s power to collect evidence

7.      The Tribunal is an inquisitorial body. It is not a court, although it has some of the powers and characteristics of a judicial body. Its duty is to arrive at the “correct and preferable decision in each case on the material before it…”: see Drake and Minister for Immigration and Ethnic Affairs (No 2) (1979) 2 ALD 634 at 642 per Brennan J.

8.      In the course of making its decision, the Tribunal is required to act judicially – meaning it must act fairly and with detachment, and observe the principles of natural justice: Sullivan v Department of Transport (1978) 20 ALR 323 at 342 per Deane J. The duty to act judicially can be inferred from the nature and role of the Tribunal, and from s 39 which says every party to the proceedings must be given the opportunity to present their case and inspect the documents on which the Tribunal proposes to rely. The parties must also be afforded the opportunity to make submissions. A denial of natural justice is an error of law that may be appealed to the Federal Court: see Clements v Independent Indigenous Advisory Committee [2003] FCAFC 143.

9.      The applicant says the Tribunal’s decision will not be fully informed if it does not have regard to the evidence of the officer if it is available. The applicant says it will be denied natural justice.

10.     I accept the general proposition that the Tribunal ought to have regard to the best evidence available. That is consistent with its inquisitorial function: see, for example, Pochi and Minister for Immigration and Ethnic Affairs (1979) 26 ALR 247 per Brennan J at 272. To that end, the Tribunal will summons witnesses to appear and give evidence on the request of the parties. But the Tribunal’s power to gather (or facilitate the gathering of) evidence is not unlimited. It is subject to several qualifications. One of those is found in s 62 of the Administrative Appeals Tribunal Act 1975.

11. A person appearing as a witness before the Tribunal is required to answer questions put to him unless he has a reasonable excuse: s 62(b). A witness who invoked privilege – against self-incrimination, or legal professional privilege – would ordinarily have a reasonable excuse for not answering, provided the claim of privilege was validly made. The officer in this case says he will invoke the privilege against self-incrimination and deny the Tribunal the opportunity to hear what the applicant claims is the best evidence in support of its case. The applicant says an order under s 35(2) preventing publication of the officer’s evidence would make the claim of privilege unsustainable. The Tribunal could then require the officer to provide the evidence and the parties could make submissions in relation to it. In effect, the applicant claims the principles of natural justice demand that the Tribunal make an order under s 35(2) so it can seek the “correct and preferable decision”.

12.     I have already noted my concerns over whether an order under s 35 like the one sought in this case would provide a complete answer to a claim of privilege. If the officer were uncooperative, I would not consider making an order compelling him to give evidence in light of the risk that an order would not confer adequate protection. But the officer has taken his own legal advice and is apparently prepared not to assert the privilege if the orders are made.

The principles governing orders under s 35(2)

13. Section 35(2) permits the Tribunal to make a range of orders if it “is satisfied that it is desirable to do so by reason of the confidential nature of any evidence or matter or for any other reason”. Section 35(3) goes on to say the Tribunal must have regard to the general principle that its proceedings should be transparent and accessible to the public and the parties as well as any reasons weighing in favour of making the orders sought.

14.     The operation of the provision was considered by the Tribunal in Pochi and Minister for Immigration and Ethnic Affairs (1979) 26 ALR 247. Brennan J explained (at 272):

“…if the exclusion of the public or even of a party is essential to preserve the proper confidentiality of the information needed to determine the application, that is a price which has to be paid, however reluctantly.”

15.     His Honour continued (at 272-273):

“An order excluding the public may be justified more readily than an order excluding a party, but strict criteria govern the making of such an order. There must appear a real possibility of doing injustice to, or inflicting a serious disadvantage upon, a party, a witness or a person giving information if the proceedings were in public; or it must clearly appear that publication of the proceedings would be contrary to the public interest; or it must appear that the information to be given in the proceedings is of a kind described by s.36… Where the publicity which traditionally marks curial proceedings may inhibit the production of evidence or lead to its rejection, the power conferred upon the Tribunal by s.35(2) authorizes it to remove those impediments to the receipt of information.”

16. Brennan J emphasised the power to make orders under s 35(2) was to be exercised sparingly. It is only available in exceptional cases: at 273.

17.     The key to the discretion lies in the requirement that the Tribunal be satisfied  it is desirable to make the order sought. Section 35(3) requires the Tribunal to perform a balancing exercise. It must weigh up the public interest in transparency against the prejudice that will result if the order is or is not made (since both parties say their interests could be prejudiced if their arguments are unsuccessful).

The applicant’s arguments in support of an order

18.     The applicant referred to a number of reasons why the officer’s evidence ought to be suppressed.  The reasons were outlined in Mr Robertson’s written and oral submissions.

19. I have already noted the applicant’s claim that it will be disadvantaged if it cannot lead evidence from the officer. Mr Robertson pointed out s 14ZZK(b) of the Taxation Administration Act 1953 has the effect of placing an evidentiary onus on the taxpayer. If the taxpayer cannot adduce evidence to show the Commissioner’s assessment is excessive or that it should have been made differently, the assessment will stand. In circumstances where the only possible source of that evidence is the officer, Mr Robertson says the taxpayer will be seriously (if not fatally) prejudiced if he invokes the privilege.

20.     Mr Robertson also points out the Commissioner is under a duty to collect the correct amount of tax. If there is evidence suggesting the assessment is incorrect, Mr Robertson says the Commissioner – a model litigant – should not oppose a measure that would allow that evidence to be obtained.

21.     The applicant says there is a real risk of injustice to itself and to the officer if the orders are not made. It says the interests of both must be considered. That is true, according to Brennan J in Pochi: at 273. The respondent says the argument lacks cogency because the officer is the taxpayer’s controlling mind.

22.     I disagree with the respondent’s approach on this point. The taxpayer is a separate legal entity. It may well be under the control of the officer in a practical sense, but it has its own interests that will be affected by the Tribunal’s decision. Its position should be considered in that light.  The officer’s interests, while they probably converge with those of the taxpayer, must nonetheless be considered separately.

23.      I am not satisfied the officer’s interests on their own justify the order. His interest extends to avoiding prosecution for conduct that might constitute a breach of the law. That interest cannot outweigh the public interest in securing compliance with the law, and prosecuting individuals who breach the law. If an order is to be made, it will be the applicant’s interests that weigh most heavily.

24.     The taxpayer also says the respondent will not be impaired in the preparation of its case. Mr Robertson added an order would not inhibit an appeal to the Federal Court in the ordinary course. 

The respondent’s arguments against an order

25. Mr Hack says this is not an exceptional case that justifies the exercise of the discretion in s 35(2). He says holding the hearing in private pursuant to s 14ZZE of the Taxation Administration Act 1953 provides all the protection a taxpayer can legitimately expect.

26.     The respondent also says it will be prejudiced in the pursuit of the officer if the evidence suggests he has in fact breached the law. I disagree. While the Commissioner may be tantalised by evidence he cannot use, he is not prejudiced by an order since in the absence of an order the officer will not make the evidence available at all. In other words, the Commissioner is not in a worse position if an order were made than he would be if the officer invoked the privilege.

27.     Even so, Mr Hack said an order would embarrass the Commissioner in the performance of his statutory duty to administer revenue laws. Where breaches of the law occurred, he was duty-bound to refer those matters to the appropriate authorities for investigation. That is not always the case. Mr Hack conceded that when the Commissioner came into possession of information about illegal activities that generated taxable income he was not necessarily obliged to bring the illegal activities to the attention of prosecutors. But this case was different, Mr Hack explained, because the laws that may have been broken were revenue laws.

28. The respondent referred to s 264 of the Income Tax Assessment Act 1936. That section permits the Commissioner to issue a notice to any person – not just a taxpayer – requiring him or her to provide information and answer questions. It is accepted the privilege against self-incrimination cannot be invoked to defeat a s 264 notice: Stergis v Boucher (1989) 20 ATR 591 at 607-608 per Hill J. Mr Hack says the Tribunal should not protect the officer when it was open to the Commissioner to ask questions of the officer and require answers under s 264.

29. It is unclear why the Commissioner has not already issued a notice under s 264 if the power is as useful and compelling as the respondent says. Even so, I accept there is some force in the argument.

30.     It is unclear how the respondent would be prejudiced in the event it chose to appeal any aspect of the decision in this case if an order were made. I accept however the Commissioner might experience some difficulty in preparing his case. Mr Hack suggested by way of example that a statement provided by the officer could not be provided to the respondent’s investigators to determine its accuracy. That is true, although it must be said the Tribunal would treat contentious evidence with caution where its veracity was untested because of the scope of the order. But to say that it is a question of weight may not be an adequate response. The proceedings would be unfair to the respondent if the Tribunal’s directions were to fetter cross-examination to the point that a witness’s evidence could not be properly tested: see Australian Postal Commission v Hayes (1989) 87 ALR 283 at 289 per Wilcox J.

Is it desirable in all the circumstances that an order be made under s 35(2)?

31.     I have had regard to all of the factors outlined above. I am particularly troubled by the prospect the applicant might be denied the opportunity to present evidence it says would help its case if an order is not made. But that is not the only consideration.

32.     The Tribunal has varied s 35 orders to permit investigators to have access to confidential evidence in earlier cases. In Re Sheepskin and Opal Exporters and Export Development Grants Board (1984) 6 ALD 594, for example, the Tribunal allowed the Corporate Affairs Commission to access financial data provided in a hearing. Davies J and Mr Pascoe held (at 598) the order in that case was made to prevent:

“indiscriminate publication of the financial and business affairs of the….applicants….It was not intended to preclude access to any person or body who had a proper concern with the proceedings before the Tribunal on the subject matter of those proceedings.”

33.     The facts in Sheepskin are different to the facts here. In Sheepskin, the order was made to exclude the public at large. The order was not intended to exclude the regulator, which is the principal aim of the applicant in this case.

34.     While Sheepskin is not directly on point, it crystallises for me the central difficulty with the taxpayer’s request. It is asking the Tribunal to prevent the regulator from doing its job.  That would embarrass the Commissioner in the performance of his duties.  He cannot be expected to un-know what he may learn in the hearing. I also think reasonable members of the public would be startled by the suggestion the Tribunal should make use of evidence provided in these circumstances. An order in those terms would undermine the confidence of the public in the administration of justice.

35.     I acknowledge that is a hard result for the taxpayer. It says it has clean hands (although – depending on how the evidence plays out – if there is dirt on the hands of the officer it might be properly attributable to the company: see Meridian Global Funds Management Asia Ltd v Securities Commission [1995] 2 AC 500). But when I have regard to the potential difficulties the Commissioner will face in preparing his case and the way in which a s 35(2) order might be taken to reflect on the quality of justice before the Tribunal, I am unable to accede to the applicant’s request for an order preventing disclosure of the evidence of the officer.

36.     The applicant must present its case before the Tribunal as best it can. If it sustains a loss as a result of the litigation and that loss is attributable to a breach of duty by the officer, the company can presumably commence proceedings against him for that breach.

conclusion

37. The application for orders under s 35(2) is dismissed.

38. I accept the applicant’s request pursuant to s 14ZZE of the Taxation Administration Act 1953 that the hearing before the Tribunal be held in private. New file numbers will be assigned to the file and the names of the parties and their witnesses will be deleted from the publicly available documents.

I certify that the 38 preceding paragraphs are a true copy of the reasons for the decision herein of

Signed:         .....................................................................................
  Associate: Thomas Ritchie

Date/s of Hearing: 13 February 2004, 12 March 2004, 19 April 2004.
Date of Decision: 19 April 2004
The Applicant was represented by Mr Robertson of counsel
The Respondent was represented by Mr Hack SC