Farah Custodians Pty Limited v Commissioner of Taxation

Farah Custodians Pty Limited v Commissioner of Taxation - [2018] FCA 1185 - FCA 2018 case summary — Zoe

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WIGNEY J: 1 The central issue in this interlocutory dispute is whether the pleading filed by the applicant, Farah Custodians Pty Ltd, discloses a reasonable cause of action against the respondent, the Commissioner of Taxation, for the tort of misfeasance in public office. 2 Farah commenced proceedings against the Commissioner by filing an originating application and statement of claim on 4 April 2017. The commencement of the proceedings was, in a sense, a pre-emptive strike by Farah. The Commissioner had threatened to commence recovery action against Farah in respect of what was said to be the deficit balance on Farah's running balance account (RBA). An RBA is an account, established by the Commissioner under the Taxation Administration Act 1953 (Cth), which tallies and balances a taxpayer's primary tax debts against credits, including refunds, to which the taxpayer is entitled under a taxation law. In broad terms, Farah disputes the deficit balance recorded in its RBA. It claims that certain debits made to the account between late 2012 and early 2014, which purported to reflect refunds paid to it, should not have been made because the refunds had not in fact been paid to it in accordance with the Administration Act. It also claims that certain amounts, reflecting refunds payable to it, should be credited to the account. 3 The controversy between Farah and the Commissioner concerning the disputed refunds emanates, at least as far as Farah is concerned, from the actions of its former tax agent, Strathfield Tax Pty Ltd (ACN 125 964 347) and its principal Mr Ian Kennedy. Farah claims that it has been the victim of a fraud perpetrated by Mr Kennedy. That scheme involved, in broad terms, Mr Kennedy preparing and lodging, purportedly on Farah's behalf, false Business Activity Statements (BAS). Those BAS generated refunds which were payable to Farah. Mr Kennedy, again purportedly on Farah's behalf, nominated a bank account into which the Commissioner was to pay the refunds. Farah alleges, however, that the nominated account was not held by it or its tax agent, as required by the Administration Act. Rather, it was held by a company controlled by Mr Kennedy. The disputed refunds were in due course paid into that account. Farah claims that it did not receive the benefit of those payments. It also claims that, in paying the refunds into the account nominated by Mr Kennedy, the Commissioner breached certain provisions of the Administration Act. 4 The present interlocutory dispute arises because Farah's allegations go well beyond a mere claim that the refunds were not validly paid by the Commissioner. Rather, Farah claims, amongst other things, that the Commissioner was recklessly indifferent, or acted with "deliberate blindness", in respect of the invalidity of the payment of the refunds and the probability that the payments would injure Farah. Indeed, it appears to go further still and allege that the Commissioner had actual knowledge that the payment of the refunds into the bank account nominated by Mr Kennedy breached the Administration Act, actual knowledge that his purported exercise of power in paying the refunds was invalid or unauthorised, and actual knowledge that his actions would be likely to cause injury to Farah. It follows, so Farah alleges, that the Commissioner's conduct constituted "conscious maladministration". That would also appear, in this context, to amount an allegation analogous to the tort of misfeasance in public office, particularly since Farah claims that it is entitled to damages or compensation arising from the Commissioner's actions. If that was not serious enough, Farah also alleges that the Commissioner's actual knowledge of Mr Kennedy's fraudulent scheme means that the Commissioner was knowingly involved in the fraudulent scheme, and therefore liable to account to Farah in respect of its losses on the basis of the rule in Barnes v Addy (1874) LR 9 Ch App 244. 5 The Commissioner applied to strike out those parts of Farah's pleading that allege liability based on conscious maladministration, or the tort of misfeasance in public office, and the rule in Barnes v Addy. The broad question raised by the Commissioner's application is whether Farah has properly pleaded those claims. Are reasonable causes of action disclosed by the pleading? Is the pleading likely to cause prejudice or embarrassment?

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Procedural background 6 As has already been noted, Farah commenced these proceedings on 4 April 2017. The matter has not, however, progressed smoothly. 7 The Commissioner sought and obtained an order that Farah provide further and better particulars of its pleading before the Commissioner was required to file his defence. The Commissioner eventually filed his defence on 25 May 2017. It is unnecessary to consider the Commissioner's defence in any detail. It suffices to note, for present purposes, that the Commissioner denied any and all allegations concerning conscious maladministration, and denied the central allegations made against him in respect of the Barnes v Addy claim. On the same day he filed his defence, the Commissioner filed a cross-claim in which he sought judgment for $650,453.13 on the basis that this amount was Farah's RBA deficit debt as at 23 May 2017. Farah in due course filed a defence to the Commissioner's cross-claim and a reply to the Commissioner's defence. 8 Meanwhile, on 26 May 2017, Farah filed an interlocutory application for discovery by the Commissioner. Before that interlocutory application could be determined, the Commissioner filed an interlocutory application on 13 September 2017 which sought further or better particulars from Farah, or an order striking out those parts of Farah's pleading that alleged conscious maladministration and liability on the basis of Barnes v Addy. Before that interlocutory application could be determined, Farah filed a further interlocutory application on 3 November 2017 seeking leave to file an amended originating application and an amended statement of claim. The Commissioner opposed that application. The parties' respective interlocutory applications were listed for hearing. 9 Shortly before the hearing of the rival interlocutory applications, Farah produced a further draft of its proposed amended statement of claim. That draft pleading contained further and more detailed particulars of the allegations of conscious maladministration. As will be seen, however, the further draft did not add to the clarity of the allegations. Indeed, if anything, it muddied the waters. 10 Ultimately, the parties invited the Court to proceed on the basis that the Commissioner's strike out application should be treated as if it was directed at the most recent iteration of Farah's proposed amended statement of claim. That is not to say that the Commissioner consented to the filing of the proposed amended statement of claim. Rather, he invited the Court to proceed on the basis that, if the relevant parts of the proposed amended pleading were, as he submitted, liable to be struck out, leave to file the amended pleading should be refused. 11 The Commissioner also submitted that Farah's application for discovery should be deferred until the strike out application was determined. That was because many of the categories of documents in the discovery order sought by Farah were directed to the claim of conscious maladministration. 12 In order to address the Commissioner's strike out application, including his arguments concerning Farah's proposed amended pleading, it is necessary to attempt to come to grips with Farah's pleaded factual allegations and causes of action. As will be seen, that is no mean feat.

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Fraud by Farah's tax agent 17 Farah is one of a number of companies of which Mr Farah Elias is a director (ASOC [2]). 18 On or about 16 October 2012, Farah appointed Strathfield Tax as its tax agent (ASOC [4]). At that time, Strathfield Tax was a registered tax agent and appeared to be managed by Mr Kennedy and Mrs Pamela Kennedy. Neither Mr Kennedy nor Mrs Kennedy were, however, themselves registered tax agents (ASOC [4I]). Farah appears to allege that Strathfield Tax should therefore not have remained registered as a tax agent (ASOC [4E]), though the particular relevance of that allegation is somewhat unclear. Mr Ian Wass was another person who was apparently employed or otherwise associated with Strathfield Tax, though his actions do not appear to feature prominently in the pleading. 19 On or about 19 September 2013, Strathfield Tax was placed into voluntary administration (ASOC [7]). Shortly thereafter, Strathfield Tax ceased to be recorded on the Australian Taxation Office's (Tax Office) systems as Farah's tax agent (ASOC [7A]). Rather, Mr Wass was recorded as being Farah's tax agent. Farah and Mr Elias were unaware of both of those events (ASOC [7A] and [7B]). 20 In November 2013, Mr Elias, on behalf of Farah, appointed Strathfield Taxation Services Pty Ltd as Farah's tax agent, apparently on the strength of representations by Mr Kennedy that it was a registered tax agent and would replace Strathfield Tax as Farah's registered tax agent (ASOC [8A]). It would appear that both Mr Kennedy and Mr Wass were employed or somehow associated with Strathfield Taxation Services. 21 The Commissioner established an RBA for Farah (ASOC [10]; see s 8AAZC of the Administration Act). Amounts payable by Farah to the Commissioner, including amounts payable as a consequence of positive net amounts being reported in BAS lodged by Farah, were, and were to be, debited to its RBA. Likewise, amounts refundable by the Commissioner to Farah, including amounts refundable as a consequence of negative net amounts being reported in BAS lodged by Farah, were, and were to be, credited to Farah's RBA (ASOC [11]; see Part IIB of the Administration Act). 22 In the period between 16 October 2012 and February 2014, Strathfield Tax and Strathfield Taxation Services, purportedly on behalf of Farah, prepared and lodged Farah's BAS with the Commissioner (ASOC [9]). Those BAS, however, were not prepared in accordance with information or instructions provided by or on behalf of Farah and were lodged without the knowledge or authority of Farah and Mr Elias (ASOC [9A], [9B]). It would appear that the BAS were prepared and lodged by either Mr Kennedy or Mr Wass. 23 Importantly, the BAS that were prepared and lodged by Strathfield Tax or Strathfield Taxation Services, unbeknownst to Farah or Mr Elias, contained false statements regarding Farah's entitlement to input tax credits under the A New Tax System (Goods and Services Tax) Act 1999 (Cth) (ASOC [9C]). That resulted in the BAS reporting negative net amounts, which generated refunds that were credited to Farah's RBA. That, in turn, resulted in surpluses in Farah's RBA. 24 Section 8AAZLF(1) of the Administration Act relevantly required the Commissioner to refund to Farah any surpluses in its RBA (ASOC [11B]). In the period from 20 November 2012 to 7 January 2014, the Commissioner paid surplus amounts in Farah's RBA to a bank account held in the name of Viaus (Australia) Pty Ltd at the Strathfield branch of the Bendigo Bank (ASOC [11C], [29]). Those payments were made by the Commissioner in compliance, or at least in purported compliance, with the obligation in s 8AAZLF(1) of the Administration Act. 25 Neither Farah nor Mr Elias knew anything about the refunds, the surpluses on Farah's RBA, or the Commissioner's payment of the surpluses to Viaus's bank account (ASOC [34]). Viaus was a company that was owned and controlled by Mr and Mrs Kennedy (ASOC [30]). It would appear that, unbeknownst to Farah and Mr Elias, Mr Kennedy had, purportedly pursuant to s 8AAZLH of the Administration Act, told the Commissioner that Viaus's bank account was Farah's nominated bank account for the receipt of refunds (ASOC [33], [35]). Farah alleges that Mr Kennedy provided the details of the Viaus bank account to the Commissioner as part of a scheme to misappropriate money from the Commonwealth (ASOC [39]). 26 It would appear that Mr Elias discovered Mr Kennedy's allegedly fraudulent activities in late January 2014. He immediately contacted the Tax Office. He subsequently provided information, based on Farah's records, concerning Farah's correct entitlement to input tax credits and refunds for the period October 2012 to January 2014 (ASOC [40]). Following the receipt of that information, the Commissioner made a number of debits and credits to Farah's RBA account, the net result of which was that Farah's RBA account included: debits totalling $83,459.70, which related to purported refunds to Farah, but which were not made to it, and which arose from false statements in the BAS prepared and lodged by Mr Kennedy; and debit entries totalling $430,000, which related to purported refunds to Farah, to which it was entitled, but which were not paid to it (ASOC [13], [14], [14A], [14B]). 27 It would also appear that the various debit entries in Farah's RBA resulted in the account having an overall debit balance. By March 2017, that debit balance stood at $641,349.89 (ASOC [21]).

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Investigations by the Tax Office 28 The Tax Office conducted an audit of Strathfield Tax. That audit commenced as early as 19 April 2012 (ASOC 46A). The tax officer who appeared to have primary responsibility for the investigation or audit was Ms Davina Tulloch. Farah alleges that Ms Tulloch and the other tax officers involved in the audit were acting under "authorisations made by Mr O'Halloran, (who in turn was a delegate of the Commissioner), under s.8 of the [Administration Act], and/or by officers subordinate to him and/or by implied delegation or authorisation" (ASOC [46A]). Mr James O'Halloran was a Deputy Commissioner of Taxation at the time. 29 Mr Kennedy was interviewed by Ms Tulloch or other tax officers on a number of occasions (ASOC [44]). The first interview was conducted on 31 July 2012. 30 Ms Tulloch produced an interim audit report dated 17 May 2013. The audit report stated, amongst other things, that Strathfield Tax had directed refunds payable to its clients into the bank account in the name of Viaus and that there was no evidence that those refunds had been paid to the clients (ASOC [45]). It also recorded that Mr Kennedy had claimed that refunds payable to entities associated with Mr Elias were immediately loaned to him. During a later interview, Mr Kennedy produced a letter dated 18 March 2013, which purported to have been signed by Mr Elias's wife, which suggested that funds were on occasion loaned to Mr Kennedy. 31 In or about September 2013, Ms Tulloch referred the investigation concerning Strathfield Tax and Mr Kennedy to the Tax Office's Serious Non-Compliance Unit (ASOC [48H]). The Tax Practitioners Board was apparently also notified of the actions of Mr Kennedy (ASOC [48F], [48G]). 32 At some stage, the Tax Office also began to conduct investigations into the tax affairs of Farah, Mr Elias and other companies associated with him. The tax officers involved in that investigation included Mr Paul Grainger, Ms Sharin Chand, Ms Cecelia Antonito, Ms Tanusha Patuwatha Withanage and Ms Doina Gluga (ASOC [46B]). 33 In conducting their investigation into the affairs of Farah and Mr Elias, the tax officers involved in that investigation mainly dealt with Mr Kennedy and Mr Wass (ASOC [46C]). At some stage, they also had access to the audit files and became aware of the "particulars and outcome" of the audit relating to Strathfield Tax (ASOC [46D], [46E]). 34 The officers who were involved in both the audit of Strathfield Tax and the investigation into the affairs of Farah and Mr Elias did not at any relevant time contact Mr Elias in relation to the audit of Strathfield Tax and Mr Kennedy (ASOC [47]). They did not tell Mr Elias what they knew about the actions of Mr Kennedy and Strathfield Tax, including that administrators were appointed to Strathfield Tax in September 2013, that Mr Wass had been appointed Farah's tax agent in October 2013, and that Mr Kennedy had caused refunds arising from surpluses in Farah's RBA to be paid to a bank account in the name of Viaus (ASOC [47]). They did not tell Mr Elias or his wife, or ask them any questions, about the letter dated 18 March 2013, purportedly signed by Mrs Elias, which was produced by Mr Kennedy in the course of the audit of Strathfield Tax (ASOC [48]). Farah alleges that the letter was a forgery (ASOC [47A]). 35 Various other allegations are made against Ms Tulloch and, in general terms, the other tax officers involved in the audit of Strathfield Tax. It is unnecessary to rehearse all of those allegations. It is sufficient to note that Farah alleges that the officers "carried out the audit of Strathfield Tax recklessly and without undertaking reasonable inquiries to verify the information or statements made by Mr Kennedy" (ASOC [48A]). 36 Despite the knowledge acquired by some or all of the tax officers involved in the audit of Strathfield Tax, refunds relating to surpluses in Farah's RBA continued to be paid to the account in Viaus's name up to 7 January 2014 (ASOC [53]). 37 Critically, Farah alleges that the conduct and knowledge of all of the tax officers involved in the audit of Strathfield Tax, and all of the tax officers involved in the investigation of the tax affairs of companies associated with Mr Elias, was "the conduct and knowledge of the Commissioner and Mr O'Halloran, and all officers involved in the chain of delegation of the Commissioner's powers in relation to the events" the subject of Farah's claim (ASOC [46F]). The basis of that allegation is said to be s 8 of the Administration Act and "the general law". 38 Farah also alleges that, since February 2014, various tax officers have "asserted, and have continued to assert" that the payment of the refunds into the Viaus bank account "were carried out with the consent and authorisation" of Farah and Mr Elias "and/or that there is not sufficient evidence that they were not carried out with [their] consent" (ASOC [49]). The Commissioner has also continued to demand that Farah "discharge its GST liabilities" on the basis that the refunds paid to the Viaus bank account were made to Farah (ASOC [50]). The Commissioner has not treated those refunds as "nullities" (ASOC [53A]).

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Administrative law claims 40 Farah's administrative law claims are, to say the least, not particularly well articulated in the pleading. The general gist of them is nonetheless able to be discerned. There would appear to be three claims based on administrative law principles. 41 First, it is claimed that the BAS prepared and lodged by Mr Kennedy, Strathfield Tax, Strathfield Taxation Services or Mr Wass were "invalid and / or a nullity and / or without any legal effect" (ASOC [14E]). This claim appears to be based on the allegation that the BAS "contained fraudulent, false and unauthorised claims for GST input tax credits". 42 Second, it is claimed that the debits to Farah's RBA which were made by the Commissioner after Farah provided correct information in February 2014, were made "without power" because "the Commissioner did not pay the related refunds to [Farah] in accordance with s 8AAZLF(1)" of the Administration Act (ASOC [14G]). This claim appears to have two limbs, the first being that the Commissioner failed to pay surpluses in its RBA to a bank account nominated by Farah ([16]), and the second being that the payments that were made to the Viaus bank account were not made to an account that was nominated by Farah, or were otherwise capable of being a nominated account for the purposes of s 8AAZLH of the Administration Act ([17B] and [17C]). 43 The relief sought in paragraphs 2 and 3 of Farah's originating application appears to relate to this claim. In those paragraphs, Farah seeks a declaration that the amounts paid into the Viaus bank account were not refunded to it and a declaration that the Commissioner is required to credit its RBA with amounts that should have been, but have not been, refunded to it in accordance with Division 3 of the Administration Act. The reference to Division 3 in paragraph 3 of the originating application would appear to be intended to be a reference to Division 3, or perhaps Division 3A, of Part IIB of the Administration Act. 44 It should be noted, in this context, that Farah also alleges that the Commissioner "knew or ought to have known" that the Viaus bank account was not an account belonging to Farah and therefore was not capable of being an account for the purposes of s 8AAZLH(2A) of the Administration Act ([17D] and [17E]). That allegation is in turn based on the allegation that there was "conscious maladministration" on the part of the Commissioner. The allegation of conscious maladministration on the Commissioner's behalf is dealt with in detail later in the context of Farah's contentions concerning the tort of misfeasance in public office. 45 Third, it is claimed, apparently on the basis of the first two claims summarised earlier, that Farah is not indebted to the Commissioner for the amount of $641,349.89 (being the debit balance or deficit in Farah's RBA account as at March 2017) and that Farah is entitled to a declaration to that effect (ASOC [22]). This claim is reflected in the relief sought in paragraph 1 of the originating application. It is also claimed, apparently on the same basis, that Farah is entitled to an order "requiring the Commissioner to undertake a proper accounting between the parties" (ASOC [22]). This claim is reflected in the relief sought in paragraph 4 of the originating application. 46 It should also be noted, in this context, that Farah claims that a general interest charge that was levied by the Commissioner, and that apparently forms part of the debit balance or deficit in Farah's RBA, was "ultra vires" because there was "no RBA deficit debt … upon which GIC could be levied" (ASOC [19] and [21]). 47 Despite the rather unclear pleading and particularisation of these administrative law claims, the Commissioner does not seek to strike them out. The Commissioner takes issue with those parts of the pleading that refer to "conscious maladministration", but only to the extent that that allegation is said to found an action for damages or compensation.

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The cause of action in the nature of the tort of misfeasance in public office 48 In the proposed amended statement of claim, Farah pleads that "the Commissioner is liable to compensate [it] for the loss suffered by it which has been caused by the Commissioner's conscious maladministration together with exemplary damages" (ASOC [56]). 49 Administrative or executive action may be vitiated, according to administrative law principles, if it was the product of conscious maladministration by the relevant decision-maker or actor. A tax assessment which is the product of conscious maladministration on the part of the Commissioner, for example, is invalid: Commissioner of Taxation v Futuris Corporation Ltd (2008) 237 CLR 146. Invalidity of an administrative decision, or administrative action, does not, however, necessarily sound in common law damages. Nor is there any recognised tort, or common law action, for conscious maladministration. 50 It would appear that Farah's claims based on conscious maladministration are properly characterised as claims in the nature of the tort of misfeasance in public office. That is how the Commissioner approached them and Farah, in its opposition to the Commissioner's strike out application, did not clearly suggest otherwise. 51 While Farah's administrative law claims may not be well articulated in the pleading, its pleadings concerning alleged misfeasance in public office on the part of the Commissioner are, for the most part, positively obscure and confusing, almost to the point of being incomprehensible. 52 The plea of misfeasance in public office is essentially encapsulated or summarised in paragraph 54 of the pleading. Paragraph 54 is in the following terms (incorporating the proposed amendments, but omitting the underlining and strikethrough which identifies those amendments): The conduct of the Commissioner as pleaded in [15] to [53C] constituted conscious maladministration in that: (a) in breach of s.8AAZLF, the Commissioner paid the refunds referred to in paragraph [29] otherwise than to the Applicant; (b) in breach of s.8AAZLH, the Commissioner paid the refunds referred to in paragraph [29] to the credit of an account otherwise than a financial institution account nominated in an approved form by the Applicant; (ba) the Commissioner failed to consider s.8AAZLGA, or if he did consider it, failed to exercise his powers under that section so as to prevent further refunds being paid; (bb) the Commissioner failed to exercise his powers of general administration under s.3A of the TAA so as to safeguard the Applicant and other taxpayers from harm; (c) the conduct was engaged in with actual knowledge of the matters pleaded in (a) to (b) hereof by reason of the matters contained in the Interim Audit Report, the knowledge obtained from interviews with Mr Kennedy and the Interim Audit Report and by reason of the matters pleaded in [46C] to [46F] hereof that knowledge was the knowledge of the Commissioner; (d) the Commissioner, in so conducting himself, has had, likewise, actual knowledge that his conduct would be likely to cause injury to the Applicant, in that the payment of RBA surpluses to the Viaus Bank Account, was likely to cause harm to the Applicant, in that it would deprive it of the benefit of those surpluses and likely require the Applicant to fund its obligation to pay GST and GIC otherwise than with the benefit of those surpluses as the Commissioner now maintains and expose it to the recovery action which the Commissioner has threatened; (da) the Commissioner has deliberately refused to apply the PSLA 2008/11 policy, notwithstanding representations made by the Applicant, to apply it in the case of the Applicant, notwithstanding that the material submitted to him shows clearly that Mr Kennedy has defrauded the Applicant and/or the ATO and/or other clients of Strathfield Tax within the terms of PSLA 2008/11, and any honest or reasonable person when confronted with that evidence would accept that was so. (e) the conduct of the Commissioner as set out in (a) to (da) above, having regard to the content of the Interim Audit Report, the relevant interviews and the failure to act thereon was engaged in with reckless indifference to the harm which it could cause the Applicant or deliberate blindness to that invalidity or lack of power and that likely injury; or was inconsistent with the officer or officers of the Commissioner having the carriage of the audits and investigations referred to in [46A] and [46B] above and carriage of the Applicant's requests for consideration under PSLA 2008/11 referred to in [49] above, making an a [sic] reasonable and honest attempt to perform the duties and functions of the office or offices which they held. 53 As can be seen, the generalised allegation of conscious maladministration, or misfeasance in public office, on the part of the Commissioner is said to be based on the facts pleaded in paragraphs 15 to 53C of the pleading. The factual allegations in those paragraphs have already been summarised. They include, relevantly, the conduct relating to the payment of the refunds arising from the surpluses in Farah's RBA to the bank account in the name of Viaus, and the acts and omissions of the various tax officers who were responsible for, or involved in, the audit of Strathfield Tax and the investigation of the tax affairs of Farah and Mr Elias. Importantly, however, the only relevant conduct of the Commissioner, as opposed to the conduct of the individual tax officers and others, which is pleaded in paragraphs 15 to 53C is the payment of the surplus amounts in Farah's RBA account into the bank account in the name of Viaus (ASOC [29]). 54 While paragraph 54 appears to suggest that all of the conduct pleaded in paragraphs 15 to 53C of the pleading constituted conscious maladministration, at the hearing of the interlocutory application, senior counsel for Farah confirmed that the alleged conscious maladministration, or misfeasance in public office, is limited to the exercise of the specific powers identified in paragraph 54. Based on the submissions advanced by Farah at the hearing, it would appear that the facts pleaded in paragraphs 15 to 53C of the pleading which, as has been said, relate mainly to the acts and omissions of the various tax officers who were involved in the audit of Strathfield Tax and the investigation of the tax affairs of Farah and Mr Elias, are relied on primarily to provide a basis for allegations concerning the Commissioner's knowledge at the time he exercised the powers that are specifically referred to in paragraph 54. 55 The encapsulation of the plea in paragraph 54 of the pleading would appear to suggest that Farah's claim that the Commissioner's conduct constituted misfeasance in public office is based on at least eight key allegations. Five of those allegations relate to acts or omissions of the Commissioner and three relate to the knowledge or state of mind of the Commissioner at the time of the alleged acts or omissions. 56 First, it is alleged that, in breach of s 8AAZLF of the Administration Act, the Commissioner paid the refunds referred to in paragraph 29 of the pleading "otherwise than to the [a]pplicant" (ASOC [54(a)]). The refunds referred to in paragraph 29 are the refunds that the Commissioner paid into the Viaus bank account between 20 November 2012 and 7 January 2014. 57 Second, it is alleged that, in breach of s 8AAZLH of the Administration Act, the Commissioner paid the refunds referred to in paragraph 29 of the pleading to the credit of an account "otherwise than a financial institution account nominated in an approved form by" Farah (ASOC [54(b)]). The basis of this allegation is that Farah did not nominate the Viaus bank account in an approved form, as required by s 8AAZLH(2) and that, in any event, the Viaus bank account was not held by Farah (or jointly by Farah), or Farah's registered tax agent or BAS agent, or a legal practitioner as trustee or executor for Farah, as required by s 8AAZLH(2A). This element is obviously related to the first element. 58 Third, it is alleged that the Commissioner either failed to consider, or failed to exercise his powers under, s 8AAZLGA of the Administration Act, "so as to prevent further refunds being paid" (ASOC [54(ba)]). Section 8AAZLGA(1) provides that the Commissioner may retain an amount that would otherwise have to be refunded to an entity if, amongst other things, it would be reasonable to require verification of information notified to the Commissioner by the entity. The effect of s 8AAZLGA(2)(a) and (b) is that, in deciding whether to retain an amount that would otherwise have to be refunded, the Commissioner must have regard to the likely accuracy of the notified information and the likelihood that the notified information was affected by fraud or evasion, or intentional disregard, or recklessness as to the operation, of a taxation law. While it is not entirely clear from the pleading itself, it may be presumed that the essence of this allegation is that the Commissioner was in possession of such information, but nevertheless did not retain the surpluses in Farah's RBA that were ultimately paid into the Viaus bank account. 59 Fourth, it is alleged that the Commissioner failed to exercise his powers of general administration under s 3A of the Administration Act to "safeguard [Farah] and other taxpayers from harm" (ASOC [54(bb)]). This is an extraordinarily broad and general allegation. No particulars are provided of what it is alleged that the Commissioner could or should have done, but did not do, to safeguard Farah, let alone "other taxpayers". 60 Fifth, it is alleged that the Commissioner deliberately refused to apply "PSLA 2008/11 policy", despite the fact that any "honest or reasonable person when confronted with that evidence" would accept that Mr Kennedy had defrauded Farah, the Tax Office and other clients of Strathfield Tax (ASOC [54(da)]). The reference to PSLA 2008/11 is a reference to a Law Administration Practice Statement which sets out the Commissioner's policy on account remediation in the case of suspected fraud by a third party or tax practitioner. In that statement it is said, amongst other things, that the Tax Office will "generally undertake remediation action on the basis that we are satisfied account activity has occurred without the authority of the taxpayer, or that funds can be clearly identified as having been misdirected from their proper recipient" (at paragraph 6). 61 Sixth, it is alleged that the Commissioner had "actual knowledge" of the matters pleaded in subparagraphs 54(a) and (b), which are the first two elements of the misfeasance claim (ASOC [54(c)]). That is, it is alleged that the Commissioner actually knew that the relevant refunds that were properly payable to Farah were paid to someone other than Farah in breach of s 8AAZLF of the Administration Act, and actually knew that the relevant refunds were paid to the credit of an account which was not an account of a financial institution nominated in an approved form by Farah, in breach of s 8AAZLH of the Administration Act. The allegation of actual knowledge of those matters is said to be based on three things: the interviews that the tax officers conducted with Mr Kennedy; the interim audit report in relation to Strathfield Tax; and "the matters pleaded in [46C] to [46F]". 62 The matters pleaded in paragraphs 46C to 46F of the proposed amended statement of claim are, in summary, that: the tax officers involved in the investigation relating to Farah and Mr Elias dealt solely with Mr Kennedy; from at least 19 April 2012, the tax officers involved in the audit of Strathfield Tax "started to become aware of the disclosures made by Mr Kennedy" and "other disclosures" relating to Mr Kennedy and Strathfield Tax; the tax officers involved in the investigation of Farah and Mr Elias "had access to the audit files of Strathfield Tax"; and the conduct and knowledge of all of the tax officers involved in the audit of Strathfield Tax and the investigation of Farah and Mr Elias "was the conduct and knowledge of the Commissioner and Mr O'Halloran, and all officers involved in the chain of delegation of the Commissioner's powers in relation to the events the subject of" Farah's claim. Farah claims that the Commissioner delegated his powers in relation to the audit of Strathfield Tax and the investigation in relation to Farah and Mr Elias to Mr O'Halloran. 63 It would seem, therefore, that it is part of Farah's case that the knowledge possessed by each of the individual tax officers who were involved in both the audit of Strathfield Tax and the investigation of Farah and Mr Elias could somehow be imputed to, not only the Commissioner, but also his delegate, Mr O'Halloran and, indeed, any other tax officer who had a delegation which related to the exercise of powers relevant to any aspect of Farah's claim. More will be said in due course in relation to this aspect of Farah's case. Suffice it to say, at this stage, that the allegation of actual knowledge on the part of the Commissioner appears to be based entirely on this imputed knowledge. 64 It should also be noted that this element of Farah's misfeasance claim essentially mirrors or replicates the allegations of conscious maladministration made in paragraphs 17D and 17E of the pleading. There is, however, a significant inconsistency. Paragraphs 17D and 17E allege that the Commissioner knew or "ought to have known" that the Viaus bank account did not belong to Farah and was not an account which met the requirements of s 8AAZLH(2A) of the Administration Act. The reference to "ought to have known" is inconsistent with the allegation of actual knowledge. The claim thus "mix[es] two radically different and distinct ideas": cf. Forrest v Australian Securities and Investment Commission (2012) 247 CLR 486 at [22]. 65 Seventh, it is alleged that, "in so conducting himself", the Commissioner had "actual knowledge" that his conduct was likely to cause injury to Farah (ASOC [54(d)]). The reference to "so conducting himself" would appear to be a reference to the Commissioner's conduct in paying the relevant refunds into the Viaus bank account in breach of ss 8AAZLF and 8AAZLH of the Administration Act. The likely injury, perhaps not surprisingly, is that Farah was deprived of the benefit of those surpluses because they were paid to someone else. 66 The eighth allegation again relates to the Commissioner's knowledge or state of mind when he engaged in the conduct the subject of the first to fifth elements of the misfeasance claim (ASOC [54(e)]). It is an extremely convoluted allegation and appears to involve at least three alternative states of mind. The first alternative is that the conduct was engaged in with "reckless indifference to the harm which it could cause" Farah. The second alternative is that the conduct was engaged in with "deliberate blindness" to, not only "that likely injury", but also to "that invalidity" and "lack of power". The reference to "that likely injury" is presumably a reference to the likely injury to Farah. The reference to "that invalidity" is somewhat baffling given that none of the conduct elements involve a direct allegation of invalidity. It is presumably a reference to the invalidity of the payments of the refunds which Farah alleges were made in breach of ss 8AAZLF and 8AAZLH of the Administration Act. The reference to "lack of power" is equally confusing, but again appears to be a reference to the lack of power to pay the refunds to the Viaus bank account. 67 The third alternative state of mind is extremely difficult to understand. Indeed, it borders on being incomprehensible. It would appear to be alleged that the actions of officers who were involved in the audit of Strathfield Tax and the investigation of Farah and Mr Elias, and the actions of certain unnamed tax officers who considered Farah's "requests for consideration under PSLA 2008/11", were not consistent with the actions of tax officers who were making a "reasonable and honest" attempt to perform their duties and responsibilities. Needless to say, that is an extremely broad and general allegation, encompassing as it does a very large number of mostly unnamed tax officers exercising different powers and undertaking different duties and responsibilities. It is also unclear whether that allegation is intended to amount to an allegation of dishonesty on the part of all of those tax officers. If it is, it is devoid of proper particulars of such a serious allegation. What is even more unclear is whether it is alleged that any dishonesty on the part of the individual tax officers, if that is what is alleged, is imputed to the Commissioner. If that is alleged, the basis of that imputation is, at best, unclear. 68 The confusion surrounding Farah's case involving misfeasance in public office on the part of the Commissioner is exacerbated further by what appears to be an alternative or additional case based on vicarious liability. Paragraph 56A of the pleading is in the following terms (incorporating the proposed amendments, but omitting the underlining and strikethrough which identifies those amendments): Further, or in the alternative, each or either of the Commonwealth and the Commissioner are liable to compensate the Applicant for the loss suffered by the Applicant which has been caused by officers of the Respondent, being the persons referred to in [46A] and [46B] and those named in [49] who were designated the responsibility for and on behalf of the Commissioner to consider the Applicant's circumstances and requests in relation to its RBA Account. The Commissioner and/or the Commonwealth are vicariously liable for the conduct of the aforementioned officers as set out in paragraphs [23]-[55] hereof. 69 There are a number of difficulties with this paragraph of the pleading. It is sufficient to note, for present purposes, that this paragraph appears to allege that the vicarious liability of the Commissioner and the Commonwealth arises not only from the exercise of the specific powers referred to in paragraph 54 of the pleading, but also from the acts and omissions of a very large number of tax officers, including not only all those involved in the audit of Strathfield Tax and the investigation concerning the tax affairs of companies associated with Mr Elias, but also all tax officers who were involved in considering Farah's "circumstances and requests" in relation to its RBA account.

[17]

The claim based on Barnes v Addy 70 Farah's claim based on Barnes v Addy is based on the following key allegations. 71 First, it is alleged that Strathfield Tax, Strathfield Taxation Services, Viaus, Mr Kennedy and Mr Wass, or at least some of them, were constructive trustees of the surpluses in Farah's RBA account which the Commissioner had refunded to the Viaus bank account: (ASOC [57]). That is said to be because "the RBA surpluses deposited into the bank account of Viaus were obtained by fraud": (ASOC [57]). 72 Second, it is alleged that, because Strathfield Tax, Strathfield Taxation Services, Mr Kennedy and Mr Wass were Farah's registered tax agents, or employees thereof, they were fiduciaries in relation to the services they provided to Farah. It follows, so it is alleged, that the RBA surpluses refundable to Farah were "trust monies in their hands": (ASOC [58]). 73 Third, it is alleged that the Commissioner had "actual knowledge of a fraudulent scheme engaged in by Mr Kennedy and/or Viaus to defraud [Farah] of the RBA surpluses arising in [Farah's] RBA Account": (ASOC [59]). The allegation of actual knowledge on the part of the Commissioner is, in summary, based on the factual allegations concerning the conduct of the tax officers involved in the audit of Strathfield Tax and the investigations concerning Farah and Mr Elias. It would appear, therefore, that Farah contends that the individual or collective knowledge of the tax officers involved in those audits or investigations can somehow be imputed to the Commissioner. 74 Fourth, and critically, it is alleged that the Commissioner was "knowingly involved in a fraudulent scheme to defraud [Farah] of trust monies which were due and payable to [Farah]": (ASOC [60]). The alleged knowing involvement in the fraudulent scheme is said to arise from the fact that the Commissioner paid Farah's RBA surpluses into Viaus' bank account with, it would appear, actual knowledge of the fraudulent scheme. That knowledge is again said to arise from the conduct and knowledge of the tax officers involved in the audits and investigations of Strathfield Tax, Farah and Mr Elias. 75 Fifth, it is alleged that Farah suffered loss by reason of the conduct of the Commissioner. That conduct, presumably, is the Commissioner's knowing involvement in Mr Kennedy's and Strathfield Tax's fraudulent scheme. The loss is said to be the amount representing Farah's RBA surpluses that the Commissioner paid into the Viaus bank account, together with any charges which have accrued on that amount. 76 Sixth, it is alleged that the Commissioner is liable to compensate Farah in equity for the amount of the RBA surpluses paid into the Viaus bank account, together with any charges that have accrued on that amount. The liability to compensate Farah presumably is said to arise from the Commissioner's knowing involvement in the fraudulent scheme.

[19]

The cause of action in negligence 78 The proposed amended statement of claim includes a cause of action in negligence. That cause of action was not originally pleaded. Unfortunately, the proposed pleading of the new cause of action in negligence (ASOC [65A] to [65S]) is unnecessarily wordy, complex and difficult to follow. The essential allegations, however, would appear to be as follows. 79 First, it is alleged that the Commissioner, or alternatively officers of the Public Service who were employed by the Commonwealth, were under a duty to take reasonable care not to subject Farah to the risk of harm: (ASOC [65K] and [65L]). The risk of harm was said to arise from the risk that tax agents acting for taxpayers, like Farah, could make false claims for credits, require the Tax Office or its officers to refund negative net amounts to the credit of an account that did not meet the requirements of s 8AAZLH of the Administration Act, and thereby fraudulently deprive taxpayers of the benefit of such refunds: (ASOC [65F(b)] and [65F(d)]). 80 Second, it is alleged that the Commissioner, or the Commonwealth, breached their duty to take reasonable care and committed certain "acts of negligence". Those alleged acts are said to include: the failure to have in place systems to ensure that banking details provided by tax agents complied with s 8AAZLH of the Administration Act; failure to have in place systems whereby "irregularities and inconsistencies" that are observed in the conduct of a tax agent are communicated to the client; failure to exercise, or to consider to exercise, the power under s 8AAZLGA of the Administration Act where such irregularities or inconsistencies are observed; and failure to warn Farah that Mr Kennedy may have been diverting refunds or defrauding it. 81 Third, it is alleged that Farah suffered loss as a result of the negligence of the Commissioner or the Commonwealth. That loss is said to be the amount representing Farah's RBA surpluses that were paid into the Viaus bank account.

[21]

RELEVANT PRINCIPLES - STRIKING OUT PLEADINGS 88 As was noted earlier, the Commissioner's application was to strike out parts of Farah's statement of claim. Following the filing of that application, Farah filed an interlocutory application for leave to amend its statement of claim. Most, if not all, of the proposed amendments to the pleading related in one way or another to the parts of the pleading that the Commissioner had applied to strike out. 89 In those circumstances, and as noted earlier, the parties invited the Court to approach the respective strike out and amendment applications on the basis that the Commissioner's application was, for all practical purposes, directed at the final iteration of the proposed amended statement of claim. That was a sensible approach, given that leave to amend may be refused where the proposed amendments would be liable to be struck out on the basis that they do not disclose a reasonable cause of action, or are likely to give rise to prejudice or embarrassment: Research in Motion Ltd v Samsung Electronics Australia Pty Ltd (2009) 176 FCR 66 at [21]-[22]; Ron Medich Properties Pty Ltd v Bentley-Smythe Pty Ltd [2010] FCA 494 at [8]; Caason Investments Pty Ltd v Cao (2015) 236 FCR 322 at [21]. 90 The general principles that apply when considering an application to strike out all or part of a pleading are well-settled. 91 The power to strike out pleadings or portions of pleadings is discretionary and should be employed sparingly and only in a clear case "lest one deprive a party of a case which in justice it ought to be able to bring": Trade Practices Commission v Pioneer Concrete (Qld) Pty Ltd (1994) 52 FCR 164 at 175. In Agar v Hyde (2000) 201 CLR 552, Gaudron, McHugh, Gummow and Hayne JJ said at 575-576 that "[o]rdinarily, a party is not to be denied the opportunity to place his or her case before the court in the ordinary way, and after taking advantage of the usual interlocutory processes" and that, while the test has been expressed in a number of ways, "all of the verbal formulae which have been used are intended to describe a high degree of certainty about the ultimate outcome of the proceeding if it were allowed to go to trial in the ordinary way". 92 A "reasonable cause of action" for the purposes of r 16.21(1)(e) of the Rules is a cause of action that has some chance of success having regard to the allegations pleaded: Polar Aviation Pty Ltd v Civil Aviation Safety Authority (2012) 203 FCR 325 at [42]-[43]. A cause of action cannot be struck out merely on the basis that it appears to be weak: Allstate Life Insurance Company v Australia & New Zealand Banking Group Ltd (1994) 217 ALR 226 at 236. 93 A statement of claim must plead all of the material facts for the purpose of formulating a complete cause of action. If it does not, it is liable to be struck out: Bruce v Odhams Press Ltd [1936] 1 KB 697 at 712-713. 94 Normally the power to strike out should be exercised only in plain and obvious cases, where no reasonable amendment could cure the alleged defect or deficiency: Allstate at 236. Where, however, the reasonableness of the cause of action hinges on a point of law, that point of law can be determined, thereby avoiding the need for and expense of a lengthy trial: Polar Aviation at [43]-[44]. 95 A pleading is likely to cause prejudice or embarrassment for the purposes of r 16.21(1)(d) of the Rules if it is susceptible to various meanings, contains inconsistent allegations, includes various alternatives which are confusingly intermixed, contains irrelevant allegations, or includes defects which result in it being unintelligible, ambiguous, vague or too general: Bartlett v Swan Television & Radio Broadcasters Pty Ltd (1995) ATPR 41-434; Spiteri v Nine Network Australia Pty Ltd [2008] FCA 905 at [22]; Fair Work Ombudsman v Eastern Colour Pty Ltd (2011) 209 IR 263 at [18]; Shelton v National Roads and Motorists Association Ltd (2004) 51 ASCR 278 at [18]. 96 In this context, although trite, it is worth recalling that the basic purpose of a pleading, including particulars, is to clearly define the issues to be tried, and to allow the other party an opportunity to know the case that they are required to meet: Dare v Pulham (1982) 148 CLR 658 at 664; Betfair Pty Ltd v Racing New South Wales (2010) 189 FCR 356 at [49]-[52]. If those objectives are achieved, there may be no sound reason to strike out the pleading.

[22]

ELEMENTS OF THE CAUSE OF ACTION FOR MISFEASANCE IN PUBLIC OFFICE 97 While it has sometimes been said that the precise limits of the tort of misfeasance in public office are undefined, it is now possible to identify, with some degree of confidence, the essential elements that go to make up the cause of action. Those elements may be derived from what has been said in a number of relatively recent authorities, including: Northern Territory of Australia v Mengel (1995) 185 CLR 307; Sanders v Snell (1998) 196 CLR 329; Three Rivers District Council v Bank of England (No 3) [2003] 2 AC 1; Odhavji Estate v Woodhouse [2003] 3 SCR 263; Cannon v Tahche 5 VR 317; Commissioner of Inland Revenue v Chesterfields Preschools Ltd [2013] 2 NZLR 679; Moder v Commonwealth of Australia (2012) 261 FLR 396; see also Leinenga v Logan City Council [2006] QSC 294; Chapel Road Pty Ltd v Australian Securities and Investments Commission (No 10) (2014) 307 ALR 428; Obeid v Ipp (2016) 338 ALR 234; Nyoni v Shire of Kellerberrin (2017) 248 FCR 311. 98 The first element is that the defendant, the alleged wrongdoer, is a public officer, or holds a public office. The concept of "public office" in this context has been given a wide meaning, though an essential feature is that a relevant power is attached to, or is an incident of, the office: Cannon v Tahche at [49]; Obeid at [240]-[241]. A corporation can be a public officer: Three Rivers at 191C. 99 The second element is that the public officer engaged in conduct, constituted by either an act or omission, that was invalid, unauthorised or beyond power: Mengel at 356, 370. 100 The third element is that the defendant's conduct occurred in the exercise or discharge, or purported exercise or discharge, of their public duties: Three Rivers at 191D. 101 The fourth element concerns the defendant's intention or state of mind. In short terms, in engaging in the conduct, the defendant must have acted in bad faith. Bad faith may be manifested in this context in two circumstances: Mengel at 345; Three Rivers at 191E; Odhavji Estate at [21]-[23]; Nyoni at [90]. 102 The first circumstance, which is sometimes called "targeted malice", is where the public officer engaged in the conduct maliciously with the intention of causing injury or damage to the plaintiff, or for an improper or ulterior purpose: Mengel at 345, 356-357; Three Rivers at 191E; Chesterfields Preschools at [40]-[41]. 103 The second circumstance is where the defendant engaged in the conduct with either knowledge of, or reckless indifference about, two things; first, that their conduct was invalid, unauthorised or beyond power; and second, that their conduct would probably cause injury or damage to the plaintiff. The public officer's conduct in that circumstance involves bad faith because they acted despite the fact that they did not believe that their conduct was lawful: Three Rivers at 191F; Chesterfields Preschools at [41]. 104 It is critical to note, in this context, that misfeasance in public office has been said to be a deliberate or intentional tort: Mengel at 347; Obeid at [235]; Chapel Road at [72]. It is not concerned with mere errors of judgment: Mengel at 356-357; Chapel Road at [56]. The essence of the tort is a dishonest abuse of power, or bad faith in the exercise of public power: Three Rivers at 246G; Cannon v Tahche at [36]. 105 To the extent that the tort may be constituted by recklessness, or reckless indifference, it must be subjective recklessness: Three Rivers at, 192H-193D, 222H-223D, 224H, 227H-228A, 231 and 235B. The public officer must have believed or suspected that the conduct was invalid or unauthorised, and would probably injure the plaintiff, and yet gone ahead "without ascertaining the position as a reasonable and honest person would do": Garrett v Attorney-General [1997] 2 NZLR 332 at 344; Chesterfields Preschools at [42]. The public officer's state of mind must be inconsistent with an honest attempt to perform or exercise their public functions or duties: Mengel at 357. 106 The fifth element is that the plaintiff suffered injury or damage as a result of the defendant's conduct. 107 While the tort of misfeasance in public office is the tort of an individual public officer, for which he or she is personally liable, the officer's employer may be vicariously liable if it authorised the officer's conduct: Mengel at 329; Rogers v Legal Services Commission of South Australia (1995) 64 SASR 572 at 587; Moder at [70]. Thus, in Mengel, it was accepted that the Northern Territory would be liable for the unauthorised acts of inspectors employed by it on the basis that there was de facto authority for the acts in question: Mengel at 347. 108 Importantly, however, liability for the tort cannot be established by aggregating the acts and knowledge of various officers: Logan City Council at [66]; Chapel Road at [77]; see also Deputy Commissioner of Taxation v Frangieh (No 3) (2017) 321 FLR 1 at [117]. Nor can a case of misfeasance in public office be built upon a foundation that is a composite of the conduct of a number of individual officers: Moder at [73]; MJL v the State of Western Australia [2015] WASC 348 at [87]. 109 In Chesterfields Preschools, Stevens J, who delivered the judgment of the New Zealand Court of Appeal said, in that regard (at [97]): An important issue in this case is whether all of the elements of misfeasance have to be alleged against one individual, or whether the various elements can be alleged against different people, their actions and/or states of mind being aggregated to form a single instance of misfeasance. The fact that the essence of the tort involves actions conducted in bad faith raises the question whether there can be any form of aggregate liability. While it is possible under general principles of agency to aggregate the knowledge of multiple agents, the nature of the tort of misfeasance means that the mental and physical elements of the tort ought to coalesce in one individual. The nature of the tort is such that the subjective mental element colours the act or omission complained of. The cases uniformly require that the mental and physical elements are intertwined: Pranfield uses the phrase "engages ... with intention"; Garrett refers to "acting recklessly"; Odhavji Estate v Woodhouse requires that the "unlawful conduct must have been deliberate". The mental element flavours the relevant act or omission. As a secondary reason for finding that there cannot be aggregate liability, the Court should also be cautious of applying general agency principles developed in the contract context in order to impose liability in the tortious context. (Footnotes omitted.) 110 His Honour went on to say (at [100]) that "a claim of misfeasance cannot be an aggregated one, where the state or states of mind of one or more persons is combined with the actions of another or others" and (at [102]) that it "is therefore necessary for the pleader to identify which individual public officer or officers within the entity had the relevant state of mind and for that to be linked to the actions of the same officer or officers". 111 Similarly, the tort cannot be established by simply attributing the knowledge held by one person in an organisation to another person in a different position, or at a different level, in the organisation. In Powder Mountain Resorts Ltd v British Columbia 2001 BCCA 619, a case involving misfeasance in public office against the Canadian province of British Columbia, Newbury J said (at [9]): Judicial caution is also indicated by the particular factual context of the case at bar. It involves the concurrent actions of several government functionaries, some elected and some not, operating in different spheres of bureaucratic and executive authority, all with different responsibilities, levels of knowledge and constraints. Since the plaintiffs alleged vicarious liability on the part of the Province for the intentional wrongs of its agents (Mr. Vander Zalm and Mrs. McCarthy, who was then Minister of Economic Development) and employees (Messrs. Flitton, then Deputy Minister of Lands, and two other Ministry officials, Messrs. Lee and Hall), it is important to consider the actions and motivations of each of the individual actors separately. One should not attribute, for example, the detailed knowledge of persons at one level of administration to persons at another level who have only general knowledge of the subject and are largely dependent on the advice of others. It is also important to keep in mind the practical context in which the decision-makers were operating. Certainly at the level of Cabinet minister or Premier, it is likely the matter of preliminary approval of PMR's proposal was only one of many decisions required to be made by the government of the day, some of greater and some of lesser importance.

[24]

No proper basis for pleading bad faith on the part of the Commissioner 113 The first problem is that there does not appear to be any proper factual basis in the pleading for any allegation that the Commissioner exercised any of his powers as a public officer in bad faith. That is an essential element of the cause of action for misfeasance in public office. 114 As has already been noted, there are hints or indications in the pleading that Farah's case of misfeasance in public office on the part of the Commissioner relies on the knowledge of various tax officers being imputed or attributed to the Commissioner. That also appeared to be the way the case was put in some of Farah's submissions. As will be discussed later, however, the pleading is at best unclear in critical respects in this regard. The pleading, as it presently stands, simply alleges actual knowledge, or reckless indifference, or "deliberate blindness" on the part of the Commissioner personally. If that allegation is based on the attribution or imputation of knowledge, the basis upon which the knowledge of others can be imputed to the Commissioner is, at best, unclear and not properly pleaded. 115 If, however, the allegation is that the Commissioner personally acted in bad faith, in the sense that he had actual knowledge of the invalidity of the exercise of his powers, or was at least reckless in that regard, no proper factual basis for that allegation or conclusion is readily apparent in the pleading. 116 As has already been noted, it would appear that the relevant powers exercised by the Commissioner for the purpose of Farah's case of misfeasance in public office were: first, the Commissioner's power or obligation under s 8AAZLF of the Administration Act to pay Farah's RBA surplus to an account nominated in compliance with s 8AAZLH of the Administration Act; second, the power under s 8AAZLGA of the Administration Act to retain refunds in certain circumstances; third, the Commissioner's general power of administration of the Administration Act; and fourth, the Commissioner's policy as stated in PSLA 2008/11. Farah's pleaded case in respect of the exercise of each of those powers should be considered separately.

[25]

Exercise of powers under s 8AAZLF and 8AAZLH of the Administration Act 117 The pleading, and in particular paragraph 54, appears to allege, in terms, that the Commissioner personally exercised the powers under ss 8AAZLF and 8AAZLH of the Administration Act in relation to the payment into the Viaus bank account of the refunds arising from Farah's RBA surpluses (ASOC [54(a)], [54(b)]). Other parts of the pleading, however, might be taken as suggesting that while those powers were exercised by a tax officer or tax officers, the actions of that officer or those officers may be taken to be the exercise of power by the Commissioner, perhaps by reason of a chain of delegations or authorisations. 118 If Farah's case is that the Commissioner personally exercised those powers, the factual basis of that allegation is, at best, unclear. If, on the other hand, Farah does not allege that the Commissioner personally exercised those powers in its case, the basis upon which it is said that the Commissioner's actions amounted to misfeasance in public office is equally unclear. That issue is dealt with separately later. Suffice it to say, at this stage, that the pleading does not identify any individual tax officer or officers who exercised these powers, or what their state of mind was when they were exercised. Nor does the pleading clearly articulate the basis upon which the Commissioner could be personally liable for the conduct of other tax officers which might constitute misfeasance in public office by some or all of those officers. 119 The pleading also appears to allege, in terms, that the Commissioner himself had actual knowledge that his exercise of the powers under ss 8AAZLF and 8AAZLH were, in the case of the payment of Farah's RBA surpluses to the Viaus bank account, invalid, unauthorised or beyond power (ASOC [54(c)]). Likewise, it appears to be alleged that the Commissioner himself had actual knowledge that his exercise of those powers was likely to injure Farah (ASOC [54(d)]). Those allegations of actual knowledge on the part of the Commissioner, however, appear to be based on the pleaded facts relating to the actions and knowledge of individual tax officers who were involved in the audits and investigations concerning Strathfield Tax, Mr Kennedy, and perhaps, Mr Elias and companies associated with him. It is, in those circumstances, somewhat unclear whether Farah's case is that the Commissioner himself had actual knowledge, or that the knowledge of other tax officers can somehow be imputed or attributed to the Commissioner. 120 If Farah's case is that the Commissioner himself had actual knowledge of the invalidity of his exercise of powers, and the likelihood that his exercise of powers would damage Farah, the fundamental problem for Farah is that its pleading does not plead material facts that could possibly support those allegations of actual knowledge on the part of the Commissioner. It is not alleged, for example, that the Commissioner himself had any personal knowledge of any relevant fact allegedly discovered by the tax officers in the course of the relevant audits or investigations, or had any personal knowledge of the alleged fraudulent actions of Strathfield Tax or Mr Kennedy. No material facts are pleaded which could reasonably support the allegation or conclusion that the Commissioner personally exercised his powers under ss 8AAZLF and 8AAZLH of the Administration Act in bad faith, either by reason of his actual knowledge of the invalidity of his purported exercise of those powers, or his actual knowledge that his exercise of those powers was likely to injure Farah, or for any other reason. 121 If, on the other hand, Farah's case is that the Commissioner had actual knowledge of the invalidity of his exercise of the powers under ss 8AAZLF and 8AAZLH of the Administration Act because the knowledge possessed by other tax officers could be imputed or attributed to him, the pleading is problematic for other reasons. Those problems, which are discussed later, include that the factual and legal basis upon which it is asserted that the knowledge of others may be imputed or attributed to the Commissioner is, at best, unclear on the pleadings, and that the allegation appears to impermissibly aggregate the disparate knowledge possessed by many different people about many different matters. It suffices, for present purposes, to simply note that any allegation based on the attribution of knowledge does not appear to be clearly reflected in the supposed encapsulation of Farah's claim of conscious maladministration or misfeasance in public office in paragraph 54 of the pleading. In that respect, at least, the pleading is plainly ambiguous.

[26]

Exercise of other powers 122 Farah's allegations of misfeasance in public office arising from the Commissioner's exercise of his powers, or his failure to exercise his powers, under ss 8AAZLGA and 3A of the Administration Act, or his failure to exercise his powers in accordance with PSLA 2008/11, are almost entirely bereft of any proper detail or particularity. Exactly how it is alleged that the Commissioner's exercise, or failure to exercise, those powers or policies involved bad faith or dishonesty on the part of the Commissioner is entirely unclear. 123 In the case of the power under s 8AAZLGA, for example, it is unclear whether it is alleged that the Commissioner personally exercised that power, or was personally obliged to exercise it, but failed to do so. If it is alleged that he personally exercised that power, or was personally obliged to, but did not, exercise the power, it is not alleged that the Commissioner knew that his actions or omissions in that regard were invalid, unauthorised or beyond power, or that he was reckless about his exercise, or failure to exercise, the power in that regard. It is not alleged that he personally acted in bad faith. If, on the other hand, it is alleged that other tax officers relevantly exercised, or were obliged to but failed to exercise, the power under s 8AAZLGA in Farah's case, it is unclear how the acts or omissions of other tax officers can be said give rise to conscious maladministration or misfeasance in public office by the Commissioner. The pleading does not properly plead any material facts that could form a proper basis for the serious allegation that the Commissioner's exercise of power, or failure to exercise power, under s 8AAZLGA, constituted misfeasance in public office. 124 The allegation of misfeasance in public office in relation to the s 3A power of general administration of the Administration Act is in even more general terms. The basis upon which it is alleged that the Commissioner acted in bad faith in relation to his power under s 3A of the Administration Act is entirely unclear, and entirely unsupported by any material facts. What exactly was the Commissioner obliged to do, but failed to do, under s 3A of the Administration Act? The allegation that he was obliged to "safeguard [Farah] and other taxpayers from harm" is absurdly broad and general. Is it alleged that the Commissioner actually knew that he was obliged under s 3A of the Administration Act to do something and yet deliberately failed to do it? If so, what are the material facts that are alleged to support that serious allegation of actual knowledge and bad faith? 125 The allegation in relation to PSLA 2008/11 appears to be that the Commissioner personally and deliberately refused to apply that policy, and that his actions in doing so were dishonest or constituted bad faith. What is the basis of that serious allegation and what are the material facts that are said to support it? Putting to one side, for the moment, the complete absence of any proper particulars of the "representations" said to have been made by Farah, it is entirely unclear whether it is alleged that those representations were made to, or made known to, the Commissioner personally. If not, what is the basis for the apparent allegation that the Commissioner himself personally and dishonestly refused to apply the policy? Is it alleged that the Commissioner personally had actual knowledge that his failure to apply the policy was relevantly invalid, unauthorised or beyond power, or that he was reckless in that regard? If so, what are the material facts that are said to support such a serious allegation? If the Commissioner's alleged conscious maladministration or misfeasance in public office is alleged to be based on the actions or inaction of other tax officers, putting to one side the complete absence of any proper particulars of that allegation, what is the factual and legal basis of the allegation that the Commissioner is personally liable in tort for the inaction of others? 126 There is, in short, no proper factual basis in the pleading for any allegation that the Commissioner exercised, or failed to exercise, any of his powers under s 8AAZLGA or s 3A of the Administration Act, or PSLA 2008/11, in bad faith.

[27]

Objective recklessness? 127 At the hearing of the interlocutory application, senior counsel for Farah appeared to eschew any case based on actual knowledge on the part of either the Commissioner, or indeed any individual tax officer, that their actions were invalid, unauthorised or beyond power. It was contended that Farah's case was limited to a plea of reckless indifference that did not require the ascertainment of the subjective state of mind of any tax officer, including, no doubt, the Commissioner himself. It was submitted, in effect, that it was sufficient for Farah to allege and prove some type of "objective recklessness" on the part of the Commissioner or the individual tax officers. Farah relied, in that context, on cases which appeared to concern the elements of the tort recognised in Wilkinson v Downton [1897] 2 QB 57. That species of tort is now generally recognised as being subsumed by the tort of negligence, or perhaps the tort of intentional infliction of harm: cf. Magill v Magill (2006) 226 CLR 551 at [117]; Dickens v State of New South Wales [2017] NSWSC 1173 at [31]-[40]. 128 In any event, the submissions that were advanced in that regard would seem to be manifestly inconsistent with the pleading itself which, as has already been noted, appears to allege actual knowledge on the part of the Commissioner. Even putting that problem to one side, if Farah's case is in fact limited to a case involving some sort of objective recklessness, that alone would justify the striking out of the cause of action for misfeasance in public office. That is because, as discussed in detail earlier, it is tolerably clear that to make out misfeasance in public office, it is necessary to plead and prove bad faith in the exercise of the relevant power, or a dishonest abuse of power. That involves, at a minimum, subjective recklessness on the part of the officer in question as to the extent of his or her powers and subjective recklessness in relation to the probability of injury to the plaintiff. The defendant must have believed or suspected that their conduct was invalid or unauthorised, and would probably injure the plaintiff, and yet gone ahead without ascertaining the position in that regard as an honest person would do. 129 Contrary to the submissions advanced on Farah's behalf, objective recklessness, or some type of imputed knowledge or intention, is not sufficient to make out the tort of misfeasance in public office. The authorities relied on by Farah in that regard do not assist its case. While some form of imputed intention may be sufficient to satisfy the relevant mental element in the tort of intentional infliction of harm, none of the authorities concerning the tort of misfeasance in public office support the proposition that an imputed intention to cause harm would be sufficient to constitute the element of bad faith required to establish that tort. While Wilkinson v Downton is referred to obliquely in the majority judgment in Mengel at 347, that reference, read in context, tends only to support the proposition that misfeasance in public office is not constituted simply by an act of a public officer which he or she knows is beyond power and which results in damage; something more is required. 130 In Three Rivers, the House of Lords emphatically rejected the argument that it was sufficient to establish objective recklessness on the part of the public officer: see 192H-193D (Lord Steyne), 222H-223D, 224H and 227H-228A (Lord Hutton), 231 (Lord Hobhouse) and 235B (Lord Millet). As Lord Steyne put it (at 193C), the difficulty with the argument that objective recklessness suffices is that "it could not be squared with a meaningful requirement of bad faith in the exercise of public powers which is the raison d'être of the tort". 131 If Farah alleges no more than objective recklessness on the part of the Commissioner or any other tax officer or officers, it cannot make out its claim of conscious maladministration or misfeasance in public office.

[28]

The basis of the Commissioner's alleged liability is unclear 132 If, as appears might be the case, Farah's case is that the Commissioner's liability in respect of the tort of misfeasance in public office is based on the conduct and state of mind of other tax officers, the basis upon which the Commissioner is said to be liable in that regard is unclear on the pleadings. 133 It would appear that Farah's case is based, at least in part or in the alternative, on the principles of vicarious liability: (ASOC [56A]). Farah specifically alleges, in that regard, that the Commissioner is a "particular employer of officers of the Public Service who work in the [Tax Office]" by reason of s 20 of the Public Service Act 1999 (Cth) (ASOC [3C]). 134 It may be accepted, for present purposes, that it is at least arguable that the Commissioner might be regarded to be the employer of the relevant tax officers in this matter: cf. Frangieh at [84]. It would also seem that Farah seeks to join the Commonwealth as a respondent in the event that there is any issue about who relevantly employed the tax officers. 135 The difficulty for Farah, however, is that aside from pleading that the Commissioner was the employer of the relevant officers who worked in the Tax Office, the basis upon which it is alleged that either the Commissioner or the Commonwealth is vicariously liable in respect of any tort committed by any tax officer or tax officers is not properly pleaded. In particular, it is not pleaded that any particular tortious conduct by any tax officer was authorised by the Commissioner or the Commonwealth, or that there was any de facto authorisation of any such conduct: Mengel at 347; Rogers at 587; Moder at [70]. Nor, for that matter, are any facts pleaded which would be capable of supporting an allegation that any impugned conduct, including bad faith on the part of the relevant tax officers, was authorised, de facto or de jure, by the Commissioner or the Commonwealth. 136 That difficulty is exacerbated by the fact that paragraph 56A of the pleading, which is the paragraph of the pleading that specifically alleges vicarious liability, is in extremely broad terms. It alleges, in effect, that the Commissioner, the Commonwealth, or both, are liable in respect of any conduct of any tax officer who was "designated the responsibility for and on behalf of the Commissioner to consider [Farah's] circumstances and requests in relation to its RBA account". That allegation does not appear to be limited to conduct that allegedly constitutes the tort of misfeasance in public office. Nor does it specifically allege that any conduct that might constitute misfeasance in public office was authorised by either the Commissioner or the Commonwealth. 137 The alternative basis put forward by Farah for the Commissioner's liability appears to rely on the allegation that the Commissioner delegated some or all of his relevant powers to some or all of the relevant tax officers. Farah appears to rely, in that regard, on s 8 of the Administration Act. Section 8(1) provides that the Commissioner may, by writing signed by the Commissioner, "delegate to a Deputy Commissioner or any other person all or any of the Commissioner's powers or functions under a taxation law or any other law of the Commonwealth". Section 8(2) provides that, subject to an exception or proviso that is not presently relevant, a power or function so delegated by the Commissioner shall be "deemed to have been exercised or performed by the Commissioner". It would appear that Farah contends, on the basis of s 8(2) of the Administration Act, that any tortious conduct by any tax officer is deemed to have been engaged in by the Commissioner and that the Commissioner is therefore personally liable on that basis. 138 There are, however, a number of fundamental problems with that contention, if that is indeed the way Farah puts its case. 139 First, it is not clear that any of the powers said to have been exercised by the Commissioner for the purpose of Farah's case of misfeasance in public office were the subject of a written delegation pursuant to s 8 of the Administration Act. As has already been noted, the relevant powers were those exercised under ss 8AAZLF, 8AAZLH, 8AAZLGA and 3A of the Administration Act and the policy in PSLA 2008/11. The pleading does not identify the tax officer or tax officers who exercised those powers, or allege that the exercise of any of those powers by any tax officer or tax officers was pursuant to a written delegation under s 8 of the Administration Act, or allege that the conduct of that tax officer or those tax officers was therefore deemed by s 8(2) to be the conduct of the Commissioner. Nor, is it alleged the officer or officers who were acting under any s 8 delegation acted in bad faith, or with the required intention or state of mind, at the time of their exercise of the delegated power. 140 The pleading does allege that the Commissioner delegated his powers "in relation to the audit of [Mr Kennedy] and Strathfield Tax to the Deputy Commissioner, Mr James O'Halloran" (ASOC [3G]). Likewise, it is alleged that the Commissioner delegated his powers in relation to the investigation of Farah to Mr O'Halloran (ASOC [3H]). It is not alleged, however, that those delegations were in writing as required by s 8(1) of the Administration Act. More significantly, it is not alleged that Mr O'Halloran exercised any of the Commissioner's powers under ss 8AAZLF, 8AAZLH, 8AAZLGA and 3A of the Administration Act and the policy in PSLA 2008/11. 141 Farah does allege that Mr O'Halloran "authorised" a number of tax officers who were involved in the relevant audits and investigations. It is not alleged, however, that any of those officers held a delegation in relation to the exercise of any relevant power of the Commissioner. There is, therefore, no proper basis to assert that the conduct of the tax officers involved in the relevant audits or investigations is deemed to be the Commissioner's conduct by reason of s 8(2) of the Administration Act. 142 The real nature of Farah's case in relation to the liability of the Commissioner in respect of the tort of misfeasance in public office would appear to be that all of the conduct and states of mind of all of the tax officers involved in the audits and investigations, and perhaps others, can somehow be imputed or attributed to the Commissioner at some point in time because of some alleged amorphous "chain of delegation" or "chain of command". There is, however, no sound or reasonable legal or factual basis for such a broad allegation. 143 Even putting that difficulty to one side, the additional problem faced by Farah in respect of any such case is the problem of aggregation.

[29]

Farah's case relies on an impermissible aggregation of the states of mind of many people 144 In its submissions in defence of its pleading, Farah strenuously denied that its case in relation to misfeasance in public office relied on the attribution or imputation, to the Commissioner, of the aggregate or composite of the acts and knowledge of various tax officers over time. It is, however, well-nigh impossible to construe the pleading in any other way. Indeed, if that is not Farah's case, it is well-nigh impossible to discern what its case in fact is. 145 The critical point is that the pleading does not identify any tax officer who was, or tax officers who were, both involved in the exercise of any of the relevant powers and who had the relevant state of mind for misfeasance in public office at the time of the exercise of those powers. To use the words of the New Zealand Court of Appeal in Chesterfields Preschools (at [97]), the pleading does not identify any tax officer or tax officers in whom the "mental and physical elements of the tort … coalesce[d]" at the relevant time. Rather, it refers to a very large number of tax officers - upwards of fifteen, though it also refers to other officers unknown to Farah - and seeks to attribute or impute to the Commissioner, the conduct and knowledge of some or all of those officers over a lengthy period of time. 146 No real attempt is made to identify the specific knowledge held by any tax officer who exercised any of the relevant powers. Rather, the knowledge of the tax officers is treated as a collective amorphous mass. That appears throughout the pleading, including most significantly paragraphs 54(c) and (e), but reaches its crescendo in paragraph 56A. 147 As the authorities referred to earlier amply demonstrate, it is impermissible to plead a case of misfeasance in public office based on a composite or aggregate of the conduct and states of mind of a number of individual officers. That is plainly what Farah's pleading does.

[30]

The pleading is unclear, ambiguous and confusing 148 The three deficiencies or defects in Farah's pleading of the tort of misfeasance in public office that have already been highlighted would each be sufficient to warrant the striking out of this part of its claim. Even if that were not so, the pleading of this part of Farah's claim should nonetheless be struck out on the basis that it is, for the most part, unclear, ambiguous and confusing to the point that it borders on being unintelligible. It plainly does not adequately reveal to the Commissioner the factual and legal allegations that he is required to meet in his defence. 149 An allegation of misfeasance in public office is undoubtedly a serious allegation. It calls for a particularly clear, concise and unambiguous pleading that specifies and particularises the material facts and the factual and legal conclusions that flow from them. Farah's pleading of its case of misfeasance in public office on the part of the Commissioner falls well short of that standard of pleading. 150 The ambiguous and confusing nature of various parts of the pleading has already been the subject of considerable discussion. It is unnecessary to repeat what has already been said or to labour the point. The lack of clarity is perhaps typified in paragraphs 17D and 17E of the proposed amended statement of claim. As has already been noted, those paragraphs allege that the Commissioner "knew or ought to have known" that the Viaus bank account did not belong to Farah and did not meet the requirements of s 8AAZLH(2A) of the Administration Act. That allegation appears to be central to Farah's claim of conscious maladministration. In Forrest, however, the High Court held that the mixing together in a pleading of the fundamentally different allegations of "knew" and "ought to have known" represented a fundamental defect in pleading. The plurality said, of such a defect (at [25]): This is no pleader's quibble. It is a point that reflects fundamental requirements for the fair trial of allegations of contravention of law. It is for the party making those allegations (in this case ASIC) to identify the case which it seeks to make and to do that clearly and distinctly. The statement of claim in these matters did not do that. 151 Nor do the statement of claim and the proposed amended statement of claim in this matter. 152 It should also be noted that the pleading has been the subject of considerable correspondence between the respective legal advisers of the parties. There has been detailed requests for further particulars and equally detailed responses to those requests. Some of that correspondence was tendered. It is unnecessary to consider the content of that correspondence. Suffice it to say that the correspondence did not, and does not, shed any real light on the precise nature of Farah's case in respect of misfeasance in public office. Indeed, in some respects the further particulars served only to further muddy the waters. What the correspondence does perhaps reveal, however, is that the Commissioner and his legal representatives have had, and appear to continue to have, considerable difficulty in comprehending the case that the Commissioner is required to meet. That is, with respect, not at all surprising.

[32]

SHOULD THE BARNES V ADDY PLEADING BE STRUCK OUT? 156 The Court was not favoured with detailed submissions by either party in relation to Farah's claim based on the rule in Barnes v Addy and the Commissioner's contention that the pleading of that claim was somehow deficient and should be struck out. The extent of the Commissioner's submission was that the pleading does not establish a proper basis for alleging that the Commissioner or any other tax officer had the necessary knowledge to found a claim based on Barnes v Addy. 157 Farah's claim against the Commissioner based on Barnes v Addy was summarised earlier. In a nutshell, Farah alleges that Mr Kennedy, Strathfield Tax, Strathfield Taxation Services and Mr Wass, as Farah's tax agent at various times, were either fiduciaries or held the refunds that were payable and paid by the Commissioner in respect of Farah's RBA surpluses on trust for Farah. Farah alleges that each of them, in their capacity as fiduciaries or trustees, engaged in fraudulent conduct which caused Farah loss and damage. The Commissioner did not appear to take any issue with Farah's pleading in relation to this aspect of its Barnes v Addy claim. 158 Farah's claim against the Commissioner is based on the so-called second limb of the rule in Barnes v Addy. The second limb holds that a trustee or fiduciary is liable if they "assist with knowledge in a dishonest and fraudulent design on the part of the trustees": Barnes v Addy at 252 per Lord Selborne LC. That is, in short terms, what Farah alleges against the Commissioner. 159 To make out a claim based on the second limb of Barnes v Addy, it is necessary to prove that the defendant had knowledge of the trustee's fraudulent design. The defendant's knowledge must generally fall within one or more of five categories: first, actual knowledge; second, wilfully shutting one's eyes to the obvious; third, wilfully and recklessly failing to make such inquiries as an honest and reasonable man would make; fourth, knowledge of circumstances which would indicate the facts to an honest and reasonable man; and fifth, knowledge of circumstances which would put an honest and reasonable man on inquiry: Baden v Société Générale pour Favoriser le Dévelopment du Commerce et de l'Industrie en France SA [1992] 4 All ER 161 at 235, 242-243; Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89 at 93, 163. 160 In paragraph 59 of the pleading, Farah alleges that "the Commissioner had actual knowledge of a fraudulent scheme engaged in by Mr Kennedy and/or Viaus to defraud [Farah] of the RBA surpluses arising in [Farah's] RBA Account". The allegation of actual knowledge on the part of the Commissioner is said to be based on the facts pleaded in paragraphs 44 to 53C of the pleading. No further particulars are provided. In paragraph 60, it is alleged, in effect, that in paying the refunds arising from Farah's RBA surpluses into the Viaus bank account, the Commissioner knowingly participated in a fraudulent scheme to defraud Farah. 161 The following points may be noted concerning the allegations in paragraphs 59 and 60 of the pleading. 162 First, the allegation in paragraph 59 is an allegation that the Commissioner had actual knowledge of the fraudulent scheme. The same appears to be case in relation to paragraph 60. Thus, Farah's case is based on the first category of knowledge identified in Baden. 163 Second, Farah's case as pleaded appears to be that the Commissioner personally possessed knowledge of Mr Kennedy's fraudulent scheme. If that is not Farah's case, it is unclear what its case actually is. 164 Third, the allegation of actual knowledge on the part of the Commissioner is somewhat at odds with paragraphs 44 to 53C of the pleading, those being the paragraphs that are said to support that allegation. As has already been noted in the context of Farah's plea of conscious maladministration, those paragraphs of the pleading relate primarily to the Tax Office audit of Strathfield Tax, which included numerous interviews with Mr Kennedy. The facts pleaded in paragraphs 44 to 53C, considered individually or collectively, do not provide a reasonable basis for the allegation that the Commissioner had actual knowledge of any fraudulent scheme by Mr Kennedy or Strathfield Tax at the time that the refunds based on Farah's RBA surpluses were paid into the Viaus bank account. 165 Fourth, if, contrary to the way the Barnes v Addy claim is expressly pleaded, Farah's case of actual knowledge on the part of the Commissioner is based on the allegation or proposition that the knowledge of individual tax officers who may have been involved in the relevant audits can relevantly be imputed or attributed to the Commissioner, paragraphs 44 to 53C do not provide a reasonable basis for an allegation that any particular tax officer or tax officers had actual knowledge of a fraudulent scheme by Mr Kennedy or Strathfield Tax to defraud Farah. The interim audit report undoubtedly raised various issues concerning the accounting and other practices of Mr Kennedy and Strathfield Tax. There is, however, no indication that any officer involved had actual knowledge of any such fraudulent scheme by Mr Kennedy or Strathfield Tax, or formed the view that such a scheme existed, at or before the time any of the relevant refunds were paid. It might perhaps be alleged that the audit officers, had they acted diligently and reasonably, should have formed the view that Mr Kennedy and Strathfield Tax had acted fraudulently. That, however, does not amount to actual knowledge of the fraudulent scheme. 166 Fifth, it is not expressly alleged, in the context of the Barnes v Addy claim, that the knowledge of any of the tax officers referred to in paragraphs 44 to 53C of the pleading can or should be imputed or attributed to the Commissioner. Nor is any material fact pleaded that would provide support for any such imputation or attribution. 167 Sixth, as was noted earlier in the context of the cause of action for misfeasance in public office, it is not entirely clear from the pleading whether it is alleged that the Commissioner was personally involved in exercising the power to pay the refunds, though that would appear unlikely. In those circumstances, it is unclear what tax officer or officers that Farah alleges were involved in paying, or deciding to pay, the refunds into the Viaus bank account. Equally, and perhaps more importantly, it is unclear whether it is alleged that the tax officer who was, or the tax officers who were, so involved had actual knowledge of the alleged fraudulent scheme. That is important because, unless it is alleged that the officers who were actually involved in making or deciding to make the payments had actual knowledge, it is difficult to see how it could be said that there is a reasonable basis for the allegation in paragraph 60 of "knowing involvement" in the scheme on the part of any tax officer, let alone the Commissioner. 168 Seventh, the generality and lack of clarity concerning the basis of the allegation of actual knowledge of, and knowing involvement in, the alleged fraudulent scheme, again raises the issue whether Farah's case is in fact based on the aggregation of knowledge of numerous tax officers. While the issue concerning the aggregation of knowledge is not as acute or apparent in this context as it is in relation to the pleading concerning misfeasance in public office, that is only because the Barnes v Addy pleading is so vague and general. 169 Eighth, it is difficult to see how the concession or submission made by Farah's senior counsel in the course of submissions concerning the misfeasance in public office pleading sits with the Barnes v Addy pleading. As noted earlier, it was indicated that Farah's case of misfeasance in public office on the part of the Commissioner was put no higher than that there had been "objective recklessness" on the part of the Commissioner or the relevant tax officers. That would appear to mean that Farah does not allege, or intend to allege, that the Commissioner actually knew that his exercise of powers was invalid or unauthorised, or that the Commissioner actually knew that his exercise of powers would probably cause loss or injury to Farah. It would also appear that Farah does not allege any tax officer, or tax officers, had actual knowledge of those matters. It is, in those circumstances, difficult to see how Farah could contend, as it does in the Barnes v Addy pleading, that the Commissioner, or any other tax officer, had actual knowledge of Mr Kennedy's fraudulent scheme and was knowingly involved in that fraudulent scheme. 170 Having regard to these problems or deficiencies with this part of the pleading, and despite the paucity of the submissions on this point, it is difficult to avoid the conclusion that, in its present form at least, the pleading does not disclose a reasonable cause of action based on Barnes v Addy. Likewise, having regard to the apparent inconsistencies, or at least unanswered questions concerning aspects of the pleading of this cause of action, it is equally difficult to avoid that conclusion that the pleading, in its current form at least, is likely to cause prejudice or embarrassment. Indeed, it is difficult to know exactly what Farah's case actually is in relation to this cause of action. Paragraphs 57 to 62 of the pleading should accordingly be struck out. The question whether Farah should be permitted to reformulate and re-plead this aspect of its action is addressed later.

[34]

The Negligence Claim 172 Neither party advanced any submissions concerning Farah's proposed cause of action in negligence. The Commissioner did not contend that paragraphs 65A to 65S of the proposed amended statement of claim, which purport to articulate the claim in negligence, would be liable to be struck out, if leave to amend was granted, on the basis that those paragraphs do not disclose a reasonable cause of action, or are otherwise likely to cause prejudice or embarrassment. Nevertheless, as was noted earlier, the pleading of the proposed cause of action in negligence is far from clear and concise. 173 For reasons that have already been given, however, Farah should not be given leave to file the proposed amended statement of claim in its current form, including the paragraphs containing the negligence claim. The reasons for the refusal of leave to amend mainly relate to the deficiencies in those parts of the proposed amended statement of claim that purport to supplement the pleading of the cause of action for misfeasance in public office. The question whether Farah should be given a further opportunity to reformulate or re-plead that aspect of its case is addressed later. If Farah does propose to attempt to re-plead, and formulates a further draft pleading which also includes a cause of action in negligence, the adequacy of the proposed pleading in negligence can be addressed at that time. 174 It should perhaps be reiterated, in this context, that the Commissioner has not to date advanced any argument for why Farah should not be permitted to file an amended pleading which includes paragraphs along the lines of paragraphs 65A to 65S of the most recent iteration of Farah's proposed amended statement of claim. It may nevertheless be advisable for Farah to revisit those paragraphs and consider whether the clarity and precision of the proposed negligence pleadings could be improved. That is because, at first blush at least, the proposed negligence pleadings appear to suffer from many of the same sorts of defects that infect the pleadings concerning misfeasance in public office.

[37]

Should Farah be given leave to re-plead the struck out claims? 177 The Court undoubtedly has the discretion to grant Farah leave to re-plead those parts of the claim that have been struck out. The question, however, is whether in all the circumstances that discretion should be exercised. 178 The problems that have been exposed in relation to Farah's claims based on the tort of misfeasance in public office and Barnes v Addy are substantial and fundamental. They are not mere pleading errors or quibbles which can be readily remedied. Nor are they simply matters of detail or further particularisation. Farah has already had more than one attempt at amending the pleading. The pleading has also been the subject of detailed correspondence between the parties. It is, in the circumstances, somewhat questionable whether Farah should be given leave to re-plead those parts of its case. Like the provision of further particulars, it is rather doubtful that such an exercise is likely to be fruitful. 179 While Farah should not be positively precluded from attempting to reformulate and re-plead any claim based on misfeasance in public office or Barnes v Addy, in the particular circumstances of this case, it would on balance not be appropriate to simply grant Farah leave to re-plead. The difficulty in simply granting leave to re-plead is that it would cast the onus on the Commissioner to file an application to strike out the amended pleading if, as events transpire, an equally unreasonable or embarrassing pleading of misfeasance in public office, or claim of liability on the basis of Barnes v Addy, is included in the amended pleading. In all the circumstances, if Farah wishes to reformulate or re-plead its causes of action for misfeasance in public office or its claim based on Barnes v Addy, it should be required to file a further application for leave to amend, and provide the Commissioner and the Court with the proposed amended pleading. The viability and reasonableness of the reformulated claims can be assessed at that stage. As noted earlier, the reasonableness of any pleading alleging negligence on the part of the Commissioner can also be addressed at that time.

At a glance

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Judgment (39 paragraphs)

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Legislation Cited (5)

Cases Cited (26)

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