REASONS FOR JUDGMENT
1 On 21 December 2011, the respondent Commissioner of Taxation (Commissioner) issued to Mr Garry John Donoghue notices of income tax assessment in respect of the 2005 to 2007 income years (inclusive).
2 The assessments of income tax thereby notified to Mr Donoghue were a sequel to an audit which the Commissioner had been conducting in relation to Mr Donoghue's liability to income tax in Australia under the Income Tax Assessment Act 1936 (Cth) (ITAA36) and the Income Tax Assessment Act 1997 (Cth).
3 In respect of each of these assessments, Mr Donoghue has applied for orders under s 39B of the Judiciary Act 1903 (Cth) (proceeding QUD 360 of 2013). He seeks orders declaring the assessments to be invalid and quashing them. He also seeks consequential orders enjoining the Commissioner from taking any further action directed to the recovery of the tax liability purportedly created by them.
4 These assessments were made with, relevantly, the benefit of certain material concerning Mr Donoghue and other entities, supplied to the Commissioner by a third party without Mr Donoghue's permission in the course of the audit. In separate but not unrelated proceedings under s 39B earlier commenced (QUD 353 of 2012) Mr Donoghue seeks an injunction restraining the Commissioner from using any such material for the purpose of making or amending an assessment or for the purpose of exercising any power under s 263 or s 264 of the ITAA36 or s 353-10 of Sch 1 to the Taxation Administration Act 1953 (Cth) (TAA). In respect of that earlier instituted proceeding, Reeves J was persuaded that Mr Donoghue had established an entitlement to interlocutory injunctive relief in those terms: Donoghue v Commissioner of Taxation (2013) 92 ATR 289; [2013] FCA 84. Mr Donoghue claims that the material concerned is subject to legal professional privilege. Thus, he also seeks in those earlier commenced proceedings an order for the delivery up or destruction by the Commissioner of this material.
5 If valid, and inclusive of tax penalties and the general interest charge, the assessments expose Mr Donoghue in total to a multi-million dollar liability to the Commonwealth, payable to the Commissioner. It is no part of these proceedings to determine whether, in terms of s 14ZZO of the TAA, the assessments concerned are excessive. Rather, the central question in the proceedings is whether they are valid assessments at all?
6 There is a common sub-stratum of facts which makes it appropriate to hear the two proceedings together. At the heart of that common sub-stratum is the fact, itself uncontroversial, that the audit report concerning Mr Donoghue's taxation affairs, which informed the making of the assessments, drew upon third party supplied material which Mr Donoghue claims was subject to legal professional privilege. That material was by no means the Commissioner's sole source of information.
7 Whether that material was indeed privileged is highly controversial and one of the issues which must be resolved in the proceedings. Upon the basis that the material was privileged, Mr Donoghue contends that its use by the Commissioner constituted a deliberate failure to comply with the requirements of the ITAA36 in relation to the making of an assessment such that jurisdictional error of the kind described in Federal Commissioner of Taxation v Futuris Corporation Ltd (2008) 237 CLR 146 (Futuris) is manifested.
8 There is a subsisting taxation appeal instituted by Mr Donoghue against the objection decision in respect of the assessments. If the material concerned were privileged, it is possible that Mr Donoghue might be placed in the invidious position, in order to discharge the onus of proof that s 14ZZO of the TAA places on him in such a proceeding, of having to consider the waiver of that privilege and to introduce that material into evidence. And that as a result, so he contends, of an unlawful use of that same material by the Commissioner in the making of those assessments in the first place. This was a consideration which persuaded me that the two present proceedings ought to be heard and determined in advance of the taxation appeal and, further, that it was not alternatively appropriate to hear these proceedings in conjunction with the taxation appeal. Another consideration was the expense to which Mr Donoghue might be put in seeking to prove excessive assessments which might not be valid.
9 Because Mr Donoghue had the misfortune to encounter ill health while abroad, which made it inadvisable to say the least for a time for him either to return to Australia for the purpose of giving oral evidence or even to give that evidence from abroad by video link, it proved necessary to vacate trial dates earlier fixed for the proceedings. Fortunately, Mr Donoghue's condition improved such that he was later to return to Australia for the purpose of giving oral evidence at the later dates fixed for the trial.
10 Mr Donoghue identified five principal issues for determination in the case:
(a) Was there a solicitor client relationship?
(b) If so, which documents and information were covered by legal professional privilege as a result of that relationship?
(c) Related to that, what was the nature and scope of the privilege which reposed in those documents and that information?
(d) What was the state of knowledge on the part of the Commissioner as to the existence of legal professional privilege in documents and information in his possession?
(e) Did the Commissioner's officers involved in the making of the assessments consciously misuse documents and information which they knew to be privileged in the making of those assessments?
11 To these might be added the following further issues which emerged from the Commissioner's submissions:
(a) If, which the Commissioner denied, legal professional privilege did repose in the documents and information and even if, which was also denied, the officer who authored the audit report which in part drew upon those documents and that information, knew that those documents and that information were privileged, is it of any moment that a separate officer who relied upon that audit report and by whom the Commissioner made the assessments has not been shown to have known that the audit report drew in part upon privileged documents and information?
(b) Related to that, what is entailed in the making of an assessment for the purposes of the ITAA36?
(c) Is wilful blindness or recklessness (the existence of which is also denied) to be assimilated with knowledge in relation to the existence of legal professional privilege in the documents and information upon which the audit report drew in part?
(d) Even if the making of the assessments did entail a knowing (including a wilfully blind or reckless) use of privileged documents and information, are they nonetheless valid?
(e) Related to that, is Mr Donoghue confined to objecting to any use of the documents and information by the Commissioner in the taxation appeal with the court then exercising a discretion as to whether to admit that evidence if tendered by the Commissioner?
(f) Did Mr Donoghue waive the privilege, if it existed?
12 Any consideration of whether there even relevantly existed a solicitor-client relationship to which Mr Donoghue was a party must begin with a meeting which occurred between him and a Simeon Moore (Simeon Moore) in January 2010. It is an uncontroverted fact that it was Simeon Moore who was the third party who came to supply the material in question to the Commissioner.
13 At the time when they first made acquaintance, Simeon Moore was then a fellow law student of Mr Donoghue's daughter, Alexandria, at Bond University on the Gold Coast. He was not then an admitted legal practitioner in any Australian jurisdiction. Simeon's father, Mr Peter Moore (Peter Moore) was so admitted. Peter Moore was the principal of Moore & Associates, a firm of solicitors in New South Wales.
14 Mr Donoghue was introduced to Simeon Moore on a social occasion in January 2010 by Alexandria.
15 Mr Donoghue gave both affidavit and oral evidence in the proceedings. So I had the benefit of observing him in the witness box.
16 The same cannot be said in respect of either Simeon or Peter Moore, for neither gave evidence. There came later to be a falling out between Mr Donoghue and Simeon Moore. As a direct result of that, Simeon Moore came to be an informant for the Commissioner. Given this and in light of a course of events which I shall relate more fully shortly, if Simeon Moore, especially, were to be called at all, he was a witness whom one might have expected would have been called in the Commissioner's case. The evidence was that he was, at the time of trial, resident in Australia and had by then been admitted as a legal practitioner. There may well be reasons, arising from the course of events I relate, why Simeon Moore may have been reluctant to give evidence.
17 The absence of evidence from Simeon Moore in particular but also his father does not mean that Mr Donoghue's evidence must necessarily be accepted as to the relationships which came to be formed after the initial introduction in January 2010. As it happens, I thought that Mr Donoghue gave generally reliable evidence. He struck me as an astute, intelligent, quietly spoken man in late middle age.
18 Mr Donoghue is a businessman, not a lawyer. He has worked in the international telecommunications industry for many years. That has for him entailed a peripatetic lifestyle. It is not necessary for the purposes of these proceedings to reach any conclusions about whether or when he was a resident of Australia.
19 By the time that he came to give his affidavit and oral evidence, the astuteness and intelligence which I observed must necessarily have meant that Mr Donoghue was aware of the potential significance and advantage for him of certain documents and information being subject to legal professional privilege. At least, that was an impression which I formed when observing him give evidence and from the answers which he gave. I have no doubt that, by then, he genuinely believed that this material was privileged. As it happens, much of the critical evidence concerning whether there ever existed a relevant solicitor-client relationship and, if so, its nature and extent reposes in contemporaneous documents. I thought that Mr Donoghue's affidavit and oral evidence was consistent with these documents. I therefore generally accept his evidence.
20 As at January 2010, Mr Donoghue was in a personal relationship with a Ms Leanne Avery. Ms Avery was at the time a party to proceedings in the Supreme Court of New South Wales (the Saree proceedings). She was the registered proprietor of Unit 901 at 1 Pottinger Street, Walsh Bay in New South Wales (the Walsh Bay unit). In the Saree proceedings, Ms Avery was seeking declaratory relief that there was no money owing under a loan from Saree Holdings Pty Ltd, secured by a second mortgage over the Walsh Bay unit.
21 At the same time, Ms Avery was engaged in a dispute with the holder of the first mortgage over that unit, Lava Ltd (Lava). Lava was controlled by a former business associate of Mr Donoghue in New Zealand, Mr John Sorensen. Mr Donoghue had, inferentially as a result of that business association, played a role in Ms Avery's obtaining a loan from Lava, secured by the first mortgage to assist in the purchase of the Walsh Bay unit. Lava had obtained a judgement in the Supreme Court of New South Wales for the recovery of possession of the Walsh Bay unit (the Lava proceedings).
22 That dispute between Ms Avery and Lava would later in 2010 (in July) become the subject of a notice of motion in the Lava proceedings by which Ms Avery sought to have the order for recovery of possession set aside on the basis that it was illegally or irregularly obtained.
23 Eventually, the Saree and the Lava proceedings would come to be heard together and then determined by Slattery J: Avery v Saree Holdings [2012] NSWSC 463. It is a noteworthy feature of the two proceedings that, though there were a number of changes in the solicitor on the record for Ms Avery in them, from 21 April 2010 to 24 September 2010 her solicitor was Mr Peter Moore of Moore & Associates. The undertaking of that role by that firm is consistent with Mr Donoghue's assertion that he understood Simeon Moore was an employee or agent of Moore & Associates. It is also consistent with Mr Donoghue's interest earlier in the year in an alternative source of advice to that of lawyers then acting for Ms Avery in relation to the Saree proceedings and the Lava dispute.
24 As at January 2010, Mr Donoghue had an interest in the Saree proceedings and in the dispute which became the subject of the notice of motion in the Lava proceedings both because of his then relationship with Ms Avery, his role in obtaining finance which assisted in its purchase and an intertwining between these and a dispute which he had with Mr Sorensen. Though it is not necessary for the purposes of these proceedings to reach any concluded view as to the nature and extent of business dealings between Mr Donoghue and Mr Sorensen (or entities controlled by one or the other of them) in New Zealand, these appear to have included dealings in relation to a business known as "Plus SMS". Further, it appears that the Saree proceedings and the Lava dispute were one sequel to those business dealings.
25 Inferentially, Simeon Moore first became aware of Mr Donoghue's interest and of the existence of that litigation and dispute via Miss Alexandria Donoghue. Having met Mr Donoghue and had a number of conversations with him about that litigation and dispute, Simeon Moore suggested to Mr Donoghue that he could help him with them. In response, in or about late January 2010, Mr Donoghue asked Simeon Moore for advice as to what he should do about the Saree proceedings and the Lava dispute.
26 Simeon Moore responded promptly to this request for advice. On 28 January 2010, he sent to Mr Donoghue by email enclosures which he described in the covering email as "draft submissions and related documents". In fact, the enclosures comprised an "Analytical Report" authored by Simeon Moore. On its face, it was authored by him in his capacity as the Managing Director of a company named "Scientes Research & Strategy ("Scientes"), together with an invoice of 28 January 2010 directed by Scientes to Mr Donoghue. The invoice records the receipt of $1,000 from Mr Donoghue and a credit balance of $360 after deduction of the amount charged for services rendered to that date [I note in passing that the Scientes invoice neither bears an Australian Business Number nor itemises goods and services tax.].
27 At the commencement of the analytical report is a form of retainer. It is not signed by Simeon Moore. On the evidence, a retainer was never signed either by him or by Mr Donoghue. In form, the retainer portion seeks to classify Simeon Moore's status as that of "researcher" and what is contained in the report as other than legal advice. Inferentially, Simeon Moore cast this draft retainer portion of the analytical with a keen eye as to what might amount to an unlawful undertaking of legal work by a person not in possession of a practising certificate.
28 This retainer portion is of Simeon Moore's own creation. It does not, I find, reflect any antecedent agreement as to its terms informally reached between him and Mr Donoghue. Even so, it is inherently likely and I find that, as at late January, Mr Donoghue knew that Simeon Moore was not a lawyer, because he was a fellow student with his daughter at Bond University.
29 It does not follow from this that Mr Donoghue even knew of the existence of Scientes before 28 January 2010. There is no evidence that he did. Accepting as I do Mr Donoghue's account of these early dealings with Simeon Moore, it strikes me as inherently unlikely that there was any prior reference to Scientes in the informal exchanges which occurred between them in January 2010. Rather, I consider it more likely than not that Mr Donoghue saw advantage in deploying what to him was a modest amount of money in having input from someone (Simeon Moore) who had probably been recommended to him by his daughter as a bright young law student. It was Simeon Moore who chose to have Scientes account for the receipt of the money so deployed. The retainer for this initial work was struck between Mr Donoghue and Simeon Moore personally. It concluded when Simeon Moore delivered his "Analytical Report".
30 On 8 March 2010 Simeon Moore sent to Mr Donoghue an email the text of which included the following:
First: This matter is about to require constant and consistent legal advice from Barristers, we are at the point of no return in that respect. Over the weekend you and I discussed making available to Peter some $70,000.00 so as to prevent the crap we have been experiencing re funds from continuing. At the moment, we are advancing some $50,000.00 to Peter. That is fine IF it is understood by all concerned that such an amount will be burned through, and rapidly, given that the guns are to be brought in.
[Sic] [Emphasis added]
31 The "Peter" referred to in this excerpt from the email of 8 March 2010 is Peter Moore.
32 By 10 March 2010, Simeon Moore was communicating with Mr Donoghue by email concerning the Saree proceedings and the Lava dispute, as well as separate but, at a general level of abstraction, related litigation in New Zealand against Mr Sorensen (or entities related to him). In the penultimate paragraph of an email of that date to Mr Donoghue, Simeon Moore stated:
Seventh: When my father and I first took this case, everyone had told you that you could not ever "get up" as against Sorrenson. And yet you now have Sorrenson seeking to settle in both jurisdictions. Are you to tell me honestly that at this moment you shall simply walk away?
[sic] [Emphasis added]
33 The "father" referred to in this paragraph of the email is Peter Moore.
34 In between his initial contact with Simeon Moore in January 2010 and his receipt of the emails of 8 and 10 March 2010, Mr Donoghue received from Moore & Associates on or about 15 February 2010, a "Standard Costs Agreement" dated 15 February 2010 and signed on behalf of that firm by Mr Peter Moore. The document bears on its face an email address then used by Mr Donoghue. I infer that it was sent to him by email.
35 The description of the work to be undertaken is cast in this way in the standard costs agreement:
Peruse correspondence, documents, transcript and judgement/s in the Supreme Court of NSW proceedings of Lava Ltd v Avery 13418 of 2007; peruse correspondence and documents in relation to Avery v Saree Holdings Pty Limited and Lava Limited currently being heard before Foster J. in the Supreme Court of NSW 2114 of 2009; as may be available peruse correspondence and documents in relation to your action in New Zealand against Sorensen and Ors seeking Specific Performance of certain Agreements; briefing counsel to advise on the decision in proceedings 13418 of 2007 and possible appeal therefrom or re-opening the case or in relation to further proceedings by you in relation to the alleged mortgage advance to Lava Pty Limited and seeking Orders for the redemption of the alleged mortgage on the basis that any moneys so advanced were not the property of Lava Pty Limited but belonged to you or your nominee; and all others matters relating thereto or arising therefrom.
The document takes the form of an offer by Moore & Associates to undertake the work thus described. It is further stated in it, under the heading "Acceptance", that acceptance may be by any one of the following ways:
signing and returning a copy of this document;
giving us instructions after receiving this document;
oral acceptance.
36 Mr Donoghue recalls being introduced to Peter Moore by Simeon Moore over the telephone. Mr Donoghue cannot place the exact time or content of this conversation. At the time, there was no reason for him to think he would later have to do this. He places the call as having occurred in January or February. It is inherently likely, given that Peter and Simeon Moore were father and son, that Mr Donoghue came to retain Moore & Associates on Simeon Moore's recommendation.
37 Mr Donoghue stated in evidence that, at some stage prior to his retaining Moore & Associates, Simeon Moore said to him words to this effect:
By engaging Moore & Associates, and with me working with Moore & Associates as an adviser to you, all documents that you put in my possession will be treated as covered by legal professional privilege.
38 Simeon Moore must, I infer, have known that Mr Donoghue was dissatisfied with the service of the firm of solicitors then acting in the Saree proceedings and in respect of the Lava dispute. Not being able to practise in his own right, because he was not then admitted, he could not suggest his personally acting in succession to that firm. I also infer that the initial work he undertook leading to his "Analytical Report" whetted his appetite for further work and the rewards that might bring. It is inherently likely therefore and I find that he promoted both his father's firm and himself to Mr Donoghue. In so doing, I consider it inherently likely and I also find that he did indeed say words to the effect related by Mr Donoghue, and said them prior to the sending of the standard costs agreement. Accepting this, I also find that it was never Mr Donoghue's intention after the receipt of this "Analytical Report" that Simeon Moore act independently of Moore & Associates, as opposed to consulting to that firm in its delivery of legal advice to him or in its conduct of litigation.
39 Mr Donoghue does not assert that he signed a copy of the standard costs agreement. He does though assert that he retained Moore & Associates in or about early February 2010. I accept this evidence. Inferentially, his receipt of the signed standard costs agreement from that firm was responsive to a request from him that the firm act for him. On or about 22 February 2010, Mr Donoghue received by email from Moore & Associates a tax invoice of that date in respect of what must have been the first professional services undertaken by that firm following the giving of instructions to act. That tax invoice records work first undertaken on 12 February 2010, which included that day "telephone attendance with Simeon [inferentially and therefore, notably, Simeon Moore] in relation to the background of the two Supreme Court proceedings [inferentially, the Saree proceedings and the Lava proceedings as they then stood]". A trust account statement from Moore & Associates evidently sent that same day with the tax invoice records the receipt of $10,000 from Mr Donoghue and an application of the bulk of that in satisfaction of the tax invoice debt. The dispatch of the standard form costs agreement on 15 February 2010 was responsive to this initial work and to the nature of the work which Mr Donoghue had by then requested that firm to undertake.
40 The emails of 8 and 10 March 2010, excerpted above (especially the references to "my father" and to "Peter"), offer further confirmation that Moore & Associates was by then acting for Mr Donoghue. Also inferentially from the email of 8 March 2010, on or about that date Mr Donoghue paid $50,000.00 to Moore & Associates. I find that was paid to the end of Moore & Associates continuing to undertake work as described in the standard costs agreement sent to him on or about 15 February 2010.
41 I accept Mr Donoghue's evidence that, in giving instructions to Moore & Associates, Mr Donoghue believed that Simeon Moore was either an agent of or employee of Moore & Associates.
42 On 22 March 2010, in response to an email query of 18 March 2010 directly from Ms Leanne Avery, the plaintiff in the Saree proceedings, to either or each of Peter Moore and Simeon Moore ("Hi Peter&/or Simeon"), Simeon Moore stated, inter alios:
Moore & Associates has officially been instructed by Garry on a number of matters. We must speak to you concerning these matters. Our primary point of concern is saving the property in which you presently reside, which has always been the objective of both you and Garry.
[Emphasis added]
Inferentially, the "Garry" to whom Simeon Moore makes reference is Mr Donoghue and the "property" to which he refers is the Walsh Bay unit. This email is copied both to Mr Donoghue and to what I infer from the address (it includes "pandtmoore") is an email address used by Mr Peter Moore and the Tina M Moore (also a solicitor and Peter Moore's wife) who is shown on the standard costs agreement of 15 February 2010 as a consultant to Moore & Associates. Tellingly, there is not a hint in this email of Scientes, even in Simeon Moore's email address. Simeon Moore's use of "we" and "our" (as emphasised) in conjunction with Moore & Associates in this email is eloquent.
43 Mr Donoghue stated in evidence that, upon reading this email, he was "confirmed in my understanding that Simeon Moore was employee or agent of Moore & Associates, responsible for assisting in the conduct of his father's legal practice." There may well be an element of recent invention, or at least ex post facto observation, in this statement. What I mean by that is that, while I am quite satisfied that, by then, Mr Donoghue had in fact retained Moore & Associates to undertake the work set out in the standard costs agreement and believed that he had so retained that firm, I doubt that he was at the time consciously seeking confirmation of that retainer and belief. At the time, he had no reason to do that. The email was at the time and is consistent with a retention of Moore & Associates in terms of the standard costs agreement already by then having occurred with Simeon Moore communicating on behalf of that firm with Ms Avery. Rather than Mr Donoghue being "confirmed in his understanding" by the email, the more likely position, I find, is that the email gave him no cause to question the existence of a retainer. It may well be that this is what Mr Donoghue was intending to convey in his evidence. In any event, I did not form any adverse view of Mr Donoghue's general reliability as a result of reaching this conclusion as to the more likely impact of his receiving the email.
44 By 21 April 2010, Moore & Associates was, as noted above, the solicitor on the record in the New South Wales Supreme Court proceedings. This was a sequel to Mr Donoghue's earlier retention of Moore & Associates.
45 I find that, apart from an initial, informal and temporary arrangement in January 2010 which Mr Donoghue believed at the time he was making with Simeon Moore personally, the communications which he had with Simeon Moore and then his father, Peter Moore on and from late January/early February 2010 up to and including early August 2010 were directed to the retention of that firm and the consequential provision of legal services by that firm. By "legal services" I mean the services having as their dominant purpose the provision of legal advice or acting in litigation existing or anticipated.
46 Over this period in 2010, Mr Donoghue had no reason to think that any greater formality on his part was necessary in relation to the retention of Moore & Associates. He did not ever question the scope of the proposed retainer as set out in the standard costs agreement dated 15 February 2010. He had no reason to at the time. The course of subsequent events and tax invoices from that firm show that Moore & Associates came to act in just the ways described in that document.
47 On 24 March 2010, Simeon Moore sent to Mr Donoghue an email which purported to confirm an arrangement which he and Mr Donoghue had struck earlier that afternoon in discussions at Mr Donoghue's then residence at Hamilton in Brisbane. As related in this email, this discussion concerned Simeon Moore's relocation to Sydney so as to undertake litigation related work there, his travel to New Zealand so as to undertake work on litigation in New Zealand and a related arrangement in respect of payment. The latter included, so Simeon Moore recorded, an arrangement whereby he would receive a percentage of any recovery or settlement monies in relation to the New South Wales litigation.
48 On 7 April 2010, Simeon Moore sent a further email to Mr Donoghue enclosing a "Scientes" account as at 6 April 2010 in respect of "advice and strategy". That document purports to record work between 22 February 2010 and 6 April 2010 at the rate of $80.00 per hour. Notably, on 22 March 2010, this account records the undertaking of 16 hours work at this hourly rate (total $1280), which is the very same day as Simeon Moore communicated with Ms Avery apparently on behalf of Moore & Associates. In the email which enclosed this account, Simeon Moore stated, inter alios, "I might point out that I would consider the attached invoice and this email to be subject to legal privelege, for it is ultimately advice/an invoice pertaining to as yet unfinalised costs [sic]." However accurate or otherwise this conception of the existence of legal professional privilege may be, the statement is notably inconsistent with Simeon Moore's self-created retainer proposal put to Mr Donoghue in the "Analytical Report" enclosed with the email of 28 January 2010. The statement is consistent with Mr Donoghue's professed understanding that Simeon Moore was either an employee or agent of Moore & Associates.
49 On 19 April 2010, Simeon Moore sought for himself by email from the operator of a printing business the production and reproduction of a business card, "utilising the Moore & Associates template which you already have" on which, apart from his name and qualifications, the word, "Consultant" was to appear. Simeon Moore copied that email to his father's firm. Later that same day he also made a point of copying that email to Mr Donoghue. His so doing and Mr Donoghue's receipt of the same is consistent with Mr Donoghue's evidence as to his understanding of Simeon Moore's being either an agent or employee of Moore & Associates.
50 Another version of a Moore & Associates business card which came into Mr Donoghue's possession on or about 19 April 2010 was one which bore Simeon Moore's name, qualifications and the job title, "Lay Associate". Once again, Mr Donoghue's receipt of a business card with this description is consistent with his evidence as to his understanding of Simeon Moore's being either an agent or employee of Moore & Associates.
51 On 9 May 2010, Simeon Moore drafted and sent to his father and also to Mrs Tina Moore at Moore & Associates a letter on that firm's letterhead addressed to the Co Director of Professional Legal Training at the faculty of Law at Bond University. His draft described the work which he had been undertaking in this way:
Simeon Moore has provided his services to Moore & Associates for a period lasting no less than one year and two months. During this time, he has been substantially involved, albeit under my supervision, in a considerable number and variety of matters - which is not unusual for a Lay Associate or Trainee Solicitor employed by a boutique law firm of general practice.
In that draft letter, under the heading, "Litigation", reference is made to Simeon Moore's having been "actively and significantly involved" in specified proceedings in New South Wales, Queensland and New Zealand. The New South Wales proceedings specified are the Saree proceedings and those relating to the Lava dispute. The New Zealand proceedings are the one and the same as those concerning Mr Sorensen referred to in earlier dealings between Mr Donoghue and Simeon Moore. The Queensland proceedings (described in the preamble to the relevant paragraph as being in the Magistrates Court yet, inconsistently thereunder said to be in the District Court - nothing turns on this inconsistency for present purposes) are, inferentially, also one and the same as proceedings involving the firm Tucker and Cowen referred to in earlier exchanges between Mr Donoghue and Simeon Moore.
52 That same day, Simeon Moore copied that draft letter to Mr Donoghue.
53 Later yet, and Mr Donoghue is unable to specify when, Mr Donoghue came into possession of a "file copy" of a signed version of that draft letter. That signed file copy version is dated 12 May 2010 and bears a firm reference, "PSM:TMM 10/0078". Inferentially from this reference and the firm's letterhead, both Peter Moore and Mrs Tina Moore are intended contact points within Moore & Associates in respect of this letter. The statements in the draft which I have excerpted above are repeated in the signed version.
54 At the same time, but again not one which Mr Donoghue is able exactly to specify, he came into possession of a later email exchange between the Bond University addressee and Peter Moore concerning this letter. This exchange occurred between 15 and 17 May 2010. The printout of the email exchange is entitled, "Peter Moore". I infer from this that the print was made by Peter Moore or at least from his computer. I infer from the email exchange that the signed letter was sent to and received by Bond University by 15 May 2010. The letter is directed to the admission of Simeon Moore to Bond University's online offering of a Graduate Diploma in Legal Practice. I also infer both from the firm reference on the letter and from Peter Moore's authorship of the email to Bond University which covered it that it is more likely than not that he signed the letter. If he did not sign it, I am satisfied from his authorship of the covering email that he was aware and approved of the contents of the letter. I am further satisfied from the earlier dispatch to him of the draft by Simeon Moore, copied to Mr Donoghue, that Peter Moore was aware of the contents of that draft, notably the portions to which I have drawn attention, and of the fact that the draft was being copied to Mr Donoghue.
55 It would be a strong thing to conclude that this letter was drafted by Simeon Moore and signed by Peter Moore so as to work a deliberate deception on Bond University. Equally strong would be a conclusion that the draft was copied to Mr Donoghue so as to work a deliberate deception on him as to Simeon Moore's role. I do not so conclude. Rather, having regard to the standard costs agreement sent on 15 February 2010 to Mr Donoghue, the Moore & Associates tax invoice of 22 February 2010, the emails of 8 and 10 March 2010 and Moore & Associates becoming solicitor on the record in the Saree proceedings in April 2010, it seems to me more likely than not that the statements made in the draft sent to Mr Donoghue reflected the true position in relation to Simeon Moore. I reach the same conclusion in relation to those statements as made to Bond University in the signed version of the letter. I infer that the draft was copied to Mr Donoghue because it had become desirable, having regard to the extent of the legal work being undertaken on Mr Donoghue's instructions by Moore & Associates and those retained by that firm, for Simeon Moore to become admitted.
56 Those statements are consistent with Mr Donoghue's professed understanding of Simeon Moore's role.
57 Further, and again consistently as to the role undertaken by Simeon Moore in relation to litigation and other legal work in New Zealand, Simeon Moore described himself in an email of 22 April 2010 to Mr Jones, a partner in the Auckland based legal firm, Jones Young, as "a Lay Associate of Moore & Associates, the Sydney based law firm representing Mr Garry Donoghue". He used that same title to describe himself at the conclusion of that email.
58 On 23 June 2010, Simeon Moore sent an email to his father at Moore & Associates in which he enclosed an analysis which he had prepared of the issues in the Saree proceedings and the Lava dispute. That analysis purports to be sent in his capacity as managing director of Scientes. It is addressed to Peter Moore for the use of the senior and junior counsel then briefed by Moore & Associates in the Saree proceedings. I find that telling. What is telling, in my view, is that Simeon Moore did not send the analysis either directly to counsel or to Mr Donoghue. He sent it to his father. It was Peter Moore, as the principal of the firm Moore & Associates, who sent that analysis later that day by email both to senior and junior counsel and to Mr Donoghue. It was to Moore & Associates and more particularly to his father that Simeon Moore was working.
59 In his evidence, Mr Donoghue stated in respect of the analysis enclosed with Peter Moore's email of 23 June 2010 that, "the fact that Peter Moore had sent this document to Mr Dempsey and Mr Jenkins [the senior and junior counsel briefed] conformed with my understanding that Simeon Moore was engaged for the purpose of assisting in the legal practice of his father." I regarded this statement by Mr Donoghue also as more in the nature of an ex post facto editorial observation than indicative of his having deliberately turned his mind in June 2010 as to whether Moore & Associates had been retained by him to undertake the work described in the standard costs agreement. At the time, he had no reason to do that. That Simeon Moore, in his purported capacity as managing director of Scientes, sent his analysis to his father reflected the then position that he (or, if it existed as a separate legal entity, Scientes), was working to his father. Simeon Moore (or Scientes) was not then and had not, at least since that standard costs agreement was sent, been doing other than work to his father in the provision, via Moore & Associates, of legal advice and in the conduct of litigation existing or anticipated.
60 Mr Donoghue did not in his evidence, in terms, deny the account which Simeon Moore gave in his email of 24 March 2010 of a conversation Simeon Moore said in that email had occurred between them earlier that day. One prospective event referred to in that account namely, a move to Sydney by Simeon Moore, did indeed come to pass. Mr Donoghue admitted as much in evidence. I consider it more likely than not that, in March 2010, Mr Donoghue envisaged that Simeon Moore would play a major role undertaking legal work associated with the Saree proceedings the Lava dispute and litigation in Queensland and in New Zealand but that that work would be undertaken for Moore & Associates or legal firms engaged by that firm. That Simeon Moore was choosing to render accounts in the name of Scientes was, I find, a matter of indifference to Mr Donoghue at the time. He neither condoned nor questioned Simeon Moore's adoption of Scientes, because, as far as Mr Donoghue was concerned, the retainer was of Moore & Associates and Simeon Moore was working to or for that firm. Insofar as he thought about the subject at all, and I doubt that he did, I infer that Mr Donoghue did no more than consider that he was retaining Simeon Moore, or, which is less likely, Scientes, to work to or for Moore & Associates in the provision of legal advice and in the undertaking of other legal work by that law firm. That explains why, in my view, there is no evidence of his seeing anything untoward at the time of Simeon Moore's describing himself on Moore & Associates business cards as "Lay Associate" or "Consultant". That is what Simeon Moore was.
61 In the Scientes account dated 6 April 2010, sent under cover of the email of 7 April 2010, credits of $500 and $5,500 are recorded. Once again, Mr Donoghue did not in terms in his evidence deny paying sums of this order to Simeon Moore by this date. That funds were to be paid to Simeon Moore to assist with a move to Sydney is a subject said by him to have been canvassed in the discussion with Mr Donoghue on 24 March 2010. It is more likely than not that Mr Donoghue did advance money to Simeon Moore for this purpose. Once again, for reasons canvassed in the preceding paragraph, it was, insofar as he thought about it at all at the time, a matter of indifference to Mr Donoghue that Simeon Moore chose to account for these funds via Scientes.
62 Even if, contrary to the conclusion which I have reached, Simeon Moore was not working to or for Moore & Associates, it does not follow that Mr Donoghue is unable to claim legal professional privilege in respect of communications and documents furnished to Simeon Moore. Simeon Moore was, alternatively, "working with Moore & Associates as an adviser to [Mr Donoghue]". In the dealings with Moore & Associates and, for that matter, Mr Donoghue's New Zealand lawyers, the evidence admits of an alternative conclusion that Simeon Moore was Mr Donoghue's alter ego or agent for the purpose of those dealings. In other words, he was, alternatively, a conduit between Mr Donoghue and the lawyers. In these alternative circumstances, communications made and documents entrusted to Simeon Moore by Mr Donoghue for the dominant purpose of obtaining legal advice or for use in existing or anticipated litigation would still be subject to legal professional privilege: Wheeler v Le Marchant (1881) 17 Ch D 675 at 684 per Cotton LJ.
63 Mr Donoghue recalled and I find that, "at some point during the period when Moore & Associates were retained by me, Moore & Associates ceased leasing an office and commenced practising from Peter Moore's home in Sydney". Mr Donoghue further recalls and I find that, by this stage, Simeon Moore had moved to Sydney.
64 Mr Donoghue also gave evidence, which I accept, that, shortly after this change of premises by Moore & Associates, he and Simeon Moore visited the latter's father's residence "for the purpose of compiling a complete set of files relating to me and to the Avery Proceedings [what I have termed the Saree proceedings and the Lava dispute], comprising, among other things, documents that I had previously provided to Simeon Moore". Mr Donoghue does not assign a precise date to this visit. He had no reason at the time to think that he might later have to do this. He does though exhibit to his affidavit an email to him and to Peter Moore from Simeon Moore dated 6 July 2010 in which, on an apologetic note, Simeon Moore confesses to not forwarding to his father "various emails I had received over a number of months" because of "the breakneck speed at which numerous matters have had to be dealt with". I found this email telling for its indication that Simeon Moore regarded himself at the time as being under an obligation to report to his father. Also, having regard to this email, I infer that there was a concerted consolidation of holdings of material in July 2010 and that the visit to Peter Moore's residence related by Mr Donoghue more likely than not occurred at or about the time of the email of 6 July. In reaching that conclusion, I have taken into account that the notice of motion arising from the Lava dispute was heard in July 2010. It seems inherently probable to me that the lead up to that generated a need for such a consolidation.
65 Mr Donoghue stated in evidence and I accept that the complete set of files was moved from Peter Moore's residence to Simeon Moore's apartment in St Ives in Sydney. Once again, Mr Donoghue does not assign a precise time to when this move occurred. A bitter dispute between Simeon Moore and Mr Donoghue in relation to fees allegedly owing erupted in August 2010. Mr Donoghue does not ascribe the movement of the files as having occurred only after the dispute. Rather, the position is that, by the time when the dispute erupted, Simeon Moore was in possession of that complete set.
66 Again having regard to the filing of the notice of motion in respect of the Lava dispute and to the fact, evident on the face of the reasons for judgement later delivered by Slattery J, that the hearing of the Saree proceedings resumed on 26, 27, 28 and 29 July 2010, by then in conjunction with the hearing of that notice of motion, I infer that the movement of the complete set of documents to Simeon Moore's apartment occurred in July 2010, prior to 26 July 2010. I consider it inherently likely, and I find, that this movement of documents occurred because Messrs Peter Moore, Simeon Moore and Donoghue each envisaged at the time that it would be Simeon Moore who would be undertaking day to day preparatory work in respect of the forthcoming resumed hearing and attending at the hearing, each activity on behalf of Moore & Associates, the firm retained by Mr Donoghue for that purpose.
67 The upshot is that, as at the start of August 2010, Simeon Moore had possession of this complete set of documents with both his father's and Mr Donoghue's permission, but solely for the purposes of the conduct of litigation existing or anticipated or the provision of legal advice as a person working for or to Moore & Associates. Simeon Moore did not at that time have possession of that complete set of documents for any other purpose. There was at the time a solicitor-client relationship between Mr Donoghue and Moore & Associates to undertake the work described in the stand costs agreement. Work related to the resumed hearing in the New South Wales Supreme Court in July 2010 fell squarely within the terms of that retainer.
68 It may perhaps be that some documents within this complete set first came into Simeon Moore's possession from Mr Donoghue under the informal arrangement the two of them struck in January 2010. However, after the sending of the standard costs agreement in February 2010 and by the time of the emails of 8 and 10 March 2010 and certainly by the time of the move to his apartment of the complete set in July 2010, any possession or continued possession of these documents by Simeon Moore was solely for the purposes mentioned in the preceding paragraph. That position continued to obtain in November 2011.
69 It was from this complete set held in both electronic and hard copy form by him for this purpose that Simeon Moore made documents available to the Australian Taxation Office in November 2011 in circumstances which I now proceed to relate. It was also from this complete set or from information which otherwise came into his possession in working for or to Moore & Associates for the purpose of that firm's providing legal advice or acting in relation to existing or prospective litigation that Simeon Moore drew when preparing his overview and "dramatis personae" documents which also formed part of the material which he provided to the Australian Taxation Office in November 2011.
70 In August 2010, Mr Donoghue received from Simeon Moore, most probably by email, a tax invoice on Scientes letterhead in respect of work purportedly undertaken by Scientes between 30 January 2010 and 5 August 2010 (5 August being the last date on which hourly entries are shown). The tax invoice is not dated. However, Mr Donoghue recalls that he had conversations with Simeon Moore in relation to payment of fees on 5 and 11 August 2010. The coincidence of the date of the last hourly entry in the tax invoice and other features of that invoice to which I shall presently refer is such that I consider it more likely than not that the invoice was sent and received on 5 August 2010 with a conversation concerning fees then occurring later that day.
71 The number of hours stated on this invoice to have been worked by Simeon Moore over the period mentioned is truly fantastic both in total and with reference to individual days. If the entries on the invoice are to be believed, for the periods between 20 April and 5 June 2010 (each inclusive) and between 13 and 15 June 2010 (each inclusive), Simeon Moore performed services each and every hour of each and every day that fell in these periods. Again if the entries on the invoice are to be believed, the latter period was worked after working 17 hours on 10 June, 18 hours on 11 June and 22 hours on 12 June. In total, including GST and what were said to be "ancillary costs", the total amount said to be owing is $753,174.62. And this for the services of an as yet not admitted law graduate undertaking post-graduate studies in law at Bond University!
72 The sum sought is outrageously extortionate but quite in keeping, behaviourally, with Simeon Moore's character. I regard this tax invoice as a fantasy document. Its best use is for the insight it offers into the character of Simeon Moore (whom I infer to be its author) and the reliability of his statements, not for the accuracy of what it purportedly records.
73 Mr Donoghue recalled in his evidence that on 5 August 2010 and again on or about 11 August 2010 he had a conversation with Simeon Moore in which Simeon Moore said to him words to the following effect:
Garry, if you don't pay me and my family, I will have no hesitation in giving the ATO everything I have on you. You should be very worried. A family friend is an Assistant Commissioner and I've reported people to him before and he's taken them down. There's no doubt he'll look at you and take everything from you and the Donoghue Family Trust. If you don't want that to happen, pay up what you owe.
74 I accept this evidence. Conversations in which Simeon Moore said words to this effect occurred on 5 August and more likely on, rather than about, 11 August 2010. In recalling the second of these, Mr Donoghue drew upon a contemporaneous handwritten note which he had made on an email he received from Simeon Moore on the evening of 11 August 2010. In that email, Simeon Moore stated that material had been passed to the Australian Taxation Office. His receipt of that email prompted Mr Donoghue to annotate the print of it with a note of a telephone conversation which he had had with Simeon Moore earlier that day.
75 I also infer that the "DFT", which appears on the first page of the invoice in a heading "Services rendered by Garry Donoghue and DFT" [sic] is intended to be a reference to the Donoghue Family Trust mentioned by Simeon Moore in the conversations recalled by Mr Donoghue. It is no part of that finding that a trust by that name existed either here or in New Zealand. It is though part of that finding that such knowledge as Simeon Moore had of any such trust and such documents as he had concerning it were communicated to him and in his possession for the purpose of legal advice to be furnished to Mr Donoghue by Moore & Associates or for use in legal proceedings. Any such documents formed part of the complete set which, by the end of July 2010, was in Simeon Moore's possession at his St Ives apartment.
76 Mr Donoghue conceded in evidence that, by early August 2010, Moore & Associates and Simeon Moore had rendered accounts to him for substantial sums, not all of which had been paid by him. I did not understand him by his reference to Simeon Moore having rendered accounts to him to concede that Simeon Moore was being paid to do other than to work for Moore & Associates and I do not reach that conclusion.
77 Moore & Associates ceased to act as solicitor on the record in the Saree and Lava proceedings in September 2010. I do not doubt that a dispute as to fees preceded that.
78 Also in evidence via Mr Donoghue are bitter, accusatory emails exchanged between Simeon Moore and Mr Donoghue in late August 2010. There is a self-serving quality in these emails as to the nature of legal service arrangements earlier made. Within this exchange, Mr Donoghue's assertions are consistent with the evidence which he gave in this proceeding. Even so, I regard the documents and events which preceded the falling out and inferences to be drawn from them as a more sure foundation for the conclusion I have reached in relation to the existence of a solicitor-client relationship, its extent and the basis upon which Simeon Moore held documents at the time when he made disclosures to the Australian Taxation Office.
79 The Commissioner's final audit report (No 1-34VDT9P) recites that an audit of Mr Donoghue commenced on 17 October 2010 as a result of the disclosure of information from an informant or "SNC Intelligence" via an email ("SNC" I infer is an abbreviation which refers to the Serious Non-Compliance Branch within the Australian Taxation Office). That email is not in evidence but the name of the original informant is mentioned in evidence (Australian Taxation Office internal email of 4 November 2011 from Shannon Main to Jenny Wilshire, his immediate supervisor (SM1, p. 99)). But for that naming and having regard to the conversations which Mr Donoghue related he had with Simeon Moore in August 2010 and the email exchanges which occurred later that month as well as the reference made by Simeon Moore to the Australian Taxation Office, it would be tempting to conclude that the original informant was Simeon Moore but the evidence is that it was another person. It is not material to this case to name that person. What the August 2010 dealings between Simeon Moore and Mr Donoghue highlight is the disposition of Simeon Moore to use a threat of disclosure to the Australian Taxation Office to try to extort from Mr Donoghue payment of his outrageous, fantasy account for services said to have been rendered.
80 By 28 January 2011, Simeon Moore had been in contact with a Mr James Wabeck of the Australian Taxation Office and provided him with some information by email. Mr Wabeck, in turn, referred what he had received from Simeon Moore to another taxation officer, Mr Glenn Smith who had told him that, "he could not do anything with the information as there were no specifics provided". [Mr Wabeck and Mr Smith differ in detail in their evidence as to the early consultations between them within the Australian Taxation Office. Mr Wabeck's recollection is the more detailed on this subject and I prefer it over that of Mr Smith where they differ.] Mr Wabeck then knew (and to this day knows) Simeon Moore socially.
81 A sequel to this internal consultation was that, on 17 February 2011, Mr Wabeck sent an email to Simeon Moore enquiring, "Any luck locating documents". Sixteen minutes later, Simeon Moore responded to him, "Waiting for your collection". At first blush incongruously, in light of his better recollection than Mr Smith of their mutual dealings and what must at the time have been a promising response from Simeon Moore, Mr Wabeck stated in evidence that he had no recollection of this email exchange. However, his further evidence was that Simeon Moore had been promising to provide him with information for a long time (inferentially for a period of about nine months from the end of January 2011) but had not done so until November 2011. Viewed against this lengthy background of unfulfilled promises, I can well understand why Mr Wabeck had no cause particularly to remember the email exchange in February 2011 when it was drawn to his attention in the course of these proceedings. In February 2011, nothing came of the promise "waiting for collection" so there was no later cause to remember the email exchange.
82 The evidence discloses that, during the period from January 2011 to October 2011, the Commissioner's audit of Mr Donoghue's taxation affairs entailed the gathering of information from various third party sources other than Simeon Moore, including foreign revenue authorities. By 25 October 2011, Mr Shannon Main, an auditor within the Commissioner's Serious Non-Compliance, "Project Wickenby" team had analysed the information gathered and prepared in draft a "Reasons for Decision" (RFD) document in respect of the audit. Mr Main had been involved in the audit since April 2011.
83 The draft RFD is a significant document, as it reveals the position reached within the Australian Taxation Office with respect to the audit of Mr Donoghue immediately prior to when Mr Moore finally, on 1 and 2 November 2011, made more specific disclosures to Mr Wabeck. In the context of these proceedings, this draft RFD is noteworthy for the following features:
(a) absence of any reference to proceedings in the New South Wales Supreme Court;
(b) passing reference only to Ms Avery and then only in the context of an address given by Mr Donoghue as an intended address being a unit in Sydney ascertained to belong to her;
(c) no reference to a person by the name of "Charley" as Mr Donoghue's child;
(d) no reference to a trust, be it in Australia or New Zealand, by the name of the Donoghue Family Trust as being of relevance to the basis of any assessment then under contemplation;
(e) the only assessment then under contemplation being in respect of the 2005 income year and an absence of reference to the 2006 and 2007 income years.
84 By 4 November 2011, the audit was, from Mr Main's point of view, finalised. The draft RFD of 25 October 2011 had by then been provided by him by email to Ms Wilshire.
85 On 1 and 2 November 2011, Mr Wabeck received a succession of emails from Simeon Moore. These emails fulfilled a statement made by Simeon Moore to Mr Wabeck when he was at Simeon Moore's home in about October 2011 that he was in a position to proceed with providing information to the Australian Taxation Office. At that time, Simeon Moore told Mr Wabeck that he had been providing research assistance to a person he named as Mr Donoghue, had accompanied him to New Zealand to meet with that country's corporate regulator equivalent of the Australian Securities and Investments Commission and that his father, Peter Moore, a New South Wales solicitor, was acting for Mr Donoghue in a court dispute about what Mr Wabeck recalled was a property or the financing of a property.
86 On 1 and then on 2 November 2011 Simeon Moore sent the following emails to Mr Wabeck, which were received at the latter's Australian Taxation Office email address:
(a) E-mail dated 1 November 2011, 3.44 am re "Frustration of Legal Cases & Criminal Charges" (JW-1, page 8);
(b) E-mail dated 1 November 2011, 11.38 am re "Dramatis personae" (JW-1, page 9);
(c) E-mail dated 1 November 2011, 14.13 pm re "Fwd: Overview Part 1" (JW-1, pages 10-23) with an annexure sent from Simeon Moore's iPhone;
(d) E-mail dated 1 November 2011, 15.36 pm re "Good Bye Donoghue et al" with attachments containing newspaper articles (JW-1 pages 24-41);
(e) E-mail dated 1 November 2011, 15.41 pm re "Overview with attachment" as per email sent 14.13 pm (JW-1, pages 42-54);
(f) E-mail dated 1 November 2011, 15.42 pm re "Overview Part 2 - Dramatis Personae" with attachment (JW-1, pages 55-66);
(g) Email dated 1 November 2011, 15.56 pm re "Images of Bill Salouris (aka Salis - Global Capital Corporation) taken Versace Glamour Ball (Gold Coast)" with attachments (JW-1, pages 67-70);
(h) E-mail dated 2 November 2011, 8.47 am re "Ladarra Pty Ltd" with attachment (JW-1, page 71-72).
87 On 3 November 2011, Mr Wabeck passed all of the information received by email over the preceding two days from Simeon Moore to Mr Peter Clark, another officer in the Australian Taxation Office assigned to the Commissioner's Serious Non-Compliance, "Project Wickenby" team.
88 Mr Clark forwarded the material received to Mr Main on 4 November 2011. Mr Main did not review this material until after he had prepared and sent off the draft RFD to his supervisor. There was much for him to review.
89 Mr Main made notes in the course of his review. These are in evidence. These show that it was as a result of his review that Mr Main came to become aware of a separate trust in New Zealand, also known as the Donoghue Family Trust. He also noted that Simeon Moore, "seems to rely on statement made to him and evidence given in the NSWSC". In his notes, Mr Main designates the New South Wales Supreme Court proceedings as "Slattery proceedings" and records that they are "about LA's apartment". Inferentially, "LA" is Ms Leanne Avery and the apartment is the Walsh Bay unit. Mr Main's noting of the "Slattery Proceedings" resulted in his listing in his notes under the heading, "Things to Do", "find the Slattery proceedings" and then, in turn, to his ascertaining their matter number and identifying a need to apply for access to a Deputy Registrar of the Supreme Court.
90 By 8 November 2011, Mr Main had completed his review of the material which Simeon Moore had sent. That day he reverted by email to Mr Clark so as to convey his views with respect both to the material sent and also to further dealings with Simeon Moore. In that email, Mr Main observed, inter alios:
While Mr Moore should be given the opportunity to submit documents to us, the ATO should provide the opportunity cautiously. The ATO needs to be cautious because:
(1) we are conducting a covert audit and this should not be jeopardised;
(2) Mr Moore's emails indicate that he is seeking counsel advice on the likely ramifications of taking information/evidence to the media and contacting Mr Moore (and, indeed, not contacting him) may implicate the ATO in any media coverage;
(3) Mr Moore appears aggrieved by Mr Donoghue and may attempt to use the ATO for his own purposes; and
(4) Some of the documents in Mr Moore's possession may be subject to legal professional privilege.
In order to manage these issues, could SNC Intel contact Mr Moore, thank him for providing information to the ATO, and ask that he provide the documents which substantiate his allegations?
[Emphasis added]
91 As the emphasised item in his email to Mr Clark discloses and as he later confirmed at trial in the course of a most searching cross-examination by senior counsel for Mr Donoghue, from the very outset of his exposure to material being provided to the Australian Taxation Office by Simeon Moore, Mr Main held an apprehension that some of it may be subject to legal professional privilege. Also evident in this email is a separate apprehension held by Mr Main, which was not to jeopardise what was a covert audit of Mr Donoghue's taxation affairs. As also emerged in cross-examination, these two apprehensions were enduring and came to interplay in Mr Main's mind in November and December 2011 and beyond.
92 Acting on Mr Main's email, Mr Clark telephoned Simeon Moore on 9 November 2011, seeking further information while at the same time taking care not to disclose that Mr Donoghue was already under covert audit by the Australian Taxation Office. He reported the results of this telephone conversation to Mr Main by email on 10 November 2011, alerting him to his anticipated receipt from Simeon Moore of a couple of laptop computers containing information concerning Mr Donoghue.
93 In furtherance of his telephone conversation with Simeon Moore on 10 November 2011, Mr Clark met with him on 14 November 2011. He received from Simeon Moore a 127 page statement, a bundle of documents (132 pages in all) together with two laptop computers. Included in the bundle of documents is an email of 10 March 2010 sent by Mr Donoghue to Simeon Moore which is in these terms:
Dear Simeon,
Re Loan Offer by Raynold Pty Ltd
I wish to confirm my instructions for Moore & Associates to act on behalf of the Donoghue Family Trust and me in my own capacity in this matter.
Regards,
Garry
94 On any view, this email is a retainer of Moore & Associates by Mr Donoghue to act in relation to a particular proposed transaction. Other documents in the bundle handed over by Simeon Moore to the Australian Taxation Office that day show that this proposed transaction became the subject of a loan application which was by 19 March 2010 accepted by Mr Donoghue and Mrs Sandra Donoghue on which date Mr Donoghue again corresponded with Moore & Associates.
95 On 16 November 2011, Mr Main received by email from Mr Clark notes of the latter's interview on 14 November 2011 with Simeon Moore, together with a copy of Simeon More's overview statement and of the bundle of documents handed over by him. He also became aware that day that Mr Clark had initiated steps, via a specialist information technology section within the Australian Taxation Office known as "Trusted Access", for the data contained on the two laptops to be imaged and loaded on to a data retrieval system maintained within that office and known as the "NUIX System". On 21 November 2011, Mr Main received advice via Mr Clark that it had proved possible only to gain access to the hard drive of but one of the two computers handed over by Simeon Moore. These two laptops were subsequently (most likely on the evidence in early December 2011) handed by the Australian Taxation Office to Simeon Moore.
96 On 6 December 2011, Mr Main received advice from the "Trusted Access" section that the contents of the accessed hard drive had been loaded on to the NUIX system (NUIX system files). Mr Main then commenced searching the NUIX system files, identifying and then extracting particular documents which he considered relevant to the audit he had been conducting. These documents he printed out and placed on the audit file. The documents which Mr Main extracted and printed from the NUIX system files included the following:
(a) letter of 8 July 2009 from Holman Webb Lawyers (for Saree Holdings Limited) to Mr Donoghue regarding the Saree proceedings;
(b) an email trail of 12 November 2005 between Mark Lowndes (Lowndes Associates - corporate and Commercial Law Specialists) and Mr Donoghue regarding funds paid by Lava Limited;
(c) email from Mark Lowndes of Lowndes Associates dated 27 October 2005 to Mr Donoghue regarding "Q Tel NZ";
(d) an email trail of 10 February 2010 between Ms Avery, Mr Donoghue and Holman Webb (lawyers for Saree Holdings Limited) and those acting for Ms Avery enclosing the unexecuted affidavit of a Ms Burson.
97 In his affidavit evidence, Mr Main stated that he considered "whether these documents were likely to be properly the subject of a claim for legal professional privilege" by Mr Donoghue and that he concluded such a claim was "unlikely".
98 I accept as literally true this statement made by Mr Main in his affidavit evidence. I have already referred to Mr Main being subject to a most searching cross-examination. This meant that I had the opportunity to observe him over an extended period and in circumstances where he was closely and methodically confronted with the proposition that he had either deliberately subverted a privilege (legal professional privilege) of Mr Donoghue which he knew to subsist in the documents and laptop data Simeon Moore handed over or at least apprehended that such a privilege may exist and deliberately refrained from making or initiating inquiries which might have confirmed that for fear of jeopardising the covert nature of the audit.
99 Mr Main struck me as an intelligent, serious-minded, young man, dedicated to his auditing duties within the Australian Taxation Office. He had qualifications in law and, at the time, was recently admitted but he did not hold an appointment in which he undertook duty as a lawyer. This was the first audit for which he had primary responsibility. Both his draft RFD and the final version of the RFD show that he has considerable talent as a taxation auditor. I do not consider that the weakness in the process of assessment revealed by this case was one of character on Mr Main's part but rather, in my view, of inexperience and zeal, coupled with a lack of relevant supervision and guidance. In the circumstances prevailing, Mr Main would have benefited from at least an engaged, experienced supervisor if not also external legal advice to highlight the adverse ramifications for the process of assessment in any use of the material supplied by Simeon Moore while its status as privileged material remained a contingency.
100 I also accept Mr Main's statement as literally true because the impression which I formed, and the finding which I make, as a result of considering both his affidavit and oral evidence is that he did indeed consider whether the documents mentioned were likely to be subject to legal professional privilege but concluded this was unlikely because it was not apparent on their face that they recorded the provision of legal advice to Mr Donoghue. He reached this conclusion even though, correctly (Commissioner of Australian Federal Police v Propend Finance Pty Ltd (1997) 188 CLR 501), he was aware that a copy of a document produced to a lawyer would be privileged if that copy was made for the dominant purpose of obtaining legal advice or for use in existing or anticipated litigation.
101 The conclusion which Mr Main reached was, at the time, a convenient one for him. He was under a degree of time pressure to complete the audit (by 21 November, the audit was approaching its "due date" - Australian Taxation Office internal email of that date from Mr Main to Mr Clark - SM1, p. 130). From the outset of his association with information provided by Simeon Moore, he was apprehensive that what was being provided (or some of it) might be subject to legal professional privilege. He knew that he ought not to use for audit purposes material which was covered by legal professional privilege. He also knew that it was for the client, not a lawyer or Simeon Moore, to waive that privilege. Mr Main held the view that Simeon Moore had not made his disclosures because he was an altruist and may have been trying to use the Australian Taxation Office for his own purposes. He was also concerned about publicity adverse to the Australian Taxation Office which might occur were Simeon Moore to allege to the media that he had brought evidence to the office and nothing had been done. These factors from the very outset influenced him to counsel Mr Clark that the office needed to be "cautious" in dealing with Mr Moore. By the time he prepared the final form of the reasons for decision, he had formed the view that Simeon Moore was a "pretty odd" person. Though it is necessary to add the caveat that I have not heard from Simeon Moore in evidence, I formed that same impression even looking just at the "overview" he authored, a view which was underscored by the other evidence led in the proceedings, in particular, the fantasy invoice.
102 Mr Main was not being dishonest when he stated that he had considered the question of privilege in respect of the documents he extracted from the NUIX files. It is just that his conclusion as to what was necessary to make these extracted documents privileged was mistaken and reckless, as it was in relation to the material provided by Simeon Moore generally. The mistake was one which infected his dealing with all of the information provided by Simeon Moore both in the form of the overview summaries Simeon Moore prepared and the documents both in hard copy and, via the laptops, in electronic form he provided. I thought that Mr Main came to this realisation in the course of his cross-examination.
103 Mr Main stated in affidavit evidence that the documents (including those on the NUIX files) provided by Simeon Moore were of "limited use" in his audit of Mr Donoghue. I mean no disrespect to him in observing that this statement concealed as much as it revealed. One measure of the utility of what Simeon Moore provided is offered by comparing Mr Main's draft RFD of 25 October 2011 with the final audit reasons for decision which issued on 21 December 2011. That same day, notices of assessment were issued not just in respect of the 2005 income year but also the 2006 and 2007 income years. Mr Main was taken to this "limited use" answer in the course of cross-examination. I was left with the impression that he had adopted the adjective "limited" because, in light of later events, which materially included a claim for legal professional privilege by Nyst Lawyers in respect of the material provided by Simeon Moore, the apprehension which he had always felt about the privileged status of that material loomed by the time he made his affidavit as a reality.
104 I accept as true Mr Main's statement that the documents (including those on the NUIX files) provided by Simeon Moore were mainly of use in relation to "issues referable to Mr Donoghue's residency including establishing his Australian assets". But as his own notes of his review of the initial batch of documents provided by Mr Moore reveal, Simeon Moore's disclosure also put Mr Main on a train of inquiry. The train of inquiry included the Saree proceedings. As to documents on that court file, once it is recalled that the copies thereof in Simeon Moore's possession were privileged, it is nothing to the point, in relation to the validity of assessments made or inspired by the use those particular copies, that many may also be found on a court file.
105 Another indicator of the use to which the material provided by Simeon Moore was put Mr Main, and thus the Commissioner, is that absences of reference or passing reference noted above in respect of the draft RFD of 25 October 2011 were no longer present by the time when the assessments issued. The point is that what Simeon Moore provided not just was of use but was used in the making of those assessments. And all of the documents, including the overview and those on the NUIX files, which Simeon Moore provided to the Australian Taxation Office had come into Simeon Moore's possession for the dominant purposes mentioned or were prepared from information which had come into his possession for those purposes. It is not possible to dissect out from the overview what, if anything, in the factual information related in it was not privileged. Information in a document created from privileged information earlier given to its author is itself privileged.
106 The result of Mr Main's progressive receipt and analysis of the material provided by Simeon Moore to the Australian Taxation Office over the course of November 2011 was that he abandoned the draft RFD of 25 October 2011. Two changes in particular as between that draft RFD and the reasons for decision document finalised by Mr Main on 20 December 2011 should be highlighted:
(a) the changed basis and years of assessment of Mr Donoghue. This has changed from a 2005 income year only assessment not predicated upon his being a beneficiary of a trust known as the Donoghue Family Trust to assessments for each of the 2005, 2006 and 2007 income years, each predicated upon his being a beneficiary of a trust known as the Donoghue Family Trust;
(b) even though the originally proposed 2005 income year assessment was predicated upon Mr Donoghue being an Australian resident, his alleged residency not only for an assessment in respect of that income year but for assessment for the 2006 and 2007 income years was said to find support via his association with Ms Avery and "Charley", said to be a child of that family unit.
107 Mr Main chose to take his own counsel on the subject of whether what Simeon Moore was providing was covered by legal professional privilege. Certainly in hindsight and even at the time, this was fraught with risk in relation to the process of assessment. He was always apprehensive that this material might be privileged. He deliberately refrained from making or initiating (including via Mr Clark or Mr Wabeck) any privilege related inquiry either of Moore & Associates (notably, Peter Moore) or Mr Donoghue about what Simeon Moore had provided. He refrained from doing this so as to preserve as covert the audit, the process of analysing information gathered (including that from Simeon Moore) and the making of assessments. Even though, via email, Mr Main had altered them to his apprehension about some at least of Simeon Moore's offerings being covered by legal professional privilege, the email exchanges in early November between Messrs Main, Clark and Wabeck do not disclose any separate disposition on the part of either Mr Clark or Mr Wabeck, even though they were the ones then in direct contact with Simeon Moore, to explore with him or anyone else whether any of the material he proposed to offer the Australian Taxation Office may be privileged. The first that Mr Main wanted Mr Donoghue to know of the interest of the Australian Taxation Office in him was when he was given notices of the Commissioner's assessments. On the evidence, Mr Main likewise refrained from sharing his apprehension with either Ms Wilshire or Ms Catherine Jay, who supervised an audit group of which Ms Wilshire was in charge, as well as another such group in the Serious Non-compliance Branch within the Commissioner's office. Equally, the supervision (or relevant absence thereof) provided by Ms Wilshire and Ms Jay was such that neither detected the apprehension which he felt, much less offered him guidance as to its ramifications with respect to the material provided by Simeon Moore. The defect in the process of assessment revealed by this case is not one for which Mr Main is solely responsible. It is to be remembered that while rank has it privileges, it also has its responsibilities.
108 Mr Main also deliberately refrained himself from making any inquiry of Simeon Moore which might have removed or confirmed his apprehension that what Simeon Moore was providing to the Australian Taxation Office was covered by legal professional privilege. By refraining from inquiring in these ways, Mr Main was able to and did minimise his apprehension just by answering a narrow question which was that none of the documents on their face recorded the conveying of legal advice. He posed that question even though he knew that, potentially, what may be covered by legal professional privilege covered a wider class of documents. In this fashion, he closed his eyes to the obvious and came at the time to the view that the risk that the material provided by Simeon Moore was privileged was low. I do not accept that he ever lost an apprehension that the documents provided by Simeon Moore (or some indeterminable number of them) were subject to legal professional privilege.
109 Mr Main's apprehension about the existence of legal professional privilege was hardly misplaced. To read the "overview" prepared by Simeon Moore is to be left with an impression that the firm Moore & Associates was retained by Mr Donoghue, that Simeon Moore at times adopted at least the guise of working for that firm in the provision of legal services to Mr Donoghue by the use of a firm business card with the job description, "Lay Associate" and at other times acted as Mr Donoghue's agent for the purpose of dealing with that firm and lawyers in New Zealand in relation to Mr Donoghue's obtaining legal advice or in relation to the conduct of litigation. Either way, the impression created is that the facts in the overview itself and documents which Simeon Moore has come to possess may very well be subject to legal professional privilege. That impression is (or ought to have been) heightened by a view that Simeon Moore is a "pretty odd" person who has a grievance with Mr Donoghue.
110 In the course of his cross-examination, Mr Main stated and I accept as true that he had tried to ascertain whether Simeon Moore was a lawyer but had been unable to find this out. He conceded that the (unspecified) inquiries in this regard which he undertook were inadequate. Mr Main also admitted that he could find no sign in the information provided to him by Mr Clark that Clark had tried to find out, one way or the other, whether Simeon Moore was a lawyer. He further admitted that, at the time, he knew that, even if Simeon Moore were not a lawyer, the material he was providing might still be subject to legal professional privilege.
111 It was put on behalf of Mr Donoghue that I ought to conclude that Mr Main had in preparing his final reasons for decision used material (emanating from Simeon Moore) which he knew to be privileged; that he had deliberately acted in bad faith. This was a submission quite properly open to be put in the circumstances of the present case. Mr Donoghue is not obliged to prove that fact to demonstration, only on the balance of probabilities, taking into account the gravity of the allegation: s 140, Evidence Act 1995 (Cth). Reflecting on his affidavit and oral evidence as a whole, his interchanges with fellow taxation officers in November 2011 and the emails, "overview" and documents emanating from Simeon Moore, I do not reach this conclusion or uphold this submission in relation to Mr Main.
112 Instead, I prefer an alternative posited on behalf of Mr Donoghue. I find that Mr Main did not deliberately use material which he knew definitely to be privileged. Rather, what he did was deliberately not pursue or cause to be pursued inquiries which would have quelled an apprehension, always present, which he had that the documents and information provided by Simeon Moore (or some indeterminable part thereof) were subject to legal professional privilege. He did this for these reasons. Amongst what Simeon Moore provided, there was material which was of use in the audit. Mr Main knew that the potential taxation liability flowing from his audit was large. He believed that Mr Donoghue was subject to the tax liability which came to be created by the notices of assessment in respect of the 2005, 2006 and 2007 income years. That belief was, in respect of the 2005 income year, at least influenced by his review of the material provided by Simeon Moore. In respect of the 2006 and 2007 income years, the material was certainly influential, if not more than that, given the differences between the 25 October 2011 draft RFD and the final RFD. Mr Main also knew that he could not use this material if it were privileged and, if so, that it was Mr Donoghue's right to claim the privilege or to waive it. There was nothing in the material which contained any waiver. To have initiated inquiries which would have addressed, one way or the other, his apprehension, would in his view have compromised the confidentiality of an audit desirably kept confidential. At the same time as the assessments issued to Mr Donoghue, departure prohibition orders in respect of Mr Donoghue, based on the assessed indebtedness, were also issued. This was not a coincidence. A reason why the audit was considered desirably to be kept confidential was an apprehension that, with knowledge of it, Mr Donoghue either might not return to Australia or, if present, depart for abroad before assessment notification.
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.
114 Even though they knew of Mr Main's apprehension, neither Mr Clark nor Mr Wabeck sought to dissuade him from the use of the material; nor did they alert his supervisors of the existence of this apprehension.
115 After the assessments were issued to Mr Donoghue, he came to suspect, in light of the threats which Simeon Moore had made in August 2010, that Simeon Moore had disclosed privileged material to the Australian Taxation Office. Early in 2012, he instructed Nyst Lawyers to investigate this and to make a claim of privilege on his behalf. That firm's attempts so to do were, in the first instance, met with what might accurately be described as obfuscation by the Australian Taxation Office. An example of this was the imposition of a requirement to detail what were the individual documents the subject of a privilege claim and this in circumstances where it must have been known that Mr Donoghue could not possibly know the nature and extent of the disclosures which Simeon Moore had made. It put him and his solicitors in a "Catch 22" situation. To his credit, I thought, Mr Main conceded in his evidence that the initial response by the Australian Taxation Office to Nyst Lawyers had been "unhelpful".
116 I do not consider it necessary to detail the history of the events concerning the attempted investigation and assertion of privilege, because, save in one respect, they are not relevant to whether the process of assessment was affected by "conscious maladministration". The one respect is that the evidence discloses that Mr Main had input into the Australian Taxation Office internal deliberations with respect to these attempts by Nyst lawyers. That input discloses a concern on his part about the confidentiality of the Commissioner's sources of information. There was, I thought, an uncanny similarity between the way in which the attempt by Mr Donoghue's solicitors to assert a common law right was resolved in favour of confidentiality of source and the way in which use of material in and confidentiality of audit triumphed over apprehension as to the existence of legal professional privilege and inhibitions as to use of privileged material flowing from that same common law right.
117 In the making of each of the 2005, 2006 and 2007 income year assessments which issued to Mr Donoghue, the Commissioner drew upon documents, including those on the NUIX files, which Simeon Moore had provided. That material was subject to legal professional privilege. The person who held that privilege, Mr Donoghue, had not then (and still has not) waived that privilege.
118 One of the submissions made by the Commissioner was that, even if this material was privileged and Mr Main had been wilfully blind (or worse) to that, this mattered not, because it was Ms Jay who had made the assessment decision. For reasons which follow, I reject it.
119 As a matter of language, s 174(1) of ITAA36 assumes that the Commissioner's giving of a notice of assessment "as soon as conveniently may be after any assessment is made" (emphasis added) is a step in his administration of taxation legislation which follows the making of an assessment: see also Bailey v Federal Commissioner of Taxation (1977) 136 CLR 214 at 216 per Barwick CJ (Bailey). In Batagol v Federal Commissioner of Taxation (1963) 109 CLR 243 at 253 (Batagol), Kitto J (with whom Menzies J agreed) stated that s 174 should be "understood to mean that the Commissioner shall serve a notice of assessment as soon as conveniently may be after his work for the making of the assessment has been done". His Honour further stated (ibid) that "assessment" was "the whole process which comes to a head in the service of a notice of assessment and thereby becomes, as a whole, an act in the law". This latter statement was particularly directed to "assessment" as it appeared in the then s 170 of the ITAA36. In that same case (Batagol), Owen J (with whom Menzies J also agreed), also referring to the word as it appeared in the then s 170, observed, at 256:
[The] assessment of which S. 170 (1) to (6) speak is something more than the completion inside the Taxation Department of the routines and processes necessary for the purpose of deciding whether or not in a particular case there is a taxable income and tax payable thereon. It includes the taking of all such further steps as are necessary to create a liability to pay the tax so calculated.
120 At issue in Batagol was whether a "refund advice" advising that no tax was payable constituted an "assessment" for the purposes of the then s 170(3) of the ITAA36. That was important in that case because, if that advice constituted an assessment, the Commissioner's later "assessments" were amendments not authorised by that provision.
121 The notion of "assessment" as a process is also evident in the judgment of Barwick CJ in Bailey (at 216), as it is in that of Brennan J in Dalco v Federal Commissioner of Taxation (1990) 168 CLR 614 at 625. That same notion is likewise evident in Futuris at [23] to [25].
122 At the time when Batagol and Bailey were decided, the definition of "assessment" in s 6 of the ITAA36 did not, as it did in the income years in question in this case, contain a parenthetical reference "or that no tax is payable". In the years presently in question, s 6 of the ITAA36 materially provided that "assessment" meant:
(a) the ascertainment of the amount of taxable income (or that there is no taxable income) and of the tax payable on that taxable income (or that no tax is payable); or …
Even so, the way that the definition has come to be cast does not detract from the notion that "assessment" is a process. Nor does it detract from a proposition that the culmination of that process is the giving of a notice to the person concerned. It is just that the culmination of the process is now either a notice the giving of which creates a liability or, as the case may be, notifies that there is no taxable income or tax payable thereon.
123 In form, each of the notices of income tax assessment and the notice of liability to pay penalty which issued to Mr Donoghue on 21 December 2011 bears the typed signature "Paul Dufus Deputy Commissioner of Taxation".
124 By s 8 of the TAA, the Commissioner is empowered to delegate any of his powers (save that of delegation) or functions under a taxation law to, materially, a Deputy Commissioner of Taxation. Powers or functions so delegated, when exercised or performed by the delegate are deemed to have been exercised or performed by the Commissioner: s 8(2), TAA. The effects of reg 172 of the Income Tax Regulations 1936 (Cth) are that I am required to (and do) take judicial notice that Mr Dufus then held the office of Deputy Commissioner and, further, in the absence of evidence that the notices were issued without authority, that even though his name is typed, those notices are deemed to have been signed by him.
125 The notices of income tax assessment do not, as in my view they ought, additionally subscribe under Mr Dufus' name and office, "delegate of the Commissioner". In contrast, the notice in respect of penalty does bear this additional subscription. The addition of this additional subscription would more readily allow a presumption as to regularity to be drawn. Even so, neither party conducted its case on the basis that Mr Dufus was not a delegate for the purpose of the giving of the notices of assessment. Nor is there any evidence which would suggest he did not hold such a delegation. I proceed on the basis that he was the Commissioner's delegate for this purpose.
126 Ms Catherine Jay's name is nowhere to be found on the notices of assessment which issued to Mr Donoghue or in the accompanying reasons for decision on Australian Taxation Office letterhead dated 21 December 2011, which issued to him at the same time. It is Mr Main who is designated as the contact officer in these reasons for decision. It is Deputy Commissioner Dufus who issued each of the notices of assessment, not Ms Jay, and not, for that matter, Mr Main. The act of Mr Dufus as delegate is deemed to be that of the Commissioner.
127 On their face then, the notices suggest that it is Deputy Commissioner Dufus who has made each of the assessments in question and who is notifying them to Mr Donoghue.
128 Mr Dufus did not give evidence. Even so, such of the process of administration within the Australian Taxation Office as is revealed on the evidence admits of a conclusion that, having finalised his preparation of reasons for decision on 20 December 2011, Mr Main submitted the document to a superior, Ms Jay. Ms Jay acted on and adopted what Mr Main had prepared in his statement of reasons. She did not make any of the assessments as a delegate herself of the Commissioner. Rather, her evidence is that she made the assessments with the authority of a Deputy Commissioner who, in turn, was a delegate of the Commissioner (as to the permissibility in the circumstances of taxation administration of decisions of the Commissioner or delegates being made through authorised officers, see O'Reilly v The Commissioner of the State Bank of Victoria (1983) 153 CLR 1). Oddly, for, as I have stated, the assessments bear the name of Deputy Commissioner Dufus, Ms Jay names as the Deputy Commissioner and delegate of the Commissioner who authorised her to make assessments in his name as Deputy Commissioner Michael Cranston, the Deputy Commissioner in charge of the Serious Non-Compliance Branch of the Australian Taxation Office, not Mr Dufus. How the assessments came to be issued bearing the name of Mr Dufus rather than Mr Cranston is not explained. This oddity was not explored in submissions and did not form a basis upon which it was said that the assessments were invalid. Instead, the submissions of both parties assumed that, if the conscious maladministration were not found, the assessments were valid. I proceed on that basis.
129 Accepting, as I do, that assessment is a process, I consider that it is erroneous to conceive of that process as confined to whatever deliberation Ms Jay made in the brief interval between when Mr Main's final version of the reasons for decision came to her attention on 20 December 2011 and when the notices of assessment issued. The process of ascertaining Mr Donoghue's taxable income for the 2005, 2006 and 2007 income years and the tax payable thereon included Mr Main's analysis of the information in the possession of the Commissioner as at 20 December 2011 (which included the information provided by Simeon Moore), his preparation of the final version of his reasons for decision and his submission of these to his superior. All of this Ms Jay adopted as Deputy Commissioner Dufus' own.
130 The resultant operation of s 8(2) of the TAA was that the assessments and notices thereof were deemed to be those of and given by the Commissioner. Mr Donoghue was correct to join the Commissioner as the respondent. If the process described in this paragraph included "conscious maladministration" as described in Futuris, the resultant assessments will be invalid.
131 The position would not be any different if Ms Jay were herself a delegate of the Commissioner for the purpose of making assessments. Those assessments would be still, by s 8(2) of the TAA, be deemed to be those of the Commissioner. And the process of assessment would not be confined to Ms Jay's deliberations but still embrace those of Mr Main leading to the submission to her of the reasons for decision which he had prepared.
132 The ITAA36 provides a way of reinforcing this same conclusion. In the 2005 to 2007 income years, s 166 of the ITAA36 provided:
166 Assessment
From the returns, and from any other information in his 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).
133 The income tax assessments concerned were default assessments made under s 167 of the ITAA36. However, whatever authority s 166 of the ITAA36 grants to the Commissioner to use information in his possession also extends to an assessment made under s 167. At one stage, I understood the Commissioner to be disposed to submit that the words "any other information in his possession" in s 166 authorised him to use for the purposes of assessment information in his possession which was subject to legal professional privilege. As I understood it, no such submission was pressed. To have done so would have run counter to over-whelming authority. Legal professional privilege is an important common law privilege, a concomitant of the governance of society by the rule of law. A statute is not to be construed as excluding it unless by clear words or necessary implication: Baker v Campbell (1983) 153 CLR 52; The Daniels Corporation International Pty Ltd v Australian Competition and Consumer Commission (2002) 213 CLR 543. There is no express abrogation and no such implication is to be found in s 166 of the ITAA36.
134 Having regard to s 166 of the ITAA36 and to the context in which that section appears, especially s 174, the position which obtains is that the lodgement of returns and the obtaining by the Commissioner of other information is a step antecedent to the analysis of those returns and that other information, by a process known as "assessment", so as to ascertain the amount of taxable income, if any, and the tax payable thereon, if any with that process culminating in the giving by the Commissioner of a notice of the assessment which he has made. Section 166 of the ITAA36 imposes a duty on the Commissioner to make an assessment but it does not authorise him to use information in his possession which is the subject of legal professional privilege in so doing.
135 In Denlay v Federal Commissioner of Taxation (2011) 193 FCR 412 at [81] (Denlay), the Full Court stated:
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.
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".
136 Section 263 of the ITAA36 was also put forward by the Commissioner as authorising his use of the material provided by Simeon Moore. In Commissioner of Taxation of Commonwealth of Australia v Australia and New Zealand Banking Group Limited (1979) 143 CLR 499 at 535, Mason J observed of this provision:
Section 263 is a general provision giving the Commissioner a right of access. It makes lawful that which otherwise would be unlawful, e.g. entry upon premises, the examination of a document.
One difficulty about reliance upon s 263 may be that it did not apply in circumstances where Simeon Moore brought or sent the material to the Commissioner's own premises. The section does though state "full and free access to all buildings, places, books, documents and other papers for any of the purposes of this Act". Its generality is therefore apt to cover Australian Taxation Office premises and material whether in paper or electronic form situated there so, odd though the necessity for the same may be in respect of information in his possession on his own premises, I shall assume that s 263 applies there, too. That generality is not though apt to oust legal professional privilege: Federal Commissioner of Taxation v Citibank Limited (1989) 20 FCR 403 at 416; JMA Accounting Pty Ltd v Federal Commissioner of Taxation (2004) 139 FCR 537 (JMA Accounting). The conclusion in these cases in relation to s 263 not ousting legal professional privilege also provides an additional reason why s 166 does not authorise the use of material so privileged which comes into the Commissioner's possession otherwise than via the exercise of his power of access. It would be an incongruous construction of these two generally worded provisions to conclude that, while the Commissioner could not demand access under s 263 to privileged material that he could nonetheless access it if happenstance (or worse) brought that same privileged material into his possession. Construing s 166 and s 263 of the ITAA36 in this way accords with the principle of legality whereby statutes are not construed as overthrowing fundamental principles (of which legal professional privilege is one) unless that intention is manifested with "irresistible clarity": Electrolux Home Products Pty Ltd v Australian Workers' Union (2004) 221 CLR 309 at 329, [21] per Gleeson CJ, referring to R v Secretary of State for the Home Department; Ex parte Pierson [1998] AC 539 at 587, 589, cited with approval by French CJ, Gummow, Hayne, Crennan and Kiefel JJ in Saeed v Minister for Immigration and Citizenship (2010) 241 CLR 252 at [15].
137 That neither s 166 nor s 263 of the ITAA36 authorises the use of or access to material which is subject to legal professional privilege also explains why an alternative submission of the Commissioner must be rejected. That submission was that it was possible for the Commissioner to use such material in the process of assessment with any question of privilege being a matter for objection on the hearing of a taxation appeal if the Commissioner sought to tender that material. If the use of the privileged material is an element of conscious maladministration in the process of assessment, the assessment is invalid and a taxation appeal is unnecessary. The Commissioner might in an appeal choose not to lead evidence at all, leaving it to the taxpayer to discharge the onus of proof. In respect of a taxation appeal regime which casts the onus of proof that an assessment is excessive on a taxpayer and in respect of a case where the use in the process of assessment of privileged material formed an element of conscious maladministration, to approach s 166 (or s 263) in any other way than the way I have posited above might put a taxpayer in whom legal professional privilege reposed in an invidious position. The taxpayer might be faced with the choice of having to waive that privilege in order to prove an assessment, made on the basis of, or on a basis that included that privileged information, excessive or fail in the appeal because he or she did not lead that evidence. Such an approach to the construction of the ITAA36 and the TAA would truly be antithetical to the principle of legality. While the foregoing is a sufficient basis upon which to dispose of this alternative submission, I add the following, without further elaboration as to its merits, because the proposition was not raised on the hearing of the appeal. Either part and parcel of the principle of legality or analogous to it is the proposition that a construction which affords a Commonwealth statute an operation in conformity with the Constitution is to be preferred to one which does not. It may be that an assessing and appeal regime which had the practical effect of placing a taxpayer in the invidious position mentioned might be also regarded as one which, in practice, impermissibly created an incontestable tax: Deputy Commissioner of Taxation v Brown (1958) 100 CLR 32 at 40; Giris Pty Ltd v Federal Commissioner of Taxation (1969) 119 CLR 365 at 378-379; MacCormick v Federal Commissioner of Taxation (1984) 158 CLR 622; Futuris at [8].
138 JMA Accounting also shows that the overarching obligation in relation to the exercise of the s 263 right of access is to act reasonably. In cases where the existence of legal professional privilege is asserted in respect of material to which access is sought by the Commissioner, acting reasonably entails putting in place a regime which will protect any claimed privilege. The same must follow, in my view in relation to material which might be privileged which is in the Commissioner's possession having been furnished by a third party without the consent of the holder of the privilege. Section 166 of the ITAA36 does not permit the Commissioner to use material subject to legal professional privilege in the process of assessment. It was a feature of Mr Main's conduct of the audit that, even though he apprehended that legal professional privilege might exist in respect of some at least of the material provided by Simeon Moore, he chose, deliberately, not to put in place a regime which would protect any claimed privilege before use was made of that material for assessing purposes.
139 As with s 166, s 263 does not authorise, justify or excuse the use by the Commissioner of the material provided by Simeon Moore.
140 The Commissioner also submitted that whatever privilege had reposed in the material provided by Simeon Moore had been lost when it was exhibited to an affidavit of his solicitor read in support of the initial application to seek interlocutory injunctive relief so as to restrain the use by the Commissioner of that material. This submission was not put on behalf of the Commissioner to Reeves J as a reason why interlocutory injunctive relief ought not to be granted. It attributes to those acting for Mr Donoghue, in respect of an application, the very purpose of which was to vindicate and preserve a claimed privilege, an approach to that application akin to that attributed to an unnamed United States Army Major in relation to the destruction of the town of Bến Tre on 7 February 1968 in the course of the Vietnam War, "It became necessary to destroy the town to save it" (Arnett P, "Major Describes Move", New York Times (8 February 1968)). That this was the purpose of the application ought to have been pellucid to the Commissioner. The only purpose of the exhibiting of the material was to identify that which was the subject of the claim. I respectfully agree with the observations made by Buchanan J in Australian Competition and Consumer Commission v Cathay Pacific Airways Limited (2012) 207 FCR 380 at [25], as to the effect of the test for waiver flowing from Mann v Carnell (1999) 201 CLR 1 and Federal Commissioner of Taxation v Rio Tinto Limited (2006) 151 FCR 341:
I do not regard the test for waiver (as I must apply it) as being met by the mere availability for inspection, or the acquisition of knowledge of, a privileged communication. If that was sufficient, any inadvertent disclosure would suffice. Appropriate regard must be paid to the quality of the conduct of the party entitled to claim privilege as well as to the practical significance of the disclosure.
When one has regard to the quality of the conduct in relation to the interlocutory application and the practical significance and purpose of the disclosure, there is, in my view, no waiver of privilege. I reject the Commissioner's submission. Especially given that the point was not advanced before Reeves J and that the Commissioner was the respondent to that application, that this submission was advanced behalf of the Commonwealth's chief revenue officer was rebarbative.
141 In Federal Commissioner of Taxation v Clarke (1927) 40 CLR 246 at 276, Isaacs ACJ stated, "The Act so far trusts the Commissioner and does not contemplate, in my opinion a curial diving into the many official and confidential channels of information to which the Commissioner may have recourse to protect the Treasury." That statement was made with reference to the equivalents of s 177 of the ITAA36 in the Income Tax Assessment Act 1922 (Cth) (s 39) and its predecessor, the Income Tax Assessment Act 1914 (Cth) (s 35).
142 Futuris demonstrates that the trust invested in the Commissioner by the Parliament is not unqualified. The qualifications are evident in the following passages from the joint judgement of Gummow, Hayne, Heydon and Crennan JJ in that case:
23 The significance of s 175 for the operation of the Act and for the scope of judicial review outside Pt IVC is to be assessed in the manner indicated in Project Blue Sky Inc v Australian Broadcasting Authority. That case decided that the description of provisions as either mandatory or directory provides no test by which the consequences of non-compliance with a statutory criterion can be determined. Rather, consistently with the reasons in Project Blue Sky of McHugh, Gummow, Kirby and Hayne JJ, the question for the present case is whether it is a purpose of the Act that a failure by the Commissioner in the process of assessment to comply with provisions of the Act renders the assessment invalid; in determining that question of legislative purpose regard must be had to the language of the relevant provisions and the scope and purpose of the statute.
24 Section 175 must be read with ss 175A and 177(1). If that be done, the result is that the validity of an assessment is not affected by failure to comply with any provision of the Act, but a dissatisfied taxpayer may object to the assessment in the manner set out in Pt IVC of the Administration Act; in review or appeal proceedings under Pt IVC the amount and all the particulars of the assessment may be challenged by the taxpayer but with the burden of proof provided in ss 14ZZK and 14ZZO of the Administration Act. Where s 175 applies, errors in the process of assessment do not go to jurisdiction and so do not attract the remedy of a constitutional writ under s 75(v) of the Constitution or under s 39B of the Judiciary Act.
25 But what are the limits beyond which s 175 does not reach? The section operates only where there has been what answers the statutory description of an "assessment". Reference is made later in these reasons to so-called tentative or provisional assessments which for that reason do not answer the statutory description in s 175 and which may attract a remedy for jurisdictional error. Further, conscious maladministration of the assessment process may be said also not to produce an "assessment" to which s 175 applies. Whether this be so is an important issue for the present appeal.
…
55 The issue here is whether, upon its proper construction, s 175 of the Act brings within the jurisdiction of the Commissioner when making assessments a deliberate failure to comply with the provisions of the Act. A public officer who knowingly acts in excess of that officer's power may commit the tort of misfeasance in public office in accordance with the principles outlined earlier in these reasons. Members of the Australian Public Service are enjoined by the Public Service Act (s 13) to act with care and diligence and to behave with honesty and integrity. This is indicative of what throughout the whole period of the public administration of the laws of the Commonwealth has been the ethos of an apolitical public service which is skilled and efficient in serving the national interest. These considerations point decisively against a construction of s 175 which would encompass deliberate failures to administer the law according to its terms.
56 Such failures manifest jurisdictional error and attract the jurisdiction to issue the constitutional writs. To the extent that there is any indication to the contrary in what was said by Mason and Wilson JJ in F J Bloemen Pty Ltd v Federal Commissioner of Taxation that should not be followed.
57 It should be added that, with respect to the remedy of injunction, what was said in the joint reasons in Plaintiff S157/2002 v The Commonwealth indicates that injunctive relief clearly is "available for fraud, bribery, dishonesty or other improper purpose".
[Footnote references omitted, emphasis added]
143 The reference, at [55], to "the tort of misfeasance in public office in accordance with the principles outlined earlier in these reasons" is a reference by their Honours to the following earlier passage in their joint judgement (at [11]):
This Court has accepted that in that context [the context being formulations of the tort of misfeasance in public office] it is sufficient that the public officer concerned acted knowingly in excess of his or her power. The House of Lords has since indicated that in English law recklessness may be a sufficient state of mind to found the tort. The affinity between tort law and public law has been remarked upon in this Court; that affinity reflects the precept that in a legal system such as that maintained by the Constitution executive or administrative power is not to be exercised for ulterior or improper purposes.
144 The recent case in the House of Lords to which their Honours refer, with apparent approval, in Futuris at [11] is Three Rivers District Council v Bank of England [No 3] [2003] 2 AC 1 (Three Rivers District Council v Bank of England [No 3]) where, at 192, 228 and 231 the following observations are made in relation to the sufficiency of recklessness to ground the tort of misfeasance in public office:
per Lord Steyn, at 192:
It can therefore now be regarded as settled law that an act performed in reckless indifference as to the outcome is sufficient to ground the tort [of misfeasance in public office] in its second form.
per Lord Hutton, at 228:
I further consider that if the public officer knows that his unlawful conduct will probably injure another person, or is reckless to that consequence, the plaintiff does not need to show, before liability can arise, some other link or relationship between him and the officer. The requirement of foresight of probable harm to the plaintiff, or recklessness as to such harm, is sufficient to ensure that the tort is confined within reasonable bounds.
per Lord Hobhouse of Woodborough, at 231:
[In referring to three alternatives the proof of any one of which was sufficient to establish the requisite state of mind in a public official]:
Thirdly there is reckless untargeted malice. The official does the act intentionally being aware that it risks directly causing loss to the plaintiff or an identifiable class to which the plaintiff belongs and the official wilfully disregards that risk. What the official is here aware of is that there is a risk of loss involved in the intended act. His recklessness arises because he choses wilfully to disregard that risk. …
Subjective recklessness comes into the formulation at the first and last stage because it is in law tantamount to knowledge and therefore gives rise to the same liability. (See the Mengel case 69 ALJR 527, at p. 554.) The word "reckless" is not normally used in relation to this tort; other words are used including "blind disregard". At the first stage the phrase "without an honest belief" in the lawfulness of his conduct best conveys the requisite state of mind covering both actual knowledge and dishonest disregard. At the last stage, the phrase "wilful disregard" best describes the element of subjective recklessness in the third limb and the word "risk" is the appropriate word to use in conjunction with it.
In making these observations, each of their Lordships expressly referred to and adopted as correct the proposition, flowing from Northern Territory v Mengel (1995) 185 CLR 307 (Northern Territory v Mengel), that proof of recklessness was sufficient in relation to the tort of misfeasance in public office. The submissions made on behalf of Mr Donoghue included reference to a number of earlier authorities in relation to the proof of recklessness. In light of the more recent consideration of the subject at ultimate appellate level in Futuris and, in turn, in Three Rivers District Council v Bank of England [No 3] and Northern Territory v Mengel, I do not find it necessary to refer to these earlier authorities.
145 I have already found, for reasons set out above, that the process of assessment included Mr Main's acting in wilful disregard of a right which Mr Donoghue had to claim legal professional privilege in respect of the material supplied to the Australian Taxation Office by Simeon Moore and which Mr Main always believed might be privileged. That was not a proper purpose. Recklessness was regarded in Futuris as sufficient to establish the element of consciousness in conscious maladministration. In turn, what amounted to the requisite recklessness was regarded as being informed by that sufficient in respect of the tort of misfeasance in public office, as explained in Three Rivers District Council v Bank of England [No 3] and Northern Territory v Mengel. On the findings which I have made, Mr Main was reckless in the sense described in these cases. The Commissioner's process of assessment was, therefore, affected by conscious maladministration. As was stated in Futuris at [25] in the passage I have emphasised, conscious maladministration in the process of assessment does not produce an assessment to which s 175 of the ITAA36 applies. That is this case. The assessments concerned must therefore be quashed. It necessarily follows that separate penalty assessment dependent upon the primary tax assessments must also be quashed. In the absence of any income or penalty tax liability, no general interest charge would, as a matter of law, be payable. As that result necessarily follows, I do not, as presently advised, see any need for separate declaratory relief to that effect.
146 It will, at least in the first instance, be for the Commissioner to decide whether, having regard to information not subject to privilege and in the circumstances now prevailing, the issuing of fresh assessments is possible in fact and in law.
147 A number of consequences flow both from the invalidity of the assessments in respect of the 2005, 2006 and 2007 income years and the related penalty assessment and the other conclusions reached. In the absence of these assessments, there is nothing to support either the recovery proceedings or the departure prohibition order based on the taxation liability grounded in these assessments. Further, the privileged material must either be returned to Mr Donoghue or destroyed with the occurrence of one or the other being verified by affidavit. At least pending that, the injunctions granted by Reeves J should be continued. It is a matter for further submissions as to whether, if the material has been returned or destroyed, there is a need for any further continuance of any injunctions. I refrain from expressing any concluded view in that regard.
148 For the present, I propose only to make orders declaring the assessments in question to be invalid and quashing them, to set aside the departure prohibition order, to continue for a short period and until further order the injunctions granted by Reeves J (modified so as to accord with the conclusions reached on the evidence as to who provided the material in question to the Commissioner) and to direct the parties to bring in short minutes of orders in respect of consequential or other orders which they submit should be made so as to give effect to these reasons for judgment. It will also be necessary to hear from the parties in respect of costs.
I certify that the preceding one hundred and forty-eight (148) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Logan.