Deputy Commissioner of Taxation v Joseph Frangieh

Supreme Court of NSW|2016-03-17

Judgment

HER HONOUR: On Wednesday 16 March 2016, shortly before the day's adjournment, counsel for the Deputy Commissioner of Taxation handed up a copy of Mr Frangieh's tax return for the year ending 2012 emanating from the Australian Taxation Office ("Taxation Office"). Counsel for Mr Frangieh objected at the time on the basis of two objections. Firstly, that the documents were not prepared by Mr Frangieh and that they do not necessarily reflect a return as lodged by him. Secondly, that the Taxation Office was not entitled to use the tax payer's documents for a non tax related purpose, that is, the defence of proceedings in tort, due to secrecy provisions contained in the tax administration legislation.
The following morning, counsel for Mr Frangieh indicated his objection was based on an offence contained in the Taxation Administration Act 1953 (Cth) ("TAA") which prevents disclosures of protected taxpayer information. Counsel for Mr Frangieh submitted that there had been four disclosures of protected information. The first disclosure was by officers of the Taxation Office to the solicitors for the Commissioner. The second disclosure was from the solicitors for the Commissioner to senior counsel acting for the Commissioner. The third disclosure was when the document was handed to counsel acting for Mr Frangieh and the fourth disclosure was when senior counsel acting for the Commissioner provided the document to this Court ("the disclosures"). (T290.40-46).
After hearing legal argument, I decided that there had been no disclosure of protected information. The documents prepared by the Taxation Office in relation to Mr Frangieh's tax returns for the financial years 2008 to 2012 were admitted into evidence over objection and were marked Exhibits 10 to 13. he trial proceeded. I now give my reasons for this decision.

Background

By further amended statement of claim filed 29 July 2013, the Deputy Commissioner of Taxation claimed a total of $3,331,770.82 from Mr Frangieh which included liabilities under an amended notice of assessment in relation to Mr Frangieh's income tax, a notice of assessment and liability to pay penalty and subsequent shortfall and general interest charges, as well as moneys arising from Mr Frangieh's failure to pay running balance account deficits.
By cross claim filed 19 June 2015, Mr Frangieh seeks damages against the Deputy Commissioner of Taxation for misfeasance in public office, abuse of process and breach of duty to act in good faith. There are three misfeasance in public office claims, two abuse of process claims and one claim of breach of duty to act in good faith. The causes of action against Deputy Commissioner of Taxation employees are in relation to: (a) Their conduct associated with the audit of Mr Frangieh (the audit taken for the 2007 tax year); (b) Their involvement in the issuing of the amended notice of assessment; and (c) Their involvement in commencing and continuing Supreme Court debt recovery proceedings in the knowledge of their conduct constituting misfeasance in public office relating to (a) and (b).
The Deputy Commissioner of Taxation's further amended statement of claim was dismissed in 2015 and all that remains to be determined in these proceedings is Mr Frangieh's cross claim.

Tax Laws Amendment (Confidentiality of Tax Payer Information) Act 2010 Cth

Counsel for Mr Frangieh referred to provisions of the Tax Laws Amendment (Confidentiality of Taxpayer Information) Act 2010 (Cth). Part 1 of this act amended Schedule 1 of the TAA.
Division 355 of Schedule 1 of the TAA relates to confidentiality of taxpayer information. It prohibits the disclosure of information about the tax affairs of a particular entity, except in certain specified circumstances: TAA, Sch 1, s 355-1.
The objects of the Division are set out in s 355-10 of Sch 1 to the TAA in the following terms. "(a) to protect the confidentiality of taxpayers' affairs by imposing strict obligations on *taxation officers (and others who acquire protected tax information), and so encourage taxpayers to provide correct information to the Commissioner; and (b) to facilitate efficient and effective government administration and law enforcement by allowing disclosures of protected tax information for specific, appropriate purposes." (Emphasis added).
The main protection for taxpayer confidentiality is the offence contained in s 355-25: TAA, Sch 1, s 355-20. Section 355-25 relevantly reads: "355-25 Offence-disclosure of protected information by taxation officers (1) An entity commits an offence if: (a) the entity is or was a *taxation officer; and (b) the entity: (i) makes a record of information; or (ii) discloses information to another entity (other than the entity to whom the information relates or an entity covered by subsection (2)) or to a court or tribunal; and (c) the information is *protected information; and (d) the information was acquired by the first‑mentioned entity as a taxation officer. Penalty: Imprisonment for 2 years. (2) An entity (the covered entity) is covered by this subsection in relation to *protected information that relates to another entity (the primary entity) if: .. (b) the covered entity is a *legal practitioner representing the primary entity in relation to the primary entity's *tax affairs; or … (d) the covered entity is the primary entity's *legal personal representative; or …"
The terms "protected information" and "taxation officer" are relevantly defined in s 355-30. It reads: "355-30 Meaning of protected information and taxation officer (1) Protected information means information that: (a) was disclosed or obtained under or for the purposes of a law that was a *taxation law (other than the Tax Agent Services Act 2009) when the information was disclosed or obtained; and (b) relates to the affairs of an entity; and (c) identifies, or is reasonably capable of being used to identify, the entity. … (2) Taxation officer means: (a) the Commissioner or a Second Commissioner of Taxation; or (b) an individual appointed or engaged under the Public Service Act 1999 and performing duties in the Australian Taxation Office. Note: This Division applies to certain other entities as if they were taxation officers: see section 355‑15. 355‑35 Consent is not a defence It is not a defence to a prosecution for an offence against section 355‑25 that the entity to whom the information relates has consented to: (a) the making of the record; or (b) the disclosure of the information."
The offence created by s 355-25 is subject to a number of exceptions: see, eg, s 355-45 (disclosure of publicly available information); s 355-47 (disclosure of periodic aggregate tax information); and s 355-50 (disclosure in performing duties). The generality with which each of these exceptions is expressed is not limited by reason of the existence of other exceptions: s 355-40.
Most relevant for present purposes is s 355-50, which is in the following terms: "355-50 Exception--disclosure in performing duties (1) Section 355‑25 does not apply if: (a) the entity is a *taxation officer; and (b) the record or disclosure is made in performing the entity's duties as a taxation officer. Note: A defendant bears an evidential burden in relation to the matters in this subsection: see subsection 13.3(3) of the Criminal Code. (2) Without limiting subsection (1), records or disclosures made in performing duties as a *taxation officer include those mentioned in the following table: Records or disclosures in performing duties Item The record is made for or the disclosure is to ... and the record or disclosure ... 1 any entity, court or tribunal is for the purpose of administering any * taxation law. … 3 any entity, court or tribunal is for the purpose of criminal, civil or administrative proceedings (including merits review or judicial review) that are related to a * taxation law. …"

Submissions

Counsel for Mr Frangieh referred to Commissioner of Taxation v Nestle Australia Ltd (1986) 12 FCR 257; 69 ALR 445 ("Nestle"). In Nestle, the Commissioner had sought to rely on s 16(2) of the Income Tax Assessment Act 1936 (Cth) ("ITAA") to resist the production of documents pursuant to an order for discovery made in the pre trial stages of a proceeding brought by the taxpayer under the Administrative Decisions (Judicial Review) Act 1977 (Cth) ("Judicial Review Act") to review the Commissioner's decision to refuse an extension of time for payment of income tax. At the time, s 16(2) of the ITAA read: "Subject to this section, an officer shall not either directly or indirectly, except in the performance of any duty as an officer, and either while he is, or after he ceases to be an officer, make a record of, or divulge or communicate to any person any information respecting the affairs of another person acquired by the officer as mentioned in the definition of "officer" in sub-section (1)." (My emphasis).
It is important to note that s 16 of the ITAA was the precursor to s 355-25 of the TAA. Section 16 of the ITAA was repealed in 2010 upon the introduction of Div 355: Tax Laws Amendment (Confidentiality of Taxpayer Information) Act, Sch 2 Item 32.
In Nestle, the Full Federal Court (per Bowen CJ, Lockhart and Shepherd JJ) held that s 16(2) did not render the Commissioner or his officers immune from the processes of discovery and inspection.
In relation to s 16(2), the Court stated (at 261 and 262): "… The effect of subs (2) is that an officer is prohibited, except in the performance of any duty as an officer, either while he is or after he ceases to be an officer, from making a record of or divulging or communicating to any person any information respecting the affairs of another person acquired by the officer. The expression "except in the performance of any duty as an officer" ought to receive a very wide interpretation. In Canadian Pacific Tobacco Co Ltd v Stapleton [1952] HCA 32; (1952) 86 CLR 1 Dixon CJ said at 6 that the word "duty": " ... is not, I think, used in a sense that is confined to a legal obligation, but really would be better represented by the word 'function'. The exception governs all that is incidental to the carrying out of what is commonly called 'the duties of an officer's employment'; that is to say, the functions and proper actions which his employment authorises. In a case of this description I should think that did include the making of an affidavit in this Court, in a proceeding for the ultimate obtaining of revenue, even if the word 'divulge' is used in a sense which includes the giving of evidence." The "duty" of an officer extends beyond the performance of work of an administrative nature such as processing returns, making assessments, considering and dealing with objections, conducting investigations into the affairs of taxpayers and matters of this nature. It includes the occasions on which he is required by the judicial process to produce documents or give evidence in courts, by affidavit or viva voce, concerning the affairs of some other person which he has acquired as an "officer", where the proceedings are referable to the imposition, assessment or collection of revenue. These include appeals to courts under Pt V of the [Income Tax] Assessment Act [1936], proceedings for the obtaining of revenue, applications challenging decisions of the Commissioner pursuant to s 39 b of the Judiciary Act 1903 and applications for review of decisions of the Commissioner under the Judicial Review Act with which this case is concerned. This approach is consistent with what was said by Kitto J in Mobil Oil Australia Pty Ltd v FCT (1963) 113 CLR 475 at 500. The process of review under the Judicial Review Act enables this court to determine whether the decision under challenge is lawful in the sense that it is within the power conferred on the Commissioner, a Deputy Commissioner or an "officer", or whether the prescribed procedures have been followed or whether the general rules of law including adherence to the principles of natural justice have been observed. The court is empowered to enjoin action or to quash a decision it finds unlawful and to direct action to be taken in accordance with law. It may also compel action by a person or body who has not acted, but who ought to have done so. Proceedings under the Judicial Review Act (also pursuant to s 39 b of the Judiciary Act) involving decisions or conduct relating to the imposition, assessment, collection or recovery of tax are an essential part of the machinery which Parliament has provided to ensure that tax is levied and collected according to law. Compliance by "officers" (within the meaning of that expression in s 16) with orders of the court for discovery and inspection of documents in proceedings of this kind readily falls within the scope of their duties as such officers for the purposes of s 16(2)."
Counsel for Mr Frangieh submitted that s 355-50 operates only in relation to the imposition, assessment, collection or recovery of tax because they are an essential part of the machinery which Parliament has provided to ensure that tax is levied and collected according to law. According to counsel for Mr Frangieh, these current civil proceedings for misfeasance in public office, abuse of process and breach of duty to act in good faith fall outside the imposition, assessment, collection or recovery of tax. He submitted that the exceptions in s 355-50 do not apply, including those mentioned in items 1 and 3 of the table. Hence, the disclosures referred to earlier in this judgment are disclosures to which s 355-25 applies. He also submitted that s 355-50 may have once applied while the Commissioner's claim for the recovery of unpaid tax was on foot. However, as the further amended statement of claim in these current proceedings was dismissed in July 2015, s 355-50 was no longer applicable.
Senior counsel for the Deputy Commissioner of Taxation referred to 12 Years Juice Foods Australia Pty Ltd v Commissioner of Taxation [2015] FCA 741; Re Young and Federal Commissioner of Taxation [2008] AATA 155; 100 ALD 372; and the Explanatory Memorandum for the Tax Laws Amendment (Confidentiality of Taxpayer Information) Bill 2010 (Cth) ("the explanatory memorandum").
In 12 Years Juice Foods, Edmonds J discussed the interplay between ss 355-25 and 355-50 TAA. At [47] and [48] his Honour stated: "47 No offence will be committed under s 355-25 where a taxation officer discloses "protected information" to the applicants, their advisors or the Court pursuant to the Notice [to Produce]. Such production is plainly within item 3 of s 355-50, that is, it is for the purpose of the present civil proceedings, being proceedings that are related to a taxation law. In this respect, the proceedings, while brought under s 39B of the Judiciary Act 1903 (Cth), are to set aside assessments made under ss 99A and 168 of the ITAA 1936: cf., Khorramdel v Secretary, Department of Social Services [2013] AATA 848 at [21]. 48 That s 355-50 of Sch 1 to the TAA authorises the production, by the Commissioner or his officers, of documents sought under a notice to produce in proceedings under s 39B of the Judiciary Act in respect of a decision made under the ITAA 1936 is clear having regard both to the unambiguous terms in which the provision is expressed and also to the authorities in relation to s 355-50 and its statutory predecessors."
In Re Young, the Deputy Presidents of the Administrative Appeals Tribunal, PE Hack and BH McPherson, discussed s 16(2) of the ITAA in relation to misfeasance in public office and malicious prosecution in light of an application for access under the Freedom of Information Act 1982 (Cth). At [22], [23] and [30] the Deputy Presidents stated: "22 It will be recalled that the Commonwealth has agreed to indemnify Mr Young in the Supreme Court proceedings and that those proceedings allege against Mr Young that he was guilty of malicious prosecution and misfeasance in public office. The Commonwealth is vicariously liable for the torts of its servants[6] where the servant committed the tort in the course of employment. It seems to us not to matter that Mr Collie has chosen not to join the Commonwealth as a party to the Supreme Court proceedings; Mr Young could join the Commonwealth as a third party if there were any suggestion of refusal of indemnity. But in any event Mr Young is indemnified by the Commonwealth so that the burden of any damages or costs awarded will fall upon the Commonwealth. Thus, in our view, the Commonwealth has two "interests" at stake in the proceedings - rebutting allegations that its servants were guilty of malicious prosecution and misfeasance in public office, and, in doing so, protecting its financial interests. 23 Were Mr Young not to defend the Supreme Court proceedings he would be acting contrary to the interests of the Commonwealth and likely to be in breach of the obligations spoken of by Gummow J in Australian Institute of Marine and Power Engineers v Secretary, Department of Transport. In our view Mr Young, who denies the allegations of wrongdoing made against him in the Supreme Court proceedings, is under a duty, arising from his employment as an officer, to defend the proceedings in the interests of the Commonwealth. That being so, the prohibition in s 16(2) of the ITAA 1936 does not apply to him to the extent that he makes copies of material, arguably relevant to his defence of the Supreme Court proceedings, for the purposes of those proceedings. … 30 In our view, s 38(1A) operates in this way in the instant case. In defending the Supreme Court proceedings Mr Young is performing his duty as an officer. Thus documents arguably relevant to the defence of those proceedings may be disclosed to him as an exception, created by s 16(2A) of the ITAA 1936, to the general prohibition in s 16(2) of that Act. The documents that answer the description of arguable relevance would ordinarily be exempt documents under s 38(1) of the FOI Act however because disclosure of the documents to Mr Young is not prohibited by another enactment, viz. s 16(2A) of the ITAA 1936, Mr Young's legally enforceable right of access to the documents is not affected." (Citations omitted).
In the explanatory memorandum relating to the "Judicial and administrative proceedings related to a taxation law", clause 5.20 reads: "5.20 It is not an offence for a taxation officer to disclose taxpayer information for the purpose of proceedings related to a taxation law. Disclosures to Courts, external legal advisers and to the Commonwealth Director of Public Prosecutions in relation to proceedings that are directly or indirectly related to a taxation law are therefore allowed."
Senior counsel for the Deputy Commissioner of Taxation submitted firstly that under s 355-50, the prohibition under s 355-25 does not apply if the entity is the taxation officer and the record of disclosure is made while performing the entity's duties as a taxation officer in defending an action of misfeasance in public office by a taxation officer when performing his or her duties. Senior counsel also submitted that although this Court is not bound by it, the logic in the decision of the Administrative Appeals Tribunal in Young is compelling.
Senior counsel for the Deputy Commissioner of Taxation also drew attention to the prefatory words in s 355-50(2) that say "without limiting subsection (1)". He submitted that the disclosure is for the purpose of civil proceedings that are related to a taxation law as set out in s 355-50(2), item 3. Finally, he submitted that the exception in s 355 ought to be interpreted widely. In Nestle (at 262), the Full Federal Court held that the phrase "except in the performance of any duty as an officer" in s 16(2) of the ITAA should be interpreted widely. Counsel submitted that the same interpretation should be given to s 355. Counsel for the Deputy Commissioner of Taxation submitted that a wide interpretation is set out in the explanatory memorandum where it says that an exemption applies "in relation to proceedings that are directly or indirectly related to a taxation law."

Consideration

Mr Frangieh did not produce copies of his tax returns on discovery, nor at the hearing. In order for senior counsel for the Deputy Commissioner of Taxation to cross examine Mr Frangieh on his own taxation returns, copies of the tax returns held by the Taxation Office were disclosed by taxation officers to their legal advisors, counsel for Mr Frangieh and this Court.
The production of copies of the tax returns falls within item 3 of s 355-50(2), that is, the disclosures were for the purpose of defending civil proceedings for malicious prosecution, abuse of process and breach of duty to act in good faith, which are proceedings related to taxation laws. At the heart of these proceedings is the manner in which certain taxation officers conducted an audit and issued an amended assessment concerning Mr Frangieh in relation to the 2007 financial year. Further, the expression "in performing duties as a taxation officer" in subsection (2) is to be widely interpreted in accordance with Nestle at 261 and 12 Years Foods at [48] to include defending Mr Frangieh's cross claim. Hence, the disclosures fall within s 355-50. Section 355-25 does not apply.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 22 March 2016

Tax Laws Amendment (Confidentiality of Taxpayer Information) Act 2010(Cth)

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