FEDERAL COURT OF AUSTRALIA McLaren v Deputy Commissioner of Taxation [2001] FCA 311 INCOME TAX – notice requiring person to attend and give evidence – width of notice – whether notice concerning income or assessment over a four year period beyond the purpose of determining an objection in relation to two years within that period – whether serious question to be tried – practical effect where person represented in examination – balance of convenience Income Tax Assessment Act 1936 (Cth), ss 14ZYA, 264 JOHN ANDREW INGLIS MCLAREN & ORS v DEPUTY COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA V186 of 2001 GRAY J 20 MARCH 2001 MELBOURNE IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY V186 OF 2001 BETWEEN: JOHN ANDREW INGLIS MCLAREN FIRST APPLICANT AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED SECOND APPLICANT ESANDA FINANCE CORPORATION LIMITED THIRD APPLICANT ANZCAP LEASING SERVICES LIMITED FOURTH APPLICANT AND: DEPUTY COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA RESPONDENT JUDGE: GRAY J DATE OF ORDER: 20 MARCH 2001 WHERE MADE: MELBOURNE THE COURT ORDERS THAT: 1. The applicants' application for interlocutory relief is dismissed. 2. The applicants pay the respondent's costs of the application for interlocutory relief. 3. On or before 27 April 2001 the applicants file and serve any amended application. 4. The matter be listed for directions on 4 May 2001. 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 V186 OF 2001 BETWEEN: JOHN ANDREW INGLIS MCLAREN FIRST APPLICANT AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED SECOND APPLICANT ESANDA FINANCE CORPORATION LIMITED THIRD APPLICANT ANZCAP LEASING SERVICES LIMITED FOURTH APPLICANT AND: DEPUTY COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA RESPONDENT JUDGE: GRAY J DATE: 20 MARCH 2001 PLACE: MELBOURNE REASONS FOR JUDGMENT 1 In their application filed on 14 March 2001 the four applicants in this proceeding seek interlocutory relief in the form of an interlocutory injunction. The injunction sought is one that would restrain the respondent, the Deputy Commissioner of Taxation of the Commonwealth of Australia ("the Commissioner"), from requiring the first applicant to attend and give evidence pursuant to a notice given under s 264 of the Income Tax Assessment Act 1936 (Cth) ("the Act"), either until further order or until a date fourteen days after the final hearing and determination of the application. 2 The notice the subject of the proceeding was served on the first applicant on 8 March 2001. It bears that date and in substance is in the following terms: "Pursuant to section 264 of the Income Tax Assessment Act 1936, I require you to attend and give evidence on oath or affirmation concerning the income or assessment of Australia and New Zealand Banking Group Limited, Esanda Finance Corporation Limited, ANZCAP Leasing Services Limited and NMRB Finance Ltd for the period 1 October 1989 to 30 September 1993 inclusive, at the Australian Taxation Office at 2 Lonsdale Street, Melbourne, on 21 March 2001 at 10.00 am and until you are excused from further attending, before any or all of Mr Andrew Kam, Mr Martin Lock and Mr John Smith whom I authorise for the purpose. I further authorise Mr Andrew Kam, Mr Martin Lock or Mr John Smith to administer any oath or affirmation. The powers of the Commissioner of Taxation under section 264 have been delegated to me as Deputy Commissioner of Taxation pursuant to section 8 of the Taxation Administration Act 1953." The notice is signed by James Michael Killaly, Deputy Commissioner of Taxation, Large Business & International, and also bears the inscription, "Per Martin Lock". It was accompanied by a notice concerning penalties for failure to comply and by a letter indicating what arrangements had been made for the conduct of the giving of evidence contemplated by the notice under s 264. 3 It has been common ground before me that the applicants will only succeed in their claim for an interlocutory injunction if they are able to show that there is a serious question to be tried as to the validity or correctness of the notice, and that the balance of convenience favours the applicants. 4 With respect to a serious question to be tried, counsel for the applicants endeavoured to rely on three points. In the first place, they argued that the notice was by way of ambush and surprise in breach of the duty of the Commissioner to act fairly, or the duty of the Commissioner not to act excessively or repressively, or that it failed to meet the legitimate expectations of the applicants arising under the Taxpayers' Charter. In substance, this argument boiled down to a proposition that the notice had been issued for an ulterior purpose, the purpose being to acquire the evidence of the first applicant for use in any later proceeding, which it was said would inevitably arise, with respect to the assessments for taxation that had been levied, and may be levied, against the second, third and fourth applicants. 5 The argument requires some explanation of the facts. It appears that the second, third and fourth applicants have been assessed in respect of income tax for the years ended 30 June 1992 and 30 June 1993, by reference to Pt IVA of the Act, and that they have lodged notices of objection to those assessments. It was common ground that the s 264 notice directed to the first applicant, a former employee of the second applicant, has been issued in the process of the Commissioner's dealing with those objections. The unfairness, oppression or excessive acting and the denial of natural justice in the face of legitimate expectation was said to have arisen because those acting on behalf of the applicants had written to the taxation department, requesting certain information in relation to the interview. In particular, there was a request for notification of the topics on which evidence would be required from the first applicant, and a request that certain documents be provided. Those requests were denied. This was said to constitute evidence that the notice had not been given for the purpose for which, ostensibly, it was to be used. 6 In my view, there is a large gap in the reasoning that would lead to that conclusion. It was not said that the Commissioner has any form of legal obligation to supply anything more than has been supplied. It was not said that there is a legal obligation to specify the topics on which the examination would be conducted, or to provide documents from which the proposed examinee might refresh his memory if he saw fit to do so. In my view, there is nothing on the material to show that the Commissioner has issued the s 264 notice for anything other than a legitimate purpose, namely the resolution of the reconsideration of the assessments of the second, third and fourth applicants, in the light of their notices of objection. I would not draw any inference from the refusal to provide additional information that the Commissioner was acting for any ulterior purpose. 7 The second point raised on behalf of the applicants is that the notice is too wide in its terms. This is an argument that, in specifying the range of dates from 1989 to 1993, the notice travels beyond the area encompassed by the Commissioner's exercise of the function of reconsidering the assessments for the years ended 30 June 1992 and 1993. Counsel for the applicants rightly conceded that it would be open to the Commissioner to examine about matters that had occurred in years other than the income tax years in question. The question is, however, whether it is proper for the notice to specify those years. Counsel for the Commissioner says that the broader specification in the notice is merely helpful, directing the proposed examinee's attention to the fact that he may be required to answer questions about matters extending over that period. 8 In my view there is a serious question to be tried as to whether the notice is phrased too widely, when considering the purpose for which it is issued. Even accepting that such a question arises, however, if it were to be concluded that the notice was too wide, the breach would be a technical one. It is unlikely, in my view, that the width of the notice will cause any practical difficulty on the assumption, that appears to be accepted, that the first applicant will be entitled to be accompanied by a legal adviser while he is being asked questions. It appears to me that the width of the notice will have little practical effect. A legal adviser will no doubt be conscious of the purpose for which the examination is being conducted and will be in a position to advise the first applicant to refuse to answer questions that travel outside the proper purpose of the notice. 9 The third argument raised on behalf of the applicants is that the notice was required to relate to the income or assessment of a taxpayer, and that the person to whom the notice is addressed must be able to determine from its terms that the notice properly relates to those matters. This argument was linked with the allegation that the Commissioner was required to provide more specific information. The notice clearly, on its face, identifies that it is given with respect to the income or assessment of taxpayers, being the second, third and fourth applicants. In my view it is not arguable that anything further is required. The addressee is able to determine that the notice relates to the income and assessment of those taxpayers from the terms of the notice itself. No further information is required. There is therefore no substance in this argument. 10 The fact that I have taken the view that there is a serious question to be tried in relation to the second point raised on behalf of the applicants leads me to consider the balance of convenience. On 1 March 2001 the second, third and fourth applicants each served a notice pursuant to s 14ZYA of the Act on the Commissioner. The effect of such a notice is that the Commissioner has a period of sixty days from the lodgement of the notice in which to consider the objections before him. If he fails to make a decision on those objections by the end of the period of sixty days, then at the end of that period the Commissioner is taken to have made a decision to disallow the taxation objections. That period of sixty days is presently running. If I were to grant an injunction restraining the conduct of the proposed examination of the first applicant until the hearing and determination of the proceeding, or some time after it, or indeed until further order, that would effectively ensure that the period of sixty days expired without the first applicant having been examined. The Commissioner would therefore be unable to take into account any evidence that the first applicant might give in considering the assessment of the second, third and fourth applicants pursuant to the notices of objection. In my view that would be a serious detriment to the Commissioner. 11 Counsel for the applicants sought to establish that the only prejudice arising from the expiration of the sixty day period would be prejudice to the applicants, because their objections would be taken to have been disallowed. I do not agree with that. In my view the Commissioner, in undertaking a proper decision with respect to the objections, is entitled to make use of a notice under s 264 directed to the first applicant, and to use any evidence that the first applicant is able to provide. 12 There must, of course, be weighed in the balance of convenience any detriment to be suffered by the applicants. I am unable to see that the second, third and fourth applicants suffer any detriment at all. Of course they may not wish to have their affairs more closely investigated by the Commissioner, but the fact that the Commissioner is attempting to investigate their affairs more closely cannot be considered to be detriment for this purpose. 13 As for the first applicant, the notice calls upon him, as it might call upon anyone, to attend, and thereby to give up his time, and to search his memory for any evidence he may be able to give in answer to the questions put to him. This is the very object of s 264 of the Act. It is, in terms of the policy of the legislation, not considered to be an unduly onerous requirement. I do not consider that it in itself is a significant detriment to be weighed in the balance of convenience. 14 I am therefore left with the choice of effectively ending any opportunity the Commissioner might have to ask questions of the first applicant or allowing the interview to proceed. I considered at one point the possibility of granting an injunction but making it conditional upon the withdrawal of the notice under s 14ZYA and the non-delivery of a further similar notice. I am by no means certain that it is possible for a taxpayer who has given a notice under s 14ZYA to withdraw it and thereby to prevent the sixty day period from running. My concern would be that a withdrawal could be regarded as ineffective and that therefore the result that would flow from the s 14ZYA notice would flow in any event. In my view that would be extremely undesirable. 15 For these reasons I regard myself as obliged to refuse the application of the applicants for an interlocutory injunction. I certify that the preceding fifteen (15) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gray. Associate: Dated: 20 March 2001 Counsel for the Applicant: Mr G J Davies QC with Ms J Davies and Mr P G Sest Solicitor for the Applicant: PricewaterhouseCoopers Legal Counsel for the Respondent: Mr C M Maxwell QC with Ms P Tate Solicitor for the Respondent: Australian Government Solicitor Date of Hearing: 20 March 2001 Date of Judgment: 20 March 2001