First Issue: Maladministration (Notice of Appeal Grounds 4, 7, 8 and 12, Proposed Amended Notice of Contention Ground 3(c))
41 The principal issue to be determined at the trial of the Judicial Review Proceeding was whether the notices of assessment were valid. The validity of notices of assessment is protected by a privative clause in ss 175 and 177(1) of the 1936 Act which provided:
'175 Validity of assessment
The validity of any assessment shall not be affected by reason that any of the provisions of this Act have not been complied with.
177 Evidence
(1) The production of a notice of assessment, or of a document under the hand of the Commissioner, a Second Commissioner, or a Deputy Commissioner, purporting to be a copy of a notice of assessment, shall be conclusive evidence of the due making of the assessment and, except in proceedings under Part IVC of the Taxation Administration Act 1953 on a review or appeal relating to the assessment, that the amount and all the particulars of the assessment are correct.'
42 The effect of these provisions was explained in Futuris at 157 [25] and 164-165 [55] (supra) as not applying to assessments which have been produced as a result of conscious maladministration. Elsewhere in the judgment it is clear that the underlying concept which will take an assessment beyond the protection afforded by ss 175 and 177 is, in essence, a want of good faith in the process of assessment: see especially at 164-165 [55] and 165-166 [60]. The Full Court in Denlay observed (at 433 [76]) in relation to Futuris at 165-166 [60]:
'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.'
In that circumstance, conscious maladministration is an instance of the absence of good faith. There may well be others. This is not to say that a taxpayer may not dispute a notice of assessment on other grounds (besides want of good faith or that the supposed assessment was provisional or tentative only) but rather that any such review must take its course through the ordinary channels provided for review under the provisions of Pt IVC of the Taxation Administration Act 1953 (Cth) and will not go to validity. The Judicial Review Proceeding was brought under s 39B of the Judiciary Act 1903 (Cth), which would have ordinarily permitted this Court to review a decision of the Commissioner on the full range of judicial review grounds. The effect of s 175 and the High Court's decision in Futuris, however, is that the only ground of review available to challenge a notice of assessment in a case such as the present is a want of good faith such as conscious maladministration. The correctness of these observations was not in dispute before the trial judge or in this Court.
43 In his statement of claim in the Judicial Review Proceeding, Mr Donoghue alleged that the Commissioner had received his documents from Simeon Moore knowing, or in circumstances in which he ought to have known, that they were confidential and also the subject of legal professional privilege. It was said in the pleading that it was, therefore, wrongful for the Commissioner to have used the documents in the course of producing the assessments. It was then alleged that this conduct amounted to conscious maladministration.
44 Before the trial judge, the explicitly pleaded case that conscious maladministration was to be proved by demonstrating that the Commissioner might have been liable in an action for breach of confidence was abandoned. This left the allegation of conscious maladministration resting only on the notion that it was unlawful for the Commissioner to use privileged documents which had come into his possession in the process of preparing a notice of assessment.
45 In this Court, it was disputed by Mr Donoghue that the case based on confidentiality had, in fact, been abandoned. However, we have no doubt that it was. At paragraph [25] of Mr Donoghue's written submissions in the Court below, this statement was made:
'Turning to the second issue raised by the respondent, namely that the documents were not confidential documents, the respondent mis-states the legal principles. Legal professional privilege may apply to documents that are not confidential, if they are provided to the solicitor for the purposes of seeking legal advice. They are privileged in the hands of the solicitor. They may not be confidential in the hands of the client, and may be disclosable or discoverable in the event of litigation, but the fact that a copy has been provided to the solicitor for the seeking of legal advice renders the information the subject of privilege in the first instance.'
46 Counsel for Mr Donoghue on the appeal submitted that this did not constitute an abandonment of a case based on confidentiality and that this passage was to a degree ambiguous. It may be doubted whether this is so but it is, in any event, immaterial. The final address of junior counsel for Mr Donoghue at the trial put the matter beyond doubt following an exchange with the primary judge in which the precise question was raised:
'His Honour: What looking at 81 and 82 provokes is the thought about whether one needs to go into equitable duties of confidence which - in other words, if there is, to use the term there, the purpose of vindicating the public law of the Commonwealth, upholding lawful conduct - does there need to be a cause of action for an equitable duty of confidence breach if what is established by Mr Donoghue is an unlawful - unlawful conduct by the Commissioner.
Mr Peden: No. We don't need to go so far as that. We just need to focus on the legal professional privilege point.
His Honour: And the exercise of an assessing power in a way that would violate that privilege.'
47 It is, therefore, clear that the breach of confidence case was not being pursued at trial although it had certainly initially appeared in the pleadings. Consistent with its abandonment, there are to be found in the written submissions at trial none of the arguments which it would have been necessary to advance if a claim for breach of confidence had actually been pursued. There are, for example, no submissions from Mr Donoghue about which of the documents was confidential nor any explanation of whence the necessary quality of confidentiality in those document might have arisen. As will appear later in these reasons, there are problems with the contention that all of the documents which Simeon Moore handed over to the ATO could be the subject of a claim in respect of confidential information. For example, the documents included material such as loan documents and other transactional documents which are not generally thought to have the necessary quality of confidence. Although there is no need for us to express a concluded view on this issue, it is possible that the abandonment of the case based on confidentiality reflected a sober appreciation on the part of Mr Donoghue's advisers of the problems which attended the pursuit of such a case.
48 By the end of the trial Mr Donoghue's case, therefore, hinged entirely upon the legal proposition that it was unlawful for the Commissioner to have used the documents he received from Simeon Moore because they were the subject of legal professional privilege. This case the trial judge accepted.
49 The trial judge's conclusion was that conscious maladministration was demonstrated by Mr Main's use of documents which were privileged. His Honour's reasoning is well illustrated by a passage at paragraph [113]:
'Faced with the choice of using material relevant to the audit which may be privileged and compromising confidentiality Mr Main deliberately chose not to make or cause to be made inquiries. He chose to take a risk, a risk that the material might indeed be privileged and its use in the process of assessment forbidden by law. He made these choices under the pressure of a limited time within which to complete his audit. That the material did not obviously convey legal advice was Mr Main's way of rationalising both this choice and a view that the risk it was privileged was "low". In these circumstances, Mr Main acted in reckless disregard of a right which Mr Donoghue had at least to claim an important common law privilege.'
50 It is clear that the law the trial judge had in mind was the law of privilege. The only reference to confidentiality is in the first sentence and it is a reference to Mr Main's desire to maintain the confidentiality of the covert audit, rather than the confidentiality of Mr Donoghue's documents. That this was so appears in several parts of the judgment. For example, at [134] the trial judge observed that s 166 of the 1936 Act (infra) did not 'authorise him to use information in his possession which is the subject of legal professional privilege…'. And, at [137], he said, '…neither s 166 nor s 263 of the [1936 Act] authorises the use of or access to material which is subject to legal professional privilege…'. Similar statements appear at [138] and [145].
51 This is, of course, consistent with the way in which the case was run before his Honour. Some effort was made in this Court to argue that his Honour had dealt with a claim for breach of confidence, at least implicitly. We reject that submission. There was no occasion for his Honour to consider such a case and we do not read his reasons as doing so. There is no reference to an action for breach of confidence in the reasons for judgment.
52 With respect to the trial judge, whilst it is easy enough to see why privilege might be viewed as a bar to inspection this was not a correct view. The common law of legal professional privilege operates as an immunity from the exercise of powers requiring compulsory production of documents or disclosure of information. It is not a rule of law conferring individual rights, the breach of which may be actionable. Consequently, no action lies against a party who receives documents which are privileged merely because those documents are privileged. Gummow J explained the matter this way in Propend at 565-566:
'At common law, and in the absence of any statutory indemnity or other protection against liability, an officer who executed a search warrant in excess of the authority conferred by it, incurred a liability for damages in tort for trespass to land or goods, false imprisonment or for other misfeasance. However, the privilege itself is not to be characterised as a rule of law conferring individual rights, breach of which gives rise to an action on the case for damages, or an apprehended or continued breach of which may be restrained by injunction.
It is true that if the use of privileged documents by the defendant is, or is a consequence of, a breach of confidence owed the plaintiff, then there may be an equity to protect that confidence. In Lord Ashburton v Pape, it was decided that the client whose privileged documents, being letters written to his solicitor, had fallen into the hands of a third party by a trick, might obtain injunctive relief requiring the return of the documents and restraining the third party from making use of them. On the other hand, in Calcraft v Guest, the defendant was permitted to adduce as secondary evidence copies of proofs of witnesses, with notes of the evidence, in a previous action brought in 1787 by the plaintiff's predecessor in title and concerning the true boundary of the plaintiff's fishery. The original documents remained privileged but the defendant, having obtained copies of the privileged documents, was not precluded by that privilege from tendering them as secondary evidence. It was held that the question of provenance of the documents tendered was a collateral issue.
The distinction between these authorities may be seen to lie in the character of the privilege as a bar to compulsory process for the obtaining of evidence rather than as a rule of inadmissibility. The effect of the authorities has been identified as follows:
"All that Calcraft v Guest decided was that when a privileged document was no longer in the hands of those entitled to claim immunity from production, there was nothing to prevent its use in evidence. Of course, a person who has a right to confidence in a document can enforce his right by injunction, and this is what lay behind Ashburton v Pape."'
(footnotes omitted)
53 Four judges of the High Court adopted the same reasoning in Daniels Corporation International Pty Ltd v Australian Competition and Consumer Commission (2002) 213 CLR 543 at 552-553 [10]. It follows that the common law of privilege is silent when the question which arises does not concern compulsory production. It is, no doubt, apt to confuse that the statutory law of privilege which governs the admissibility of privileged documents in Court proceedings is not a rule which operates as an immunity. Instead, provisions such as ss 118 and 119 of the Evidence Act 1995 (Cth) operate as a prohibition on the adduction of evidence of privileged communications. That is not a matter, however, which can distract from the true nature of common law privilege as an immunity.
54 On the other hand, as Gummow J noted in Propend, privileged documents will often be confidential in the sense that a court of equity will restrain their publication under the principles outlined by Megarry J in Coco v AN Clarke (Engineers) Ltd [1969] RPC 41 at 47 ('Coco'):
'In my judgement, three elements are normally required if, apart from contract, a case of breach of confidence is to succeed. First, the information itself, in the words of Lord Greene, M.R. in the Saltman case on page 215, must "have the necessary quality of confidence about it." Secondly, that information must have been imparted in circumstances importing an obligation of confidence. Thirdly, there must be an unauthorised use of that information to the detriment of the party communicating it. I must briefly examine each of these requirements in turn.
First, the information must be of a confidential nature. As Lord Greene said in the Saltman case at page 215, "something which is public property and public knowledge" cannot per se provide any foundation for proceedings for breach of confidence. However confidential the circumstances of communication, there can be no breach of confidence in revealing to others something which is already common knowledge. But this must not be taken too far. Something that has been constructed solely from materials in the public domain may possess the necessary quality of confidentiality: for something new and confidential may have been brought into being by the application of the skill and ingenuity of the human brain. Novelty depends on the thing itself, and not upon the quality of its constituent parts. Indeed, often the more striking the novelty, the more commonplace its components. Mr. Mowbray demurs to the concept that some degree of originality is requisite. But whether it is described as originality or novelty or ingenuity or otherwise, I think there must be some product of the human brain which suffices to confer a confidential nature upon the information: and, expressed in those terms, I think that Mr. Mowbray accepts the concept.'
55 Thus, as was held in Lord Ashburton v Pape [1913] 2 Ch 469, a person who comes into possession of another's privileged documents may be restrained in equity from using or publishing them. This result, however, follows not from their status as privileged documents but from the fact that they have the necessary quality of confidentiality in the sense discussed in Coco.
56 Swinfen Eady LJ explained the matter this way in Lord Ashburton v Pape (at 475):
'…The principle upon which the Court of Chancery has acted for many years has been to restrain the publication of confidential information improperly or surreptitiously obtained or of information imparted in confidence which ought not to be divulged. Injunctions have been granted to give effectual relief, that is not only to restrain the disclosure of confidential information, but to prevent copies being made of any record of that information, and, if copies have already been made, to restrain them from being further copied, and to restrain persons into whose possession that confidential information has come from themselves in turn divulging or propagating it.'
57 Accordingly, it is orthodox that where privileged documents are disclosed to third parties the right to restrain their use or to compel their return is grounded in equity rather than the common law of privilege. This has been affirmed in several decisions of intermediate appellate courts and is not in doubt: see Trevorrow v South Australia (No 4) (2006) 94 SASR 64 at 70-71 [11]-[16] per Doyle CJ, at 80 [78]-[79] per Debelle J, at 100-101 [172]-[173] per White J; Cowell v British American Tobacco Australia Services Ltd [2007] VSCA 301 at [32]-[34] per Warren CJ, Chernov and Nettle JJA; Australian Securities and Investments Commission v Lindberg (2009) 25 VR 398 at 406-409 [43]-[51] per Mandie JA (Warren CJ and Neave JA agreeing); Armstrong Strategic Management and Marketing Pty Ltd v Expense Reduction Analysts Group Pty Ltd (2012) 295 ALR 348 at 362-365 [69]-[83], 371 [102], 373 [109] and 383-386 [155]-[162] per Campbell JA (Macfarlan JA and Sackville AJA agreeing) (appeal allowed on other grounds: Expense Reduction Analysts Group Pty Ltd v Armstrong Strategic Management and Marketing Pty Ltd (2013) 250 CLR 303).
58 It follows that the act of maladministration identified by the trial judge - breach of the common law of legal professional privilege - cannot, with respect, be correct. At best the law of privilege afforded Mr Donoghue an immunity against being compulsorily required to disclose communications with his attorneys. Where the Commissioner did not use any such power to obtain the documents in question, whether they were privileged was of no moment.
59 Of course, the authorities do not mean that a person in Mr Donoghue's position is without remedy. In this case, Mr Donoghue could have brought a suit against Simeon Moore immediately after he sought to blackmail him in order to restrain him from carrying out his threat. Even after the documents were delivered to the ATO it may perhaps have been possible, at least before the information in them became assimilated via the assessment process, to have sued the Commissioner under the principle in Lord Ashburton v Pape for the return of the material (we express no concluded view on that matter although we discuss it more fully below). However, all of these claims would have been in equity to enforce a claim for confidentiality and it was a case of this kind which was, as we have explained, abandoned before the trial judge.
60 The situation then is that the case advanced by Mr Donoghue before the primary judge, and accepted by him, could not be correct. Subject to what follows, this must lead, inevitably, to the appeal being allowed.
Attempts to revive the breach of confidence case on appeal
61 During the hearing of the appeal it became clear, for the reasons which have just been given, that it was vital to Mr Donoghue's interests to pursue a claim for breach of confidence before this Court. This end was pursued in reliance upon two arguments. The first was that although it was, in a sense, technically correct to distinguish the nature of a claim for privilege as an immunity from production from the equitable principles governing the protection of confidential information, in substance they were to be seen as cut from the same cloth. If that were so then the fact that the primary judge dealt with the claims for privilege at trial should be taken as being a sufficient treatment of the issue of confidence even if the primary judge did not use that appellation himself.
62 We reject this argument. The distinction between the two sets of principles is not merely technical, it is substantial. One is an immunity which gives rise to no rights which can be breached; the other a right to approach a court of equity for discretionary relief. One is a fundamental common law right; the other an incident of the law of intellectual property. It is, therefore, not the case that by dealing with the claim for breach of privilege his Honour must have dealt with the claims for breach of confidence by a fortuitous side-wind. Issues which arose for consideration in a claim for breach of confidence which did not arise in considering a claim for privilege included the need for evidence about the confidential nature of the material in issue and the various discretionary reasons which might exist for refusing relief. The latter included, at least, significant questions about public policy and clean hands.
63 The second argument conceded that the question of breach of confidence had not been dealt with at trial and now sought to raise it as a fresh issue on the appeal. This required Mr Donoghue to submit that the trial judge's reasoning might be supported on grounds other than those relied upon by his Honour. It was therefore necessary for any such argument to be pursued by notice of contention: r 36.24 of the Federal Court Rules 2011 (Cth). On the second day of the appeal, Mr Donoghue sought to file an amended notice of contention including a ground 3(c) to the effect that the orders made by the Court below could be supported on the basis of an argument that Mr Main had committed conscious maladministration because he had used Mr Donoghue's confidential information. At the time, we permitted the matter to be argued in full and reserved the issue of whether leave to file the amended notice of contention should be granted.
64 Leave should not be granted. A pleaded case based on confidentiality was alive in the pleadings but it is apparent that that case was abandoned at trial. This is not a case where the issue is whether this Court should permit a fresh argument to be raised which was not pursued in the Court below. This is a case where the point had been initially pursued and then given up. As the High Court explained in University of Wollongong v Metwally (No 2) (1985) 59 ALJR 481 at 483:
'It is elementary that a party is bound by the conduct of his case. Except in the most exceptional circumstances, it would be contrary to all principle to allow a party, after a case had been decided against him, to raise a new argument which, whether deliberately or by inadvertence, he failed to put during the hearing when he had an opportunity to do so.'
65 See also Coulton v Holcombe (1986) 162 CLR 1 at 7-8. A fortiori, where the proposed fresh argument was abandoned. Quite apart from that difficulty, there is not the material before this Court which would allow any assessment of the claim that the documents had the necessary quality of confidence: cf. Corrs Pavey Whiting & Byrne v Collector of Customs (Vic) (1987) 14 FCR 434 at 443 per Gummow J (FC); Smith Kline & French Laboratories (Aust) Ltd v Secretary, Department of Community Services & Health (1990) 22 FCR 73 at 87 per Gummow J; Coco at 47 per Megarry J.
The Necessary Quality of Confidentiality
66 The observation in the preceding paragraph is not an idle one. A cursory consideration of the material handed over to the ATO by Simeon Moore reveals that many of the documents collected by him from his father's house and taken to his own residence at St Ives cannot have been confidential in the sense discussed in Coco. For example, one of the documents was a loan agreement and another was a letter authorising a third party to transfer some shares. Furthermore, it appears to us that the documents in question are likely to have included correspondence passing between the parties in the Lava and Saree proceedings, together with affidavits and other documents on the Supreme Court's file. The latter could not conceivably be confidential.
67 Counsel for Mr Donoghue sought to overcome that difficulty by submitting that all of the documents taken by Simeon Moore from his father's house must have been confidential because they were all necessarily privileged. We would reject this argument. It is true that the trial judge accepted that all of the documents must have been privileged even if they were copies of non-privileged documents. This was because his Honour concluded that, as copies, they had all been created for the dominant purpose of assisting in the conduct of the Supreme Court litigation: cf. Propend at 508, 544, 571-572 and 589-590.
68 Without deciding at this stage, whether that conclusion by the primary judge was, as the Commissioner submitted, erroneous because it was not shown that all of the documents held by Simeon Moore were copies created for that purpose, it does not, in any event, justify the conclusion for which Mr Donoghue contends, viz. that the documents must have been confidential in the Coco sense as well. This is because, whilst we accept that a communication passing between a lawyer and client needs to be confidential before it can be privileged, it does not follow that the subject matter of the confidential communication need itself have about it the necessary quality of confidence. It may be accepted, applying Propend, that if a client creates a copy of a non-confidential and unprivileged document she has in her possession for the dominant purpose of providing it to her lawyer to assist in the conduct of litigation, the copy so created will be privileged. An example of such a document which was explored in argument on the present appeal was a map illustrating where an accident occurred. It would be true, in such a case, that the communication of the copy to the lawyer would be a confidential communication and the copy would be immune from production by way of compulsory process. But it does not follow, contrary to Mr Donoghue's submissions, that the information contained in that copy would thereafter have about it the necessary quality of confidence within the meaning of Coco, simply because it had been contained in a communication which was itself confidential. The significance of this is that whilst such a client might resist compulsory production of the copy of the map held by the lawyer, she would be unable to obtain an injunction to restrain a third party who came into possession of the copy from using it on the basis of an action for breach of confidence. The information in the copy of the map would not be confidential and it could not have become confidential simply because the copy was provided to a lawyer.
Conclusions on Privilege and the Appeal
69 Once that point is reached, there is nothing before this Court upon which it could decide the merits of a claim for a breach of confidence. In those circumstances, it is inevitable that the appeal must be allowed. The trial judge's conclusion that the law of privilege required Mr Main not to examine or use the documents was contrary to Propend and Daniels. No case for breach of confidence being pursued before the trial judge or this Court, it is not possible to conclude that Mr Main acted contrary to law. That conclusion has the consequence that there can have been no maladministration by Mr Main in using the material. If there were no maladministration there can have been no conscious maladministration within the meaning of Futuris at 157 [25] and 164-165 [55]. The Judicial Review Proceeding should have been dismissed and the trial judge erred in not doing so.
Additional observations on the action for breach of confidence
70 Even if Mr Donoghue had run a case based on breach of confidence, such a case would have been, so it seems to us, confronted with significant difficulties. Here we assume in Mr Donoghue's favour that he could surmount the difficulty of proving that the material provided by Simeon Moore had the necessary quality of confidence and, further, that it was this information which Mr Main used in producing his draft Statement of Reasons (although we note for completeness that the Commissioner was critical of both of those assumptions).
71 The difficulty is that any such case would have been defeated by s 166 of the 1936 Act. It provided:
'166 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 of the tax payable thereon (or that no tax is payable).'
72 It has been held, albeit in somewhat different circumstances, that s 166 permits the Commissioner to use information in his possession which might be the subject of a claim for breach of confidence: Awad v Commissioner of Taxation (2000) 104 FCR 106 at 112-113 [22]-[24] ('Awad'). There is a material distinction between that case and this in that in Awad the confidential information had come innocently into the hands of the Commissioner as the result of the execution of warrants which were later quashed on constitutional grounds; that is to say, at the time the Commissioner received the documents he did not know or suspect that a claim for confidentiality could be made. In this case, we are prepared to assume in Mr Donoghue's favour that it would have been reasonably obvious to Mr Main that some, perhaps many, of the documents supplied by Simeon Moore could have been subject to a claim for confidentiality.
73 However, we do not accept that s 166 is confined in its operation merely to permitting the Commissioner to have access to confidential information which he has received without notice of its confidential nature. Such a limited scope for the operation of s 166 was expressly rejected by the Full Court of this Court in Denlay at 433-434 [81]-[82]:
'81 We are unable to interpret s 166 of the ITAA 1936 in the way urged by the taxpayers. 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.
82 We are also unable to see that such a qualification is necessary in order to ensure that the Commissioner's officers are discouraged from disobeying the law in carrying out their functions under the ITAA 1936. 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. It is an entirely different thing to say that the interest of the Australian community in the making of taxation assessments based on the most accurate information available, an interest embodied in s 166 of the ITAA 1936, should be defeated by a default on the part of the Commissioner's officers which has no bearing on the accuracy of the assessment. Thus, the desirability of encouraging officers of the executive government to abide by the law of the land affords no reason to confine the operation of s 166 of the ITAA 1936 by subjecting it to the limitations urged by the taxpayers.'
74 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.
75 The trial judge conceptualised Mr Donoghue's claim for privilege as giving rise to a right in Mr Donoghue to prevent the use of the documents and a correlative duty on the part of Mr Main not to use them. As we have explained, this was erroneous. It was with that misconception, no doubt persuasively urged by counsel for Mr Donoghue at the trial, that his Honour then approached the question of the proper construction s 166. At para [133] he reasoned, in an apparently orthodox fashion, that s 166 would not be interpreted in a way which infringed legal professional privilege without clear words or necessary implication: cf. Daniels and Baker v Campbell (1983) 153 CLR 52. Correctly, with respect, he concluded that such clarity of expressed intention could not be located in the text of s 166.
76 The incorrectness of this otherwise impeccable reasoning emerges because the issue of privilege could only arise in the context of a power of compulsory production and s 166 is not such a power. Section 166 does not empower the Commissioner to obtain any material by compulsion. Rather, it imposes a duty on him to use information which is in his possession. Not being a power to require production, there was no basis for reading s 166 as not applying to information which was privileged.
77 Once that is brought to account, the debate then necessarily turns to the question of how s 166 would have interacted with a claim for breach of confidence. The answer to that question was definitively provided by the passage we have set out above from Denlay: it would have defeated it. The trial judge sought to distinguish Denlay on this basis:
'I am bound, of course, to follow the law as stated by the Full Court. Denlay arose against the background of the theft abroad by a third party of confidential banking and financial information which came into the possession of officers of the Australian Taxation Office and was then used by the Commissioner. Neither the Commissioner nor any of his officers nor any other officer of the Commonwealth was a party to that theft. The Full Court, in turn, was bound by what had been said in Futuris. The statement made in Denlay with respect to s 166 was made in respect of facts which did not give rise to conscious maladministration, as explained in Futuris, on the part of the Commissioner and his officers. The passage quoted from Denlay is not and was not intended to be an endorsement of the proposition that s 166 gives the Commissioner carte blanche consciously to maladminister the ITAA36 in the process of making an assessment. It was also a feature of Denlay that the Full Court was not called upon to consider whether recklessness might supply the element of knowledge necessary to establish "conscious maladministration".'
78 Accepting that these are differences they do not seem to us to be relevant ones. Further, it is apparent that his Honour regarded s 166 as operating in the domain of privilege when, in truth, it did not.
Mr Donoghue's argument that s 166 does not apply to confidential information
79 Before this Court, Mr Donoghue advanced an additional argument that s 166 did not authorise the use of confidential information in the Commissioner's possession. Necessarily this implicitly constituted an invitation to depart from the conclusion in Awad that s 166 does authorise the use of confidential information. The invitation should be declined.
80 The argument had as its point of departure s 263 of the 1936 Act. Sections 263 and 264 provided:
'263 Access to books etc.
(1) The Commissioner, or any officer authorized by the Commissioner in that behalf, shall at all times have full and free access to all buildings, places, books, documents and other papers for any of the purposes of this Act, and for that purpose may make extracts from or copies of any such books, documents or papers.
(2) An officer is not entitled to enter or remain on or in any building or place under this section if, on being requested by the occupier of the building or place for proof of authority, the officer does not produce an authority in writing signed by the Commissioner stating that the officer is authorised to exercise powers under this section.
(3) The occupier of a building or place entered or proposed to be entered by the Commissioner, or by an officer, under subsection (1) shall provide the Commissioner or the officer with all reasonable facilities and assistance for the effective exercise of powers under this section.
Penalty: 30 penalty units.
Note: See section 4AA of the Crimes Act 1914 for the current value of a penalty unit.
264 Commissioner may require information and evidence
(1) The Commissioner may by notice in writing require any person, whether a taxpayer or not, including any officer employed in or in connexion with any department of a Government or by any public authority:
(a) to furnish the Commissioner with such information as the Commissioner may require; and
(b) to attend and give evidence before the Commissioner or before any officer authorized by the Commissioner in that behalf concerning the person's or any other person's income or assessment, and may require the person to produce all books, documents and other papers whatever in the person's custody or under the person's control relating thereto.
(2) The Commissioner may require the information or evidence to be given on oath or affirmation and either verbally or in writing, and for that purpose the Commissioner or the officers so authorized by the Commissioner may administer an oath or affirmation.
(3) The regulations may prescribe scales of expenses to be allowed to persons required under this section to attend.'
81 There is no doubt that s 264 can be used to require the production of documents which contain information which might otherwise be subject to a proper claim that they were confidential: see, for e.g., Smorgon v Australia and New Zealand Banking Group Ltd (1976) 134 CLR 475 at 489 per Stephen J ('Smorgon'). The reasoning of Stephen J was concerned with s 264 but it is plain from Stephen J's treatment of the topic that he regarded s 264 as operating in that fashion, in part, because that was how s 263 operated ('Just as s. 263 gives to the Commissioner full and free access to "all buildings, places, books…" so s. 264 is expressed in no less wide and emphatic terms…'). In Commissioner of Taxation of the Commonwealth of Australia v Australia and New Zealand Banking Group Ltd (1979) 143 CLR 499 at 535 ('ANZ'), Mason J observed, consistently with what Stephen J had said in Smorgon, that s 263 'makes lawful that which otherwise would be unlawful, e.g. entry upon premises, the examination of a document.' (our emphasis). Taken together these authorities establish that s 263 does, indeed, authorise the Commissioner to have access to books and documents which may be subject to a proper claim that they contain confidential information.
82 The next step in Mr Donoghue's argument was the further contention that s 263 not only permitted the Commissioner to access confidential information but also permitted him to use the information thus accessed in the process of preparing an assessment. The third step was to observe that it was established that s 263 could not be used to obtain access to information which was subject to legal professional privilege. The final step was then to submit that s 166 should not be read as permitting use of information which was confidential because this work was done by s 263. On this view, the Commissioner fell between two stools. Because the documents held by Simeon Moore were privileged the Commissioner could not have obtained them compulsorily under s 263. Because they were confidential he could not use them under s 166, which was the consequence of his submission that access to confidential material could occur only ever under s 263.
83 This argument fails at two points. First, s 263 is not the source of power for the Commissioner, having obtained access to information, then to use that information. Section 263 says nothing about using information produced under it in the process of preparing an assessment. Mr Donoghue's argument is without any foundation in the words which actually appear in s 263.
84 Secondly, since s 263 does not operate in the manner suggested by Mr Donoghue, there is no warrant for construing s 166 so as to prevent it being read as authorising the use of confidential information.
85 Consequently, Mr Donoghue's submission that s 166 could not be the source of the Commissioner's entitlement to use documents which are confidential cannot be accepted.
86 That conclusion is most likely fatal to Mr Donoghue's ability to bring any action for breach of confidence. Even assuming such a claim could otherwise be made out in equity, s 166 would supply statutory authority to the Commissioner to use the information in the documents to produce an assessment. Indeed, it would not only permit him to do so, it would - as was pointed out in Denlay - require him to do so. As such, it would appear to afford a complete answer to any allegation that Mr Main was somehow acting in breach of a rule of equity.
Related Problems
87 That conclusion assumes that equity would actually have imposed an obligation on the Commissioner not to use the information. The Commissioner contested the correctness of that assumption submitting that, leaving aside s 166, no rule of equity prevented him from using such information and, at best, Mr Donoghue would have had a mere equity which needed to be perfected by a suit to enforce it. Complex issues arise from that submission which our previous conclusions make it unnecessary to resolve: cf. Neave M and Weinberg M, "The Nature and Function of Equities (Part II)" (1979) 6(2) University of Tasmania Law Review 115 at 124.
88 During the course of argument on the hearing of the appeal, a further question arose as to whether an action for breach of confidence could have been maintained against the Commissioner during the period of time after which Simeon Moore had provided the documents to the ATO but before Mr Main had read them and so became aware of their contents.
89 The debate proceeded upon an assumption that a distinction could be drawn between the Commissioner's possession of a document and his possession of the information contained in that document. That distinction, if valid, may be of significance because the obligation placed upon the Commissioner by s 166 is an obligation to use 'information' in his possession. If the distinction is sound then there may be an argument that s 166 does not operate until such time as the Commissioner has read privileged or confidential documentation which has come into his possession. It was suggested that, if that view were correct then it might mean that s 166 would not be available as a defence to an action for breach of confidence at the time before the information in the confidential documents had been obtained by the Commissioner by reading them.
90 There are limitations, however, on what can usefully be said about this. It suffices to say that no case for breach of confidence was run at trial and the matters arising if we were to explore the issue further are not straightforward or capable of ready resolution. There is no need to comment further.
Section 263?
91 At trial, there was a debate between the parties as to whether s 263 provided an additional basis upon which the Commissioner might have obtained access to the information in the documents handed over by Simeon Moore. On this view, he was simply accessing documents located on his own premises. In the Court below it was the Commissioner who submitted that s 263 permitted such a course and Mr Donoghue who denied its application. In this Court, their positions were reversed. To buttress his argument that s 166 did not apply to the current circumstances, Mr Donoghue now submitted that s 263 did and, concomitantly, the Commissioner, in response, denied the correctness of that which he had himself asserted at trial.
92 The correct position is that s 263 has no application to the Commissioner's own premises. The requirement in subs (3) that the occupant of premises provide the Commissioner with reasonable assistance is meaningless where the occupant is the Commissioner. So too, and perhaps more importantly, as Smorgon and ANZ show, s 263 is concerned to make lawful that which would otherwise be unlawful. The Commissioner requires no such protection to obtain access to material already in his possession, suggesting that the reading of s 263 now proposed by Mr Donoghue (and formerly advanced by the Commissioner) results in subs (1) being otiose. This is not a preferable way of interpreting a statute: Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355 at 382 [71].
The Commissioner and Privileged Documents
93 Lest there be any doubt, it is useful to emphasise the consequences of the matters we have discussed above. Where the Commissioner is provided with a taxpayer's privileged documents and uses them in the process of assessing the taxpayer's assessable income in a given income year, this will not involve conscious maladministration under Futuris and the notices of assessments will be valid. The common law of privilege has nothing to say in such a circumstance and any claim for a breach of confidence involved in the process of assessment cannot withstand the operation of s 166.