FEDERAL COURT OF AUSTRALIA Australia & New Zealand Banking Group Ltd v Deputy Commissioner of Taxation of the Commonwealth of Australia [2001] FCA 314 INCOME TAX (CTH) ‑ Commissioner of Taxation ‑ Powers ‑ Judicial Review ‑ Notice issued to taxpayer's solicitor requiring him to give evidence before Commissioner ‑ Validity of notice ‑ Whether decision to issue notice an improper exercise of power ‑ Application for interlocutory relief ‑ Whether serious question to be tried ‑ Whether legal professional privilege applicable to notice. PRACTICE AND PROCEDURE ‑ Notice to produce ‑ Same effect as subpoena ‑ Notice used to obtain discovery ‑ Abuse of process. Income Tax Assessment Act 1936 (Cth) ss 263, 264 Industrial Equity Ltd v Deputy Commissioner of Taxation (1990) 170 CLR 649 cited May v Deputy Commissioner of Taxation (1998) 98 ATC 4960 cited Smorgon v Australia and New Zealand Banking Group Ltd (1976) 134 CLR 475 applied Federal Commissioner of Taxation v Australia and New Zealand Banking Group Ltd (1979) 143 CLR 499 applied Daihatsu Australia Pty Ltd v Deputy Commissioner of Taxation (2000) ATC 4763 applied Eighth Oupan Pty Ltd v Federal Commissioner of Taxation (1986) 10 FCR 559 applied May v Commissioner of Taxation (1999) 92 FCR 152 applied Commissioner of Taxation v Citibank Ltd (1989) 20 FCR 403 applied Australian Competition and Consumer Commission v The Daniels Corporation International Pty Ltd [2001] FCA 244 considered Pasini v Vanstone [1999] FCA 1271 applied AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED, ESANDA FINANCE CORPORATION LIMITED and ANZCAP LEASING SERVICES LIMITED v DEPUTY COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA V 177 OF 2001 SUNDBERG J 27 MARCH 2001 MELBOURNE IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY V 177 OF 2001 BETWEEN: AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED, ESANDA FINANCE CORPORATION LIMITED and ANZCAP LEASING SERVICES LIMITED APPLICANTS AND: DEPUTY COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA RESPONDENT JUDGE: SUNDBERG J DATE OF ORDER: 27 MARCH 2001 WHERE MADE: MELBOURNE THE COURT ORDERS THAT: 1. Until the hearing and determination of the application or further order the respondent, his servants and agents, be restrained from requiring Mr Peter Szabo, at any attendance pursuant to the notice that is exhibit CM1 to the affidavit of Carmel McIlwain filed 9 March 2001, to give evidence concerning the income or assessment of the applicants for the period 1 October 1989 to 30 September 1991. 2. The costs of the application for interlocutory relief be reserved. 3. The notice to produce filed 9 March 2001 be set aside. 4. The applicants pay the respondent's costs of the application to set aside the notice to produce. 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 177 OF 2001 BETWEEN: AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED, ESANDA FINANCE CORPORATION LIMITED and ANZCAP LEASING SERVICES LIMITED APPLICANTS AND: DEPUTY COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA RESPONDENT JUDGE: SUNDBERG J DATE: 27 MARCH 2001 PLACE: MELBOURNE REASONS FOR JUDGMENT 1 On or about 16 February 2001 the respondent gave Mr Peter Szabo a notice which is in part as follows: "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, [and] ANZCAP Leasing Services Limited … for the period 1 October 1989 to 30 September 1993 inclusive, at the Australian Taxation Office at 2 Lonsdale Street, Melbourne, on 19 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. …" Mr Szabo is a solicitor from whom officers of the first applicant obtained legal advice during a period in which the applicants entered into equitable lease assignments from which the respondent claims they obtained "tax benefits" within the meaning of that expression in Pt IVA of the Income Tax Assessment Act 1936 (Cth) ("the Act"). The notice was accompanied by a letter informing Mr Szabo that he could bring to the interview a person to advise him of his legal rights and obligations. 2 The applicants have sought an order of review under s 5 of the Administrative Decisions (Judicial Review) Act 1977 (Cth) and relief under s 39B of the Judiciary Act 1903 (Cth). They claim, amongst other things, a declaration that the notice is of no effect and an injunction restraining the respondent from requiring Mr Szabo to attend and give evidence pursuant to the notice. The applicants supported their claim to an interlocutory injunction restraining the Commissioner from requiring Mr Szabo to attend and give evidence pursuant to the notice to a date after the hearing and determination of their application for substantive relief, upon three main bases. 3 The first is that the notice does not notify either the relevant income or the relevant assessment about which Mr Szabo was to be asked questions. It was said that it is not enough for the notice to simply repeat the language of s 264(1)(b) ‑ "to attend and give evidence … concerning his or any other person's income or assessment". 4 The second basis is that the notice requires Mr Szabo to give evidence concerning matters that do not fall within the purpose for which the respondent issued it. It was said that whereas the respondent issued the notice for the purpose of obtaining evidence about the taxation consequences for the years of income ending 30 September 1992 and 30 September 1993 of the applicants' having entered into equitable lease assignments, the notice requires Mr Szabo to give evidence concerning, amongst other things, income or assessments during the period 1 October 1989 to 30 September 1991. It was said that the power conferred by s 264 is a power to enable the respondent to perform his functions under the Act, and that the power was thus circumscribed by reference to this purpose. See Industrial Equity Ltd v Deputy Commissioner of Taxation (1990) 170 CLR 649 at 659‑660. The only function the respondent was purporting to exercise in relation to the applicants was dealing with the objections they had lodged to amended assessments in respect of the years ending 30 September 1992 and 30 September 1993. 5 The third basis is that investigations pursuant to s 264 are subject to claims for legal professional privilege, and the respondent is obliged to provide a mechanism to enable the applicants to assert a claim to privilege. 6 At the conclusion of argument on interlocutory relief I directed the respondent, pursuant to s 16(1)(d) of the Administrative Decisions (Judicial Review) Act, to defer the date upon which Mr Szabo is required by the notice to attend and give evidence to a date seven days after the date on which I rule on the claim to interlocutory relief. 7 Before dealing with the three grounds for relief, it is necessary to set out some facts relevant to the second and third grounds. In respect of the years ending 30 September 1992 and 1993 the respondent has issued notices of amended assessment to each of the applicants. The assessments were accompanied by determinations under s 177F(1) of the Act that the applicants have obtained tax benefits in connection with a scheme to which Part IVA applies. The determinations seek to cancel tax benefits stated to be referable to equitable lease assignments entered into by the applicants. Notices of objection have been lodged. They have not been determined. The applicants have given the respondent notices pursuant to s 14ZYA of the Taxation Administration Act 1953 (Cth). 8 In addition to the evidence summarised in par 7, Mr Neil Hurst, a Senior Manager Taxation of the first applicant, gave evidence that · the first applicant lodged its return for the year ended 30 September 1990 on or about 18 June 1991 · none of the income disclosed by the first applicant, and none of the deductions claimed by it, in its return for the year ended 30 September 1990, is referable to the equitable lease assignments the subject of the 1992 and 1993 assessments · the first applicant lodged its return for the year ended 30 September 1991 on or about 15 June 1992 · the second applicant lodged its return for the year ended 30 September 1990 on or about 18 June 1991 · tax was assessed and paid in respect of that year and no matters are outstanding in relation thereto · the second applicant lodged its return for the year ended 30 September 1991 on or about 18 September 1992 · tax was assessed and paid in respect of that year and no matters are outstanding in relation thereto. Mr Hurst also gave evidence that during the period in which the equitable lease assignments occurred, legal advice was sought and obtained by the first applicant in respect of the assignments, and that communications passed between the first applicant's officers and Mr Szabo for the purpose of obtaining and receiving that advice. 9 On 9 March 2001 the applicants' solicitors wrote to the respondent's solicitor expressing concern that the respondent was in possession of documents in respect of which the applicants have claims of legal professional privilege "as against Mr Szabo and, depending upon the documents in your client's possession and how your client came to have them, against him". The writer claimed that the respondent was obliged to establish a mechanism to enable the applicants to assert their claims. In this regard she sought a list of all documents that the respondent intended to "show, refer to, or rely upon in his examination of Mr Szabo". 10 On 26 February 2001 the applicants' solicitors wrote to the Commissioner of Taxation personally in relation to "the processes now being undertaken to interview a number of people pursuant to section 264 in connection with specific transactions entered into by the Bank in the early 1990's". The solicitors expressed concern that "(i) the Australian Taxation Office may be using the statutory powers not bona fide to determine the issues raised in the objection, but to gather evidence in support of a predetermined position; and (ii) … the Australian Taxation Office is not genuinely concerned to obtain information of probative value but to surprise and ambush witnesses without prior notice." The solicitors sought an assurance that what was being done was necessary and appropriate. The letter did not mention Mr Szabo, though it did mention another recipient of a notice. However I infer that Mr Szabo is one of the "number of people" referred to. The letter refers to earlier correspondence between the solicitors and the Commissioner's officers that is not in evidence. I infer that in that correspondence reference is made to the 1992 and 1993 assessments and the objections thereto, and that the reference to "the objection" in the passage set out above is to those objections. The Commissioner replied giving the assurance sought. He said: "Contrary to the expression of concern in your letter, I am satisfied that the powers of investigation are being used bona fide to determine the issues raised in the objection, and to obtain information of probative value." 11 I am not satisfied that the first basis of attack raises a serious question to be tried. A notice under s 264 is required to do no more than make it clear that the evidence to be given concerns the income or assessment of a person or persons. It is not necessary that the notice specify particular topics. Nor is it necessary that it explicitly limits the period of time as to which evidence is required, though that has been done in the present case. See Smorgon v Australia and New Zealand Banking Group Ltd (1976) 134 CLR 475 at 491‑492, Federal Commissioner of Taxation v Australia and New Zealand Banking Group Ltd (1979) 143 CLR 499 at 524, Daihatsu Australia Pty Ltd v Deputy Commissioner of Taxation (2000) ATC 4763 at 4774, Eighth Oupan Pty Ltd v Federal Commissioner of Taxation (1986) 10 FCR 559 at 565 and May v Commissioner of Taxation (1999) 92 FCR 152 at 159. 12 In relation to the second basis of the application, it was submitted that in order to determine whether a notice purporting to be issued under s 264 is valid, it is necessary to identify the function that is being exercised by the Commissioner. If the notice has nothing to do with that function, or is more extensive than the function, the power in s 264 is not being exercised to enable the respondent to perform his functions under the Act. In my view there is a serious question to be tried on this issue. On the evidence, the only presently relevant matters before the Commissioner in respect of which he is exercising functions under the Act are the notices of objection in relation to the 1992 and 1993 years. The Commissioner did not go into evidence, though he could easily have disputed Mr Hurst's evidence to that effect if it was not correct. The Commissioner's correspondence provides some support for the applicants' case in this respect. Since I will in all probability have to determine the substantive application, I will say no more than that the approach to the application of s 264 propounded by the applicants as outlined in this paragraph is supported by May v Deputy Commissioner of Taxation (1998) 98 ATC 4960 at 4975. 13 The applicants have not satisfied me that the third basis for relief gives rise to a serious question to be tried. In the course of the exercise of search and seizure powers under s 263 the Commissioner is obliged to ensure that the person whose premises are being searched has an adequate opportunity to make claims of privilege: Commissioner of Taxation v Citibank Ltd (1989) 20 FCR 403 at 417. On the assumption that a comparable obligation applies on an examination under s 264, the Commissioner has not in my view failed to afford that opportunity. What amounts to an adequate opportunity will depend on the facts of the particular case. Mr Szabo is a solicitor who acted for the applicants in relation to the matters under investigation. He will be familiar with the concept of legal professional privilege. He will recall the transactions in question. He will readily be able to determine whether a document put to him or a question asked of him invites a claim to privilege. Furthermore, I have no doubt that the applicants will ensure that Mr Szabo is accompanied by a lawyer who will advise him to assert privilege as appropriate. I do not accept that an adequate opportunity requires the respondent to provide the applicants with a list of all the documents that may be put to Mr Szabo in the course of the examination so as to enable the applicants to determine in advance which of them are privileged. That course would be capable of depriving the examination of much of its point. 14 The case was argued on the assumption that legal professional privilege applies to a notice under s 264. After I had reserved my decision the respondent drew my attention to the decision of the Full Court in Australian Competition and Consumer Commission v The Daniels Corporation International Pty Ltd [2001] FCA 244 ("Daniels"), handed down during the hearing of the present case. Daniels decided that legal professional privilege does not apply to a notice issued under s 155 of the Trade Practices Act 1974 (Cth). The reasoning in Daniels leads to the conclusion that the privilege does not apply to a notice issued under s 264. The Court held that the privilege was excluded by the provision in s 155(5)(a) that a person must not "refuse or fail to comply with a notice under this section to the extent that the person is capable of complying with it". Wilcox J said (par 56): "in its natural meaning, the word "capable" refers to what a person is able to do. It is not limited by reference to what a person is entitled not to do; a person may be capable of doing something, although entitled not to do it. A person who is called upon to disclose information, or produce a document, that is subject to legal professional privilege is able to comply with the demand, and may choose to do so, notwithstanding that he or she is entitled not to do so." Moore J said (par 81) "A person is capable of complying with a notice even if to do so is in derogation of a common law right, whether it is a right the person enjoys or the person asserts on behalf of another (as a solicitor does in relation to the client's legal professional privilege)." Lindgren J said (pars 88, 89 and 96): "a client served with a notice under s 155 … is not rendered not 'capable of complying with it' … by the fact that the client enjoys common law legal professional privilege in respect of communications caught by the notice. The proposition just stated resolves a general question of law, although not one which arises directly on the facts of this case, because the notices here were served, not on a client, but on its solicitors. … It follows from the answer we are giving to the general question mentioned earlier, that is, that a client served with a notice under s 155 is not entitled to refuse compliance on the ground of its legal professional privilege, that solicitors served with such a notice cannot do so on the ground that they owe their client a duty to attempt to protect the client's privilege: they can be in no better position than their client." 15 Sections 8C and 8D of the Taxation Administration Act employ substantially the same language as s 155(5)(a) of the Trade Practices Act. Section 8C(1) provides in part that "A person who refuses or fails, when and as required under or pursuant to a taxation law to do so: … (aa) to give information to the Commissioner in the manner in which it is required under a taxation law to be given; or … (e) to produce a book, paper, record or other document to the Commissioner or another person … to the extent that the person is capable of doing so is guilty of an offence." Section 8D(1) provides that "A person who, when attending before the Commissioner or another person pursuant to a taxation law, refuses or fails, when and as required pursuant to a taxation law to do so: (a) to answer a question asked of the person; or (b) to produce a book, paper, record or other document, to the extent that the person is capable of doing so is guilty of an offence." 16 Since no submissions were made about the Daniels case, I have decided the privilege point against the applicants on the ground set out in par 13 rather than on the ground that the privilege does not apply to a s 264 notice. 17 The balance of convenience favours the grant of relief. I was urged by the respondent to deny relief in the exercise of my discretion on the ground of material non‑disclosure by the applicants. In the cross‑examination of Mr Hurst it emerged that in the course of an audit of the applicants some years ago a mechanism for enabling the assertion of privilege had been established. I am not persuaded that this is a sufficient reason to withhold relief. I will order that the respondent, his servants and agents, be restrained until the hearing and determination of the application or further order from requiring Mr Szabo, at any attendance pursuant to the notice, to give evidence concerning the income or assessment of the applicants for the period 1 October 1989 to 30 September 1991. 18 The applicants have given the respondent a notice to produce the following documents for the purpose of evidence: "In respect of the decision of the respondent made on or about 16 February 2001 to give to Mr Peter Szabo a notice under s 264 of the Income Tax Assessment Act 1936 to attend and give evidence on oath or affirmation on 19 March 2001. (i) all documents which were before the decision maker or were considered by the decision maker in making the decision; (ii) all documents in the possession, custody or control of the respondent relating to the decision to examine Mr Szabo in respect of the period from 1 October 1989 to 30 September 1993 inclusive." The respondent did not comply with the notice, and moved to have it set aside on the grounds that the applicants were attempting to achieve discovery by an indirect means which is impermissible and an abuse of the process of the Court, and that they should abide by the rules of court which prescribe the method by which parties can obtain discovery. 19 In Pasini v Vanstone [1999] FCA 1271 Finn J dealt with an application to set aside subpoenae requiring production of all documents that were before any officer in the Minister's department who was dealing with any request for the extradition of the applicant Pasini at the time the Minister made the decision to issue a notice under s 16(1) of the Extradition Act 1988 (Cth), and which related to various listed matters. His Honour set the subpoenae aside as an abuse of process. Under the heading "Discovery" he said (par 30): "(i) A party does not have an unqualified right to discovery under the Federal Court Rules: see Cameron v Rural Press Ltd (Burchett, Gummow and Hill JJ, 20 July 1990, unreported); Federal Court Rules O 10 r 2. (ii) As Practice Note 14 makes plain, general discovery will not be ordered as of course, discovery commonly being ordered only in relation to particular issues or defined categories of documents. (iii) 'The rules of court do not place on judges the responsibility of determining for the parties which of their respective documents are required to be discovered. Judges have not traditionally assumed such a role': Diddams v Commonwealth Bank of Australia[1998] FCA 497, Branson J. (iv) Where a proceeding is one for judicial review, discovery in that proceeding is not to be treated otherwise than according to the normal principles applicable in civil proceedings: Australian Securities Commission v Somerville(1994) 51 FCR 38 at 53. Nonetheless, the nature of judicial review proceedings is commonly such either that the occasion for making an order will not arise or that discovery will only be ordered in relation to a particular issue or issues. (v) Whether or when discovery will be ordered 'depends upon the nature of the case and the stage of the proceedings at which the discovery is sought': Australian Securities Commission v Somerville, above, 50. (vi) With the rules of court having prescribed the method by which parties can obtain discovery or further discovery, and having regard to the constraints imposed on discovery, it is impermissible to attempt to achieve discovery through resort to the subpoena process: Australian Competition and Consumer Commission v Shell Co of Australia Ltd(1999) 161 ALR 686; Kizon v Palmer(1997) 75 FCR 261." 20 Then, under the heading "Subpoenae" (par 31), his Honour collected a number of propositions. They included: "(ii) Objection can be taken to [a subpoena duces tecum] on the grounds that … (c) it is an abuse of process in that 'it is not legitimate to use a writ of subpoena duces tecum as a substitute for an application for discovery of documents': Commissioner for Railways v Small, above, 574." His Honour then considered the circumstance of the case before him, and concluded (par 40): "The present use made by the applicants of subpoenae is a scarce disguised attempt to secure discovery by more favourable means. The fact that the respondent has been forced to make the present application to set aside the subpoenae and the rather tortured course of argument this has entailed only reinforces the view I take that no encouragement should be offered parties so to by‑pass the processes prescribed in this Court's rules for obtaining discovery. In so doing, the applicants have removed at the outset that form of judicial control over the discovery process that the rules and practices of this Court envisage. They have substituted a process that, in the event of an application to set aside the subpoena, places both judge and party in receipt of the subpoenae in positions that are the converse of what is contemplated by the rules where discovery is sought. I consider that the stance taken by the judges of this Court in Diddam's case and the Shell case, above, ought likewise be taken in the present circumstances. I should add that the judicial control to which I referred is the more necessary in cases of judicial review for the very reason that discovery in such cases is often enough unnecessary at all or save in relation to a narrow issue or issues." 21 I agree with his Honour's observations about discovery and subpoenae and the relationship between them, and consider that his conclusions are applicable to the present case and require that the notice to produce be set aside. Although the present case concerns a notice to produce rather than a subpoena, his Honour's observations are applicable to a notice to produce. A notice to produce has the same coercive effect as a subpoena. See O 33 r 12 and CCOM Pty Ltd v Jiejing Pty Ltd (1992) 37 FCR 1 at 2‑3. I certify that the preceding twenty-one (21) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Sundberg. Associate: Dated: 27 March 2001 Counsel for the Applicants: G T Pagone QC, G Davies QC, J Davies and P Sest Solicitors for the Applicant: PricewaterhouseCoopers Legal Counsel for the Respondent: B J Shaw QC, C M Maxwell QC and P Tate Solicitor for the Respondent: Australian Government Solicitor Date of Hearing: 15, 16 March 2001 Date of Judgment: 27 March 2001