Income Tax - access to premises and documents under s.263 of Assessment Act - whether legal professional privilege overridden by s.263 - Commissioner of Taxation v. Citibank Limited (NG1244/88) followed - privilege in relation to solicitors' trust accounts discussed - whether decision to exercise right under s.263 was unreasonable.

Administrative Decisions (Judicial Review) Act 1977

Income Tax Assessment Act 1936: s.263

Judiciary Act 1903: s.39B

Mr G. Flick

Solicitors for the Appellant: Minter Ellison

Counsel for the Respondents: Mr R.B.S. MacFarlan, Q.C.

Mr A. Robertson

Solicitors for the Respondents: Australian Government Solicitors

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

The hearing of this appeal followed immediately upon the conclusion of the hearing of the appeal by the Commissioner of Taxation in Commissioner of Taxation v Citibank Limited (G1244 of 1988). Many of the issues were common to both appeals and, insofar as they were dealt with exhaustively in the earlier hearing, counsel adopted and relied upon without repeating the submissions in that hearing. Counsel for the appellant made one additional submission on the question of the validity of the authorities issued under sub.s 263(2) of the Income Tax Assessment Act 1936 ("the Act"). He thereafter restricted his submissions to the manner of exercise of the power to seek access under that section in the circumstances of this matter. However as these circumstances differ greatly from those in the Citibank matter, it is necessary to state them in some detail although no exception was taken to the recital of these facts by the trial Judge.

2. Allen Allen & Hemsley ("Allens") is a large firm of solicitors practising in Sydney and elsewhere. The second respondent Mr. Fitton, a Taxation Departmental Auditor, became aware in the latter part of 1987 during the course of an audit of the affairs of a number of companies and individuals of what he described as an "international tax avoidance scheme". He said that "he came to believe" that Allens had acted as solicitors for companies involved in the scheme which they were also promoting with other taxpayers. He suspected that a company, Acceptor Enterprises Ltd. ("Acceptor"), and an entity called European Business Consultants ("EBC") were involved. During October 1987 Mr. Fitton sought access to certain files held by Allens concerning the companies and an individual. However he was unable to obtain five of the files. On 27 October 1987 he made a decision to seek access pursuant to s.263 of the Act to Allens' trust account ledgers for the period 1981 to that date and advised Allens of the decision. Upon the request of Allens Mr. Fitton agreed to defer any immediate action. On 30 October 1987 Allens wrote to the first respondent the Deputy Commissioner of Taxation, Sydney contending that that decision was unreasonable on the ground that an immense amount of trouble, at partner level, was involved in determining what portion of the material might be subject to a claim of privilege.

3. On 3 November 1987 officers of the taxation department including Mr. Fitton, went to Allens and spoke to a partner, Mr. Lind, concerning access. The terms of the request were in dispute, Mr. Lind's version being that access was sought to "the solicitors' trust accounts" whereas Mr. Fitton's recollection was that the reference was to "your trust ledger". The trial Judge, not without doubt, accepted Mr. Lind's recollection, namely that the request on 3 November related to trust accounts and not merely ledgers. It appears that persons concerned thereafter spoke indiscriminately of "ledgers", "records" and "accounts". However in considering the decision of Mr. Fitton of 3 November 1987, to seek access, nothing turns on this matter as the trial Judge proceeded on the basis that that decision was superseded by a subsequent decision made on 29 April 1988.

4. On 3 November 1987 Mr. Lind told Mr.Fitton that he could not give access immediately as time would be needed to determine if any entries were privileged. Mr. Lind said when queried by Mr. Fitton that the end of the week (Friday 6 November) would be reasonable. Mr. Fitton said he would call on the Monday following to have access. When he called on that day Mr. Lind said that conflicting legal advice had been received and he would let him know as soon as possible what action Allens proposed to take. He also told Mr. Fitton that "para-legals" had been through the 1981 trust ledger and found no reference to Acceptor or EBC. Mr, Fitton said, in effect, that he wished to look for himself. Mr. Lind stated he would like to obtain legal advice first as "each entry would have to be looked at from the point of view of the nature of the advice given". In this regard it was accepted that in referring to the "nature of the advice given" he was speaking of any advice which might be the subject of a claim for legal professional privilege. Mr. Fitton said that he would be back formally to demand access and Mr. Lind said letters would be delivered to him, explaining Allens' position.

5. Two letters were accordingly written on 11 November 1987. In one Allens stated that access was refused on the ground of legal profesional privilege and that many of the entries were confidential. In the other letter Allens sought reasons for the decision under s.13 of the Administrative Decisions (Judicial Review) Act 1977. These reasons were subsequently given by letter of 29 April 1988.

6. On 6 April 1988 the Commissioner issued to Mr. Fitton an authority to exercise all powers under a number of Acts including s.263 of the Act. This authority was in form similar to the letter authority, the validity of which was exhaustively considered in the Citibank case. An earlier authority was in the form of the wallet authority likewise considered in the Citibank case.

7. On 29 April 1988 the respondents' solicitors wrote to Allens requesting that they identify those entries in the 1981 trust account records which they claimed to be subject to legal professional privilege and the basis of that claim. They also said that if lists of the entries were not received within 14 days officers would attend on 16 May to take access to the 1981 trust account records.

8. On 29 April Mr. Fitton decided again to seek access to the 1981 trust account records of Allens. Allens however obtained on 13 May 1988 an interlocutory injunction restraining the Deputy Commissioner and Mr. Fitton from seeking access to these records until further order. It was this decision of Mr. Fitton, made on 29 April 1988, which the trial Judge considered the relevant decision for review in these proceedings, on the ground that the earlier decisions of 27 October and 3 November 1987 had been superseded by the later decision. During the hearing Allens obtained leave to amend its application to include also a review of the Commissioner's decision to issue the letter authority to Mr. Fitton of 6 April 1988.

9. The trial Judge dismissed the contention of counsel for Allens that the authorities given to Mr. Fitton, including in particular the letter authority given by the fourth decision of 6 April 1988, were invalid as not complying with the requirements for search warrants. He declared valid the decision to issue this authority as well the decision of 29 April 1988 to seek access to the trust account records. He was of opinion that only in a most unusual case would an entry in a ledger be privileged. He acknowledged that any document whatever could have written on it a memorandum of legal advice given or sought in which case that particular entry could be privileged. To enable any disputes in this regard to be resolved he gave liberty to apply with respect thereto. The respondents having filed a cross-claim against Allens, the trial Judge made orders thereunder restraining Allens from denying access to the trust payments and receipts journals for the 1981 year subject to any proper objection based on the doctrine of legal professional privilege.

10. The additional submission in respect of the validity of the authorities made on the hearing of this appeal by counsel for Allens was in effect a "floodgates" argument in another guise. It was a re-run of the "civil liberties" submission to the trial Judge by Allens' counsel (81 ALR at p 625). Counsel contended that there was a need for some degree of specificity in the authorities issued to officers under s.263. A literal construction of the requirements of the section would, in his words, "create the opportunity for such a monstrous invasion of a citizen's premises and papers coupled with an obligation of a citizen under criminal sanction to facilitate and assist the officer". If the literal construction was adopted each officer who had an authority in general terms would have "an individual statutory right to enter and search and require assistance". It would be otherwise, he said if the Commissioner was obliged to grant authority to a particular officer to enter particular premises at a particular time. This would ensure that there would not be the harassment of a citizen such as could result from the issue of authorities in general form under numerous Acts to innumerable officers.

11. One answer to this argument is that the authority given to an officer to exercise the right of access under s.263 is separate and distinct from the actual decision to seek access. That decision is one to be made by the Commissioner or his delegate. They can themselves exercise the right of access without being required to hold an authority in writing prescribed by sub.s 263(2). Equally the Commissioner or his delegate can orally authorise an officer or officers to enter with him or alone, subject only to the obligation of the officer to refrain from entering or to depart if he cannot produce an authority in writing if requested. The decision to exercise the right of access under the section would be liable to review by a Court in circumstances such as in this and the Citibank case. It was accepted that the right to seek access is a right which must be exercised bona fide and for the purpose for which it is granted. Thus the Court can supervise both the decision to seek access and the manner of exercise of the right.

12. This additional argument does not persuade us to reconsider our view as stated in the Citibank case, namely that authorities in the form here under consideration are valid authorisations for the purpose of s.263 and not bad in law.

13. The primary submission in support of the appeal was that in the circumstances the decision to seek access was erroneous because it was unreasonable. It was based on the assumption, which in the Citibank case this Court found to be correct, that legal professional privilege was not excluded by the provision of s.263. The hearing before the trial Judge proceeded on the basis of a concession to this effect by the respondents. Counsel contended that the following circumstances rendered the decision to seek access unreasonable. He drew attention to the fact that the decision was taken in a context where the respondents knew that Allens was concerned about the confidentiality of its clients' affairs and that it was asserting that it had checked its records and found no payments of the kind Mr. Fitton was looking for. Allens was also asserting that it would be a substantial and onerous task to search its records which involved over 11,000 entries each of which would have to be reviewed by a partner. In 1981 the firm comprised 34 partners, 6 of whom were no longer with Allens. The crucial fact, counsel said, was that Allens was asserting its need to protect the legal professional privilege of its clients and that it had an obligation to bring the matter before a Court if access was sought. Significance was also attached to the fact that access was not being sought to the premises of a taxpayer whose affairs were being investigated but to the premises of a third party.

14. Counsel concluded by submitting that if a claim for legal professional privilege be bona fide advanced, it was incumbent upon an "administrator" to exercise the powers conferred by s.263 in a manner which would accomodate that claim. He argued that the exercise of the power must be bona fide for the purpose for which it was conferred, and that in the present case the particular purpose necessarily involved invading professional privilege. Thus it was said its exercise was excessive (O'Reilly v Commissioners of State Bank of Victoria [1983] HCA 47; (1982) 153 CLR 1 at p 48).

15. Even accepting the appellant's version of the circumstances we are not persuaded that the trial Judge erred in the orders he made.

16. On the matter of legal professional privilege he cited and applied the relevant authorities, which we need not repeat. These indicate that only in the most exceptional circumstances can an entry in a trust account ledger be privileged as disclosing the contents of communication between solicitor and client.

17. The circumstances in which a claim for legal professional privilege can be made in a matter such as this, when no litigation is pending, are closely confined. As was said by Stephen, Mason & Murphy JJ. in Grant v Downs [1976] HCA 63; (1976) 135 CLR 674 at p 686:

"An individual seeking legal advice cannot be required

to disclose the information he communicated to his

legal advisor nor the nature of the advice received;

nor may the legal advisor disclose it".

"All that we have said so far indicates that unless the

law confined legal professional privilege to those

documents which are brought into existence for the sole

purpose of submission to legal advisors for advice or

for use in legal proceedings the privilege will travel

beyond the underlying rationale to which it is intended

to give expression.... For this and for the reasons we

have expressed earlier we consider that the sole

purpose test should now be adopted as the criterion of

legal professional privilege."

19. Subsequently Mason J. dealt with the nature of documents to which a claim of privilege is limited. He said in O'Reilly's case at p 23 -

"Although the facts in the case stated indicate that the

specified documents 'were received or created by Perry

in confidence whilst ... acting for the Lawsons solely

for the purpose of tendering professional legal advice

and assistance to them', there is real doubt whether

all the documents involve confidential communications

between solicitor and client or whether instead they

are documents which merely evidence various

transactions. In relation to documents received by

Perry the test is not whether they were received by him

for the purpose of tendering professional legal advice,

but whether they were brought into existence for that

purpose."

20. Being satisfied as we are, that only in the most unusual circumstances would entries of receipts and payments in trust account records reveal any matter for which a claim of privilege could be made, it cannot be said that the task of the solicitors would be so onerous that to seek access thereto would be unreasonable. It is only necessary for a perusal of the entries to ascertain whether, in respect of any, there is additional material which might disclose legal advice. We agree with the trial Judge's view of the examples relied upon by Mr. Lind. Moreover we can not agree with the submission of counsel for Allens that the burden imposed on the solicitors is either intolerable or excessive or that there is need to refer all entries to partners or to the files of the matters.

21. In support of his submission of unreasonableness, counsel, as we have said referred only to O'Reilly's case. He relied upon the following passage in the judgment of Mason, Murphy, Brennan and Deane JJ. at p 48

"Like all statutory powers, that power must be used bona

fide for the purposes for which it was conferred and

that involves that its exercise be not excessive in the

circumstances of the case."

22. As counsel for the respondents pointed out, this passage merely indicates that excessiveness of exercise may indicate a lack of bona fides. It cannot be said that it displays an intention to expand the present test of unreasonableness, namely whether the decision is so unreasonable that no reasonable authority could have made it. Mason J. in Minister for Aboriginal Affairs v Peko-Wallsend Ltd. [1986] HCA 40; (1985) 162 CLR 24 at p 41 after referring to such a decision as "manifestly unreasonable" went on to say:

"This ground of review was considered by Lord Greene

M.R. in Wednesbury Corporation (1948) 1 KB at

pp 230,233-234 in which his Lordship said that it would

only be made out if it were shown that the decision was

so unreasonable that no reasonable person could have

come to it. This ground is now expressed in ss.5(2)(g)

and 6(2)(g) of the AD(JR) Act in these terms."

23. In Holmes v Deputy Federal Commissioner of Taxation 88 ATC 4906 at p 4912 the Full Court of this Court said of those two provisions of the Administrative Decisions (Judicial Review) Act -

"This ground of invalidity of an administrative decision

has been described by Lord Diplock in Bromley London

Borough City Council v Greater London City Council

(1983) 1 AC 768 at p 821, as being reserved for

decisions that looked at objectively, are so devoid of

any plausible justification, that no reasonable body of

persons could have reached them."

24. In our opinion it is impossible so to categorise the decision in this matter. It cannot be said that the decision of Mr. Fitton to seek access resembled in any way a precipitous raid. The matter had been under discussion between the parties over a period of many months. Nor was Allens denied the opportunity to make a claim of privilege in respect of entries in the trust accounts. The circumstances cannot fairly be categorised, as they were by counsel for the appellant, namely that Mr. Fitton was demanding access to everything and rejecting the claimed professional privilege as well as any means of determining it. Allens' attitude, based in our view on a misapprehension of the extent of the privilege, was that the task of identifying relevant entries was excessively onerous. We cannot accept the situation in this case as justifying a finding that the decision to seek access was unreasonable. We agree with the conclusion of the trial Judge on this aspect also of the matter. We would dismiss the appeal with costs.

I agree for the reasons published by the Chief Justice and Fisher J. that this appeal should be dismissed.