Advanced Holdings Pty Ltd v Commissioner of Taxation

Federal Court of Australia (Full Court)|2020-09-21|Before: Allsop CJ, Steward JJ

Counsel for the Applicants: Mr. N. Williams S.C. with Ms. C. Burnett and Mr. D. Lewis

Counsel for the Respondent: Mr. S. Lloyd S.C. with Ms. T. Phillips

Solicitor for the Respondent: Australian Government Solicitor

SUMMER HILL BUSINESS ESTATES PTY LTD AS TRUSTEE FOR THE CAMELLIA ESTATES TRUST Second Applicant

RIVERLANDS ESTATES PTY LTD AS TRUSTEE FOR THE RIVERLANDS ESTATES TRUST Third Applicant

AND: COMMISSIONER OF TAXATION Respondent

JUDGES: ALLSOP CJ, BROMWICH AND STEWARD JJ DATE OF ORDER: 21 SEPTEMBER 2020

The application for leave to appeal be dismissed.
The applicants pay the costs of the respondent, as agreed or assessed. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

ALLSOP CJ: 1 I agree with the reasons of and orders proposed by Steward J. I certify that the preceding one (1) numbered paragraph is a true copy of the Reasons for Judgment of the Honourable Chief Justice Allsop.

BROMWICH J: 2 I agree with the orders proposed by Steward J and with his Honour's reasons for those orders. I certify that the preceding one (1) numbered paragraph is a true copy of the Reasons for Judgment of the Honourable Justice Bromwich.

STEWARD J.: 3 On 22 November 2019, the learned primary judge summarily dismissed the first applicant's (hereinafter the "applicant") challenge, made pursuant to s. 39B of the Judiciary Act 1903 (Cth.) (the "Judiciary Act"), to the validity of amended assessments and penalty assessments issued to it by the respondent (the "Commissioner"), for the years of income ended 30 June 2010, 2011, 2013 and 2014 (the "assessments"). Her Honour also gave summary judgment in favour of the Commissioner in separate recovery proceedings instituted in respect of the assessments for the 2013 and 2014 years. In each case, her Honour exercised this Court's power pursuant to s. 31A of the Federal Court of Australia Act 1976 (Cth.) (the "Federal Court of Australia Act"). The applicant now seeks leave to appeal these judgments to the Full Court of the Federal Court. For that purpose, the applicant accepts that if it is unsuccessful in relation to its Judiciary Act proceedings, it will follow that it has, and had, no defence in the recovery proceedings.

Applicable Legislation 4 Section 31A of the Federal Court of Australia Act relevantly provides: Summary judgment (1) The Court may give judgment for one party against another in relation to the whole or any part of a proceeding if: (a) the first party is prosecuting the proceeding or that part of the proceeding; and (b) the Court is satisfied that the other party has no reasonable prospect of successfully defending the proceeding or that part of the proceeding. (2) The Court may give judgment for one party against another in relation to the whole or any part of a proceeding if: (a) the first party is defending the proceeding or that part of the proceeding; and (b) the Court is satisfied that the other party has no reasonable prospect of successfully prosecuting the proceeding or that part of the proceeding. (3) For the purposes of this section, a defence or a proceeding or part of a proceeding need not be: (a) hopeless; or (b) bound to fail; for it to have no reasonable prospect of success. (4) This section does not limit any powers that the Court has apart from this section. 5 A number of provisions of the Income Tax Assessment Act 1936 (Cth.) (the "1936 Act") should also be set out. Section 166 of the 1936 Act was in the following form in respect of the 2010, 2011 and 2013 years of income: Assessment From the returns, and from any other information in the Commissioner's possession, or from any one or more of these sources, the Commissioner shall make an assessment of the amount of the taxable income (or that there is no taxable income) of any taxpayer, and the tax payable thereon (or that no tax is payable). 6 Section 166 was then amended by the Tax and Superannuation Laws Amendment (2013 Measures No. 1) Act 2013 (Cth.). For the 2014 year of income, s. 166 was in the following form: Assessment From the returns, and from any other information in the Commissioner's possession, or from any one or more of these sources, the Commissioner must make an assessment of: (a) the amount of the taxable income (or that there is no taxable income) of any taxpayer; and (b) the amount of the tax payable thereon (or that no tax is payable); and (c) the total of the taxpayer's tax offset refunds (or that the taxpayer can get no such refunds). 7 Section 175 of the 1936 Act provided: Validity of assessments The validity of any assessment shall not be affected by reason that any of the provisions of this Act have not been complied with. 8 Pursuant to s. 350-10(1) in Sch. 1 to the Taxation Administration Act 1953 (Cth.) (the "T.A.A."), production of a notice of assessment is conclusive evidence that the assessment was properly made and, save in a tax appeal commenced pursuant to Pt. IVC of the T.A.A., that the amounts and particulars of the assessment are correct. 9 Finally, several provisions of the Crimes Act 1914 (Cth.) (the "Crimes Act") should be set out. Section 3C relevantly defines the term "constable assisting" in relation to a search warrant. The definition is as follows: constable assisting, in relation to a warrant, means: (a) a person who is a constable and who is assisting in executing the warrant; or (b) a person who is not a constable and who has been authorised by the relevant executing officer to assist in executing the warrant. 10 Section 3F of the Crimes Act, in very general terms, relevantly authorises an executing officer and constable assisting to enter premises, to search for evidential material in relation to an offence to which the warrant relates, or another offence which is an indictable offence, and to seize such material. 11 Section 3ZQU of the Crimes Act prescribes the permitted use and sharing of a document or thing by a constable and by a "Commonwealth officer", a term defined at s. 3 to include a person appointed or engaged under the Public Service Act 1999 (Cth.) (the "Public Service Act"). Section 3ZQU(4) provides: Purposes for which things and documents may be used and shared Use and sharing of thing or document by constable or Commonwealth officer … To avoid doubt, this section does not limit any other law of the Commonwealth that: (a) requires or authorises the use of a document or other thing; or (b) requires or authorises the making available (however described) of a document or other thing.

Background 12 The background to this matter may be shortly described. In 2017, a search warrant was issued to an officer of the Australian Federal Police to search the premises of LCI Partners Pty Ltd, the applicant's accountants. The second condition to the warrant set out the names of a number of individuals and companies, trusts and partnerships. LCI Partners Pty Ltd was included in this list. However, the applicant was not. Certain staff of the Australian Taxation Office ("A.T.O."), who are "APS employees" (as that term is defined by s. 7 of the Public Service Act) engaged by the Commissioner, attended the execution of the warrant as "constables assisting." The applicant alleges that certain documents relating to it were wrongfully seized as they did not fall within the scope of what the warrant authorised (the "disputed documents"). The Commissioner denies this allegation. 13 The disputed documents came into the possession of one of the Commissioner's staff, a Mr. Tim Kelly. It is said that someone who had participated in the execution of the warrant had given him the documents. Mr. Kelly is a member of a group of staff engaged by the Commissioner called the "Criminal Investigations Team". The existence of the disputed documents came to the attention of members of another group engaged as staff by the Commissioner called the "Private Groups and High Wealth Individuals" business line. The disclosure to that group of the existence of the disputed documents, and Mr. Kelly's possession of them, was said by the applicant, and not conceded by the Commissioner, to have been a sharing of a document not authorised by s. 3ZQU of the Crimes Act. It was alleged that the person who made the disclosure (not identified in the pleadings) knew that it was a breach of the Crimes Act, or was recklessly indifferent about this matter. The Commissioner denies these allegations. 14 In March 2018, a Deputy Commissioner of Taxation issued a notice to Mr. Kelly pursuant to s. 353-10 of Sch. 1 of the T.A.A. (the "Notice") requiring him to provide the disputed documents to the Deputy Commissioner. This took place. The applicant alleges that in issuing this Notice, the Deputy Commissioner knew that the disputed documents had been wrongfully seized, and that the disclosure of their existence was a breach of the Crimes Act, or alternatively that the Deputy Commissioner was recklessly indifferent about these matters. The applicant also contends that the Notice was issued "for an improper purpose" and that the Deputy Commissioner also knew this, or was recklessly indifferent about it. It also alleged that Mr. Kelly breached the Crimes Act when he complied with the terms of the Notice, and that Mr. Kelly either knew this, or was recklessly indifferent about it. The Commissioner denies all of these allegations and contentions. 15 As I understood it, different staff engaged by the Commissioner relied upon the disputed documents to calculate the tax liability of the applicant in the years in dispute and in imposing penalties. The Commissioner, via his staff, also relied upon those documents to form an opinion that there had been fraud or evasion for the purposes of s. 170(1) of the 1936 Act. But for the formation of that opinion, it would appear that the Commissioner was out of time to issue the assessments. It is alleged that a different assessing officer caused the issue of the assessments for the 2013 and 2014 years from the assessing officer who caused the issue of the assessments for the 2010 and 2011 years. 16 The applicant alleges that the assessing officers, when causing the issue of the assessments, knew that the initial seizure of the disputed documents had been illegal, that the disclosure of Mr. Kelly's custody of the disputed documents had been illegal, and that the issue of the Notice, and Mr. Kelly's compliance with it, had been illegal, or alternatively that these officers were recklessly indifferent about these matters. Again, the Commissioner denies these allegations. 17 The concept of "conscious maladministration" is discussed below. For the moment, I note that the applicant contends that knowledge by the Commissioner's staff that the disputed documents had been illegally seized, disclosure of the disputed documents to the Private Groups and High Wealth Individuals business line, the issue of the Notice, Mr. Kelly's compliance with it, and the issue of the assessments using information extracted from the disputed documents in each case constituted conscious maladministration. As a result, it was submitted, each of the assessments was not in law an assessment for the purposes of the 1936 Act, and in particular s. 175 of that Act. 18 The applicant's allegations are set out in its statement of claim. For the moment two observations should be made: (a) first, whilst the applicant alleges that the assessing officers issued the assessments with actual knowledge of or reckless indifference regarding the illegal acts which had led to them using the disputed documents, it is not pleaded that either officer knew or was recklessly indifferent about the fact that it was wrong or illegal to use the information contained in those documents for the purpose of assessing the applicant's taxable income and issuing the assessments in accordance with s. 166 of the 1936 Act; and (b) secondly, the applicant does not plead, or make allegations, of the kind identified by Robertson J. in Gould v. Deputy Commissioner of Taxation [2017] FCAFC 1; (2017) 343 A.L.R. 275 as constituting conscious maladministration in the issue of an assessment. There, his Honour observed at 297 [75]: In my opinion, Futuris is not authority for the proposition that conscious maladministration is established where, as here, each applicant accepts that the ATO officers did not deliberately make assessments that they knew to be incorrect or arbitrary, or which were based upon inaccurate information, or which intentionally misrepresented the information in the officer's possession that was used to make the assessments; and where the ATO officers did not use the information provided by the Cayman Islands Authority for any purpose other than, or alien to, the fulfilment of their duty under s 166 of the ITAA 1936 to make an assessment from the returns and from other information in their possession.

The Decision of the Learned Primary Judge 19 The learned primary judge addressed the principles relevant to a summary judgment application made pursuant to s. 31A of the Federal Court of Australia Act. Her Honour referred to passages from the leading decision of the High Court in Spencer v. Commonwealth (2010) 241 C.L.R. 118 and concluded that her task was to reach a practical judgment as to whether the applicant had more than a "fanciful" prospect of success, even assuming the correctness of the factual allegations the applicant had made. Thus her Honour said at [17]: Spencer is thus authority that s 31A(2) requires a practical judgment by the Court as to whether the applicant has more than a "fanciful" prospect of success. Although the test for summary judgment does not require the respondent to show that the applicant's claims against it are hopeless or bound to fail, the Court must consider whether there are any real, as opposed to fanciful, issues of fact or law that require proper determination at a trial and should be cautious to dismiss a claim summarily when questions of fact or law arise. The pleadings in the present case raise factual issues for determination but, in deciding the summary judgment application, the Court does not engage in fact finding. The Commissioner submitted that even if it be assumed that the allegations of fact are all true, Advanced Holdings has no reasonable prospect of succeeding on its claims for relief in the s 39B proceeding. 20 The learned primary judge assessed the applicant's prospects of success largely based upon three decisions of this Court and one decision of the High Court. Those decisions are: (a) Denlay v. Federal Commissioner of Taxation (2011) 193 F.C.R. 412; (b) Federal Commissioner of Taxation v. Donoghue (2015) 237 F.C.R. 316; (c) Gould; and (d) Federal Commissioner of Taxation v. Futuris Corporation Ltd (2008) 237 C.L.R. 146. 21 In Denlay, the Court rejected the taxpayer's contention that the Commissioner had engaged in conscious maladministration in issuing amended assessments using information in contravention of s. 400.9 of the Schedule to the Criminal Code Act 1995 (Cth.). It found that there had been no such contravention, but accepted that a reasonable suspicion was to be attributed to the Commissioner's staff that the information had been obtained by unlawful means. However, this did not constitute conscious maladministration. By reason of s. 166 of the 1936 Act, the assessing officers were under a duty to use the information they had received if it was accurate. I shall return to Denlay. For the moment, I observe that the learned primary judge said the following about it at [20]: Critically, as the Full Court stated, what mattered for the purpose of raising assessments was the accuracy of the information, and the competence and honesty of those officers involved in making the assessment and the fact that the information may have been obtained illegally did not mean that the assessment was not made in good faith or on the basis of information believed to be accurate. 22 In Donoghue, the taxpayer contended that default assessments issued to him were invalid because the Commissioner's staff had relied upon information which they had reason to suspect might have been subject to legal professional privilege. This was said to constitute conscious maladministration. This contention was rejected by the Full Federal Court. The learned primary judge here had sat on the Court in Donoghue. Her Honour below at [29] referred to the following observation she had made in her judgment in Donoghue at 345 [114]: [I]t cannot be an improper purpose or maladministration of the assessment power, let alone conscious maladministration, for the Commissioner to use information in his possession for the purpose of raising an assessment against a taxpayer where the Commissioner has formed the view that the statute imposes a liability on the taxpayer upon the facts as they are known to the Commissioner. Where the information in the Commissioner's possession discloses that a taxpayer has a taxable income, the Commissioner's duty in the exercise of his assessment power is to determine and fix the amount of liability that the law operates to impose on the taxpayer: s 166 of the 1936 Act; Macquarie Bank Limited v Commissioner of Taxation [2013] FCAFC 119. 23 In Gould, this Court upheld the decision of the trial judge to dismiss summarily a taxpayer's claim that assessments issued to him were invalid because the Commissioner's staff had exercised the Commissioner's administrative power to make a request for information from the Cayman Islands Tax Information Authority, knowing that the request was made for an invalid purpose under the terms of the Agreement Between the Government of Australia and the Government of the Cayman Islands on the Exchange of Information with Respect to Taxes. That alleged invalid purpose was the use of information requested in respect of tax periods prior to 1 July 2010, in circumstances where the terms of that Agreement did not allow for information to be sought except in relation to tax periods commencing on or after 1 July 2010. The learned primary judge considered Gould and said at [28]: Gould was another case where the Commissioner applied for summary judgment against the applicant in proceedings under s 39B of the Judiciary Act challenging the validity of assessments for alleged conscious maladministration. There was in that case no pleading that the person who raised the assessments or amended assessments knew of any illegality. But, significantly, Robertson J, after referring to the passages from Denlay at [76]-‍[78], considered that "these dicta provide[d] further support for the conclusion that, in the circumstances presently pleaded, conscious maladministration may not be made out by recourse to the 'process of assessment' invoked by the applicants". 24 The "dicta" from Denlay referred to in the foregoing passage flowed from a consideration by the Denlay Full Court (at 432-433 [75]) of the following passage from Futuris at 165-166 [60]: Allegations that statutory powers have been exercised corruptly or with deliberate disregard to the scope of those powers are not lightly to be made or upheld. Remarks by Hill, Dowsett and Hely JJ in Kordan Pty Ltd v Federal Commissioner of Taxation are in point. Their Honours said: "The allegation that the Commissioner, or those exercising his powers by delegation, acted other than in good faith in assessing a taxpayer to income tax is a serious allegation and not one lightly to be made. It is, thus, not particularly surprising that applications directed at setting aside assessments on the basis of absence of good faith have generally been unsuccessful. Indeed one would hope that this was and would continue to be the case. As Hill J said in San Remo Macaroni Co Pty Ltd v Federal Commissioner of Taxation it would be a rare case where a taxpayer will succeed in showing that an assessment has in the relevant sense been made in bad faith and should for that reason be set aside." (Footnotes omitted.) 25 Those "dicta" from Denlay are as follows (at 433 [76]-[78]): Those observations highlight that their Honours were concerned, in their reference to conscious maladministration, with bad faith in the exercise of the decision-making power under challenge and the need for proof of an allegation of bad faith against the Commissioner or his officers. Their Honours were concerned with actual bad faith, not with some form of "constructive" bad faith established by unwitting involvement in an offence. The passages from the decision of the majority in Futuris set out above are concerned with the state of mind of the officers of the Commissioner involved in the making of the assessment. They emphasise the importance of fidelity on the part of those officers to the purposes of the legislation. If Mr Kieber had merely told the Commissioner's officers of the contents of the documents he had taken from LGT, or had brought the documents into Australia himself and handed them over to the Commissioner's officers here, the taxpayers would have no argument. It is difficult to discern a rational basis for distinguishing these hypothetical examples from the present case in terms of the vice of "conscious maladministration" which is apt to vitiate an assessment. The observations of the majority in Futuris do not support the proposition that any breach of the law by officers of the Commissioner in the course of processes anterior to, or even in the course of, making an assessment, suffices to establish conscious maladministration which is apt to vitiate the assessment. Conscious maladministration, as explained in Futuris, involves actual bad faith on the part of the Commissioner or his officers. The findings of the primary judge to which we have referred at paragraphs [49] and [50] of these reasons negative bad faith on the part of the Commissioner's officers. 26 The learned primary judge went on to conclude that the reasoning in each of Denlay, Donoghue and Gould was fatal to the applicant's case. That is because these authorities established, in her Honour's view, that the Commissioner is under a duty pursuant to s. 166 of the 1936 Act to consider and use all of the "information" he has that is relevant to an assessment of the taxable income of a taxpayer when making that assessment. That includes information obtained illegally. Here, taken at its highest, the applicant's case was that the Commissioner's assessing staff knew that some of the information they relied upon in issuing the assessments to the applicant had been obtained illegally. This was not sufficient to show conscious maladministration. As the learned primary judge concluded at [30]-[31]: On the strength of the authorities, the information relating to Advanced Holdings having come into the possession of the taxation officers, the taxation officers had the duty to use that information in making an assessment, regardless of whether the information was illegally obtained or used. … Advanced Holdings has thus failed to demonstrate that the present case raises any point of principle that would entail the "further development" of the principles established by Denlay, Donoghue and Gould. Accordingly I find that Advanced Holdings has no reasonable prospects of successfully prosecuting its case. This is not a case where the failure to plead a reasonable cause of action may be cured by an opportunity to plead a reasonable cause of action but rather the case that is sought to be advanced is one that is not capable of support in law. 27 Each of the three Full Federal Court decisions of Denlay, Donoghue and Gould are examples of an application of the principles concerning conscious maladministration and s. 175 of the 1936 Act which were explained by Gummow, Hayne, Heydon and Crennan JJ. in Futuris. In that case, the taxpayer had alleged that the Commissioner had deliberately double counted a capital gain through the issue of two amended assessments in respect of the one year of income that both sought to assess the taxpayer on that capital gain. The taxpayer had argued that such assessments were not protected by s. 175 of the 1936 Act because of the presence of bad faith. The taxpayer had sought to quash the second of the amended assessments issued to it in proceedings brought pursuant to s. 39B of the Judiciary Act. It had also sought to contend that this assessment was excessive in a tax appeal it had commenced in the Federal Court pursuant to Pt. IVC of the T.A.A. The High Court dismissed the taxpayer's s. 39B proceedings. The learned primary judge applied Futuris and summarised the applicable law from it at [18]-[19] as follows: In Futuris, the High Court held that an assessment may not answer the statutory description of an "assessment" to which s 175 applies where there has been conscious maladministration of the assessment process. Where there has been conscious maladministration of the assessment process, the validity of the assessment is amenable to the constitutional writs under s 39B of the Judiciary Act for jurisdictional error: Futuris at [25], [55]-‍[56]. Conscious maladministration in the sense explained in Futuris requires the mental element of knowingly acting in excess of power: at [11]. The use of the assessment power for corrupt or for ulterior purposes or a deliberate disregard of tax laws in making an assessment would be exercises of administrative power that may be attacked for conscious maladministration: at [12], [60]-[61]. But, critically, for an assessment to lose the protection of s 175, it is not enough merely to show that the assessment power was exercised unlawfully. In Futuris the taxpayer unsuccessfully challenged the validity of an assessment on the basis that the Commissioner knowingly made an assessment which exceeded the amount which the Commissioner knew was the taxpayer's tax liability because it involved double counting. The High Court held that whilst the Commissioner had consciously and deliberately raised the assessment on that basis, he had not done so with deliberate disregard to the scope of his powers or in deliberate non‑compliance with the tax laws but had done so on the assumption that the double counting could be corrected by a subsequent compensating adjustment: at [58]-[59]. In Commissioner of State Revenue (Vic) v ACN 005 057 349 Pty Ltd (2017) 261 CLR 509; [2017] HCA 6 ("ACN 005 057 349"), the High Court allowed an appeal from the Victorian Court of Appeal which had found conscious maladministration by the State Revenue Office in refusing to amend an assessment. It was held there was no basis to justify the conclusion of conscious maladministration. Aside from finding that there was no duty to amend, Bell and Gordon JJ (with whom Gageler J agreed) stated that even if there was a failure to exercise a duty on the Commissioner to amend the assessments, such failure would not have established conscious maladministration as it would not have provided a basis to conclude that the Commissioner refused to amend the assessments "knowing that he was legally obliged to make the amendment": at [85] (emphasis in original). Both Futuris and ACN 005 057 349 make clear that conscious maladministration requires more than showing an error in the process. Conscious maladministration as explained in both cases is the corrupt exercise of power or conscious intention to misuse the statutory power for purposes outside the scope of the power conferred. 28 The reasoning in Futuris was thus also fatal to the applicant's case. As the learned primary judge said at [30]: Further and contrary to the submissions of Advanced Holdings, Futuris is binding authority against the proposition that illegal conduct can itself be sufficient for the assessments to be invalidated by conscious maladministration. A mental element of deliberate intention and/or knowledge is required to establish conscious maladministration. 29 Before the learned primary judge, the applicant submitted that key passages in the reasoning of Denlay and Donoghue were only obiter dicta which did not bind a trial judge, and could not be relied upon to grant summary judgment. Her Honour rejected that submission at [28] as follows: [E]ven if those observations do not form part of the ratio, it is undoubted that the reasoning in both Denlay and Donoghue is seriously considered dicta of appellate courts and persuasive authority from which it is not appropriate to depart unless I consider that dicta on the operation of s 166 to be clearly wrong, which I do not: cf Farah Constructions Pty Ltd v Say‑Dee Pty Ltd (2007) 230 CLR 89; [2007] HCA 22, [134]-‍[135]. 30 Finally, the learned primary judge also rejected a submission that summary relief should be refused because the applicant wished to argue for the "further development" of the principles established by Denlay, Donoghue and Gould. That was because of the finding made about Futuris set out at [30] of her Honour's reasons (reproduced above): see also at [31] as set out above.

Other Matters 31 Two other matters need to be mentioned. 32 First, part of the relief which the applicant seeks is discretionary in nature, namely a series of declarations. In Futuris, Gummow, Hayne, Heydon and Crennan JJ. said that the pendency in that matter of the taxpayer's Pt. IVC tax appeal would have been sufficient to deny the declaratory relief that the taxpayer had sought in that case. At 162 [48], their Honours said: [T]he usual discretionary considerations attending the grant of equitable remedies apply to injunctions and declarations in public law cases. In the present case, it should be emphasised that the pendency of a proceeding by Futuris under Pt IVC should have led the Full Court to refuse declaratory relief in any event. (Emphasis added.) 33 Here, like the taxpayer in Futuris, the applicant has sought to demonstrate that the assessments issued to it are excessive by instituting a tax appeal pursuant to Pt. IVC of the T.A.A. However, and unlike the taxpayer in Futuris, the applicant's tax appeal is not pending. It has already been heard by Davies J. Her Honour has reserved her judgment. 34 Secondly, most of the disputed documents relied upon by the Commissioner's staff to form the requisite opinion about the existence of fraud or evasion have since been provided by the applicant to the Commissioner on an unrestricted basis.

Proposed Grounds of Appeal 35 The applicant needs leave to appeal the learned primary judge's interlocutory decisions to grant the Commissioner summary judgment and to dismiss summarily the applicant's s. 39B proceedings. The two cumulative tests for determining whether to grant leave to appeal an interlocutory decision were expressed by this Court in Re Decor Corporation Pty Ltd and Rian Tooling Industries Pty Ltd v. Dart Industries Inc (1991) 33 F.C.R. 397 as follows at 398: The first test, which relates to the prospects of the proposed appeal, is "whether, in all the circumstances, the decision is attended with sufficient doubt to warrant its being reconsidered by the Full Court." The second "is whether substantial injustice would result if leave were refused, supposing the decision to be wrong." 36 In relation to the first test for leave, the applicant's proposed grounds of appeal are as follows: 1. The Primary Judge erred by failing to apply correctly the test for summary dismissal set out in Spencer v Cth (2010) 241 CLR 118 at [24]-[25]: PJ [28]-[31]. 2. The Primary Judge erred in concluding that the reasoning in Denlay v Federal Commissioner of Taxation (2011) 193 FCR 412 on s 166 of the Income Tax Assessment Act 1936 was arguably part of the ratio of that decision: PJ [27]. 3. The Primary Judge erred by misapplying the principles stated in Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89 at [134]-[135]: PJ [28]. 4. The Primary Judge erred in holding that s 175 of the Income Tax Assessment Act 1936 precludes a taxpayer from challenging the validity of an assessment where "there has been an error of fact or law by the Commissioner in the exercise of his assessment power": PJ [18]. The Primary Judge ought to have held that the errors protected by s 175 are limited to failures to comply with "this Act", whereas it was contrary to s 3ZQU of the Crimes Act 1914 that an officer of the Australian Taxation Office used a thing seized pursuant to a search warrant in making the assessments.

The Applicant's Submissions 37 In relation to the first test for leave, the applicant's submissions were essentially that the learned primary judge should not have summarily dismissed its case because her Honour was not, contrary to her reasons, bound by Denlay, Donoghue or Gould to do so. None of those decisions, it was said, foreclosed the point the applicant wished to advance, namely that conscious maladministration can arise when an assessing officer uses information which she or he knows was obtained illegally to assess a taxpayer. This is precisely what the applicant alleged here, and precisely what it had pleaded. In oral submissions, Mr. Williams, S.C. for the applicant, characterised this conduct as illegal. He said that the point in fact decided by Denlay has nothing to do with the applicant's case here. 38 Moreover, the applicant submitted that none of these cases had conclusively decided whether the taking of a step by one of the Commissioner's staff which was anterior to the ascertainment of a taxpayer's taxable income, such as the gathering of information, could constitute conscious maladministration resulting in an invalid assessment, if that step was itself illegal or made with knowledge of an illegal act. Again, that is what the applicant alleged here with the retention of illegally seized disputed documents by Mr. Kelly, and the production of those documents pursuant to a notice issued under s. 353-10 of Sch. 1 of the T.A.A. In that respect, it relied upon the following observations of Logan J. in Gould at 283-284 [31]-[34]: It may be that, even though what is entailed in the process of assessment is not as extensive as the applicants contend, there is no bright line to be drawn between bad faith, official corruption or some other form of conscious maladministration on the part of the Commissioner in the receipt or procurement of information and the use of that information for the purpose of the making of an assessment, so far as the availability and aptness of a remedy under either s 75(v) of the Constitution or s 39B of the Judiciary Act. … The powers conferred on the Commissioner by the ITAA 1936 and the TAA are not for his personal benefit but for the lawful raising of revenue for the Commonwealth. That being so, it is not at all obvious to me why when, for practical reasons of public administration, the tasks of receiving and procuring information and then assessing cannot all personally be undertaken by the Commissioner, bad faith or official corruption or some other form of conscious maladministration in the receipt or gathering of information by one of the Commissioner's officers should nonetheless result in a lawful accretion to the revenues of the Commonwealth, because the assessment reliant upon that information happens to have been made by another of the Commissioner's officers who, in turn, happens to be ignorant of this maladministration. … An aspect of [the principle of legality] is an assumption in the construction of a statute that "it is highly improbable that Parliament would 'overthrow fundamental principles, infringe rights, or depart from the general system of law' without expressing its intention with 'irresistible clearness'. I prefer to leave as an open question, unnecessary to decide in the circumstances of this case, whether s 166 or, as the case may be, s 167 of the ITAA 1936 has about it the requisite clarity to overthrow, for the benefit of the Commonwealth revenue, such principles, rights and general system of Australian law. (Emphasis added and citations omitted by the applicant.) 39 In that respect, the applicant also submitted that the statement of conscious maladministration expressed by Robertson J. in Gould at 297 [75], and reproduced above (at 18) is too narrow and was, in any event, only obiter dicta. It did not address the type of conscious maladministration alleged here, namely the issuing of amended assessments in reliance upon information that was known to have been obtained illegally. That, it was said, was a species of bad faith. 40 The applicant also wished to challenge the correctness of the proposition expressed in Denlay that the Commissioner is obliged by s. 166 of the 1936 Act to use all the information he has in his possession that is relevant to an assessment of a taxpayer, including illegally obtained information, when making that assessment. The correct construction, it was said, was that the duty imposed on the Commissioner by s. 166 did not require the use of information which was obtained by consciously unlawful acts committed by the Commissioner's staff. The applicant submitted that such a challenge was open to it given that it was acknowledged in Denlay at 433 [80] that the majority's views in Futuris did not bear upon the proper interpretation of s. 166. The proposition in Denlay, again said by the applicant to be only obiter dicta, was expressed at 433-434 [81] of Denlay as follows: Section 166 imposes a duty upon the Commissioner. The interpretation of s 166 urged by the taxpayers would limit the performance of that duty to cases where the Commissioner is able to satisfy himself that his officers had not infringed any law in the gathering of the available information. It would be a remarkable state of affairs if the Commissioner were entitled, and indeed obliged, to refrain from doing what is expressed to be his duty by the terms of s 166 of the ITAA 1936 by reason of a suspicion on his part, even a reasonable suspicion, that some illegality on the part of his officers may have occurred in the course of gathering the information. A clear expression of legislative intention so to qualify the duty imposed on the Commissioner would be required to relieve him of his duty under s 166. We are unable to see that such a limitation is consistent with the unqualified language in which the duty is cast upon the Commissioner and the high importance of making an assessment based on the information available to the Commissioner. The expense and inconvenience of casting such a burden on the Commissioner, and the difficulty of defining precisely the kinds of unlawful conduct which might preclude the Commissioner from doing the duty cast on him by the unqualified language of s 166, are further reasons why the interpretation propounded by the taxpayers should be rejected. 41 A similar observation was made about the scope of s. 166 by Kenny and Perram JJ. in Donoghue at 335 [74], where their Honours said: This requires the conclusion that s 166 not only permits but requires the Commissioner to act upon the information which he has in his possession regardless of how he came to have it. Section 166 exhibits a policy which explicitly privileges the need to have accurate assessments made on the information available over other private law rights. It did not matter in Denlay that the information might have been unlawfully obtained by the Commissioner's officers (although that was not the finding); all that mattered was that it had come into the Commissioner's possession. The combined effect of Denlay and Awad is that the Commissioner is not only entitled, but obliged, to use information which is in his possession even if he knows it is subject to a claim for breach of confidence and even if he knows it is privileged. The foregoing was said by the applicant to be limited to breaches of private law rights and did not address cases of illegality, such as a breach of s. 3ZQU of the Crimes Act. 42 With respect to each of the foregoing contentions, the applicant submitted that the decision of the learned primary judge was attended with sufficient doubt because she erred in shutting out the applicant from developing the law as it wished to contend. The true position, it was contended, is that in a proceeding such as this, an applicant's case should not be summarily dismissed unless its path to success is barred by binding authority of the High Court. The applicant relied upon the following observation of French C.J. and Gummow J. in Spencer at 132 [25]: Where the success of a proceeding depends upon propositions of law apparently precluded by existing authority, that may not always be the end of the matter. Existing authority may be overruled, qualified or further explained. Summary processes must not be used to stultify the development of the law. But where the success of proceedings is critically dependent upon a proposition of law which would contradict a binding decision of this Court, the court hearing the application under s 31A could justifiably conclude that the proceedings had no reasonable prospect of success. See also Knott Investments Pty Ltd v. Winnebago Industries, Inc (No 2) [2013] FCAFC 117; (2013) 305 A.L.R. 387 at 392 [26]-[27] per Allsop C. J. 43 Mr. Williams submitted that the High Court had yet to decide: (a) whether assessing a taxpayer based upon information which the assessing officer knew had been illegally obtained could constitute conscious maladministration; and (b) whether conscious maladministration in the carrying out of a step anterior to the computation of a taxpayer's taxable income could invalidate any resulting notice of assessment. 44 Because the applicant wishes to develop the law concerning conscious maladministration, it was also submitted that it should have been permitted a trial at which the necessary findings of fact, which would have enlivened the legal propositions the applicant wished to advance, should have been made. The applicant referred to Trkulja v. Google LLC (2018) 263 C.L.R. 149, where the High Court observed at 169-170 [55]: [A]ppellate courts should be loath to consider the application of the law to evidence in novel contexts without the benefit of the evidence having been adduced and a trial concluded. Testimony "gives colour and content to the application and development of legal principle", and out of the detail of the evidence ultimately proved may arise an insight which aids understanding whether and how principle should be developed. (Footnote omitted.) 45 It also referred to 327 [42] in Donoghue were Kenny and Perram JJ. observed: [C]onscious maladministration is an instance of the absence of good faith. There may well be others. (My emphasis.) The foregoing was said to be a clear recognition that the metes and bounds of the concept of conscious maladministration were yet to be delineated by the Courts. 46 The applicant also submitted that her Honour had misapplied the decision of the High Court in Farah Constructions Pty Ltd v. Say-Dee Pty Ltd (2007) 230 C.L.R. 89. In that case, it was said, the High Court decided at 150-151 [134] that an intermediate appellate court should not depart from seriously considered obiter dicta of the High Court. The learned primary judge erred, it was submitted, in deciding that this principle also applied to a trial judge and to seriously considered obiter dicta of an intermediate appellate court. In particular, the applicant submitted that the observation at 151-152 [135] that intermediate appellate courts and trial judges "should not depart from decisions in intermediate appellate courts in another jurisdiction" applied only to the ratio of such decisions and not to any obiter dicta. In its reply submissions, the applicant seemed to accept that this latter observation also applied to the obiter dicta of decisions in intermediate appellate courts, but sought to exclude its operation in the context of a primary judge considering an interlocutory application for summary judgment. 47 Finally, it was submitted that whilst s. 175 of the 1936 Act might be directed at compliance with "this Act", being a reference to the 1936 Act, the Income Tax Assessment Act 1997 (Cth.) (the "1997 Act") and parts of the T.A.A., the section did not protect the validity of an assessment against non-compliance with other Acts of the Commonwealth. In particular, it could not protect against the non-compliance here with s. 3ZQU of the Crimes Act. 48 As to the second test for leave, the applicant submitted that it would suffer substantial injustice if leave were refused supposing the decision below to be wrong. That is because, it was said, when the Commissioner issued the assessments he had formed the view, based upon a consideration of the disputed documents, that the applicant's accountant had backdated certain documents, so as falsely to represent the applicant to be the holder of units in a particular trust in its capacity as trustee of another trust. It was contended that this finding informed the formation of the Commissioner's opinion that there had been fraud or evasion. Based, however, upon written submissions filed by the Commissioner in the Pt. IVC tax appeal proceedings before Davies J., the taxpayer submitted that the Commissioner had changed his case. The Commissioner now argued, it was said, that the applicant's ownership of units had failed for technical reasons. In those proceedings, as I understood it, the applicant did not seek to challenge the legal validity of the Commissioner's opinion that there had been fraud or evasion. Nor, I observe, did the taxpayer choose to impugn that opinion with merits review in the Administrative Appeals Tribunal (the "A.A.T."). 49 The applicant now submits that assuming the decision below to be incorrect, if this Court were to determine that the assessments were invalid, the Commissioner thereafter would be unlikely to re-issue those assessments because of his change of mind. In other words, he would be unlikely to form once again any opinion that there had been fraud or evasion because of certain "explanatory evidence adduced" by the applicant in the Pt. IVC tax appeal which has now been heard by Davies J. Alternatively, the applicant said it would enjoy at least the opportunity of trying to persuade the Commissioner that there had never been any fraud or evasion based upon the explanatory evidence. If successful, the Commissioner would then be out of time to issue amended assessments to the applicant for the years of income in dispute. Even if the Commissioner were to determine, in the face of that evidence, that that there had been fraud or evasion, the applicant submitted it could then choose to seek merits review in the A.A.T. and again rely upon the explanatory evidence. Denying the applicant these opportunities was said to be "substantial injustice."

The Commissioner's Submissions 50 As to the first test for leave, the Commissioner submitted that the learned primary judge did not err in forming a practical judgment about the applicant's prospects of success having regard to the reasons given by the Full Court of this Court in Denlay, Donoghue and Gould. Putting aside whether critical parts of the reasoning in those cases were, or were not, obiter dicta, her Honour did not need to be bound strictly by that reasoning to form a judgment that the applicant did not have reasonable prospects of success for the purposes of s. 31A of the Federal Court of Australia Act. The strength of the reasoning of all three decisions, two of which (Donoghue and Gould) were the subject of unsuccessful applications for special leave to the High Court, plainly supported her Honour's judgment about the applicant's prospects of success. In any event, it was submitted, the passages relied upon by the learned primary judge from Denlay and Donoghue were not obiter dicta but formed part of the ratio of each case. Denlay, for example, was said to be a case in which the Court gave two or more reasons for reaching its decision, each of which should be considered to have formed part of the ratio. The Commissioner also submitted that the applicant could not place any real reliance on the remarks in Gould at 283-284 [31]-[34] in circumstances where Logan J. had already indicated at 282 [27] that the process of assessment did not extend back to the procurement or receipt of information by the Commissioner. 51 The Commissioner also submitted that the learned primary judge had not misapplied the High Court's decision in Spencer, or the principle that the summary process should not be used to stultify the development of the law. Her Honour's judgment about the applicant's prospects of success expressly acknowledged the principle about not stultifying the further development of the law at [31]. Her conclusion was that the case the applicant wished to present was foreclosed by Denlay, Donoghue and Gould. Each of these decisions had correctly applied Futuris. In particular, Denlay, it was said, had established that the Commissioner was under a duty imposed by s. 166 of the 1936 Act to use all of the information in his possession in the assessment of a taxpayer's taxable income, even if that information had been illegally obtained. That principle foreclosed the applicant's case. 52 Further, the Commissioner submitted that the learned primary judge had not erred in applying Farah. At 151-152 [135] of the reasons in that case, the High Court had said: Intermediate appellate courts and trial judges in Australia should not depart from decisions in intermediate appellate courts in another jurisdiction on the interpretation of Commonwealth legislation or uniform national legislation unless they are convinced that the interpretation is plainly wrong. (Footnote omitted.) The Commissioner submitted that the word "decisions" in the foregoing passage included seriously considered obiter dicta expressed by an intermediate appellate Court. So much appeared to be accepted by Leeming J.A. in Obeid v. Lockley (2018) 98 N.S.W.L.R. 258 at 305 [224] and by the Victorian Court of Appeal in Brar v. The Queen (2016) A. Crim. R. 67 at 79 [52] (per Redlich, Hansen and McLeish JJ.A.). I observe here that these submissions and authorities seem to be consistent with the observations of French C.J., Keane and Nettle JJ. in R v. Pham (2015) 256 C.L.R. 550 at 559-560 [29], where their Honours said that "[i]t is settled that, in the absence of binding authority from this Court, an intermediate appellate court must follow a statement of legal principle by another intermediate appellate court unless persuaded that it is plainly wrong". 53 The Commissioner submitted that the contention that s. 175 of the 1936 Act did not apply to the alleged breach of s. 3ZQU of the Crimes Act was misconceived. That is because the consequence of a breach of s. 3ZQU would need to be made relevant to an exercise of the assessing power conferred here by s. 166 of the 1936 Act in order for the breach to be capable of being relied upon to impugn the resulting assessment. However, once that assessing power is exercised, s. 175 applies to it, and the resulting assessment is valid absent conscious maladministration notwithstanding any alleged breach of s. 3ZQU. 54 In his oral address, Mr Lloyd, S.C., for the Commissioner, emphasised that Futuris had established that conscious maladministration required a finding that the relevant assessing officer had knowingly assessed the taxable income of a taxpayer incorrectly. There must be consciousness of wrong doing. So much, it was said, could be seen from 164-165 [55]-[56] in Futuris as follows: The issue here is whether, upon its proper construction, s 175 of the Act brings within the jurisdiction of the Commissioner when making assessments a deliberate failure to comply with the provisions of the Act. A public officer who knowingly acts in excess of that officer's power may commit the tort of misfeasance in public office in accordance with the principles outlined earlier in these reasons. Members of the Australian Public Service are enjoined by the Public Service Act (s 13) to act with care and diligence and to behave with honesty and integrity. This is indicative of what throughout the whole period of the public administration of the laws of the Commonwealth has been the ethos of an apolitical public service which is skilled and efficient in serving the national interest. These considerations point decisively against a construction of s 175 which would encompass deliberate failures to administer the law according to its terms. Such failures manifest jurisdictional error and attract the jurisdiction to issue the constitutional writs. 55 The Commissioner's contention was also supported, it was submitted, by the more recent decision of the High Court in Commissioner of State Revenue v. ACN 005 057 349 Pty Ltd (2017) 261 C.L.R. 509, a case also referred to by the learned primary judge. Bell and Gordon JJ. said at 538 [85]: Moreover, as the Commissioner contended, even if the failure of the Commissioner to amend the assessments constituted a failure to exercise jurisdiction (and it did not), that failure would have been based on an erroneous construction of the LTA. Such a failure, by itself, would not have provided a basis to conclude that the Commissioner refused to amend the assessments knowing that he was legally obliged to make the amendment. In short, even taking the taxpayer's case at its highest, conscious maladministration would not be established. (Emphasis in original.) 56 Here, it was submitted that the applicant's pleaded case did not allege that the Commissioner's assessing staff knew that by using illegally obtained information in assessing the applicant, they were themselves acting illegally or dishonestly. The applicant did not plead that those staff "knowingly" acted in excess of their power; it could not realistically have done so, it was said, because the decisions of Denlay, Gould and Donoghue would have told the assessing staff that they were under a duty to have regard to all relevant information in their possession in making an assessment, even if it was unlawfully obtained. The applicant's pleadings therefore stopped at the allegation that the assessing staff knew, or were recklessly indifferent about, the use of illegally obtained information. As such, leaving aside Denlay, Donoghue and Gould, the applicant's pleaded case had no prospects of success because of Futuris. 57 The Commissioner also submitted that Futuris foreclosed the applicant's reliance upon steps said to involve illegality or knowledge of illegality, which were anterior to the ascertainment of the taxable income of a taxpayer. What is protected by s. 175 of the 1936 Act is an "assessment". At 151 [2] in Futuris, Gummow, Hayne, Heydon and Crennan JJ. explained what an "assessment" is in the following terms: The Act provides in s 6(1) that an "assessment" relevantly means "the ascertainment of ... the amount of taxable income ... and of the tax payable on that taxable income". The term "assessment" thus identifies what Kitto J said was: "the completion of the process by which the provisions of the Act relating to liability to tax are given concrete application in a particular case with the consequence that a specified amount of money will become due and payable as the proper tax in that case". (Footnote omitted.) 58 The reference to "what Kitto J. said" is to his Honour's judgment in Batagol v. Federal Commissioner of Taxation (1963) 109 C.L.R. 243 at 252. The Commissioner submitted that anterior steps, such as the gathering of information, are not part of the assessing process. Maladministration in the carrying out of those anterior steps could not in of itself affect the validity of a subsequently issued assessment. 59 The Commissioner did not submit that s. 175 of the 1936 Act in some way immunised his staff from the consequences of acting illegally or dishonestly. As was observed in Denlay at 434 [82]: One may confidently say that, in carrying out their investigations, the Commissioner's officers are subject to the law of the land; if they transgress the law of the land, then they will suffer the consequences. 60 Rather, he submitted that the consequence of such illegality or dishonesty should not be to let the taxpayer enjoy a "tax holiday". In all cases, it was said, the paramount function and purpose of the 1936 Act and the 1997 Act is that taxpayers should pay the correct amount of income tax according to law. If the Commissioner's staff misbehave, save for cases of conscious maladministration, that function and purpose should not be overborne by that misbehaviour. Rather, there were other remedies that might possibly be available in cases of such misbehaviour. In that respect, for my part, and leaving aside the tort of misfeasance in public office, I note that the Commissioner's staff, as APS employees under the Public Service Act, must obey the APS "Code of Conduct" (s. 13). This includes compliance with "all applicable Australian laws" (subs. (4)). Failure to so comply could lead to an inquiry by the Australian Public Service Commissioner (s. 41B), followed by the imposition of sanctions which can include termination of employment, re-assignment, salary reductions, deduction in salary or a reprimand (s. 15). Non-compliance with Australian law could also result in investigations by the Inspector-General of Taxation and Taxation Ombudsman pursuant to her powers under the Inspector-General of Taxation Act 2003 (Cth.) and the Ombudsman Act 1976 (Cth.). 61 The paramount function and purpose of the assessing Acts, as contended for by the Commissioner, was said to be supported by an observation made by the High Court in Glencore International AG v. Commissioner of Taxation (2019) 265 C.L.R. 646. In that case, the taxpayer sought an injunction restraining the Commissioner's staff from making any use of documents obtained following the "Paradise Papers" leak that were said to have been subject to legal professional privilege. The relief sought was refused. At 663 [33], the High Court said: The relief sought by the plaintiffs points to further difficulties. Some were mentioned earlier in these reasons: the nature of the cause of action which is to found the relief, and the fact that the information the subject of the claimed privilege is now in the public domain. In the latter respect the circumstances of this case identify a particular problem were an injunction to be granted. It is that the defendants would be required to assess Australian entities within the Glencore group to income tax on a basis which may be known to bear no real relationship to the true facts. (My emphasis.) 62 Mr Lloyd, S.C. distilled his case concerning the first test for leave as follows: (a) first, s. 175 of the 1936 Act protects only what that Act recognises as an assessment. The Act does not recognise as an assessment a document that ascertains a taxpayer's taxable income but that otherwise has been infected by conscious maladministration; (b) secondly, Futuris does not support the proposition that any breach of the law by the Commissioner's staff, either during the carrying out of a step anterior to assessment, or even in the course of making an assessment, will necessarily constitute conscious maladministration. Rather, conscious maladministration requires actual bad faith; (c) thirdly, conscious maladministration relates to the integrity of an assessment. What matters is the accuracy of information used to assess a taxpayer and the competence and honesty of the Commissioner's staff involved in making the assessment, and not whether that information may have been unlawfully obtained; and (d) fourthly, s. 166 of the 1936 Act requires the Commissioner to act upon the information he has in his possession regardless of how he came to have it. 63 As to the second test for leave, in his written submissions, the Commissioner contended that: (a) if the applicant claims to suffer injustice because by reason of the assessments it is obliged to pay an excessive amount of tax, it already has a sufficient remedy, namely the objection and appeal process established by Pt. IVC of the T.A.A. The applicant has now invoked that remedy and awaits the judgment of the Court; and (b) if the applicant claims to suffer injustice because documents concerning it were unlawfully seized, then procured unlawfully by the Commissioner's staff, and then used by other staff to form an opinion that there had been fraud or evasion, then this claim is hollow. Most of the emails which betray the applicant's alleged misconduct have since been supplied to the Commissioner's staff on an unrestricted basis. 64 In oral submissions, Mr. Lloyd S.C. contended that the injustice now alleged by the taxpayer - namely the denial of the opportunity to explain that there had been no fraud or evasion - arose no higher than speculation. He submitted that the speculative nature of the taxpayer's prejudice was borne out by the following three possible outcomes that might arise following the giving of judgment in the Pt. IVC tax appeal: (a) first, that Davies J. finds in favour of the applicant and decides that all of the assessments should have been nil assessments. If that were to take place, the applicant would not need any opportunity to contend that there had been no fraud or evasion; (b) secondly, that her Honour in part finds in favour of the applicant, and decides that the assessments are excessive to an extent. If that were to occur, the Commissioner would be obliged pursuant to the orders of the Court, and in accordance with item 6 of s. 170(1) of the 1936 Act, to issue new amended assessments. That would render, it was said, the s. 39B proceedings "otiose"; and (c) thirdly, that her Honour finds in favour of the Commissioner that the assessments are not excessive to any degree. Only in such a case would the taxpayer need then to contend that there had been no fraud or evasion. 65 The applicant disputed the foregoing analysis. It submitted that the Pt. IVC appeal assumed that the assessments had been validly made. As such, the issue concerning their validity needed to be decided first, before considering whether each assessment was excessive. If Davies J. were to decide that the assessments were partly excessive, no occasion for the issue of amended assessments pursuant to item 6 of s. 170(1) of the 1936 Act would arise if the applicant could successfully make out the existence of conscious maladministration, because that would mean that there were never any valid assessments to amend. If her Honour were to find for the applicant, it was contended that the applicant could still suffer substantial injustice because the Commissioner might appeal that decision.

Disposition 66 It is convenient to begin with the second test for leave. In my view, the possible opportunity to re-agitate the correctness of the Commissioner's opinion about the presence of fraud or evasion, and thus avoid the issue of the assessments, is optimistic conjecture and no more. Even if it be a species of possible injustice, due to its slim prospects, the identified injustice is not substantial. It is speculative. 67 SmithKline Beecham (Australia) Pty Ltd v. Chipman [2003] FCA 978 is illustrative of the proposition that speculative injustice will not constitute substantial injustice. SmithKline had nominated an independent expert to inspect documents discovered by Synthon AU Pty Ltd. This had been opposed by that company on the grounds that the expert was not sufficiently independent. Justice Weinberg, at that time a judge of this Court, dismissed the claim. Leave to appeal was sought before Goldberg J. It was said, amongst other things, that substantial injustice would arise if leave were not granted because of the risk that confidential information might fall into the hands of a trade rival. Goldberg J. dismissed that claim. At [19]-[20] his Honour said: However I consider that the test laid down in Adam P Brown Male Fashions Pty Ltd v Philip Morris Inc (supra) and Décor Corporation Pty Ltd v Dart Industries Inc (supra) and in subsequent cases is cumulative, so that it is not enough to find that the decision is attended with sufficient doubt to warrant reconsideration by a Full Court. In order for leave to be granted I have to be satisfied that substantial injustice will result if the matter is left as it is; particularly on matters of practice and procedure, albeit matters affecting substantive rights. The injustice relied upon by Synthon is that its confidential information will be made available to, and might be used by, a trade rival. However, the likelihood of that situation actually arising to Synthon's disadvantage is speculative and remote. Counsel for Synthon made it clear before his Honour that he was not suggesting that Professor Charman would deliberately misuse Synthon's confidential material in breach of his undertaking to the Court. Rather the submission was put on the basis that the risk was that he would subconsciously or inadvertently misuse that material. (Emphasis added.) C.f. Australian Broadcasting Corporation v. Kane [2019] FCA 1716 at [52]-[54] per Bromwich J. 68 It is not a species of injustice to pay the correct amount of income tax according to law. The Commissioner's view, deemed or actual, about what that amount should be for any given taxpayer, takes expression in the form of a notice of assessment, or a deemed notice of assessment. A taxpayer's view of what that amount should be takes expression in the form of a notice of objection. If the objection is disallowed, Pt. IVC of the T.A.A. then gives the taxpayer the opportunity to demonstrate what the correct amount of income tax should be, by either seeking review in the A.A.T., or by appealing the Commissioner's objection decision to this Court. 69 The salient circumstances here are as follows: (a) the applicant has pursued its Pt. IVC tax appeal rights in this Court. Whether any of the assessments issued to it are excessive will be determined by a judge of this Court. The hearing of that appeal took place in June 2020. The taxpayer did not contend that it did not have the fullest possible opportunity to demonstrate the excessiveness of each assessment at that hearing. The matter is now reserved; (b) in its Pt. IVC tax appeal, the applicant necessarily accepted the legal validity of the assessments issued to it. It had to do so for it to have a valid right of objection, and then a valid right of appeal; (c) further, in its Pt IVC tax appeal, the taxpayer never challenged the lawfulness of the formation by the Commissioner of his opinion that there had been fraud or evasion. Nor did the taxpayer seek to have that opinion reviewed on the merits by the A.A.T. It chose not to embark on that course; that was a deliberate step in the applicant's litigation with the Commissioner. It was not otherwise suggested that the Commissioner had in any way conceded in the Pt. IVC appeal that there had not in fact been any fraud or evasion; (d) the applicant did not identify before us the "explanatory evidence" which the applicant says was before this Court in the Pt. IVC tax appeal, and which, if this Court were to decide that the assessments had never been legally efficacious, might in the future persuade the Commissioner that there had been no fraud or evasion. Notwithstanding this, the Court was asked to infer that this material led the Commissioner to change his case in the Pt. IVC tax appeal; and (e) the "explanatory evidence" would all appear to be sourced from the applicant. It was not suggested otherwise. No adequate explanation was forthcoming as to why the applicant did not seek review of the assessments in dispute here before the A.A.T., using that same "explanatory evidence" to persuade it that it should form an opinion that there had been no fraud or evasion. In that respect, Mr Williams, very properly if I may say so, said in argument that "…if I had been quicker on my feet I might have been able to go back at that point and start in the AAT separately instead." 70 It follows from the foregoing that, in my view, the supposed substantial injustice was no more than conjecture or speculation. The Court was given no material upon which it could judge the prospects of the applicant persuading the Commissioner that there had been no fraud or evasion, assuming it would ever need to do so. 71 Moreover, even if the supposed substantial injustice had not been conjecture or speculation, and instead had some substance, in my view the applicant would nevertheless suffer no substantial injustice if leave were to be refused. That is because it has already exercised its right to dispute the correctness of the assessments in the Pt. IVC appeal heard by Davies J. It also had the opportunity - which it chose not to pursue - to put all of its "explanatory evidence" to the A.A.T. on a merits review. The taxpayer cannot escape or avoid that choice in these proceedings. 72 It follows that leave to appeal should not in my view, and with respect, be granted. 73 If it matters, for the purposes of the first test for leave, I am also not satisfied that the judgment below is attended with sufficient doubt. On the contrary, with great respect, I think it is clearly right. In my view, the learned primary judge correctly determined the applicant's prospects of success for the purposes of s. 31A of the Federal Court of Australia Act, having regard to the decisions of this Court in Denlay, Donoghue, and Gould and of the High Court in Futuris. 74 For my part, determining the likelihood of the applicant's success did not turn upon whether particular parts of the reasons in Denlay, Donoghue and Gould were obiter dicta or were binding ratio. Rather, it turned upon whether, given the strength and consistency of the reasons in each of those decisions, taken as a whole, the applicant had no reasonable prospects of success. That included the formation of a judgment about the likelihood that the applicant would be able to develop, either in the Full Federal Court or in the High Court, the law in the way it wished to do. Assessing that likelihood did not necessarily turn upon which bits of those three cases technically bound the primary judge. Nor can an applicant avoid summary judgment in every case by making a simple proclamation that it wishes to develop the law before the High Court. If such a submission were to be made to a primary judge, in applying s. 31A that judge would still need to assess the probability of that development taking place in determining whether the applicant had reasonable prospects of success. 75 In making these types of determination, there are no fixed rules or immutable formulae. As Hayne, Crennan, Kiefel (as her Honour then was) and Bell JJ. said in Spencer at 141 [58]-[60]: How then should the expression "no reasonable prospect" be understood? No paraphrase of the expression can be adopted as a sufficient explanation of its operation, let alone definition of its content. Nor can the expression usefully be understood by the creation of some antinomy intended to capture most or all of the cases in which it cannot be said that there is "no reasonable prospect". The judicial creation of a lexicon of words or phrases intended to capture the operation of a particular statutory phrase like "no reasonable prospect" is to be avoided. Consideration of the difficulties that bedevilled the proviso to common form criminal appeal statutes, as a result of judicial glossing of the relevant statutory expression, provides the clearest example of the dangers that attend any such attempt. In many cases where a plaintiff has no reasonable prospect of prosecuting a proceeding, the proceeding could be described (with or without the addition of intensifying epithets like "clearly", "manifestly" or "obviously") as "frivolous", "untenable", "groundless" or "faulty". But none of those expressions (alone or in combination) should be understood as providing a sufficient chart of the metes and bounds of the power given by s 31A. Nor can the content of the word "reasonable", in the phrase "no reasonable prospect", be sufficiently, let alone completely, illuminated by drawing some contrast with what would be a "frivolous", "untenable", "groundless" or "faulty" claim. Rather, full weight must be given to the expression as a whole. The Federal Court may exercise power under s 31A if, and only if, satisfied that there is "no reasonable prospect" of success. Of course, it may readily be accepted that the power to dismiss an action summarily is not to be exercised lightly. But the elucidation of what amounts to "no reasonable prospect" can best proceed in the same way as content has been given, through a succession of decided cases, to other generally expressed statutory phrases, such as the phrase "just and equitable" when it is used to identify a ground for winding up a company. At this point in the development of the understanding of the expression and its application, it is sufficient, but important, to emphasise that the evident legislative purpose revealed by the text of the provision will be defeated if its application is read as confined to cases of a kind which fell within earlier, different, procedural regimes (Footnote omitted.) 76 In my view, and with respect, the learned primary judge correctly decided that Denlay, Donoghue and Gould foreclosed the case the applicant wished to present, precisely because the reasons of each judgment faithfully and accurately applied the decision of the High Court in Futuris. As Mr. Lloyd, S.C. correctly observed, the applicant's statement of claim pleaded that the assessing officers knew, or were recklessly indifferent, about the allegedly illegal acts that had taken place in getting possession of the disputed documents. However, the statement of claim did not plead or contend that those officers, or any other of the Commissioner's staff who had been involved, knew that, or were recklessly indifferent as to the fact that, using those documents to assess the applicant was wrong; it never pleaded that the staff had acted dishonestly, in deliberate bad faith or corruptly. It did not plead an awareness of wrong doing. Yet, that is the essence of conscious maladministration. 77 In Futuris, the Full Federal Court had decided that the Commissioner had deliberately double counted a capital gain. The High Court also found that this was so, but that it had been done on the basis that the Commissioner considered that he was entitled to double count, leaving to a later time the making of compensating adjustments pursuant to s. 177F of the 1936 Act which would undo that double counting. In other words, the double counting was deliberate, but it was not done by staff of the Commissioner who thought they were doing the wrong thing. Thus at 165 [58]-[59], Gummow, Hayne, Heydon and Crennan JJ. said: The Court was taken through the internal documents of the ATO and the correspondence which was in evidence. The key to the error in the reasoning of the Full Court may be seen in the concluding words in the passage from its reasons set out above that what was held to be the "deliberate" conduct of the Commissioner was "albeit subject to the assumption that all could be made good by a subsequent compensating adjustment determination in reliance on s 177F(3)". This was more than an "assumption"; the reasoning in the ANZ Case was fairly open to the construction that it supported the course taken in making the Second Amended Assessment and the assessment was made on that footing. That s 177F(3) might be differently construed in a subsequent Pt IVC proceeding (and the allowing of this appeal leaves open that possibility in the pending Pt IVC litigation in the Federal Court) does not support any conclusion that the Commissioner engaged in "double counting" with any knowledge or belief that there was a failure in compliance with the provisions of the Act. (Footnotes omitted and emphasis added.) 78 Inferentially, that is what happened here. Taking the applicant's pleadings at their highest, the Commissioner's staff deliberately obtained and then used documents that were seized in contravention of the Crimes Act. They did so, I would infer, in the belief that the law required them to assess the applicant's taxable income as accurately as possible and using all of the information in the Commissioner's possession. As Davies J. said in Donoghue at 345-346 [115]: The circumstances under which the information on which the assessments were based came into the possession of the Commissioner could not, and did not, alter the liability to tax which the law imposed on the taxpayer on the facts known to the Commissioner and the Commissioner's reliance on that information to raise the assessments could not, and did not, constitute the exercise of power in bad faith nor a deliberate disregard of his duty to assess in accordance with the law. 79 The learned primary judge well understood the essence of conscious maladministration as described in Futuris. The passage at [19] of her Honour's reasons, as set out above, demonstrates that understanding. It commences with the following sentence: Conscious maladministration in the sense explained in Futuris requires the mental element of knowingly acting in excess of power… 80 At no point in the pleaded case for the applicant was it alleged that the Commissioner's staff knowingly acted in excess of power, whether in seizing documents during the execution of the search warrant, taking custody of those documents, disclosing their existence, issuing and then complying with the Notice, and finally in the computation of the applicant's taxable income. It follows that, even accepting that the applicant's anterior step contention is yet to be considered by the High Court, in my respectful view, the learned primary judge's reasons are not attended with sufficient doubt to satisfy the first test for leave. 81 I otherwise respectfully agree with the other reasons given by Mr. Lloyd, S.C. for the dismissal of the applicant's application. 82 My conclusion is also supported by the fact that much of the discretionary relief sought by the applicant would in my view have been inexorably refused in any event, given the presence of the applicant's Pt. IVC tax appeal in respect of which judgment has been reserved. 83 The application for leave to appeal should be dismissed with costs. I certify that the preceding eighty-one (81) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Steward.

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Judgment (20 paragraphs)

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Cases Cited (12)