VLKG and Commissioner of Taxation
[2012] AATA 379
•22 June 2012
[2012] AATA 379
Division TAXATION APPEALS DIVISION File Number(s)
2011/3027
2011/4544
2012/0680
Re
VLKG
APPLICANT
And
Commissioner of Taxation
RESPONDENT
DECISION
Tribunal Deputy President S E Frost
Date 22 June 2012 Place Sydney 1. Release the Applicant and her legal representatives from any applicable undertaking as to confidentiality with respect to the documents identified in the “summons to produce documents” issued in these matters on or about 29 March 2012 and provided to the Applicant by the Respondent on 2 May 2012 (the “2 May Documents”).
2. Direct the Respondent, under s 37(2) of the Administrative Appeals Tribunal Act 1975 (“AAT Act”) as modified by s 14ZZF of the Taxation Administration Act 1953, and within fourteen days of the date of these reasons, to lodge with the Tribunal, in the form in which they were produced to the Applicant, two copies of each of the 2 May Documents. (Paragraph 35 of these reasons for decision is to be taken as the “notice” referred to in s 37(2) of the AAT Act, as modified, stating that the Tribunal is of the opinion that those documents may be relevant to the review by the Tribunal of the Respondent’s objection decision.)
3. Amend the order made on 29 August 2011 by Deputy President Handley, under s 35(2) of the AAT Act, so as to exclude from its scope the 2 May Documents, but only to the extent necessary to allow the application to the Federal Court, referred to in paragraph 34 of these reasons, to proceed.
..............[SGD].....................
Deputy President S E Frost
CATCHWORDS
PRACTICE AND PROCEDURE – taxation jurisdiction – order previously made under s 35 of the AAT Act – application for release from implied undertaking of confidentiality – special circumstances – application granted – consequential orders and directions made
PRACTICE AND PROCEDURE – decision-maker’s obligations under s 37 – obligations imposed by s 40 of the AAT Act on a person named in a summons
LEGISLATION
Administrative Appeals Tribunal Act 1975 – ss 2A, 35, 37, 40
Taxation Administration Act 1953 – s 14ZZF
CASES
VLKG and Commissioner of Taxation [2011] AATA 915
Liberty Funding Pty Ltd v Phoenix Capital Ltd (2005) 218 ALR 283
Springfield Nominees Pty Ltd v Bridgelands Securities Ltd (1992) 38 FCR 217
REASONS FOR DECISION
Deputy President S E Frost
22 June 2012
The Applicant seeks an order from the Tribunal that either:
·certain documents provided to her by the Commissioner on 2 May 2012 (the “2 May Documents”) are not subject to an implied undertaking of confidentiality; or
·if the 2 May Documents are subject to such an undertaking, she and her legal representatives should be released from it.
BACKGROUND
The Applicant commenced these proceedings on 28 July 2011. She is a member of a group (“the Group”) which, the Commissioner says, carries on activities in the form of a business.
On 29 August 2011 the Tribunal (Deputy President Handley) made an order pursuant to s 35(2)(b) of the Administrative Appeals Tribunal Act 1975 (“AAT Act”) that, pending the outcome of the proceedings, “[a]ll documents lodged with the Tribunal and all evidence given before the Tribunal be restricted to the parties, Members and staff of the Tribunal, and the staff of Auscript” (the “s 35(2) Order”).
In November 2011, the Applicant asserted that the Commissioner had not lodged with the Tribunal all of the documents that he should have lodged under s 37 of the AAT Act (as modified by s 14ZZF of the Taxation Administration Act 1953 (TAA)). She applied to the Tribunal for an order requiring the Commissioner to provide a list of further documents in his possession that he considered relevant to the review. I refused the application: VLKG and Commissioner of Taxation [2011] AATA 915.
On or about 29 March 2012 the Tribunal issued, at the Applicant’s request, a summons to the Commissioner to produce 14 specified documents. The Commissioner challenged the summons. On 13 April 2012, I conducted a directions hearing to deal with the Commissioner’s challenge to the summons.
There were two bases to the Commissioner’s challenge – first, that the documents were irrelevant; and second, that a summons was an inappropriate mechanism to obtain access to the documents.
As far as relevance is concerned, the Applicant’s representatives explained that the 14 specified documents:
·trace the history of the formulation of the Commissioner’s view that the Group carries on a business;
·will show that, over time, the Commissioner has changed his view;
·will throw light on the timing of the communication of the Commissioner’s changed view to the Applicant; and
·are potentially relevant to the question of imposition, or remission, of shortfall interest charge (“SIC” – which is an issue before the Tribunal).
But the Commissioner insisted that, nevertheless, the application should be cast under s 37 of the AAT Act rather than under the summons power in s 40. Mr Robinson of counsel, representing the Commissioner, said[1]:
Now, as I say, I think the substantive issues will be similar but we think that an application should be made under section 37. I don’t think that should delay things in any way but we think that it should be covered under that section.
[1] Transcript, page 12, lines 22-25
Mindful of the statutory mandate in s 2A of the AAT Act that the Tribunal provide a mechanism of review that is fair, just, economical, informal and quick, I said[2]:
I don’t want to slow down the process unnecessarily. … I would propose in a pragmatic way, that both the tribunal and the respondent ought to regard the summons that has been issued as if it were an application under section 37 for the production of the document – or for the lodgement under section 37 as modified, of the documents that are set out in the summons, rather than put the applicant to the trouble of having to put in another piece of paper to that effect.
[2] Transcript, page 13, lines 38-47
To progress the matter, I made a consent direction that the Commissioner file and serve written submissions on what was now an application under the modified s 37 of the AAT Act, by Friday, 20 April.
On 18 April 2012 the Commissioner’s solicitors, Maddocks, wrote to the Applicant’s solicitors (“BLW”) as follows[3]:
…
Without in any way acknowledging the relevance of the documents that the Applicant has sought pursuant to the application (“the documents”) to the determination of the SIC dispute, to avoid unnecessary cost and further delay my client is prepared to provide significantly unredacted copies of the documents.
…
In light of the above, we request that you consent to the vacation of the direction that the Respondent file and serve written submissions in relation to the application by 20 April 2012. …
[3] Applicant’s Submissions, Tab 4
The Applicant agreed to the proposal and Maddocks notified the Tribunal to that effect on 20 April 2012. Included in Maddocks’ notification to the Tribunal was the following[4]:
…
The Commissioner has decided to provide the requested documents to the Applicant in a redacted form. The redactions that will be made are necessary to protect the identity of informants and confidential information. Notwithstanding the decision to provide the documents, the Respondent remains of the view that the documents are not relevant to the Tribunal’s review in this matter.
In light of providing the documents to the Applicant, the Respondent will not otherwise contest the application. Accordingly he does not intend to provide further written submissions.
…
The Respondent considers the above course to be the most expeditious and economical way to proceed.
[4] Applicant’s Submissions, Tab 5
On 3 May 2012 Mr Balazs, a partner in BLW, and on behalf of the Applicant, sent an email to Maddocks asking whether the documents had been filed in the Tribunal. The response was[5]:
The documents were not filed with the AAT.
They were provided for your reference only.
[5] Applicant’s Submissions, Tab 6 – I became aware of this correspondence, and the facts referred to in it, only upon the filing of the Applicant’s Submissions
At a subsequent directions hearing on 4 June 2012 this exchange took place:
THE D.PRESIDENT: All right. Last time we were talking about the production of further documents. Was that issue eventually resolved? I know where we left it, was that I was expecting to see submissions and then that I would be making a decision on the papers but nothing ever came to me so I assume it just fell away.
MR ROBINSON: It did intentionally on the part of my client. We ended getting the documents to Mr Balazs to avoid any further fighting about it. There were some redactions for confidentiality reasons and we did so on the basis that we would not be updating the tribunal document set because we didn't see the relevance of them to the review. So to that extent it didn't need to come back to you unless Mr Balazs sought to make another application. There is a peripheral point which has now been raised by Mr Balazs this morning by email which I will leave to him to describe.
The “peripheral point” is the one under consideration in these reasons.
THE PROPOSED USE OF THE 2 MAY DOCUMENTS
The proposed use of the 2 May Documents is explained in the Applicant’s Submissions, as follows:
…
[11] On 11 May 2012, BLW wrote to the Respondent asserting “privilege over every document in the ATO’s possession that contains, or was communicated for the purpose of obtaining, legal advice issued to our clients” and requesting the Respondent’s immediate action in respect of documents obtained by the Respondent.
[12] The claim arose as a consequence of the 2 May Documents which revealed that the Respondent had in his possession material that the Applicant and other Participants [in the Group] considered might be privileged. The Respondent had acquired that material from a confidential source and had not taken any steps to advise the Participants that he had in his possession potentially privileged material nor had he established a mechanism to allow the Participants an opportunity to press any privilege claims.
[13] The privilege issue has been the subject of further correspondence (see Tab 8) and, as the Respondent has not complied with requests for the potentially privileged material to be dealt with in a way that enables the use to be resolved, the Participants will shortly seek orders from the Federal Court pursuant to section 39B of the Judiciary Act 1903.
[14] To apply for orders from the Federal Court, it is necessary to also file an affidavit that states “the material facts on which the Applicant relies that are necessary to give the respondent fair notice of the case to be made against the respondent at trial.”
[15] In the affidavit prepared by John Balazs of BLW to initiate the Federal Court proceedings, reference is made to parts of the second document identified in the Summons (the 114 Page Report), which is amongst the 2 May Documents released to the Applicant.
…
Tab 8, referred to in [13] of the Applicant’s Submissions, is the letter dated 11 May 2012 which is referred to later in these reasons.
THE IMPLIED UNDERTAKING OF CONFIDENTIALITY
The Commissioner submits that the 2 May Documents are subject to an implied undertaking of confidentiality; the Applicant disagrees.
The parties agree, however, that if there is an implied undertaking of confidentiality, the Applicant must establish that “special circumstances” exist that would justify releasing the Applicant from that undertaking.
As to the existence of the implied undertaking, the Commissioner submits as follows:
…
[4] The respondent notes that the documents were produced in response to an unopposed application pursuant to s 37(2) of the Administrative Appeals Tribunal Act 1975 (the “AAT Act”). As stated in the Maddocks email of 20 April 2012 (see Tab 5 of Applicant’s folder), the respondent did not contest the application made under s 37(2) of the AAT Act (which the Tribunal will recall had commenced its life as a summons) and agreed to provide the documents in a redacted form. The respondent adopted that course since it considered it to be “the most expeditious and economical way to proceed”.
[5] In the circumstances, having provided the documents in response to an application made under s 37 which the respondent decided not to contest, that provision of documents was nevertheless a procedural step taken in this proceeding and, accordingly, shrouded by the Tribunal’s usual rules and procedures.
…
The Commissioner’s submissions are conveniently silent as to how the production of the 2 May Documents to the Applicant is consistent with the language of s 37 of the AAT Act. The primary obligation imposed on a decision-maker under both s 37(1) and (2), including the versions of those subsections as modified by the TAA, is to lodge the specified documents with the Tribunal (not to produce them to the Applicant). The Commissioner makes no secret of the fact that he deliberately chose not to lodge these documents with the Tribunal (although he uses the word “file”, rather than “lodge”[6]), and yet he maintains that they are “shrouded by the Tribunal’s usual rules and procedures”. I do not understand how that conclusion follows.
[6] Applicant’s Submissions, Tab 6
I also note that if the application for the documents had proceeded by way of summons, as it originated, then the recipient of the documents would similarly have been the Tribunal, not the Applicant. Upon production of the documents to the Tribunal, the Applicant would likely have been granted “leave to inspect” them (s 40(1D)) but that does not mean that the Tribunal can be excised from the process.
The Applicant notes, in my view correctly, that since the 2 May Documents have not been lodged with the Tribunal, they cannot be subject to the s 35(2) Order. They are neither “documents lodged with the Tribunal” nor “evidence given before the Tribunal”, and those are the only categories of material covered by the s 35(2) Order. But that does not provide any guidance on the issue as to whether there is an implied undertaking in relation to them.
Ultimately I do not consider it necessary to decide whether the implied undertaking exists. I can resolve the controversy between the parties by applying the basis most favourable to the Commissioner – that the undertaking does exist – and then considering whether there are “special circumstances” to justify a release from the undertaking.
ARE THERE SPECIAL CIRCUMSTANCES?
In his written submissions the Commissioner explains why he maintains that special circumstances have not been established. It is said to be:
… by reason of the applicant’s failure to adequately identify the factual and legal basis on which the proposed Federal Court proceeding will be commenced, and the relevance of the 2 May documents to that proceeding … We note also that the failure is exacerbated by the lack of a specific response to our letter of 1 June 2012 setting out the respondent’s position as to why each of the documents over which a claim for privilege was made under cover of a letter dated 28 May are not subject to privilege. If the applicant is able to provide the requested information regarding the proposed proceeding and, further, substantiate the claims for privilege, the respondent will reconsider his position.
The Commissioner also complains that:
… [the Applicant] relies on mere assertion that the documents are relevant to orders it will seek in the Federal Court in relation to privilege it purports to claim over a number of unidentified documents produced by unidentified legal advisers …
and that:
… the applicant asserts legal professional privilege over advice provided by an accounting firm. …
In fact, Mr Balazs’ letter dated 11 May 2012 to a Deputy Commissioner of Taxation is quite specific about his concerns:
Documents provided to us by your legal representatives on 2 May 2012 in [these proceedings] disclose that in the investigation of the participants of the [Group], the ATO obtained from third parties copies of legal advices issued by [a named lawyer] to those participants that are the subject of legal professional privilege. The documents obtained expressly acknowledge that the material referred to is “legal advice” obtained from the “legal advisor” of the participants …
There is not the slightest hint that privilege is asserted in respect of advice provided by an accounting firm; indeed, the letter relies on the Commissioner’s own characterisation of the documents as “legal advice”.
On 14 June Mr Balazs responded to the Commissioner’s submissions as follows:
… The Respondent has obtained from a third party material that we believe is privileged. We have asserted that the Respondent should establish a process to deal with the privileged material. We do not know the extent of the material held by the Respondent and the Respondent will not disclose to us details of the material he has obtained to enable all claims to be made nor is he prepared to put in place an appropriate process to enable claims to be made and determined. Consequently, we propose to seek orders from the Federal Court […] together with a notice to produce […]. The Respondent was provided with copies of the draft orders in May. The affidavit in support makes reference to material identified in the 114 page report which came to our attention only with the release of the 2 May documents. …
In short, the position as it is presented to me is this:
·The Commissioner says that he has in his possession documents that he describes as “legal advice”.
·The Applicant and other members of the Group claim that those documents may be privileged.
·Mr Balazs, in his letter dated 11 May 2012, required the Commissioner to provide “an itemised list of all of the legal advices in the ATO’s possession so that we can further articulate our clients’ LPP claims and ensure that the documents are dealt with in an appropriate manner under the law”.
·As far as I can tell, the Commissioner declined to respond to that part of Mr Balazs’ letter.
·The Commissioner complains that the documents over which the Applicant seeks to claim privilege are “unidentified”.
The Commissioner seems not to be alive to the irony inherent in that last point: it is the Commissioner’s own refusal or failure to respond to that part of Mr Balazs’ letter that has led in large part to the Applicant’s inability to identify the documents over which she claims privilege.
In Liberty Funding Pty Ltd v Phoenix Capital Ltd (2005) 218 ALR 283 the Full Federal Court (Branson, Sundberg and Allsop JJ) said at 289-290:
… The notion of “special circumstances” does not require that some extraordinary factors must bear on the question before the discretion will be exercised. It is sufficient to say that, in all the circumstances, good reason must be shown why, contrary to the usual position, documents produced or information obtained in one piece of litigation should be used for the advantage of a party in another piece of litigation or for other non-litigious purposes. The discretion is a broad one and all the circumstances of the case must be examined. In Springfield Nominees [v Bridgelands Securities Ltd (1992) 38 FCR 217] Wilcox J identified a number of considerations which may, depending upon the circumstances, be relevant to the exercise of the discretion. These were:
• the nature of the document;
• the circumstances under which the document came into existence;
• the attitude of the author of the document and any prejudice the author may sustain;
• whether the document pre-existed litigation or was created for that purpose and therefore expected to enter the public domain;
• the nature of the information in the document (in particular whether it contains personal data or commercially sensitive information):
• the circumstances in which the document came in to the hands of the applicant; and
• most importantly of all, the likely contribution of the document to achieving justice in the other proceeding.
The documents under consideration in the current application are not the documents over which the Applicant claims privilege; they are the 2 May Documents. According to Mr Balazs’ letter dated 11 May 2012 (the broad content of which, despite adequate opportunity, the Commissioner has not denied), at least one of the documents contains a reference to the Commissioner’s possession of “legal advice” which was given to one or more of the participants in the Group. Mr Balazs’ assertion, not contradicted by the Commissioner, is that the legal advice has been in the Commissioner’s possession since about 2005, but the fact of his possession of it was not communicated to the Applicant until 2 May 2012 – and then only, it seems, by accident. The participants in the Group claim privilege over the legal advice. BLW, on behalf of all those participants in the Group who are its clients, wants a process put in place to test whether the claim for privilege is sound, and, if appropriate, to control, restrict or prohibit the Commissioner’s use of the legal advice. It considers that the Federal Court is an appropriate forum in which to seek the establishment of such a process. Release from any implied undertaking of confidentiality in relation to the 2 May Documents is required so that the application to the Federal Court can be made in a meaningful way.
I am satisfied that these circumstances are sufficiently special to justify a release from any implied undertaking of confidentiality that exists in relation to the 2 May Documents. In the interests of fairness and justice, the Applicant and her legal representatives are released to the extent necessary to allow the application to the Federal Court, a draft of which has been provided to the Tribunal and the Commissioner, to proceed.
Furthermore, and mindful of the Commissioner’s position in relation to the 2 May Documents – that is, that they were “produced in response to an unopposed application pursuant to s 37(2) of the [AAT Act]” – I now direct the Commissioner, under s 37(2) as modified by the TAA, to lodge those documents with the Tribunal, in the form in which they were produced to the Applicant, so that they will be included in the “T-documents”. I am taking this course because I am of the opinion – and this is despite the Commissioner’s view to the contrary – that they may be relevant to the Tribunal’s review of the Commissioner’s objection decision.
That will bring the documents within the s 35(2) Order but, in light of the special circumstances I have found, I will also amend the s 35(2) Order accordingly.
I certify that the preceding 36 (thirty -six) paragraphs are a true copy of the reasons for the decision herein of Deputy President S E Frost. .....................[sgd]...............................
Associate
Dated 22 June 2012
Date of hearing Dealt with on the papers Date final submissions received 14 June 2012 Solicitors for the Applicant Balazs Lazanas & Welch LLP Counsel for the Respondent Mr G Robinson Solicitors for the Respondent Maddocks Lawyers
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