FEDERAL COURT OF AUSTRALIA Hart v Deputy Commissioner of Taxation [2002] FCA 606 PRACTICE & PROCEDURE - discovery - discovery in relation to administrative proceedings - improper purpose - fishing - whether party using discovery to ascertain existence of a case Statutes Administrative Decisions (Judicial Review) Act 1977 (Cth) Income Tax Assessment Act 1936 ss 264, 263 Cases Australian Securities Commission v Somerville (1994) 51 FCR 38 Applied Commissioner of Taxation v Nestle Australia Ltd (1986) 12 FCR 257 Referred to Lloyd v Costigan (1983) 82 FLR 104 Applied Re Federal Commissioner of Taxation Ex parte: Swiss Aluminium Australia Ltd (1986) 72 ALR 247 Referred to WA Pines Pty Ltd v Bannerman (1980) 30 ALR 559 Applied MICHAEL JAMES PATRICK HART v DEPUTY COMMISSIONER OF TAXATION Q274 of 2001 KIEFEL J BRISBANE 13 MAY 2002 IN THE FEDERAL COURT OF AUSTRALIA QUEENSLAND DISTRICT REGISTRY Q 274 OF 2001 BETWEEN: MICHAEL JAMES PATRICK HART APPLICANT AND: DEPUTY COMMISSIONER OF TAXATION RESPONDENT JUDGE: KIEFEL J DATE OF ORDER: 13 MAY 2002 WHERE MADE: BRISBANE THE COURT ORDERS THAT: 1. The application is dismissed. 2. The applicant is to pay the respondent's costs of and incidental to the application. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA QUEENSLAND DISTRICT REGISTRY Q 274 OF 2001 BETWEEN: MICHAEL JAMES PATRICK HART APPLICANT AND: DEPUTY COMMISSIONER OF TAXATION RESPONDENT JUDGE: KIEFEL J DATE: 13 MAY 2002 PLACE: BRISBANE REASONS FOR JUDGMENT 1 The applicant filed an application to review the decision of 16 November 2001, of a delegate of the respondent, which authorised the issue of a notice under s 264 of the Income Tax Assessment Act 1936 ("ITAA"). The notice sought the names and addresses of all members of the Cleary Hoare Legal Resources Club. The applicant is a principal of the law firm Cleary Hoare. The Club is said by the applicant to have been set up in about 1994. Its members, numbering over 1000, are firms of accountants and other financial planners. The Club is a vehicle by which information about tax-related matters is provided to members. The Club's members account for about eighty per cent of the law firm's work. 2 The applicant now seeks an order for discovery of documents relating to the making of the decision. The ground of review to which the documents are said to relate is that of improper purpose in the making of the decision. The application turns upon the extent of the case disclosed and whether or not discovery is sought in aid of it, or to find a case. It is necessary to refer to some of the background to the decision before turning to consider the allegations that an improper purpose attended the making of the decision. For the most part those facts are not in dispute. 3 On or about 7 August 2001, representatives of the Australian Taxation Office ("the ATO") arrived at the law firm's offices with a notice under s 263 ITAA. The decision-maker concerned with the later s 264 notice was amongst those representatives. The law firm co-operated in the provision of documents required. During August and September 2001 discussions and meetings were held between the ATO and the law firm as to how the investigation could proceed. By late September 2001 an agreement had been reached and it allowed the law firm to contact those clients whose affairs were to be investigated by the ATO. In the Statement of Reasons provided in connexion with the later decision to issue the s 264 notice, the decision-maker says that on 24 September 2001 he asked the applicant for a membership list of the Club. I do not understand this to be in contention. The Statement however goes on to say that the applicant said that he was unwilling to voluntarily supply the information, but realised the ATO had the powers to obtain the membership list. The applicant denies that he made such a statement and says that no opportunity was given to make submissions before the s 264 notice was issued. A point stressed by the applicant is that the notice was issued whilst the law firm was co-operating. 4 The Statement of Reasons, in summary, explains that information obtained from an examination of the documents obtained pursuant to the s 263 notice indicated that the law firm and associates promoted or assisted in the promotion of a variety of tax planning arrangements, a number of which were under review. Partners of the law firm were the subject of audits, on the basis that promoters invariably enter into the tax arrangements they promote. Reference is then made to an "ATO strategy in combating aggressive and other tax planning arrangements" which "involves a 'real time approach'". It is explained that this means the ATO attempts to advise taxpayers of possible problems with arrangements entered into by them prior to their lodging tax returns. The ATO had already advised the law firm that it intended to contact certain clients. The statement goes on "However, the ATO wishes to ensure that all relevant clients are identified to ensure they are given the benefit of this 'real time' approach". 5 In relation to the Club, the decision-maker had found that the purposes of membership included access to information, suggestions and advice about minimisation of liability for tax, of the amount paid and other strategies. He considered, the Statement advises, that the membership list of the Club was likely to include persons who have entered into aggressive tax planning arrangements or those who have promoted them. 6 The "Reasons" given at the conclusion of the Statement are in these terms: "14. In order to progress the 'real time' strategy I considered it necessary to ascertain the identities of taxpayers possibly involved in aggressive tax planning arrangements. One such method of identifying relevant taxpayers is through the members of the LRC. 15. A further reason for requesting the names of members of the LRC is to ascertain whether any of the members are involved in the schemes promoted by them or in other taxation arrangements. 16. Identification from the LRC membership list of persons who may have entered aggressive tax planning arrangements will enable them to be audited, or any other relevant action, for purposes of the ITAA. 17. The LRC membership list is likely to lead to further trains of inquiry in relation to clients of LRC members and identification of further persons or entities whom it would be desirable to audit for the purposes of the ITAA. 18. For the reasons given above, I considered that obtaining the LRC membership list to be a means of performing the Commissioner's duty under the ITAA to ascertain tax properly payable. 19. Since it is apparent that the Commissioner will be unable to obtain the LRC membership list on a voluntary basis, I considered it appropriate to utilise the powers under section 264 of the ITAA in order to obtain that list." 7 The Amended Application for an Order to Review identifies three improper purposes, although it would seem that the first of them is not itself such a purpose, but is explained by the other. In summary they are that the delegate caused the notice to be issued so that: (i) the ATO could contact clients or potential clients of the law firm; (ii) to discourage them from obtaining advice from the law firm; (iii) and to prevent the law firm from continuing in the business of providing taxation advice. 8 This was said to be motivated by a belief that the law firm engaged in aggressive tax planning and gave unreliable or inaccurate advice. The application then provides the following as particulars: "3.2 That these purposes were purposes for issuing the Notice can be inferred from the following facts; 3.2.1 The delegate's intention on obtaining the membership list is to contact and investigate persons on the list and client's of persons on the list; and 3.3.3 The delegate knew that that the effect of doing so would be to damage the business of Cleary Hoare. 3.3 Further, that these purposes were purposes for issuing the Notice can be inferred from the following facts: 3.3.1 On 7 August 2001, officers of the Commissioner of Taxation sought and obtained access to the premises of Cleary Hoare pursuant to s 263 of the 1936 Act; 3.3.2 At the time the Notice was issued the Applicant had, to the knowledge of the delegate, caused Cleary Hoare to provide for copying all documents requested by officers of the Respondent following the access obtained under s 263 including all documents relating to clients of Cleary Hoare involved in tax planning arrangements nominated as being of concern to the Respondent; 3.3.3 In addition to providing documents, the Applicant provided answers to questions put to the Applicant by the Respondent's delegate in respect of matters arising from those documents; 3.3.4 By reason of the Applicant's co-operation the Respondent has had the opportunity to identify all clients of Cleary Hoare who had been, or might have been, involved in tax planning arrangements identified by the Respondent as being of concern; 3.3.5 Given the full co-operation by the Applicant in respect of the requests for documents and information in relation to the clients of Cleary Hoare, the purpose of the Respondent in seeking to obtain the membership list can be inferred as going beyond the purpose of identifying any person potentially at risk in respect of any tax planning arrangement advised by Cleary Hoare of concern to the Respondent." 9 It is not disputed that the rules of this Court relating to discovery apply to applications brought under the Administrative Decisions (Judicial Review) Act 1977 (Cth) see Re Federal Commissioner of Taxation Ex parte: Swiss Aluminium Australia Ltd (1986) 72 ALR 247, 248; Australian Securities Commission v Somerville (1994) 51 FCR 38, 45-6; and see O 54 r 1 Federal Court Rules), although in many cases brought under the ADJR Act the process will not be appropriate because of the nature of the issues raised. 10 An order for discovery will be made where it is necessary for the fair disposition of the matters in issue. In the absence of some disclosed factual foundation for an allegation it cannot be said to be necessary: ASC v Somerville 49-51. It is not open to a party to make only a bare allegation and then use the Court's processes to attempt to make out a case: WA Pines Pty Ltd v Bannerman (1980) 30 ALR 559, 567; Lloyd v Costigan (1983) 82 FLR 104, 113. 11 Here the allegations are dealt with in the style of a pleading, with the facts which are relied upon to support the allegations provided. That does not mean however that the allegations are to be taken as supported, without further consideration. 12 The two facts identified in par 3.2 - that the delegate intended to contact persons knowing that the law firm's business would be adversely effected - do not together identify an improper purpose. More is necessary. Paragraph 3.3 would seem to come closer to the heart of the applicant's case, as disclosed in submissions. It is perhaps summarised in par 3.3.5. The argument is that, given the law firm's co-operation with respect to the s 263 documents and arrangements made with respect to some of the clients concerned, the delegates' behaviour calls for an explanation, which is hardly to identify a case of improper purpose. 13 There is another aspect, potentially at least, to the applicant's case. Paragraph 3.3.5 suggests, as was explained further in submissions, that whatever purpose the delegate had, it was not that of identifying persons to whom the "ATO Strategy" might apply. That does not of course identify an improper purpose. To do so there would need to be additional facts alleged. The applicant's case remains in the realm of speculation. If it be part of the applicant's case that the Statement of Reasons is not the true basis for the decision, this finds no expression in the grounds for review. Whether that translates to an improper purpose would seem to require more. In this context, one would think a level of awareness that the policy was not appropriate would be necessary to be shown. This would be a serious allegation to make, and one which could not properly be made without a factual basis for it. In any event it is not presently made. 14 The applicant submits that it is not encumbent upon it to show that it has a good case. So much may be accepted. The applicant's difficulty is that at present no ground of improper purpose is disclosed. The case relied upon, Commissioner of Taxation v Nestle Australia Ltd (1986) 12 FCR 257, 264 does not take the matter further. 15 As presently disclosed, by the application and the evidence, the applicant's ground of improper purpose does not amount to any more than a general assertion that there must be such a purpose. The process of discovery would not be utilised to assist in proof of the applicant's case, but rather in order to ascertain one. 16 The application will be dismissed with costs. I certify that the preceding sixteen (16) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Kiefel. Associate: Dated: Counsel for the Applicant: Mr PE Hack SC Solicitor for the Applicant: Damien Bourke & Associates Counsel for the Respondent: Mr DK Boddice SC with him Mr M Swan Solicitor for the Respondent: Australian Government Solicitor Date of Hearing: 9 May 2002 Date of Judgment: