Macquarie Bank Limited v Commissioner of Taxation

REASONS FOR JUDGMENT 1 The applicants (collectively 'Macquarie') have confined the proposed appeal, and their application for leave to appeal, to the question of whether the primary judge erred in holding that they had no reasonable prospect of obtaining a declaration that the Commissioner had not made a decision in accordance with Law Administration Practice Statement PS LA 2011/27 ('practice statement') because, as his Honour the primary judge held, such relief does not lie or has no utility. 2 The present dispute between Macquarie and the Commissioner arises in the context of an extensive audit by the Commissioner into Macquarie's affairs in respect of the 2006, 2007 and 2008 income years. An issue that has arisen in that audit, but which is not for decision in this proceeding, is the operation of the provisions, particularly s 121EF of the Income Tax Assessment Act 1936 (Cth) ('1936 Act'), for the allocation of expenses for Macquarie's Offshore Banking Unit. Macquarie contends that the Commissioner proposes to apply, and to administer, the relevant statutory provisions contrary to earlier statements and to earlier conduct of the Commissioner upon which Macquarie contends that it relied. Macquarie seeks to argue that the Commissioner has acted contrary to his earlier statement, conduct and position, and seeks, in substance, to have the process of determining its tax liability proceed on the basis of those statements, conduct and position. 3 Macquarie's case in this proceeding is not that its legal liability is not as the Commissioner now proposes to assess (Macquarie could, of course, challenge any such assessment under Part IVC of the Taxation Administration Act 1953 (Cth) ('1953 Act') if that were the case), nor that Macquarie had binding private rulings or could rely upon binding public rulings in its favour (which, again, Macquarie could rely upon in Part IVC proceedings under the 1953 Act if that were the case). Macquarie's case, rather, is that the Commissioner is now not permitted (or by statute not required) to proceed to assess Macquarie in a way that is contrary to a view he may previously have held unless, and until, the practice statement has first been applied. 4 The practice statement relied upon by Macquarie "outlines procedures to be followed and the factors to be considered by tax officers in relation to any circumstance in which the ATO is considering applying its view of the law" with retrospective effect. The practice statement also states that it "must be followed in any circumstance where a tax officer applies the ATO view of the law". Macquarie contends that the Commissioner proposes to assess Macquarie by applying the ATO view of the law both prospectively and retrospectively but without following the procedures or acting in accordance with the practice statement. Macquarie contends that the Commissioner has a discretion about whether to consider reassessing it and that, in effect, that discretion must be exercised in conformity with the practice statement whatever might otherwise be the application of the law to the taxpayer in question. 5 The learned primary judge rejected the view that the practice statement required "that, in assessing the tax due for past years or periods (eg at the completion of an audit), officers are to make a decision about whether to make that assessment on the basis of the ATO's current understanding of the law or on the basis of some other understanding": at [71]. To that conclusion his Honour added at [72]: "To the extent that any guideline or practice statement did purport to instruct an officer to act in that way, compliance with that instruction would be inconsistent with fundamental requirements of the Acts. The relevant guideline or practice statement would necessarily be read down accordingly." In other words, his Honour concluded that the practice statement did not, and could not, operate to prevent the application of the ATO's view of the law if it be correct. The correctness of any view adopted by the ATO in raising an assessment, and its legal effect upon the making of an assessment (or re-assessment), could be challenged in Part IVC proceedings under the 1953 Act, as could any binding ruling, but the practice statement itself could not prevent, or authorise, the Commissioner from acting upon a view of the law when raising an assessment or re-assessment. 6 In our view the learned primary judge was correct in his conclusion at [75] dismissing Macquarie's application summarily under s 31A of the Federal Court of Australia Act 1976 (Cth) that in "the light of the limited scope of operation" of the practice statement the final relief sought by Macquarie "either does not lie or has no utility". The exercise of the power of summary dismissal must, of course, be exercised with caution: Spencer v Commonwealth of Australia (2010) 241 CLR 118 ('Spencer') at [24]; but it should be exercised where, as here, the claim prosecuted by Macquarie has no prospect of success or has no utility. 7 In Spencer, Hayne, Crennan, Kiefel and Bell JJ at [53] said: [Section] 31A departs radically from the basis upon which earlier forms of provision permitting the entry of summary judgment have been understood and administered. Those earlier provisions were understood as requiring formation of a certain and concluded determination that a proceeding would necessarily fail. That this was the basis of earlier decisions may be illustrated by reference to two decisions of this Court often cited in connection with questions of summary judgment: Dey v Victorian Railways Commissioners [ (1949) 78 CLR 52] and General Steel Industries Inc v Commissioner for Railways (NSW) [ (1964) 112 CLR 125]. At [56]-[60] their Honours said: Because s 31A(3) provides that certainty of failure ("hopeless" or "bound to fail") need not be demonstrated in order to show that a plaintiff has no reasonable prospect of prosecuting an action, it is evident that s 31A is to be understood as requiring a different inquiry from that which had to be made under earlier procedural regimes. It follows, of course, that it is dangerous to seek to elucidate the meaning of the statutory expression "no reasonable prospect of successfully prosecuting the proceeding" by reference to what is said in those earlier cases. Likewise, it is dangerous to apply directly what has been said in the United Kingdom about the application of a test of "no real prospect" or what has been said in United States decisions about summary judgment. The United Kingdom cases are directed to a different test. The controversies in the United States about what is sufficient to resist a motion for summary judgment, reflected in the recent decisions of the Supreme Court of the United States in Ashcroft v Iqbal and Bell Atlantic Corporation v Twombly and in that Court's earlier decision in Conley v Gibson, turn upon the requirements of the Federal Rules of Civil Procedure applied to a system of "notice" pleading. The notion of what is not a "plausible" claim, discussed in Iqbal and Twombly, may in some cases overlap, but does not coincide, with the notion of "no reasonable prospect". How then should the expression "no reasonable prospect" be understood? No paraphrase of the expression can be adopted as a sufficient explanation of its operation, let alone definition of its content. Nor can the expression usefully be understood by the creation of some antinomy intended to capture most or all of the cases in which it cannot be said that there is "no reasonable prospect". The judicial creation of a lexicon of words or phrases intended to capture the operation of a particular statutory phrase like "no reasonable prospect" is to be avoided. Consideration of the difficulties that bedevilled the proviso to common form criminal appeal statutes, as a result of judicial glossing of the relevant statutory expression, provides the clearest example of the dangers that attend any such attempt. In many cases where a plaintiff has no reasonable prospect of prosecuting a proceeding, the proceeding could be described (with or without the addition of intensifying epithets like "clearly", "manifestly" or "obviously") as "frivolous", "untenable", "groundless" or "faulty". But none of those expressions (alone or in combination) should be understood as providing a sufficient chart of the metes and bounds of the power given by s 31A. Nor can the content of the word "reasonable", in the phrase "no reasonable prospect", be sufficiently, let alone completely, illuminated by drawing some contrast with what would be a "frivolous", "untenable", "groundless" or "faulty" claim. Rather, full weight must be given to the expression as a whole. The Federal Court may exercise power under s 31A if, and only if, satisfied that there is "no reasonable prospect" of success. Of course, it may readily be accepted that the power to dismiss an action summarily is not to be exercised lightly. But the elucidation of what amounts to "no reasonable prospect" can best proceed in the same way as content has been given, through a succession of decided cases, to other generally expressed statutory phrases, such as the phrase "just and equitable" when it is used to identify a ground for winding up a company. At this point in the development of the understanding of the expression and its application, it is sufficient, but important, to emphasise that the evident legislative purpose revealed by the text of the provision will be defeated if its application is read as confined to cases of a kind which fell within earlier, different, procedural regimes. In our view Macquarie's case is bound to fail and, or alternatively, has no utility. It must fail because there is no basis upon which Macquarie could seek to enforce any adherence to the practice statement. 8 Macquarie does not, for instance, seek to rely upon any reasonable expectation or the rules of natural justice, to give rise to any obligation on the Commissioner to make a decision in accordance with the practice statement. Instead, Macquarie relies upon the power of the general administration of tax legislation given to the Commissioner (to which we will return). 9 The relief now sought by Macquarie must fail and has no utility because the practice statement cannot prevent the Commissioner from exercising his powers of assessment or of re-assessment. 10 His Honour was correct to reason at [81]-[84] that the practice statement did not, and could not, bind the Commissioner when seeking to raise an assessment or re-assessment: [81] Underlying these points [previously considered] about the availability of remedies is the central proposition that the applicants' case seeks to find enforceable obligations in a document which has no statutory force. If the view of the law expressed in the position papers is wrong, it is amenable to correction in Pt IVC proceedings. The relief sought proceeds on the premise that the respondents can be ordered to apply another view in the assessment process, irrespective of whether it is correct or not. If there were some obligation which could be enforced against the respondents so as to require the assessment to proceed on a particular basis, thereby affecting the amount of tax payable, the failure to perform that obligation would be something that could be taken up in proceedings under Pt IVC. But there is not. The obvious reality (apparently accepted by the applicants) that the court or Tribunal in Pt IVC proceedings could not be asked to apply an incorrect view of the relevant taxing provisions serves to illustrate the incongruity of the contention that the Commissioner could be ordered to take such a course in making an assessment. [82] Meanwhile, each of the applicants' grounds of review is in effect a complaint that a "decision" was not made in accordance with PS LA 2011/27. Relevantly, the only decision is whether to make an amended assessment, and in what terms. Such complaints cannot lead to a grant of relief because PS LA 2011/27 is neither a source of power, nor a limitation on the scope of any power, to make decisions affecting legal rights; and the decision itself, unless and until put into effect by some step taken under the legislation (such as the issue of an assessment), does not have sufficient substance at law to make it a proper subject-matter for judicial review. [83] That representation as to procedure, can, in limited circumstances, give rise to an obligation to act fairly before departing from the representation, does not assist the applicants here. The issue here is, what view of the substantive law should be applied in the assessment process? That is a question which falls to be determined by reference to the substantive provisions, subject to any relevant authority on their meaning, unconstrained by any procedural representation. [84] Nor is the applicants' position assisted by seeking relief directly against the second respondent, Mr Campbell, on the basis that PS LA 2011/27 is said to be binding on him. (1) As noted in the applicants' submissions, no relevant delegation of statutory power exists. The two letters sent by Mr Campbell were signed by him on behalf of the Deputy Commissioner, Mr Konza. To the extent that they took effect under the tax legislation, they did so as things done in the name of the Deputy Commissioner under the principle discussed in Carltona v Commissioner of Works [1943] 2 All ER 560 , 562-563 and O'Reilly v Commissioners of the State Bank of Victoria (1982) 153 CLR 1 , 11-12. (2) If Mr Campbell's acts were done within the scope of authority conferred on him consistently with that principle, to act on the Commissioner's or a Deputy Commissioner's behalf, they have effect as acts of the Commissioner. Their legal validity or efficacy thus depends on the scope of the Commissioner's powers and the requirements for the proper exercise of those powers. PS LA 2011/27 in the present case does not bind the Commissioner; it could at any time be withdrawn by him, or expressly or impliedly amended. (3) If Mr Campbell's acts were not done within the scope of authority conferred on him, all that follows is that they would not have legal effect as acts of the Commissioner. If they purported to be exercises of statutory power affecting the applicants' rights, the applicants would be entitled to ignore them. That does not advance matters in the present case. It would have the result that no decision has yet been made by the Commissioner as to whether to apply the correct view of the relevant taxing provisions to past income years; but that does not avail the applicants if, as the respondents submit, the Commissioner is not under any statutory duty to make that decision in any event. (4) The Carltona principle, therefore, is no more than a mechanism by which acts of a subordinate are attributed to the officer who is the repository of the relevant power (and may then be tested for validity by reference to the scope of the statutory officer's power). It does not provide a basis for orders to be obtained against the subordinate, at the suit of a third party, by way of enforcement of the statutory officer's instructions. Any such orders would usurp the power of the statutory officer (here, the Commissioner) to vary the instructions from time to time, to excuse non-compliance with them or to choose to have the function performed by a different subordinate. (5) In any event, PS LA 2011/27 does not on its face purport to constitute the source of any particular officer's authority to exercise powers in the Commissioner's name. Nor does it define the extent of that authority, in any sense relevant to the Carltona principle: it does not designate a class of matters in which a particular officer is authorised (in the sense that an agent under the general law would be authorised) to act on behalf of the Commissioner. Rather it is part of the Commissioner's instructions - binding in the sense that he expects them to be carried out - as to how officers who do have that authority are to act. The only relevant legal limits on power are the limits on the Commissioner's powers under the 1936 Act. 11 The power of the general administration of tax legislation given to the Commissioner, by provisions like s 8 of the 1936 Act, s 356-5 of schedule 1 of the 1953 Act and s 44 of the Financial Management and Accountability Act 1997 (Cth) ('1997 Act'), does not permit the Commissioner to dispense with the operation of the law. The power of general administration in such provisions is not a discretion to modify, or which modifies, the liability to tax imposed by the statute: the power in such provision for general administration (coupled with whatever discretion they may contain) affects the administration of the Acts and not the Commissioner's duty to act according to law and to assess taxpayers to the correct amount of liability imposed by the legislation. It may be accepted for the purposes of argument, as was argued for Macquarie, that the Commissioner's power of general administration, given by provisions like s 8 of the 1936 Act, s 356-5 of schedule 1 of the 1953 Act and s 44 of the 1997 Act, gives him a "discretion" in making compliance decisions to reassess and "in relation to the evidence he is willing to accept to ascertain the taxable facts" (although the latter may be doubtful or, at least, requires heavy qualification), and (b) permits the Commissioner "to decline to consider re-assessing, or to decline to in fact re-assess a taxpayer"; but no such "discretion" can be exercised to fetter an assessment or re-assessment when the Commissioner has formed the view that the statute imposes a liability contrary to some view he may previously have had, or had, accepted. His duty then is to apply the law as he understands it to be. That is not to say that he may not compromise the amount of any debt to be recovered upon an assessment (Grofam Pty Ltd v Commissioner of Taxation (1997) 36 ATR 493; Cox v Deputy Commissioner of Land Tax (1914) 17 CLR 450) or that he may not adopt a view of the law, or of its application, that may reasonably be open, or about which he may otherwise have some doubt. However, as the learned primary judge correctly observed, the practice statement could not fetter the Commissioner's duty of assessment or re-assessment where the law operated to impose liability nor could it fetter the lawful process of making an assessment to that end. The practice statement may set out the Commissioner's position about the circumstances in which he will apply retrospectively a different view about the operation of the law, but any failure by the Commissioner to comply with his view in the practice statement will not alter the taxpayer's liability upon an assessment or the Commissioner's duty to assess upon the correct view of the law (subject, of course, to such limitations as may arise from res judicata, statutory time limitations, and other statutory qualifications - such as to give effect to binding rulings). Whatever the sanction may be for the Commissioner not complying with the practice statement, it is not to relieve the taxpayer of the liability correctly imposed by the Act, and by its correct application, and it will not prevent the Commissioner from raising an assessment or a re-assessment of that liability in accordance with his duty to apply the law. 12 The learned primary judge held that the practice statement had not purported to bind the Commissioner because references in the practice statement to taking action or compliance action were to be read as referring to circumstances where there are resource allocation decisions to be made: [71]. Whether or not that construction of the practice statement is correct, what is clear from the terms of the practice statement is that the Commissioner was conscious of his obligation to comply with the law (see practice statement at [20]) and that he could not use "the powers of general administration to accept non-compliance with the law (see practice statement at [21] and, in particular, to footnote [14]). The many provisions of the legislation sometimes make tax liability depend upon an exercise of a discretion by the Commissioner (see Giris Pty Ltd v Federal Commissioner of Taxation (1969) 119 CLR 364). The liability of Macquarie under subdivision C Division 9A of the 1936 Act is not made to depend upon, nor conditioned by, any discretionary power conferred upon the Commissioner. Nothing in s 8, or in any like provision concerning the administration of the Act, permits the Commissioner to convert the liability imposed by the statute into one mediated through an unstated discretion. The practice statement is careful to state that the Commissioner has no such power and should not be read as the Commissioner having asserted to have such a discretion not found in the legislation. Whatever the consequence of an alleged failure by the Commissioner to follow an earlier statement or position, it is not to bind him in law to act contrary to the provisions of the statute. To the extent that a reading of the practice statement suggests otherwise it should be withdrawn and rewritten. A declaration in favour of Macquarie that the Commissioner had acted contrary to the practice statement would be futile and would not alter the Commissioner's ability to re-assess Macquarie in accordance with his duty to apply the law. 13 We now deal with another matter, namely, Macquarie's contention that the primary judge incorrectly distinguished Plaintiff M61/2010E v Minister for Immigration and Citizenship (2010) 243 CLR 319 ('Plaintiff M61/2010E'). 14 The primary judge made the following observation concerning Plaintiff M61/2010E: [86] In the special circumstances of Plaintiff M61/2010E v Minister for Immigration and Citizenship (2010) 243 CLR 319 (referred to in the applicants' submissions), where the procedure being undertaken (and its relationship to specific potential exercises of statutory power) provided the legal foundation for the detention of the plaintiffs (at [71]), and where that procedure constituted the means of compliance with Australia's obligations under the Refugees Convention (which were understood to underlay the text and structure of the Act) (at [27], [70]), the High Court saw utility in granting declaratory relief to the effect that the advice to the Minister was affected by denials of procedural fairness and errors of law (at [103]). The analogy breaks down at this point, however. The matter must be considered in the appropriate statutory context. That context relevantly includes the comprehensive review and appeal mechanisms in Part IVC. The present case does not have anything comparable to the special features of Plaintiff M61 just mentioned. In particular, a decision of the kind contemplated in PS LA 2011/27 may affect whether the ATO takes "compliance action" but does not have a necessary or direct relationship with any particular exercise of statutory power. 15 Of course, the relevance of the availability of declaratory relief only arises if there is a substantive obligation upon the Commissioner to adhere to the practice statement. 16 If, contrary to our conclusion, there was a substantive obligation of the type contended for by Macquarie, then the principles relating to the granting of declaratory relief set out by the High Court would be of relevance. The application of these principles would depend upon the facts and circumstances of the proceeding before the Court. 17 Putting aside the issue of whether the primary judge correctly distinguished Plaintiff M61/2010E, his reasons for determining that there was no utility in granting a declaration were correct.