Woodroffe v National Crime Authority

[1999] FCA 680

FEDERAL COURT OF AUSTRALIA

Woodroffe v National Crime Authority [1999] FCA 680

JENNIFER JEAN WOODROFFE v NATIONAL CRIME AUTHORITY and
DEPUTY COMMISSIONER OF TAXATION

S 24 OF 1999

MANSFIELD J
ADELAIDE
21 MAY 1999

IN THE FEDERAL COURT OF AUSTRALIA
SOUTH AUSTRALIA DISTRICT REGISTRY	S 24 OF 1999

BETWEEN:

JENNIFER JEAN WOODROFFE
Applicant

AND:

NATIONAL CRIME AUTHORITY
First Respondent

DEPUTY COMMISSIONER OF TAXATION
Second Respondent

JUDGE:	MANSFIELD J
DATE:	21 MAY 1999
PLACE:	ADELAIDE

REASONS FOR DECISION

Nature of the Issues

1. This action involves claims first that the National Crime Authority (“NCA”) wrongfully procured the issue of a warrant on 22 May 1998 under s 3E of the Crimes Act 1903 (Cth) to search the applicant’s premises at 2 Prescott Avenue Toorak Gardens (“the warrant”).  The applicant then claims that the NCA wrongfully executed the warrant on 25 May 1998.  As against the NCA, the applicant seeks declaratory relief and orders that documents seized in the execution of the warrant be returned to her.  The third claim is that the NCA wrongly released certain information obtained in the execution of the warrant to the Deputy Commissioner of Taxation (“DCT”), and that the DCT accepted that information, knowing that its provision by the NCA was not authorised under the National Crime Authority Act 1984 (Cth). The applicant seeks orders declaring that that conduct by the NCA and the DCT was unlawful, and that the DCT must also deliver up copies of the information provided by the NCA. She apprehends, and, judging from the material before the Court, with good reason, that the DCT has had regard to that information in considering the issue of amended taxation assessments against her and entities with which she is associated. Counsel for the DCT confirmed that that was the case, and that the issue of amended assessments was imminent. Even if the DCT received the information from the NCA in the belief that he was entitled to do so, the applicant contends that he is not entitled to rely upon it in making amended assessments because it is tainted by the unlawful conduct alleged against the NCA.

2. The application for interlocutory relief in this matter came on for directions on 9 April 1999.  The applicant sought to prevent the DCT from making use of the information provided by the NCA in making further taxation assessments, and to prevent the DCT from issuing amended taxation assessments until the hearing of the action.  The DCT through counsel indicated that it was the DCT’s contention as a matter of law that, whether or not the claim against the NCA succeeds, there is an obligation upon the DCT to use information available to him in the performance of his functions and responsibilities under the Income Tax Assessment Act 1936 (Cth) (“the ITAA”) and the Taxation Administration Act 1953 (Cth) (“the TAA”). If that leads to a decision to issue an amended taxation assessment against the applicant, then he may proceed to do so. At that time, the NCA indicated that it proposed to apply to dismiss the action against it under O 20 r 2 of the Federal Court Rules (“the Rules”).  In the light of the respective submissions at the time, I fixed the NCA’s application to be listed for hearing, and gave directions so that it was ready for hearing.

3. I also directed that the claim against the DCT be listed for the separate and final hearing of the question whether, on the assumption that the documents provided to him by the NCA were illegally obtained, and that the DCT has had or will have regard to those documents for the purpose of issuing proposed amended taxation assessments against the applicant, the DCT nevertheless is entitled to have regard to that information so that no injunction to restrain him from doing so could issue.  Upon that assumption, the applicant and the DCT did not wish to adduce any further evidence.  It appeared that the matter might be resolved by determination of that question, as one very substantial objective of the applicant in the proceedings was to prevent the issue of amended taxation assessments based upon information provided by the NCA, which (it was claimed) the NCA had obtained or provided improperly.  The matter did not proceed on that basis for reasons which appear below.

4. Early in the hearing, notwithstanding the order made on 9 April 1999, the applicant by her counsel indicated that the applicant wished to pursue certain interlocutory orders in any event.  It also appeared that, whilst the applicant was intending to proceed on the basis of the assumption that the NCA had acted illegally in some manner both in procuring the documents provided to the DCT and in the provision of those documents to the DCT, the DCT was proceeding on the assumption that he had not knowingly participated in the wrongful provision of the documents by the NCA.  The direction on 9 April 1999 had, by oversight, not addressed the degree of complicity (if any) in the alleged (and assumed) impropriety of the NCA in the provision of the information procured on the execution of the warrant.  It also emerged to my mind that there might be different answers to the question, depending upon the extent to which the DCT was involved in that assumed impropriety.  It was put later in the course of the applicant’s submissions that the NCA and the DCT were engaged in a “joint enterprise” with respect to the DCT obtaining the information from the NCA.  That was said to be part of the assumed foundation for the order made on 9 April 1999.  The fact of that submission reinforced the view that the effort to identify an issue for final resolution of the case was misconceived.  The issue as identified did not specifically address the extent to which the DCT had participated in any way in the NCA’s (assumed) wrongdoing, except in the sense of being an innocent recipient of information from the NCA.  Another element of confusion was apparent from the applicant’s written outline of contentions, as she regarded the issue to be determined as if the DCT had applied for summary judgment under O 20 r 2 of the Rules, rather than that there be a separate trial of the issue.

5. I accordingly indicated that I would proceed first to hear the application of the NCA to have the claim against it summarily dismissed, and then to hear only the applicant’s claims to interlocutory injunctive relief to restrain the DCT from issuing the proposed amended assessment or to make use of information provided by the NCA in doing so.  If the claim against the NCA were dismissed, then it appeared that there would be no basis upon which the claim against the DCT could be sustained.  If the claim against the NCA were to stand, the interlocutory relief mainly sought was the restraining of the DCT from issuing amended taxation assessments or from using the information provided by the NCA in doing so.  If that order was not made, I proposed to reserve to the applicant the opportunity at some later time to pursue against the NCA and the DCT such further interlocutory relief as she was advised.  In the event, the NCA’s application was refused.  It was necessary, therefore, to consider whether interlocutory relief of the kind specifically under consideration should be made.

The claim for interlocutory relief

(a)       The submissions

1. It was the submission of the DCT that the Court had no power to restrain the DCT from issuing an amended taxation assessment to the applicant, even if the material proposed to be relied upon for that purpose had been improperly procured by the NCA or if the NCA had no authority to provide that material to the DCT. Counsel for the DCT contended that the Court could not generally restrain the DCT from administering the ITAA, as s 8 of that Act obliges him to do, or specifically from making an assessment of the taxable income of, and the tax payable by, the applicant: s 17 of that Act. Section 166 of the ITAA imposes the obligation to make an assessment in the following terms:

   “From the returns, and from any other information in his possession, or from any one or more of these sources, the Commissioner shall make an assessment of the amount of the taxable income of any taxpayer, and of the tax payable thereon.”

   and s 170 empowers the DCT, as delegate of the Commissioner of Taxation, to make an amended assessment in certain circumstances. Section 167 of the ITAA provides for the issue of default assessments, inter alia, when the DCT is not satisfied with returns lodged by a taxpayer. Section 174 then obliges the DCT to serve notice of an assessment as soon as that may be conveniently done after the making of the assessment.

2. It was argued that the DCT is entitled to use, and should not be restrained from using, information and documents provided by the NCA even if the NCA obtained that information or those documents beyond its powers or was not entitled under the NCA Act to provide that information or those documents to the DCT as and when it did so. Reliance was placed upon the expression “from any other information in his possession” in s 166 of the ITAA. In the case of a ‘default assessment’, it was further contended that the DCT is not entitled to ignore relevant information available to him: R v Deputy Commissioner of Taxation (WA), ex parte Briggs (No 2) (1987) 14 FCR 249. Reliance was also placed upon a passage in the judgment of Dixon CJ, McTiernan, Williams, Webb and Fullagar JJ in George v Federal Commissioner of Taxation (1952) 86 CLR 183 at 203-204 as follows:

“The formation of the judgment as to what is the amount of the income that ought to be taxed is no condition precedent to the power to assess.  It is part of the very process of assessment itself.  Section 166 and s. 167 do not prescribe distinct duties or functions.  They combine to show what the commissioner may or must do in performing his single duty of arriving at an assessment.  Section 166 on its own terms covers cases where the commissioner depends exclusively on sources other than a return.  It says that he is to make his assessment from (1) the returns, (2) from any other information, or (3) from any one or more of these sources.  Clearly enough under s. 166 the commissioner can make an assessment which does not adhere to the income returned and yet to do so must involve some want of satisfaction with the return.  Section 167 is epexegetical to s. 166.  It is not an independent power.  What it does is to mention with particularity three situations which might arise in carrying out the duty imposed by s. 166,  and to direct how in those situations the commissioner shall proceed for the purpose of s. 166.  Just as under s. 166 considered alone the commissioner ascertains the amount of the taxable income and thus assesses it so does he under s. 167, used in aid of s. 166, ascertain the amount upon which, in his judgment, income tax ought to be levied and thus assesses it.  By definition “assessment” means the ascertainment of the amount of the taxable income, and of the tax payable thereon.”

1. The contention then ran that, subject to one exception, the only available way to challenge an assessment of taxation made by the DCT was under Pt IV C of the TAA: Deputy Commissioner of Taxation v Richard Walter Pty Ltd (1994-1995) 183 CLR 168. It is the procedure under Pt IV C of the TAA which is said to provide a taxpayer with protection against error on the part of the DCT, and by way of corollary it is not otherwise intended to restrict the DCT from using what may well be reliable and significant information in performing his functions, even though the information is “tainted”, ie, has been improperly procured by the person supplying it to the DCT. There were practical reasons urged in support of that contention. The one possible exception acknowledged by the DCT (for the purposes of the submission) was if the DCT were not acting bona fide in making the proposed assessment: Richard Walter case, per Mason J at 179-188 especially at 188.  There was no suggestion in the present case that the DCT was not acting bona fide.  It was also an element of the submission that the DCT was exercising his powers lawfully.  In the Richard Walter case, Mason CJ at 187 cited with approval an observation of Isaacs ACJ in Federal Commissioner of Taxation v Clarke (1927) 40 CLR 246 at 276 in the following terms:

“[t]he Act so far trusts the Commissioner and does not contemplate … a curial diving into the many official and confidential channels of information to which the Commissioner may have recourse to protect the Treasury.”

1. For the same of completeness, I note that Sch 1 of the Administrative Decisions (Judicial Review) Act 1977 (Cth) expressly excludes from the scope of operation of that Act decisions made under the ITAA. The review process is exclusively that under Pt IV C of the TAA so long as the DCT is acting bona fide and for the purposes of the ITAA. I note also that it was acknowledged that different questions may arise in respect of the exercise by the DCT of the information gathering powers under ss 263 and 264 of the ITAA.

2. Counsel acknowledged that there is no decision directly on the point whether the expression “… any other information in his possession” means any information provided to the DCT (and not illegally procured by the DCT by wrongful use of his powers under s 263 or 264) whether or not it is “tainted” by the provider procuring or providing that information illegally.

3. The applicant’s case was that the DCT could not lawfully make an assessment which was based in part upon information obtained illegally by some other person and given to the DCT, or information provided without authority to the DCT, or information having both of those characteristics. She also contended that the argument was stronger if it was an agency of government which illegally obtained or provided the information, because the DCT as part of the Crown was therefore infected with that illegality. The contention was that any taxation assessment based upon such information is not an assessment under s 166 of the ITAA at all, but is a nullity. An analogy was sought to be drawn between the rejection of illegally obtained evidence, in the Court’s discretion, at the point of tender in a criminal prosecution (see R v Ireland (1970) 126 CLR 321; Cleland v R (1982) 151 CLR 1; Bunning v Cross (1978) 141 CLR 54) and the point at which the DCT considered the use of such material for the purposes of making an assessment under s 166 of the ITAA. It was put that, in practical terms, the two points represent the critical step in the legal process of affecting rights, and so the point at which judicial review powers are enlivened. The applicant alternatively contended that s 166 of the ITAA permitted the use only of lawfully and properly obtained information. Thus, the applicant contended, the DCT should be restrained from using the information, or if the information is used and results in an amended assessment being made, then that amended assessment is a nullity.

4. There may be different considerations relevant to the proper construction of s 166, where the DCT has deliberately participated in any unlawful conduct of the NCA compared to circumstances where he is merely an innocent recipient of that information. There may also be considerations, relevant to its construction, based upon the source of any illegally obtained information, eg. whether it was procured by another arm of government or by a private citizen. For reasons which appear below, I do not need to decide those matters.

5. Counsel for the applicant specifically addressed considerations going to the balance of convenience. It was contended that there would be inconvenience to the applicant by having to undertake the Part IV C review process if the proposed amended assessments issued, whilst apparently also facing the prospect of a prosecution. She also placed reliance upon the following additional matters: conduct said to have been misleading by officers of the ATO as to the source of information available to the DCT; the alleged failure of the DCT to respond in a timely manner to the request by letter made on 30 March 1999 to agree to stay the issue of the proposed amended assessment pending the hearing and determination of these proceedings; the allegedly misleading conduct by the DCT by an affidavit filed in Court on 6 April 1999 as to the information proposed to be relied upon in the issue of the amended assessments; and the service of a notice under s 459E of the Corporations Law against a corporation associated with the applicant following upon the issue of amended assessments to entities associated with the applicant after certain undertakings were given to the Court by the DCT on 6 April 1999, as well as to the fact of those amended assessments having issued in the circumstances of those undertakings. The applicant accepted that if her argument is correct, the proposed amended assessment to her (and to the entities with which she is associated) would be null and void. The practical disadvantage would be the extent to which she had to conduct this proceeding at the same time as any review proceedings under Part IV C of the TAA. The applicant is likely to have to pay any amended taxation assessment in the meantime, and otherwise be subject to enforcement processes by the DCT. There is also the risk of having to defend criminal proceedings (as foreshadowed to a degree in the warrant) if they are instituted, at the same time as these proceedings are being conducted, and if so of the inconvenience and difficulty of doing that.

6. As against those matters the DCT pointed out that at least from 16 December 1998, the applicant through her solicitors signalled an intention to challenge the validity of the warrant but did not bring these proceedings until 1 April 1999.  Had she instituted the proceedings in December 1998, they may have been resolved before the DCT had reached the point of making an amended assessment.  The DCT also pointed to the respective disadvantage of the DCT if injuncted from issuing amended assessments, namely that there would be no tax payable and so the DCT would be unable to apply to restrain the applicant from dealing with her assets in any way which might preclude her from dissipating them.  The DCT also referred to his policy based upon his public rulings not to proceed to enforce recovery of taxation once a taxation objection is lodged unless he is concerned about the dissipation of assets in the meantime.  The time for objection following the amended assessment is four years, and for payment of any taxation following an amended assessment is not less than thirty days.

7. At the completion of the submissions in reply, counsel for the applicant sought and was given liberty to apply, if she wished, to supplement her submissions or to distinguish cases referred to by counsel for the DCT during her reply.  After adjourning the hearing for my ruling, the Court was sent a document “Further Submissions on Behalf of the Applicant in response to the Further Written Submissions of the Second Respondent of 23^rd April 1999”.  It was not submitted with the consent of counsel for the DCT.  No application was made to make further submissions.  In the circumstances, I did not have regard to that document in the ruling to which these reasons refer.

   (b)      The decision and reasons

8. On 29 April 1999, I ruled that the applicant not be granted an interlocutory injunction restraining the DCT from issuing any amended taxation assessment against her, or from using the information provided to the DCT by the NCA in issuing any amended taxation assessment against her.  My brief reasons for that ruling follow.

9. I am prepared to assume that there is a serious question to be tried that the DCT was not entitled to receive the information provided by the NCA, and that he was not entitled to use that information in making the proposed amended assessments.  As noted above, initially I proposed to determine finally those questions but for reasons set out I did not proceed to do so.  Although I assume that there is a serious question to be tried that the DCT was not entitled to receive, and make use of information provided by, the NCA, it does not follow that there is a serious question to be tried that the DCT is not entitled to make and give notice of amended taxation assessments at all.  I am not persuaded that the Court should exercise any power it may have to restrain the DCT from making assessments, as distinct from restraining the DCT from having regard to the information provided by the NCA in so doing.  In any event, accepting for the purposes of these reasons that the applicant has made out a serious question to be tried, I have reached the view that on the balance of convenience I should not make the order sought.

1. I have had regard to the various factors urged upon me.  I have also had regard to the fact that the Court can offer the parties a relatively prompt hearing date, and one which is within a time before which the applicant will have to file any notice of objection to the proposed amended taxation assessments.  I do not have any indication of the amount of those proposed amended assessments, if they are made, or whether the applicant will have any difficulty in paying any tax then payable within thirty days.  If further execution is contemplated by the DCT before resolution of the matters raised in this proceeding, and the applicant is concerned about that, she may of course pursue further interlocutory relief.  Two features which I regard as of particular moment are first that on the applicant’s case the making of any amended assessments will not involve valid assessments.  If she succeeds in the action, her claim is that any such amended assessments will be a nullity.  There is no scope for the DCT to contend that he did not have regard to information provided by the NCA in making the proposed amended assessments.  Consequently, in a relatively short period of time, the status of the proposed amended assessments will have been determined.  Secondly, in my view, there are clearly practical difficulties in making an enforceable order directing the DCT from disentangling from his mind (or the mind of his relevant delegate) information presently available.  Ultimately, that may have to be done, but it is a process which would clearly be very hard to undertake and, for the Court to enforce.  The DCT would be obliged to do so in circumstances where he disputes that he can, or should, do so and where that issue can be promptly determined by the Court.  It might lead to amended assessments on part only of the information he presently has available to him, and if the application generally fails, it might lead to there being yet further amended assessments.

Should there be a separate trial of an issue concerning the DCT?

1. Before these reasons were published, counsel for the applicant requested that they not be published until the applicant had had an opportunity to pursue the request that I restore the order that I made on 9 April 1999, concerning the separate trial of an issue in the terms then made.  I acceded to that request.  No refinement of the terms of the question, or of the facts to be assumed in relation to it, was suggested.  Submissions on that matter were made on 10 May 1999.

2. I have given careful consideration to that application.  I have reached the view that the reasons for not proceeding to hear and determine the issue identified on 9 April 1999, upon the assumption there set out, were appropriate.  I have further reached the view that it would not be appropriate to restore that order.  I am mindful that the matter is listed for final hearing on 26 July 1999, so that there will be no undue delay in its resolution.  If there is an appeal (and it seems the parties each regard the issues as of sufficient moment to pursue that course whatever my decision and my reasons), the Full Court will have the benefit of being able to address all issues at one time, and in the light of the findings of fact made as to the respective roles of officers of the NCA and the DCT in relation to the provision of information to the DCT procured by the NCA on execution of the warrant and in relation to the “joint enterprise” suspected by the applicant in that process.  It will also have the benefit of findings as to the conduct of the NCA in obtaining and executing the warrant.  The proposed question for separate trial is in my view an inappropriate one because it does not make clear whether the DCT or his officers engaged in any alleged or assumed unlawful activity.  As the applicant’s written and oral submissions on the injunction application make plain, the applicant seeks to explore the role of the DCT beyond that as a recipient of information which another instrument of government has provided to him, including into the realm of some unlawful joint enterprise involving the DCT.  It is also put that the DCT was recklessly indifferent to the circumstances of the receipt of, and the entitlement to use, the information from the NCA:  cp Northern Territory of Australia v Mengel (1995) 185 CLR 307, and so is complicit in the alleged serious misfeasance in public office on the part of the NCA. I do not, of course, comment upon those contentions, except to note that they give rise potentially to complex factual issues which should be determined as soon as possible in the interests of all the parties.

3. The outcome of the hearing may be that the NCA has not acted improperly in the obtaining of the information, or in its dissemination to the DCT.  If they be the facts, then the context of any appeal will be quite different from that proposed by the present application.  It will have proceeded on an erroneous factual assumption.  Moreover, because the Court has been informed that the applicant’s claim against the NCA is to be pursued in any event, those issues will have to be addressed in any event.  In the meantime, there will have been a hearing on a limited question on an assumed state of facts, and potentially an appeal on that question, in respect of a factual foundation which may not be established.

4. The practical considerations do not, in my view, justify acceding to that request.  Accordingly, I decline that application.

   Extension of time

5. In the circumstances, I also see no further reason for the withholding of my reasons for refusing the injunctive relief referred to above.  These reasons reflect why I declined to make that order sought.  The applicant is entitled to pursue any other form of interlocutory relief against the respondents as they may be advised.  I direct that the time within which any application for leave to appeal from the order made on 29 April 1999 refusing to grant the particular injunctive relief then sought, run from the date of publication of these reasons, namely 21 May 1999.

I certify that the preceding twenty-three (23) numbered paragraphs are a true copy of the Reasons for Decision herein of the Honourable Justice Mansfield.

Associate:

Dated:            21 May 1999

Counsel for the Applicant:	Ms L Powell QC, with her Mr N Rochow and Mr D Wardle
Solicitor for the Applicant:	Douglas Wardle
Counsel for the First Respondent:	Mr P Rice
Solicitors for the First Respondent:	Australian Government Solicitor
Counsel for the Second Respondent:	Ms A McDonald
Solicitors for the Second Respondent:	Australian Government Solicitor
Dates of Hearing:	20, 21, 23 and 29 April 1999; 4, 5 and 10 May 1999
Date of Decision:	21 May 1999