Commissioner of Taxation v Darling

[2014] FamCAFC 59

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• The impact of this case on ATO policy is discussed in Decision Impact Statement: Commissioner of Taxation v Darling (Published 1 October 2014).

(Judgment by: Thackray J, Strickland J, Murphy J)

Commissioner of Taxation
vDarling and Anor

Court:

Judges:
Thackray J
Strickland J
Murphy J

Legislative References:
Auditor-General Act 1997 (Cth) - s 30(1)(b)(ii)
Family Law Act 1975 (Cth) - s 97(1); s 121
Financial Management and Accountability Act 1997 (Cth) - s 47
Income Tax Assessment Act 1936 (Cth) - s 166; s 167; s 263; s 264
Taxation Administration Act 1953 (Cth) - s 255-5(2)
Trade Practices Act 1974 (Cth) - s 155
Family Law Rules 2004 (Cth) - r 11.16(2); r 24.13

Case References:
Adam P Brown Male Fashions Pty Ltd v Philip Morris Inc - (1981) 148 CLR 170
Ambridge Investments v Baker [No 3] - [2010] VSC 545
Australian Securities and Investments Commission v Marshall Bell Hawkins - [2003] FCA 833
Australian Securities Commission v Ampolex Ltd - (1995) 38 NSWLR 504
Bailey v Australian Broadcasting Corporation -
Bourns v Raychem Corporation [No 3] -
British American Tobacco Australia Services Ltd v Cowell (No 2) - (2003) 8 VR 571; [2003] VSCA 43
Bruce F McLaren Holdings Pty Ltd v McLaren and McLaren - [2000] FamCA 675; (2000) 155 FLR 403; (2000) FLC 93-030
Commissioner of Taxation v Dalco - (1990) 168 CLR 614; 20 ATR 1370; 90 ATC 4088; [1990] HCA 3
Corporate Affairs Commission of NSW v Yuill - (1991) 172 CLR 319
Coulton v Holcome - (1986) 162 CLR 1; [1986] HCA 33
CSR Ltd v Della Maddalena - [2006] HCA 1; (2006) 224 ALR 1
Daniels Corporation International Pty Ltd v Australian Competition and Consumer Commission - [2002] HCA 49; (2002) 213 CLR 543
Denlay v Federal Commissioner of Taxation - (2011) 193 FCR 412; [2011] FCAFC 63; 2011 ATC 20-260; 83 ATR 625
Deputy Commissioner of Taxation v De Vonk - (1995) 61 FCR 564; 31 ATR 481; 95 ATC 4820; [1995] FCA 994
Deputy Commissioner of Taxation v Karas - [2012] VSC 143
Deputy Commissioner of Taxation v Law Institute of Victoria Ltd - (2010) 267 ALR 127; [2010] VSCA 7; 78 ATR 809
Farah Constructions Pty Ltd v Say-Dee Pty Ltd - (2007) 230 CLR 89; [2007] HCA 22
Federal Commissioner of Taxation v Australia and New Zealand Banking Group Ltd - (1979) 143 CLR 499; 8 ATR 140; 77 ATC 4522
Fox v Percy - (2003) 214 CLR 118; [2003] HCA 22
Griffiths & Beerens Pty Ltd v Duggan (No 2) - [2008] VSC 230
Hamersley Iron Pty Ltd v Lovell - (1998) 19 WAR 316
Hearne v Street - (2008) 235 CLR 125
Hogan v Hinch - (2011) 243 CLR 506; [2011] HCA 4
House v The King - (1936) 55 CLR 499
Industrial Equity Ltd v Deputy Commissioner of Taxation and Crawley - (1990) 170 CLR 649; 21 ATR 934; 90 ATC 5008
In re the Will of FB Gilbert (dec) - (1946) 46 SR (NSW) 318
Johnson Tiles Pty Ltd v Esso Australia Pty Ltd - (2000) 104 FCR 564; [2000] FCA 1572
Liberty Funding Pty Ltd v Phoenix Capital Ltd - (2005) 218 ALR 283; [2005] FCAFC 3
Moage Ltd (in liq) v Jagelman - (2002) 43 ACSR 173; [2002] NSWSC 953
Northbuild Constructions Pty Ltd v Discovery Beach Project -
O'Brien v Komesaroff - (1982) 150 CLR 310
Petrodel v Prest -
Piccinin v Deputy Commissioner of Taxation - [2002] FCAFC 282
Potter v Minahan - (1908) 7 CLR 277; [1908] HCA 63
Pyneboard Pty Ltd v Trade Practices Commission - (1983) 152 CLR 328; [1983] HCA 9
Spalla v St George Motor Finance - (2004) 209 ALR 703; [2004] FCA 1014
Springfield Nominees Pty Ltd v Bridgelands Ltd - (1992) 38 FCR 217
Thornton & Workcover Corporation of South Australia - [2009] FamCA 449
T & T - [1984] FLC 91-588
Warren v Coombes - (1979) 142 CLR 531; [1979] HCA 9
X7 v Australian Crime Commission - (2013) 248 CLR 92; [2013] HCA 29

Hearing date: 16 October 2013
Judgment date: 4 April 2014

Melbourne

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Judgment by:
Thackray J
Strickland J
Murphy J

REASONS FOR JUDGMENT

Introduction

1. The Commissioner of Taxation ("the Commissioner") seeks leave to appeal an order made by Macmillan J dismissing his application to be released from an implied obligation not to make use of documents he obtained from a Family Court of Australia file relating to proceedings in which he was not a party.

2. Notwithstanding the terms of his original application, the Commissioner now contends that her Honour erred in failing to recognise that he did not require permission to use the documents in the discharge of his statutory duties.

3. In the alternative, it is contended that if the Commissioner did require leave to use the documents, the primary judge erred in the exercise of her discretion in refusing leave.

The implied obligation

4. The proposed appeal concerns the scope of an obligation articulated in these terms by the High Court in Hearne v Street [2008] HCA 36 at [96]:

Where one party to litigation is compelled, either by reason of a rule of court, or by reason of a specific order of the court, or otherwise, to disclose documents or information, the party obtaining the disclosure cannot, without the leave of the court, use it for any purpose other than that for which it was given unless it is received into evidence.

5. The plurality in Hearne v Street explained, at [97] and [102], that while the obligation has been described as an "implied undertaking", the use of the word "undertaking" is misleading, since the obligation is one of substantive law arising from the circumstances in which the material was generated.

6. The Commissioner contends that the obligation does not extend to a stranger to the litigation, or at least does not extend to him. He accepts that his contention has not found clear expression in the law, but says analysis of the authorities and the principles underlying the obligation will support his argument.

Relevant facts

7. Mr Darling ("the husband") and Ms Darling ("the wife") were parties to proceedings in the Family Court of Australia which were dismissed by consent in December 2010. The dismissal occurred after the Australian Taxation Office ("the ATO") commenced an audit of the husband's affairs in June 2009.

8. In November 2009, the ATO wrote to the Court seeking advice about how to obtain access to documents in "a current proceeding". The letter concluded:

We are happy to be guided by you as to your preference to the ATO accessing documents either informally or formally.

9. The letter was followed up by a facsimile enquiring about the outcome of the request. There was no evidence of a reply to the facsimile or the earlier letter.

10. In mid-December 2009, ATO officers attended the Melbourne Registry and were given permission by the Registry Services Manager to examine the file in the proceedings between the husband and the wife. Some documents were "tagged", but copies were not made. There was no evidence of the basis on which the Registry Services Manager was asked to allow access to the file.

11. On 9 February 2010, the ATO wrote to the Court seeking permission to copy the "tagged" documents. Importantly, the letter recorded that this permission was sought pursuant to r 24.13(1)(c) of the Family Law Rules 2004 (Cth) ("the Rules"). The ATO did not give notice of its request to either of the parties.

12. On 1 March 2010, the Registry Manager responded in the following terms:

Under the terms of Rules 24.13 of the Family Law Rules the registry is not permitted to allow inspection or copying of court records to persons who are not parties to the proceedings unless proper interest can be demonstrated. In this particular instance we are not persuaded of the nature of the proper interest held by the Australian Taxation Office and would ask why the parties should not be notified of the Australian Taxation Office request in this particular file.

13. On 29 April 2010, the ATO National Access Leader sent a letter to the Court containing what was later described by the ATO as a "submission" in support of the request for access to the file. The "submission" was, in fact, a letter from General Counsel for the ATO, which recorded that:

Authorised officers of the Australian Taxation Office are seeking access to documents held by the Family Court of Australia in respect of current proceedings in which the Australian Taxation Office is not a party to the proceedings. The documents are required for the purposes of the Income Tax Assessment Acts 1936 and 1997. (original emphasis)

14. The letter acknowledged that the Rules required non-parties to demonstrate a "proper interest" to obtain copies of court documents, but went on to say:

Tax officers are prevented by a secrecy provision in s 16 of the Income Tax Assessment Act 1936 from disclosing reasons as to why copies of the documents are required from persons other than the taxpayer.

15. It was common ground before the primary judge that this assertion was incorrect, given the exemptions contained in s 355-50 of the Taxation Administration Act 1953 (Cth) (Schedule 1) (Reasons, Macmillan J, at paragraph 8).

16. In any event, the letter from the ATO's General Counsel continued:

In this matter, the tax officers sought access to the court file and to copy certain documents without using a statutory power, but consistent with ATO policy was [sic] acting on an informal basis.

I draw your attention to s263 Income Tax Assessment Act 1936 which empowers authorised officers to "full and free access to all... documents...for any of the purposes of this Act". The section further empowers the authorised officers to "make extracts from or copies of any such books, documents or papers". I enclose a copy of the complete statutory provision for your information.

17. After referring to a decision made in (unrelated) Federal Court proceedings where access to documents seized by police but held by the court was granted, the letter concluded (our emphasis):

... I respectfully request that you grant access to the Court documents requested by the authorised officers. Each officer will provide evidence of his or her authorisation signed by a Delegate of the Commissioner of Taxation ...

Further, I have no concerns if the Court notifies the parties to the litigation of the ATO actions in this matter.

... If you have any questions concerning this matter or any questions concerning our statutory powers, please telephone [a named officer in the Legal Services Branch].

18. Without notice having been given to the husband or the wife, the Registry Manager responded on 20 May 2010 in these terms:

I refer to your facsimile dated 29 April 2010 in which the Australian Taxation Office seeks access to documents held by the Family Court of Australia in respect of current proceedings in the above matter, in which the Australian Taxation Office is not a party to proceedings.

... after consultation with the Case Management Judge, we now consent to the Australian Taxation Office inspecting the file ...

19. On 3 June 2010, ATO officers attended the Melbourne Registry and made copies of the "tagged" documents, although two pages were omitted in error.

20. On 7 December 2010, the proceedings between the husband and the wife were dismissed by consent.

21. On 15 December 2010, an officer of the ATO sent an email to a member of the registry staff in the following terms:

... We would like to attend the Family Court this Friday morning. We would expect to arrive approximately 10.30am ... Once again we will use our access powers under S.263 of the Income Tax Assessment Act 1936.

22. On 17 December 2010, ATO officers attended the Court; were shown the "most recent part" of the file; and obtained copies of more documents.

23. On 3 July 2012, the Commissioner sought leave to intervene in the Family Court proceedings, with a view to seeking the following orders:

2.

The Commissioner of Taxation be released from the implied obligation not to make use of documents filed in these proceedings for purposes other than those of the proceedings, so far as is necessary to enable the Commissioner to use the documents identified in "JS-11" [sic] to the affidavit of [the ATO officer responsible for the audit] sworn on 30 May 2012, both in the past and in the future, for the following purposes:

(a)

The administration of the Income Tax Assessment Act 1936 (Cth) (the ITAA 97) and/or the Taxation Administration Act 1953 (Cth) as they apply to [the husband] and his related entities in respect of any of the income years ending 30 June 1991 to 30 June 2010 or any other income year as required ("the relevant periods"); and

(b)

The determination of any objections to assessments of tax, penalties or interest issued to or referable to [the husband] in respect of any of the income years in the relevant periods and any appeals or review thereon.

3.

The Commissioner of Taxation be given permission under rule 24.13(1)(c) of the Family Law Rules 2004 to search and inspect Court file for these proceedings and to copy and use:

(a)

page 9 of the affidavit of [the husband] dated 29 August 2008;

(b)

page 93 of the affidavit of [the wife] dated 15 May 2009; and

(c)

any other documents

for purposes other than those of these proceedings, so far as is necessary to enable the Plaintiff [sic] to use the documents for the purposes outlined in Order 2.

24. On 1 March 2013, Macmillan J made the order dismissing the application.

The relevant documents

25. The relevant documents were listed in annexure "JSS-11" to the affidavit of the ATO officer responsible for the audit. They comprised 14 affidavits with annexures; seven financial statements; four subpoenas; three documents setting out the final orders sought; a letter to the Court; and a court order.

26. The list carried a notation against each document under the heading, "Reasons why documents are necessary and relevant to the conduct of the audit".

The reasons of the primary judge

27. Macmillan J noted that r 24.13 provides that a person with "a proper interest" may inspect and copy a document forming part of the court record. She also noted the matters which the rule required her to take into account; observing that the rule does not say what constitutes a "proper interest".

28. Having noted that the request pursuant to r 24.13 was originally refused on the basis that a "proper interest" had not been shown, her Honour went on:

12. ... Whilst the use of the word "consultation" by the Regional Registry Manager in her letter dated 20 May 2010 may be a somewhat unusual description of the Court's function it is clear from the correspondence passing between the ATO and the Regional Registry Manager that a decision was ultimately made by the Case Management Judge that the Commissioner should be given permission to firstly inspect the file and subsequently photocopy particular documents on that file.

13. Whilst the husband submitted that the Commissioner had not established, as required by the Rules, that he had a proper interest in the documents in question and had instead relied upon s.263 of the Income Tax Assessment Act 1936, it is submitted that the Commissioner ought return the documents in his possession. I note that the decision to allow the inspection and copying of the documents in question was not the subject of an appeal... The question remains however what, if any, use the Commissioner can make of those documents and the information contained in those documents. Although the Court may have determined for the purposes of r 23.13 [sic] of the Rules that the Commissioner had a proper interest in the information he obtained from the Court file, it does not follow that on that basis he will be released from his obligation in respect of the use of that information.

29. Her Honour held (as was then common ground) that the Commissioner remained under an implied obligation not to make use of the documents for a purpose not related to the litigation. Referring to authority, she said the purpose of the obligation was "to preserve the parties' privacy and to encourage full and frank disclosure", both of which concepts were "of particular importance and sensitivity in relation to proceedings in this court".

30. The primary judge then recited the "implied obligation" principle enunciated in Hearne v Street. Importantly, without citing authority, her Honour added:

16. It is also clear that the obligation would bind not only the parties to the proceedings but other persons, such as in this case the Commissioner.

31. Her Honour found that a person may be released from the implied obligation if there are "special circumstances" and adopted Wilcox J's view expressed in Springfield Nominees Pty Ltd v Bridgelands Ltd (1992) 38 FCR 217 that for:

special circumstances to exist, it is enough that there is some special feature of the case which affords a reason for modifying or releasing the undertaking and is not usually present.

32. Her Honour noted that while Wilcox J had said it was not possible or desirable to propound an exhaustive list of relevant factors, he found the factors would:

plainly ... include the nature of the document, the circumstances under which it came into existence, the attitude of the author of the document and any prejudice the author may sustain, whether the document pre-existed litigation or was created for that purpose and therefore expected to enter the public domain, the nature of the information in the document (in particular whether it contains personal data or commercially sensitive information), the circumstances in which the documents came into the hands of the applicant and, perhaps most importantly of all, the likely contribution of the document to achieving justice in the latter proceeding.

33. The primary judge, having found it was "the competing public policy considerations, which go to the heart of the application", recited the following proposition of McMurdo P in Northbuild Constructions Pty Ltd v Discovery Beach Project Pty Ltd [2011] 1 Qd R 145 at [16]:

The important public policy consideration behind implied undertakings of this kind are about securing justice between the parties and maintaining public confidence in the justice system. It follows then that courts will usually relieve a party from its implied undertaking where, after giving proper consideration to the public policy reasons behind it, the circumstances of the case demonstrate this is plainly in the interests of justice.

34. The primary judge then set out s 166 of the Income Tax Assessment Act 1936 (Cth) ("the Assessment Act") which she described as imposing on the Commissioner a "statutory duty to make an assessment of taxable income". (This description is now controversial and we will therefore later set out the provision in full).

35. Her Honour recorded the Commissioner's submission that he was entitled to seek such information as he considered appropriate in discharging his duty, and she also noted that in his affidavit in support of the application the ATO officer conducting the audit had said the documents were relevant to:

(a)

The nature, value and sources of [the husband's] and his related entities [sic] assets, income and expenditure ... ; and

(b)

The nature, value and sources of the [wife's], children's and related entities [sic] assets, income and expenditure ... as they interrelated with [the husband] and his related entities' financial affairs.

36. Having rejected an argument of the husband based on the burden of proof in disputes between taxpayers and the ATO, her Honour referred to Australian Securities and Investments Commission v Marshall Bell Hawkins [2003] FCA 833 ("Marshall Bell Hawkins") where Merkel J, at [12], said that a party seeking release from the implied obligation should generally:

•

specify the documents in respect of which the modification or release is sought;

•

specify the purpose for which the modification or release is sought; and

•

satisfy the Court that the special circumstances relied upon by the party warrant or justify the modification or release sought.

37. Her Honour noted that:

24. ... Merkel J said that it was not only incumbent upon ASIC, the party in that case seeking to be released from its implied obligation, to specify the documents sought and the precise purpose for the release of each of those documents it was also incumbent upon ASIC to adduce some evidence as to its purpose, rather than make assertions as to that purpose.

38. Applying this proposition to the present matter, her Honour said that although the Commissioner had provided a list of the documents:

25. ... all I have before me in support of the release of that obligation is the general assertion in paragraph 18 of the affidavit as to the relevance of those documents to the audit. What are said to be the reasons for the release of the documents identified in the list annexed to that affidavit as to why each of those documents is said to be necessary and relevant to the conduct of the audit are similarly imprecise, general in nature and not supported by any evidence.

26. There is, in my view, very real force in the submission made on behalf of the husband that the Commissioner has not specified the purpose for which the documents are required and on that basis I could not be satisfied that there [are] "special circumstances" nor whether the release from that obligation is necessary and in the public interest to enable the Commissioner to fulfil his statutory function. [Senior counsel for the husband] relied upon the following matters:

•

There is no evidence as to the nature of the audit of the husband's affairs or what information may be required to complete that audit;

•

There is no evidence as to what information has been obtained and why that information may be insufficient to complete the audit. This being of particular significance given the wide powers the Commissioner has to obtain information;

•

There is no evidence adduced as to the basis of the belief that the documents would be relevant either generally or in relation to specific documents.

39. We accept the Commissioner's argument that the primary judge, in saying there was "real force" in the submissions, must be seen as having accepted them.

40. Her Honour then agreed with Dawe J in Thornton & Workcover Corporation of South Australia [2009] FamCA 449 that the court should be seen to "support the application of the laws in Australia". She also accepted that it is in the interests of the public for the Commissioner to have all relevant information in order to discharge his duties, but nevertheless concluded that here there was

a countervailing public interest and I cannot be satisfied on the basis of the evidence before me that there are "special circumstances" which would justify the Commissioner's release from his implied obligation ...

41. In further explaining her decision, the primary judge recorded that she was not satisfied that the release of the Commissioner from the obligation was

necessary or in the public interest or should override the public interest in maintaining the privacy of the parties to proceedings in this court and to encourage their full and frank disclosure in those proceedings.

Relevant statutory provisions

42. It will assist understanding of the arguments if we set out four provisions in the Assessment Act.

43. Sections 166 and 167 were relied upon by the Commissioner as imposing a duty on him to make an assessment of income tax:

166 Assessment

From the returns, and from any other information in the Commissioner's possession, or from any one or more of these sources, the Commissioner must make an assessment of:

(a)

the amount of the taxable income (or that there is no taxable income) of any taxpayer; and

(b)

the amount of the tax payable thereon (or that no tax is payable); ...

167 Default assessment

If:

(a)

any person makes default in furnishing a return; or

(b)

the Commissioner is not satisfied with the return furnished by any person; or

(c)

the Commissioner has reason to believe that any person who has not furnished a return has derived taxable income;

the Commissioner may make an assessment of the amount upon which in his or her judgment income tax ought to be levied, and that amount shall be the taxable income of that person for the purpose of section 166.

44. Sections 263 and 264 confer powers on authorised officers of the ATO to enter buildings and inspect documents and also confer power on the Commissioner to require any person to furnish information to him or to his authorised officers.

263 Access to books etc.

(1)

The Commissioner, or any officer authorized by the Commissioner in that behalf, shall at all times have full and free access to all buildings, places, books, documents and other papers for any of the purposes of this Act, and for that purpose may make extracts from or copies of any such books, documents or papers.

(2)

An officer is not entitled to enter or remain on or in any building or place under this section if, on being requested by the occupier of the building or place for proof of authority, the officer does not produce an authority in writing signed by the Commissioner stating that the officer is authorised to exercise powers under this section.

(3)

The occupier of a building or place entered or proposed to be entered by the Commissioner, or by an officer, under subsection (1) shall provide the Commissioner or the officer with all reasonable facilities and assistance for the effective exercise of powers under this section.

Penalty: 30 penalty units.

264 Commissioner may require information and evidence

(1)

The Commissioner may by notice in writing require any person, whether a taxpayer or not, including any officer employed in or in connexion with any department of a Government or by any public authority:

(a)

to furnish the Commissioner with such information as the Commissioner may require; and

(b)

to attend and give evidence before the Commissioner or before any officer authorized by the Commissioner in that behalf concerning the person's or any other person's income or assessment, and may require the person to produce all books, documents and other papers whatever in the person's custody or under the person's control relating thereto ...

Relevant Rule of Court

45. Rule 24.13, which governs the searching of the court record, provides:

24.13 Searching court record and copying documents

(1) The following persons may search the court record relating to a case, and inspect and copy a document forming part of the court record:

(a)

the Attorney-General;

(b)

a party, a lawyer for a party, or an independent children's lawyer, in the case;

(c)

with the permission of the court, a person with a proper interest:

(i)

in the case; or

(ii)

in information obtainable from the court record in the case;

...

(2) The parts of the court record that may be searched, inspected and copied are:

(a)

court documents; and

(b)

with the permission of the court-any other part of the court record.

(2A) A permission:

(a)

for paragraphs (1) (c) and (d) and (2) (b)-may include conditions, including a requirement for consent from a person, or a person in a class of persons, mentioned in the court record; and

...

(3) In considering whether to give permission under this rule, the court must consider the following matters:

(a)

the purpose for which access is sought;

(b)

whether the access sought is reasonable for that purpose;

(c)

the need for security of court personnel, parties, children and witnesses;

(d)

any limits or conditions that should be imposed on access to, or use of, the court record.

(4) In this rule:

court document includes a document filed in a case, but does not include correspondence or a transcript forming part of the court record.

Note 1: Section 121 of the Act restricts the publication of court proceedings.

Note 2: Access to court records may be affected by the National Security Information (Criminal and Civil Proceedings) Act 2004.

Further evidence in the appeal

46. We gave leave to the wife at the hearing of the appeal to rely on further evidence in the form of the ATO's Access and Information Gathering Manual ("the Manual"), which lays down "guidelines" for staff when using "access powers" contained in legislation administered by the Commissioner.

47. The respondents contend that the Manual is inconsistent with the argument now advanced by the Commissioner. Senior counsel for the Commissioner, at least at one point, conceded this, but submitted that the Manual was wrong.

48. Although the relevance was disputed, we will set out those parts of the Manual to which we were taken by the respondents:

1.24.23 Sections 263 and 264 of the [Assessment Act] cannot be used by the Commissioner to override the implied undertaking principle ... Broadly speaking, the ... principle provides that information obtained for the purposes of litigation may only be used for that purpose unless otherwise allowed by the court or if the information/documents have been read into evidence...

1.24.24 Sections 263 and 264 do not provide any clear legislative intention to override the implied undertaking - such a clear intention would be required to authorise what would otherwise be a contempt of court.

Do not seek to inspect or copy documents from court files by relying on access powers such as section 263, or on an information gathering notice such as section 264. To do so could constitute contempt of court.

49. Although we were not taken to them, we should also recite these additional paragraphs, since they are consistent with the Commissioner's argument:

1.24.25 Where the Commissioner is not a party to the proceedings, the implied undertaking obligation does not extend to ATO officers if the information obtained is in the public domain - that is, the documents have been read into the public record during the course of the court action.

1.24.26 If the Commissioner is able to access and copy court records (like any other member of the public) by virtue of rules and processes of the court, there is no impediment to ATO officers then using that information to assist in conducting an audit and raising an assessment, or any other proper purpose within the performance of their duties.

Do not seek to inspect or copy documents from court files without first familiarising yourself with the rules and processes of the court that holds the document. Accessing documents to which the implied undertaking attaches may constitute contempt of court.

50. Senior counsel for the husband acknowledged the point made on behalf of the Commissioner that the Manual cannot assist in determining the law, but he contended it had relevance to the question of whether leave to appeal should be granted. We turn now to that issue.

Leave to appeal

51. Although leave to appeal is required, we heard argument on both the application for leave and the appeal, in accordance with an earlier direction.

52. The Commissioner accepted that to obtain leave, he must satisfy us that there has been an error of principle and/or a substantial injustice to one of the parties. Senior counsel for the husband appeared to accept that leave to appeal could also be granted if an issue of "general importance" was involved, citing Bruce F McLaren Holdings Pty Ltd v McLaren and McLaren (2000) FLC 93-030.

53. The respondents contend there was no error of principle and no evidence of substantial injustice. In support of his argument about the absence of evidence of substantial injustice, senior counsel for the husband submitted that the Manual shows the Commissioner has been capable of performing his duties while working under the assumption that he is subject to the implied obligation.

54. Senior counsel for the husband also contended there was no evidence that the appeal raises an issue of "general importance", although we would have thought it self-evident it does, especially if the Commissioner is permitted to agitate novel propositions affecting the work of the ATO.

55. As the Commissioner primarily relied upon errors of principle identified in the grounds of appeal, and as they were fully argued, we will postpone further consideration of the issue of leave until we have considered the grounds.

The six grounds of appeal

56. Grounds 1, 2 and 3 raise issues of law. Grounds 4 and 5 take issue with the exercise of what at the time was accepted as the primary judge's discretion.

57. Ground 6 concerns the ATO's application for further access to the court file, the success of which would depend on the fate of the earlier grounds.

Can the ATO change its case on appeal?

58. The first three grounds raise issues not agitated before the primary judge. The three new issues are set out at [63] and [64] below.

59. It was accepted that new points cannot be raised on appeal if evidence could have been led at the hearing which may have prevented them from succeeding. However, the Commissioner submitted the new propositions were questions of law and did not depend upon controversial findings of fact. He also submitted it would be "expedient in the interests of justice" for them to be determined: O'Brien v Komesaroff (1982) 150 CLR 310 at 319, and see also Coulton v Holcome (1986) 162 CLR 1 at 8.

60. Senior counsel for the husband said that if the points now raised had been advanced below, it was "likely" the husband would have led evidence, if necessary by force of subpoena, to deal with the basis on which the documents had been obtained by the ATO. Two witnesses that senior counsel said could have been called were the authors of the communications from the ATO to the Court, who could give evidence of the legal basis on which they sought access to the file. However, this submission must be considered in the context of two other submissions also advanced on behalf of the husband.

61. The first was that the primary judge had made no conclusive finding as to the basis on which access to the file had been given. In this context, it will be recalled that her Honour observed that "...the Court may have determined for the purposes of [r 24.13] that the Commissioner had a proper interest in the information he obtained..." As it was then common ground that the Commissioner needed leave, the primary judge did not strictly need to determine whether access had been granted under r 24.13 or under s 263 of the Assessment Act. Given that fact, and given the tentative way in which her Honour referred to r 24.13, we accept that no definitive finding was made.

62. The second submission of senior counsel for the husband we consider relevant is the proposition (somewhat inconsistent with the first) that access was permitted only because of the use of the ATO's coercive power under s 263 of the Assessment Act, access having previously been denied under r 24.13.

63. In response, the Commissioner said he wished to argue only two new points. The "first new point" was that he was not subject to the obligation because the Case Management Judge had given permission to inspect and photocopy the documents. The Commissioner argued that:

•

if this was a valid proposition, no further evidence could have prevented it succeeding at the hearing below;

•

as access to the file had been given, the basis upon which access had been sought is irrelevant to the contention now advanced; and

•

the correspondence from the ATO speaks for itself and the new contention does not depend on what ATO officers may have had in mind when they sought access to the file.

64. The "second new point", namely that the obligation was inconsistent with, and must yield to, the statutory duty cast on the Commissioner, was said to involve construction of legislation, based on the agreed fact that the Commissioner was conducting an audit of the husband's affairs. It was argued that if this contention was valid, no evidence could have prevented the point succeeding.

65. We accept the Commissioner's argument in relation to the second new point. Although, as will become clear, we do not accept all of his contentions in relation to the first new point, we do accept the crucial proposition that the ATO correspondence speaks for itself. Any views held by ATO officers concerning the powers they thought they were exercising would be inadmissible.

66. We conclude that no evidence could have been led which would have prevented the new arguments succeeding, provided of course they reflect the law. The issues were ably and fully argued, and we consider it is "expedient in the interests of justice" to deal with them.

Grounds 1 and 2 - The assumption that there was an implied obligation

67. Grounds 1 and 2 make the same complaint, expressed in different ways.

1. The primary Judge erred in finding that the Commissioner, having been given permission by the Case management Judge to inspect the Court's file and photocopy particular documents on that file, was subject to an implied obligation not to make use of the documents for a purpose not related to the litigation between the parties...

2. The primary Judge erred in failing to find that the Commissioner, having been given permission by the Case management Judge to inspect the Court's file and photocopy documents on that file, could not be subject to, or was thereby released on [sic], any such implied obligation.

68. Senior counsel for the Commissioner described these grounds as raising the fundamental question whether or not the implied obligation extends to a stranger to the litigation. It will be seen, however, that the grounds themselves do not pose such a wide question, since they concern a case where it is contended the stranger obtained the documents with permission of a judge.

Has the factual assertion underpinning Grounds 1 & 2 been made out?

69. We will first consider the assertion that a judge gave permission for the court file to be inspected and for documents from the file to be photocopied.

70. That claim would seem, at first glance, to require no other basis than the observations made by the primary judge at [12] and [13], namely:

•

"a decision was ultimately made by the Case Management Judge that the Commissioner should be given permission to firstly inspect the file and subsequently photocopy particular documents on that file"; and

•

"the Court may have determined for the purposes of [r 24.13] that the Commissioner had a proper interest in the information ..."

71. There are three reasons we consider we are entitled to, and should, scrutinise these observations, which the appellant wishes us to treat as findings of fact.

72. First, if leave to appeal is granted, the appeal would proceed by way of a rehearing. Our obligation in conducting a rehearing would be to conduct a "real review", which involves not only the correction of errors of law, but also errors of fact: Fox v Percy (2003) [2003] HCA 22 at [25]; CSR Ltd v Della Maddalena [2006] HCA 1 at [16].

73. Secondly, as already noted, the findings (if they can be so construed) were made when they were not contentious, since it was common ground the Commissioner needed leave, regardless of what decision the Case Management Judge may have made and regardless of the basis on which it was made. Those matters now assume far greater importance, given the new propositions.

74. Thirdly, as the hearing proceeded on the papers, we are as well placed as the primary judge to determine if there is a basis for the claim underpinning Grounds 1 and 2: Warren v Coombes (1979) 142 CLR 531 at 552.

75. When we first raised this topic with senior counsel for the Commissioner, he relied upon the findings made by the primary judge, and submitted it was clear the relevant decision had been made by the Case Management Judge. He added that this was the premise on which his argument was constructed.

76. In response, senior counsel for the husband noted that the letter of 20 May 2010 said only that the decision had been made after "consultation" with the Case Management Judge, and submitted that the correspondence made it obvious that access had only been obtained by use of the Commissioner's coercive powers. He took us in particular to the email of 15 December 2010, sent to the Court just before the final inspection of the file, which advised that "once again we will use our access powers under S.263 of the Income Tax Assessment Act 1936."

77. In reply, senior counsel for the Commissioner initially appeared to concede that the documents had in fact been obtained under s 263 but then backtracked, saying it was at least "plausible" this is what had occurred.

78. With respect to the primary judge, we consider the better view is that access to the file was sought from, and granted by, members of the court's administrative staff, and that access was permitted only because of the invocation by the ATO of its coercive powers. We have formed this view for these reasons:

1.

The first tranche of the documents was inspected in December 2009, when ATO officers attended at the Court, having received no response to earlier correspondence. There is no suggestion that any judge (or even a registrar) had any involvement. Given later correspondence, a possible inference is that the ATO used its s 263 powers to obtain access, especially as the names of the parties were not disclosed in the earlier correspondence and no reasons had been advanced to show what "proper interest" the Commissioner had in seeking access to the file.

2.

The request the ATO subsequently made for access to the file and copying of documents pursuant to r 24.13(1)(c) was denied.

3.

The letter of 20 May 2010 did not say the decision had been made by the Case Management Judge. It said that, after consulting with the Case Management Judge, "we now consent to the Australian Taxation Office inspecting the file ..."

4.

Apart from stating the obvious point that the file had already been inspected (the request now was to make copies of documents), a number of observations can be made about the letter of 20 May 2010:

•

there is no indication of who "we" was intended to encompass. It could scarcely be thought to include a judge, who may give leave or permission or make orders, but who does not "consent";

•

it is entirely unclear what the Case Management Judge was asked or what he said in response, but there can be no real suggestion that his involvement was anything other than informal and/or advisory;

•

no order was extracted and we were not taken to any document on which the Case Management Judge had made any notation, which would be the regular way in which a judicial officer would signify a formal direction, instruction or order made in chambers;

•

while it is true, as the primary judge noted, there was no "appeal", the question might be asked, "appeal against what?". The parties were not even aware the ATO had made a "request". They were unaware that the file had been inspected. They were unaware of any involvement of a judge. Even had they inspected the file they would not have been entitled to see correspondence passing between the Court and the ATO - see r 24.13(4).

5.

Although the letter from the ATO's General Counsel was, at one point, couched in the form of a "respectful request", this must be read in the context of correspondence that was devoted to a fulsome explanation of the Commissioner's powers of coercion. Furthermore, the "respectful request" was followed immediately by a statement that "each officer will provide evidence of his or her authorisation signed by a Delegate of the Commissioner of Taxation". We accept the submission of senior counsel for the husband that this, read in context, is a reference to the authorisation required under s 263. And of course the letter concluded by providing a point of contact for "any questions concerning our statutory powers".

6.

Finally, there is the email of 15 December 2010 advising that the ATO officers would "once again" be attending at the Court to inspect the file pursuant to "our access powers under s 263 ..."

79. We will therefore determine the appeal on the basis that:

•

permission was not given by a judge, but rather by administrative staff;

•

permission was not given pursuant to r 24.13, rather it was refused; and

•

access was obtained by use of the Commissioner's coercive powers.

80. Given that this is the view we have formed of the evidence, it will be apparent that we consider some of the grounds of appeal are devoid of merit. However, lest we are wrong, and out of deference to the submissions made, we intend to address all of the arguments presented.

Commissioner's submissions in support of Grounds 1 and 2

81. The Commissioner submitted that the obligation does not apply to "strangers"

who have no direct or indirect involvement in the proceedings and do not obtain the documents or information from a person involved in the proceedings in circumstances that would constitute a breach of the implied obligation.

82. Although this submission may be of some academic interest, it extends well beyond the facts, since here the "stranger" obtained the documents directly from the Court, albeit, in our view, by use of coercive powers.

83. In any event, we have some difficulty in understanding how a "stranger" would come into possession of documents that would be subject to the implied obligation in the hands of the parties or their privies unless:

•

they received them through one of the parties or their privies;

•

they received them pursuant to leave granted by the court;

•

they obtained them by use of coercive powers; or

•

they fell off the back of the proverbial truck.

84. The first scenario need not be considered because the Commissioner acknowledges that a person receiving documents in such circumstances would be subject to the obligation.

85. The second scenario strictly need not be considered, given our finding that the documents were not received as a result of a grant of leave.

86. The third scenario is the one with which we are directly concerned.

87. The fourth scenario is beyond the facts of the present matter, but if the obligation does not apply to someone who claims to have stumbled over the documents, then those seeking to evade the obligation will have been presented with "an open road and a fast car" (Petrodel v Prest [2013] 1 All ER 795 at 808 per Thorpe LJ).

88. We therefore propose to confine our consideration of the submissions to those which may be seen as relevant to the second and third scenarios. (The second should be considered lest we are wrong in holding that leave was not granted).

89. The Commissioner argued that he was not subject to the obligation because he was a stranger to the proceedings, and had (allegedly) obtained the documents with the Court's permission. It was submitted that it was implicit in the alleged grant of permission that the Commissioner could use the documents in performing his duties, since otherwise the permission was of no utility.

90. The Commissioner submitted that Hearne v Street should not be read as holding that any person who knows that documents were generated in legal proceedings is subject to the obligation, since this would cast the obligation too widely, and well beyond the examples given in the judgment. He submitted that in all of those examples, the person involved had a connection to the litigation in which the documents were generated. Senior counsel made the same point in relation to the authorities relied upon by the respondents.

91. It was further argued that the difference between parties (and their associates) and strangers to litigation had been emphasised in British American Tobacco Australia Services Ltd v Cowell (No 2) (2003) 8 VR 571 ("British American Tobacco") at 38 where the Victorian Court of Appeal said:

Strangers to litigation are entitled to make what use they can of what they hear in open court (whether or not of documents) or read in the transcript of the proceedings (if they have a transcript) or see in the reasons for judgment once published (which happens not uncommonly on the internet these days).

92. Senior counsel for the Commissioner said the Victorian Court of Appeal in British American Tobacco had emphasised the difference between parties and strangers by saying parties were subject to the obligation even after the documents had been received into evidence, although he conceded this seemed inconsistent with other authority.

93. Finally, the Commissioner relied on the principle of "open justice" discussed in Hogan v Hinch [2011] HCA 4. Although not the citation to which we were taken, French CJ said in Hogan v Hinch at [5] that "the principle of legality will favour a construction which, consistently with the statutory scheme, has the least adverse impact upon the open justice principle ..." However, senior counsel for the Commissioner acknowledged that the High Court had accepted in Hearne v Street that the requirement for open justice was met by confining the operation of the obligation only to the point where documents are received into evidence. Nevertheless, he submitted that granting of access by a judge was analogous to documents being received in evidence or read in open court.

Husband's submissions in response to Grounds 1 and 2

94. Senior counsel for the husband submitted that merely being allowed access to court documents does not mean that the person given permission is released from the implied obligation, especially where they "chose not to demonstrate a proper interest and the [parties] were not given the opportunity to be heard".

95. It was also submitted it was misleading to suggest that the Commissioner was not subject to the obligation on the basis that he was "in some way equivalent to a stranger ... who has come across the information by hearing it read in open court". It was observed that the Commissioner had not heard the information read in open court and it was also argued that s 121 of the Family Law Act 1975 (Cth) ("the Family Law Act") would have required the information to be kept confidential.

96. It was claimed that the ATO had only been granted access to the file after:

•

making an assertion it had coercive powers;

•

referring to a Federal Court authority which concerned a court being a custodian of documents created independently of court processes, and

•

making an incorrect assertion that secrecy provisions prevented reasons being given for wanting to access the file.

97. Senior counsel also drew attention to Hearne v Street at [110] where the plurality approved the following dicta from Hamersley Iron Pty Ltd v Lovell (1998) 19 WAR 316 at [17] (our emphasis ):

The implied undertaking is binding on anyone into whose hands the discovered documents come, if he knows they are obtained by way of discovery.

98. We were also taken to Hearne v Street at [111] where reference was made to the obligation extending not only to "the other party" but also to "anyone else".

The wife's submissions in response to Grounds 1 and 2

99. The submissions made on behalf of the wife were to much the same effect as those made on behalf of the husband.

Discussion of Grounds 1 and 2

100. We find no merit in these grounds of appeal.

101. The plurality in Hearne v Street accepted that the implied obligation extends not only to parties, but to "anyone else" into whose hands documents come, provided they knew the material was generated in legal proceedings. The same view had been expressed by the majority in the NSW Court of Appeal, whose decision was upheld by the High Court (see Hearne v Street at [92]).

102. As the plurality in Hearne v Street said, at [103]:

... [the obligation] would be of very limited protection if it were only personal to the litigant ... For that reason the authorities recognise a broader principle by which persons who, knowing that material was generated in legal proceedings, use it for purposes other than those of the proceedings are in contempt of court.

103. Their Honours went on to say (footnote citations omitted, emphasis added):

110. If this principle did not exist, the "implied undertaking" or obligation on the litigant would be of little value because it could be evaded easily. That is why Lord Denning MR said in Riddick v Thames Board Mills Ltd: "The courts should ... not allow the other party- or anyone else - to use the documents for any ulterior or alien purpose ..." And in the same case Stephenson LJ also said: "[I]t is important to the public and in the public interest that the protection should be enforced against anybody who makes improper use of it." Use with knowledge of the circumstances would be improper use.

104. Even more tellingly, the plurality in Hearne v Street said (our emphasis):

119. The appellants submitted that the majority approach was harsh, in that it meant that any person into whose hands discovered documents came and who used them for purposes extraneous to the proceedings could be guilty of contempt on proof only of knowledge on the part of that person that the documents originated in legal proceedings, even if that person had "no idea of the legal significance of that fact". But a person who behaved in that way in relation to documents the subject of an express undertaking could be liable for contempt, even though that person was equally ignorant of the legal significance of the express undertaking.

105. The extent to which the plurality in Hearne v Street were at pains to cast the net of the obligation as widely as possible can also be seen at [121], where they rejected a suggested form of protection proposed by the appellants on the basis that the protection would "not extend to control the behaviour of persons who are not servants or agents of the litigants".

106. While we accept that Hearne v Street itself, and the authorities it relied upon, involved persons who had some connection to the original litigation, we do not consider we can depart from what were carefully considered remarks falling from the highest court in the land: Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) [2007] HCA 22 at [134], [158] and [178]. As Kirby J said in Hearne v Street, at [48], "the re-expression of the applicable common law would not, in all probability, [be] open to an intermediate appellate court".

107. In any event, when regard is had to the underlying purpose of the obligation, we see no reason to treat a stranger to the litigation any differently to someone with a direct connection (provided the stranger is aware the documents were generated in, or for the purposes of, litigation). The primary purpose of the principle is to protect privacy and encourage frank disclosure in litigation. This purpose would not be fostered by reading down the principle. As the plurality said in Hearne v Street at [120] (footnote omitted):

The narrower the avenue of liability against third parties, the weaker the incentive for litigants to give full discovery and to provide all relevant evidence. "The interests of the proper administration of justice require that there should be no disincentive to full and frank discovery" - or to full employment of all of the court's procedures directed to accurate fact finding in litigation.

108. With respect to senior counsel for the Commissioner, his reliance in argument on one sentence of the judgment of Gleeson CJ in Hearne v Street (at [3]) failed to have regard to the observation made by the Chief Justice at [4] and [5], that "the appellants were no strangers to the litigation" and accordingly it was "unnecessary to decide how far beyond the class of persons consisting of servants or agents of a party the legal obligation extends".

109. The same can be said for senior counsel's reliance on Spalla v St George Motor Finance (2004) 209 ALR 703 where only the last line of the following passage from the judgment of Ryan J of the Federal Court was cited to us in argument:

[40] In reaching the conclusion just expressed, I should not be taken as upholding the submission advanced on its behalf that Irlmond and its liquidator, as strangers to the criminal proceedings, cannot be bound by the implied undertaking if it arose on the provision of documents to counsel for Spalla and Still in the course of the trial. To be effective, the undertaking must bind the litigant by whom it is given and his or her privies ...

110. We also consider the reference to British American Tobacco to be unhelpful. The citation relied upon from that case is no more than a statement of the principle, since it is not in doubt that the obligation applies only to information that has not passed into the public domain. The reliance on the principle of "open justice" is also misplaced, for the same reason, since the implied obligation does not apply if the material has been used in open court.

111. Although mention was made in argument of s 121 of the Family Law Act, we do not see that provision as having any direct bearing. We accept the submission of the Commissioner that while s 121 affects the principle of open justice, it does so in a very specific way. We do, however, accept that the policy considerations supporting s 121 may have relevance in the exercise of the discretion to grant release from the implied obligation.

112. Had the underlying factual premise been made out, we would have accepted the Commissioner's submission that an unconditional grant of leave to inspect and copy given by a judge would carry with it a release from the implied obligation. This is because r 24.13(3)(d) requires the Court, when considering an application, to consider whether "any limits or conditions ... should be imposed on access to, or use of, the court record" and r 24.13(2A) provides that conditions may be attached to a grant of permission. If permission was granted pursuant to the rule, and no conditions were attached, the Commissioner would have been entitled to assume he was permitted to use the documents for the purpose he had stated in his original request, namely "for the purposes of the Income Tax Assessment Acts ...".

113. However, the factual foundation for Grounds 1 and 2 has not been made out for the reasons earlier discussed. For the Commissioner to succeed, he must therefore do so on some basis other than that he was granted leave of the Court to use the documents.

Ground 3 - Does the implied obligation yield to inconsistent statutory provisions?

114. This ground assumes, contrary to the proposition in Grounds 1 and 2, that the implied obligation applies to the Commissioner as a stranger to the litigation.

115. Ground 3, as amended, was expressed as follows (original emphasis):

3. Alternatively, the primary Judge erred in failing to find that any such implied obligation was inconsistent with, and must yield to:

(a)

the statutory duty cast on the Commissioner by s 166 of the [Assessment Act], to make an assessment of the amount of tax payable by the husband and his related entities from returns and any information in the Commissioner's possession; and/or

(aa)

the statutory power given to the Commissioner by s 167 of the [Assessment Act] to make an assessment of the amount upon which in the Commissioner's judgment income tax ought to be levied by the husband and his related entities; and/or

(b)

the Commissioner's responsibility for the administration of the [Assessment Act], the Income Tax Assessment Act 1997 and the Taxation Administration Act 1953 (the Tax Acts).

116. It was common ground that the implied obligation must yield to any inconsistent statutory provision. The question we are called upon to determine, and which the primary judge was not, is whether the tax laws are inconsistent with the imposition of the implied obligation on the Commissioner.

The Commissioner's submissions in support of Ground 3

117. The Commissioner submitted he has a statutory duty to recover income tax due to the Commonwealth. It was further submitted that in order to recover such tax, the Commissioner must first make an assessment. It was therefore argued that the duty to make an assessment is central to the scheme of the tax laws. It was also observed that the accuracy of an assessment will necessarily depend upon the information available to the Commissioner.

118. In arguing that the Commissioner was under a statutory duty to make an assessment of tax, attention was drawn in particular to ss 166 and 167 of the Assessment Act. Reliance was also placed on s 47 of the Financial Management and Accountability Act 1997 (Cth) as imposing a duty on the Commissioner to recover tax due to the Commonwealth.

119. The Commissioner also relied on Denlay v Federal Commissioner of Taxation (2011) 193 FCR 412, where the Full Court of the Federal Court said:

81. ... Section 166 [of the Assessment Act] imposes a duty upon the Commissioner. The interpretation of s 166 urged by the taxpayers would limit the performance of that duty to cases where the Commissioner is able to satisfy himself that his officers had not infringed any law in the gathering of the available information. It would be a remarkable state of affairs if the Commissioner were entitled, and indeed obliged, to refrain from doing what is expressed to be his duty by the terms of s 166 of the [Assessment Act] by reason of a suspicion on his part, even a reasonable suspicion, that some illegality on the part of his officers may have occurred in the course of gathering the information. A clear expression of legislative intention so to qualify the duty imposed on the Commissioner would be required to relieve him of his duty under s 166. We are unable to see that such a limitation is consistent with the unqualified language in which the duty is cast upon the Commissioner and the high importance of making an assessment based on the information available to the Commissioner ...

120. Reliance was also placed on Australian Securities Commission v Ampolex Ltd (1995) 38 NSWLR 504 ("Ampolex") where a majority of the NSW Court of Appeal held that a provision of the Australian Securities Commission Act 1989 (Cth) authorising ASIC to require a person to produce specified books was an inconsistent statutory provision to which the implied obligation must yield.

121. The Commissioner also sought to rely on an unreported decision of a single judge of the Family Court of Australia, but we consider the decision of no assistance for reasons advanced by senior counsel for the wife.

122. Finally, noting that one rationale for the implied obligation is the protection of privacy, it was submitted that the invasion of privacy is limited by the Commissioner's obligation to observe statutory limitations on disclosure. It was argued we might therefore more readily conclude that the duty imposed by s 166 of the Assessment Act does displace the implied obligation.

Husband's submissions in response to Ground 3

123. Senior counsel for the husband, while accepting that the Commissioner discharges a necessary function, submitted that statutory powers given to facilitate that function do not confer unrestricted rights and do not displace the rights of citizens in conducting their affairs.

124. Thus, for example, while the powers conferred by ss 263 and 264 of the Assessment Act are expressed in broad terms, it was submitted that the authorities demonstrate that there are limitations on such powers. Thus:

•

legal professional privilege restricts the scope of the power: Daniels Corporation International Pty Ltd v Australian Competition and Consumer Commission [2002] HCA 49; (2002) 213 CLR 543 at 553 ("Daniels Corporation");

•

public interest immunity also restricts the scope of the power: Deputy Commissioner of Taxation v Law Institute of Victoria Ltd (2010) [2010] VSCA 73 at [27]; and

•

the provisions do not permit exercise of powers that would constitute a contempt of court: Deputy Commissioner of Taxation v De Vonk (1995) 61 FCR 564 at 585 and 586 ("De Vonk").

125. The last of these limitations is of particular relevance, given that a breach of the implied obligation constitutes a contempt of court, and statutory authorisation permitting a contempt of court will not be lightly inferred: De Vonk at 585.

126. Senior counsel for the husband relied heavily on Daniels Corporation, where it was held by the High Court at [11] that:

It is now well settled that statutory provisions are not to be construed as abrogating important common law rights, privileges and immunities in the absence of clear words or a necessary implication to that effect.

127. Finally, it was submitted that while the Commissioner has been given wide powers to assist any investigation he undertakes, he had yet to exercise them to the extent permissible in the present matter. It was further argued (as it had been below) that the tax laws relieve the Commissioner of any burden to prove that his assessments are correct. It was submitted that while these features of the taxing system are not determinative, nor can they be ignored.

The wife's submissions in response to Ground 3

128. Senior counsel for the wife argued that "inconsistent statutory provisions" in the present context could only be those which required disclosure of documents otherwise protected by the implied obligation. It was therefore argued that ss 166 and 167 of the Assessment Act, which confer power on the Commissioner to make assessments and default assessments, could not be "inconsistent statutory provisions", and that the only relevant provisions would be ss 263 and 264 of the Assessment Act.

129. It was further submitted that, on the facts, no formal request had been made under s 264, and therefore the only relevant enquiry is whether s 263 is an "inconsistent statutory provision". It was submitted that s 263 is not an "inconsistent statutory provision" because the Commissioner's "access power under s 263 is not an inconsistent statutory provision". With respect, the latter seems a circular argument, which was not assisted by reliance on the Manual as being consistent with that view.

130. In the alternative, it was argued that if "inconsistent statutory provisions" were not limited to those which require disclosure of documents otherwise protected by the implied obligation, ss 166 and 167 of the Assessment Act and the provisions conferring on the Commissioner the general administration of the tax laws were not "inconsistent statutory provisions" because:

•

the Commissioner is not under a "duty" to recover tax due to the Commonwealth because s 255-5(2) of the Tax Administration Act 1953 (Cth) merely provides that he "may" recover an amount of tax, which was said to be an indication that the recovery of tax is discretionary; and

•

the Commissioner was wrong in asserting that he was unable to recover tax without making an assessment, to the extent that the husband's "related entities" are self-assessment taxpayers. For such taxpayers, the tax return itself is deemed a notice of assessment - hence the Commissioner does not himself make an assessment.

131. Finally, it was submitted that any reduced invasion of the wife's privacy due to the prohibition on disclosure of protected information does not assist in demonstrating that the Commissioner's statutory duties constitute "inconsistent statutory provisions" to which the implied obligation must yield.

The Commissioner's submissions in reply relating to Ground 3

132. In responding to the argument that coercive powers such as those in ss 263 and 264 of the Assessment Act do not displace rights, senior counsel for the Commissioner submitted that his case was not structured around those powers but rather around the duty imposed on the Commissioner by ss 166 and 167 of the Assessment Act and his responsibility to administer the tax laws. He therefore submitted it was beside the point that the powers under ss 263 and 264 are subject to legal professional privilege and public interest immunity. He further submitted that the husband's argument that ss 263 and 264 do not permit the exercise of powers that would constitute contempt is also irrelevant, since if the obligation yields to ss 166 and 167 there can be no contempt.

133. Senior counsel further argued that there was no warrant in the authorities for saying it was only statutory provisions requiring disclosure of documents which could be inconsistent with the obligation. He submitted that in Daniels Corporation the High Court had not been concerned with the reach or nature of a statutory duty but rather with what limitations were to be found in a statutory power to investigate.

134. Senior counsel also refuted the argument that the Commissioner does not have a duty to recover tax and the further argument that he has no obligation to make assessments for "self-assessment" taxpayers. We do not intend to recite his arguments, it being sufficient to say we accept his submissions in their entirety, supported as they are by the mandatory terms of s 166 of the Assessment Act and by Denlay v Federal Commissioner of Taxation (at [81]); Commissioner of Taxation v Dalco (1990) 168 CLR 614 at, inter alia, 618 and Piccinin v Deputy Commissioner of Taxation [2002] FCAFC 282 at [29].

Discussion of Ground 3

135. Senior counsel for the Commissioner was wise to eschew any suggestion that the implied obligation must give way to ss 263 and 264 of the Assessment Act, since that proposition could not stand following the decision of the High Court in Daniel's Corporation. However, this means his reliance on Ampolex was misplaced, since the reasoning in that case depended on the reasoning in Pyneboard Pty Ltd v Trade Practices Commission (1983) 152 CLR 328 and Corporate Affairs Commission of NSW v Yuill (1991) 172 CLR 319, which the High Court declined to follow in Daniels Corporation.

136. Daniel's Corporation dealt with the scope of powers conferred on the Australian Competition and Consumer Commission by s 155 of the Trade Practices Act 1974 (Cth), which we accept as being essentially equivalent to those conferred by s 263 of the Assessment Act. The High Court held that the power under s 155 to issue notices for production of documents did not authorise production of documents to which legal professional privilege attached. This is, therefore, an important illustration of the application of the "principle of legality", which appears to have had its earliest expression in Australia in Potter v Minahan (1908) 7 CLR 277 at 304, where O'Connor J quoted Maxwell On Statutes:

It is in the last degree improbable that the legislature would overthrow fundamental principles, infringe rights, or depart from the general system of law, without expressing its intention with irresistible clearness; and to give any such effect to general words, simply because they have that meaning in their widest, or usual, or natural sense, would be to give them a meaning which they were not really used.

137. We accept, as was submitted for the Commissioner, that the implied obligation is an obligation to the Court which is imposed by law and therefore does not constitute a right that attaches to the individual producing the documents: Bourns v Raychem Corporation [No 3] [1999] 1 All ER 908 at [16], cited with approval in Hearne v Street at [106]. Nevertheless, the principle underlying the obligation is a fundamental one, and is based on acceptance of the fact that:

The use of discovery involves an inroad, in the interests of achieving justice, upon the right of the individual to keep his own documents to himself; it is an inroad that calls for safeguards against abuse ... (Harman v Secretary of State for Home Department [1983] 1 AC 280 at 300 per Lord Diplock cited with approval in Hearne v Street at [107]).

138. One of those safeguards is the application of the principle of legality, which ensures that the implied obligation will not be abrogated by statute unless that abrogation is brought about by words of irresistible clarity. And as Kiefel J said in X7 v Australian Crime Commission (2013) 248 CLR 92 at [158], the requirement for "irresistible clearness" (footnote omitted):

... is not a low standard. It will usually require that it be manifest from the statute in question that the legislature has directed its attention to the question whether to so abrogate or restrict and has determined to do so.

139. One example of wording sufficient to meet this test may be found in s 30(1)(b)(ii) of the Auditor-General Act 1997 (Cth) which provides that the operation of ss 32 and 33 of that Act "is not limited by any rule of law relating to legal professional privilege or any other privilege, or the public interest, in relation to the disclosure of information or the production of documents". Sections 32 and 33 confer powers on the Auditor-General very similar to those conferred on the Commissioner by ss 263 and 264 of the Assessment Act.

140. We accept that in Daniel's Corporation it was not argued that a statutory duty such as that imposed by s 166 of the Assessment Act is inconsistent with the implied obligation. However, we consider the principle of legality should be applied just as firmly in the case of a statutory provision imposing a duty on a public officer as it is in the case of a statutory provision giving a power to a public officer. We do not consider it is logical to accept (as senior counsel for the Commissioner did) that the obligation is a limitation on the Commissioner's powers to access buildings and documents, but to then assert that the obligation is not a limitation when he is carrying out his duty to make an assessment by making use of documents obtained by use of those powers.

141. Although we have no reason to doubt the view expressed in Denlay v Federal Commissioner of Taxation (at [81]) that the Commissioner is entitled to make use of information even if there is a reasonable suspicion that some illegality occurred in the course of gathering it, that proposition is subject to what the Full Court of the Federal Court immediately went on to say in the following paragraph (our emphasis):

82. We are also unable to see that such a qualification is necessary in order to ensure that the Commissioner's officers are discouraged from disobeying the law in carrying out their functions under the [Assessment Act]. One may confidently say that, in carrying out their investigations, the Commissioner's officers are subject to the law of the land; if they transgress the law of the land, then they will suffer the consequences ...

142. We proceed on the basis that if the Commissioner's powers of coercion do not extend to demanding documents from a court file, the purported use of those powers for that purpose prima facie constitutes contempt. To then make use of the documents obtained by such means would seem to us to aggravate the contempt. And as we have seen, statutory authorisation permitting a contempt of court should not be lightly inferred.

143. We are unable to find anything in the text of s 166 and 167 of the Assessment Act which could be construed as "clear words" relieving the Commissioner from compliance with the implied obligation. Nor is there anything in the legislation which would provide a basis for concluding there is a "necessary implication" that he has been relieved from compliance. Using the phrase employed in Daniels Corporation, at [32], it is far from obvious that application of the obligation to the Commissioner would significantly impair the performance of his duties. Indeed, his own manual suggests the contrary.

144. We do not consider that the Commissioner's argument is assisted by the fact that there are controls on the way he can use information. And while we accept that use by him of information made available from the court file for the purposes of making an assessment would not infringe s 121 of the Family Law Act, that does not advance his argument either.

145. For these reasons, we find no merit in Ground 3.

Grounds 4 and 5 - Exercise of the discretion

146. These grounds proceed on the basis of acceptance that the Commissioner required leave of the Court to make use of the documents obtained from the Court file, but seek to attack the exercise of the primary judge's discretion.

4. Alternatively, if the Commissioner is subject to any such implied obligation, the primary Judge erred in finding that it was incumbent on the Commissioner to specify the purpose for which the documents were required beyond the purpose identified in the affidavit of [the ATO officer responsible for the audit] ... before the Court could be satisfied that "release from [the Implied] obligation was necessary and in the public interest to enable the Commissioner to fulfil his statutory function"...

5. The primary Judge erred in failing to find that, if the Commissioner is subject to any such implied obligation, the conduct of an audit of the tax affairs of the husband pursuant to the duty cast on the Commissioner by s 166 of the [Assessment Act], the exercise of the power given to the Commissioner by s 167 of the [Assessment Act], and the administration of the Tax Acts, was a sufficient basis for releasing the Commissioner from the implied obligation, without any necessity for the Commissioner to specify:

(a)

the nature of the audit;

(b)

the information required to complete the audit;

(c)

the information already obtained by the Commissioner;

(d)

why that information may be insufficient to complete the audit; or

(e)

the basis of any belief that the documents may be relevant to the audit.

147. Before setting out the various submissions, we note there was no complaint about the primary judge's reliance on the citation from Springfield Nominees concerning the "special circumstances" which must be shown before the discretion is enlivened. The formulation in Springfield Nominees has been applied in many other cases, albeit we accept there are other formulations. The real controversy concerns the requirements stated by her Honour at [26] in her reasons, which drew heavily on the decision in Marshall Bell Hawkins.

Commissioner's submissions in support of Grounds 4 and 5

148. Senior counsel for the Commissioner contended that the conduct of an audit pursuant to the duty imposed by the tax laws was itself sufficient basis for releasing him from the implied obligation without any necessity to satisfy the requirements referred to in (a) to (e) of Ground 5. It was submitted that her Honour erred in assuming it was necessary for those matters to be established.

149. The Commissioner submitted that "special circumstances" exist if there is "a special feature of the case that affords a reason for releasing the obligation". Support for this proposition was said to come from Liberty Funding Pty Ltd v Phoenix Capital Ltd (2005) 218 ALR 283 where the Full Court of the Federal Court said at [31]:

The notion of "special circumstances" does not require that some extraordinary factors must bear on the question before the discretion will be exercised. It is sufficient to say that, in all circumstances, good reason must be shown why, contrary to the usual position, documents produced or information obtained in one piece of litigation should be used for the advantage of a party in another piece of litigation or for other non-litigious purposes. The discretion is a broad one and all the circumstances of the case must be examined.

150. It was argued that the "good reasons" in this case included the following:

•

the material would assist the Commissioner in applying the laws of Australia and discharging his duty of assessing and collecting tax in the public interest; and

•

the complexity of the husband's affairs and the length of the audit period, covering 20 years.

151. Senior counsel acknowledged that the ATO had not specified "the particular relevance of each document to some part of the audit" but submitted there was enough evidence for her Honour to have concluded that the auditor himself saw the documents as being relevant, which was a sufficient basis for releasing the Commissioner from the obligation. Senior counsel took us in particular to annexure "JSS-11" of the affidavit of the ATO audit officer, where reasons were given why the documents were considered relevant to the audit.

152. Senior counsel accepted that the ATO was "fishing" when undertaking enquiries for the purposes of making an assessment. However, he submitted this was entirely proper, relying for support for that proposition on the remarks of Gibbs ACJ in Federal Commissioner of Taxation v Australia and New Zealand Banking Group Ltd (1979) 143 CLR 499 ("Smorgon's case"), to the effect that the Commissioner can require the production of "any books and documents that relate to the taxpayer's income or assessment, even if he does not know what those books and documents may reveal".

153. In Smorgon's case, Murphy J agreed (at 545) with Gibbs ACJ that s 263 permits the Commissioner to "fish", and Mason J (with whom Jacobs J agreed) was also of the same view, as can be seen (at 536) where it was said:

... there is nothing in the suggestion that an issue or dispute of fact must first arise between a taxpayer and the Commissioner before the Commissioner can invoke s. 264. There is simply no basis for the implication of such a limitation. The strong reasons which inhibit the use of curial processes for the purposes of a "fishing expedition" have no application to the administrative process of assessing a taxpayer to income tax. It is the function of the Commissioner to ascertain the taxpayer's taxable income. To ascertain this he may need to make wide-ranging inquiries, and to make them long before any issue of fact arises between him and the taxpayer ...

154. Our attention was also drawn to cases in which the public interest was said to have been recognised as constituting "special circumstances". These included Dawe J's decision in Thornton & WorkCover Corporation of South Australia. We pause to note that there was a hotly contested appeal in that matter, but the entire litigation was settled shortly before the planned delivery of judgment.

155. The Commissioner further argued that while affidavits filed in compliance with court orders are not in the public domain until received into evidence, they are intended to be put into evidence and thus to enter the public domain. In this context it was properly noted that trials in the Family Court take place in "open court" as provided for in s 97(1) of the Family Law Act and by r 11.16(2).

156. In reply to a submission that the information could be obtained by other means, such as by interviewing the husband, it was argued that the Commissioner's ability to obtain information should not be so constrained, especially where many of the documents are affidavits concerning the nature, value and sources of assets, income and expenditure of the respondents, and were related to a 20 year audit period.

157. Senior counsel rejected as irrelevant the husband's argument based on the burden of proof in disputes with the ATO, noting that the primary judge had also rejected that proposition. Senior counsel stressed that an audit is an information gathering exercise, not a dispute between the ATO and the taxpayer. He also rejected the submission that the release from the obligation should be refused because of the unreliability of the wife's affidavits, since matters of reliability and weight are for the Commissioner to consider.

158. Finally, he argued that it is premature for the Commissioner to reveal how the documents would be used in the audit because the Commissioner had not yet made a decision about the husband's taxable income or tax payable.

Husband's submissions in response to Grounds 4 and 5

159. Senior counsel for the husband submitted that the reason for modification or release from the implied obligation needs to be of sufficient gravity to override the private and public interests in protection of confidentiality (citing Vickery J in Ambridge Investments v Baker [No 3] [2010] VSC 545 at [33]).

160. It was also submitted that release of the Commissioner from the obligation "would tend to undermine the confidence in the confidentiality of proceedings in the Family Court and thereby undermine the willingness of parties to be open in their disclosures of personal information".

161. It was further submitted that the Commissioner was, in effect, arguing that he was entitled to access to every document because he was the Commissioner and that this fact alone constituted "special circumstances". It was said this did not flow from what had been said in Hearne v Street, and that it was necessary to show in every case, and in relation to each document, that there was some special circumstance why the document was required.

162. It was also submitted that while s 264 may entitle the Commissioner to "fish", this was not in itself sufficient to constitute "special circumstances". Instead, the Commissioner had to establish that the documents were going to assist with a particular purpose and that the documents could not be obtained elsewhere.

163. Support for the husband's case was said to come from Marshall Bell Hawkins, where it was acknowledged there was a public interest in supporting ASIC's protective function, but nevertheless Merkel J found that ASIC had not demonstrated that information available to it was insufficient for its purposes or that it was impeded by a denial of a release from the obligation. Senior counsel submitted that Marshall Bell Hawkins demonstrated the correct approach, observing that the case was of particular relevance because ASIC occupies a similar position to the ATO. He took us in particular to [22] to [25] of the judgment in Marshall Bell Hawkins, the reasoning in which the primary judge obviously followed closely in exercising her discretion in the present matter.

164. Senior counsel for the husband also recommended to us the approach taken in Ambridge Investments v Barker, where Vickery J explained the policy rationale for the implied obligation and then said (footnotes omitted, our emphasis):

[43] Consequently, it is necessary for the individual document or piece of information in respect of which the modification or release is sought, and the purpose for that modification and release, to be clearly identified: Visy Board v D'Souza. It is not sufficient to merely identify categories of documents which are said to be the subject of the application, without identifying the specific documents and the specific purpose of the modification or release sought: Visy Board v D'Souza; Marshall Bell Hawkins.

165. It was submitted that the primary judge had precisely followed the principles laid down by Vickery J and hence there was no error.

Wife's submissions in response to Grounds 4 and 5

166. In supporting the primary judge's exercise of discretion, the wife placed emphasis not only on the alleged failure of the Commissioner to describe sufficiently the purpose for which release from the obligation was sought, but also on the fact that the documents had been prepared for family law litigation and "contained personal data and commercially sensitive information".

167. It was submitted that in the present case the Commissioner had made a "global" request. Senior counsel for the wife accepted that some of the documents requested "might be relevant ... but the bulk of them can't be". He submitted her Honour was right when she said during argument, "it just might be that this was an application brought prematurely ..."

Commissioner's submissions in reply relating to Grounds 4 & 5

168. Senior counsel for the Commissioner noted that in Marshall Bell Hawkins, ASIC had sought release from the obligation as a party to the litigation and on the basis that it had just one function to perform, namely to consider whether to make a decision leading to cancellation of a licence. It had not approached the court on the basis that it had a duty such as that imposed by s 166.

169. Senior counsel also sought to distinguish Marshall Bell Hawkins on the basis that:

•

in that case there were 40 boxes of documents which had been seized by the police, which had not been individually identified, unlike the present case, where each document had been specified;

•

it involved ASIC performing only a preliminary procedural step as opposed to a substantive decision of the type the Commissioner was obliged to make when making an assessment;

•

there was no evidence that any officer of ASIC had turned his mind to the question of what information was necessary to enable the decision to be made, unlike here where reasons, albeit brief, had been given; and

•

ASIC was at liberty to use all of the affidavits filed in the substantive proceedings in Marshall Bell Hawkins.

Discussion of Grounds 4 and 5

170. As these grounds challenge the exercise of her Honour's discretion, we can only legitimately interfere if there was an error of law or fact or the discretion otherwise miscarried: House v The King (1936) 55 CLR 499 at 504-505.

171. In our view, while her Honour correctly identified that it was "the competing public policy considerations, which [went] to the heart of the application", she erred in accepting the submissions made on behalf of the respondents that the Commissioner was obliged to, or had failed to, provide evidence of the matters complained about in subparagraphs (a) to (e) of Ground 5.

172. In particular, we do not consider it was correct to say that there was no evidence of "the nature of the audit". There was, in evidence, a copy of the ATO's Audit Management Plan which had been given to the husband in 2009, and which provided a statement of matters relevant to the audit. Importantly, it included the scope of the audit, albeit expressed in general terms as follows (we note there was no suggestion that the husband had no connection with "the A Group" and "PP"):

SCOPE OF AUDIT: Comprehensive audit of the [A Group] and its associated entities.

Risks Identified:

1.

Poor economic and tax performance of the [A Group]

2.

Income tax affairs of [the husband]

3.

Income tax affairs of [another member of the husband's family].

Nature of issues:

1.

Poor economic and tax performance

Poor tax performance of the [PP Trading Trust]

2.

Income tax affairs of [the husband]

Has all assessable income been returned?

3.

Income tax affairs of [and other member of the husband's family]

Has all assessable income been returned?

173. The fact that the audit was a significant undertaking by the ATO can also be gleaned from the fact that the preliminary interview to discuss the audit plan was scheduled for August 2009 and the finalisation of the audit was not planned until November 2010. The audit plan involved interviews with the husband and the other member of his family apparently under investigation and a visit to a factory presumably associated with the business enterprises.

174. We also consider it was not necessary to require the ATO to specify "the information [required] to complete the audit". With respect to her Honour, such a requirement may be seen as a misunderstanding of the process of auditing, which is designed to ascertain the reliability of information already provided. The means by which this is achieved are many and varied but the process would surely be greatly enhanced by the auditor having access to the widest range of materials available, particularly those which the person the subject of the audit may not have anticipated the auditor would be able to access.

175. In this context, we note that the Audit Management Plan explained that the scope of the audit "may change, depending on information obtained during the audit". We accept this is an indication that the ATO was engaged in "fishing"; however, we consider that the ruling in Smorgon's case, authorising "fishing" by the ATO, should not be seen as confined to s 264 but instead represents what was described in argument as a "general and fair description" of the processes the Commissioner is authorised to undertake when performing his duty to make an assessment under s 166.

176. Furthermore, we consider it unnecessary for the ATO to be required to specify "the information [already] obtained by [the Commissioner]". In our view, it was a proper inference that the ATO officers would not have sought to obtain copies of documents, and then sought permission to use them, if the information contained in the documents was already available to them. Any obligation to state all of the information already obtained by the ATO would be an unnecessarily onerous obligation on a public officer carrying out a public duty.

177. There was nothing in the evidence to suggest that the ATO would be likely to have available to it any other sworn statements of both the husband and wife giving evidence of the way in which they had accumulated the wealth which was the subject of the application for property settlement. It is readily apparent to us why the Commissioner would wish to have access to such documents. In this connection it must be appreciated that Family Court proceedings are one of the very few occasions when it may be in the interest of a party to acknowledge or to assert conduct amounting to tax evasion. Put another way, documents in Family Court proceedings may contain information that may not be otherwise available or may be withheld in examinations conducted by the Commissioner.

178. It follows that we do not consider it was necessary for the ATO to have also been required to explain why the information already available "may be insufficient to complete the audit".

179. Similarly, we do not accept that the ATO should have been obliged to provide any further evidence than it had already provided concerning "the basis of any belief that the documents [may be] relevant [to the audit]". In addition to the brief, general reasons advanced in paragraph 18 of the affidavit of the ATO officer, further reasons were advanced in annexure "JSS-11", namely:

"ascertain the nature of the dispute in order to determine its impact upon the audit";

"ascertain the nature and value of [the wife's] assets and income vis a vis the husband"

"ascertain the nature and value of [the husband's] assets, income and expenditure";

"ascertain the nature and value of [the husband's] assets and income - funds to support his lifestyle":

"ascertain the nature and value of [the husband's] worldwide assets and income - funds to support his lifestyle";

"ascertain information about the existence of documents that may be relevant to determining the nature and value of [the husband's] assets";

"ascertain the value of [the husband's] Australian property assets";

"ascertain the outcome of the dispute in order to determine its impact upon the audit".

180. In our view, whilst these additional statements were brief and general in their terms, they provided an adequate explanation of why each document was considered relevant to the audit. We accept as valid the proposition of senior counsel for the Commissioner that it is "only after information is collected, evaluated, that the Commissioner comes to a conclusion as to which of the items will support the assessment".

181. Statements in Marshall Bell Hawkins which might be seen as requiring more of the Commissioner than he provided here should be seen in the context of the facts of that case, which can be distinguished for all of the reasons identified in the submissions of the Commissioner. Similarly, the issue in Ambridge Investments v Baker was essentially a private commercial dispute, far removed from the facts of this case. In particular, none of the policy considerations underlying the approach in Smorgon's case were present.

182. For these reasons we consider the exercise of discretion miscarried.

Ground 6 - Failure to give permission to undertake another search

183. By this ground, the Commissioner complained about the failure of the primary judge to deal with that part of his application which sought permission to search the court file again and photocopy documents.

184. The request for further access was clearly primarily directed to obtaining copies of the two pages which had been omitted from the bundle of copies previously copied, although we accept the application also requested access to "any other documents" on the file.

185. The Commissioner accepted that if he was not to be released from the obligation, it would follow that he should not be permitted further access to the file. Conversely, if he is to be released from the obligation then he should at least be entitled to obtain a copy of the two pages of documents which were inadvertently omitted at the time the other material was copied.

186. As we have determined that the Commissioner should be released from the obligation, it follows he should be given copies of the two pages omitted from the bundle previously copied. To that extent we find merit in Ground 6.

187. As to the request for permission to copy other, unspecified, documents on the file, we consider the Commissioner should first identify those documents. The primary judge, or another judge sitting at first instance, can then determine whether or not they should be released.

Should leave to appeal be granted?

188. Returning to the question of leave to appeal, it follows from what we have said that we consider there has been an error of principle. This is so notwithstanding the error related to the exercise of discretion, since our finding is that her Honour required proof of matters which ought not to have been required to be proved when exercising her discretion.

189. The question has long been debated whether it is necessary to show there has also been a substantial injustice before granting leave to appeal in a case where an error of principle has been established. As Gibbs CJ, Aickin, Wilson and Brennan JJ said in Adam P Brown Male Fashions Pty Ltd v Philip Morris Inc (1981) 148 CLR 170 at 177, "cases can be cited in support of both views". Importantly, however, their Honours went on to say:

For ourselves, we believe it to be unnecessary and indeed unwise to lay down rigid and exhaustive criteria. The circumstances of different cases are infinitely various.

190. It is true that their Honours went on to repeat with approval, the opinion of Jordan CJ in In re the Will of F.B. Gilbert (dec.) (1946) 46 S.R. (N.S.W.) 318 at 323 that:

there is a material difference between an exercise of discretion on a point of practice or procedure and an exercise of discretion which determines substantive rights. In the former class of case, if a tight rein were not kept upon interference with the orders of Judges of first instance, the result would be disastrous to the proper administration of justice. The disposal of cases could be delayed interminably, and costs heaped up indefinitely, if a litigant with a long purse or a litigious disposition could, at will, in effect transfer all exercises of discretion in interlocutory applications from a Judge in Chambers to a Court of Appeal.

191. Their Honours in Adam P Brown Male Fashions Pty Ltd v Philip Morris Inc also observed at [177] that:

It is safe to say that the question of injustice flowing from the order appealed from will generally be a relevant and necessary consideration.

192. We accept there was no specific evidence of any "injustice" that would flow if the decision was permitted to stand; however, there is injustice to the extent that the Commissioner would then have to conduct the audit without the benefit of access to documents on the court file. We accept nevertheless that the Commissioner would be in no different position than he would have been if the husband and wife had not been involved in proceedings in the Family Court.

193. On the other hand, the proposed appeal involves far more than an issue of "practice and procedure". Furthermore, while the Commissioner may be seen as having a "long purse", the Commissioner has opened the same purse to the other parties in assisting them to meet the costs of the appeal, albeit we are not advised of the extent of his beneficence. Finally, if indeed it is a relevant consideration, as counsel for the husband seemed to accept, we are of the view that the proposed appeal involves a question of substantial public importance.

194. The policy considerations underpinning the various "tests" for determining whether leave to appeal should be granted were clearly explained by French J (as he then was) in Johnson Tiles Pty Ltd v Esso Australia Pty Ltd (2000) 104 FCR 564 at [41] to [45]. Having proper regard to those considerations, and noting that the discretion afforded to us is unfettered by the terms of the legislation itself, we have concluded that leave to appeal should be granted.

Re-exercise of the discretion

195. Given the merit we have found in Grounds 4 and 5 (and thus in part of Ground 6) we propose to allow the appeal. There being no controversial matters of fact, we are able to re-exercise the discretion and propose to do so, noting that none of the parties advised they wished to adduce any further evidence.

196. Senior counsel for the husband identified eight propositions he said could be drawn from the authorities as relevant to the exercise of the discretion. Although we accept there is authority for each proposition, our examination of the authorities suggests not all have universal support. Compare, for example, Northbuild Constructions Pty Ltd v Discovery Beach Project [2011] 1 Qd R 145 at [17] and Bailey v Australian Broadcasting Corporation [1995] 1 Qd R 476 at 487, both of which were relied upon by senior counsel for the husband.

197. We also consider it important to observe that various statements in the authorities about the way in which the discretion should be exercised need to be seen in the particular circumstances of each case. Thus, for example, there will be a difference in emphasis in cases in the criminal jurisdiction than in civil matters. Furthermore, and importantly in this case, there must be a difference between cases involving private commercial disputes and those where the applicant seeking release from the implied obligation is performing a public duty.

198. Recognising there is a range of competing considerations which does not admit of exhaustive definition, we consider the discretion should be exercised in favour of the Commissioner for the following reasons:

1. The Commissioner is performing an important public duty. There is no reason to doubt the opinion of his officers that having access to the documents will assist in the conduct of the audit. The public interest is advanced by ensuring all taxpayers pay their fair share of tax. (Deputy Commissioner of Taxation v Karas [2012] VSC 143 at [59]).

2. The Commissioner is engaged in a substantial, targeted audit. It is not a "random audit" of the type discussed in Industrial Equity Ltd v Deputy Commissioner of Taxation and Crawley (1990) 170 CLR 649 (and even then the audit was sanctioned by the High Court, albeit in the context of a s 264(1) notice).

3. Although many of the annexures to the affidavits may be available to the Commissioner from other sources, the parties' own assertions about the history of acquisition of assets would be available only to the Commissioner by interview with the parties in which they may have an incentive not to be frank. Furthermore, it is common ground, as examination of "JSS-11" would in any event suggest, that many of the assets are held outside the jurisdiction (Transcript, 31 January 2013, p 12). Contrary to the submissions made on behalf of the husband below (Transcript, 31 January 2013, p 15) the way in which assets were acquired, whether in Australia or overseas, would be a most material factor in determining whether there has been a full disclosure of income.

4. As we were not taken to the relevant documents, we are unable to comment on the cogency of the evidence contained in them; however, at this point the ATO is conducting only an audit and the cogency of the evidence would be the subject of scrutiny in any proceedings that may be instituted after the Commissioner completes the audit and makes assessments.

5. No explanation was provided to support the assertion that the release of the Commissioner from the obligation would be "inconvenient" to the husband. We see no inconvenience. Nor would there be any prejudice to the husband, unless the documents do establish he has not been meeting his taxation obligations: Bailey v Australian Broadcasting Corporation at 490. In any event, mere inconvenience is not a bar to the release of the obligation as may have been suggested by the way the husband's submission was framed. See the full "test" in Griffiths & Beerens Pty Ltd v Duggan (No 2) [2008] VSC 230 at [13].

6. There are restrictions on the way in which the Commissioner can use the information obtained from the court file which would ensure that the documents do not venture into the public arena, thus ensuring there is no breach of s 121 of the Family Law Ac t: Bailey v Australian Broadcasting Corporation at 490.

7. The affidavits and financial statements were not given in discovery or obtained under a warrant but were sworn by the parties for the purposes of the proceedings and therefore in the expectation that they might be read in open court. Having served the documents, the decision as to whether the documents would pass into the public domain moved from the control of the party who filed them. Whilst in no way determinative, this factor is of significance: Moage Ltd (in liq) v Jagelam (2002) 43 ACSR 173 at [22].

8. The fact the Commissioner does not carry the burden of proving the accuracy of his assessment is, in our view, irrelevant and the primary judge was right in so concluding. The Commissioner can only assess an amount of tax payable on the basis of the information available to him. He could not legitimately assess an amount on the basis of speculation about what might be disclosed in documents to which he does not have access. If the husband chose to challenge the assessment, the fact the burden of proof is on the husband would be of little comfort to the Commissioner if he was denied use of relevant information.

9. Albeit brief, and expressed in general terms, the officer of the ATO in paragraph 18 of his affidavit, and in the annotations in "JSS-11", sufficiently stated the purpose for which the documents were required.

10. The subpoenas the Commissioner wishes to use could not contain any confidential information, nor could the application documents. The court order only records the dismissal of the proceedings. The letter to the Court merely sought an amendment to directions. The affidavits and financial statements are relevant for the reasons earlier stated.

199. In our view the most important consideration is whether or not granting the Commissioner relief from the obligation is likely to discourage litigants from making a frank disclosure. There is already a heavy obligation on litigants in Family Court proceedings to make such a disclosure, and they are required to provide a written undertaking to the court that they have done so. See Chapter 13 of the Rules and authorities too numerous to mention.

200. Most importantly, it is vital to recognise that there is already a disincentive to litigants to be frank with the Family Court about tax evasion because it is (or should be) well-known that the Court can and does refer such matters to the authorities for investigation. The authorisation for doing so was confirmed as long ago as 1984 in T & T (1984) FLC 91-588 where the Full Court said at 79,746 - 79,747:

In our opinion there can be no doubt (leaving aside any statutory prohibition) that where the evidence or other material discloses breaches of Commonwealth laws a judge of the Family Court of Western Australia exercising jurisdiction under the Family Law Act 1975 is entitled to bring these breaches to the notice of the Commonwealth Attorney-General.

...

Even if we were to assume that his Honour's direction [for a copy of his reasons to be sent to "the appropriate Commonwealth legal authority"] was an appellable "decree"', the exercise of his Honour's discretion was unexceptional on the facts of this case. His Honour found that "both parties had consistently evaded tax by deliberate understatement of income'". It might even be suggested, if his Honour had not brought such a blatant tax evasion to the notice of the authorities, that he had failed in his public duty.

201. We recognise there has been no finding of tax evasion in the present matter, noting that the proceedings settled prior to trial. The point to be made, however, is that parties ought already be aware that the information in their sworn documents may end up in the hands of investigating agencies. We are not persuaded that relieving the Commissioner of the implied obligation in some cases is likely to result in any greater disincentive to parties being frank with the Court. As we earlier noted, one of the parties may still see it as being to their personal advantage to make a full and frank disclosure of their knowledge of tax evasion.

202. In arriving at our decision it should not be thought that we condone the conduct of the ATO officers who obtained access to the file by use of coercive powers in circumstances which arguably constituted a contempt of court. In being prepared, for present purposes, to overlook this interference with the processes of the court, we have taken into account the fact that the Commissioner did not seek to use the documents without first approaching the Court to obtain release from the implied obligation. Although the Commissioner has since argued that he was not bound by the implied obligation, it appears he has awaited the outcome of these proceedings to determine whether the documents will be used (Transcript 31 January 2013, p 23).

203. It should also not be thought that we condone the making of decisions by court staff about access to the court file or the making of decisions without notice to the parties. Although we can envisage circumstances, particularly in the area of criminal investigation, where it may be appropriate for access to be granted without notice, in our view that should be the exception rather than the rule. Ordinarily notice ought to be given to the parties to allow them to be heard as to whether the requesting party has established a "proper interest" and also whether the requesting party ought to be released from the implied obligation, or whether conditions should be imposed.

The costs appeal

204. There was also an appeal against the order made by Macmillan J on 13 March by which the Commissioner was ordered to pay the costs of the husband and the wife on a party and party basis.

205. Unfortunately, there was some confusion about this issue at the hearing of the appeal, as there were no grounds of appeal directed to the costs order and it was not appreciated that the Commissioner had, in fact, appealed against the order. Accordingly, no submissions were made in respect of that issue.

206. In the family law jurisdiction, where costs do not follow the event, an appeal against a costs order is usually supported by grounds of appeal. We recognise, however, that the appeal against the substantive orders having succeeded, the basis for the costs order against the Commissioner has been removed. There would appear to be no result open other than that for the order to be set aside.

207. We would seek, if possible, to re-exercise the relevant discretion. The Commissioner, in his amended Notice of Appeal, sought an order that the respondents pay the costs of the hearing before the primary judge. While we accept that the parties have not had a proper opportunity to be heard in respect of that issue, we are currently of the view that each party should bear their own costs of the proceedings below. We have formed this view primarily because of the unsatisfactory circumstances in which the Commissioner obtained access to the documents on the court file.

208. We are anxious to avoid the parties incurring further costs or delay in the final determination of the issues in this Court. We therefore propose to discharge the order for costs made on 13 March 2013 in the event no party to the appeal seeks to be heard in respect of that issue. To that effect, we will direct that each party notify the Appeals Registrar in writing of their intentions within 14 days of the delivery of this judgment. In the event that any party seeks to be heard further, we will issue appropriate directions for the filing of written submissions on the issue of costs of the proceedings below.

Costs of the appeal

209. The Commissioner did not seek costs if the appeal was allowed, noting that he had provided funding to both respondents under the ATO Test Case Litigation Program. There was no application for costs certificates by the respondents.

210. There will accordingly be no orders as to costs.