Federal Commissioner of Taxation v. Nestle Australia Ltd.Judges:
Full Federal Court
Bowen C.J., Lockhart and Sheppard JJ.
This is an appeal by leave from two interlocutory orders for discovery and inspection of documents made by a single Judge of this Court (Wilcox J.). The orders were made during the pre-trial stages of a proceeding brought in this Court's original jurisdiction by Nestle Australia Limited (``the taxpayer'') against the Commissioner of Taxation under the Administrative Decisions (Judicial Review) Act 1977 (``the Judicial Review Act'') to review the Commissioner's decision to refuse an extension of time for payment of income tax.
On 16 May 1985 the Commissioner issued to the taxpayer 12 notices of assessment for income tax relating to the years of income 1970 to 1981. The total amount of tax claimed by the assessments was $19,435,261 calculated on additional taxable income of $42,633,940. The taxpayer had already paid tax in respect of the same years calculated in accordance with the returns which it submitted. The notices required payment of the tax by 19 June 1985; a little over 30 days.
In issuing the notices of assessment the Commissioner invoked sec. 136 of the Income Tax Assessment Act 1936 (``the Assessment Act'') as it stood during the relevant years. Section 136 read, so far as is relevant:
``Where any business carried on in Australia -
- (b) is carried on by a company a majority of the shares in which is held by or on behalf of non-residents; or
and it appears to the Commissioner that the business produces either no taxable income or less than the amount of taxable income which might be expected to arise from that business, the person carrying on the business in Australia shall, notwithstanding any other provision of this Act, be liable to pay income tax on a taxable income of such amount of the total receipts (whether cash or credit) of the business as the Commissioner determines.''
It appears to be common ground that para. (b) of sec. 136 applies in this case as the taxpayer is a subsidiary of Nestle S.A.; a Swiss corporation. The taxpayer sells much of its output to Nestle Products Limited, a company incorporated in the Bahamas which is also a subsidiary of Nestle S.A. The Commissioner apparently has concluded that the prices obtained by the taxpayer are not the best prices reasonably available upon the open market and that the business carried on by the taxpayer produces less than the amount of taxable
ATC 4762income which might be expected to arise from its business.
On 17 June 1985 Messrs Cherry & Partners, Chartered Accountants, wrote on behalf of the taxpayer to the Commissioner requesting an extension of time, pursuant to sec. 206 of the Assessment Act, for payment of the amount of tax. Section 206 provides:
``The Commissioner may in any case grant such extension of time for payment of tax, or permit payment of tax to be made by such instalments within such time as he considers the circumstances warrant; and in such case the tax shall be due and payable accordingly.''
The request was for extension of time for payment of the tax until the date on which the Commissioner notifies the taxpayer of his decision to allow the objections to the assessments then being prepared by the taxpayer or, in the event that the Commissioner disallows the objections, the date 30 days after the decision of the Board of Review upon the reference of the objections. Messrs Cherry & Partners also requested a corresponding postponement of the date for computation of additional tax pursuant to sec. 207 of the Assessment Act.
The letter of 17 June 1985 is lengthy and advances a number of grounds in support of the application for extension. The principal ground was that the assessments had been issued after a lengthy investigation by officers of the Australian Taxation Office into the affairs of the taxpayer commencing in 1976. The letter asserted that the investigation had been dilatory and protracted. It said:
``... the investigation of the affairs of NAL of the ATO has proceeded in fits and starts over a period exceeding eight years. During the whole of this period the company has been in suspense as to the outcome, and even as to the Commissioner's real basis for assessment - a position in which, even after the assessments have been issued, the company remains. This position of uncertainty has made it very difficult for the company to undertake effective forward planning, as was repeatedly pointed out as long as six years ago.
Further, the assessments cover a period of no less than 12 years, and represent an attempt over that period to increase the company's taxable income by 58%.
After such a period of prolonged uncertainty and disruption to its affairs, it would be harsh and unconscionable in the extreme for the Commissioner to seek to exact immediate payment of the additional tax assessed without an independent adjudication of the validity of the assessment.''
The letter said that the delays of the Tax Office put in jeopardy an export contract held by the taxpayer and its plans to invest some $15m. to $20m. in plant modernisation.
It was accepted by both parties that the Commissioner made a decision under sec. 206 of the Assessment Act to refuse the extension on or about 21 June 1985 and that he reaffirmed that decision on or about 16 July 1985. On 3 and 4 July 1985 objections against the assessments were lodged.
By letter dated 27 June 1985 the solicitors for the taxpayer asked the Commissioner for a statement of reasons under subsec. 13(1) of the Judicial Review Act for the decision refusing the extension of time. On 9 August 1985 a statement of reasons was furnished by the Commissioner.
In the meantime, on 18 July 1985, the taxpayer commenced these proceedings in this Court pursuant to the Judicial Review Act seeking a review of the decision to refuse an extension of time. A substantial issue arose between the parties concerning the discovery of documents. A notice of motion seeking discovery was filed by the taxpayer. It was heard by the learned primary Judge who, on 14 February 1986, made the first of the two interlocutory orders which are the subject of this appeal. It is unnecessary to recite in any detail the issues which his Honour dealt with in his reasons. It is sufficient to say that the documents of which the taxpayer sought discovery included a class of documents which the primary Judge described as recording ``the progress of the investigation'' of the Commissioner. His Honour said that he had not formed any concluded view as to the materiality, in relation to the application to extend time, of the history of the investigation which preceded the issue of the assessments, but that it seemed to be arguable that it was a material matter. On 14 February 1986 he
ATC 4763ordered that within 21 days the Commissioner give discovery 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.''
The Commissioner filed a list of documents; but in the affidavit of discovery sworn by an officer of the Australian Taxation Office, Klaus Dieter Fink, it was stated that certain documents were privileged from production on various grounds including the ground that sec. 16 of the Assessment Act rendered them immune from discovery and inspection. The taxpayer then filed a second notice of motion seeking inspection of the documents in question. This motion also was heard by the primary Judge. It was argued before his Honour, on behalf of the Commissioner, that the discovery and inspection of documents which revealed the course of the investigation into the taxpayer's affairs would involve the Commissioner and his officers in contravention of subsec. 16(2) or 16(3) of the Assessment Act. His Honour rejected this argument but substantially upheld the claim for privilege on certain grounds, not related to sec. 16, which it is unnecessary for present purposes to mention. His Honour took the course of inspecting the various documents for which privilege was claimed and directed that the Commissioner produce for inspection such of the documents which, in his Honour's view, could properly be inspected by the taxpayer.
The Commissioner sought leave to appeal from both judgments of the primary Judge. On 14 August 1986 a single Judge of this Court (Evatt J.) granted leave to appeal and stayed the orders of the primary Judge pending determination of the appeal. The basis on which leave to appeal was obtained was that, as the appeal concerned the interpretation of sec. 16 of the Assessment Act, it involved questions of general importance, not only to the parties but also to taxpayers generally.
Subsections 16(2), (3) and (4) provide:
``(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).
(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 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.
(4) Nothing in the section shall be deemed to prohibit the Commissioner, a Second Commissioner, or a Deputy Commissioner, or any person thereto authorized by him, from communicating any information to -
- (b) any board exercising any function under any Act administered by the Commissioner of Taxation or under any State income tax law, or any member of any such Board;
The word ``officer'' is defined by subsec. 16(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 Assessment Act
ATC 4764or under a previous Commonwealth law relating to income tax.
The principal question argued before us was whether sec. 16 rendered the documents in the possession of the Commissioner relating to his investigation of the taxpayer's affairs immune from the processes of discovery and inspection. The section has proved a fertile field for litigation, but it is now well tilled by judicial decision and little arable land remains. Section 16 is designed to preserve secrecy about a taxpayer's affairs when they come before the Commissioner and any officer. The central provisions of the section are subsec. (2) and (3). The effect of subsec. (2) is that an officer is prohibited, except in the performance of any duty as an officer, either while he is or after he ceases to be an officer, from making a record of or divulging or communicating to any person any information respecting the affairs of another person acquired by the officer. The expression ``except in the performance of any duty as an officer'' ought to receive a very wide interpretation. In
Canadian Pacific Tobacco Co. Ltd. v. Stapleton (1952) 86 C.L.R. 1 Dixon C.J. said at pp. 6-7 that the word ``duty'':
``... is not, I think, used in a sense that is confined to a legal obligation, but really would be better represented by the word `function'. The exception governs all that is incidental to the carrying out of what is commonly called `the duties of an officer's employment'; that is to say, the functions and proper actions which his employment authorizes.
In a case of this description I should think that did include the making of an affidavit in this Court, in a proceeding for the ultimate obtaining of revenue, even if the word `divulge' is used in a sense which includes the giving of evidence.''
The ``duty'' of an officer extends beyond the performance of work of an administrative nature such as processing returns, making assessments, considering and dealing with objections, conducting investigations into the affairs of taxpayers and matters of this nature. It includes the occasions on which he is required by the judicial process to produce documents or give evidence in courts, by affidavit or viva voce, concerning the affairs of some other person which he has acquired as an ``officer'', where the proceedings are referable to the imposition, assessment or collection of revenue. These include appeals to courts under Pt V of the Assessment Act, proceedings for the obtaining of revenue, applications challenging decisions of the Commissioner pursuant to sec. 39B of the Judiciary Act 1903 and applications for review of decisions of the Commissioner under the Judicial Review Act with which this case is concerned. This approach is consistent with what was said by Kitto J. in
Mobil Oil Australia Pty. Ltd. v. F.C. of T. (1962-1963) 113 C.L.R. 475 at p. 500.
The process of review under the Judicial Review Act enables this Court to determine whether the decision under challenge is lawful in the sense that it is within the power conferred on the Commissioner, a Deputy Commissioner or an ``officer'', or whether the prescribed procedures have been followed or whether the general rules of law including adherence to the principles of natural justice have been observed. The Court is empowered to enjoin action or to quash a decision it finds unlawful and to direct action to be taken in accordance with law. It may also compel action by a person or body who has not acted, but who ought to have done so. Proceedings under the Judicial Review Act (also pursuant to sec. 39B of the Judiciary Act) involving decisions or conduct relating to the imposition, assessment, collection or recovery of tax are an essential part of the machinery which Parliament has provided to ensure that tax is levied and collected according to law. Compliance by ``officers'' (within the meaning of that expression in sec. 16) with orders of the Court for discovery and inspection of documents in proceedings of this kind readily falls within the scope of their duties as such officers for the purposes of subsec. 16(2).
There is another, but independent, ground for rejecting the Commissioner's argument that subsec. 16(2) applies in this case to bar discovery and inspection. The prohibition imposed by the subsection is against divulging or communicating information to ``any person'' and this plainly could not apply to a court. A similar conclusion was reached by ``Jenkinson'' J. in
Hutchins v. F.C. of T. 86 ATC 4549 at p. 4553 and by Enderby J. in
Re Fortex Pty. Limited 86 ATC 4351 at p. 4358.
Subsection 16(2) cannot therefore avail the Commissioner in his assertion that it renders
ATC 4765him or his officers immune from the processes of discovery and inspection in this case.
Subsection 16(3) imposes a prohibition upon an officer producing in court certain documents or divulging or communicating to any court certain matters or things coming under his notice in the performance of his duties as an officer, but subject to the important exception:
``... except when it is necessary to do so for the purpose of carrying into effect the provisions of this Act...''
This exception covers the production of documents by an officer to courts or his giving evidence in proceedings before them for recovery of tax (
Norper Investments Pty. Limited v. D.F.C. of T. 77 ATC 4211); appeals to Supreme Courts against the disallowance of objections to assessments (Re Fortex Pty. Limited (supra)); appeals under the Taxation (Unpaid Company Tax) Assessment Act 1982 (Hutchins v. F.C. of T. (supra)); appeals to this Court from judgments of Supreme Courts on taxation appeals both at first instance and from decisions of boards of review; appeals to this Court from decisions of the Administrative Appeals Tribunal in tax matters which has recently subsumed the jurisdiction formerly exercised by boards of review; and proceedings pursuant to sec. 39B of the Judiciary Act or the Judicial Review Act involving challenges to decisions of officers of the Taxation Office of the kind mentioned earlier. Other proceedings in addition to these may be within the scope of the exception; but the principal ones appear to be those just mentioned.
Proceedings for review of decisions of the Commissioner or a Deputy Commissioner or officers of the Australian Taxation Office are designed to ensure that any error of law which may vitiate or affect a relevant decision may be corrected by the review process, thus ensuring that tax is imposed and collected lawfully. The exception to the prohibition imposed by subsec. 16(3) thus encompasses the production of documents by an ``officer'' or his divulging or communicating matters and things to a court in proceedings of this kind. The process of review under the Judicial Review Act does not extend to the class of decisions excluded by sec. 3 and Sch. 1 of the Judicial Review Act. This includes decisions involved in the making of assessments or calculations of tax or decisions disallowing objections to assessments or calculations of tax or duty or decisions amending or refusing to amend assessments or calculations of tax or duty under the Assessment Act (para. (e) of Sch. 1). But decisions of the kind in question in this case are not excluded from review under the Judicial Review Act.
The Commissioner's case on sec. 16 therefore fails. This effectively disposes of the appeal. The Commissioner sought, however, to challenge the primary Judge's exercise of discretion under the February order for discovery. There may be some question whether this course is open to the Commissioner since he filed a List of Documents as required by the order and did not seek leave to appeal from it until after the making of the July order. We prefer to leave that question aside and consider the more substantial question whether this Court should intervene on an appeal from interlocutory orders of the kind in question here. The principles governing the circumstances in which appellate courts interfere in the exercise of the discretion of primary judges in respect of interlocutory orders are well established. We need refer only to the judgment of Gibbs C.J., Aickin, Wilson and Brennan JJ. in
Adam P. Brown Male Fashions Pty. Ltd. v. Philip Morris Inc. (1981) 148 C.L.R. 170 where their Honours said at p. 177:
``Nor is there any serious dispute between the parties that appellate courts exercise particular caution in reviewing decisions pertaining to practice and procedure. Counsel for Brown urged that specific cumulative bars operate to guide appellate courts in the discharge of that task. Not only must there be error of principle, but the decision appealed from must work a substantial injustice to one of the parties. The opposing view is that such criteria are to be expressed disjunctively... 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. We would merely repeat, with approval, the oft-cited statement of Sir Frederick Jordan in In
re the Will of F.B. Gilbert (dec.) (1946) 46 S.R. (N.S.W.) 318 at p. 323:
- ... I am of opinion that,... there is a material difference between an exercise of discretion on a point of practice or
ATC 4766procedure 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.''
The primary Judge ordered in February that the Commissioner give discovery in respect of all documents recording the steps taken during the course of (a) the investigation into the taxpayer's affairs from 1970 to 1982 and (b) the formation of an estimate by the Commissioner 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 estimate was made. His Honour recognised that a real question arose as to the materiality of the history of the investigation which preceded the issue of the assessments, but found that it was an arguable matter. In our opinion no ground has been established to interfere with this finding of his Honour or his February orders for discovery. There is no discernible error of principle and we are not satisfied that the judgment appealed from would work any injustice, let alone a substantial injustice, to the Commissioner. We would add that we too have reservations about the materiality of the history of the investigation or its relevance to any of the matters in issue in these proceedings which challenge the Commissioner's decision refusing an extension of time to pay income tax. We express no view about that question. There is, however, a plain distinction between the history of the investigation and any hardship suffered by the taxpayer or its business by reason of the investigation when questions of admissibility of evidence arise for determination at the trial.
As to the July order for discovery and inspection of documents, no argument was advanced on behalf of the Commissioner that the primary Judge erred in the exercise of his discretion independently of sec. 16 of the Assessment Act. The appeal must therefore fail.
Counsel for the Commissioner addressed us on the relationship between a statement of reasons under sec. 13 of the Judicial Review Act and the Court's powers with respect to discovery and interrogatories. It was submitted that, as the completeness of a statement under sec. 13 may be challenged under subsec. 13(7) by the person seeking the statement, this provides a substitute for the processes of discovery and inspection, and that since subsec. 13(7) was not called in aid by the taxpayer in this case the Court could not or should not have ordered discovery and inspection. The argument is misconceived. Section 13 enables a person who is entitled to apply to the Court under sec. 5 in relation to a decision of an administrative character to request the person who made the decision to furnish a statement in writing setting out the findings on material questions of fact and the other matters to which subsec. 13(1) is directed. There then follows in sec. 13 a somewhat elaborate time scale dealing with the taking of various steps including the time within which the person who made the decision shall prepare the statement and furnish it to the person who requested it (subsec. 13(2)) and the time within which the person who made the decision may apply to the Court for an order declaring that the person who made the request was not entitled to make it (subsec. 13(3)). The Court does have power under subsec. 13(7) in certain circumstances to order the person who furnished the statement to furnish to the person who requested it, within such time as is specified in the order, an additional statement containing further and better particulars in relation to matters specified in the order with respect to the findings on material questions of fact or to the evidence or other material on which those findings were based. The purpose of sec. 13 statements is, however, to ensure that a person who is entitled to apply to the Court under sec. 5 for an order of review may be furnished with a statement of the findings and reasons for the decision so that he may be in a position to consider his challenge or perhaps prospective challenge to the decision. The section provides machinery to inform citizens of matters fundamental to decisions of an administrative character which affect them so that they may be better informed and therefore better equipped to determine their future course of action.
Discovery and inspection are essentially different. They are processes of the courts by
ATC 4767which a party may obtain from the opposite party documents relating to issues between them for the purpose of preparing for the trial of the action. A sec. 13 statement and the Court's powers in relation to discovery and inspection are of a basically different nature and different time scales apply to them. Courts may take into account in the exercise of discretion, on an application for discovery or inspection, whether a sec. 13 statement has been sought or provided, whether it is sufficient and whether it is appropriate to leave the parties to their rights under sec. 13, including the right to obtain further and better particulars under subsec. 13(7). But to the extent that those matters are relevant they lie solely within the discretion of the Court. There is no necessary relation between the two quite separate processes of statements of reasons under sec. 13 of the Judicial Review Act and the Court's powers of discovery and inspection which are procedural machinery of courts to assist in the resolution of conflicts between litigants.
Counsel for the Commissioner also argued that as sec. 13 provided for the inclusion in the statement under the section of the evidence or other material on which the findings were based and as the sec. 13 statement in this case itself referred to documents, the curial procedure of discovery either could not or should not apply in the Court's discretion. This argument is ill founded. Discovery and sec. 13 statements are quite different in nature for the reasons already given. No ground has been established for interfering with the primary Judge's discretion.
The grounds of appeal in this case raised matters additional to those to which we have referred including questions arising under the Freedom of Information Act 1982 and the relation of that Act to the Court's processes of discovery and inspection and the Judicial Review Act; but these questions were not argued before us.
There is one final matter we shall mention. This case is an application for review of the Commissioner's decision refusing an extension of time to the taxpayer to pay a very large amount of additional income tax. The notices of assessment required payment in a little over 30 days from the date on which they were issued. It is to be hoped that the parties will proceed expeditiously to have this case brought on for final hearing rather than involve themselves in tactical skirmishes on interlocutory matters such as those the subject of this appeal. This case itself is in one sense a side wind because the matters really in dispute between the parties concern the liability of the taxpayer to pay the additional tax. The sooner that case is commenced and heard the better. Wilcox J. in his February reasons for judgment observed that despite the passage of seven months no decision had then been made on the taxpayer's objections to the assessments. We were informed in argument by counsel for the Commissioner that the Commissioner had now ruled on the taxpayer's objections. We assume this means that the Commissioner has now allowed or disallowed the objections in whole or in part. But in our opinion it is wrong that a taxpayer who has lodged an objection to an assessment to income tax should be placed in the dilemma of being liable to be sued for recovery of tax which is due and payable in the absence of an extension of time (sec. 201, 204, 208 and 209 of the Assessment Act) and yet not have a ruling on a long outstanding objection. Until the objection has been determined by the Commissioner a taxpayer has no right to apply to the Administrative Appeals Tribunal for a review or to appeal to a Supreme Court. If there are administrative problems within the Australian Taxation Office that make it difficult to deal with objections by taxpayers promptly then serious consideration should be given by the Government to correcting the situation.
The appeal should be dismissed with costs. In so far as it may be necessary the stay, granted by Evatt J. on 14 August 1986 when his Honour gave leave to the Commissioner to appeal from the two judgments of Wilcox J., should be lifted.
THE COURT ORDERS THAT:
1. The stay granted by Evatt J. on 14 August 1986 be lifted.
2. The appeal be dismissed.
3. The Commissioner of Taxation pay to Nestle Australia Limited its costs of the appeal.