Administrative Appeals Tribunal of Australia|1984-07-05|Before: Mr Justice J

Re Robyn Frances Murtagh and Commissioner of Taxation [1984] AATA 249 (5 July 1984)

Freedom of Information - refusal of access to documents relating to taxation return - documents claimed to be exempt - partnership loss claimed as deduction - appeal to Taxation Board of Review

"deliberative processes" of Australian Taxation Office - settlement process of Taxation Office - whether disclosure contrary to the "public interest" - consideration of US authorities - Crown privilege cases - whether candour and frankness in making recommendations and writing opinions affected by disclosure - whether rules of discovery subverted by disclosure - whether efficient administration and structure of negotiation of Taxation Office prejudiced by disclosure - whether disclosure premature

Section 37 - whether disclosure would prejudice

conduct of an investigation of a breach of the law or failure to comply with taxation law - whether disclosure would prejudice enforcement or proper administration of law

Section 40(1)(d) - whether disclosure would have

substantial adverse effect on proper and efficient administration of operations of Australian Taxation Office

Section 41 - whether personal affairs disclosed

Section 42 - whether documents subject to legal

Section 45 - investigation by Ombudsman - whether

a breach of confidence to disclose documents to applicant

Income Tax - allowable deduction - whether business carried on - principles applicable

Words and Phrases - "deliberative processes"

"public interest"

Freedom of Information Act 1982 (Cth) ss. 3, 9, 36, 37, 38, 40, 41, 42, 45

Income Tax Assessment Act 1936 (Cth) ss. 16, 90, 92, 166, 170, 186, 189,

Freedom of Information Act 1966 (US) Exemption (b)(5)

Thomas v Federal Commissioner of Taxation (1972) 46 ALJR 397

Ferguson v Federal Commissioner of Taxation [1979] FCA 29; (1979) 37 FLR 310

Harris v Australian Broadcasting Corporation [1983] FCA 242; (1983) 50 ALR 551

Sacramento Newspaper Guild v Sacramento Board of Superiors (1968) 69 Calif. Reporter 480

Re Waterford and Department of the Treasury (No. 2) A.83/52 delivered 14 March 1984

Environmental Protection Agency v Mink [1973] USSC 17; 410 US 73 (1973)

Federal Commissioner of Taxation v West Australian Executor and Agency Company Limited [1929] HCA 20; (1929) 43 CLR 20

R v Income Tax Special Commissioners (1936) 1 KB 487

Re Brian Lawlor Automotive Pty Limited and Collector of Customs (1978) 1 ALD 167

Jordan v Department of Justice [1978] USCADC 317; 591 F 2d 753 (1978)

Coastal States Gas Corporation v Department of Energy [1980] USCADC 76; 617 F 2d 854 (1980)

Conway v Rimmer & Anor [1968] UKHL 2; (1968) AC 910

Sankey v Whitlam (1978) 142 CLR 1

Burmah Oil v Governor and Company of the Bank of England [1979] UKHL 4; (1980) AC 1090

Campbell v Tameside Metropolitan Borough Council (1982) 1 QB 1065

Science Research Council v Nasse [1979] UKHL 9; (1980) AC 1028

Sutton v Federal Commissioner for Taxation [1959] HCA 3; (1958) 100 CLR 518

Cain v Federal Commissioner of Taxation (1975) 75 ATC 4,254

Bailey v Federal Commissioner of Taxation (1977) 77 ATC 4,096

Mack v Federal Commissioner of Taxation (1983) 83 ATC 4,023

Krew v Federal Commissioner of Taxation (1971) 71 ATC 4,091

L'Estrange v Federal Commissioner of Taxation (1973) 73 ATC 4,061

Kavvadias v Commonwealth Ombudsman, Full Federal Court, No. G.429 of 1983, delivered 23 March 1984

1. The decision under review is set aside.

2. The matter is remitted to the Commissioner of

Taxation for reconsideration with the

following direction:

(i) that the documents set out in Schedule

1 to the reasons are not exempt

documents within the Freedom of

Information Act 1982 (Cth).

(ii) the Commissioner shall delete from

the

access any reference to the separate

affairs of a taxpayer other than the

applicant.

(iii) the Commissioner in his discretion

may

delete from the access the names of

officers appearing in any of the

documents in Schedule 1.

3. Leave is reserved to the parties to apply

for

any further or other order as may seem meet.

This is a review of a decision by an officer of the Australian Taxation Office refusing a request for access to documentation relevant to income tax assessments of the applicant.

The request for access dated 26 May 1983 read as follows:

"I hereby request under the Freedom of Information

Act, 1982, copies of all records relating to the

assessment of my income tax returns for the

financial years ending 30th June 1980, 1981, 1982.

The records requested include all documents in

existence relating to the decisions taken with

respect to my income tax assessments including

department memoranda, reports, submissions,

recommendations and general information."

As some of the material sought related to an alleged partnership between

Ms Murtagh and Mr X and the partnership return lodged in respect thereof, the consent of Mr X to the disclosure of the information was sought. That was given by letter dated 16 June 1983, which read, inter alia:

"By this letter, I authorise you to make available

to Miss Murtagh all documents requested by her

relating to the Nareda Park partnership."

On 23 June 1983, Ms Murtagh was given access to a number

of documents, but exemption was claimed with respect to the remainder. A letter to her of 23 June 1983 stated, inter alia,

"The remaining documents are considered to be

exempt documents in that disclosure would reveal

material in the nature of, or relating to,

opinion, advice or recommendation obtained,

prepared or recorded, or consultation or

deliberation that has taken place, in the course

of, or for the purposes of the deliberative

purposes involved in the functions of the

Commissioner of Taxation."

Subsequently, an internal review was sought. The decision

on the internal review, communicated to Ms Murtagh by letter dated 14 July 1983, granted access to further documentation but claimed exemption with respect to some. The letter stated

"As advised earlier the documents considered exempt

are reports, submissions and inter-office

memoranda prepared by officers dealing with your

income tax affairs."

An application for review by this Tribunal was lodged by

By the conclusion of the hearing of this review, the

dispute was limited to certain documents which relate to the partnership returns and the applicant's personal returns for the years of income ended 30 June 1980, 1981 and 1982 and also to documents relating to an investigation by the Ombudsman, on Ms Murtagh's complaint, with respect to the manner in which the Australian Taxation Office had dealt with her taxation affairs.

During the hearing, a question arose as to the jurisdiction

of the Tribunal to consider documents which came into existence after the date of Ms Murtagh's request for access, 26 May 1983. In our opinion, the Tribunal may make a decision with respect to documents which have come into existence after the date of the request for access provided that those documents are within the ambit of the decision under review, that is to say, that they raise no separate issue but are documents the access to which is established by the decision under review and the decision on review. Because of its function, the Tribunal must necessarily, from time to time, take account of facts which have come into existence after the date of the decision under review. Plainly, relevant documents will not always be only those documents which were in existence at the time of the making of the request for access. The original decision-maker may, and usually does, give a decision with respect to all documents within the category of the applicant's request which are known to be in the possession of the agency at the time of his decision. A decision on internal review may, and usually does, take into account all documents within the category of the applicant's request which are known to be in the possession of the agency at the time of that decision. Similarly, the Administrative Appeals Tribunal, provided that within its jurisdiction it is reviewing a decision to refuse access to documents, may give consideration to all documents which fall within the ambit of the dispute before it notwithstanding that some may have come into existence between the time of the decision under review and the time of the Tribunal's decision. Section 43of the Administrative Appeals Tribunal Act 1975 (Cth) specifically provides that,

"For the purpose of reviewing a decision, the

Tribunal may exercise all the powers and

discretions that are conferred by any relevant

enactment on the person who made the decision

...".

The Tribunal has been informed that the documents currently

in dispute are those documents which are listed in the schedule to these reasons. The Tribunal has given consideration only to those documents. All such documents are within the ambit of the dispute before the Tribunal and, in our opinion, the Tribunal has jurisdiction to deal with them.

Before turning to the issues arising under the Freedom

of Information Act 1982 (Cth) ("the FOI Act 1982"), it is desirable to outline briefly the taxation issue between the applicant and the respondent.

A partnership return was lodged for the years ended 30

June 1980, 1981 and 1982 for the "Nareda Park Stud". The partnership, of which the applicant and Mr X were said to be the partners, was alleged to have engaged in horse breeding and to have commenced operating on 1 July 1979. A horse trading account accompanying the partnership return for the 1980 year showed opening stock of 8 horses, the purchase of 1 and natural increase of 4. The account showed sales of 3 horses, 1 loss by death or missing and closing stock of 9. A small loss on horse trading was shown. An income and expenditure statement showed the loss on horse trading and expenditure on items such as agistment, labour, depreciation, etc, totalling in all a substantial loss for the year. The balance sheet as at 30 June 1980 showed that Mr X had contributed a substantial amount of capital and that he shared one half of the loss. The applicant was shown to have contributed significant capital and to have shared in the loss. Plant and equipment, motor vehicles, sheds, shelters and ramps, saddlery and like equipment, comprised the assets of the partnership. Neither trading stock nor a bank account was shown in the balance sheet for the 1980 year, though they were shown in subsequent years.

The applicant's share of the 1980 loss was claimed by her

in her personal return for the 1980 year. The deduction of that sum under s.92 of the Income Tax Assessment Act 1936 (Cth) depends upon the calculation of the loss of the partnership in accordance with s.90 of the Income Tax Assessment Act.

We need not discuss the 1981 and 1982 returns.

On 24 February 1981, the Australian Taxation Office issued

an adjustment sheet with respect to the 1980 partnership return, disallowing the whole of the loss claimed. The following information was given : "Loss disallowed as activities for the period are considered not sufficient to constitute the carrying on of a business of primary production for income tax purposes". That view of the Taxation Office subsequently found support in a report from a valuer who, on 23 July 1981, inspected the property on which the "Nareda Park Stud" conducted its activities and reported that the "activities carried out to date appear more in the nature of an interest/pastime than an attempt to run a viable business of primary production".

On 26 March 1981, the applicant's personal assessment

issued disallowing the deduction claimed. An objection to the assessment was lodged on or about 31 March 1981 but, after receipt of the valuer's report in July 1981, the objection was disallowed.

Subsequently, on or about 19 November 1981, a request was

lodged that the decision on the objection be referred to a Taxation Board of Review. That request was complied with during 1983. In the meantime, a further dispute had arisen because the applicant and her tax agent had interviewed an officer of the Australian Taxation Office and had apparently left the interview with the impression that the deduction claimed would be allowed though, in fact, it was not. It was arising from that discussion with the officer of the Australian Taxation Office and its aftermath that there was a complaint by the applicant to the Ombudsman, which complaint is still in the course of investigation.

It is not always a simple case to determine whether

activities constitute a business. Activities may be so minuscule as to be incapable of constituting the carrying on of a business. In Thomas v Federal Commissioner of Taxation (1972) 46 ALJR 397, the growing of a few pine trees was considered not to have "a significant commercial purpose or character" (p.401). See also Case R.1 84 ATC 101. But, in the applicant's case, it does not seem that the activities were so minuscule that they could not have constituted a business if the activities were carried on in a business-like way and not by way of hobby. The relevant principles were stated by Bowen CJ and Franki J in Ferguson v Federal Commissioner of Taxation [1979] FCA 29; (1979) 37 FLR 310 at 314 as follows :

"...There are many elements to be considered. The

nature of the activities, particularly whether

they have the purpose of profit-making, may be

important. However, an immediate purpose of

profit-making in a particular income year does not

appear to be essential. Certainly it may be held

a person is carrying on business notwithstanding

his profit is small or even where he is making a

loss. Repetition and regularity of the activities

is also important. However, every business has to

begin and even isolated activities may in the

circumstances be held to be the commencement of

carrying on business. Again, organization of

activities in a business-like manner, the keeping

of books, records and the use of system may all

serve to indicate that a business is being carried

on. The fact that, concurrently with the

activities in question, the taxpayer carries on

the practice of a profession or another business,

does not preclude a finding that his additional

activities constitute the carrying on of a

business. The volume of his operations and the

amount of capital employed by him may be

significant. However, if what he is doing is more

properly described as the pursuit of a hobby or

recreation or an addiction to a sport, he will not

be held to be carrying on a business even though

his operations are fairly substantial. See

generally, Trautwein v Federal Commissioner of

Taxation (No.2) [1936] HCA 46; (1936) 56 CLR 196; Tweddle v

Federal Commissioner of Taxation [1942] HCA 40; (1942) 7 ATD 186;

Fairway Estates Pty Ltd v Federal Commissioner of

Taxation [1970] HCA 29; (1970) 123 CLR 153; Thomas v Federal

Commissioner of Taxation (1972) 46 ALJR 397, in

all of which cases it was held the taxpayer was

carrying on business; and Martin v Federal

Commissioner of Taxation [1953] HCA 100; (1953) 90 CLR 470 in

which it was held the taxpayer was not carrying on

business."

Thus, the issue in the applicant's taxation review is likely to turn upon the question whether the activities were carried on in a business-like way as a commercial enterprise or whether, on the other hand, the applicant and Mr X were merely pursuing a hobby or personal interest.

In determining this issue, it will be relevant to examine

the partnership agreement, if any. Was it in the form of a written agreement? Was it recorded in an exchange of letters? Was it oral? What were its terms? It will be necessary to see whether a partnership bank account was maintained and, if so, how it was operated. It will be relevant to look at the agreement pursuant to which Mr X's property was made available for the horse breeding activities. It will be relevant to ascertain whether the "Nareda Park Stud" in fact acquired plant and equipment, motor vehicles, sheds, shelters and ramps and saddlery and, if so, in what way that acquisition was achieved. It will be relevant to look at the monies, if any, which passed between the applicant and Mr X and the books of account which were kept. All these facts are within the knowledge of the applicant. The documents in issue do not disclose them.

Of course, there could be other questions arising in the

review. Each of the deductions claimed in the partnership return could be the subject of consideration. Questions could arise as to whether particular plant was acquired or whether expenses were incurred and whether there should be an apportionment. All the facts relevant to these matters should be known to the applicant.

The applicant, on 26 May 1983, requested access to all

documents relating to her personal individual and partnership returns of 1980, 1981 and 1982. After internal review, access was granted to all relevant documentation relating to the 1981 and 1982 individual returns and the 1981 partnership return, except for the deletion of the names of officers. Access to various documents relating to the 1980 partnership and individual returns was given. However, exemptions were claimed with respect to a number of documents. Since this decision, the issues have narrowed as indicated above.

It was submitted by Mr J.G. Santamaria, counsel for the

respondent, that most of the documents in dispute are comprehended by s.36 of the FOI Act 1982. Section 36(1) reads:

"36.(1) Subject to this section, a document is an

exempt document if it is a document the disclosure

of which under this Act -

(a) would disclose matter in the nature of, or

relating to, opinion, advice or

recommendation obtained, prepared or

recorded, or consultation or deliberation

that has taken place, in the course of, or

for the purposes of, the deliberative

processes involved in the functions of an

agency or Minister or of the Government of

the Commonwealth; and

(b) would be contrary to the public interest."

"36.(5) This section does not apply to a document

by reason only of purely factual material

contained in the document."

To support an exemption under s.36(1), the two elements in paragraphs (a) and (b) must be made out.

The term "deliberative processes" would seem to have a

wide ambit. The term was considered by Beaumont J in Harris v Australian Broadcasting Corporation, [1983] FCA 242; (1983) 50 ALR 551. At p.560, his Honour said that :

"... 'deliberation' suggests not only collective

discussion but collective acquisition and exchange

of facts preliminary to ultimate decision."

This phrase was adopted from the judgment of Friedman AJ in Sacramento Newspaper Guild v Sacramento County Board of Superiors (1968) 69 Calif. Reporter 480, 485.

His Honour's decision and the operation of s.36(1) were

considered in depth by the Tribunal in Re Waterford and Department of the Treasury (No.2) (A.83/52, delivered 14 March 1984). With respect to s.36(1), the Tribunal concluded,

"58. As a matter of ordinary English the expression

'deliberative processes' appears to us to be wide

enough to include any of the processes of

deliberation or consideration involved in the

functions of an agency. 'Deliberation' means 'The

action of deliberating: careful consideration

with a view to decision' (see The Shorter Oxford

English Dictionary). The action of deliberating,

in common understanding, involves the weighing up

or evaluation of the competing arguments or

considerations that may have a bearing upon one's

course of action. In short, the deliberative

processes involved in the functions of an agency

are its thinking processes - the processes of

reflection, for example, upon the wisdom and

expediency of a proposal, a particular decision or

a course of action. Deliberations on policy

matters undoubtedly come within this broad

description. Only to the extent that a document

may disclose matter in the nature of or relating

to deliberative processes does s.36(1)(a) come

into play.

59. It by no means follows, therefore, that every

document on a departmental file will fall into

this category. Section 36(5) provides that the

section does not apply to a document by reason

only of purely factual material contained in the

document (see, in this regard, the Full Court

decision in Harris). See also s.36(6) relating to

reports and the like. Furthermore, however

imprecise the dividing line may first appear to be

in some cases, documents disclosing deliberative

processes must, in our view, be distinguished from

documents dealing with the purely procedural or

administrative processes involved in the functions

of an agency. A document which, for example,

discloses no more than a step in the procedures by

which an agency handles a request under the FOI

Act is not a document to which s.36(1)(a) applies.

60. It is documents containing opinion, advice,

recommendations etc. relating to the internal

processes of deliberation that are potentially

shielded from disclosure - documents that might,

perhaps, have been more aptly described in the

headnote as 'Internal Thinking Documents'. Out of

that broad class of documents, exemption under

s.36 only attaches to those documents the

disclosure of which is 'contrary to the public

interest' (s.36(1)(b) of the FOI Act and cf.

ss.35, 36, 37(1)(b) and 37(2) of the

Administrative Appeals Tribunal Act 1975)."

The intent of s.36(1)(a) can be seen from the provisions

with which it is associated. Thus s.36(2) excludes "matter that is used or to be used for the purpose of the making of decisions or recommendations referred to in sub-section 9(1)". Section 9 requires that there be published, inter alia, "manuals or other documents containing interpretations, rules, guidelines, practices or precedents ..." "provided by the agency for the use of, or (which) are used by, the agency or its officers in making decisions or recommendations ...". Section 9(1) plainly comprehends the manuals and guidelines which are published by the Australian Taxation Office for the assistance of its officers when making decisions or recommendations with respect to such matters as assessments, objections to assessments and requests for reference. By excluding these documents, s.36(2) makes it clear that the preparation of such manuals is part of the deliberative processes to which s.36 turns its attention.

Moreover, s.36(6) specifically excludes "(c) the record

of, or formal statement of the reasons for, a final decision given in the exercise of power or of an adjudicative function". Such an exclusion would not be necessary if s.36(1) did not comprehend, in the deliberative processes of which it speaks, the processes of decision-making involved in the exercise of decision-making power under an enactment.

Thus, sub-sections (2) and (6) demonstrate clearly that

sub-section (1) is concerned both with decision-making processes and policy-making processes, while sub-section (5) makes plain that the section is not concerned to exempt purely factual material. As was said in Environmental Protection Agency v Mink, [1973] USSC 17; 410 US 73 (1973) at 89, with respect to Exemption (b)(5) of the Freedom of Information Act (US), the courts have "...recognised that it requires different treatment for materials reflecting deliberative or policymaking processes on the one hand, and purely factual, investigative matters on the other". (Footnote omitted).

The provision therefore has analogies to Exemption (b)(5).

Nevertheless, American authorities with respect to Exemption (b)(5) must not be applied uncritically. Section 36 must be given effect, having regard to its own terms. The provision refers to all the deliberative processes involved in the functions of an agency or Minister.

The processes within the Australian Taxation Office leading

to the exercise of the statutory power to make an assessment under s.166 of the Income Tax Assessment Act, to amend an assessment pursuant to s.170 thereof and to determine an objection under s.186 thereof are clearly deliberative processes for the purposes of s.36(1)(a).

Moreover, notwithstanding the absolute terms of s.189 of

the Income Tax Assessment Act, the lodgement of a request for reference is taken by the Australian Taxation Office to be a further opportunity to review the case. Only a minority of the cases in respect to which a request for reference to a Taxation Board of Review is lodged are, in fact, referred to a Taxation Board of Review. If the matter is settled, an amended assessment is issued, although this step may not always accord well with the provisions in s.170 permitting amendment. Further, even after a matter has been referred to a Taxation Board of Review, the Australian Taxation Office may issue an amended assessment if settlement is reached with the taxpayer. Indeed, it is the practice of the Australian Taxation Office to issue an amended assessment if one is necessary to give effect to a decision of a Taxation Board of Review. The reservations expressed as to this practice by Dixon J in Federal Commissioner of Taxation v West Australian Trustee Executor and Agency Company Limited [1929] HCA 20; (1929) 43 CLR 20 at 23-4 have not altered this practice. In R v Income Tax Special Commissioners (1936) 1 KB 487, it was held that once an appeal to the Special Commissioners of Income Tax had been lodged by a taxpayer, the taxpayer had no power to withdraw the appeal without the consent of the Special Commissioners and that the Special Commissioners were under a duty to review the assessment. At p.504, Romer LJ said,

"...I think that, once the procedure laid down in

Part VII. of the Act has been brought into being,

the income tax payer has no power of preventing it

from being carried out to its full effect,

resulting, as it will, in the assessment being

confirmed either in the amount originally assessed

by the Additional Commissioners, or with some

variation by way of increase or diminution."

See also the remarks of C.F. Fairley, Esq, QC, in Case H.35, 76 ATC 297 at 303. However, notwithstanding the legislative structure, the practice of the Australian Taxation Office is, as Mr R.J. Tomkins, Assistant Commissioner, pointed out in his evidence, to continue negotiations with the taxpayer even after the matter has been referred to a Taxation Board of Review.

Even if any amended assessment issued as a result of this

practice were invalid, that would not indicate that the process of consideration leading to the assessment was not part of the deliberative processes of the agency. Such a decision has effect in practice unless set aside. See Re Brian Lawlor Automotive Pty Limited and Collector of Customs (NSW) (1978) 1 ALD 167. We therefore do not regard the relevant deliberative processes of the respondent as having stopped either when the request for reference to the Taxation Board of Review was lodged or when the matter was referred to a Taxation Board of Review.

That is not to say that everything done thereafter was

done as part of the deliberative processes of the agency. In this case, we do not have to concern ourselves with steps taken in preparation for the hearing before a Taxation Board of Review. We do not have to consider whether such steps would be steps involving opinion, advice or recommendation in the course of or for the purposes of the deliberative processes of the agency. No such documents are in dispute before us.

For the purposes of the present review, it is not necessary

to determine whether the term "deliberative processes" has as wide an operation as was attributed to it in Re Waterford (No.2), cited above. In most cases, and in the present case, there are other aspects of s.36(1) which must also be looked at, namely, whether the information "would disclose matter in the nature of, or relating to, opinion, advice or recommendation ..." and whether disclosure of the information "would be contrary to the public interest". These other elements of s.36 will often be the more significant elements in the consideration of a particular document. If it is found that a document should not be disclosed because the grant of access would disclose opinion, advice or recommendation and that such disclosure is not in the public interest, it will almost inevitably be found that such opinion, advice or recommendation was prepared or recorded or obtained in the course of, or for the purposes of, deliberative processes involved in the functions of the agency.

Having regard, therefore, to the views which we have formed

on public interest, we think it is unnecessary for us to further deal with the concept of "deliberative processes".

For the same reason, it is unnecessary to discuss whether

every document in issue involves "opinion, advice or recommendation" and to what extent each document does so.

The Public Interest - s.36(1)(b)

It is clear that the public interest is not to be limited

by the prescription of categories or classes of documents the disclosure of which to the public would be contrary to the public interest. The public interest is not to be circumscribed. All documents must be examined to ascertain whether, having regard to the circumstances, their disclosure would be contrary to the public interest.

However, many of the American authorities throw light upon

the elements of public interest to be considered for the purpose of s.36. In Jordan v Department of Justice [1978] USCADC 317; 591 F 2d 753 (1978) at pp.772-3, Wilkey J, delivering the opinion of the Court of Appeals, said :

"One of the traditional evidentiary privileges

available to the Government in the civil discovery

context is the common-sense, sommon-law

deliberative process privilege. See Louisell

Federal Evidence, s 228-231 (1978). See generally

Nixon v.Sirica[1973] USCADC 472; , 159 U.S. App D.C. 58, 121-23, 487

F.2d 700, 763-65 (1973) (Wilkey, J., dissenting).

This privilege protects the 'consultative

functions' of government maintaining the

confidentiality of 'advisory opinions,

recommendations and deliberations comprising part

of a process by which governmental decisions and

policies are formulated.' Carl Zeiss Stiftung v.

V.E.B. Carl Zeiss Jena, 40 F.R.D. 318, 324 (D.D.C.

1966), aff'd per curiam 128 U.S. PP. D.C. 10, 384

R.2D 979, cert. denied, 389 U.S. 952, 88 S.Ct.

334, 19 L.Ed.2d 361 (1967); Grumman Aircraft Eng.

Corp. v. Renogotiation Board, 157 U.S.App. D.C.

121[1973] USCADC 428; , 482 F 2d 710 (1973), rev'd on other grounds,

[1975] USSC 82; 421 U.S. 168, 95 S.Ct. 1491, 44 L.Ed.2d 57 (1975).

The privilege attaches to inter- and intra-agency

communications that are part of the deliberative

process preceding the adoption and promulgation of

an agency policy. There are essentially three

policy bases for this privilege. First, it

protects creative debate and candid consideration

of alternatives within an agency, and, thereby,

improves the quality of agency policy decisions.

See NLRB v. Sears. Roebuck & Co., 421 U.S. at 151,

[1975] USSC 81; 95 S.Ct. 1504; Montrose Chemical Corp. v. Train,

[1974] USCADC 40; 160 U.S.App.D.C. 270, 273[1974] USCADC 40; , 491 F.2d 63, 66 (1974).

Second, it protects the public from the confusion

that would result from premature exposure to

discussions occurring before the policies

affecting it had actually been settled upon. See

Grumman Aircraft Eng. Corp. v. Renegotiation

Board, note 77 supra, 157 U.S.App. D.C. at 129,

482 F.2d at 718; Sterling Drug Inc. v. FTC, 146

U.S.App.D.C. 237, 245-246[1971] USCADC 275; , 450 F.2d 698, 706-708

(1971). And third, it protects the integrity of

the decision-making process itself by confirming

that 'officials should be judged by what they

decide(,) not for matters they considered before

making up their minds.' Grumman Aircraft Eng.

Corp. v. Renegotiation Board, note 77 supra, 157

U.S.App.D.C. at 129, 482 F.2d at 718. See Boeing

Airplane Co. v. Coggeshall, 108 U.S.App. 106, 112,

280 F.2d 654, 660 (1960); Carl Zeiss Stiftung v.

V.E.B. Carl Zeiss, Jena, note 77 supra, 40 F.R.D.

at 325-326."

Likewise, in Coastal States Gas Corporation v Department of Energy [1980] USCADC 76; 617 F 2d 854, (1980). Judge Wald, delivering the opinion of the Court, said, at p.866 :

"...A privilege unique to the government is one

which is variously described as predecisional or

deliberative process privilege. The privilege has

a number of purposes: it serves to assure that

subordinates within an agency will feel free to

provide the decisionmaker with their uninhibited

opinions and recommendation without fear of later

being subject to public ridicule or criticism; to

protect against premature disclosure of proposed

policies before they have been finally formulated

or adopted; and to protect against confusing the

issues and misleading the public by dissemination

of documents suggesting reasons and rationales for

a course of action which were not in fact the

ultimate reasons for the agency's action. See

Jordan, 192 U.S. App. D.C. at 163-165, 591 F.2d at

772-774.

.....

...To test whether disclosure of a document is

likely to adversely affect the purposes of the

privilege, courts ask themselves whether the

document is so candid or personal in nature that

public disclosure is likely in the future to

stifle honest and frank communication within the

agency; 'Human experience teaches that those who

expect public dissemination of their remarks may

well temper candor with a concern for appearances

and for their own interests to the detriment of

the decision-making process.' United States v.

Nixon [1974] USSC 159; 418 U.S. 683, 705[1974] USSC 159; , 94 S.Ct. 3090, 3106, 41

L.Ed.2d 1039 (1974)."

These cases, which concerned Exemption (b)(5), an exemption

which creates a privilege similar to that of Crown privilege enunciated by the courts in the United Kingdom and in Australia, point to the need for protecting pre-decisional and pre-policy-making discussion with a view to promoting creative debate and candid consideration, with a view to protecting the public from the confusion that may result from premature exposure of pre-decisional discussion and with a view to protecting the integrity of the decision-making process itself by clearly separating the final decision-making or policy-making step and the reasons therefor from the opinions and advice of the officials who contributed to the consideration.

Moreover, recent authorities have considered some limited

classes of documents to be such that their public disclosure would not be in the public interest. Such documents were discussed in Conway v Rimmer & Anor [1968] UKHL 2; (1968) AC 910, especially per Lord Reid at p.952 and Lord Upjohn at p.993-4. See also Sankey v Whitlam (1978) 142 CLR 1. Such decisions deal with a point somewhat different from that arising under s.36(1)(b). The Crown privilege cases concern situations where there are conflicting elements of the public interest, on the one hand, the need for candour and frankness amongst officers of the Public Service and the need to protect that interest and, on the other hand, the need to assist the proper administration of justice by ensuring that courts are not deprived of information which is necessary for the determination of the disputes before them. That latter element is seldom of relevance in a request for access under the FOI Act 1982.

An application for access to Australian Taxation Office

records relating to the affairs of a particular person must necessarily be made by that person. Section 16 of the Income Tax Assessment Act precludes the disclosure to an individual of information relating to the affairs of "any other person". But it does not preclude the disclosure of the information to the individuals to whose affairs the information relates. Therefore, to that extent, the public interest must be considered in relation to the disclosure to a taxpayer of the affairs of that taxpayer. Disclosure to the world at large is not involved. But we think, nevertheless, that the "public interest" looks to broader concepts than the circumstances of the particular case. Section 37(1)(a) rather than s.36(1) looks to the circumstances of "a particular instance".

In our opinion, the "public interest" looks to matters

such as the overall need for confidentiality within the Australian Taxation Office and the nature of the documents to which access is sought, whether they are documents relating to a purely routine assessment or whether they are documents concerned with the investigation of taxation evasion or like matter in respect of which there is special reason for confidentiality. Broadly speaking, s.36 can be seen as an attempt by the legislature to protect the integrity and viability of the decision-making process. If the release of documents would impair this process to a significant or substantial degree and there is no countervailing benefit to the public which outweighs that impairment then it would be contrary to the public interest to grant access.

Moreover, public interest must be considered in the light

of s.3(2) of the Act which provides that "...the provisions of this Act shall be interpreted so as to further the object set out in sub-section (1)...". Section 3(1) provides,

"The object of this Act is to extend as far as

possible the right of the Australian community to

access to information in the possession of the

Government of the Commonwealth by -

(a) .....

(b) creating a general right of access to

information in documentary form in the

possession of Ministers, departments and

public authorities, limited only by

exceptions and exemptions necessary for the

protection of essential public interests and

the private and business affairs of persons

in respect of whom information is collected

and held by departments and public

authorities."

Note the reference to "essential public interests".

It was submitted, though not strongly, that candour and

frankness in making recommendations and in writing opinions with respect to assessments, objections and requests for reference would be affected if disclosure to the public or to the particular taxpayer of such recommendations and opinions took place.

The candour and frankness argument is not new. It achieved

pre-eminence at one time but has now been largely limited to high level decision-making and to policy-making. See Conway v Rimmer & Anor, cited above, Burmah Oil v Governor and Company of the Bank of England [1979] UKHL 4; (1980) AC 1090, 1132-1133, per Lord Keith; Campbell v Tameside Metropolitan Borough Council (1982) 1 QB 1065, 1077, per Ackner LJ, 1079, per O'Connor LJ; Science Research Council v Nasse [1979] UKHL 9; (1980) AC 1028, 1070 per Lord Salmon, 1081 per Lord Fraser; Sankey v Whitlam, cited above, 62-63 per Stephen J, 97 per Mason J; cp Burmah Oil v Governor and Company of the Bank of England, cited above, 1112 per Lord Wilberforce, 1145 per Lord Scarman; Sankey v Whitlam, cited above, 38 per Gibbs CJ. It was submitted that, if officers of the Department of Taxation knew of the possibility that their written comments would be disclosed to the particular taxpayer, they would be more reluctant to commit their views to paper. Mr Tomkins gave evidence that officers of the Department were actively encouraged to put their personal beliefs in no uncertain terms. Often, Mr Tomkins said, they would "argue strongly" in favour of taxpayers. It was suggested that such a process might be hampered if an officer knew that at some later point in time in the appeal stage he or she would have to argue in favour of the Commissioner and contrary to the officer's earlier observations. It was suggested that this would put the officer in an untenable position.

We cannot accept this view. It is one of the duties of

an officer of the Department to argue in favour of proper recovery of taxation. It is also a duty to weigh up arguments in favour of and against the taxpayer. The fact that an officer may express views which favour a taxpayer cannot be held against him or her in any way. The expression of such views cannot be used against him or her at the review stage. If officers are made aware of this fact then they should not temper the nature of their comments nor be reluctant to commit them to paper.

No cogent evidence has been given to this Tribunal either

in this review or, so far as we are aware, in any other, that the enactment of the FOI Act 1982 has led to an inappropriate lack of candour between officers of a department or to a deterioration in the quality of the work performed by officers. Indeed, the presently perceived view is that the new administrative law, of which the FOI Act 1982 forms a part, has led to an improvement in primary decision-making.

One of the major submissions put by counsel for the

respondent was that, if access were granted to the documents in dispute, discovery rules would be rendered redundant if future litigation were to take place. If an appeal were taken to the Supreme Court, the taxpayer would have no need to request discovery. Further, it was submitted that discovery only extends to particulars and not to the names of witnesses nor the nature of the Department's evidence.

We think that this submission is more appropriately put

under s.37(1)(a). Nevertheless, as it was put with respect to s.36(1), we shall consider it at this stage.

In this case, there is a reference to an administrative

body, the Taxation Board of Review. The Taxation Boards of Review have no power to order discovery of documents. Therefore, no discovery rules of the Board can be subverted. The fact that an appeal may lie from the decision of the Taxation Board of Review to a Supreme Court is of little significance. At the present time, there is no such appeal. If there were proceedings before a State Supreme Court, it would be proper to give consideration as to whether, in the public interest, the grant of access to documents should be left to the decision of the Court, it having adequate powers to order disclosure if, having regard to the justice of the case, it considered that disclosure to be appropriate. But that is not the position with which we are faced. There is no proceeding before a court of law and no court has power to grant access to the documents which the applicant seeks.

that the Commissioner shall supply certain particulars to the Taxation Board of Review, including (c) "the Commissioner's reasons for disallowing the taxpayer's claim". In Sutton v Commissioner of Taxation [1959] HCA 3; (1958) 100 CLR 518, the High Court of Australia held that, in complying with reg.35, the Commissioner need not reveal the steps in the reasoning leading to his ultimate conclusion. In Re Cain, Ex parte Evatt (1975) 75 ATC 4,254, the High Court of Australia followed the Sutton decision. In Sutton, at p.524, the High Court of Australia said :>

"...It is to be observed that reg 35(1)(c) is

directed not to ensuring that the taxpayer is

informed of the commissioner's reasons but to

supplying the board with them."

But the FOI Act 1982 has ushered in a new era. An interpretation of reg.35 cannot determine the public interest test in s.36.

A more relevant question is whether it is injurious to

the public interest to reveal documents to a taxpayer which include details of the evidence which the Commissioner intends to use and the witnesses he will call when the matter is dealt with by the Taxation Board of Review. Certainly, an order for particulars by a Supreme Court does not entitle the party to such information - see Bailey v Federal Commissioner of Taxation (1977) 77 ATC 4,096, 4,099 per Mason J. Also see Mack v Federal Commissioner of Taxation (1983) 83 ATC 4,043, 4,058. However, no such information is contained in the documents in dispute in this review. The respondent has already revealed to the applicant the valuer's report setting out evidence upon which the respondent may rely before the Taxation Board of Review. The information now in dispute is said to be principally opinion, advice or recommendation.

Some of the arguments said to support the view that

disclosure would be against the public interest under s.36 are also raised under s.37. We first consider these arguments in the context of s.36(1)(b). Counsel for the respondent suggested in a written submission that :

"The release of the working documents of the

respondent would destabilize the whole economy of

negotiation and settlement which is central to the

administration of the revenue legislation".

The argument put for the respondent ran as follows -

(1) The taxpayer knows all the facts with respect to his or her assessment. The Commissioner on the other hand will often know far less.

(2) If the taxpayer were given access to the Commissioner's working files, the taxpayer would know precisely what the Commissioner knew and also what the Commissioner did not have knowledge of.

(3) This would put the taxpayer in a far stronger position vis-a-vis the Commissioner than the Commissioner vis-a-vis the taxpayer.

(4) The onus of proof is on the taxpayer by s.191 of the Income Tax Assessment Act and it cannot have been intended that the taxpayer be placed in a position where he or she could easily discharge this onus.

(5) The process of negotiation and settlement between the Commissioner and the taxpayer would be severely damaged as settlement must necessarily take place in an environment where each party is not fully conversant with the other's case. Without access, the taxpayer will have to assume that the Commissioner knows all the relevant facts.

(6) Disclosure of the file could also mislead the taxpayer and thus damage the negotiation and settlement processes.

(7) The disclosure of the file to the taxpayer might

"...reveal that although the respondent has no

evidence, it has deep scepticism of a taxpayer's

explanation of characterisation of his activities.

Deprived of the mutual half light which is the

necessary pre-condition of negotiation and

settlement, a taxpayer, unable to deliver the

respondent from his scepticism, will watch his

case going remorsely to the Board" (our

underlining).

A taxpayer will not necessarily know all the relevant

facts. As Mason J observed in Bailey v Federal Commissioner of Taxation, cited above, at 4100, see above, relevant facts in an appeal, though not necessarily in a review,

"...include the view of the facts on which the

Commissioner has based his assessment, the manner

in which he has arrived at his assessment. These

facts are not within the knowledge of the

taxpayer; they are within the knowledge of the

Commissioner."

To give access to the applicant to the documents in dispute would be to give to the taxpayer knowledge of such facts. It is pertinent to note that Mason J continued -

"Indeed, there is very much to be said for the view

that fairness to the taxpayer demands that the

Commissioner should be compelled to give

particulars of his assessment when it issues so

that the taxpayer is adequately informed as to the

manner in which the assessment has been arrived at

and may then determine whether he will object to

the assessment and subsequently appeal. But that

is a matter for the legislature.".

It is worth noting, moreover, that courts have not taken

the view that there is any special element about taxation affairs which precludes the making of an order for particulars or discovery. See Krew and Federal Commissioner of Taxation (1971) 71 ATC 4,091, L'Estrange v Federal Commissioner of Taxation (1973) 73 ATC 4,061, and Bailey v Federal Commissioner of Taxation, cited above. In Bailey's case, at p.4105, Aickin J, with whom Barwick CJ, Gibbs, Mason and Jacobs JJ agreed, said,

"He (Jeffrey J) did, however, conclude his review

of the authorities by stating that in the exercise

of its discretion the Court will give paramountcy

to the principle that the appellant should have

the fullest particulars necessary to him to enable

him to appraise the case which he has to disprove

and should have access to documents necessary for

the proof by him of this case. With a general

proposition expressed in those general terms I

would respectfully agree."

We do not accept the contention put forward that it is

in the interests of the public that negotiations between taxpayers and the Australian Taxation Office should proceed on inadequate knowledge. We abhor the contention that "mutual half-light" should be "the necessary pre-condition of negotiation and settlement". Objections to income tax assessments are not lodged only by tax evaders and tax avoiders. There is no suggestion of any such circumstance in the present case. We think it highly undesirable that, in a case such as the present, both the Australian Taxation Office and the taxpayer should not work together to ascertain the relevant facts and to arrive at a proper conclusion having regard to the whole of the relevant facts. As we have already said, we think that there are many relevant facts which are still in the sole possession of the applicant and Mr X and that it would be useful if those facts were to be disclosed to the Australian Taxation Office. The process of ascertaining all relevant facts is likely to be enhanced if the taxpayer knows what are the facts which the Australian Taxation Office has taken into account. In so far as those facts are not the full facts of the matter, the taxpayer may supplement them with further information.

In general, we do not think it desirable that the taxation

system should proceed upon the basis of negotiation in "mutual half-light". In some countries of the world, such an approach to taxation may be accepted. But, in Australia, we think an attempt should be made to arrive at the proper tax which is payable. This can be achieved only if all relevant facts are ascertained. In our opinion, the granting of access to documents which show the factual basis upon which officers of the Australian Taxation Office have proceeded is likely to advance this process.

Mr Santamaria did not contend that, in the present case,

the disclosure of any of the documents sought would prematurely disclose information held by the Australian Taxation Office save in the sense that, there being a review now before a Taxation Board of Review, the respondent did not wish to disclose to the applicant, pending the resolution of that review, information bearing upon the matters in dispute in the review. But this is a view which, in this context, would have validity only if all steps that the respondent may take in relation to the appearance before the Taxation Board of Review can be regarded as part of the "deliberative processes" of the agency. This view is difficult to accept. In a case which is determined by a Taxation Board of Review, the Board is the decision maker, not the respondent. Therefore, the decision of the Taxation Board of Review cannot be looked upon as a relevant decision, as part of the "deliberative processes" of the respondent and the documents with which we are concerned cannot be regarded as documents prepared as recording advice, opinion or recommendation in the course of, or for the purposes of, a deliberative process which includes the Taxation Board of Review decision. This argument is better put under s.37(1)(a).

We are not able to ascertain in this case any ground for

concluding that the disclosure of these documents to the applicant would be contrary to the public interest. In communications between Ministers and between servants of the Crown and Ministers and even communications at a very high level within the Public Service and like circumstances it may well be necessary to give a special protection to communications to ensure that sensitive material is not misunderstood or misapplied by an ill-informed public. But that argument has little relevance to the discussion of a routine matter within an agency. The applicant's affairs are such a matter. There is no element of special sensitivity. As Lord Reid said in Conway v Rimmer & Anor, cited above, at p.941, with respect to routine communications with or within a public department,

"...But, so far as I know, no one has ever

suggested that public safety has been endangered

by the candour or completeness of such reports

having been inhibited by the fact that they may

have to be produced if the interests of the due

administration of justice should ever require

production at any time."

It has not been shown that public administration has suffered by the production of such documents on request.

Next, it was put that the disclosure of information to

taxpayers will prejudice the careful structure of negotiation which the Australian Taxation Office has developed in accordance with the Act. We accept that the Income Tax Assessment Act and Regulations make little provision for informing taxpayers of the reasons for assessments and the evidence which was taken into account. Certainly, the Income Tax Assessment Act contains no provisions such as ss.28 and 37 of the Administrative Appeals Tribunal Act 1975 (Cth). We accept, moreover, that the First Schedule to the Administrative Decisions (Judicial Review) Act 1977 (Cth) excludes many taxation decisions from the operation of that Act. We also accept that the Australian Taxation Office has very often had great difficulty in ascertaining all relevant facts and indeed that it relies heavily upon information communicated to it by taxpayers. But notwithstanding these matters, we are unable to accept that, in an ordinary routine case, every endeavour should not be made to obtain all the facts of the matter. We think that such a process is likely to be encouraged if the Australian Taxation Office is prepared readily to disclose to taxpayers the information upon which it acts.

We do not think it contrary to the public interest if the

disclosure of such information, from time to time, should demonstrate that an assessment or decision on an objection was wrong in law and should be set aside. Nor do we see that it is against the public interest that taxpayers, who have, or may have, a case before a Taxation Board of Review should have a full understanding of the basis on which an assessment was made.

It was put for the respondent that the disclosure of the

information would prejudice the respondent's case before the Taxation Board of Review. We think that, in principle, the question under s.36 must be whether or not the disclosure of the information is likely to enhance or inhibit the quality of the decision of the Taxation Board of Review. But we need not deal with this aspect of the matter further. In the present case, there is no aspect of the documents which are in issue the disclosure of which would be likely to prejudice the respondent's case before the Taxation Board of Review.

Nor do we think that disclosure of the Ombudsman's

documents in the present case would prejudice the Ombudsman's investigation or the respondent's response thereto.

We would add that we are not satisfied that the disclosure

of the documents in issue would lead to an undesirable confusion between the decisions that were taken and the opinions and advice that led up to them. Indeed, no argument to that effect was put.

We have read through all of the documents in dispute.

We are not satisfied that there is any one of them the disclosure of which would be contrary to the public interest. We are therefore of the view that s.36 does not exempt any of those documents from disclosure.

It is not necessary for us to deal individually with the

documents. There are one or two documents which clearly do not contain opinion, advice or recommendation and there are one or two which we would think did not form part of the "deliberative processes" of the agency. But it is not necessary for us to discuss these. Nor is it necessary for us to discuss the limitation provided by ss.36(5) with respect to factual material.

Section 37(1)(a) of the FOI Act 1982 provides that

"A document is an exempt document if its disclosure

under this Act would, or could reasonably be

expected to -

(a) prejudice the conduct of an investigation of

a breach, or possible breach, of the law, or

failure, or possible failure, to comply with

a law relating to taxation or prejudice the

enforcement or proper administration of the

law in a particular instance;

...".

Section 37(1)(a) contains a number of grounds of exemption. Mr Santamaria sought to rely on the final part of the paragraph, first, that the disclosure would "...prejudice the conduct of an investigation of a ..., failure, or possible failure, to comply with a law relating to taxation ... in a particular instance" and, secondly, that disclosure would, "...prejudice the enforcement or proper administration of the law in a particular instance". The words "in a particular instance" in our opinion, qualify each phrase in s.37(1)(a). Regard cannot be had therefore to the possible effect of disclosure in other cases.

The first part of paragraph (a) is inapplicable. There

has never been any suggestion of failure to comply with a law relating to taxation. The applicant has simply objected to the disallowance of deductions, arguing that she was carrying on a primary production business. The Commissioner simply asserts that no such business was being carried on. There is no suggestion that any offence under the Income Tax Assessment Act has been committed - that there has been a false return (s.227), that income has been knowingly and wilfully understated (s.230) or that there has been a fraudulent avoidance of tax (s.231). In his summing up, Mr Santamaria, accepted that this was "a routine" case. Such a dispute over a deduction does not fall within the words "failure, or possible failure, to comply with a law relating to taxation".

Mr Santamaria submitted that disclosure would "prejudice

the enforcement or proper administration of the law" in this case. The arguments were directed to showing prejudice to the "administration" of the law rather than to its "enforcement".

Many of the arguments submitted under s.36(1)(b) are not

relevant here. The argument that officers would be less frank in their observations is of no relevance as that process has been completed in this particular instance. One argument is that release would make settlement in this case more difficult to achieve. But we are not satisfied that this would be so or, indeed, that there should be settlement in half knowledge.

If the disclosure of the documents would hinder the proper

conduct of the proceedings before the Taxation Board of Review, then such disclosure would "prejudice the ... proper administration of the law". Section 37(1)(a) is the appropriate provision to deal with such a case. But such prejudice must be shown. In the present case, disclosure of the documents would not, we think, have a prejudicial effect upon the proceedings before the Taxation Board of Review. The granting of access would not hinder the respondent in the presentation of his case or unfairly assist the applicant in the presentation of hers. The documents in issue do not disclose names of witnesses or statements of witnesses or the like. Nor would the grant of access subvert the application of discovery rules in the Taxation Board of Review proceedings. There are no such rules.

Re Robyn Frances Murtagh and Commissioner of Taxation [1984] AATA 249 (5 July 1984)

At a glance

Court

Decision date

Before

Source

Judgment (231 paragraphs)

Re Robyn Frances Murtagh and Commissioner of Taxation [1984] AATA 249 (5 July 1984)

Legislation Cited (8)

Cases Cited (10)