IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY V 724 of 2000 BETWEEN: JOHN DONALD CURRIE Applicant AND: DEPUTY COMMISSIONER OF TAXATION Respondent JUDGE: FINKELSTEIN J DATE OF ORDER: 4 OCTOBER 2000 WHERE MADE: MELBOURNE UPON the applicant by its counsel giving the usual undertaking as to damages THE COURT ORDERS THAT: 1. Until the hearing and determination of the application or further order, the respondent and any officer or delegate authorized by the respondent be restrained from requiring the applicant to answer any questions that the applicant might be required to answer by reason of the notice served on the applicant under s 264 of the Income Tax Assessment Act 1936 (Cth) dated 30 August 2000. 2. The costs of the motion dated 21 September 2000 be reserved. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY V 724 of 2000 BETWEEN: JOHN DONALD CURRIE Applicant AND: DEPUTY COMMISSIONER OF TAXATION Respondent JUDGE: FINKELSTEIN J DATE: 4 OCTOBER 2000 PLACE: MELBOURNE REASONS FOR JUDGMENT 1 On 30 August 2000 the respondent, the Deputy Commissioner of Taxation, served a notice upon the applicant, Mr Currie, requiring him to attend at the Australian Taxation Office in Melbourne on 21 September 2000 and give evidence on oath concerning the "income or assessment or [his] tax affairs for the period 1 July 1994 to date" and "concerning the income or assessment of Digi-Tech Communications Limited, n-Tech Limited and associated entities for the period 1 Juy 1994 to date". The applicant contends that this notice was given for an improper purpose and that he does not have to comply with it. He has brought this proceeding to obtain an order that the notice is invalid. In the meantime the applicant asks for an interlocutory injunction to restrain the Deputy Commissioner from proceeding with the examination. The Deputy Commissioner has agreed to defer the examination pending the resolution of this application. 2 The power of the Commissioner to require a person to attend and give evidence is found in s 264 of the Income Tax Assessment Act 1936 (Cth) (the Tax Act). That section provides: "(1) The Commissioner may by notice in writing require any person, whether a taxpayer or not, including any officer employed in or in connexion with any department of a Government or by any public authority: (a) to furnish him with such information as he may require; and (b) to attend and give evidence before him or before any officer authorized by him in that behalf concerning his or any other person's income or assessment, and may require him to produce all books, documents and other papers whatever in his custody or under his control relating thereto. (2) The Commissioner may require the information or evidence to be given on oath or affirmation and either verbally or in writing, and for that purpose he or the officers so authorized by him may administer an oath or affirmation." 3 The object of this provision must be considered in the following context. Income tax is levied upon the amount remaining after deducting from the assessable income of the taxpayer all allowable deductions: s 17 of the Tax Act, but see now s 4-15 of the Income Tax Assessment Act 1997 (Cth). The amount levied is determined by the Commissioner after the taxpayer has provided an income tax return setting out the total income derived by the taxpayer in the year of income and all deductions claimed by the taxpayer: s 161. From that information the Commissioner makes an assessment of the taxable income of the taxpayer and the tax that is payable: s 166. Accordingly, and this was not a matter in dispute, in s 264, "income" is a reference to income upon which tax might be levied under the Tax Act and "assessment" is a reference to an assessment made by the Commissioner under the Tax Act. 4 To understand the basis upon which the applicant puts his case for improper purpose, it is necessary to refer to some of the history that led to the service of the notice. Much of what I will say is uncontroversial, in the sense that it was not controverted for the purposes of this interlocutory application. 5 For some years the two companies, Digi-Tech Communications Limited and n-Tech Limited, promoted ventures in New Zealand by which investors were to gain certain advantages under the New Zealand income tax legislation. The Inland Revenue authorities in New Zealand are of opinion that these ventures were no more than an attempt to defraud the revenue and that, in addition to the commission of revenue offences, the promoters were guilty of fraud and other offences against the Crimes Act 1961 (NZ). The Inland Revenue Office is presently conducting an investigation into the activities of the promoters with a view to determining what charges, if any, should be laid and what proceedings should be instituted for the recovery of unpaid income tax. 6 The applicant is a solicitor and an accountant. For many years he lived and practised as an accountant in Hong Kong. He had a close connection with Digi-Tech Communications Limited and n-Tech Limited. The New Zealand revenue authorities believe that the applicant can assist them in their inquiries concerning the affairs of those companies. It seems that the applicant himself is suspected of having committed several offences. 7 On 16 August 2000 the applicant was served with a notice under s 264 to give evidence "concerning the income or assessment of Digi-Tech Communication Limited, n-Tech Limited and associated entities for the period 1 July 1994 to date". The authorised officers before whom that evidence was to be given were named in the notice as "either or every one of Jillian Saint, Max Govers, David Jacyk and Jonathan Matthews". Accompanying the notice was a letter from the Deputy Commissioner, the final paragraph of which provided: "David Jacyk, Jonathan Matthews and Michael Lennard from New Zealand Inland Revenue Office will be attending the interview as an adviser to the Commissioner. For the purposes of the interview he/she will be an officer of the Australian Taxation Office for the purposes of and subject to the relevant secrecy provisions." 8 Mr Lennard is the Director, Litigation, of the New Zealand Inland Revenue Office, Mr Jacyk is a solicitor employed by that agency and Mr Matthews is an investigation team leader. Each of them was in Melbourne to investigate the affairs of Digi-Tech Communications Limited and n-Tech Limited. 9 The terms of the 16 August notice enabled the interview to be conducted by one or both of the New Zealand officials, to the exclusion of any officer of the Australian Taxation Office. It is an irresistible inference that the New Zealand officials had no interest in inquiring after the liability to taxation under the Tax Act of Digi-Tech Communications Limited or n-Tech Limited or any associated entities. Self-evidently, their interest was only with the revenue law and criminal law of New Zealand. 10 Further, even if the examination had not been conducted by the New Zealand officials but was left in the hands of officers of the Australian Taxation Office, it is reasonable to assume that much of the questioning would have concerned the activities in New Zealand of Digi-Tech Communications Limited and n-Tech Limited. Otherwise there would have been little purpose in the attendance of the New Zealand officials at the examination. 11 Section 264(1)(b) does not authorise the Commissioner to obtain evidence for the purpose, or for the main purpose, of providing assistance to a foreign country to enforce its revenue or criminal laws. It would be an abuse of power for a provision such as s 264 to be used for that purpose. 12 In Thompson v Randwick Corporation (1950) 81 CLR 87 the defendant council was empowered to resume land for road-making purposes. Council resumed more land than it required for that purpose. The resumption was unlawful. The High Court said (at 105 to 106): " … we are of the opinion that the Council, in attempting to resume more land than is required to construct the road, is not acting in good faith. By that we do not mean that the Council is acting dishonestly. All that we mean is that the Council is not exercising its powers for the purposes for which they were granted but for what is in law an ulterior purpose. It is not necessary that this ulterior purpose should be the sole purpose. The Council, no doubt, believes that the new road will have advantages over Bloomfield Street and Wisdom Street from the point of view of access and upkeep. But the evidence establishes that one purpose at least of the Council in attempting to acquire the land not required to construct the new road is to appropriate the betterments arising from its construction. In Municipal Council of Sydney v Campbell [1925] AC 338, this was the sole purpose. But in our opinion it is still an abuse of the Council's powers if such a purpose is a substantial purpose in the sense that no attempt would have been made to resume this land if it had not been desired to reduce the cost of the new road by the profit arising from its re-sale." See also Samrein Pty Ltd v Metropolitan Water Sewerage & Drainage Board (1982) 56 ALJR 678, especially at 679-680. 13 The 16 August notice was withdrawn by the Deputy Commissioner and on 23 August 2000 a further notice was served on the applicant. This notice was in all respects the same as the earlier notice, except that the officers before whom the examination was to take place were identified as "either or every one of Jillian Saint, Max Govers and Dianna Yee". That is, no longer was it proposed that New Zealand officials might conduct the examination. 14 The 23 August notice was also withdrawn and replaced by the current notice. The only difference between the two is that in the current notice there is an additional subject for examination, namely "the income or assessment of [the applicant's] tax affairs for the period 1 July 1994 to date". 15 What I must determine is whether there is a sufficiently arguable case, that is whether there is a serious issue to go to trial (see American Cyanamid Co v Ethicon Ltd [1975] AC 396), that the current notice has been given for the purpose, or for the substantial purpose, of obtaining information to pass on to the New Zealand revenue authorities. If that is the position then the giving of the notice is not a proper exercise of the power vested in the Deputy Commissioner under s 264. On the other hand, if the principal object of the notice is to inquire into the income or assessments of the applicant or the New Zealand companies and their associated entities (that is, income upon which tax might be levied under the Tax Act or assessments that have been made under that Act) then the notice is lawful and must be complied with. 16 On the present state of the evidence I am bound to conclude that it is sufficiently arguable that the principal purpose for the inquiry is to gather information to pass on to the New Zealand authorities and not for the purpose of inquiring whether there is any tax due under the Tax Act. I have arrived at this conclusion for the following reasons. 17 First, the changes to the three notices, by the deletion of New Zealand officials as authorised officers and then by the addition of the taxpayer's own tax affairs, appear to me to be an attempt to make the notice seem on its face as if it were being given for a proper purpose. But these changes give me no confidence that the purpose behind giving the initial notice has changed. 18 Second, the evidence shows that the New Zealand authorities were to be provided with information obtained during the course of the interview. Their position was explained in a letter from Mr Lennard to the applicant's solicitors dated 20 September 2000. In that letter Mr Lennard described the position of the New Zealand Inland Revenue Office: "I had understood that the Australian Taxation Office ("ATO") scheduled an interview with your client under section 264 of the Commonwealth Income Tax Assessment Act 1936, to enquire about the possible Australian tax implications, especially to your client, arising from these schemes. I understand that that interview, scheduled for tomorrow, may well not proceed because of disputes over the validity of the summons and/or process. As you now know, I was interested in any information which might have come out of that scheduled interview and been made available by the ATO to New Zealand's Inland Revenue under the relevant exchange of information provisions. I was interested in this both because of the tax aspects but also, and especially, because of the light which it might shed on the criminality or otherwise of the transactions and your client's involvement. As this interview will apparently not take place, I think it fair to advise you of the full reasons for Inland Revenue's interests so that your client can take advantage of our presence in Melbourne this week if he so desires." The letter then went on to request the applicant to attend an interview with the Inland Revenue officers which would be tape-recorded. 19 Finally, although this is only an interlocutory application, I cannot ignore the fact that the Deputy Commissioner has not proffered any evidence to support a finding, even at an interlocutory hearing, that there is a reason why he would wish to examine the income of the applicant for the purposes of the Tax Act. If that was the object of the examination, it would have been quite simple for the Deputy Commissioner to say so. 20 Nothing that I have said should be taken to mean that the Commissioner is not permitted to share information with his New Zealand counterpart. Indeed the exchange of information between the Commissioner of Taxation and the New Zealand Commissioner of Inland Revenue, is contemplated by Article 26 of the double tax agreement between Australia and New Zealand, which is found in Schedule 4 to the International Tax Agreements Act 1953 (Cth). This case is not concerned with the lawfulness of the provision of information to the New Zealand Commissioner, but rather with the question whether an examination under s 264 can be conducted for the purpose of providing information to him. 21 I should mention in passing that to support his claim for invalidity of the notice, the applicant also relied upon certain drafting deficiencies. In virtue of the finding I have made concerning the apparent purpose for the issue of the notice, it is unnecessary to consider this allegation. 22 I have no doubt that the balance of convenience requires an order that the Deputy Commissioner and his authorised officers be restrained from asking any questions of the applicant, as this is an interference with his personal liberty. If that interference is unlawful it should not be permitted. Because I have formed a preliminary view that the applicant has shown a persuasive case that the Deputy Commissioner's conduct is unlawful, no examination should take place until the matter has been finally resolved. If I do not restrain the examination, and it turns out that the applicant is ultimately successful, his victory may be pyrrhic. 23 I propose to order that the Deputy Commissioner be restrained from requiring the applicant to answer any questions that the applicant might be required to answer by reason of the notice that has been served upon him. The costs of the interlocutory application will be reserved. I certify that the preceding twenty-three (23) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Finkelstein. Associate: Dated: 4 October 2000 Counsel for the Applicant: Mr P D Corbett Solicitor for the Applicant: Hall & Wilcox Counsel for the Respondent: Mr M Crennan Solicitor for the Respondent: Australian Government Solicitor Date of Hearing: 21 September 2000 Date of Judgment: 4 October 2000