Donoghue v Commissioner of Taxation - [2013] FCA 84 - FCA 2013 case summary — Zoe

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Donoghue v Commissioner of Taxation

[2013] FCA 84

Federal Court of Australia|2013-02-14|Before: Reeves J

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Court

Federal Court of Australia

Decision date

2013-02-14

Before

Reeves J

Source

Original judgment source is linked above.

Judgment (17 paragraphs)

[1]

Introduction 1 Mr Garry Donoghue has sought an interlocutory injunction to prevent the Commissioner of Taxation from making any future use of certain information contained in a set of Mr Donoghue's documents that have come into the possession of the Commissioner without Mr Donoghue's consent. Mr Donoghue claims that those documents were and remain subject to a duty of confidentiality and/or subject to legal professional privilege. The Commissioner opposes Mr Donoghue's application on essentially two grounds. First, he asserts that Mr Donoghue cannot rely on a claim that the documents are confidential to prevent him using the information in the documents when they are already in his possession and moreover, he is obligated by legislation to make use of the information contained in them. Secondly, he claims that even if legal professional privilege had previously existed in the information in the documents, that privilege was removed when the documents were voluntarily provided to him by a third party, namely Mr Simeon Moore.

[2]

FACTUAL BACKGROUND 2 It is appropriate to begin by briefly describing the rather unusual factual background to this application and some of the more significant aspects of its procedural history. 3 In 2010, Mr Donoghue's then partner was engaged in litigation in New South Wales over various property interests she held in that State. Mr Donoghue believed he had an interest in at least one of those proceedings. Accordingly, he decided to seek some legal assistance. At that time, Mr Donoghue's daughter was a law student. She introduced her father to another law student, Mr Simeon Moore. In the months leading up to October 2010, Mr Donoghue had a number of communications with Mr Moore. It emerged during those communications that Mr Moore's father was a lawyer in Sydney who practised under the name Moore & Associates. 4 In or about February 2010, after discussions with Mr Moore Junior, Mr Donoghue retained Mr Moore Junior and Moore & Associates to advise him in relation to his legal concerns. Thereafter, in the course of his dealings with Mr Moore Junior, Mr Donoghue provided him with copies of a number of documents relating to his personal financial affairs and the financial affairs of his family. In an affidavit filed in support of this application, Mr Donoghue contends that he believes that all his communications with Mr Moore Junior, including the provision of this financial documentation, were protected by legal professional privilege. Mr Donoghue also claims that this financial documentation was provided on the understanding that it would be treated as confidential. 5 By early August 2010, Mr Moore Junior and Moore & Associates had presented Mr Donoghue with invoices for their outstanding fees. Mr Donoghue alleges that shortly thereafter, Mr Moore Junior threatened that if he did not pay those invoices, he would provide Mr Donoghue's financial documentation to the Australian Taxation Office (ATO). Mr Donoghue did not pay the invoices and some days later Mr Moore Junior emailed him and advised that, "as discussed", his financial documentation had been provided to the ATO. For convenience, hereafter in these reasons I will refer to this documentation as "the Moore documents". 6 In December 2011, Mr Donoghue received a notice of income tax assessment from the ATO for the 2005, 2006 and 2007 financial years. 7 From about March 2012, Mr Donoghue's solicitors communicated extensively with the ATO in an attempt to ascertain the source of the information the ATO had used to make the tax assessments (above) and to notify it that any of Mr Donoghue's documents that were provided to it by Mr Moore Junior were subject to a duty of confidentiality and/or a claim of legal professional privilege. Throughout this process, the Commissioner refused to confirm or deny whether he had the Moore documents in his possession and he also declined to tell Mr Donoghue's solicitors what information he had used to make the income tax assessment described above. 8 In June 2012, the ATO sent a notice pursuant to s 264 of the Income Tax Assessment Act 1936 (Cth) (the ITAA) and s 353-10 of Sch 1 to the Taxation Administration Act 1953 (Cth) (the TAA) to Mrs Sandra Donoghue, Mr Donoghue's wife. That notice required Mrs Donoghue to attend and give evidence about her taxation affairs and the taxation affairs of her family members, including Mr Donoghue.

[3]

PROCEDURAL HISTORY 9 In July 2012, Mr Donoghue filed an originating application for relief under s 39B of the Judiciary Act 1903 (Cth) seeking, among other things, orders to the effect that: (a) the Commissioner deliver up and/or destroy any documents (or copies thereof) related to Mr Donoghue or any related entity of his that were provided to him by Moore & Associates and/or Mr Moore Junior; and (b) the Commissioner be restrained from using or taking any action on the basis of the Moore documents or any information contained therein for the purpose of assessing any taxpayer's taxable income or for exercising any power under ss 263-264 of the ITAA, or s 353-10 of Sch 1 to the TAA in respect of any person. 10 At the same time, Mr Donoghue filed an interlocutory application seeking an order that was essentially identical to that in [9(b)] above, together with an order that the Commissioner "be restrained … from requiring, pursuant to s 264 of the ITAA, [either] Mrs Sandra Donoghue or any related entity … of any entity in relation to which [Mr Donoghue] is a related entity" from attending and giving evidence before him. 11 Initially, Mr Donoghue applied ex parte and was granted interim orders in the terms of the interlocutory orders he had sought. Shortly thereafter, once the Commissioner had filed an appearance and been given an opportunity to file any materials he wished to rely upon, I heard Mr Donoghue's present application for interlocutory injunctive relief. 12 During the initial stages of the hearing for interlocutory relief, the Commissioner maintained the position he had previously taken (see at [7] above) to neither confirm nor deny whether he had the Moore documents in his possession. However, that changed after Mr Walker SC, for Mr Donoghue, called on the Commissioner to respond to a notice to produce the Moore documents. That notice had earlier been served on the Commissioner under Rule 30.28(3) of the Federal Court Rules 2011. It therefore had the effect of a subpoena for the production of the Moore documents. When this call was made, Mr Derrington SC, for the Commissioner, sought a short adjournment to consider his client's position. Upon resuming the hearing, Mr Walker informed me that Mr Derrington and he had reached an agreement as to the basis on which this application was to proceed. That agreement was as follows. For the purposes of this application for an interlocutory injunction and not for the purposes of the application for final relief, there is factual material supporting a serious question to be tried that: documents relating to Mr Donoghue's affairs were given to Mr Moore Junior and Moore & Associates in circumstances where Mr Moore Junior owed duties of confidentiality to Mr Donoghue in relation to those documents; and among those documents now in the possession of the Commissioner as a result of a breach of confidentiality by Mr Moore Junior, there may be some in respect to which there could be a proper claim for legal professional privilege. 13 Mr Walker further informed me that it was agreed that this agreement was without prejudice to the Commissioner's right to dispute all elements of Mr Donoghue's claim to legal professional privilege at the final hearing and to argue at the hearing of this interlocutory application that, as a matter of law, any legal professional privilege or duty of confidentiality that may have existed in relation to the Moore documents was no longer available to Mr Donoghue. 14 Three further matters of importance to this interlocutory application emerged during the hearing. First, Mr Derrington informed me that I could "assume that if [the ATO] can gain something relevant for the purposes of assessing [the] taxpayers, [the Moore documents] will be used [by it]." Secondly, Mr Walker made it clear that his client did not seek relief that would attempt to undo whatever use the Commissioner had already made of the Moore documents. Accordingly, he expressly confined the scope of the interlocutory injunction to the "use of [the Moore] documents for future assessments". Finally, Mr Walker advised that Mr Donoghue would not pursue the further order set out at [10] above because the order set out at [9(b)] above would achieve the same purpose.

[4]

Principles on the grant of an interlocutory injunction 15 Before turning to consider the arguments of the parties on this application, it is convenient to briefly outline the principles relevant to the grant of an interlocutory injunction of the kind sought by Mr Donoghue. Those principles were recently discussed at some length in Samsung Electronics Co Ltd v Apple Inc (2011) 286 ALR 257; [2011] FCAFC 156 at [52]-[74] per Dowsett, Foster and Yates JJ (Samsung). While Samsung concerned an interlocutory injunction sought pursuant to s 122 of the Patents Act 1990 (Cth), the basic principles outlined therein apply in this matter. 16 The first and most fundamental principle relevant to interlocutory injunctive relief is that, to obtain such relief, an applicant has to demonstrate that: (1) a sufficient prima facie case has been made out for the final relief claimed; and (2) the balance of convenience favours the granting of the injunction: see, for example, Beecham Group Ltd v Bristol Laboratories Pty Ltd (1968) 118 CLR 618 at 622-3 per Kitto, Taylor, Menzies and Owen JJ. However, these two criteria do not involve distinct inquiries, and should therefore not be considered in isolation: Samsung at [67]. 17 To establish that there is a prima facie case; or as it as sometimes expressed, that there is a serious question to be tried, the applicant is not necessarily required to demonstrate that their case is, on balance, likely to succeed: Samsung at [57], citing Australian Broadcasting Corporation v O'Neill (2006) 227 CLR 57 (O'Neill) at 68 per Gleeson CJ and Crennan J. Instead, the Court is required to make an assessment of "the strength of the probability of ultimate success" which will vary from case to case, depending "upon the nature of the rights asserted and the practical consequences likely to flow from the grant of the injunction which is sought": Samsung at [59]. Accordingly, where the grant or refusal of an interlocutory injunction will finally dispose of the proceedings in favour of a party, closer attention will be required to the strength of the successful party's case: Samsung at [58] referring to O'Neill at [68]-[72] per Gummow and Hayne JJ. On the other hand, where there is little dispute about the legal basis for the applicant's claimed private right, the Court may be more likely to find a prima facie case: Samsung at [64]. 18 In assessing the balance of convenience criterion, the harm that is likely to be suffered by the applicant if the injunction is not granted is to be weighed against the prejudice or harm that is likely to be suffered by the respondent if the injunction is granted: Samsung at [62]. In considering the harm potentially suffered by the applicant, it will usually be necessary to consider the adequacy (or otherwise) of damages: Samsung at [62]-[63].

[8]

The contentions on the operation of s 166 22 To attempt to make good the proposition that this section extinguished any duty of confidentiality that may have existed in relation to the Moore documents, Mr Derrington relied on the decision of the Full Court of this Court in Denlay v Federal Commissioner of Taxation (2011) 193 FCR 412; [2011] FCAFC 63 (Denlay) at [79]-[82]. He submitted that these paragraphs of Denlay supported the proposition that s 166 of the ITAA both authorises and compels the Commissioner to make assessments of taxable income and the tax payable thereon using all the information in his possession, free of any obligation to inquire whether or not that information has been obtained legally. He submitted that this proposition extended to information that may have been obtained in breach of a duty of confidentiality. 23 In response, Mr Walker submitted that s 166 of the ITAA was not engaged until an assessment was made. Accordingly, he submitted, since this interlocutory application is now confined to any future use of the Moore documents (see [14] above), s 166 has not been enlivened and any duty of confidentiality that existed in the Moore documents has not been extinguished. That being so, he submitted that an injunction should be granted to restrain any future use of the information in the Moore documents in breach of that extant duty of confidentiality. 24 Mr Walker also submitted that Denlay could be distinguished from the present case because that decision concerned the validity of an antecedent, completed assessment whereas Mr Donoghue's application is now confined to any future assessments that may be made using information in the Moore documents. In this respect, he relied upon a similar distinction that was made by the High Court in Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355; [1998] HCA 28 (Project Blue Sky) at [100] per McHugh, Gummow, Kirby and Hayne JJ as follows: In a case like the present, however, the difference between holding an act done in breach of s 160 is invalid and holding it is valid is likely to be of significance only in respect of actions already carried out by, or done in reliance on the conduct of, the ABA… That being so, a person with sufficient interest is entitled to sue for a declaration that the ABA has acted in breach of the Act and, in an appropriate case, obtain an injunction restraining that body from taking any further action based on its unlawful action.

[11]

The contentions on the operation of s 263 27 Mr Derrington claimed that this section had the effect of making that lawful which would otherwise be unlawful. In making this submission, he relied on what Mason J said in Federal Commissioner of Taxation v Australian and New Zealand Banking Group Ltd (1979) 143 CLR 499 (ANZ) at 535. Mr Derrington further observed that ANZ (at 521, 540 and 546) affirmed that s 264 overrides obligations of confidentiality. He submitted that, as there was no rational basis to distinguish between ss 263 and 264 of the ITAA, s 263 must similarly override obligations of confidentiality. Mr Derrington also submitted that the application of s 263 of the ITAA was not limited to circumstances where the Commissioner had taken positive steps to obtain documents. Rather, he submitted, s 263 was necessarily engaged whenever the Commissioner accessed any books, documents or papers, including any books, documents or papers that were already in his possession. That being so, he submitted, s 263 operated to override any obligation of confidentiality attaching to the Moore documents. 28 In response, Mr Walker submitted that s 263 of the ITAA did not extend to documents that were already in the Commissioner's possession, or at the very least, there was sufficient ambiguity as to whether s 263 extended to such documents for a prima facie case to exist. While he accepted that s 263 of the ITAA had the effect described by Mr Derrington, Mr Walker submitted that it had never been unlawful for the Commissioner to access and consider documents in his own files and it would therefore be absurd to suggest that s 263 was engaged on every occasion that he did so. He submitted that the Commissioner's power to use information in documents already in his possession was not founded on s 263 of the ITAA, but rather on the Commissioner's general powers of administration in s 8 of the ITAA. Furthermore, he submitted s 8 did not abrogate obligations of confidentiality. Accordingly, as s 263 of the ITAA was not engaged, he submitted any duty of confidentiality that applied to the Moore documents was not extinguished.

[12]

There is a sufficiently strong prima facie case that s 263 does not extinguish the duty 29 It is apparent from these submissions that neither party has sought to challenge the observations of Mason J in ANZ about the effect of s 263 of the ITAA: that "[i]t makes lawful that which would otherwise be unlawful". Further, Mr Walker did not challenge Mr Derrington's submission that s 263 could operate to extinguish a duty of confidentiality and, conversely, Mr Derrington did not submit that s 8 had that effect. The point of difference, therefore, is whether s 263 of the ITAA was engaged at all. 30 Mr Derrington was not able to refer me to any authority in support of his submission that whenever the Commissioner uses information in his possession, s 263 is necessarily engaged. That is not surprising, because I do not consider that construction appears from a plain reading of that provision. Self-evidently, in a federal government agency as large as the ATO, the Commissioner, through his officers, will be constantly accessing and using enormous quantities of information that is in his possession. It therefore seems to me that this commonplace and frequent use of information by the Commissioner is more likely to be founded on his general powers of administration in s 8 of the ITAA, rather than the more radical powers contained in s 263. But it is unnecessary for me to come to a concluded view on this question because, at the very least, I consider Mr Donoghue has established a sufficiently strong prime facie case for final relief on this question to justify interlocutory relief being granted. 31 Since I have concluded there is a sufficiently strong prima facie case for final relief that any duty of confidentiality in the Moore documents has not been extinguished by either of these two provisions of the ITAA, Mr Donoghue has met the first criterion for the grant of interlocutory injunctive relief and it is not strictly necessary for me to consider the alternative ground, viz whether the Moore documents are subject to legal professional privilege. However, in deference to the detailed submissions of counsel on that question, I will briefly turn to consider it.

[13]

Prima facie case - contentions on whether the legal professional privilege was wholly extinguished 32 As I have already noted above (at [1]), in the alternative, Mr Walker submitted that Mr Donoghue has established a prima facie case that the Moore documents or, at least some of them, may be subject to a valid claim of legal professional privilege. 33 On this issue, Mr Walker submitted that, even if s 263 of the ITAA was engaged, that provision did not override legal professional privilege and accordingly the Commissioner was obliged to give Mr Donoghue an adequate opportunity to make any claim of privilege in the documents he wished to. On this aspect, he relied on Commissioner of Taxation v Citibank Ltd (1989) 20 FCR 403 (Citibank) at 417 per Bowen CJ and Fisher J. 34 In response, Mr Derrington submitted that legal professional privilege is a right to resist the compulsory production of documents. He submitted it is not a right of an individual which can sustain the granting of an injunction to restrain the use of documents by a third person such as the Commissioner. In support of that submission, Mr Derrington relied on The Daniels Corporation International Pty Ltd v Australian Competition and Consumer Commission (2002) 213 CLR 543; [2002] HCA 49 at [9] and [10] per Gleeson CJ, Gaudron, Gummow and Hayne JJ; Commissioner of Australian Federal Police v Propend Finance (1997) 188 CLR 501 (Propend) at 565-6 per Gummow J; and Australian Securities and Investments Commission v Lindberg (2009) 25 VR 398; [2009] VSCA 234 (Lindberg) at [43]-[49] per Mandie JA (Warren CJ and Neave JA agreeing). It followed, so Mr Derrington submitted, that once privileged documents were provided to a third person, such as the Commissioner, the documents lost any protection associated with their privileged status. 35 As to the Commissioner's obligation to afford an opportunity to claim legal professional privilege, Mr Derrington submitted that the principle enunciated in Citibank was limited in its application to circumstances in which the Commissioner had exercised a power of compulsory acquisition under ss 263-264 of the ITAA. On this, he relied upon Lindberg at [51] where Mandie JA stated: The principle is not one which applies or is capable of applying to a situation in which the authority has already obtained possession of the documents from third persons and it does not extend to creating a right to such a practical and realistic opportunity to claim privilege by some other person. Since the Moore documents were supplied voluntarily to the Commissioner, Mr Derrington submitted that the Commissioner was not required to afford an opportunity to Mr Donoghue to make a claim for legal professional privilege in them. 36 In reply, Mr Walker submitted that Mr Derrington's submissions involved a misreading of the authorities upon which he relied. He pointed to Propend at 565, where Gummow J referred to Lord Ashburton v Pape [1913] 2 Ch 469 and said: [I]t was decided that the client whose privileged documents, being letters written to his solicitor, had fallen into the hand of the third party by a trick, might obtain injunctive relief requiring the return of the documents and restraining the third part from making use of them. 37 Further, Mr Walker submitted that nothing that was said in Lindberg affected the correctness of the ruling in Citibank. He submitted that this was borne out in the sentence that followed the passage in Lindberg at [51] (set out at [35] above) and, in particular, by the footnote (30) that appeared in the middle of that sentence, as follows: The principle cannot extend that far, in my view, because the legal position is, as I have said, that once such documents come into the possession of another party,30 the privilege is lost or cannot be asserted except in the context of a claim in equity to protect confidentiality. … __________________ 30. The position is likely to be different if that party has obtained the privileged documents or information from the person entitled to the privilege on a confidential basis as exemplified in the cases of Mann v Carnell (1999) 201 CLR 1 and Spotless Group Ltd v Premier Building & Consulting Pty Ltd (2006) 16 VR 1.)

Donoghue v Commissioner of Taxation

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Judgment (17 paragraphs)

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