Nestle Australia Limited v. Federal Commissioner of Taxation.

Wilcox J

Federal Court of Australia

Judgment date: Judgment handed down 30 July 1986.

Wilcox J.

This is a further interlocutory application relating to a pending application pursuant to which the applicant, Nestle Australia Limited, seeks review under the Administrative Decisions (Judicial Review) Act 1977 of two decisions of the Deputy Commissioner of Taxation refusing to extend time for payment of income tax. The relevant assessments, covering the calendar years 1970 to 1981, were made pursuant to sec. 136 of the Income Tax Assessment Act 1936. The assessments followed an investigation, extending over some years, into the business affairs of the applicant. The applicant is a subsidiary of Nestle SA, a Swiss corporation, and is said to sell much of its output to a Bahaman corporation, Nestle Products Limited, another subsidiary of Nestle SA.

Questions arose between the parties as to the proper ambit of discovery, in the principal proceedings, on behalf of the respondent. On 14 February 1986 I resolved that matter by making an order requiring the respondent to give discovery "in respect of all documents recording the steps taken during the course of:

  • (a) the investigation undertaken by or on behalf of the respondent in relation to the business conducted by the applicant during the years 1970 to 1982 inclusive; or
  • (b) the formation of an estimate by the respondent of the amount of the taxable income that might be expected to arise from that business;
  • but not including documents relating merely to the basis upon which the said estimate was made".

In due course the respondent filed a list of documents. Part 2 of Sch. 1 of the list refers to various documents, identified by date and general description, which are claimed to be privileged from production on the grounds referred to in an affidavit of a taxation officer, Klaus Dieter Fink, who has since October 1982 been in charge of the investigation of the affairs of the applicant by the Australian Taxation Office, stated that the documents in respect of which privilege is claimed fall into the following categories:

``(a) Documents and information provided by trading competitors of the applicant.

(b) Documents and information provided by Foreign Governments.

(c) Documents and information provided by or through the services of the Department of Foreign Affairs.

(d) Documents and information provided by or through the Department of Trade.

(e) Documents and information in respect of which a claim for immunity is made pursuant to sec. 16 of the Income Tax Assessment Act 1936.''

Subsequently the respondent abandoned the claim for privilege in relation to documents falling within categories (c) and (d), so that it is unnecessary for me to consider whether documents would be privileged by reason of falling within either of those categories. There was also some reorganisation of the categories within which particular documents are said to fall. The position now is that some documents are said to fall within more than one of categories (a), (b) or (e).

The category containing the greatest number of documents is (e): immunity pursuant to sec. 16 of the Act. The claim made in respect of that category does not depend upon the contents of particular documents. The claim is made in terms of general principle and can be determined without any inspection by me of any of the subject documents.

Section 16(2) and 16(3) provide:

``16(2) Subject to this section, an officer shall not either directly or indirectly, except in the performance of any duty as an officer, and either while he is, or after he ceases to be an officer, make a record of, or divulge or communicate to any person any information respecting the affairs of another person acquired by the officer as mentioned in the definition of `officer' in sub-section (1).

16(3) An officer shall not be required to produce in Court any return, assessment or notice of assessment, or to divulge or communicate to any Court any matter or thing coming under his notice in the performance of his duties as an officer, except when it is necessary to do so for the purpose of carrying into effect the provisions of this Act or of any previous law of the Commonwealth relating to Income Tax or for the purpose of carrying into

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effect the provisions of a State income tax law or provisions of the law of a State referred to in section 15 of the Income Tax (Arrangements with the States) Act 1978 or the provisions of section 78 of the Income Tax (Arrangements with the States) Act 1978.''

The term ``officer'' is defined widely, by subsec. (1) and (1A), to include a person who is or has been appointed or employed by the Commonwealth and who, by reason of that appointment or employment, or in the course of that employment, has acquired information respecting the affairs of any other person, disclosed or obtained under the Act or under a previous Commonwealth law relating to income tax. The definition is apt to include those officers of the Australian Taxation Office who have, in the course of their employment, obtained information about the business affairs and taxation liability of the appellant.

Counsel for the respondent argues that the discovery of documents by his client which reveal the course of the investigation into the affairs of Nestle by the Taxation Office would contravene subsec. (2). An officer of the Australian Taxation Office would be required to divulge the information contained in the documents to those persons who, on behalf of the applicant, inspected the discovered documents. The principle behind sec. 16(2), counsel submits, is that information held by the Commissioner is, prima facie, to be regarded as confidential.

There is no doubt about the object which Parliament sought to achieve in enacting sec. 16(2). However, the prohibition contained in the subsection is not absolute. The prohibition upon disclosure is subject to the important qualification ``except in the performance of any duty as an officer''. If, by reason of some legislative provision or some order of a competent authority, including a court, an officer is under a duty to divulge or to communicate information, the officer does not infringe the subsection in so doing.

This interpretation of subsec. (2) is supported by authority. In
Mobil Oil Australia Pty. Ltd. v. F.C. of T. (1962-1963) 113 C.L.R. 475 the High Court of Australia had to consider whether sec. 16 of the Income Tax Assessment Act precluded the giving of certain evidence to a Taxation Board of Review. Dixon C.J., and McTiernan and Taylor JJ. in a joint judgment, disposed of the question by reference to sec. 16(4)(b) of the Act, which deals specifically with boards exercising functions under the Act, but Kitto J. - with whom Dixon C.J. expressed general agreement - put the matter on a wider basis. At p. 500 his Honour said this:

``It is clear enough that neither the Commissioner nor any authorized member of his staff is forbidden to divulge or communicate information to a Board of Review with a view to assisting the Board in its consideration of a reference; for to give such assistance is in the performance of their general duty under the Act: see
Canadian Pacific Tobacco Co. Ltd. v. Stapleton (1952) 86 C.L.R. 1, at pp. 6, 10, 11, and indeed sub-s. (4)(b) specifically provides that nothing in the section shall be deemed to prohibit the Commissioner, Second Commissioner, or a Deputy Commissioner, or any person thereto authorized by him, from communicating any information to a board exercising any function under the Act. An officer thus communicating information to the Board is, of course, not responsible for any subsequent disclosure of it which the Board may make to another person; but if he divulges the information to the Board in the hearing of other persons he himself, in my opinion, divulges it to those persons as well as to the Board, and by so doing commits a breach of s. 16 unless his divulging of the information to those other persons is `in the performance of any duty as an officer'. It seems clearly to be in the performance of such a duty if (as may be assumed) the officer is required by the Board (or its Chairman) to give the information in the presence of the other persons; for the Board (or the Chairman) has authority to impose upon the officer a duty to communicate the information to the Board in the course of the review, and the discretionary power of the Chairman under reg. 38(1) to direct the manner in which the review shall be conducted plainly extends to determining who may be present at the proceedings.''

Recently Enderby J., in the Supreme Court of New South Wales, had to consider a case like the present, in which the Commissioner relied, inter alia, upon sec. 16(2) to resist

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inspection by the taxpayer of documents sought to be used in a pending appeal to that Court against an assessment to tax: see
Re Fortex Pty. Limited 86 ATC 4351. At p. 4357 his Honour said:.

``In my opinion, sec. 16(2) does not give privilege in a situation where an `officer' is ordered by a court, in a situation such as this, in the interests of ensuring a fair and just hearing of an appeal, to allow a person, such as the applicant, to have inspection of a document for which the only privilege claimed is a sec. 16 privilege. Such an inspection would be a divulging or communicating of information to another person but it would be a divulging or communicating done as an incident to the performance of his duty as an officer because those duties, in my opinion, extend to complying with orders of a court in the conduct of litigation such as this in which the respondent is a party.''

Section 16(3) of the Act refers to production of documents in court. Documents produced for inspection pursuant to an order for discovery are not produced in court, so that the provision appears to have no application to the present case. But, as subsec. (3) is relied upon by counsel for the respondent alternatively to sec. 16(2), I should refer to the authorities upon the application of that subsection.

O'Flaherty v. McBride (1920) 28 C.L.R. 283 the High Court held that the predecessor of sec. 16(3) - sec. 9(4) of the Income Tax Assessment Act 1915 - operated to exclude the admission into evidence of a report relating to the affairs of a taxpayer the subject of a criminal prosecution for making a false return of income. The Court held that there was nothing in the facts set out in the stated case to show that the report was ``necessary for the purpose of carrying into effect the provisions'' of the Act. Consequently the report should not be produced for the purpose of enabling the Court to determine an additional ground of objection: public interest immunity.

O'Flaherty has been distinguished in a number of subsequent decisions. In
Krew v. F.C. of T. 71 ATC 4091 Walsh J. dealt with an objection to the production on subpoena of an investigator's report into a case before the Court, an appeal from a decision of the Taxation Board of Review. His Honour referred to decisions on public interest immunity subsequent to O'Flaherty before deciding that the documents should be produced for inspection by the Court in connection with the claim of public interest immunity. Although sec. 16(3) was referred to, this subsection was not seen as creating any bar to production.

L'Estrange v. F.C. of T. 73 ATC 4061 Menzies J. followed Krew in ordering discovery by officers of the Commissioner of certain documents in their possession. This also was a taxation appeal.

Norper Investments Pty. Limited v. D.F.C. of T. 77 ATC 4211 concerned an objection by the Deputy Commissioner to a subpoena issued by a taxpayer against whom the Deputy Commissioner had brought a winding up petition. The subpoena sought the Deputy Commissioner's file relating to the company for a specified financial year together with all documents filed since that date. One of the grounds of objection was sec. 16(3) of the Act. Needham J. rejected this ground saying, at p. 4212:

``It is suggested in the objection that the hearing of a petition for the winding-up of the company is not a procedure engaged in for the purpose of carrying into effect the provisions of the Act. In my opinion the Commissioner in recovering tax is acting for the purpose of carrying into effect the provisions of the Act. It is suggested that the issue of a petition for the winding-up of a company upon which an assessment has been served is not collecting or attempting to collect tax.

In my opinion the issue of the process by the Commissioner, while it is a process available to him under the Companies Act, is an act done by him for the purpose of carrying into effect a duty imposed upon him under the Act of collecting taxation as it is assessed. I think it would be quite unreal to say that he was, in issuing a petition, not performing that duty which is imposed upon him under the Act.''

D.F.C. of T. v. Glastonbury Steel Fabrications Pty. Limited 84 ATC 4639 was also a case in which there was pending before the Court a winding up petition brought by the Deputy Commissioner. The taxpayer served a subpoena to produce the documents upon which

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the assessment was based and also sought discovery of these documents. Both claims were disallowed. McLelland J. stated two reasons: that he was not satisfied that the documents were required for any legitimate forensic purpose and that he was not satisfied ``that their production is necessary for the purposes of carrying into effect the provisions of the Income Tax Assessment Act''. His Honour did not elaborate upon the second reason or discuss the ambit of the purpose referred to in subsec. (3).

Finally, in Fortex, Enderby J. held that sec. 16(3) did not operate to prevent production to the court, and discovery to the other side, of documents necessary, in the interests of a fair trial, to be produced or discovered.

If, contrary to my own opinion, an order for production of documents by the Commissioner to the representatives of a party with whom he is currently engaged in litigation is a requirement ``to produce in Court'' those documents, the question arises in any particular case whether the production is necessary ``for the purpose of carrying into effect'' the provisions of a relevant Act; in this case the Income Tax Assessment Act. This raises a question as to the meaning of ``carrying into effect'' the Act.

O'Flaherty indicates that not all litigation upon which the Commissioner is engaged is litigation ``carrying into effect'' the Act but the decision gives no guidance as to the meaning of that phrase. Moreover, the decision in O'Flaherty is dominated by reasoning relating to public interest immunity which has been rejected in more recent decisions.

The authorities to which I have referred make clear that the concept of carrying into effect the purpose of the Act is not a narrow one. It extends to appeals against both an original assessment - Fortex - and a decision of a Board of Review - Krew - as well as to litigation to collect assessed tax - Norper Investments.

The present litigation is designed to obtain judicial review of a decision made by the Commissioner under sec. 206 of the Income Tax Assessment Act. The Administrative Decisions (Judicial Review) Act engrafts onto that section a qualification that the decision made by the Commissioner is susceptible of judicial review in this Court and, if any of the grounds stipulated by sec. 5 of the latter Act are made out, that it may be quashed or set aside pursuant to sec. 16 of that Act.

It appears to me that litigation for the review under the Administrative Decisions (Judicial Review) Act of a decision made by the Commissioner under the Income Tax Assessment Act is just as much litigation concerned with carrying into effect the provisions of the latter Act as an appeal from an assessment to tax or a proceeding for collection of the assessed tax. In each case the litigation involves the operation of the Income Tax Assessment Act. It is accurate to describe the production of documents in the course of judicial review of a decision under sec. 206 as being production for the purpose of carrying the provisions of that Act into effect.

It follows that, even if production upon discovery is properly to be described as a divulgement to the Court, sec. 16(3) has no application to the present case. I reject the objection to production in relation to category (e).

Category (a) consists of documents and information provided by trading competitors together with some correspondence between the Australian Taxation Office and those competitors. In his affidavit Mr Fink stated that these documents ``disclose confidential business dealings, pricing structures and margins of operations disclosure of which would or could be injurious to the operations of the company which provided the information''. He said that the information was obtained from those companies by the respondent on the basis of a promise of confidentiality and he expressed the belief that disclosure would be prejudicial to the public interest in that it would make those companies reluctant to supply information to the Commissioner in the future.

Two of the competitors referred to by Mr Fink are Carnation Australia Pty. Limited and Wander Australia Limited. Carnation has now been acquired by Nestle and an affidavit has been made by Mr E.J.J. Pope, a director of Carnation, confirming that Carnation authorises the respondent to make available for inspection and copying by the applicant all documents held by him which refer to transactions entered into by Carnation or its subsidiaries between the period 1 January 1970 and 31 December 1980.

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An affidavit of Mr D.A.K. Ferguson, solicitor for the applicant, annexes a letter written to the Deputy Commissioner on behalf of Wander, containing a similar authority in respect of documents relating to transactions of that company.

Having regard to these authorities there is no ground for withholding from the applicant those documents which fall within category (a) and which relate only to transactions by Carnation or Wander. It is clear that neither company feels that its commercial interests will be prejudiced by production of the documents. Neither is there concern about future relationships with the Commissioner. Consequently, I propose to disallow the claim for privilege in so far as it extends to such documents.

At the conclusion of the argument I directed that the solicitor for the respondent deliver to my associate copies of the documents in categories (a) and (b) in respect of which privilege is claimed. I asked that, where privilege is claimed in relation to part only of a document, the relevant part be highlighted. This has been done. I have inspected these documents. In relation to those documents which fall within category (a), other than those referring to Carnation and Wander, the claim for immunity is, in my opinion, generally well founded. Several competitors of Nestle have given to the Commissioner information of the type described by Mr Fink. It is not difficult to see that disclosure of this information to Nestle might commercially disadvantage the company supplying the information. Although all of the material relates to the position some time ago, some of it in the early 1970s, Mr Fink has deposed that - whilst prices and unit costs have changed over the years - pricing policies and mark up percentages, in the case of some products and some companies, have not changed drastically over the relevant period.

I have carefully considered the parts of these documents highlighted by Mr Fink in yellow, and which are sought to be withheld from inspection. Some of these passages are marked ``O/SO'', which I take to mean ``outside order'', a reference to the qualification on my order for discovery of 14 February that the documents to be discovered are not to include documents relating merely to the basis upon which the estimate of taxable income was made. I think that these passages do only refer to that basis. They are able to be deleted from any copies supplied and the course which has been taken is appropriate.

Most of the passages have been highlighted in yellow because of the claim for public interest immunity. I uphold most of the claims thereby made. Apart from the Carnation and Wander documents, there are a few passages in respect of which the claim is not well founded. I have marked these passages in pink highlight over the yellow. I have marked the folder containing the documents relevant to category (a) with the letter ``a'' in pink highlight. I direct that the respondent produce for inspection by the legal representatives of the applicant all documents in that folder which are not wholly ruled through in yellow highlight. However, the copies supplied are to omit all passages marked in yellow, other than those passages marked in yellow which have been over-highlighted in pink.

The claim made in respect of category (b) documents is that these documents contain information provided by various foreign governments, including some having Double Tax Agreements with Australia, upon the basis that the information would be treated confidentially. Mr Fink has deposed that in some cases the material was provided upon the basis that the identity of neither the person within the foreign government who provided the information nor of the government itself would be revealed. Mr Fink has expressed the view that disclosure of this information would be contrary to the public interest in that it ``would seriously inhibit the respondent's ability to obtain information which is provided voluntarily by officers of Foreign Governments and would prejudice the respondent's ability to obtain information essential to enquiries and investigations''. This claim is supported by an affidavit of Mr J.H. Brook, First Assistant Secretary in charge of the Legal and Consumer Division of the Department of Foreign Affairs. Mr Brook has set out additional reasons in a document headed ``Statement of Reasons'' and which has been submitted to me upon a confidential basis. Mr Brook indicated in his affidavit that the disclosure of these reasons would itself be contrary to the public interest. Having read the document I think that this claim is justified. The reasons themselves provide identification of some of the relevant foreign governments.

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It is never satisfying to be required to receive material relating to the manner in which a judicial discretion is to be exercised which is not freely available to the parties concerned in the matter. Nor is it desirable to preclude a party from challenging the validity of reasons put before the Court. However, in the case of claims to public interest immunity, it is sometimes necessary to take that course: see
Alister and Ors v. R (1984) 51 ALR 480 at p. 481,
Jackson v. Wells (1985) 5 F.C.R. 296 at pp. 307-308. This is such a case. I accept the statement of Mr Brook that disclosure of the detailed reasons would itself be inimical to the public interest.

Generally speaking, the claim made in relation to the category (b) documents must be upheld. To permit disclosure of these documents would be to require the respondent, and the Commonwealth of Australia, to contravene the understanding reached with the various foreign governments by whom information was supplied. This would be contrary to the interests of Australia. It would be likely to have the particular effect of denying to the Commissioner information from those governments in the future.

Once again Mr Fink has highlighted in yellow the passages in relation to which objection is taken. I have examined the documents. Many of the documents are objected to in full, since any disclosure would reveal the identity of the relevant government. But, although the claims to immunity are therefore extensive, apart from a few minor passages which I have highlighted in pink, they do not exceed what is necessary in the public interest. Subject to those minor passages, I uphold these claims and direct that the copies of the documents in this category to be supplied to the applicant exclude all documents to the extent that they are highlighted in yellow, and not over-marked in pink. I have included the documents in this category in a folder marked with ``(b)''.

The applicant has succeeded in respect of the category (e) documents but has substantially failed in respect of categories (a) and (b). The parties having had an approximately equal measure of success in the application for inspection, it is appropriate to make no order as to the costs of that application.


1. Within fourteen (14) days of these directions being made the respondent produce for inspection by the applicant copies of all documents referred to in Pt 2 of Sch. 1 of the list of documents filed on behalf of the respondent other than those documents contained in the folders marked in pink highlight with the letters (a) or (b) which are wholly ruled through in yellow highlight.

2. In relation to all documents within either of the said folders which are partially highlighted in yellow the copy documents produced for inspection shall omit the words or passages so highlighted.

3. For the purposes of these directions a part of a document which is highlighted in yellow and over-highlighted in pink shall be regarded as not being highlighted in yellow.

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