Farah Custodians Pty Limited v Commissioner of Taxation

THE PROPOSED NEGLIGENCE CLAIM 8 The first step in resolving this dispute involves identifying the elements of Farah's proposed cause of action in negligence. That was to some extent addressed in short terms in Farah No. 1 at [78]-[81], though as already indicated the proposed negligence claim was not really in issue in the first round of interlocutory applications. It was noted in Farah No. 1 that the proposed pleading of the cause of action in negligence was unnecessarily wordy, complex and difficult to follow. The latest iteration of Farah's proposed proposed pleading, which was annexed to its interlocutory application dated 28 September 2018, is in slightly different terms, though it could still fairly be described as prolix. It also remains somewhat confused and confusing. What follows is an attempt to summarise or distil the key elements of the proposed cause of action in negligence. 9 The starting point would appear to be the series of factual allegations that commence at [23] of the proposed pleading and continue up [52]. Many of those paragraphs are in the existing pleading and were relied on in support of Farah's original claims of conscious maladministration or misfeasance in public office. They now appear under the rather confusing subheading "Alternative Claims in Negligence of the Applicant". It would thus appear that those factual allegations are now relied on in support of Farah's case in negligence. As will be seen, however, the paragraphs of the proposed pleading that ultimately identify or particularise the alleged duty of care owed by the Commissioner and officers of the Australian Taxation Office (ATO) and the alleged breaches of that duty do not clearly or explicitly refer back to the facts alleged at [23] to [52]. The precise relationship between facts pleaded in [23] to [52] and the alleged duty of care and the breach of that duty therefore remains somewhat unclear. 10 Despite that apparent difficulty, it is nevertheless important to consider Farah's proposed cause of action in negligence in the context of the factual allegations in [23] to [52] of the proposed pleading. That is all the more so given that the Commissioner conceded that his opposition to the proposed pleading, and his strike out application, should be approached on the basis of an assumption that Farah would be able to prove the facts alleged in the proposed pleading. 11 In short summary, the critical factual allegations would appear to be as follows. 12 First, at relevant times between about October 2012 and about February 2014, Farah had appointed Strathfield Tax Pty Limited and then Strathfield Taxation Services Pty Limited as its tax agent. Mr Ian Kennedy was a principal of those companies. For the sake of simplicity, the two companies will be referred to collectively as Strathfield Tax. 13 Second, Mr Kennedy provided the details of a bank account held in the name of Viaus (Australia) Pty Limited (the Viaus account) to the Commissioner as the bank account into which refunds payable to Farah in respect of Running Balance Account (RBA) surpluses should be paid for the purposes of s 8AAZLH of the Administration Act. Viaus was a company controlled by Mr Kennedy. Farah did not instruct or authorise Mr Kennedy to nominate the Viaus account as being Farah's nominated account for the purposes of s 8AAZLH of the Administration Act. Rather Mr Kennedy's nomination of the Viaus account was part of a scheme by Mr Kennedy to misappropriate RBA surpluses arising in Farah's RBA. 14 Third, from at least 31 July 2012, officers of the ATO had conducted an audit or investigations into the activities of Strathfield Tax and Mr Kennedy. By at least May 2013, those ATO officers had discovered certain facts concerning Mr Kennedy's conduct as an employee or officer of Strathfield Tax, which was Farah's appointed tax agent. Those facts included, relevantly, that: Mr Kennedy had directed client refunds into the Viaus account; Viaus was a company that was associated with him; Mr Kennedy had been unable to explain why client refunds were directed into the Viaus account; there was no evidence that Mr Kennedy had subsequently paid the refunds to the clients who were entitled to them; Mr Kennedy had claimed that refunds payable to Farah and other entities associated with its director, Mr George Elias, had been immediately loaned to him; and that Mr Kennedy had produced to the ATO officers a letter that was said to be signed by Mr Elias' wife which indicated, in general terms, that funds were on occasion loaned to him by Mr Elias or entities associated with him. 15 Fourth, the ATO officers who conducted the audit or investigations into Strathfield Tax and Mr Kennedy did not inform Farah or Mr Elias of the "particulars" of that audit which related to Farah's and Mr Elias' tax affairs, including the fact that refunds payable to them had been directed into the Viaus account, and the fact that Mr Kennedy had claimed that those refunds had been loaned to him. 16 Fifth, other ATO officers were involved in conducting an investigation into the taxation affairs of Farah, Mr Elias and other companies associated with him. The officers conducting those investigations dealt almost exclusively with Mr Kennedy in his capacity as an employee of Farah's tax agent, Strathfield Tax. They did not directly contact or communicate with Farah or Mr Elias. At some stage, the officers who were conducting those investigations became aware of the particulars and outcome of the audit or investigations into the activities of Strathfield Tax and Mr Kennedy. 17 Sixth, the Commissioner continued to pay refunds relating to RBA surplus amounts on Farah's RBA to Viaus throughout 2013 and up to 7 January 2014. 18 As can be seen, the main thrust of the factual allegations at [23] to [52] would appear to be that, by mid-2013, various ATO officers who were involved in audits or investigations of the activities of Mr Kennedy and the taxation affairs of Farah were aware, at the very least, that there was a risk that Mr Kennedy had been abusing his position as a tax agent by directing refunds payable to clients, including Farah, to bank accounts held by companies associated with him, including the Viaus account, and was not in due course remitting those refunds to the clients. Those officers, however, had not passed that information onto Farah, or asked it about the payment of refunds otherwise due to it into the Viaus account, or otherwise warned it of the risk that Mr Kennedy had been defrauding it or otherwise misusing his position as its tax agent. 19 Perhaps more significantly, despite the knowledge possessed by those tax officers, the Commissioner continued to pay refunds arising from surpluses in Farah's RBA into the Viaus account throughout the second half of 2013 and up to January 2014. The Commissioner did not, in light of the information uncovered in the course of the audits, delay or defer the payment of the refunds into the Viaus account while he conducted further inquiries. 20 The implication from those paragraphs of the pleading would appear to be that the Commissioner's failure to stop paying Farah's refunds into the Viaus account in all the circumstances was negligent. What, however, is said to be the nature and scope of the duty of care owed to Farah? What precisely is said to be the nature of the breach of the duty? 21 The duty of care that Farah alleges that the Commissioner owed to it is particularised in the following terms in [52J] of the proposed pleading: In all the circumstances of the case as pleaded in [52A] to [52I] above the Commissioner and his servants or agents as pleaded and particularised herein were under a duty to take reasonable care not to subject the Applicant [Farah] to the risk of harm set out in [52E(b) and (d)] above. 22 As can be seen, the circumstances in which this duty of care is said to have arisen are those pleaded in [52] to [52I] of the proposed pleading. The factual circumstances pleaded in those paragraphs, in short summary, include the following. 23 First, it was reasonably foreseeable that the applicant or "an entity or person in the position of the [a]pplicant" might suffer loss if an ATO officer failed to comply with the requirements in ss 8AAZLF and 8AAZLH of the Administration Act or failed to exercise the powers under s 8AAZLGA of the Administration Act "without due care and diligence" (at [52E(a)]). The precise terms and operation of those sections of the Administration Act will be considered in more detail later. It suffices at this point to note that s 8AAZLF of the Administration Act is the provision which obliges the Commissioner to refund RBA surpluses and credits to an entity; s 8AAZLH of the Administration Act is the provision which specifies how such refunds are to be made; and s 8AAZLGA is a provision which allows the Commissioner, in certain specified circumstances, to retain an amount that he would otherwise be obliged to refund to a taxpayer while he conducts further inquiries. 24 Second, there was a risk of harm to the applicant "or to entities or persons in the position of the [a]pplicant" where they are represented by tax agents (at [52E(b)] and [52E(c)]). The risk is said to be that the tax agent may lodge false claims for credits and direct the resulting refunds to be paid into a bank account which is "not an account as defined by s 8AAZLH". The applicant or persons in the position of the applicant are said to be vulnerable to that risk because "under the systems utilised by the ATO", tax agents had access to their clients' "details of accounts" and were able to "manipulate the settings" referable to their clients without their knowledge "so as to provide details of accounts which did not conform to s 8AAZLH … and to make false claims for credits and refunds" (at [52E(d)]). 25 Third, the Commissioner and the Commonwealth were aware of the "risk and its magnitude" because of the knowledge of the ATO officers pleaded and particularised in [43A] to [52] of the proposed pleading (at [52G]). Paragraphs 43A to 52 of the pleading detail the knowledge acquired by the ATO officers who were conducting the audit or investigations into Mr Kennedy and Strathfield Tax, on the one hand, and the taxation affairs of Farah and Mr Elias on the other. The nature of that knowledge was summarised earlier. The Commissioner and the Commonwealth "and their servants and agents" are also said to have "been on notice of facts which to a reasonable person in the position of an officer of the ATO, would have indicated at least a strong possibility that Mr Kennedy was defrauding his clients including the applicant and/or the Commissioner" (at [52H]). The Commissioner's knowledge of the "risk and its magnitude" is also said to have been acquired as a result of "other cases involving fraudulent tax agents" (at [52G]). 26 Fourth, the Commissioner had the power under s 8AAZLGA of the Administration Act to "stop the payment of refunds where he suspected amongst other things fraud or wished to verify information" (at [52I]). 27 In simple terms, what appears to be alleged in those paragraphs of the pleading is that the Commissioner, the Commonwealth and their servants and agents, owed Farah a duty of care when exercising relevant duties or powers in the Administration Act relating to the payment of refunds because they were aware of a specific risk of harm to Farah which might arise from their exercise of those duties or powers. Their awareness of the specific risk to Farah arose not only because ATO officers were aware of information which suggested that there was at least a risk that Farah's tax agent had been involved in fraudulent activities, but also because of a general awareness that tax agents may act in such a manner and exploit the "systems utilised by the ATO". 28 While the pleading refers at various points to "entities or persons in the position of the [a]pplicant", it does not appear to be alleged that the Commissioner owed this particular duty of care to all taxpayers. While it is not entirely clear, the reference to entities or persons in the position of Farah would appear to be a reference to other persons or entities who, like Farah, were known by ATO officers to be at risk of harm from unscrupulous tax agents. That said, as will be seen, the paragraphs of the pleading which particularise the alleged breach of duty do tend to suggest that it is alleged that the Commissioner was obliged to put in place systems to protect all taxpayers against the risk of harm from fraudulent tax agents. 29 A further or alternative duty of care is particularised in the following terms in [52K] of the proposed pleading: Further, or in the alternative, the officers of the Public Service, including those referenced in [46A] and [46B] above who had the supervision of the Applicant's [Farah's] taxation affairs in the ATO and/or who were involved in or who were aware of the audit of Strathfield Tax and/or referred to in [46A] and the investigations into the affairs of the Farah group referred to in [46B] above, who were employed by the Commonwealth or the Commissioner under the PSA, were under a duty to take reasonable care not to subject the Applicant to the risk of harm set out in [52E(b)], above or to a statutory duty pursuant to s.13(1) of the PSA, for breach of which the Commonwealth or the Commissioner were liable. 30 The nature and content of this alternative duty of care appears to be essentially the same as the duty of care pleaded in [52J], though it was said to be owed by the ATO officers who were engaged in the audits or investigations of Mr Kennedy's activities and the investigation into Farah's tax affairs. It was also alleged that the Commissioner or the Commonwealth are liable for breach of the duty by those officers. The point of this additional or alternative duty of care thus appears to be to allege vicarious liability on the part of the Commissioner or the Commonwealth. It would appear to be on this basis, and this basis alone, that Farah sought to join the Commonwealth as a party. 31 To keep things simple, the following analysis of the proposed action in negligence will focus on the duty of care alleged to have been owed by the Commissioner. 32 The paragraphs of the pleading which contain particulars of the alleged breach of the duty of care also shed some light on the nature and scope of the alleged duty. The alleged breach of the duty of care is particularised in [52L] of the proposed pleading. There appears to be three relatively distinct elements to the particulars of the alleged breach of duty. 33 The first element involves an allegation that the Commissioner failed to ensure that certain systems were in place (at [52L(a)], [52L(b)] and [52L(d)]). Those systems include: a system to ensure that the bank account nominated to receive refunds complied with s 8AAZLH of the Administration Act, including obtaining written confirmation from the relevant bank; a system whereby a client of a tax agent would be contacted if "irregularities and inconsistencies were observed in the conduct by a tax agent of a client's affairs"; and a system for "monitoring and checking details provided of bank accounts into which refunds could be paid" so as to ensure compliance with s 8AAZLH of the Administration Act, including seeking written "clarification" from either the bank or the client. 34 The second element involves an allegation of a failure to warn Farah that Mr Kennedy was or may have been "diverting refunds due and payable" to Farah to companies associated with him or Strathfield Tax and that Mr Kennedy may have been defrauding Farah "or the ATO of funds, due to be refunded" to Farah (at [52L(f)] and [52L(g)]). This element similarly involves an allegation that the Commissioner failed to "verify the information or statements made and provided by Mr Kennedy" to the ATO officers who were conducting the audit or investigations (at [52L(h)]). 35 The third element relates specifically to the Commissioner's exercise of the discretion in s 8AAZLGA of the Administration Act to withhold refunds in certain circumstances (at [52L(c)] and [52L(e)]). It is alleged, in rather general terms, that the Commissioner failed to "exercise or to consider to exercise" that power in circumstances where "irregularities or inconsistencies" in the activities of a tax agent had been "noted". It also appears to be alleged that, in those circumstances, the Commissioner should have contacted the client to ensure that what was purportedly being done on behalf of the client was in fact being done with the authority of the client. It is also alleged, in terms specific to Farah's circumstances, that the Commissioner failed to exercise the power under s 8AAZLGA of the Administration Act "and/or to notify [Farah] of the fact that substantial refunds payable to [Farah] had been paid into the Viaus Bank Account". 36 It is alleged, in [52P] of the proposed pleading, that Farah suffered loss or damage as a result of the breach by the Commissioner or the Commonwealth or their servants or agents of the alleged duty of care they owed to Farah. That loss or damage effectively consisted or was comprised of the total of the refund amounts that the Commissioner paid into the Viaus account in the period 20 November 2012 to 7 January 2014.

A COMMON LAW DUTY OF CARE? 37 The Commissioner's primary contention in relation to the futility of Farah's proposed negligence claim was that there was or could be no demonstrable basis for finding that the Commissioner owes a duty of care to taxpayers or anyone else in relation to the administration of RBA refunds. The Commissioner submitted that he owes an enforceable statutory duty to pay refunds when the requisite conditions are satisfied, but beyond that, the Commissioner's duty is to the Crown and to the Crown alone. In the Commissioner's submission, there is no reason to impose on him a common law duty of care when the "statute comprehensively allocates the parties' rights and obligations". As for the existence of any duty to warn, the Commissioner submitted that there is nothing in the statutory provisions which expressly, or impliedly, imposes on the Commissioner a duty to warn taxpayers about matters which might arise from the conduct of audits. 38 The Commissioner also pointed out that no superior Australian court has ever held that the Commissioner owes a duty of care to anyone in the performance of his functions and that the existence of any such duty has been rejected in other common law countries, including New Zealand and Canada: see Ch'elle Properties (NZ) Ltd v Commissioner of Inland Revenue (2005) 22 NZTC 19,622 and on appeal (2007) 23 NZTC 21,488; City Centre Properties Inc. v R 1993 CarswellNat 1191. 39 The Commissioner also relied on Harris v Deputy Commissioner of Taxation (2001) 47 ATR 406, a case in which Grove J refused leave to amend a statement of claim to add a negligence claim against the Commissioner. In that case, Grove J held (at [12]) that there was "no basis upon which to conclude that there is a tort liability in the ATO or its named officers towards a taxpayer arising out of the lawful exercise of functions". It should be noted, however, that the plaintiff in that case was a self-represented litigant and the alleged duty of care appears not to have been clearly articulated. 40 Before considering the Commissioner's arguments, it is necessary to briefly address the relevant principles which apply in determining whether a statutory or public authority owes a common law duty of care. It is also necessary to give some more detailed consideration to the relevant statutory scheme in relation to the payment of RBA refunds.

Relevant principles 41 The duty of care that Farah alleges the Commissioner owed to it is novel in the sense that it has not previously been recognised. It has been accepted that the law should develop novel categories of negligence incrementally and by analogy with established categories: Sutherland Shire Council v Heyman (1984-85) 157 CLR 424 at 481. It has also been held that "the law of tort develops by reference to principles, which must be capable of general application": Sullivan v Moody (2001) 207 CLR 562 at [49]. Those principles "give a measure of coherence to the law as a whole, and they permit a court to identify, with the requisite confidence required for summary dismissal, cases where no duty of care will lie": Perera v Genworth Financial Mortgage Insurance Pty Ltd (2017) 94 NSWLR 83 at [39]. 42 In Graham Barclay Oysters Pty Ltd v Ryan (2002) 211 CLR 540, Gummow and Hayne JJ explained that the question whether a statutory authority owes a common law duty of care turns on a close examination of the terms, scope and purpose of the relevant statutory regime and the "salient features" of the relationship between the statutory authority and the particular class of persons to whom the duty is allegedly owed. Their Honours said (at [146]-[149]): The existence or otherwise of a common law duty of care allegedly owed by a statutory authority turns on a close examination of the terms, scope and purpose of the relevant statutory regime. The question is whether that regime erects or facilitates a relationship between the authority and a class of persons that, in all the circumstances, displays sufficient characteristics answering the criteria for intervention by the tort of negligence. Where the question posed above is answered in the affirmative, the common law imposes a duty in tort which operates alongside the rights, duties and liabilities created by statute. … An evaluation of whether a relationship between a statutory authority and a class of persons imports a common law duty of care is necessarily a multi-faceted inquiry. Each of the salient features of the relationship must be considered. The focus of analysis is the relevant legislation and the positions occupied by the parties on the facts as found at trial. It ordinarily will be necessary to consider the degree and nature of control exercised by the authority over the risk of harm that eventuated; the degree of vulnerability of those who depend on the proper exercise by the authority of its powers; and the consistency or otherwise of the asserted duty of care with the terms, scope and purpose of the relevant statute. … (Footnotes omitted.) 43 While Gummow and Hayne JJ emphasised that the relevant inquiry is "multi-faceted" and involves a consideration of all "salient features", they identified four matters as being of particular significance: the purpose to be served by the exercise of the power; the control over the relevant risk by the depository of the power; the vulnerability of the persons put at risk; and the question of coherence or consistency between the statutory scheme and the imposition of a common law duty of care: see also Hunter Area Health Service v Presland (2005) 63 NSWLR 22 at [11] (per Spigelman CJ). 44 In Presland, Spigelman CJ observed (at [12]) that an analysis of the purpose served by the exercise of the relevant power will identify the beneficiary of its exercise. His Honour went on to say (at [12]) that where the beneficiary is the public at large, or a section of the public, it is unlikely that a duty of care will attach to the exercise of the power, but that where "the person asserting the existence of a duty is a person whose welfare or safety is to be protected by the exercise of the power, then the court will more readily reach the conclusion that a duty of care at common law arises". His Honour also noted (at [13]) that "where the power is conferred for the purpose of protecting, inter alia, the plaintiff, from a risk that has materialised, that is a factor entitled to considerable weight". 45 In Barclay Oysters, Gummow and Hayne JJ said (at [150]) that the factor of control is of "fundamental importance in discerning a common law duty of care on the part of a public authority". Their Honours referred, in that context, to the decision in Brodie v Singleton Shire Council (2001) 206 CLR 512, where the question was whether the council owed a duty of care to the users of roads that it was empowered to maintain. In the joint judgment of Gaudron, McHugh and Gummow JJ in Brodie, it was said (at [102]): The decisions of this Court in Sutherland Shire Council v Heyman, Pyrenees Shire Council v Day, Romeo v Conservation Commission (NT) and Crimmins v Stevedoring Industry Finance Committee are important for this litigation. Whatever may be the general significance today in tort law of the distinction between misfeasance and non-feasance, it has become more clearly understood that, on occasions, the powers vested by statute in a public authority may give it such a significant and special measure of control over the safety of the person or property of citizens as to impose upon the authority a duty of care. This may oblige the particular authority to exercise those powers to avert a danger to safety or to bring the danger to the knowledge of citizens otherwise at hazard from the danger. In this regard, the factor of control is of fundamental importance. (Footnotes omitted.) 46 The concept of vulnerability in this context, is a "reference to the inability of a particular person to protect himself or herself from the consequences of the conduct alleged to be negligent": Presland at [19]. 47 As for the question of coherence between the law of tort and the statutory regime, the imposition of a duty of care may be inconsistent with some aspect of the scheme or may be otherwise inappropriate by reason of the scope and purpose of the legislation: Presland at [21]. A duty of care is unlikely to be imposed where "the observance of such common law duty of care would be inconsistent with, or have a tendency to discourage, the due performance by the local authority of its statutory duties": X (Minors) v Bedfordshire County Council [1995] 2 AC 633 at 739D; Sullivan at [30], [59]; or where a "common law duty could distort the performance of the functions of the statutory body" or "distort [the] focus" of the statutory decision making process: Crimmins v Stevedoring Industry Finance Committee (1999) 200 CLR 1 at [216], [292]; or where the imposition of a common law duty of care may "undermine the effectiveness of the duties imposed by the statute": Barclay Oysters at [78] (per McHugh J). 48 The ultimate question as to the existence of a duty of care is one of law: Vairy v Wyong Shire Council (2005) 223 CLR 422 at [62]. As was emphasised in Barclay Oysters, however, it involves a multi-faceted inquiry. That inquiry has also been said to be "fact rich and fact intensive": State of New South Wales v Spearpoint [2009] NSWCA 233 at [23] (per Allsop ACJ). It has, for that reason, been said that it is "often, though not always, inappropriate to dismiss summarily a claim [alleging a novel duty of care] on the pleadings, at least as they stand at an early stage in litigation": Spearpoint at [26] (per Allsop ACJ); Perera at [33]; Fuller-Wilson v State of New South Wales [2018] NSWCA 218 at [9]-[11]. The fact that a novel duty of care has been alleged, however, does not immunise a pleading from summary dismissal: Perera at [32]. 49 It is no doubt because the legal question must be answered by reference to specific facts that the Commissioner, in this case, accepted that the question must be approached on the basis of the assumed truth of the pleaded facts. That may still, however, be too narrow an approach. As was pointed out by Leeming JA in Perera (at [35]), in somewhat analogous circumstances, the question under modern pleading rules is "whether it would be open to the plaintiffs upon the pleadings to prove facts at the trial which would constitute a cause of action": cf. Mutual Life & Citizens' Assurance Co Ltd v Evatt (1970) 122 CLR 628 at 631; Wickstead v Browne (1992) 30 NSWLR 1 at 16. Similarly, in Spearpoint, Allsop ACJ said (at [25]) that it "is appropriate to judge the exercise of the power to dismiss the claim with an eye to the possible development of the case through the pleadings and the evidence" and, in Fuller-Wilson, Basten JA said (at [11]) that "a case should not be summarily dismissed in circumstances where it is arguable that a duty of care might turn upon factual issues not revealed by the pleadings".

The relevant statutory scheme 50 As has already been noted, the question whether a public authority owes a common law duty of care often turns on a close examination of the terms, scope and purpose of the relevant statutory regime. As the analysis of the proposed pleading has shown, the alleged duty of care owed by the Commissioner and the alleged breach of that duty relate primarily to the carrying out of the duties or exercise of the powers in ss 8AAZLF, 8AAZLGA and 8AAZLH of the Administration Act. Those specific duties or powers must be considered in the context of the statutory scheme in relation to RBAs and the application of payments and credits in Part IIB of the Administration Act. 51 Subsection 8AAZC(1) of the Administration Act entitles, but does not require, the Commissioner to establish a system or systems of accounts for the primary tax debts of an entity. Each such account is to be known as a RBA: subs 8AAZC(2) of the Administration Act. 52 Subsection 8AAZD(1) of the Administration Act empowers the Commissioner to allocate a primary tax debt to an RBA that has been established for that type of tax debt. Division 3 of Part IIB of the Administration Act contains a number of provisions (ss 8AAZL to 8AAZLE) which relate to the treatment of payments, credits and RBA surpluses. 53 Section 8AAZL of the Administration Act provides that Div 3 sets out how the Commissioner must treat certain kinds of "amounts", including: a payment the Commissioner receives in respect of a current or anticipated tax debt or tax debts of an entity; a "credit", which is defined in s 8AAZA of the Administration Act as including an amount that the Commissioner must pay to a taxpayer under a taxation law; and an "RBA surplus" of an entity. Subsection 8AAZL(2) of the Administration Act provides that the Commissioner must treat such amounts using the "method" in either s 8AAZLA or 8AAZLB of the Administration Act. In very simple terms, the method in s 8AAZLA of the Administration Act involves allocating the amount first to a RBA of the entity, whereas the method in s 8AAZLB of the Administration Act involves applying the amount first against a non-RBA tax debt of the entity. Section 8AAZLE of the Administration Act provides that, in doing anything under Div 3, the Commissioner is not required to take account of any instructions of any entity. 54 It is unnecessary to delve into the intricacies of either of the two methods of allocating "amounts" in ss 8AAZLA and 8AAZLB of the Administration Act. It suffices to say that, while the Commissioner has a discretion as to which of those methods to use, the Commissioner must use one of those methods: Ozone Manufacturing Pty Ltd v Deputy Commissioner of Taxation (2006) 94 SASR 269 at [37]. 55 More significantly, for present purposes, s 8AAZLF of the Administration Act provides that if, after applying amounts in accordance with either s 8AAZLA or 8AAZLB of the Administration Act, the result is an "RBA surplus of the entity" or a credit in the entity's favour, the Commissioner must refund that amount to the entity. Division 3A of the Administration Act, which includes s 8AAZLF through to s 8AAZLH, deals with the Commissioner's obligation to refund RBA surpluses and credits and the manner in which refunds are to be made. 56 Section 8AAZLGA, which is one of the specific provisions central to Farah's proposed negligence claim, was inserted into the Administration Act following the decision of the Full Court in Federal Commissioner of Taxation v Multiflex Pty Ltd (2011) 197 FCR 580. In that case, the Full Court held (at [40]) that while a refund had to be made within a time that was reasonable in the circumstances, those circumstances "must attend what is necessary to discharge the duty … to make the refund, not to undertake an investigation which may or may not result in the raising of a GST assessment by the Commissioner". 57 The inclusion of s 8AAZLGA of the Administration Act in the statutory scheme overcame the implications of the decision in Multiflex by giving the Commissioner a discretion to delay refunding a claim in certain circumstances. 58 In the period relevant to this matter, subss 8AAZLGA(1) and (2) of the Administration Act provided as follows: (1) The Commissioner may retain an amount that he or she otherwise would have to refund to an entity under section 8AAZLF, if the entity has given the Commissioner a notification that affects or may affect the amount that the Commissioner refunds to the entity, and: (a) it would be reasonable to require verification of information (the notified information) that: (i) is contained in the notification; and (ii) relates to the amount that the Commissioner would have to refund; or (b) the entity has requested the Commissioner to retain the amount for verification of the notified information, and the request has not been withdrawn. (2) In deciding whether to retain the amount under this section, the Commissioner must, as far as the information available to the Commissioner at the time of making the decision reasonably allows, have regard to the following: (a) the likely accuracy of the notified information; (b) the likelihood that the notified information was affected by: (i) fraud or evasion; or (ii) intentional disregard of a taxation law; or (iii) recklessness as to the operation of a taxation law; (c) the impact of retaining the amount on the entity's financial position; (d) whether retaining the amount is necessary for the protection of the revenue, including the likelihood that the Commissioner could recover any of the amount if the notified information were found to be incorrect after the amount had been refunded; (e) any complexity that would be involved in verifying the notified information; (f) the time for which the Commissioner has already retained the amount; (g) what the Commissioner has already done to verify the notified information; (h) whether the Commissioner has enough information to make an assessment relating to the amount (including information obtained from making further requests for information); (i) the extent to which the notified information is consistent with information that the entity previously provided; (j) any other relevant matter. 59 Subsection 8AAZLGA(3) of the Administration Act required the Commissioner to notify the entity if an amount was retained and subs 8AAZLGA(5) of the Administration Act specified how long the Commissioner could retain the amount. 60 The evident purpose of s 8AAZLGA of the Administration Act was to give the Commissioner a discretion to retain an amount that he would otherwise have to refund for a period that would enable him to verify the information provided by the entity which had generated the refund. The list of matters in subs 8AAZLGA(2) of the Administration Act which the Commissioner was required to consider in deciding whether to exercise the discretion would suggest that the intention was that the discretion would most likely be exercised where there were reasons to suspect that the information provided by the entity might be inaccurate, or affected by fraud, evasion or the intentional or reckless disregard of the operation of a taxation law. That in turn suggests that the primary purpose of the provision was the protection of the revenue and the integrity of the refund system generally. 61 The other provision which is central to Farah's proposed negligence claim is s 8AAZLH of the Administration Act, which specifies how the Commissioner is to make refunds. During the period relevant to this matter, s 8AAZLH of the Administration Act provided as follows: (1) This section applies to refunds payable to an entity of RBA surpluses, or excess non-RBA credits that relate to an RBA, if primary tax debts arising under: (a) any of the BAS provisions (as defined in subsection 995-1(1) of the Income Tax Assessment Act 1997); or (b) any of the resource rent tax provisions (as defined in that subsection); have been allocated to that RBA. (2) The Commissioner must pay those refunds to the credit of a financial institution account nominated in the approved form by the entity. The account nominated must be maintained at a branch or office of the institution that is in Australia. (2A) The account must be one held by: (a) the entity, or the entity and some other entity; or (b) the entity's registered tax agent or BAS agent; or (c) a legal practitioner as trustee or executor for the entity. (3) However, the Commissioner may direct that any such refunds be paid to the entity in a different way. (4) If an entity has not nominated a financial institution account for the purposes of this section and the Commissioner has not directed that any such refunds be paid in a different way, the Commissioner is not obliged to refund any amount to the entity until the entity does so. (5) If the Commissioner pays a refund to the credit of an account nominated by an entity, the Commissioner is taken to have paid the refund to the entity. 62 It is important to note that when first inserted in the Administration Act, subs 8AAZLH(2) provided only that the Commissioner must pay the refunds to "the credit of a financial institution nominated by the entity". There was also no subs 8AAZLH(2A). Nor was there any subs 8AAZLH(5). Section 8AAZLH of the Administration Act was amended in 2000 by the A New Tax System (Tax Administration) Act (No. 2) 2000 (Cth). That Act amended subs 8AAZLH(2) and inserted subss 8AAZLH(2A) and (5). The Explanatory Memorandum to the Bill explained the purpose behind the insertion of subs 8AAZLH(2A) of the Administration Act in the following terms. One of the risks in the new tax system is the possibility of fraudulent claims for refunds of GST input tax credits. Under the refund provisions in Division 3A of Part IIB of the TAA 1953, all refunds of BAS amounts must be paid into an account at a financial institution nominated by the entity. The account must be maintained at a branch or an office of the institution that is in Australia. This allows an entity to request a refund to be paid into the account of any other person. The risk of fraudulent claims needs to be reduced by restricting the accounts into which the entity can request a refund to be paid. Subsection 8AAZLH(2) of the TAA 1953 is supported by an amendment which will restrict the nominated account to an account held by: • the entity, or a joint account of the entity; • the entity's registered tax agent; or • a legal practitioner acting in the capacity of trustee or executor of the entity. 63 The apparent purpose of the amendment thus appears to have been to reduce the risk of fraud by restricting the types of accounts that an entity could nominate for the purposes of s 8AAZLH of the Administration Act.

Analysis 64 The issue whether the Commissioner might owe a taxpayer in Farah's circumstances a duty of care when carrying out his duties or exercising his powers in Pt IIB of the Administration Act is an issue which is by no means easy to resolve. 65 The Commissioner's submissions in support of the proposition that he owed no duty of care in the exercise of his duties or powers in relation to the payment of refunds were directed primarily at the proper construction of the relevant statutory provisions, in particular s 8AAZLH of the Administration Act. The Commissioner contended that Farah's case was premised on s 8AAZLH of the Administration Act being construed as effectively prohibiting the Commissioner from paying a refund into accounts that do not meet the criteria in subs 8AAZLH(2A) of the Administration Act. In the Commissioner's submission, however, that construction of s 8AAZLH of the Administration Act was not reasonably open. 66 The Commissioner submitted that the proper construction of s 8AAZLH of the Administration Act is that, subject to the exercise of the discretion in subs 8AAZLH(3), the Commissioner is obliged to pay refunds into an account nominated by the entity if that account meets the criteria in subs 8AAZLH(2A) of the Administration Act. That obligation, however, does not impose on the Commissioner a positive duty to check and verify that the nominated account in fact meets the criteria. Nor, in the Commissioner's submission, does it mean that the Commissioner is positively prohibited from paying the refund into the account nominated by the taxpayer or the taxpayer's agent. It would follow, on the Commissioner's construction of the relevant provisions, that the Commissioner would not contravene or fail to comply with either s 8AAZLF or s 8AAZLH of the Administration Act even if, as events transpired, he paid refunds into a nominated account which did not in fact meet the criteria in subs 8AAZLH(2A) of the Administration Act. 67 The Commissioner submitted that this construction of s 8AAZLH of the Administration Act was supported by the legislative history of the provisions relating to the payment of refunds and the purpose of those provisions as revealed by extrinsic material. 68 There may well be merit in the Commissioner's submissions concerning the proper construction of s 8AAZLH of the Administration Act. If the Commissioner's construction of s 8AAZLH of the Administration Act is accepted, that may well turn out to be determinative of Farah's administrative law claims as described in [40]-[47] of Farah No. 1. It would not, however, necessarily be determinative of Farah's proposed negligence claim. That is because Farah's proposed negligence claim appears to involve the allegation or proposition that even if the statutory scheme was such that the Commissioner was not positively prohibited from paying the refunds into the account which had been nominated by its tax agent, the Commissioner nonetheless was under a duty to exercise reasonable care in paying the refunds into that account in the particular circumstances of its case. Farah's case is that the Commissioner breached that duty and is liable in negligence because he possessed information about the activities of Mr Kennedy and the use of the Viaus account which put him on notice of the misuse or possible misuse of that account, but that he nevertheless continued to pay refunds into the account. 69 It is, in those circumstances, unnecessary and probably undesirable, to finally resolve the question of construction concerning s 8AAZLH of the Administration Act at this interlocutory stage. It will no doubt be an important question to determine at the final hearing. 70 It should also be noted that the Commissioner contended that his construction of s 8AAZLH of the Administration Act was also determinative of Farah's proposed negligence case insofar as it relied on the Commissioner's failure to exercise his discretion under s 8AAZLGA of the Administration Act. The Commissioner submitted, in effect, that if his construction of s 8AAZLH was correct, he paid the refunds into an account nominated by Farah's agent and therefore complied with his duty under ss 8AAZLF and 8AAZLH of the Administration Act. It followed, in the Commissioner's submission, that even if the Commissioner had exercised his discretion under s 8AAZLGA of the Administration Act and had sought verification concerning the Viaus account, he would have ascertained that the Viaus account had in fact been nominated by Mr Kennedy, as Farah's agent. There would therefore have been no basis to further retain the refunds. 71 It is again doubtful that the Commissioner's contentions about what would have happened if the Commissioner had in fact exercised his discretion in s 8AAZLGA of the Administration Act in relation to the refunds in question is capable of providing a complete answer to Farah's proposed negligence claim. 72 Farah's case is, in effect, that in the particular and unique circumstances of this case, the Commissioner should have exercised, or considered exercising, his discretion under s 8AAZLGA of the Administration Act so as to investigate and verify all of the information which had been notified by Mr Kennedy. The inquiries that Farah contends should have been conducted by the Commissioner were not limited to simply verifying whether the Viaus account had in fact been nominated by Mr Kennedy on Farah's behalf. That is because the Commissioner had reason to suspect not only that the Viaus account did not meet certain criteria in subs 8AAZLH(2A) of the Administration Act, but also that other information notified by Mr Kennedy may have been inaccurate or otherwise affected by fraud. In those circumstances, the Commissioner's investigations should reasonably have extended beyond simply ascertaining whether the Viaus account had been nominated on Farah's behalf. Farah's case is not only that the Commissioner should have exercised his discretion under s 8AAZLGA of the Administration Act, but if he had done so and conducted reasonable inquiries, the fraud being perpetrated by Mr Kennedy would have been discovered and the refunds would not have been paid.

Salient features and the alleged duty of care 73 Putting the Commissioner's submissions concerning the proper construction of ss 8AAZLF and 8AAZLH of the Administration Act to one side, the question remains whether it is reasonably arguable that the facts alleged in the proposed proposed pleading are capable of supporting a finding that the Commissioner owed a common law duty of care to Farah in relation to the payment of the relevant refunds into the Viaus account. Are the salient features of the relationship between the Commissioner and taxpayers in Farah's position capable of supporting such a finding? Or do they, as the Commissioner contended, exclude the existence or implication of any duty of care? 74 Many, if not most, of the Commissioner's arguments were directed at the general proposition that the operation of the statutory scheme and the nature of the relationship between the Commissioner and taxpayers as a whole was inconsistent or incompatible with the proposition that the Commissioner owed a duty of care to taxpayers when performing the duties or exercising the powers in question. It was, for example, submitted that it would be impractical, if not impossible, for the Commissioner to verify, monitor and check the bank account details nominated by all tax agents so as to ensure that they met the requirements of s 8AAZLH(2A) of the Administration Act. That submission was supported by evidence concerning the size and scale of the Australian tax system. It was also submitted that there were sound policy reasons for denying the existence of such a broad and general duty and that the existence of such a duty of care was inconsistent with the fact that the taxation legislation, including the Administration Act, constituted a "complete and exhaustive code of the rights and obligations of the [C]ommissioner and other officers of his department to members of the general public who are subject to its provisions and of those members of the general public to his department": Deputy Commissioner of Taxation (NSW) v Brown (1958) 100 CLR 32 at 49. 75 There is perhaps some force in the Commissioner's submission that he does not owe a general duty of care to all taxpayers, or all taxpayers who are represented by tax agents, which would oblige him in all circumstances to verify the details of all accounts nominated by tax agents, or indeed information notified by tax agents generally. The existence of such a broad and general common law duty of care would not be supported by any realistic consideration of the purpose to be served by the relevant provisions of the Administration Act. Nor could it be said that the Commissioner had any significant degree of control in respect of the relevant risk posed by potentially unscrupulous tax agents generally, or that taxpayers represented by tax agents generally were particularly vulnerable to the exercise of the Commissioner's powers in respect of the payment of refunds. It is also difficult to see how the existence or imposition of such a broad and general common law duty of care could be seen to be consistent or compatible with the comprehensive and tightly defined statutory scheme relating to the payment of refunds. 76 That, however, may not be a complete answer to Farah's case. There are no doubt parts of the proposed pleading which would tend to suggest that the duty of care that Farah alleges was owed by the Commissioner would effectively oblige the Commissioner to check or verify that all accounts nominated for the purposes of s 8AAZLH of the Administration Act by all taxpayers or their agents meet the criteria in subs 8AAZLH(2A) of the Administration Act. Other parts of the proposed pleading also indicate that the duty of care said to be owed by the Commissioner would oblige him to contact or warn taxpayers generally if he observed any irregularities or inconsistencies in the conduct by a tax agent of a taxpayer's affairs. There are, however, other parts of the pleading which suggest that Farah's primary case concerning the duty owed by the Commissioner is in fact somewhat more confined. 77 While parts of the proposed pleading are expressed in very broad and, at times, obtuse terms, the essence of Farah's case would appear to be that the Commissioner owed it a duty to exercise reasonable care when paying its refunds into the Viaus account having regard to the particular and fairly unique facts and circumstances of its case. In particular, Farah alleges that the Commissioner owed it a duty of care in relation to the payment of refunds essentially because, by reason of the knowledge possessed by the ATO officers who had conducted an audit or investigation into the activities of Mr Kennedy and Strathfield Tax, the Commissioner was effectively or constructively on notice that there were irregularities in relation to the Viaus account and that Farah was or may have been particularly vulnerable or at risk of fraud by its tax agent. The particular risk was that the refunds might not be passed on to Farah, and yet Farah's RBA would nonetheless be debited by the amount of the refunds. An additional risk was that the refunds themselves might be fraudulent and based on incorrect information, and yet Farah would nonetheless be liable to account for them. Farah's case is that, in those particular circumstances, the Commissioner breached his duty of care because, had he acted with reasonable care and diligence, he would have exercised, or considered exercising, his discretion under s 8AAZLGA of the Administration Act and retained the refunds and conducted reasonable inquiries or investigations concerning the use of the Viaus account and the accuracy or integrity of the relevant information notified by Mr Kennedy generally. 78 The question, then, is whether it is reasonably arguable that the Commissioner might owe a duty to a particular taxpayer to exercise care in paying RBA refunds in accordance with the statutory scheme in particular circumstances where the Commissioner had reason to suspect or believe that there were irregularities in the account nominated to receive those refunds, or inaccuracies in the notified information which generated the refunds. 79 Farah submitted that its case was essentially analogous to cases where it has been held that a bank might be liable to a customer in negligence if the bank implemented an otherwise valid instruction to pay money out of a customer's account in circumstances where it was aware of the risk that the individual responsible for the instruction was perpetrating a fraud on the customer who held the account: cf. Singularis Holdings Ltd v Daiwa Capital Markets Europe Ltd [2017] EWHC 257 (Ch); Lipkin Gorman (a firm) v Karpnale Ltd [1992] 4 All ER 409; [1989] 1 WLR 1340; Barclays Bank Plc v Quincecare Ltd [1992] 4 All ER 363. Those cases establish, in general terms, that even though a bank's obligation to honour cheques and withdrawals is mostly automatic and mechanical, if a bank knows of facts which might suggest fraud or dishonesty, it would breach the duty of care owed to its customer if it acted on the instruction without making further inquiry. It would, for example, be negligent for a bank to continue to honour cheques or pay withdrawals on the instruction of a director or employee of a corporate account holder in circumstances where the bank was aware of facts which might suggest that the director or employee was defrauding the company. 80 Farah submitted that, like a bank in those circumstances, the Commissioner would be negligent in continuing to pay refunds into a taxpayer's nominated account without further inquiry if he was aware of information which suggested that the account did not comply with subs 8AAZLH(2A) of the Administration Act or was otherwise an instrument of fraud or dishonesty. That would be so even though the vast amount of refunds under the statutory scheme are paid automatically or mechanically. 81 The suggested analogy with the bank cases is far from perfect, particularly in a legal sense. That is because the relationship between a bank and its customer in respect of transfers of money based on the customer's instructions is materially different to the relationship between the Commissioner and a taxpayer or taxpayers in respect of the payment of refunds. For a start, the relationship between a bank and its customer is contractual. The contract between a bank and its customer would ordinarily include an implied term that the bank would observe reasonable skill and care in executing the customer's instructions: see Singularis at [168] referring to the judgment of Steyn J in Quincecare. It is not surprising, in those circumstances, that there is no issue that the bank also owes the customer a duty of care. In Singularis, it was noted (at [168]) that the duties in contract and tort are coextensive. The main issue in Lipkin Gorman, Quincecare and Singularis was whether there had been a breach of duty, not whether there was a common law duty of care. 82 In contrast, there is obviously no relevant contractual relationship between the Commissioner and a taxpayer. The relationship arises or exists primarily, if not solely, by operation of statute. In the case of the payment of refunds, the Commissioner's duties and obligations are dealt with comprehensively in the Administration Act. It is, in those circumstances, significantly less obvious why the Commissioner would also owe a common law duty of care to a taxpayer or taxpayers in relation to the making of refunds. 83 It is, however, nevertheless possible to see some factual analogy between the relationship between a bank and its customer in respect of transfers of money and the relationship between the Commissioner and a taxpayer or taxpayers in respect of the payment of refunds. For example, as has already been noted, the Commissioner submitted that one consideration that weighed heavily against imposing a common law duty of care in respect of the making of refunds was that the scale of the Australian tax system was such that it would be practically impossible for the ATO to comply with a duty to verify, monitor and check banking details supplied by taxpayers or their agents so as to ensure compliance with subs 8AAZLH(2A) of the Administration Act. The nature and size of the banking system was also considered to be an important factor in the banking cases. 84 In both Lipkin Gorman and Quincecare the bank was found not to have breached its duty of care to its customer essentially because the bank was not on notice of anything unusual or exceptional about the withdrawals in question. It was accepted that the bank's obligation to honour cheques was largely automatic and unexceptional and that the circumstances in which the bank could be held to be under a duty to exercise any degree of care in deciding whether to honour a cheque would be exceptional. It was, however, also accepted that circumstances may exist where a failure to take care in honouring a cheque may give rise to liability in negligence. In Lipkin Gorman, for example, May LJ said (at 421; 1356): For my part I would hesitate to try to lay down any detailed rules in this context. In the simple case of a current account in credit the basic obligation on the banker is to pay his customer's cheques in accordance with his mandate. Having in mind the vast numbers of cheques which are presented for payment every day in this country, whether over a bank counter or through the clearing bank, it is in my opinion only when the circumstances are such that any reasonable cashier would hesitate to pay a cheque at once and refer it to his or her superior, and when any reasonable superior would hesitate to authorise payment without inquiry, that a cheque should not be paid immediately upon presentation and such inquiry made. Further, it would I think be only in rare circumstances, and only when any reasonable bank manager would do the same, that a manager should instruct his staff to refer all or some of his customers' cheques to him before they are paid. 85 Similarly, in Quincecare, Steyn J said (at 376): In my judgment the sensible compromise, which strikes a fair balance between competing considerations, is simply to say that a banker must refrain from executing an order if and for as long as the banker is 'put on inquiry' in the sense that he has reasonable grounds (although not necessarily proof) for believing that the order is an attempt to misappropriate the funds of the company … And, the external standard of the likely perception of an ordinary prudent banker is the governing one. That in my judgment is not too high a standard. 86 In Singularis, however, the bank was held to be in breach of its duty to its customer because "[a]ny reasonable banker would have realised that there were many obvious, even glaring, signs that [the customer's director] was perpetrating a fraud on the company [the customer] when he instructed that the money be paid to other parts of his business operations" (at [192]). 87 Farah submitted that its case was factually analogous to Singularis. Farah's case, in essence, is that the Commissioner, acting reasonably, would similarly have realised that there were many obvious, even glaring, signs that Mr Kennedy was perpetrating a fraud on Farah. Those signs included the use of the Viaus account. Farah's case is that, in those circumstances, the Commissioner breached his duty to take reasonable care in making the refunds. That is because, despite being on notice of the potential fraud being perpetrated by Mr Kennedy, the Commissioner failed to verify that the Viaus account complied with subs 8AAZLH(2A) of the Administration Act, failed to exercise, or consider exercising, his power under s 8AAZLGA of the Administration Act to delay making the refunds pending further inquiries and failed to contact or warn Farah about Mr Kennedy's use of the Viaus account for the receipt of refunds payable to Farah. 88 It is obviously unnecessary and undesirable at this point of the litigation to finally determine the merits or otherwise of Farah's proposed case that the Commissioner owed it a duty to take reasonable care in making the relevant refunds. It is sufficient to say that its case, while novel, is at least arguable. Like a bank acting on an otherwise valid instruction to pay out funds, the Commissioner could not be expected to be under any duty to withhold a refund, or make further inquiries, unless he was in some way on notice that there was some irregularity in relation to the nominated account, or some other facts which might suggest fraud or dishonesty. It is, however, at least arguable that the Commissioner might owe a duty of care to a taxpayer in respect of the payment of refunds if he is on notice of such matters. 89 The considerations relied on or emphasised by the Commissioner do not necessarily compel a contrary conclusion, or at least do not compel the conclusion that Farah's case is unarguable. It cannot safely be concluded, at this interlocutory stage, that the existence of a duty of care in those specific circumstances is necessarily inconsistent or incompatible with the statutory scheme, or would impose impossible or prohibitive burdens on the Commissioner in the context of the statutory scheme. The duty alleged by Farah is unlikely to have the far-reaching implications contended by the Commissioner if, as in the bank cases like Singularis, there is no question of breach other than in particular circumstances where the Commissioner is somehow on notice of irregularities or the potential of fraud. Nor can it be safely concluded, at least at this early stage of the proceedings, that the salient features of the relevant relationship between the Commissioner and Farah that are eventually established by the evidence adduced at the trial, will not support the existence of a duty of care in the particular circumstances of this case. 90 The Commissioner also submitted that he did not owe a duty of care to taxpayers arising from the fact that he conducted audits and investigations into the tax affairs of certain taxpayers. He supported that submission by reference to numerous authorities which consider whether the police or similar investigative bodies owe a duty of care to the public at large, or to particular groups of people who might become victims, or to third parties whose interests might be affected by the investigation, or to the suspect or person being investigated: cf. Hill v Chief Constable of West Yorkshire [1989] AC 53; State of New South Wales v Tyszyk [2008] NSWCA 107; Cran v State of New South Wales (2004) 62 NSWLR 95; Rush v Commissioner of Police (2006) 150 FCR 165; Sullivan. In general terms, those authorities establish that investigative bodies do not owe a duty of care to the public, or sections of it, or third parties, or the subject of the investigation where the imposition of such a duty would give rise to conflicting obligations, or would be contrary to public policy because it would cause the body to adopt an overly defensive approach or would otherwise impede the carrying out of the body's primary functions. 91 The Commissioner also submitted that there is nothing in the statutory provisions relating to the Commissioner's investigatory powers which expressly or impliedly imposes on the Commissioner a duty of care to a taxpayer being investigated, or taxpayers generally, in relation to the conduct of audits. In the Commission's submission, the imposition of such a broad duty of care would be incompatible with the Commissioner's statutory duties and would be an impossible task given the scale of the Commissioner's functions. 92 The Commissioner's submissions concerning the existence of a broad duty of care owed by the Commissioner in relation to the conduct of audits and other investigations have some force. It may perhaps be accepted, as a general proposition, that it is unlikely to be the case that, when tax officers are undertaking investigations into the tax liabilities of a particular taxpayer, they owe a general duty to all other taxpayers, or other third parties in respect of the conduct of the investigation. That, however, is not necessarily a complete answer to Farah's proposed negligence case. Farah's proposed negligence case is far removed from the types of cases considered in the authorities that were relied on by the Commissioner. 93 Farah does not allege that the Commissioner breached a duty of care he owed to Farah in relation to the conduct of the audit or investigation into Strathfield Tax and Mr Kennedy, or the investigation into the tax affairs of Farah and other companies associated with Mr Elias. Rather, it alleges that, having obtained information concerning the potentially fraudulent activities of Mr Kennedy and his use of the Viaus account in the course of those audits or investigations, the Commissioner breached his duty of care owed to Farah in relation to the payment of refunds. As has already been noted, the essence of Farah's case is that the Commissioner, having obtained information in the course of the investigations, failed to take reasonable care because he continued to pay refunds supposedly payable to Farah into the Viaus account without making further inquiries. Farah's case is that, had the Commissioner exercised reasonable care, he would have retained the refunds pending further investigations or inquiries. The facts and circumstances of Farah's proposed negligence case are therefore distinguishable from the authorities concerning duties of care said to have been owed by the police and other investigatory agencies.

Conclusion in relation to duty of care 94 It cannot safely be concluded, at this relatively early stage of the proceedings, that the duty of care that Farah alleges the Commissioner owed it is not reasonably arguable and that Farah's proposed negligence claim would be futile and liable to be struck out. While the common law duty of care alleged by Farah is undoubtedly novel and may, upon close analysis after the relevant facts are elicited at the final hearing, be found to be inconsistent or incompatible with the relevant statutory scheme, or unsupported by the other salient features of the relevant relationship, the situation is not as clear or definitive as contended by the Commissioner. It cannot be excluded that, at the final hearing, Farah will be unable to elicit facts reasonably connected with the proposed pleading that are capable of substantiating its allegation that the Commissioner both owed it a duty of care when paying the relevant refunds, and breached that duty in all the circumstances.

CAN FARAH HAVE SUFFERED ANY RELEVANT LOSS OR DAMAGE? 95 The Commissioner's additional or alternative argument is that Farah's proposed cause of action in negligence is not reasonably arguable because, whichever way Farah's administrative law challenge is determined, Farah cannot have suffered any loss upon which to base its claim in negligence. As loss or damage is an essential element of a cause of action in negligence, it follows, in the Commissioner's submission, that Farah has no claim in negligence. 96 As was explained in Farah No. 1 at [40]-[47], the essence of Farah's administrative law claim is that the refunds that the Commissioner caused to be paid into the Viaus account were not paid in accordance with ss 8AAZLF and 8AAZLH of the Administration Act because the Viaus account was not capable of being nominated for the purposes of subs 8AAZLH(2) of the Administration Act because it did not satisfy the requirements in subs 8AAZLH(2A) of the Administration Act. The effect of the relief sought by Farah in respect of its administrative law claim is to undo or reverse the debits that the Commissioner made in Farah's RBA consequent upon the payment of the refunds into the Viaus account. Those debits total $513,459.70. 97 The Commissioner pointed out that the loss and damage that Farah claims to have suffered as a result of the Commissioner's alleged negligence is also $513,459.70. The damage that Farah claims it suffered as a result of the Commissioner's alleged negligence is therefore the sum of the debits made to its RBA as a result of the impugned refunds. It follows, in the Commissioner's submission, that if Farah succeeds in his administrative law challenge and the impugned debits are reversed, Farah will have suffered no loss or damage and therefore will have no available action in negligence. That proposition was essentially uncontentious. 98 What was contentious, however, was what would transpire if Farah's administrative law challenge failed. The Commissioner submitted that if Farah's administrative law challenge failed, it must also follow that the refunds were made within power and were therefore valid. In those circumstances, any claim by Farah in negligence must also fail because in the Commissioner's submission there can be no tortious liability for an act or omission which is done or made in valid exercise of a statutory power. The Commissioner relied, in support of that proposition, on a statement made to that effect by Brennan J in Northern Territory of Australia v Mengel (1995) 185 CLR 307 at 356. 99 The difficulty for the Commissioner, however, is that the statement made by Brennan J in Mengel was made in the context of a discussion of the elements of the tort of misfeasance in public office. His Honour said the following in that specific context (at 356): There can be no tortious liability for an act or omission which is done or made in valid exercise of a power. A valid exercise of power by a public officer may inflict on another an unintended but foreseeable loss - or even an intended loss - but, if the exercise of the power is valid, the other's loss is authorised by the law creating the power. In that case, the conduct of the public officer does not infringe an interest which the common law protects. (Emphasis added.) 100 Brennan J subsequently said (at 358) that "[d]ifferent considerations apply when a tort other than misfeasance in public office is relied on as a source of liability". His Honour said, in that context (at 358): Public officers, like all other subjects, are liable for conduct that amounts to a tort unless their conduct is authorised, justified or excused by statute. A statute is not construed as authorising, justifying or excusing tortious conduct unless it so provides expressly or by necessary intendment. In particular, a statute which confers a power is not construed as authorising negligence in the exercise of the power. Thus liability may be imposed on a public officer under the ordinary principles of negligence where, by reason of negligence in the officer's attempted exercise of a power, statutory immunity that would otherwise protect the officer is lost. (Footnote omitted; emphasis added.) 101 It would thus appear that Brennan J considered that a public officer might be liable in negligence if the officer failed to exercise reasonable care in the exercise of an otherwise available power because the statute would not ordinarily be construed as authorising the negligent exercise of power. The "statutory immunity" that would otherwise attach to the exercise of a valid power would accordingly be lost. 102 It would also appear to follow that the general statement made by Brennan J in the context of his Honour's consideration of the elements of the tort of misfeasance in public office does not apply to the tort of negligence. It should also be noted that the plurality in Mengel said nothing about liability of a public officer in negligence being unavailable if the exercise of power was otherwise valid. 103 The Commissioner's contention that there can be no liability in negligence for an act or omission by a public official in valid exercise of a statutory power is also inconsistent with what was said by McHugh J in Crimmins, where his Honour expressed the view (at [82]) that "the negligent exercise of a statutory power is not immune from liability simply because it was within power". His Honour also agreed (at [83]) with the proposition that there "is no reason why a valid decision cannot be subject to a duty of care". 104 On just about any view, the position in relation to potential liability in negligence arising from otherwise valid administrative acts is not as straightforward as the Commissioner would have it. It is at least reasonably arguable that there may be circumstances in which a public officer may be liable in negligence if the officer failed to exercise reasonable care in the exercise of an otherwise available power. 105 It is also tolerably clear that Farah's proposed negligence case is that, even if the Commissioner's interpretation of ss 8AAZLF and 8AAZLH of the Administration Act is correct and the payments of the refunds into the Viaus account were within power, the Commissioner was nevertheless negligent. That is because, on Farah's case, the Commissioner was on notice not only that the Viaus account may not have complied with subs 8AAZLH(2A) of the Administration Act, but also that Mr Kennedy may have been acting fraudulently. In those circumstances, the Commissioner, acting reasonably and with care, should have sought to verify that the Viaus account in fact complied with subs 8AAZLH(2A) of the Administration Act, or should have exercised, or considered exercising, his power under s 8AAZLGA of the Administration Act to delay making the refunds pending further inquiries, or should have contacted or warned Farah about Mr Kennedy's use of the Viaus account for the receipt of refunds payable to Farah. For the reasons already given, it cannot be concluded, at this relatively early stage of the proceedings, that Farah's case to that effect is not reasonably arguable. Nor is it necessarily correct to simply assert, as the Commissioner did, that the Commissioner cannot be liable in negligence in respect of the refunds if the payment of the refunds was otherwise within power. The position is not so straightforward. 106 It should finally be reiterated in this context that the Commissioner's response to Farah's proposed negligence case, insofar as it relied on the allegation that the Commissioner failed to consider exercising his power under s 8AAZLGA of the Administration Act, was too narrow and rather artificial. The Commissioner submitted that Farah suffered no loss as a result of his alleged failure to consider the exercise of his discretion under s 8AAZLGA of the Administration Act. That was said to be because, even if the Commissioner had exercised his discretion under s 8AAZLGA of the Administration Act and had delayed paying the refunds pending further inquiries, those further inquiries would have simply revealed that Mr Kennedy, as Farah's agent, had nominated the Viaus account. The Commissioner would then have been required to pay the refunds into the Viaus account in any event. The difficulty, however, is that Farah's case is that, had the Commissioner acted reasonably and conducted proper investigations, he would have ascertained not only that the Viaus account did not comply with subs 8AAZLH(2A) of the Administration Act, but that Mr Kennedy was acting without Farah's actual authority and, indeed, was acting fraudulently. The Commissioner plainly would not have continued to pay the refunds into the Viaus account in those circumstances. 107 It follows that the Commissioner's contention that Farah's proposed negligence claim must fail because Farah will not be able to establish that it suffered any loss arising from the allegedly negligent payment of the refunds has no merit. If the Commissioner did owe a duty of care and did breach that duty as alleged by Farah, it is at least reasonably arguable that Farah suffered loss and damage. That is the case even if the payment of the refunds was within power.

Discretionary considerations and leave to amend 108 The Commissioner's opposition to Farah's application for leave to amend was based entirely on the contention that Farah's proposed negligence claim was not reasonably arguable and that the proposed amendment including that claim was therefore futile. For the reasons already given, that contention has no merit. Farah's negligence claim, whilst novel, is nonetheless at least reasonably arguable. 109 The Commissioner did not submit that there were any other specific deficiencies or inadequacies in the pleading of the proposed negligence claim. That is despite the fact that, as has already been noted, the pleading is, in some respects at least, rather unclear and unsatisfactory. It may be inferred that, despite those deficiencies, the Commissioner understands the nature of Farah's case. Many of the pleading deficiencies may also be able to be cured by the provision of further particulars in correspondence between the parties. 110 It should also specifically be noted in this context that, in his successful application to strike out Farah's claim based on misfeasance in public office, the Commissioner contended that, having regard to the elements of that tort, Farah's pleading had impermissibly aggregated the knowledge and states of mind of many ATO officers. No such submission was advanced in opposition to Farah's proposed negligence claim. That may be because the Commissioner invited the Court to approach the proposed negligence claim on the basis of the assumption that Farah would be able to prove all of the facts alleged in the pleading. Those facts included that the knowledge possessed by the ATO officers who were involved in the relevant audits and investigations was also possessed by the Commissioner: see for example [46F] of the proposed pleading. Farah's case also appears to be that the knowledge possessed by the individual ATO officers is effectively imputed to the Commissioner by operation of various statutory provisions. In any event, the Commissioner's opposition to the proposed amendment was not based on any deficiency in the pleading concerning the Commissioner's knowledge. 111 It should finally be noted in this context that Farah included alternative claims based on the vicarious liability of either the Commissioner or the Commonwealth in respect of the negligence of the relevant ATO officers. That alternative claim was presumably included in the event that it is found that the knowledge of the ATO officers cannot be imputed to the Commissioner. In any event, no specific complaint was raised in respect of this aspect of the proposed pleading. 112 The Commissioner also did not contend that any discretionary considerations weighed against the grant of leave to amend. The amendment was not opposed on that basis. It is perhaps not surprising that the Commissioner did not raise any discretionary considerations given that, as noted in Farah No. 1, the Commissioner did not raise any objection or complaint about the addition of the proposed negligence claim in its first strike out application. 113 In the absence of any objection to the amendment on discretionary grounds, and in all the circumstances, it is appropriate to grant Farah leave to amend to include the proposed negligence claim. 114 The proposed amended statement of claim added the Commonwealth of Australia as a party. Farah's interlocutory application dated 28 September 2018 also sought an order that the Commonwealth be joined as the second respondent. There was no separate objection to the Commonwealth being joined if leave to amend was granted. As noted earlier, Farah sought to join the Commonwealth on the basis of its alternative claim that the Commonwealth was vicariously liable for the negligent actions of relevant ATO officers. In the absence of any specific objection, it is appropriate to join the Commonwealth on that basis.

THE COMMISSIONER'S STRIKE OUT APPLICATION 115 The Commissioner's application to strike out [23] to [52] of the proposed pleading hinged on the success of his argument that Farah's proposed claim in negligence was not reasonably arguable and that leave to amend to include that claim should be refused. The Commissioner contended that [23] to [52] of the proposed pleading were factual allegations that could only be relevant to the proposed negligence claim. It followed, in the Commissioner's submission, that if leave to amend to include the negligence claim was refused, [23] to [52] of the proposed pleading should be struck out. No other basis was advanced for striking out those paragraphs. 116 Leave to amend to include the proposed negligence claim should be granted for the reasons given. It follows that there is no basis for striking out [23] to [52] of the proposed pleading. 117 In those circumstances, it is unnecessary to consider Farah's contention that the Commissioner's strike out application should not be entertained, or should be dismissed, purely on discretionary grounds. The Commissioner's failure to raise any argument concerning Farah's proposed negligence claim in the first round of interlocutory applications is, however, a matter which is relevant to the question of costs. That issue will be addressed later.

OTHER ISSUES - discovery 118 There has been an ongoing and profoundly tedious dispute between the parties in relation to Farah's proposed categories for discovery. The Commissioner has maintained that the dispute concerning the categories of discovery should be deferred pending the resolution of the pleading issues. The pleading issues have now been resolved. Both parties also agreed that they would be content for an order involving general discovery to be made so as to avoid any ongoing issues about categories. The parties should confer and endeavour to reach agreement about any further orders which need to be made in relation to discovery. 119 Another issue that has arisen in relation to discovery concerns the masking or redaction of certain documents discovered by the Commissioner. The Commissioner has sought to justify the masking or redaction of documents partly by reference to the fact that parts of the documents revealed information relating to other taxpayers and partly by reference to claims of public interest immunity. Farah has, in correspondence between the respective legal advisers, apparently objected to the masking or redaction of the discovered documents, or at least some of them. 120 The appropriate course to take in relation to that dispute is to put in place a regime whereby Farah identifies those documents the masking or redaction of which it disputes or contests. The Commissioner should then identify the precise basis upon which the disputed documents have been masked or redacted. If Farah presses its objection to the masking of those documents, the matter will need to be listed for an interlocutory hearing to resolve that dispute, with appropriate directions for the filing of evidence and submissions. It would be a matter for the Commissioner to establish a proper basis for the masking, so the onus would be on him to file an interlocutory application seeking appropriate orders. Unless the parties are able to persuade the Court otherwise, that interlocutory dispute should be heard and resolved by a Registrar of the Court. That is particularly so given that it may not be appropriate for the trial judge to inspect the masked documents. The parties should confer and endeavour to reach agreement on the appropriate orders in relation to this issue, including putting in place the regime just referred to.

Costs 121 In all the circumstances it would be appropriate to order Farah to pay any costs thrown away by the Commissioner by reason of the amendment. 122 In relation to the costs of the respective interlocutory applications, there appears to be no reason why costs should not follow the event. The Commissioner did not submit otherwise. It would in any event have been appropriate to make a costs order in Farah's favour given the fact that the Commissioner could have, but did not, raise any issue concerning Farah's proposed negligence claim in the first round of interlocutory applications. The Commissioner's attempts to explain why he did not do so were far from persuasive or convincing. 123 It follows that the Commissioner should be ordered to pay Farah's costs of both the Commissioner's strike out application dated 1 October 2018 and Farah's amendment application dated 28 September 2018.

CONCLUSION AND DISPOSITION 124 The Commissioner has failed to demonstrate that Farah's proposed claim in negligence is not reasonably arguable. The Commissioner has also not established any other reason why Farah should not be permitted to amend its originating application and pleading. Farah should be granted leave to file an amended statement of claim and an amended originating application in accordance with the drafts of those documents annexed to its interlocutory application dated 28 September 2018. The Commonwealth of Australia should also be joined as second respondent to the proceeding in accordance with the amended originating application and pleading. 125 Farah should pay any costs thrown away by the Commissioner by reason of the filing of the amended statement of claim and the amended originating application. 126 The Commissioner's interlocutory application dated 28 September 2018 should be dismissed. 127 The Commissioner should pay Farah's costs of and associated with both his and Farah's interlocutory applications. 128 The parties should, within seven days of the making of these orders, make arrangements to have the matter listed for a further case management hearing at a mutually convenient time. The parties should confer prior to the further case management hearing with a view to reaching agreement on the further orders necessary to progress the matter, including any further orders to resolve any ongoing issue or dispute concerning discovery. I certify that the preceding one hundred and twenty-eight (128) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Wigney.