FEDERAL COURT OF AUSTRALIA Awad v Deputy Commissioner of Taxation [2000] FCA 1288 INCOME TAX – in making amended assessment, Commissioner relied on records of private conversations made by New South Wales Crime Commission by use of listening devices in reliance on a warrant issued under Listening Devices Act 1984 (NSW) and made available to Commissioner – warrant later held invalid – Commissioner did not know of invalidity at time of making and issuing of amended assessment – whether principle of law prevented Commissioner from making a valid amended assessment – whether exception to ss 175 and 177 of Income Tax Assessment Act 1936 (Cth). Income Tax Assessment Act 1936 (Cth) ss 166, 175, 177 Listening Devices Act 1984 (NSW) subss 8(1), 13(1) R v Eid (1999) 46 NSWLR 116, referred to Gollan v Nugent (1988) 166 CLR 18, distinguished Cleland v The Queen (1982) 151 CLR 1, distinguished Cleaver v Mutual Reserve Fund Life Association [1892] 1 QB 147, distinguished Alghussein Establishment v Eton College [1991] 1 All ER 267 (HL), distinguished Michigan v De Fillippo 443 US 31 (1979), referred to United States v Janis 428 US 433 (1976), referred to TAWFIK AWAD v DEPUTY COMMISSIONER OF TAXATION N 1250 of 1999 LINDGREN J 13 SEPTEMBER 2000 SYDNEY IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY N 1250 OF 1999 BETWEEN: TAWFIK AWAD APPLICANT AND: DEPUTY COMMISSIONER OF TAXATION RESPONDENT JUDGE: LINDGREN J DATE OF ORDER: 13 SEPTEMBER 2000 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. The application be dismissed. 2. The applicant pay the respondent's costs. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY N 1250 OF 1999 BETWEEN: TAWFIK AWAD APPLICANT AND: DEPUTY COMMISSIONER OF TAXATION RESPONDENT JUDGE: LINDGREN J DATE: 13 SEPTEMBER 2000 PLACE: SYDNEY REASONS FOR JUDGMENT Introduction 1 By an amended application filed in Court on the hearing on 4 September 2000, the applicant ("Mr Awad") seeks relief under s 39B of the Judiciary Act 1903 (Cth) in respect of an amended assessment ("the Assessment") notified on 31 July 1997 by the respondent ("the Commissioner") in respect of Mr Awad's taxable income for the year ended 30 June 1995. Mr Awad seeks an order of certiorari quashing the Assessment; a declaration that the Assessment does not constitute an "assessment" within the meaning of s 166of the Income Tax Assessment Act 1936 (Cth) ("the ITAA 36"); an injunction restraining the Commissioner from acting on the Assessment; and an order of mandamus directing the Commissioner to issue a new assessment according to law. 2 The ground on which Mr Awad relies arises from the fact that in making the Assessment, the Commissioner took into account records disseminated to the Commissioner's officers by the New South Wales Crime Commission ("the Commission") of private conversations obtained by the use of listening devices pursuant to a purported warrant issued under the Listening Devices Act 1984 (NSW) ("the LD Act") which was subsequently held to have been invalid. Background facts 3 The hearing proceeded on the basis of an Amended Statement of Agreed Facts of which the following is a summary: 1. On 2 April 1996, a warrant was issued to certain police under the LD Act for the purposes of an investigation of an alleged offence of conspiracy to defraud in the form of an agreement to avoid payment of tobacco licence fees under the Business Franchise Licences (Tobacco) Act 1987 (NSW). 2. Private conversations were recorded by the use of listening devices pursuant to the warrant mentioned and records of those conversations ("the Records") were disseminated by the Commission to officers of the Australian Taxation Office pursuant to the New South Wales Crime Commission Act 1985 (NSW). 3. On 31 July 1997 the Commissioner issued notice of the Assessment to Mr Awad. The Assessment was made by the Commissioner in reliance on ss 166and 167 of the ITAA 36 (the Amended Statement of Agreed Facts said "168" rather than "167" but nothing turns on this). (A certified copy of the notice of the Assessment is in evidence.) 4. In making the Assessment, the Commissioner or his delegates took into account the Records as being relevant to the making of the Assessment. 5. On 4 August 1997 Mr Awad objected to the Assessment. 6. On 11 September 1997, Mr Awad commenced proceeding NG734/97 in this Court seeking, inter alia, declarations that purported assessments in respect of the years of income ended 30 June 1996 and 30 June 1997 (not the income year the subject of the Assessment) were not assessments under, or for the purposes of, the ITAA 36, and that they did not notify assessments of income tax within the meaning of the ITAA 36. Mr Awad did not seek relief in that proceeding in respect of the Assessment. 7. On 14 May 1998 the Commissioner disallowed Mr Awad's objection ("the Objection Decision"). 8. On 29 March 1999, in R v Eid (1999) 46 NSWLR 116, the New South Wales Court of Criminal Appeal held that the warrant was invalid. 9. On 20 May 1999 Mr Awad applied to the Administrative Appeals Tribunal ("the AAT") for review of the Objection Decision. 10. On 1 October 1999 the AAT affirmed the Objection Decision. 11. On 1 November 1999 Mr Awad commenced the present proceeding. 12. Mr Awad has not appealed from the decision of the AAT. Outline of parties' submissions Outline of Mr Awad's submissions 4 Mr Awad submits that information which the Commissioner took into account was obtained by someone in contravention of subs 5(1) of the LD Act (set out below), since a valid warrant had not been available to save the obtaining of the information by the use of a listening device from being a contravention of that subsection. 5 Mr Awad submits that the Court should overcome the effect which s 177 of the ITAA 36 (set out below) gives to production of the notice of the Assessment. He relies on the following: · "the principle that the court will not assist illegal or immoral conduct": Gollan v Nugent (1988) 166 CLR 18 at 46; · the statement by Deane J in Cleland v The Queen (1982) 151 CLR 1 at 26 that: "It is of critical importance to the existence and protection of personal liberty under the law that the restraints that the law imposes on police power of arrest and detention be scrupulously observed…." · the statement by Fry LJ in Cleaver v Mutual Reserve Fund Life Association [1892] 1 QB 147 ("Cleaver") at 156 that: "…no system of jurisprudence can with reason include amongst the rights which it enforces rights directly resulting to the person asserting them from the crime of that person." · the general principle that a person cannot rely on his own wrong to found a legal right, referred to in Alghussein Establishment v Eton College [1991] 1 All ER 267 (HL) ("Alghussein") at 270g. 6 In reliance on these general statements, Mr Awad submits that s 166 of the ITAA 36 should be construed as limiting the Commissioner to relying on information lawfully in his possession in making an assessment. Section 166 provides: "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" (my emphasis). 7 For the proposition that s 177 of the ITAA 36, which provides, relevantly, that production of a notice of assessment is conclusive evidence of the due making of the assessment and of the correctness of the amount and particulars of it, does not defeat him, Mr Awad relies on FJ Bloemen Pty Ltd v Federal Commissioner of Taxation (1981) 147 CLR 360 and Deputy Federal Commissioner of Taxation v Richard Walter Pty Ltd (1995) 183 CLR 168. Outline of the Commissioner's submissions 8 The Commissioner relies on the fact that Mr Awad applied to the AAT for review of the Objection Decision and that in affirming the Objection Decision, the AAT stated that it had found it unnecessary to consider whether the evidence in question had been illegally obtained because the AAT had reached its decision without relying upon the Records. 9 The Commissioner submits that he obtained the information lawfully and not in contravention of the LD Act, and he points out that the New South Wales Court of Criminal Appeal gave its decision in R v Eid (1999) 46 NSWLR 116 on 29 March 1999, some 20 months after the Commissioner issued the notice of the Assessment on 31 July 1997. 10 The Commissioner argues that in making the Assessment, he was carrying out his duty under s 166 and that it is the policy of the ITAA 36 that he make assessments and issue notices of them as a result of which the liability imposed by the ITAA 36 results in tax becoming payable by taxpayers on their taxable incomes. 11 The Commissioner contends that Gollan v Nugent, Cleaver and Alghussein are not concerned, as the present case is, with the situation of a third party innocently receiving and using information in performance of a statutory duty and are therefore distinguishable. 12 The Commissioner submits that ss 175 and 177 of the ITAA 36 are not subject to an exception which would render them inapplicable to production of the notice of the Assessment in the present case. In particular, he contends that the case is not one of the making of an assessment in bad faith, and is, on the contrary, a case of a bona fide exercise of the power of assessment. 13 Finally, the Commissioner argues, relying on s 43 of the Administrative Appeals Tribunal Act 1975 (Cth), that it is now the decision of the AAT, unaffected by any alleged unlawfulness, that founds the Assessment. He submits that Mr Awad could have raised the issue which he now seeks to raise in an appeal to the Court under Part IVC of the Taxation Administration Act 1953 (Cth) and may be taken to have elected not to do so. Reasoning 14 According to the Amended Statement of Agreed Facts, the present proceeding raises the following questions for decision: "1. Did the [Commissioner] or his officers act unlawfully in taking into account the Records in making the Assessment? 2. Does production of the Notice of Assessment under s 177 of the ITAA 36 preclude challenge or review of the Assessment in the present proceeding by reason of sections 175 and 177 of the ITAA 36? 3. Should the present proceedings be dismissed or permanently stayed on the ground that they constitute an abuse of process?" 15 I have reached the conclusion that these questions should be answered as follows: 1. "No". 2. In view of the preceding answer, "not necessary to answer", but on the basis of my answer to question (1) there is no reason why the sections do not have their ordinary effect. 3. The proceeding should be dismissed. The LD Act 16 Of the definitions in the LD Act, I need refer only to subs 3(3) which provides: "A reference in this Act to: (a) a report of a private conversation includes a reference to a report of the substance, meaning or purport of the conversation, or (b) a record of a private conversation includes a reference to a statement prepared from such a record." 17 The following provisions of Part 2 ("Offences relating to listening devices") of the LD Act are relevant: 4 "This Act binds the Crown, not only in right of New South Wales but also, so far as the legislative power of Parliament permits, the Crown in all its other capacities." 5(1) "A person shall not use, or cause to be used, a listening device: (a) to record or listen to a private conversation to which the person is not a party, or (b) to record a private conversation to which the person is a party. (2) Subsection (1) does not apply to: (a) the use of a listening device pursuant to a warrant granted under Part 4,…" 6(1) "A person shall not knowingly communicate or publish to any other person a private conversation, or a report of a private conversation, that has come to the person's knowledge as a result, direct or indirect, of the use of a listening device in contravention of section 5." 7(1) "A person who has been a party to a private conversation and has used, or caused to be used, a listening device to record the conversation (whether in contravention of section 5 or not), shall not subsequently communicate or publish to any other person any record of the conversation made, directly or indirectly, by the use of the device." 8(1) "A person shall not possess a record of a private conversation knowing that it has been obtained, directly or indirectly, by the use of a listening device in contravention of section 5." 10 "A person who contravenes any provision of this Part, whether by act or omission, is guilty of an offence." 11 [This section provides for penalties for persons convicted of an offence against any of the provisions mentioned.] 12 "In this Part [ss 12 and 13 occur in Part 3 headed "Admissibility of evidence"], a reference to the giving of evidence of a private conversation that has come to the knowledge of a person as a result of the use of a listening device includes a reference to the production of a record of such a private conversation." 13(1) "Where a private conversation has come to the knowledge of a person as a result, direct or indirect, of the use of a listening device in contravention of section 5: (a) evidence of the conversation, and (b) evidence obtained as a direct consequence of the conversation so coming to the knowledge of that person, may not be given by that person in any civil or criminal proceedings." Part 4 [This part provides for the issue of warrants by eligible Judges of the Supreme Court of New South Wales authorising the use of listening devices.] Part 5, comprising ss 22-33, is headed "Miscellaneous". 22 "(1) This section applies to the use of a listening device: (a) pursuant to a warrant granted under Part 4, or (b) …………………………………………………… (2) A person shall, as soon as practicable after it has been made, cause to be destroyed so much of any record, whether in writing or otherwise, of any evidence or information obtained by the person by the use of a listening device to which this section applies as does not relate directly or indirectly to the commission of a prescribed offence within the meaning of Part 4. Maximum penalty: 20 penalty units or imprisonment for a term of 12 months, or both." 18 Two general features of the LD Act may be noted. First, all of the subsections which prohibit certain acts and form the basis of contraventions and of the imposition of penalties are followed by a subsection or subsections which provide that the prohibition does not apply in certain circumstances. For example, as appears above, par 5(2)(a) provides that subs 5(1) does not apply to the use of a listening device pursuant to a warrant granted under Part 4 of the LD Act. 19 Secondly, in subss 6(1) and 8(1), knowledge is an essential element of contravention, whereas in the case of subss 5(1) and 7(1) it is not. 20 In the present case, the supposed warrant was invalid from the beginning and therefore did not enliven par (a) of subs 5(2) to prevent the user of a listening device from contravening subs 5(1). Moreover, "knowledge" is not an element of contravention of subs 5(1). Accordingly, the possibility was opened up that a person who used a listening device in reliance on the warrant would unwittingly contravene that subsection. 21 The Commissioner would have been caught by the terms of subs 8(1) only if he possessed the Records, knowing that they had been obtained by the use of a listening device in contravention of subs 5(1). But the evidence does not establish that when he made and notified the Assessment, the Commissioner had that knowledge. The hearing before me proceeded on the basis that so far as the Commissioner knew at that time and, indeed, until the decision of the New South Wales Court of Criminal Appeal on 29 March 1999 in R v Eid (1999) 46 NSWLR 116, the warrant was valid. (Mere knowledge that a challenge to the validity of the warrant was pending would not constitute knowledge that it was invalid.) 22 I am not aware of any legal principle that would prevent the Commissioner, as an "innocent" third party recipient of "information in his possession" to be found in the Records, from using that information to carry out his statutory function merely because someone else may have initially obtained the information or the Records unlawfully. If a person stole a document and provided it to the Commissioner in circumstances in which the Commissioner understood that the document was the property of the supplier which the supplier was entitled to give to him, the Commissioner would not be disentitled to use the information contained in the document to make an assessment of the taxable income of another person and of the tax payable thereon. It is not to the point that in that hypothetical case (or in the present actual case), an obligation to surrender the document (or the Records) might arise if once a surrender was demanded or once it was established that the Commissioner had no right to retain the document (or Records). 23 In my opinion, neither subs 13(1) nor s 22 of the LD Act affects this conclusion. Subject to any question of constitutional invalidity (see below), subs 13(1) would prevent the Commissioner and his officers from giving evidence of the private conversations in respect of which the Records were made. But this prohibition does not prevent the Commissioner from taking into account the conversations in making assessments under s 166 of the ITAA 36 in the circumstances in which he did so here, and may or may not have any operative effect in a particular case. 24 Section 22 imposes an obligation on the user of a listening device, not an innocent third party recipient of records of private conversations made as a result of the use of a listening device. 25 I agree with the Commissioner that Gollan v Nugent, Cleaver and Alghussein are distinguishable. 26 In Gollan v Nugent, police had seized, pursuant to a warrant, goods described in a statement of claim as "documents, books, posters, taperecordings, photographs, puppets and other things". The warrant purported to authorise the seizure of things believed to be "on the premises relating to the 'Australian Pedophile Support Group' in respect of which an indictable offence had been or was suspected to have been committed, namely, 'conspiracy to corrupt public morals (Common law)'". An amended statement of defence alleged that if the goods were returned, "it is intended that the same would be used to commit offences under the Indecent Articles and Classified Publications Act 1975 or in furtherance of the said criminal conspiracy [to corrupt public morals]". The High Court held by a four to one majority that no reasonable, tenable or arguable defence was raised but that leave should be granted to re-plead to the effect that the goods were of such a nature that, on grounds of public policy, they should not be returned. 27 The passage in the joint judgment of Deane, Dawson, Toohey and Gaudron JJ relied on by Mr Awad forms part of the following passage (at 45-46): "Mere intention to engage in criminal conduct is not sufficient of itself to deny to the plaintiffs their right to possession. That, however, does not dispose of the matter, for the principle that the court will not assist illegal or immoral conduct is of wider ambit. Nevertheless there are limits. As a general proposition, a plaintiff will not be denied relief unless he has to rely upon an unlawful or immoral transaction to establish his cause of action. This is expressed by the maxim ex turpi causa non oritur actio, which, however, is confined to the law of contract, as was explained by Windeyer J. in Smith v. Jenkins [(1970) 119 CLR 397]. The fundamental principle is more broadly based. As Windeyer J. observed [(1970) 119 CLR at p 414]: 'If a plaintiff has to rely upon an unlawful transaction to establish his cause of action, the court will dismiss his case:….'" 28 The principle does not apply in the present circumstances because the Commissioner was not guilty of illegal or immoral conduct and, further, is not seeking to invoke the aid of the Court to establish a cause of action. 29 In Cleaver, a person who was the beneficiary under a life policy had been convicted of the wilful murder of the life insured. It was held to be against public policy to allow the criminal to claim any benefit by virtue of her crime and that for this reason she was disentitled to claim the proceeds of the policy. But the Commissioner is not here seeking to enforce a contract in circumstances where to permit enforcement would permit him to derive a benefit from wrongdoing on his part. 30 Alghussein has no relevance to the issues raised in the present case. In that case a contracting party which was wilfully in breach of the contract sought to enforce it. In holding that it was not entitled to do so, the House of Lords applied the principle that a contracting party is not entitled to take advantage of its own breach as against the other party. In the present case, the Commissioner does not seek to take advantage of a breach of contract or other legal wrongdoing by him to found a legal right or establish a case for relief. 31 The passage from Cleland v The Queen relied on by Mr Awad is self-evidently not applicable to the present case. Cleland concerned a voluntary confession by a person who was being detained unlawfully. The issue raised concerned the admissibility of the confession. In the High Court, a new trial was ordered. The present case does not concern a confession made by Mr Awad made in circumstances analogous to those of wrongful deprivation of personal liberty. 32 In view of my construction of the LD Act, no question of a conflict between provisions of that Act and s 166 of the ITAA 36, and therefore of the constitutional validity of provisions of the LD Act, arises. 33 My conclusion in relation to the first question posed in the amended statement of agreed facts is that neither the Commissioner nor his delegates acted unlawfully in taking into account the Records in making the Assessment. The first question is therefore answered "no". 34 I note that the conclusion which I have reached above is consistent with decisions of courts in the United States of America in respect of violations of the Fourth Amendment to that country's Constitution. Thus, it has been held that if a search becomes bad through the subsequent invalidation of the statute under which it was made, evidence obtained by the search is nonetheless admissible: Michigan v De Fillippo 443 US 31 (1979). Moreover, federal tax authorities have been permitted to use in civil proceedings evidence found to have been unconstitutionally seized from the defendant by state authorities: United States v Janis 428 US 433 (1976). Sections 175 and 177 of the ITAA 36 35 The above conclusion requires dismissal of the application and it is not necessary for me to answer the second question posed. Section 175 and subs 177 (1) of the ITAA 36 provide, relevantly, as follows: "175 The validity of any assessment shall not be affected by reason that any of the provisions of this Act have not been complied with." "177(1) The production of a notice of assessment … purporting to be a copy of a notice of assessment, shall be conclusive evidence of the due making of the assessment and, except in proceedings under Part IVC of the Taxation Administration Act 1953 on a review or appeal relating to the assessment, that the amount and all the particulars of the assessment are correct." 36 In view of my conclusion in relation to question 1, there is no reason why these provisions should not have their ordinary effect in relation to the notice of the Assessment. The parties addressed submissions to the circumstances in which, in accordance with the authorities, those provisions may not have that effect. I reviewed the authorities recently in Dan v Federal Commissioner of Taxation 2000 ATC 4350 at 4354. There is no scope for a finding here that the Commissioner made the Assessment in bad faith or that the making of the Assessment was otherwise than a bona fide attempt to discharge his statutory duty under s 166 of the ITAA 36. Permanent stay or dismissal 37 Mr Awad does not submit that there is any reason independent of the matters dealt with above why his application should not be dismissed. It should be. Conclusion 38 For the above reasons the application will be dismissed with costs. I certify that the preceding thirty-eight (38) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Lindgren. Associate: Dated: 13 September 2000 Counsel for the Applicant Mr D J Hammerschlag Solicitors for the Applicant Horowitz & Bilinsky Counsel for the Respondent: Mr A J Robertson SC and Mr D J McGovern Solicitor for the Respondent: The Australian Government Solicitor Date of Hearing: 4 September 2000 Date of Judgment: 13 September 2000