Watson v Commissioner of Taxation

(i) Uncertainty 24 Counsel for the applicant relied on the decision of Gyles J in Industrial Equity Ltd v Federal Commissioner of Taxation [1999] FCA 1533. His Honour there held that a s 264(1)(b) notice was invalid because its terms contemplated that the recipient had to appear before the Commissioner's delegate or any authorised officer. His Honour held that s 264(1)(b) contained a true disjunctive - the notice could only require attendance before the Commissioner's delegate or before any authorised officer, not both. This point does not apply to the notice in the present case. However Gyles J went on to say (at [5]): "Although the view as to construction which I have expressed in relation to the first point is sufficient to decide the case, and I do decide the case on that basis, I incline to the view that the notice is bad on the second basis as well, as a matter of authority rather than uncertainty. I take that view because s 264(1)(b) operates by way of notice requiring a particular attendance, and it seems to me that the better view is that you should know before whom you are to attend." 25 But I think the present notice is perfectly clear. To comply with the notice the recipient has to attend at the stated time and place before one or other of Mr Loader and Mr Mason, or before both of them. If she attends before either, she has complied with the notice. If both are present, she has also complied.

(ii) "Income or assessment" 26 Counsel for the applicant argued that s 264(1) refers to the process of assessment. Once the notice of assessment or amended assessment has been issued, that process comes to an end. I do not accept this argument. The proceedings before the AAT are part of the assessment process. The AAT can affirm or set aside the disallowance decision: AAT Act s 43(1), made applicable by the Administration Act s 14ZZA. The Commissioner is to take such action, including amending any assessment, as is necessary to give effect to the AAT's decision: Administration Act s 14ZZL(1). 27 In any case, the notice in the present case plainly seeks evidence concerning the income of a person, namely the Company and the applicant. I see no reason to read down the ordinary meaning of that term.

(iii) Contempt of the AAT 28 Counsel for the applicant relied on s 63 of the AAT Act which provides: "A person shall not: (a) insult a member in or in relation to the exercise of his powers or functions as a member; (b) interrupt the proceedings of the Tribunal; (c) create a disturbance, or take part in creating or continuing a disturbance in or near a place where the Tribunal is sitting; or (d) do any other act or thing that would, if the Tribunal were a court of record, constitute a contempt of that court. Penalty: $1000 or imprisonment for three months." 29 Counsel argued that if the present AAT proceedings were proceedings in a Court the issue of the s 264 notice would be a contempt. He relied on Brambles Holdings Ltd v Trade Practices Commission (1980) 32 ALR 328. In that case the Trade Practices Commission had brought proceedings against a company alleging contravention of s 45 of the Trade Practices Act 1974 (Cth). About the time when the proceedings might have been thought ready for trial the Commission served on the company notices under s 155 of the Trade Practices Act asking questions relevant to the proceedings. It was held that s 155 vested no power in the Chairman of the Commission to serve notice upon a defendant in proceedings which had already been commenced by the Commission and that the issue of the notice was a contempt of court. Franki J held that the giving of a s 155 notice was an attempt to achieve by threats an advantage in proceedings already before the court which could not otherwise have been obtained because, the proceedings being for a penalty, the Commission was unable to require discovery or answers to interrogatories. Therefore it was a clear interference with the court (at 335, 338). 30 His Honour noted (at 338) that the function of the court was to determine issues according to law and the evidence presented to it, and not to proceed in an inquisitorial manner, endeavouring itself to ascertain the truth. 31 The possibility of contempt by the use of the Commissioner's investigative powers under the Assessment Act in the course of AAT proceedings was considered by Northrop J in Saunders v Federal Commissioner of Taxation (1988) 88 ATC 4349. In that case a taxpayer had been charged with conspiracy to defraud the Commonwealth and conspiracy to prevent or defeat the execution or enforcement of the Assessment Act. Also the taxpayer had applications for review of assessments pending before the AAT. ATO officers sought access to certain of the taxpayer's records under s 263, a section which confers on the Commissioner a right of full and free access to all buildings, books and documents etc for any of the purposes of the Assessment Act. In seeking an injunction to restrain such access the taxpayer argued, inter alia, that it would amount to a contempt of the AAT. 32 In rejecting that argument, Northrop J acknowledged (at 4352) that s 263 did not empower the Commissioner to engage in conduct amounting to contempt of court in the sense of improperly interfering with judicial proceedings before a court. His Honour went on to say (at 4355-4356): "The function of the Tribunal is to review a decision on its merits, not to determine the correctness in law of that decision. For this purpose, the Tribunal substitutes itself for the primary decision maker and may exercise all the powers and discretions conferred upon the decision maker in order to determine what decision should have been made under the enactment: Administrative Appeals Tribunal Act 1975 sec. 43(1). To assist it in reaching a decision, the Tribunal has before it all the material that was before the decision maker and any additional material that is placed before it. A decision of the Tribunal is deemed to be a decision of the decision maker: sec. 43(6). This is explained by Kitto J. in Mobil Oil Australia Pty. Ltd. v. Commissioner of Taxation (1962-1963) 113 C.L.R. 475 at p.502 where his Honour said, in the context of a Board of Review that: '… its function is merely to do over again (within the limits of the taxpayer's objection) what the Commissioner did in making the assessment - not to give a decision affecting the taxpayer's legal situation, but to work out, as a step in administration, what it considers that situation to be. The Board is 'in the same position as the Commissioner himself' as the Privy Council said in Shell Co. of Australia Ltd. v. Federal Commissioner of Taxation (1930) 44 C.L.R. 530, at p. 545. It is 'only another executive body in an administrative hierarchy': Jolly v Federal Commissioner of Taxation (1935) 53 C.L.R. 206 at p. 214 per Rich and Dixon JJ.' These comments are equally applicable to the Tribunal which exercises administrative functions, not the judicial power of the Commonwealth. Nevertheless the Tribunal is required to act in accordance with the requirements of natural justice. Viewed in this light, it is not surprising that the procedures of the Tribunal differ greatly from court proceedings. For example, there is no provision for the filing of pleadings nor for discovery or inspection of documents. Nor is the Tribunal bound by the rules of evidence. Provision is made for there to be 'parties' to the proceedings (sec. 30) but in a reference such as this the parties are not adversaries in the strict sense, and any argument they present constitutes material which assists the Tribunal in deciding what decision should be made. The decision of the Tribunal is not in the nature of a judgment for or against a particular party. Therefore it is, in my view, inappropriate to regard the Commissioner as having gained an unfair advantage as a result of his use of the sec. 263 powers. The Tribunal is in the shoes of the Commissioner and may use any material put before it in reaching its decision. The applicant would be entitled to be informed of material so obtained. Therefore, it is quite permissible for the Commissioner to obtain material pursuant to its sec. 263 powers for the purpose of placing such material before the Tribunal, if indeed this was a purpose of obtaining the information. In so doing, he is not in contempt of the Tribunal. It is also necessary in this context to consider the effect of sec. 63 of the Administrative Appeals Tribunal Act, although that section was not referred to by counsel for either party." 33 After quoting the terms of s 63, his Honour continued: "The effect of subsec. 63(d) is to treat the Tribunal as though it were a court of law for the purposes of determining what constitutes a contempt. The Tribunal has no power to punish for contempt. The section creates a criminal offence. However, it cannot be supposed that the section requires a court to ignore the nature and functions of the Tribunal when considering whether the actions of the Commissioner amount to a contempt. The Commissioner is entitled to rely upon the fact that the Tribunal is an administrative body standing, as it were, in his shoes, and is entitled to take advantage of the right conferred upon him by sec. 37(1)(b) of the Administrative Appeals Tribunal Act to lodge with the Tribunal every document in his possession or control that he considers to be relevant to the review of the decision by the Tribunal. Section 63(d), whatever its effect, does not remove or hamper that right." 34 Thus proceedings before the AAT are fundamentally different from court proceedings. Unlike a court, the AAT is exercising powers of an inquisitorial nature to endeavour itself to ascertain the truth, or at any rate to arrive at the correct or preferable decision. The AAT does not proceed on any assumption of equality between adversarially opposed parties. 35 The AAT is not restricted to material that was before the Commissioner. In reality it is highly likely that there will be more information available at the Tribunal hearing than at the assessment stage. The more relevant information that is available, the more likely it is that the correct or preferable decision will be made. The evidence Mrs Mackey might give would be obviously relevant. The Commissioner would be entitled to call her as a witness, whether or not he obtained a prior statement from her under his s 264 powers. It seems preferable for all concerned, not least the applicant, that a written statement of Mrs Mackey's proposed evidence be provided before the hearing. So I do not see the issue of the notice as interfering with or prejudicing the proper conduct of the AAT proceedings. But its effect on the criminal proceedings is another matter.

(iv) Contempt of Court 36 When civil or criminal proceedings are on foot, can a parallel inquisitorial enquiry constitute contempt of court? The expression "parallel inquisitorial enquiry" comes from the judgment of Deane J in Hammond v The Commonwealth (1982) 152 CLR 188 at 206. It is apt to characterise Royal Commissions or similar enquiries under statutory or prerogative powers of examination such as s 264 of the Assessment Act or s 155 of the Trade Practices Act. 37 In McGuinness v Attorney-General (Vic) (1940) 63 CLR 73 the High Court held that a Royal Commission could be validly appointed to enquire whether a criminal offence had been committed. However Latham CJ said (at 85): "If … a prosecution for an offence were taking place, the establishment of a Royal Commission to enquire into the same subject matter would almost certainly be held to be an interference with the course of justice and consequently to constitute a contempt of court." 38 In Lockwood v The Commonwealth (1954) 90 CLR 177 at 185 Fullagar J, in the course of disposing of an ex parte application, said that since the Royal Commission in question (the Petrov Royal Commission) had been authorised by statute, no question of contempt of court could arise. But as explained by Gibbs CJ and Stephen J in Victoria v Builders Labourers' Federation (1982) 152 CLR 25 at 54 and 72 respectively, that statement has to be understood in the context of a Royal Commission established directly by a specific statute, the Royal Commission Act 1954 (Cth). 39 In BLF the question was whether proceedings of a joint Commonwealth and Victorian Royal Commission into the affairs of the Builders Labourers' Federation would be in contempt of Federal Court de-registration proceedings in respect of the same union. The main contention was that publicity attracted by reporting of proceedings of the Royal Commission would involve a degree of pre-trial publicity, undesirable public prejudice and pressure on witnesses in the Court proceedings and, albeit subconsciously, on the judges themselves. A majority of the High Court rejected this argument. 40 The High Court held that in the circumstances of the case there was "a real risk, as opposed to a remote possibility that justice will be interfered with" (per Gibbs CJ at 56 citing Attorney-General v Times Newspapers Ltd [1974] AC 273 at 299). 41 Gibbs CJ said (at 54), after referring to the passage from McGuinness already cited: "However, the continuance of the proceedings of a commission may amount to a contempt of court even though the commission was not established with any intention to interfere with the course of justice: see Clough v. Leahy [(1904) 2 CLR at 61], McGuinness v. Attorney-General (Vict.) [(1940) 63 CLR at 84-85], and Johns & Waygood Ltd. v. Utah Australia Ltd. [[1963] VR 70 at 73-75]. For example, if during the course of a commission's inquiries into allegations that a person had been guilty of criminal conduct, a criminal prosecution was commenced against that person based on those allegations, the continuance of the inquiry would, speaking generally, amount to a contempt of court; the proper course would be to do as Townley J. did in Royal Commission Into Certain Crown Leaseholds [No.2] [[1956] QdR 239] and adjourn the inquiry until the disposal of the criminal proceeding." 42 For present purposes it is noteworthy that Gibbs CJ pointed out (at 55) that the terms of the Royal Commission did "not require (the Commissioner) to report into the very matters in issue in the Federal Court proceedings". In the same vein, his Honour said (at 59) that the proceedings in the Federal Court "are directed to very different issues". 43 Hammond concerned Commonwealth and Victorian Royal Commissions into alleged substitution of kangaroo meat for beef in meat exports. Mr Hammond had been charged under s 86(1)(a) of the Crimes Act with conspiracy in relation to such practices. After Mr Hammond had been committed for trial on this offence, he sought an injunction to restrain the Commission from conducting further hearings relating to the alleged conspiracy. An ex parte injunction was refused. Mr Hammond was called before the Commission. He then sought an injunction, pending the hearing and determination of his trial, to restrain the Commission from further inquiring into or reporting on matters touching and concerning the charge. Section 6 of the Royal Commissions Act 1902 (Cth) made it an offence for a person appearing before a Royal Commission to refuse to answer a question. Section 6DD made a statement or disclosure in answer to such a question not admissible in any civil or criminal proceeding. The High Court granted an injunction to restrain further examination of the plaintiff. 44 Gibbs CJ (with whom Mason and Murphy JJ agreed) said (at 198-199): "Once it is accepted that the plaintiff will be bound, on pain of punishment, to answer questions designed to establish that he is guilty of the offence with which he is charged, it seems to me inescapably to follow, in the circumstances of this case, that there is a real risk that the administration of justice will be interfered with. It is clear that the questions will be put and pressed. It is true that the examination will take place in private, and that the answers may not be used at the criminal trial. Nevertheless, the fact that the plaintiff has been examined, in detail, as to the circumstances of the alleged offence, is very like to prejudice him in his defence. In the Builders Labourers' Case I expressed the opinion that, if during the course of a commission's inquiries into allegations that a person had been guilty of criminal conduct, a criminal prosecution was commenced against that person based on those allegations, the continuance of the inquiry would, generally speaking, amount to a contempt of court, and that the proper course would be to adjourn the inquiry until the disposal of the criminal proceedings. Of course, the present inquiry is not simply into allegations against the plaintiff. It is an inquiry into alleged malpractices in connexion with the export of beef that are said to have caused immense damage to the reputation of our meat industry. It would be neither necessary nor right to adjourn this inquiry because a prosecution had been commenced against the plaintiff. But the public interest can be met, and the interest of justice at the same time safeguarded, if the inquiry proceeds to its conclusions without further examination of the plaintiff. I would therefore restrain the defendants from examining or resuming the examination of the plaintiff under the Commissions until the determination of the trial." (Emphasis added) 45 His Honour went on to say (at 199): "However, in my opinion, no case has been made out for an injunction restraining the defendants from inquiring into or reporting on matters touching and concerning the charge against the plaintiff. In the circumstances, where no further inquiry is contemplated, other than by examination of the plaintiff himself, it is the reporting that is sought to be restrained. There is no suggestion that the Commissioner will report directly on the question whether the plaintiff is guilty of the offence charged. It is a mere speculative possibility that anything in his report will affect the plaintiff's trial. Since it has not been established that there is a real risk that the report will interfere with the administration of justice, the application for order (b) must fail. It would very seriously impede the conduct of executive inquiries into matters of public importance if no report could be made on a matter which touched and concerned a pending criminal charge. If a report could not be made in such a case, it is difficult to see any reason why the position would be different if the charge was merely contemplated and not pending. However, as I have said, the theoretical possibility that the trial of an accused person may be prejudiced cannot justify the courts in stultifying proper inquiries into matters of public interest simply because they relate in some way to the subject of a charge. In assessing the likelihood of prejudice, the court should be entitled to assume that the executive will exercise a sound discretion in making a decision whether any part of the report that might be prejudicial will be made public while criminal proceedings are pending." (Emphasis added) 46 Importantly for the present case, Deane J said (at 206): "The mere fact that proceedings are pending in a court of law does not mean that any parallel or related administrative inquiry, conducted for proper administrative purposes, constitutes an interference with the due administration of justice in that court. For example, the existence of civil proceedings, in respect of certain alleged actions, will not ordinarily preclude proper administrative inquiries as to whether penal proceedings should be instituted in respect of those alleged actions. Thus, neither police inquiries nor committal proceedings constitute, in themselves, an improper interference with the proceedings of a court hearing a civil claim based on the subject matter of such inquiries. On the other hand, it is fundamental to the administration of criminal justice that a person who is the subject of pending criminal proceedings in a court of law should not be subjected to having his part in the matters involved in those criminal proceedings made the subject of a parallel inquisitorial inquiry by an administrative tribunal with powers to compel the giving of evidence and the production of documents which largely correspond (and, to some extent, exceed) the powers of the criminal court. Such an extracurial inquisitorial investigation of the involvement of a person who has been committed for trial in the matters which form the basis of the criminal proceedings against him constitutes, in my view, an improper interference with the due administration of justice in the proceedings against him in the criminal court and contempt of court." 47 Deane J would have gone further than the majority and granted an injunction restraining the Commissioner from reporting to the Commonwealth or Victorian Governments any findings or views as to the plaintiff's involvement in the matters alleged in the criminal charges (at 208-209). Since no further examination, other than that of the plaintiff was contemplated, the only issue on which members of the High Court differed was an injunction against the Royal Commissioner reporting. It is to be noted also that, as Gibbs CJ pointed out more than once in the passages already quoted, the Royal Commission extended well beyond the particular allegations against the plaintiff and concerned matters of great public importance. 48 In Commissioner of Taxation v De Vonk (1995) 61 FCR 564 the respondent was charged with conspiracy to defraud the Commonwealth by making a dishonest representation to the ATO that income of a partnership was exempt income, and also with other offences. Three days later he was served with a s 264 notice. In judgments delivered by Foster J and jointly by Hill and Lindgren JJ (the latter agreeing "with the substance of" Foster J's reasons (at 589)), the Full Court held: (i) The privilege against self-incrimination had been removed in relation to s 264 examinations by Administration Act ss 8C and 8D (567,579-584). (ii) The s 264 notice had not been issued for an improper purpose (567,579). (iii) The intended questioning of Mr De Vonk would cover factual areas germane to the existing criminal proceedings; these were significantly the same as and overlapped the facts relevant to the offences charged (568, 584). (iv) Mr De Vonk was entitled to rely upon the doctrine of contempt of court (576, 584-589). (v) Since the interrogation had not commenced, a declaration could only be made in hypothetical and advisory terms. Therefore liberty was granted to apply to a judge of the Federal Court on 48 hours notice should the interrogation be commenced and objection taken to specific questions (589). (vi) However, according to Foster J, the Commissioner had stated that should the Court come to the conclusion that Mr De Vonk could rely on the doctrine of contempt of court the Commissioner would not seek to examine him during the pendency of the criminal proceedings. Accordingly there was no reason for the making of any coercive orders and none were sought. An appropriate declaratory order was "not without difficulty" and, in his Honour's view, unnecessary (576). 49 The present case is on all fours with De Vonk, save only for the circumstance that the person to be examined is a witness in the criminal proceedings and not the defendant. But in my view that does not lead to a different result. 50 While the privilege against self-incrimination is a personal (and fundamental) safeguard for the individual, the doctrine of contempt of court, in the words of Foster J (at 569) "… focuses upon a court's right and, indeed, its obligation, to protect the integrity of its operations and to prevent interference with its administration of justice." 51 Of course his Honour's remarks, in the context of De Vonk, equally apply to this Court when it is protecting not the integrity of its own operations but those of a State or Territory court conducting criminal proceedings. 52 An important function of the law of contempt is to ensure that "… once the dispute has been submitted to a court of law (citizens) should be able to rely upon there being no usurpation by any other person of the function of that court to decide it according to law." 53 This passage from the speech of Lord Diplock in Times Newspaper was cited by Franki J in Brambles, 32 ALR at 340 and by Hill and Lindgren JJ in De Vonk, 61 FCR at 586. 54 The concept of usurpation is applicable when, as in the present case, there is a parallel inquisitorial enquiry into matters of central importance in the criminal proceeding. In such circumstances, the applicant does not have to go any further in order to satisfy the test of a real risk of interference with the administration of justice in pending proceedings. There is no evidence before me as to what Mrs Mackey said in her statement or at the committal proceedings. I do not need to, and should not, speculate as to what she might be asked at a s 264 examination and whether that might be contradictory or additional to her earlier evidence and what effect her answers might have on the evidence she would give at the trial and whether that effect would help or harm the applicant's case. However, the observation can be made that should the s 264 examination of Mrs Mackey proceed the applicant would be in a worse position than Mr De Vonk. If the examination proceeded (although, as mentioned above, it seems that was not going to happen anyway) at least he could object to particular questions and apply to the Court under the liberty reserved. By contrast, the applicant would not be present at any s 264 examination of Mrs Mackey and would not know what she was being asked. The suggestion, advanced in written submissions on behalf of the Commissioner, that the applicant would be provided with a transcript of Mrs Mackey's examination, is hardly an adequate solution. 55 I note that it was conceded in De Vonk that information obtained on the s 264 examination could be forwarded to the prosecution irrespective of any present intention of doing so (61 FCR at 568). While there was no such express concession in the present case, I accept that the legal position is the same, being based on statutory provisions. There is thus, at least potentially, the unfairness mentioned by Franki J in Brambles and Deane J in Hammond. In the latter case Deane J said (at 207): "It was submitted on behalf of the Commonwealth that it has not been shown that the inquiry by the Royal Commissions into the plaintiff's involvement in matters the subject of criminal proceedings involves any substantial risk of serious injustice or serious prejudice. That submission struck me as unattractive at the time when it was made. I have found that it deteriorates upon closer consideration. The pending criminal proceedings against the plaintiff are brought by the Commonwealth. The parallel inquisitorial inquiry into the subject matter of those proceedings is being conducted under the authority of the Commonwealth. As I have said, the conduct of that inquisitorial inquiry is to no small extent following the general form of a criminal trial shorn of some of the privileges and safeguards which protect an accused in such a trial. The plaintiff has been compelled to be sworn as a witness and has been subjected to questioning in the course of that inquiry. Indeed, his refusal to answer questions has led to his being charged, on the information of an officer of the Australian Federal Police, with an offence under the Royal Commissions Act 1902 (Cth). It is not, in my view, necessary to go beyond these things. In themselves, they constitute injustice and prejudice to the plaintiff." 56 I repeat that the present case is not concerned with the examination of the applicant herself, but there remains the element of interference with criminal proceedings. Prosecutors ordinarily cannot obtain evidence by examination under statutory power. 57 Finally, it will be recalled that in Saunders there were also criminal proceedings pending against Mr Saunders. Northrop J accepted (at 4352) that s 263 did not empower the Commissioner to engage in conduct amounting to contempt of court "in the sense of improperly interfering with judicial proceedings in a court". However in finding there was no risk of contempt his Honour said: "On the facts, I am not satisfied that the administration of justice will be interfered with by the Commissioner so as to constitute a contempt of the pending Supreme Court proceedings. I am not satisfied that the Commissioner exercised his powers under sec. 263 of the Tax Act in order to obtain information for use against the applicant in the criminal proceedings. It appears from the transcript that the information would be conveyed to the D.P.P. for the purposes of obtaining civil remedies only. There is no evidence to support a finding that the information would be used against the applicant in the pending criminal proceedings against him. In fact, the tax officer expressly denied that the information would be used for this purpose. In my opinion, this factor distinguishes this case from that in Brambles' case and Hammond's case where there was a real risk that the information obtained by the Trade Practices Commission and the Royal Commission respectively, would be used against the respective applicants in pending proceedings." 58 With respect, I do not think such a conclusion could be reached today in the light of De Vonk. In that case the Full Court found there would be a real risk of interference with the criminal proceedings notwithstanding a finding that the Commissioner did not issue the s 264 notice for the purpose of obtaining evidence or information for the criminal proceedings and notwithstanding a lack of anything more than a possibility that the information obtained might be used in the criminal proceeding. 59 Moreover, both BLF and Hammond arose in the context of Royal Commissions concerned with matters of great public importance, extending well beyond the subject matter of the litigation in question. By contrast, in the present case the criminal proceedings and the s 264 examination (and the AAT appeals for that matter) are all essentially concerned with the disclosure or otherwise of the Company's income at the Centre. Examination under s 264 would be a usurpation of the court's function in conducting the criminal proceedings.

Relief 60 In my opinion the appropriate relief is an injunction restraining the Commission from acting on or giving further effect to the notice until the hearing and determination of the criminal proceeding or further order. 61 Senior Counsel for the Commissioner stated that his client would not oppose an adjournment of the AAT proceeding were the applicant to make such an application and in that case would also adjourn the s 264 proceeding. It is perhaps unfortunate that such a sensible arrangement was not reached at the outset. Much trouble and expense would have been saved. In any event, a pragmatic solution of this kind would accord with the legal rights and obligations of the parties. 62 As to costs, I will give leave to the Commissioner to file and serve submissions within 14 days. The applicant may file and serve submissions within 14 days thereafter.

I certify that the preceding sixty-two (62) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Heerey.

Associate: Dated: 21 December 1999 Counsel for the Applicant: M Bearman

Solicitor for the Applicant: Arnold Bloch Leibler

Counsel for the Respondent: C M Maxwell QC and M Sloss

Solicitor for the Respondent: Australian Government Solicitor