TAXATION - departure prohibition order - departure authorisation certificate - whether unable to give security - meaning of "unable".

Taxation Administration Act 1953 (Cth) ss 14 R, 14S, 14U

Taxation Laws Amendment Bill 1984 (Cth) Explanatory Memorandum

Taxation Laws Amendment Bill 1984 (Cth) Second Reading Speech, 13 September 1984

IRG Technical Services Pty Ltd v Federal Commissioner of Taxation [2007] FCA 1867; (2007) 165 FCR 57

Puglisi v Administrative Decisions Tribunal of NSW (2001) 52 NSWLR 350

Troughton v Deputy Commissioner of Taxation [2008] FCA 18; (2008) 166 FCR 9

1. Mr Lui has been refused permission to leave Australia. On 24 October 2008 he was served with a departure prohibition order issued by the Commissioner of Taxation. On 4 June 2009 he applied, through his solicitors, for a departure authorisation certificate pursuant to s 14U of the Taxation Administration Act 1953 (Cth) ("the Administration Act"). After further correspondence between officers of the Australian Taxation Office ("the ATO") and Mr Lui's solicitor, Mr Dunstan, the application was, on 28 July 2009, refused. A statement of reasons for refusing the application (in the form of a submission by an officer of the ATO) was provided at the same time. The reasons were very detailed. A second application has since been made and was also refused on substantially the same grounds.
2. On 29 July 2009 Mr Lui applied for a review of the Commissioner's first decision. A letter from Mr Dunstan sought expedition. The reason for expedition was stated as follows:

"This matter is extremely urgent from the Applicant's perspective due to the reason that his former wife is dying of cancer in Hong Kong. Please note that she was previously hospitalised in Zhen Guo Hospital in Zhu Hai City (China) but has recently been transferred to the Baptist Church Hospital in Kowloon (Hong Kong) due to her critical condition. Her most recent prognosis is that she has only two weeks to live. The purpose of the application is based on humanitarian grounds so to enable the Applicant and his children to visit her as soon as humanly possible."

1. Subject to a reservation to be identified shortly, it was accepted by the Commissioner that there are humanitarian grounds which could justify the grant of a departure authorisation certificate if other conditions for the grant of the certificate are satisfied. It was also accepted that a departure authorisation certificate should be granted on humanitarian grounds in the present case if the other conditions are satisfied. That circumstance makes it unnecessary to attempt to evaluate the medical and other circumstances said to constitute the humanitarian grounds on which Mr Lui relied. The Commissioner contended, however, that no occasion arose to act upon humanitarian grounds. I shall return to that issue shortly.
2. The short summary which follows is extracted from the reasons given for refusing the two applications. On 9 August 2007 Mr Lui was advised that his income tax affairs and the affairs of his associates would be audited. Taxation assessments and amended assessments totalling $16,479,846.54 were issued on 24 October 2008 in respect of the years 30 June 1994 to 30 June 2007 (inclusive). A departure prohibition order was served on the same day. On 28 November 2008 the Commissioner commenced proceedings in the Supreme Court of New South Wales seeking payment of $18,714,422.23. An amended statement of claim was served on 20 March 2009. On 23 February 2009 a summons was filed in the Supreme Court seeking orders that the departure prohibition order be set aside. Those proceedings have not yet been resolved. A statement of claim was filed in the proceedings on 4 August 2009.
3. Meanwhile, on 12 May 2009 Mr Dunstan advised by telephone that Mr Lui would apply for a departure authorisation certificate. He was advised on 13 May 2009 by email that a submission would be required setting out the grounds on which Mr Lui relied, together with supporting documentation. An exchange of letters ensued between Mr Dunstan and the Australian Taxation Office. Letters were written by Mr Dunstan on 4 June 2009 (requesting the issue of a departure authorisation certificate), 25 June 2009, 17 July 2009 and 23 July 2009. The relevant officers of the Australian Taxation Office took the view that inadequate responses were provided to questions put to Mr Lui, inadequate documentation was supplied and inadequate security was suggested with respect to the amounts claimed by the Commissioner. The first application for a departure authorisation certificate was therefore rejected. The second application for a departure authorisation certificate was made necessary as the first application covered only the June/July period. The second application asked permission for Mr Lui to depart in August for 25 days.
4. Mr Lui's affairs and financial arrangements appear complex. I will not attempt any summary of them in these short reasons. There is a live issue about whether Mr Lui has adequately disclosed his assets. The Commissioner's opinion is that he has not. The Commissioner has also formed the view that, if Mr Lui leaves Australia, there is a real risk he will not return. Mr Lui has proposed that the Commissioner should accept, as security for his return to Australia, a fixed charge on a residential property in Castle Hill, NSW and a floating charge over all of his assets worldwide. The Commissioner's estimate of Mr Lui's taxation liability, including penalties and interest, stands at present at over $23 million. The Commissioner's estimate of the value of the security offered in the Castle Hill property is less than $350,000. The view taken about the suggested floating charge is that it is impracticable as the Commissioner has no certainty about the extent and value of such assets and no way, therefore, of adequately securing such assets.
5. The tests imposed by s 14U of the Administration Act require the Commissioner to issue a departure authorisation certificate in specified circumstances. One is that it is likely that the person will return to Australia within an appropriate period, that the tax liabilities will be fully met within an appropriate period and that it is not necessary or desirable to give security (s 14U(1)(a)). All three conditions must be met. The Commissioner was not satisfied about those matters. Another condition which requires the issue of a departure certificate is if a person has given security to the satisfaction of the Commissioner for the person's return to Australia (s 14U(1)(b)(i)). Mr Lui did not.
6. Where none of those conditions are satisfied two further alternative bases for the grant of a departure authorisation certificate are stated in s 14U(1)(b)(ii). They are each subject to a preceding condition. It is that preceding condition which the Commissioner contended has not been met in the present case. It was accepted, on Mr Lui's behalf that if the Commissioner is correct his decision must be affirmed. Resolution of the issue turns on the proper construction to be given to s 14U(1)(b)(ii).
7. Section 14U(1)(b) provides that the Commissioner shall issue a departure authorisation certificate where:

"(b) in a case where the Commissioner is not satisfied with respect to the matters referred to in paragraph (a):

(i) the person has given security under subsection (2) to the satisfaction of the Commissioner for the person's return to Australia; or

(ii) if the person is unable to give such security, the Commissioner is satisfied that:

(A) a departure authorization certificate should be issued in respect of the person on humanitarian grounds; or

(B) a refusal to issue a departure authorization certificate in respect of the person would be detrimental to the interests of Australia."

1. The Commissioner expressly reserved the question, which might arise in other cases, of whether existence of circumstances which could justify a departure authorisation certificate on humanitarian grounds would necessarily do so. Counsel for the Commissioner pointed out that the language of s 14U(1)(b)(ii)(A) requires the Commissioner to be satisfied that a departure authorisation certificate should be issued and submitted that the exercise of a further discretion arose at that point. This question has no significance for the present case and I do not, therefore, express any view about it.
2. Counsel for Mr Lui argued that s 14U(1)(b)(ii) was not intended to raise for consideration matters other than those referred to in s 14U(1)(b)(ii)(A) and/or (B), the introductory language serving only to pass the reader from lack of satisfaction of the conditions in s 14U(1)(a) and s 14U(1)(b)(i) to those further two possibilities. He referred both to the Explanatory Memorandum to the Bill which introduced s 14U and the Second Reading Speech in the House of Representatives in support of it. The passage principally relied on from the Explanatory Memorandum said:

"A person in respect of whom a departure prohibition order is in force may apply to the Commissioner for a departure authorization certificate which, if granted, would authorize the person to leave Australia temporarily notwithstanding that a departure prohibition order is in force at that time. Before issuing such a certificate, the Commissioner would need to be satisfied either that the person would return to Australia within a reasonable time and that there was a likelihood of the tax liability being discharged, or that departure should be authorized on humanitarian or general policy grounds."

(Emphasis added.)

1. This passage was said to be consistent with the proposition that s 14U(1)(b)(ii)(A) and (B) raise the only matters for active consideration under s 14U(1)(b)(ii). A later passage in the Explanatory Memorandum said:

"Under paragraph 14U(1)(a) the Commissioner must be satisfied that it is likely that the person concerned will return to Australia within a reasonable time, that the person's tax liabilities or any known future tax liabilities will be fully discharged or satisfactory arrangements made for their payment or that the tax liabilities will become irrecoverable, and that it is not necessary or desirable for the person to give security for his or her return to Australia.

If those conditions are not satisfied, the Commissioner will nevertheless be required to issue a certificate if the person has given security in the manner provided by sub-section 14U(2) ... for the person's return to Australia or, if the person is unable to give security, if the Commissioner believes departure is justified on humanitarian grounds or is in Australia's interests."

(Emphasis added.)

1. However, this passage was said to merely repeat the language of the provision and not detract from the underlying intent apparent from the earlier passage cited.
2. To similar effect, so far as the identification of an underlying intent was concerned, was said to be the following passage from the Second Reading speech:

"A departure authorisation certificate will enable such a person to leave Australia temporarily, if the Commissioner is satisfied either that the person will return and the tax liability is likely to be discharged, or that temporary departure should be allowed on humanitarian or general policy grounds."

(Emphasis added.)

1. It is trite law that a summary description in either kind of extrinsic material cannot be substituted for the text of a statute, although it may shed light on legislative purpose where illumination is called for outside the text of the legislation itself. None of the passages to which reference was made assist in any further understanding of the legislative purpose. Neither do they provide any clarification of the text of s 14U(1)(b)(ii) or the context in which it should be construed.
2. Counsel for Mr Lui also relied on observations by Jessup J in Troughton v Deputy Commissioner of Taxation [2008] FCA 18; (2008) 166 FCR 9 at [24] to support the construction offered. Jessup J there said:

"The next provision to which reference should be made is s 14U. Here the legislature has turned its mind to the kind of exceptional circumstances that might arise, in which the non-achievement of the purpose referred to in s 14S(1) might be tolerated. Section 14U deals with four situations. First, there is the situation in which the Commissioner is satisfied that the person, having departed from Australia, will return within an appropriate period, that existing liabilities will be wholly discharged, and that future liabilities will either be wholly discharged or be completely irrecoverable. Secondly, there is the situation in which the person has given security. Thirdly, there is the situation in which permission to depart might be sustained on humanitarian grounds. And finally, there is the situation in which a refusal to permit departure would be detrimental to the interests of Australia. The circumstances to which s 14U is addressed are detailed and apparently comprehensive."

(Emphasis added.)

1. It was suggested that those observations supported the contention that no separate attention was required to the question of inability to provide security, as that element was not a separate condition for the grant of a departure authorisation certificate. I do not accept this argument. Jessup J was not concerned with the issue which was argued in the present case. His Honour's observations were made in the course of a general discussion (less focussed on the operation of s 14U than is necessary in the present case) about the operation of s 14T (which deals with the revocation and variation of departure prohibition orders). They were a step towards rejecting a proposition that an obligation arose under s 14T to take humanitarian considerations into account in deciding whether to revoke a departure prohibition order (as opposed to considering whether to grant a departure authorisation certificate). Accordingly, his Honour went on (at [24]) to say:

"For my own part, I consider that, at least so far as it goes, s 14U encapsulates such legislative concern as there is in the personal circumstances of a taxpayer with respect to whom a DPO is extant."

"For the sake of completeness, I would add two comments: first, had the matters referred to in items i and ii been squarely raised by the applicant, Mr Trewin would, in my view, have been justified in declining to deal with them under s 14T(2) upon the ground that humanitarian considerations of that kind were more appropriately addressed under s 14U(1)(b)(ii)(A)."

1. The real starting point for the resolution of the present question is the text of s 14U. Counsel for Mr Lui placed considerable weight on the fact that s 14U(1)(b)(i) and s 14U(1)(b)(ii) operate disjunctively. He argued that s 14U(1)(b)(ii) should be seen as a true alternative to s 14U(1)(b)(i), with the result that consideration of the matters referred to in s 14U(1)(b)(ii)(A) and/or (B) arises in a case where (by contradistinction with s 14U(1)(b)(i)) security satisfactory to the Commissioner has not been given. Expressed this way the argument gives insufficient attention, in my view, to the natural and ordinary meaning of the word "unable" in s 14U(1)(b)(ii).
2. The word "unable" is a term of flexible content. It takes its meaning from the context in which it is used. Some authorities, and legislative contexts, where it has been used to mean something less than actual impossibility were discussed by Heydon JA in Puglisi v Administrative Decisions Tribunal of NSW (2001) 52 NSWLR 350 ("Puglisi") at [56] - [59]. However, those cases were concerned with a failure to comply with limitation periods. They were distinguished in Puglisi (a case that dealt with compliance with a regulatory regime) where Heydon JA , with whom the other members of the NSW Court of Appeal agreed, observed (at [51]) that:

"To be able to do something is to have the means of doing it."

"To be 'unable' to satisfy the eligibility criteria is to be incapable of doing so or to lack power to do so."

1. More is required than the bare fact that security is not given. However, another possibility, consistent with the result sought by Mr Lui, was also canvassed in argument. The inability referred to in s 14U(1)(b)(ii) is inability to give such security. Such security is security to the satisfaction of the Commissioner. The notion that security is given, or not given, to the satisfaction of the Commissioner at least leaves room for an argument that the concept of inability is used to mean that a person has been unable to persuade the Commissioner to accept security of a certain kind or of a particular value. That is the position in the present case. Mr Lui has been unable to give security to the satisfaction of the Commissioner because the Commissioner will not accept what has been offered. I do not regard such a construction of s 14U(1)(b)(ii) as unavailable from, or contradicted by, the normal and natural sense of the language used. On that construction the Commissioner, having refused to accept the security offered, was obliged to consider whether, nevertheless, there were humanitarian grounds justifying the issue of a departure authorisation certificate.
2. The Commissioner's contention was that s 14U(1)(b)(ii) first required a decision maker (either the Commissioner or this Tribunal) to conclude that a person was unable, in the sense of lacking capacity, to give such security and not merely either unwilling to do so or unable to obtain the Commissioner's agreement. In other words, the notion of inability or incapacity is one which operates on or qualifies a person's ability to give security rather than their success or lack of success in obtaining the Commissioner's agreement to the security. In my view this construction is clearly open.
3. There being two available constructions, as they lead to opposite results in the present case one must be chosen over the other. There are a number of reasons why the Commissioner's construction is to be preferred.
4. First, despite the availability of the alternative, it is the Commissioner's construction which in my view most naturally arises from the language and structure of s 14U(1)(b). Secondly, it is the construction which most apparently finds a natural place in the statutory scheme.
5. In IRG Technical Services Pty Ltd v Federal Commissioner of Taxation [2007] FCA 1867; (2007) 165 FCR 57 Allsop J distilled (at [21] and [22]) the principles of interpretation applied in Australia to the text of statutes including revenue statutes. Such principles, of course, apply also to statutes concerning administration of the revenue system. It is not necessary to restate his Honour's distillation, which proceeded from authority at the highest level, beyond noting the legitimacy of adopting a "construction reasonably open and more clearly conforming with the legislative intent otherwise discovered." I have already expressed the view that a construction of s 14U(1)(b)(ii) which supports Mr Lui's claims in the present case is open but it is not the one, in my view, which more clearly conforms to the apparent legislative intent.
6. Part IVA of the Administration Act, in which s 14U appears, provides a statutory mechanism for preventing the departure from Australia of persons who are subject to a tax liability. Departure may be prevented, if necessary in the view of the Commissioner, to ensure discharge of the tax liability or satisfactory arrangements for its discharge (s 14S). Revocation or variation of a departure prohibition order depends on satisfaction by the Commissioner that current (and some future) tax liabilities will be wholly discharged or are irrecoverable (s 14T). It is in that setting that s 14U operates to permit departure while a departure prohibition order is still in force and to avoid the criminal sanctions which would otherwise attend departure contrary to such an order (s 14R(2)). The grounds upon which a departure authorisation certificate might be granted under s 14U are very limited. They appear, subject to the two final possibilities in s 14U(1)(b)(ii)(A) and (B), to share the characteristic that risk of ultimate non-recovery of an outstanding tax liability is minimised. Thus, a departure authorisation certificate shall be issued if all three conditions in s 14U(1)(a) are satisfied, or if security to the satisfaction of the Commissioner is given (s 14U(1)(b)(i)). In the latter case it is clear that the departure is to be strictly for an agreed period. Section 14U(2) contains supplementary provisions for increasing or adding further security in return for agreement to any extension.
7. In that context it seems most unlikely that departure in the absence of satisfactory security would be contemplated in a case of refusal to provide security or an unsuccessful negotiation about what would constitute satisfactory security. The provisions of s 14U(1)(b)(ii)(A) and (B), identify exigent circumstances which might justify an exemption from an intentionally strict regime. They do not contemplate, however, the reservation of any bargaining power to a person seeking to depart concerning either the tax liability or the necessity for adequate security, if it could be made available. I think it is clear that the legislative expectation is that departure from Australia, if s 14U(1)(a) is not satisfied, will normally only occur under s 14U(1)(b)(i), on condition of provision of adequate security, and that otherwise, even if there are humanitarian grounds, departure will only be permitted if a person does not have the means to comply with that primary requirement.
8. All those considerations finally compel the conclusion that Mr Lui has not satisfied the initial requirements of s 14U(1)(b)(ii). The Commissioner's decisions must therefore be affirmed.

I certify that the 27 preceding paragraphs are a true copy of the reasons for the decision herein of Justice Buchanan, Presidential Member.

Signed:.................[sgd]..........................................................

Solicitor for the Respondent Australian Government Solicitor