McCORMACK & ORS v DFC of T

Judges:
Sackville J

Court:
Federal Court

MEDIA NEUTRAL CITATION: [2001] FCA 1700

Judgment date: 6 December 2001

Sackville J

The proceedings

1. On 3 July 2001, the Deputy Commissioner of Taxation, Large Business and International (the ``Deputy Commissioner'') issued three notices under s 264(1)(a) of the Income Tax Assessment Act 1936 (Cth) (``ITAA''). Each notice required a named partner (in one case, a former partner) of the well-known accountancy firm Ernst & Young (``E & Y'') to furnish in writing the following information:

``Identify by name and address, clients of the firm known as Ernst & Young for whom you provided services during the period 1 June 2000 to 31 May 2001.''

2. The three recipients of the notices, Messrs McCormack, O'Donnell and Crowe (``the partners'') each filed an application for judicial review of the decision to issue the notices. E & Y is named in each application as the second applicant. The three applications have been heard together. I refer collectively to the three partners and E & Y as ``the applicants''.

3. The applicants challenge the decisions to issue the notices under the Administrative Decisions (Judicial Review) Act 1977 (Cth) (``ADJR Act''). They contend that

(i) the decisions were not authorised by s 264(1)(a) of the ITAA (ADJR Act, s 5(1)(d));
(ii) the making of the decisions was an improper exercise of the power under s 264(1)(a) of the ITAA in that the power was exercised for a purpose other than a purpose for which the power was conferred (ADJR Act, s 5(1)(e), 2(c));
(iii) the making of the decisions was an improper exercise of the power in that it involved an exercise of power so unreasonable that no reasonable person could have exercised the power (that is, the decision was affected by so-called Wednesbury unreasonableness) (ADJR Act, s 5(1)(e), (2)(g)); and
(iv) the making of the decisions was an improper exercise of the power in that the terms of the notice were uncertain (ADJR Act, s 5(1)(e), (2)(h)).

The applications invoke the jurisdiction of the Court under both s 8 of the ADJR Act and s 39B(1) of the Judiciary Act 1903 (Cth) (which confers jurisdiction on the Court in any matter with respect to which mandamus, prohibition or an injunction is sought against an officer of the Commonwealth). The applicants seek orders quashing the notices and injunctions restraining the Deputy Commissioner from acting on the notices.

The legislation

4. Section 264 of the ITAA relevantly provides as follows:

``(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 him with such information as he may require; and

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

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(2) The Commissioner may require the information or evidence to be given on oath or affirmation and either verbally or in writing, and for that purpose he or the officers so authorized by him may administer an oath or affirmation.''

The notices

Events leading to the issuing of the notices

5. On 17 September 1999, the Commissioner of Taxation delivered a speech entitled ``A Question of Balance''. In that speech he referred to initiatives taken by the Australian Tax Office (``ATO'') ``in the mass marketed areas of aggressive tax planning''. The Commissioner said that the reason for taking a strong stand was that the ATO had identified $3.5 billion in deductions claimed by taxpayers which were likely to be denied. He pointed out that participants in certain schemes had been offered the opportunity of reduced penalties for voluntary disclosure. He said that the ATO

``will now be taking steps to identify those who have not come forward. As necessary we will be using our powers to access client listings for this purpose.''

6. The Commissioner also stated that the ATO's principal concern was with products of a kind structured so as to have little if any prospect of commercial gain, other than the tax benefit. In this context he referred specifically to ``limited bonds'' issued by a particular institution not one of whose investors had made a profit.

7. In outlining proposed ``Action on Tax Planners and Promoters'', the Commissioner stated that the tax planning strategy could involve a range of legal and accounting firms, financial planners and promoters. According to the Commissioner:

``Not all planners or promoters will necessarily be involved. Organisations are being selected on a risk basis having regard to intelligence about their apparent involvement in devising or supporting aggressive planning arrangements....

Our examinations will be directed at identifying current tax planning arrangements and identifying clients of the organisation who have been put into aggressive arrangements.''

8. In January 2000, the ATO began an audit of E & Y and associated entities in respect of the financial years 1996 to 2000. On 2 March 2000, Mr Moldrich of the ATO prepared a document headed ``Request for Information'', asking E & Y to indicate whether the firm maintained client files or client advice files and, if so, to summarise the general contents of such files. The evidence does not make entirely clear why that request was made, but at a meeting the next day Mr Kidd, another representative of the ATO, stated that the ATO wanted information concerning ``aggressive and marketed schemes which have crossed E & Y's plate''. Mr Kirkwood, a partner of E & Y present at the meeting, responded that E & Y did not ``consider itself to be into marketed arrangements''.

9. On 24 May 2000, the ATO sent a letter to Mr Kirkwood which referred to the speech given on 17 September 1999 by the Commissioner. The letter sought access to so- called ``fat envelopes'' received by the firm, that is envelopes containing ``details of investment opportunities with taxation benefits''. In November 2000, E & Y responded, perhaps not surprisingly, that it was impractical to comply with the ATO's request.

10. Regular meetings took place during the period April to June 2001 between representatives of the ATO and of E & Y in relation to the audit. At a meeting held on 22 May 2001, Mr Moldrich stated that the ATO was looking to seek information from three unnamed partners. There was some discussion as to whether the ATO should proceed informally or should issue s 264 notices.

11. On 24 May 2001, the ATO supplied a draft s 264 notice to the representatives of E & Y involved in the audit. The draft did not identify the partners to whom it would be sent, but Mr Moldrich notified Mr Kirkwood on 28 May 2001 of the names of ``the three partners selected by the ATO for accessing a list of client names of the said three partners''. At the audit meeting of 31 May 2001, Mr Kirkwood complained that there was ``an odour coming out of the process'' and stated that if the process had to occur s 264 was ``the only route we can take to protect our client confidences''. At the same meeting, Mr Jackson of E & Y said that the three selected partners ``are all partners who have a range of clients but not a huge range[;] equally they would not have a small number of clients. They are in the mid ground''.

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12. On 4 June 2001, each of the three partners received a notice issued by the Deputy Commissioner under s 264(1)(a) of the ITAA. Each notice required the recipient to

``Identify by name, Tax File Number and address, clients of the firm known as Ernst & Young for whom you provided services during the period from 1 June 2000 to 31 May 2001.''

On the same day the partners requested the Deputy Commissioner, pursuant to s 13 of the ADJR Act to furnish a written statement of the reasons for the decision to issue the notices. The Deputy Commissioner duly furnished three written statements on 28 June 2001.

13. Following the commencement of legal proceedings challenging the notices, the partners were advised by the Deputy Commissioner that the notices had been withdrawn and that fresh notices would be issued. The notices the subject of the present proceedings were served on 3 July 2001.

Form of the notices

14. The three notices were issued under s 264(1)(a) of the ITAA and were sent under cover of identical letters dated 3 July 2001. The letters did not identify the purpose or purposes of the notices beyond asserting that

``[t]he information requested in the attached notice is required for the purposes of the Income Tax Assessment Act 1936 and the Income Tax Assessment Act 1997.''

The terms of the notices, each of which was identical save for the name of the addressee, have already been set out (see [1] above).

Statements of reasons

15. On 3 July 2001, the partners made requests under s 13 of the ADJR Act in respect of the fresh s 264 notices. Further statements of reasons were provided in response to these requests on 6 July 2001. Each of the further statements of reasons records that the relevant statement of reasons provided on 28 June 2001 was to form part of the second statement. The statements of reasons provided to the partners are in substantially the same terms, except that the first statement in each case gives an explanation for selecting the particular partner as a recipient of the notice.

16. Dr Griffiths SC, who appeared for the applicants, framed his submissions principally by reference to the first statement of reasons provided to Mr McCormack. It is convenient, therefore, to reproduce the material paragraphs from that statement, which (like the others) was signed by Ms Lee, a delegate of the Deputy Commissioner. It was common ground that the terms of the second statement of reasons provided to each of the three partners are not significantly different for the purposes of the issues in this case.

``5. The ATO has a strategy of identifying current tax planning arrangements which may pose a risk to the revenue. That strategy is set out in the Commissioner's speech `A Question of Balance' to the American Club on 17 September 1999. In that address a strategy was outlined for examining `... those engaged in devising and marketing aggressive arrangements. This tax planners strategy could involve a range of legal and accounting firms, financial institutions, financial planners and other promoters.' `Our examinations will be directed at identifying current tax planning arrangements and identifying clients of the organisations who have been put into aggressive arrangements.' The term `real time' is often used to describe such examinations.

6. The ATO has a project team within LB&I [ Large Business & Internationals Business Line] to examine and manage the compliance risks in large accounting and legal firms in Australia. According to the `Accounting & Legal Services Project Plan' dated 24 September 1999, the objectives of the project are to improve the compliance levels of both the firms and the partners, escalate this improved compliance to the firm's clients by impacting on the firm's tax planning activities and improve community confidence in measures undertaken to deal with aggressive tax planning (`ATP').

7. As part of the Accounting & Legal Services Project, one audit team of the Legal and Accounting Team is presently auditing E&Y and associated entities. I became a member of that audit team on 5 March 2001.

...

9. Although the issue arose as part of an audit of E&Y, consistent with the objectives of the Accounting and Legal Services Project Plan, the enquiries concerning tax

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planning were not necessarily limited to the tax affairs of E&Y and its partners.

...

13.... I was informed and accepted that during the course of the audit it had come to the audit team's attention that E&Y had advised clients in the use of certain mass marketed tax planning products, including

• Equity Linked Bonds (`ELBs');

• Dividend Assignment Schemes; and

• Division 10B Film Schemes.

14. I was also informed and accepted that the audit had further indicated that the following income tax planning arrangements had been used in relation to the affairs of the partnership and partners:

• Everett type assignments of income;

• Variation of a Phillips service entity arrangement;

• Re-characterisation of income;

• Round-robin flows of funds; and

• Other mass marketed tax schemes (ELBs, Budplan, Tea Tree Oil, Natural Oil, Vineyards, films and other Agriculture schemes).

...

16. On 19 March 2001 the Accounting & Legal Project Team conducted an intelligence gathering exercise in LB&I in regard to key players in aggressive tax planning arrangements of accounting and legal firms.

17. On 20 March 2001, Legal & Accounting teams, including my audit team, involved in the Accounting & Legal Services Project met to discuss a variety of strategies to deal with how the ATO could best ascertain the real time arrangements put into place by legal and accounting firms to reduce clients' income tax liabilities.

18.... In relation to E&Y the meeting [of 20 March 2001] planned to issue three notices to the most aggressive tax partners. At the meeting I said that each firm should be given an opportunity to provide the information voluntarily before relying on section 264.

...

21. At one stage of the [audit] meeting [held on 11 April 2001] Jon Kirkwood said that E&Y did not market, or go out and solicit such things as marketed arrangements or syndicated arrangements, but they were tailored to a client; if the client came to E&Y for advice then they gave them advice. Glenn Callcott said that it was part of a general interest and policy of the Commissioners that tax officers ask questions of the tax advice industry about such matters.

22. From the activities described above (points 13, 14 & 16) my audit team also conducted a review of information in the possession of the ATO in regard to tax planning activities of E&Y and its partners. Approximately 56 E&Y partners (past and present) in Australia were identified as being involved in advising matters and participating in ATP. The list was refined down to produce a list of partners who were thought to be located in Sydney based on the partners' addresses as shown in the 1999 partnership tax return distribution list.

...

24. I was informed that on 11 May 2001 the applicant and two partners were finally selected by the audit team as the more aggressive partners of E&Y in Sydney. The applicant was selected because his name was on the `Consolidated Macquarie Bank Limited Equity Linked Bond Adviser Data' list and he was one of the E&Y partners who participated in ELBs.

...

28. In drafting the section 264 notice I was also aware of other inquiries and requirements made of other firms as part of similar processes by other audit teams. I took into account section 264 notices issued to other firms and attempted to ensure that there was a degree of consistency between the various notices.

29. Michael Moldrich prepared a written recommendation for the issue of the notice to the applicant. I had various discussions with him in relation to the background of the case and different meetings where I was not present. While I took into account his recommendation and my discussions with him, and while there is a substantial degree

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of similarity in our reasons, I did not necessarily adopt all of his findings of fact and I relied on additional reasons for issuing the section 264 notice.

...

33. The requirements for information contained in the section 264 notices were made as part of the ATO's strategy of identifying current tax planning arrangements which may pose a risk to the revenue as set out in the Commissioner's speech `A Question of Balance' to the American Club on 17 September 1999.

...

35. In order for the Commissioner to fulfil his statutory duties it is appropriate for him and his officers, amongst other things, to identify, consider, understand and respond to arrangements which may pose a risk to the revenue.

36. There was evidence to suggest that E&Y was involved in advising their clients in relation to the sort of matters that were of concern to the ATO and that further information should be sought from them. The section 264 notices are only an initial step in that process.

...

38. I considered the compliance cost to E&Y of alternative ways of obtaining information from E&Y and decided that limiting the information to particular clients (which the section 264 notices would allow me to identify) of a sample of some partners for a limited period would place a more manageable burden on E&Y.

39. The section 264 notices were issued to the three partners for the period from 1 June 2000 to 31 May 2001 as the first stage of the process. When the information concerning clients of the partners is obtained, I propose to consider how to best obtain information concerning current tax planning arrangements provided by E&Y that may be of concern to the ATO.''

17. It will be seen that par 29 of the reasons refers to a written recommendation prepared by Mr Moldrich. That recommendation (which was headed ``Submissions to Issue Section 264(1)(a) Notice'') identified E&Y as the ``taxpayer or entity into whose affairs enquiries are being made''. The document noted that Mr McCormack had come to the attention of the ATO because of matters corresponding to those set out in par 24 of the statement of reasons. Documents attached to the recommendation included a chart recording that Mr McCormack had acquired Equity Linked Bonds at a total cost of $1.5 million and a printout which recorded Mr McCormack's name on a list of Equity Linked Bond advisers.

The applicant's submissions

Notices not authorised

18. The applicants submitted that the decision to issue the notices was not authorised by s 264(1)(a) of the ITAA for two separate reasons.

19. First, neither the notices nor the covering letters sent to the partners revealed, explicitly or implicitly, the purpose or function being performed by the Deputy Commissioner to which the required information related. Dr Griffiths contended that a notice issued under s 264(1)(a) of the ITAA must, on its face, reveal to the addressee (or at least must reveal to the addressee when read in conjunction with any covering letter) that the Deputy Commissioner is entitled to require the information demanded in the notice. This requirement was referred to by counsel as the ``entitlement disclosure condition''.

20. Secondly, it was said that the decision to issue the notices infringed the principle that the power conferred by s 264(1)(a) of the ITAA must be exercised bona fide for the purposes for which it was conferred and must not be excessive in the circumstances of the case. The purpose or object of the notices, as disclosed in the statements of reasons, was to assist in the ATO's strategy of identifying current tax planning arrangements and of identifying clients of firms who had been put into aggressive tax planning arrangements (see par 5 of the statement of reasons at [16] above). The exercise of the power had to be sufficiently related and proportionate to the particular purpose or function sought to be achieved.

21. Dr Griffiths submitted that the notices were excessive in two principal respects:

• The notices required information identifying clients of E & Y regardless of whether the firm had given advice to those clients on tax planning arrangements of concern to the ATO or, if advice had been

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given, the nature of that advice. Dr Griffiths pointed out that the services provided by the partners to their clients might be entirely unrelated to taxation arrangements or, indeed, to the income or taxation liability of the clients or anyone else. Dr Griffiths relied on evidence given by the partners, and admitted subject to relevance, that the services they provided to clients went well beyond those concerned with taxation matters.
• The bases for selecting the partners to receive notices were ``extremely tenuous'' and ``flimsy'' when regard was had to the evidence. That evidence showed that none of the three partners was substantially involved in what could be described as ``aggressive tax planning''. Moreover, the stated bases for selecting the partners bore no relationship to the purpose of identifying aggressive tax planning arrangements which pose a risk to the revenue.

Power exercised for a wrong purpose

22. The second general ground of review relied on by the applicants was that the making of the decision was an improper exercise of the power because it had been exercised for a purpose other than that for which it had been conferred. The written submissions suggested that the decision to issue the notice may have been infected by improper motives, arising out of previous disputes between ATO officers and representatives of E & Y, but that contention was abandoned by Dr Griffiths in oral submissions.

23. The matters ultimately relied on by Dr Griffiths to support this ground of review were in substance the same as those put in support of the argument that the decision to issue the notices was not authorised by s 264(1)(a) of the ITAA. This ground of review therefore added nothing of substance to the argument.

Wednesbury Unreasonableness

24. In order to make out the applicants' contention that the decision to issue the notices was unreasonable in the Wednesbury sense, Dr Griffiths relied on many of the arguments advanced in support of the first ground of review (that the issue of the notices was not authorised by s 264(1)(a) of the ITAA). In particular, he emphasised in oral argument the submissions that

• the information required in the notices was excessive and disproportionate to the decision-maker's stated objective of identifying current tax planning arrangements which may pose a threat to the revenue; and
• the stated bases upon which the partners were selected to receive the notices were ``flimsy'' and ``tenuous'' and bore no rational relationship to the decision-maker's objective.

Uncertainty

25. The applicants submitted that it was a fundamental requirement for a valid notice to be issued under s 264(1) of the ITAA that it identify with sufficient clarity the information to be furnished or the documents to be produced. Dr Griffiths contended that the notices were insufficiently clear insofar as they required information concerning the clients of E & Y `` for whom [the recipient] provided services'' during a specified period. Dr Griffiths seemed to accept that the notice would have been sufficiently clear if it had used the phrase ``to whom'' instead of ``for whom''. The use of the latter created a serious ambiguity in the notices. In particular, the partner would not know whether he had to provide the name of a client of the firm where services had been provided to a third party for the direct or indirect benefit of the client or where the parties had acted as the client's agent in dealings, for example, with the Foreign Investment Review Board.

Submissions not made

26. The applicants' written submissions referred briefly to a contention that the decision- maker had failed to take into account a relevant consideration, namely whether the giving of the notices was excessive in all the circumstances. The point was not developed, and Dr Griffiths accepted in oral argument that this ground carried the applicants' argument no further. The applicants made no submission that the decision-maker had breached the rules of natural justice (ADJR Act, s 5(1)(a); cf
May v DFC of T 99 ATC 4587 at 4593-4594; (1999) 92 FCR 152 at 159, per curiam; that there had been no evidence or other material to justify the making of the decision (s 5(1)(h), 5(3)); nor that the decision-maker lacked jurisdiction to make the decision (s 5(1)(c)).

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Scope of the power conferred by section 264(1)(a): general principles

27. As a Full Court of this Court has recently observed, there are competing factors to be taken into account when construing s 264(1) of the ITAA:
Grant & Ors v DFC of T 2000 ATC 4649 at 4652; (2000) 104 FCR 1 at 4, per curiam. On the one hand, the section interferes with a person's freedom not to provide information to the revenue authorities. On the other, as their Honours pointed out, it is notorious that many and varied devices are employed to avoid and, in some cases, to evade income tax. Thus

``... the Court should proceed on the footing that the intention was to give the Commissioner an effective, but not an oppressive or unfair, power of investigation.''

28. Nonetheless, the general principles governing the scope of the power conferred on the Commissioner by s 264(1)(a) of the ITAA are reasonably well established. They have been recently referred to by Goldberg J in
Deloitte Touche Tohmatsu & Ors v DFC of T 98 ATC 5192 at 5206; (1998) 40 ATR 435 at 449-450, and by the Full Court in May v DFC of T at ATC 4593-4594; FCR 159.

29. Section 264(1)(a) of the ITAA empowers the Commissioner to require the recipient of the notice to furnish ``information'' in the sense of ``knowledge'':
Perron Investments Pty Ltd & Ors v DFC of T 89 ATC 5038 at 5052; (1989) 25 FCR 187 at 207, per Hill J. This power is distinct from that in s 264(1)(b) of the ITAA, which is subject to a requirement that the evidence or documents sought from the recipient concern ``his or any other person's income or assessment'':
FC of T & Ors v The ANZ Banking Group Ltd 79 ATC 4039 at 4052; (1979) 143 CLR 499 at 535, (``Smorgon's Case''), per Mason J.

30. Mason J in Smorgon's Case, at ATC 4052; CLR 535, explained the limitations on the power conferred by s 264(1):

``Except in one respect the powers given by sec 264 should be circumscribed only by reference to the limitations which are expressed in that section. Thus, in sec 264(1)(b) the power to compel evidence is restricted to evidence `concerning his or any other person's income or assessment' and the power to require production is confined to documentary records `relating thereto', that is, to `his or any other person's income or assessment'. However, the power to require information contained in para (1)(a) is not similarly limited. As it is a power given to the Commissioner for the purpose of enabling him to perform his functions under the Act it must be circumscribed by reference to this purpose.''

It follows that the power in s 264(1)(a) is not limited by the requirement in s 264(1)(b) that the evidence be sought ``concerning his or any other person's income or assessment''.

31. The powers in s 264(1) of the ITAA can be used to conduct what, in a forensic context, would be described as a ``fishing expedition''. In Smorgon's Case, Mason J emphasised the breadth of the Commissioner's powers (at ATC 4053; CLR 536):

``... 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. Such an issue will in general, if not always, only arise after the process of assessment has been completed. It is to the process of investigation before assessment that sec 264 is principally, if not exclusively, directed.''

It follows that the powers conferred by s 264(1)(a) of the ITAA may be exercised in circumstances where no issue or dispute has yet arisen between a taxpayer and the Commissioner.

32. The Commissioner may utilise the power in s 264(1)(a) of the ITAA ``to make wide- ranging inquiries which do not have to relate to a particular taxpayer'': Deloitte v DFC of T at ATC 5206-5207; ATR 450. Moreover, the information sought need not be from a particular taxpayer: May v DFC of T at ATC 4593-4594; FCR 159. Where information is sought from a third party, the notice will override the duty of confidence owed by the third party to the taxpayer, insofar as the notice seeks confidential information: Smorgon's Case at ATC 4045; CLR 521-522, per Gibbs ACJ; May at ATC 4593-4594; FCR 159.

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33. As Hill J pointed out in Perron Investments Pty Ltd & Ors v DFC of T at ATC 5053; FCR 208, s 264(1) itself imposes no specific obligation upon the recipient of a notice given under the sub-section to comply with it. The sanctions are to be found in ss 8C, 8D, 8K, 8N and 8P of the Taxation Administration Act 1953 (Cth) (``TAA''). Section 8C of the TAA, for example, makes it an offence for a person to refuse or fail, when required under a taxation law to do so, to provide information to the Commissioner to the extent that the person is capable of doing so. The penalties provided for offences against the provisions of the TAA include fines and imprisonment.

34. In
Industrial Equity Ltd & Anor v DFC of T & Ors 90 ATC 5008; (1990) 170 CLR 649, the joint judgment reaffirmed (at ATC 5013-5014; CLR 659-660) that the powers contained in s 264(1):

``... must be exercised for the purposes of the Act. The question whether a purpose is a purpose of the Act should be considered in the context of sec 17 of the Act. This section provides for the levy of tax upon the taxable income of a person derived during a year of income and it is by reference to this primary purpose that all other purposes of the Act are to be determined. Section 8 charges the Commissioner with the general administration of the Act which includes the due making of assessments to tax (sec 169) and the recovery of tax payable by taxpayers pursuant to the Act (Pt VI, Div 1). Section 263 [which provides for the Commissioner to have access to buildings, places and documents for the purposes of the ITAA] and 264(1) each confers on the Commissioner a power to enable him to perform his functions under the Act. Therefore, the power `must be circumscribed by reference to this purpose': Smorgon's Case at ATC p 4052; CLR p 535. The scope of `purpose' in this context is illustrated by
Southwestern Indemnities Ltd v Bank of NSW & Anor 73 ATC 4171; (1973) 129 CLR 512, where Barwick CJ said at ATC p 4174; CLR p 519:

`In my opinion, an examination of the applicant's affairs to test its assertions as to residence and income source is within the purposes of the Act.'''

An evidentiary issue

35. Mr Robertson SC, who appeared with Mr Williams SC for the Minister, objected to certain affidavit evidence upon which the applicants relied. I rejected some of the material objected to and admitted other material simply as submissions. In some cases I admitted the evidence subject to relevance.

36. I adopted the latter course with respect to the evidence given by each of the partners as to his involvement (or lack of it) in tax planning advice. Mr McCormack's evidence on this issue, for example, was to the following effect:

• He had invested in equity linked bonds as personal investments during the 1998 and 1999 financial years but not thereafter.
• He had not advised fee-paying clients in relation to equity linked bonds. His only involvement in such bonds (apart from his personal investments) was to witness his wife's application for equity linked bonds. This had been done to conform to the requirement that the application form be accompanied by a letter from one adviser confirming that he or she had explained the commercial and taxation implications of the investment.
• He had given limited advice on potential dividend assignment schemes about ten years earlier and had given preliminary advice regarding a ``Philips service entity arrangement'' about six to eight years earlier. He had also given limited advice in ``an agricultural type scheme'' about eight years earlier. Otherwise he could not recall having advised fee-paying clients in relation to any of the so-called ``mass marketing schemes'' identified in par 14 of the first statement of reasons (see [16] above).

37. In
Attorney-General for the Northern Territory v Minister for Aboriginal Affairs (1989) 23 FCR 536, the applicant challenged a decision of the respondent Minister to grant certain land to an Aboriginal Land Trust. The applicant contended that the land was excluded from the statutory power to make grants because it was ``land on which there is a road over which the public has a right of way'': Aboriginal Land Rights (Northern Territory) Act 1976 (Cth), s 11(3). A question arose as to the admissibility of evidence relating to the use of roads and expenditure of funds thereon prior

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to the making of the decision. Lockhart J said this (at 539-540):

``The admissibility of evidence not before the decision-maker depends upon the grounds of review on which the applicant relies before the Court. In the case of some grounds of review (for example, if the decision-maker failed to take into account a relevant consideration) (s 5(2)(b) of the Judicial Review Act) or took into account an irrelevant consideration (s 5(2)(a)) it is difficult to see the relevance of material not before the decision-maker. Other grounds of review (for example, unreasonable exercise of the power (s 5(2)(g)) will generally, lead to the evidence consisting primarily of the material before the decision-maker.

Where the ground relied upon is error of law (s 5(1)(f)) the trend of judicial opinion is that the evidence before the Court is confined to the material before the decision- maker...

The primary ground of attack upon the first respondent's decision in this case is `that the decision was not authorised by the enactment in pursuance of which it was purported to be made': s 5(1)(d) of the Judicial Review Act.

The determination of whether an action taken falls within the power conferred will often centre on issues of statutory interpretation. The court's task in such a case is essentially that of resolving a legal question, and, where that is the extent of the issue, there will ordinarily be no necessity for adducing material which was not before the decision-maker. Where however there is a question of mixed fact and law, that is, where there is an issue both of statutory interpretation and the requisite factual situation which will bring the statute into operation, there may be a need to adduce additional material. That evidence would be directed to establishing that on the true facts of the case, regardless of the material that was actually before the decision-maker the decision made was one which could not have been lawfully made . In this case the applicants seek to establish that the true fact of the matter is that certain roads within the relevant area were in fact public roads within the meaning of s 11(3) and could not therefore lawfully be included within a grant of land under the Act. In my opinion it is open to the applicant to establish that ground by adducing evidence which was not before the first respondent when he made his decision.''

(Emphasis added)

38. As Lockhart J's analysis indicates, the admissibility of evidence on an application for judicial review of an administrative decision will depend on the ground of review and the circumstances of the case. It has been held, for example, that evidence may be admitted where it supports a claim that the applicant has been denied procedural fairness (
Percerep v Minister for Immigration (1998) 86 FCR 483 (Weinberg J)); or that the decision-maker lacked jurisdiction to make the decision because jurisdiction was dependent on an actual state of facts which did not exist (
Queensland v Wyvill (1989) 25 FCR 512 at 519-520, per Pincus J, reversed on other grounds in
Attorney-General of the Commonwealth v Queensland (1990) 25 FCR 125); or that the decision-maker based the decision on a finding of a particular fact which did not exist (
Curragh Queensland Mining Ltd v Daniel (1992) 34 FCR 212 at 224, per Black CJ).

39. Evidence tendered in support of the ground specified in s 5(1)(d) of the ADJR Act (that the decision was not authorised by the relevant enactment) may or may not be admissible, depending on the issue in the case and the nature of the proffered evidence. In my opinion, the evidence of the partners as to the extent of their involvement in tax planning arrangements was not relevant to any legal issue in the present case. The evidence might have been relevant if the applicants had relied on other grounds of review. (I am not, of course, suggesting that the applicants could or should have done so.) If it had been suggested, for example, that each partner's recent active involvement in tax planning arrangements was a jurisdictional fact, evidence might have been adduced to show that the facts, objectively viewed, were otherwise. The evidence also might have been relevant to a claim that the decision-maker had information before her that should have caused her to make further inquiries about the alleged tax planning activities of the partners: cf
Luu v Renevier (1989) 91 ALR 39. Neither of these claims was advanced on behalf of the applicants.

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40. In substance, the only significance of the evidence of the partners' involvement in tax planning activities was that it cast doubt on the accuracy of one of the factual findings made by the decision-maker in the course of reaching her decisions. This does not suffice to make the evidence admissible on an application for judicial review of the decision. Even if it were a ground of review that the material before the decision-maker was insufficient to justify the finding that each partner was one of ``the more aggressive partners of E & Y in Sydney'', the evidence, since it did not concern material that was before the decision-maker, did not establish or tend to establish that that was the case. In my view, the evidence was not admissible.

41. I should add that Dr Griffiths did not rely on the fact that the applicants invoked the jurisdiction of the Court under s 39B(1) of the Judiciary Act, in addition to that under the ADJR Act, to support the admissibility of the evidence. In any event, since the grounds for seeking injunctive relief were confined to those available under the ADJR Act, I do not think that the invocation of s 39B(1) affects the admissibility of the proffered evidence.

The entitlement disclosure condition

42. The applicants relied on observations made by Mason J in Smorgon's Case to support their argument that the notices had to reveal on their face (or when read in conjunction with the covering letter) that the Deputy Commissioner was entitled to require the information specified in the notice. The observations relied on were these (at ATC 4054; CLR 537-538):

``As the Commissioner's coercive power to require production is limited, any notice given in exercise of the power must in terms conform to the statutory limitations if it is to be valid. It will in my view conform to those limitations only if it clearly confines the documents to be produced to the class of which the Commissioner is authorized to require production, though it may go on to include particular documents on the footing that they fall within that class. If not so limited, the notice fails on its face to express the limitation which the section places on the Commissioner's authority. Because the exercise of the power casts onerous obligations on the recipient of a notice, and because the recipient (not being the taxpayer) is only justified, vis-à-vis the taxpayer, in producing the taxpayer's documents without his consent in response to a valid demand, it is for the Commissioner so to formulate his notice that this limitation on his authority is drawn to the attention of the recipient.''

43. The applicants also relied on authorities which have held that a notice under s 155 of the Trade Practices Act 1974 (Cth) (``TP Act'') must disclose the necessary relationship between the information sought and the matter in respect of which it is sought:
Pyneboard Pty Ltd & Ors v Trade Practices Commission & Anor (1982) ATPR ¶40-272 at 43,446-43,447; (1982) 57 FLR 368 at 374-375, per curiam;
SA Brewing Holdings v Baxt (1989) ATPR ¶ 40-967 at 50,564; (1989) 23 FCR 357 at 370, per Fisher and French JJ. It was the latter judgment which introduced the term ``entitlement disclosure condition''.

44. In
FC of T v Pilnara Pty Ltd 99 ATC 5343; (1999) 96 FCR 82, a Full Court addressed a submission that s 264A of the ITAA (which deals with offshore information notices) impliedly contains a so-called entitlement disclosure condition. The Full Court held that as a matter of construction no such condition could be implied into s 264A. The Court distinguished the authorities on s 155 of the TP Act on the ground that that section is concerned with a ``matter'' involving a contravention of the TP Act, while s 264A is concerned with ``information relevant to the assessment of a taxpayer''. Their Honours observed that the language used in s 264A of the ITAA is very similar to that used in s 264(1)(b). The Court pointed out that Smorgon's Case had held that it is enough for a notice to be within the power conferred by s 264(1)(b) that it refer to a particular person's income or assessment. It was therefore considered to be sufficient for the purposes of s 264A ``simply to identify the taxation assessment of a party served with a notice under that section'': Pilnara at ATC 5355; FCR 97.

45. In Smorgon's Case, as has been seen, it was held that the only constraint on the power conferred by s 264(1)(a) of the ITAA, as distinct from that conferred by s 264(1)(b), is that the power must be for the purpose of requiring the Commissioner to discharge the functions under the ITAA. There is even less justification for reading a so-called entitlement disclosure condition into s 264(1)(a) than there is for reading such a condition into s 264(1)(b). The

ATC 4751

observations of Mason J relied on by the applicants must be read in context; they concern a notice issued under s 264(1)(b), not one issued under s 264(1)(a). Indeed, Mason J rejected a contention that s 264(1)(b) of the ITAA requires the Commissioner to give a notice in such terms as would enable the recipient, on examining documents in his or her custody or control, to determine whether they fall within the ambit of the Commissioner's powers. His Honour said (at ATC 4053; CLR 537) this:

``... To so hold would be to impose an impossible burden on the Commissioner. In many, if not most, cases he will be unaware of the contents of the documents of which he seeks production. And there will be cases in which a recipient who is not the taxpayer will lack the degree of knowledge of the taxpayer's affairs and of the Commissioner's approach to his assessment that is necessary to determine whether the documents relate to the taxpayer's income or assessment. Not only would the suggested requirement frustrate the object of conferring the power, it would be inconsistent with the section as I have explained it.''

46. In my opinion, it is not necessary for a notice issued under s 264(1)(a) of the ITAA to reveal on its face that the Commissioner is entitled to require the information specified in the notice. It is enough for the notice or the covering letter to record that the information is required for the purposes of the ITAA, that being the only relevant constraint on the exercise of the statutory power. The covering letters in the present case were in these terms. The applicants' contention on this point therefore fails.

47. I should mention that Dr Griffiths' written submissions suggested, without elaboration, that it was not enough for any relevant information to be conveyed in a covering letter, as distinct from the notice itself. But the point of requiring the Commissioner to disclose information is to ensure that the recipient of the notice is aware of the information. In my opinion, it cannot make a difference that a statement that the notice has been issued for the purposes of the ITAA is contained in a covering letter accompanying and served with the notice, rather than in the notice itself. There was no suggestion that any of the partners did not receive or understand the terms of the covering letter.

The uncertainty argument

48. It is convenient to deal next with the applicant's argument that the notices were liable to be set aside because they were insufficiently clear.

49. In Pyneboard Pty Ltd v TPC, a case concerned with s 155 of the TP Act, the Full Court expressed the view (at ATPR 43,445; FLR 372) that:

``... uncertainty or ambiguity will not invalidate subordinate legislation or a written directive issued under statutory power unless a point is reached where it cannot reasonably be given any meaning. Strictly speaking, when this point is reached, what is involved is not a matter of mere ambiguity or uncertainty.''

Their Honours went on to say (at ATPR 43,446; FLR 373) that:

``... the primary question is not whether there is some external rule which will strike down as invalid any requirement which is uncertain or ambiguous in its terms. The primary question is a question of ultra vires, namely, whether, as a matter of construction of the Statute creating and defining the administrative power to require that information be furnished and documents be produced, the power is to be understood as limited to the imposition of a requirement couched in reasonably clear terms.''

They concluded (at ATPR 43,446; FLR 374) that, as a matter of construction, s 155(1) of the TP Act required a notice issued under that section to

``... convey, with reasonable clarity, to the recipient what information he is required to furnish or what documents he is required to produce.''

The same case makes it clear that the question of whether a notice is sufficiently clear is not to be approached in an ``over-technical or hypercritical way'' (at ATPR 43,447; FLR 376). See also SA Brewing v Baxt at ATPR 50,564; FCR 370, per Fisher and French JJ.

50. A similar approach has been taken to the scope of the power in s 264(1) of the ITAA. Hill J (with whom Burchett J agreed) summarised the position in Perron Investments Pty Ltd & Ors v DFC of T at ATC 5053; FCR 208:

ATC 4752

``No doubt in part because of the severe sanctions that may become applicable in the case of a failure to comply with a notice under the section, but in part also because a request to supply information, attend and give evidence or produce books and documents etc is a considerable intrusion upon the privacy of the individual to whom a notice is addressed, there is a requirement that a notice identify with sufficient clarity any documents which are required to be produced: FC of T v The Australian and New Zealand Banking Group Ltd, per Gibbs ACJ at ATC p 4047; CLR p 525. Where information is required by the section to be furnished, the request for information should be so framed as to be sufficiently clear to convey to the addressee what information is sought and a notice which was unintelligible would obviously be bad. However, it does not follow from this that the question of the validity of a notice should be approached carpingly by engaging in a narrow analysis of each word in an attempt to find some latent ambiguity in it. Rather the approach to be adopted is to ask in respect of any particular request whether a reasonable man in the position of the addressee of the notice can fairly comply with it and not be thereby exposed to the possibility of penalty for non- compliance having regard to the manner in which the notice is formulated.''

I did not understand either Dr Griffiths or Mr Robertson to dispute that this passage correctly states the applicable principles and that it should be applied to notices issued under s 264(1)(a) of the ITAA.

51. Dr Griffiths submitted, however, that the notices issued to the partners were insufficiently clear. His submissions focussed on the expression ``for whom you provided services''. He argued that this expression was ambiguous and uncertain. Dr Griffiths drew attention to the fact that the notice in Deloitte v DFC of T required the recipient to provide information as to whether a particular accounting firm provided ``a service to any of its clients'' (at ATC 5197; ATR 440). He contended that the latter expression would be well understood by accountants, but that the notice in the present case would not be.

52. The applicants' submissions on this point were curious in at least two respects. First, there was no issue in Deloitte v DFC of T as to whether the notices issued in that case were insufficiently clear to comply with s 264(1)(a) of the ITAA. The basis for Dr Griffiths' assertion that the decision in Deloitte v DFC of T was well-known throughout the accountancy profession on the issue of lack of clarity remained obscure. Secondly, Dr Griffiths accepted in argument that there was no ambiguity in the notices issued to the partners if they were read ``entirely in isolation from the statement of reasons''. In the end, his submission was that the lack of clarity emerged when the statements of reasons were read with the notices, since (as I followed the argument) the reasons indicated that the decision-maker was concerned with services provided to clients rather than for them.

53. I do not think that ambiguity or uncertainty can be manufactured by subordinating the otherwise reasonably clear terms of the notices to the terms of the statements of reasons. In any event, even if such a course were consistent with accepted canons of construction (which I do not think is the case), the statements of reasons provide no basis for holding that notices which are otherwise sufficiently clear have become uncertain or unclear in their scope or application.

54. The language used in the notices is economical. In my opinion, however, when read in the manner required by the authorities, they convey with reasonable clarity what is required of the partners. Dr Griffiths provided a number of examples of what he claimed were situations that could create difficulties for a partner. One illustration was the case were a partner attended a meeting with the ATO for the ``direct benefit'' of a particular client. I would have thought that there would be no difficulty in the partner concluding that in this situation the client was a person for whom the partner had provided services. Similarly, to take another illustration given by Dr Griffiths, a partner who acted as an agent of a client of the firm, in completing and signing documents required by a government agency, would be providing services ``for'' the client. Services provided by a partner at the request of and for the benefit of a client seem to me to fall within the terms of the notices, even if the services take the form of dealings with third parties rather than the client.

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55. As I followed the applicants' argument, they did not put forward any other ground for suggesting that the notices were insufficiently clear to comply with s 264(1)(a) of the ITAA. In answer to a question, Dr Griffiths seemed to suggest that there was some ambiguity in the word ``services'', but this argument was neither referred to in the written submissions nor explained or developed in oral argument. In these circumstances, I need say no more than that I do not think the absence of a definition of ``services'' renders the notices invalid.

56. In Smorgon's Case, Mason J (at ATC 4054; CLR 537) observed that the recipient of a notice is required to determine for himself or herself what must be done to comply with the notice. His Honour acknowledged that the task may be difficult and that a wrong decision may expose the recipient to prosecution or penalty. The fact that the task may be difficult does not render the notice invalid for lack of clarity. The applicants' submissions on this ground must be rejected.

The excessiveness argument

The applicants' submissions

57. The applicants submitted that the power conferred by s 264(1)(a) of the ITAA is subject to a common law limitation. According to Dr Griffiths, the limitation had been stated by four members of the High Court in
O'Reilly & Ors v Commr of the State Bank of Victoria & Ors 83 ATC 4156 at 4162; (1983) 153 CLR 1 at 48, as follows:

``... Like all statutory powers, that power [in s 263 of the ITAA] must be used bona fide for the purposes for which it was conferred and that involves that its exercise be not excessive in the circumstances of the case .''

(Emphasis added)

Dr Griffiths said that the complaint of ``excessiveness'' was raised by the applicants under several alternative heads of judicial review. As I followed the argument, the grounds of review principally relied on were that the decision was not authorised by s 264(1)(a) of the ITAA and that the making of the decision was affected by Wednesbury unreasonableness.

58. I think it is fair to say that Dr Griffiths listed a large number of complaints about the delegate's decision to issue the s 264 notices without necessarily articulating precisely how any one or more of the complaints (if established) made out an available ground of review. The complaints on which he relied to establish ``excessiveness'' can be summarised as follows:

• the notices required disclosure of the identity of clients of the firm irrespective of whether the particular clients had obtained advice on any of the tax planning products or arrangements of concern to the ATO or had acted on any such advice;
• the notices were over-inclusive, in that client lists had to be divulged to the ATO regardless of whether the services provided by the firm or the partners were related to products or arrangements of concern to the ATO;
• the excessive nature of the notices was ``seriously compounded'' by the fact that they require client confidentiality to be breached and create a serious risk of material damage to the firm's client relationships;
• the ATO had ``far less intrusive and more focussed'' ways of obtaining the information sought;
• the bases identified in the statements of reasons for selecting the three partners as recipients of the notices were ``extremely tenuous when regard is had to their evidence'' and, in any event, bore no rational relationship to the stated purpose of the notices, namely identifying current aggressive tax planning arrangements which pose a risk to the revenue.

The principles

59. Mr Robertson criticised the applicants' approach on the ground that it elevated ``excessiveness'' into an independent ground of review; in effect, it invited the Court to characterise the notices as ``excessive'' and, for that reason, to hold that they must be set aside. I think there is considerable force in that criticism. The question must be whether the applicants have made out one or other of the available grounds of review, in this case (having regard to the argument) the grounds specified in s 5(1)(d) and (e) of the ADJR Act. In relation to the ground in s 5(1)(d) (that the decision was not authorised by s 264(1)(a) of the ITAA), for example, it is necessary, if the challenge is to succeed, to identify the limits on the statutory power that are said to have been transgressed by the decision-maker or by the

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implementation of the decision. I shall return to Wednesbury unreasonableness (s 5(1)(e), 2(g)) later in these reasons.

60. In my view, care must be taken not to treat the dictum in O'Reilly as creating an independent ground of review of administrative decisions that is not available under the ADJR Act or, for that matter, under the general law. Some idea of the scope of the limitation on statutory powers, such as s 264(1)(a) of the ITAA can be gleaned from cases which have referred to the O'Reilly dictum.

61. In
FC of T & Ors v Citibank Limited 89 ATC 4268; (1989) 20 FCR 403, Bowen CJ and Fisher J cited the O'Reilly dictum in the context of a challenge to a search of premises carried out pursuant to s 263 of the ITAA (which provides that the Commissioner is to ``have full and free access to buildings... for any of the purposes of this Act''). They held that the officer in charge had failed to give sufficient consideration to the need to ensure that the Bank had an adequate opportunity to claim legal professional privilege (to which the powers in s 263 were subject) on behalf of its clients. The critical point, as their Honours saw it (at ATC 4274; FCR 414), was that

``... the decision of Mr Booth to conduct the search in the manner in which it was conducted and the actual conduct of the search effectively denied to Citibank the right of asserting legal professional privilege. To be more specific, Citibank in our opinion was denied the opportunity to make adequate claims for privilege in relation to the documents of its clients which were being perused and copied.''

62. Bowen CJ and Fisher J did not uphold the challenge in Citibank to the search merely because they thought the purported exercise of power deserved to be characterised as ``excessive''. They did so because, as a matter of construction, the power in s 263 of the ITAA did not extend to documents to which legal professional privilege (in this case, the privilege of Citibank's clients) attached (at ATC 4277; FCR 417). The decision to conduct the search had ``completely overlooked'' the necessity to ensure that a search was conducted so as to allow Citibank to assert legal professional privilege on behalf of their clients.

63. Perron Investments Pty Ltd & Ors v DFC of T was a similar case. One issue was whether notices issued under s 264(1)(b) of the ITAA were invalid because they failed to state expressly that they did not extend to documents the subject of a proper claim for privilege. In a concurring judgment, Burchett J commented, obiter, as follows (at ATC 5049; FCR 202-203):

``The consideration of the question should commence with the scope of the power in sec 264. The power is conferred to provide the Commissioner of Taxation with a means of gaining access to the wide range of information and documents referred to in the section. It is not conferred as a means of extracting from the unwary and the ignorant information or documents not within the proper scope of the section, which the Commissioner of Taxation has no lawful right to obtain or to see. Where a notice, having regard to all the circumstances, is likely to be understood as demanding under threat of statutory penalty more than the Commissioner's entitlement, it may, in my opinion, be excessive, and therefore beyond the power conferred by the section as the High Court has interpreted it:
O'Reilly v Commrs of the State Bank Victoria 83 ATC 4156 at p 4162; (1983) 153 CLR 1 at p 48: and see also
FC of T v The Australian and New Zealand Banking Group Ltd 79 ATC 4039 at pp 4053-4054; (1979) 143 CLR 499 at pp 537-538. An example might be a notice in terms comparable to those employed in the present case, directed to a recipient without legal qualifications and not shown to have ready access to appropriate legal advice. In such a case, a court should not shrink from insisting that so intrusive a power must not be exercised excessively.''

Burchett J then quoted from the judgments in Citibank and suggested (at ATC 5049; FCR 203) that, in a case involving notices issued under s 264 of the ITAA, it was appropriate to apply the principles applicable to a precipitate claim of access to documents under s 263. His Honour considered that in some situations it was likely that a proper claim for privilege could be thwarted, although he did not consider that Perron Investments itself was such a case.

64. In Perron Investments, Hill J made some ``general comments'' about the broad investigative powers conferred by s 264 of the ITAA and their relationship with the powers conferred by s 263. His Honour noted that the sole express limitation on the power in s 263

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was that access should be sought to premises or documents for the purposes of the ITAA. Hill J pointed out that O'Reilly had added a further qualification and that Citibank provided an example of a case of excess of power. His Honour did not suggest that excessiveness was an independent ground for invalidating a purported exercise of statutory power.

Purpose of the notices

65. In the course of argument, Dr Griffiths was asked to identify a standard by reference to which an exercise of statutory power could be characterised as ``excessive'' and therefore beyond the power conferred by statute. He submitted that the test, in the present context, was whether there was a ``rational relationship'' between the purpose the Commissioner was purporting to implement and the exercise of the power. To put it another way, he contended that the exercise of power had to be ``proportionate to'', or not ``too remotely linked with'' the identified purpose.

66. The next step in the argument was to identify the relevant purpose for which the notices had been issued. Based on the statements of reasons, Dr Griffiths submitted that the purpose was to identify and understand current tax planning arrangements in respect of which E & Y was giving advice or promoting and to identify clients of the firm who had been put into ``aggressive tax planning arrangements''. The vice in the notices, according to Dr Griffiths, was that they went too far.

67. There was, I think, a shift in the applicants' submissions in the course of the argument. At one point Dr Griffiths seemed to accept that a notice issued to a partner who was in fact heavily engaged in promoting and implementing tax planning arrangements, requiring the partner to provide a complete list of his or her clients, was sufficiently related to the purpose identified in the statement of reasons in the present case. That is, a notice issued in those circumstances would not be disproportionate to, or too remotely linked with, the purpose of identifying the current tax planning arrangements promoted by the partner and of identifying clients who had been encouraged to enter such arrangements. To that point in the argument, as I followed it, Dr Griffiths had not suggested that the purpose identified in the statement of reasons was not itself sufficiently related to the discharge of the Commissioner's statutory functions.

68. In submissions in reply, however, Dr Griffiths said that he had not intended to concede that an inquiry into aggressive tax planning would be sufficiently related to the Commissioner's statutory functions ``if it was not an exercise being carried out with the object or purpose of ascertaining the taxable income of taxpayers'' (Ts 96). The point was not developed, but Dr Griffiths seemed to suggest that the purpose identified in the statement of reasons was not concerned with ascertaining the taxable income of taxpayers.

69. In my opinion, there are several difficulties with the applicants' submissions. The first is that I do not think it is correct to say (if this is what Dr Griffiths intended) that the purposes for which the power in s 264(1)(a) of the ITAA may be exercised are confined to obtaining information to enable the Commissioner to ascertain or verify the taxable income of a particular taxpayer or group of taxpayers. It is true that courts have sometimes identified the functions of the Commissioner in terms that refer to the ascertainment of taxpayers' taxable income. In Industrial Equity v DFC of T, for example, the High Court upheld the validity of a notice issued under s 264(1)(b) of the ITAA to a corporation selected randomly as one of the ``top hundred companies'' in Australia. The joint judgment held (at ATC 5014; CLR 660) that it was consistent with the ITAA that the Commissioner should choose to examine more closely the affairs of particular categories of taxpayers with a view to ascertaining their taxable income. Their Honours said (at ATC 5014; CLR 661) that:

``... [i]nevitably, there will be a random aspect to those who are finally selected for closer examination; but the Commissioner will still be acting for the purposes of the Act so long as he is endeavouring to fulfil his function of ascertaining the taxable income of taxpayers.''

70. These comments must be read in context. The notice in that case was issued pursuant to s 264(1)(b) of the ITAA, which requires the notice to concern the recipient's or any other person's income or assessment. In my opinion, the High Court was not saying, explicitly or implicitly, that a notice can be issued under s 264(1)(a) of the ITAA only in order to gather information which enables the taxable income of particular

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taxpayers to be ascertained. Such a conclusion would not be consistent with the broad functions and responsibilities of the Commissioner identified earlier in the High Court's judgment: see [34] above. I agree with the view expressed by Goldberg J in Deloitte v DFC of T (at ATC 5207; ATR 450):

``... The fact that he [the Commissioner] may be concerned about the existence or prevalence of a particular arrangement or proposal which may have implications in relation to provisions of the ITAA rather than whether a particular taxpayer has entered into such an arrangement or adopted such a proposal does not put an investigation into the arrangement or proposal outside the scope of s 264(1)(a).''

71. The point is illustrated by
Knuckey v FC of T 98 ATC 4903; (1998) 87 FCR 187. There the Commissioner implemented a ``Work Related Expenses Audit Program'' under which selected clients of selected tax agents were told in advance of lodging their returns that they would be audited. The Full Court accepted (at ATC 4913; FCR 198), that the Commissioner intended the Program to modify the conduct of tax agents and persuade them to exercise greater diligence in preparing returns in which work-related expenses are claimed. The Court said (at ATC 4913; FCR 198) that the

``Program and its implementation must be looked at in the context of the overall purpose sought to be achieved. The evidence establishes that the end or ultimate purpose is that proper assessments be made in respect of work related expenses. This overall purpose will colour the intermediate result sought to be achieved; namely, to obtain more accurate returns. The evidence does not show that the desired change in the conduct of tax agents is an end in itself. That change is a step towards achievement of the overall purpose which is the assessment of taxable income.''

72. Secondly, I do not think it is accurate to say that a notice issued under s 264(1)(a) of the ITAA is invalid if it is not issued for the reasons identified in the statement provided by the decision-maker pursuant to s 13 of the ADJR Act. The statement may be taken as recording the decision-maker's actual reasons for making the decision: cf
Minister for Immigration and Multicultural Affairs v Yusuf (2001) 180 CLR 1. But, as the High Court pointed out in Industrial Equity v DFC of T at ATC 5014; CLR 661, there is a distinction between the reason for performing an act and the purpose sought to be achieved by the doing of the act: see also Knuckey, at ATC 4912; FCR 197-198. The purpose sought to be achieved by a notice issued under s 264(1)(a) of the ITAA might not be limited to the particular reasons given in a s 13 statement.

73. In determining whether the power to issue a notice under s 264(1)(a) has been exercised for a permitted purpose (that is, for the purpose of enabling the Commissioner to perform his or her statutory functions), it is necessary to take account of all relevant circumstances. These are likely to include the terms of the notice, the nature of the information sought, the material before the decision-maker and the decision-maker's stated reasons for issuing the notice. The decision- maker's reasons will be relevant to the inquiry and, perhaps, depending on the circumstances, they may be very important in assessing the ultimate purpose. But they will not necessarily be determinative.

74. Thirdly, even if (contrary to my view) the reasons recorded in the statements in the present case were determinative of the ultimate purpose, I would construe them more broadly than Dr Griffiths suggested. The statement of reasons given to Mr McCormack twice expressly refers (pars 5,33) to the ATO's strategy of identifying current tax planning arrangements which may pose a risk to the revenue, as outlined in the Commissioner's speech of 17 September 1999. That speech, as extracted in par 5 of the reasons, makes it clear that the strategy is also aimed at identifying clients who have been put into ``aggressive arrangements''. Paragraphs 36 and 39 of the statement indicate that the notices were issued as the ``initial steps'' or the ``first step'' in the process referred to in par 34, that is in identifying, considering, understanding and responding to arrangements which may pose a threat to the revenue. Among the responses that would be available to the Commissioner would be to issue assessments or amended assessments to any clients of the firm who had entered into ``aggressive'' tax planning arrangements. In addition, obtaining a better understanding of current ``aggressive'' tax planning arrangements may allow the Commissioner to develop strategies to encourage taxpayers and

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their advisers to take a more cautious approach to entering dubious arrangements, thereby making it more likely that proper assessments of income will be made.

75. The ultimate end or purpose of the notices was to ensure that taxpayers entering into or contemplating entering into tax planning arrangements which are considered by the Commissioner to be a threat to the revenue pay the appropriate amount of tax attributable to their assessable income calculated in accordance with the provisions of the ITAA. In so far as the immediate objectives of the ATO included ascertaining tax planning arrangements that were promoted or employed by tax advisers and enabling the ATO to understand the nature and scope of those arrangements, the objectives were consistent with the ultimate end or purpose of issuing the notices.

76. In my view, the notices were issued for the purpose of enabling the Commissioner to perform his statutory functions. In particular, they were issued for the purpose of enabling the Commissioner to ascertain or verify the proper taxable income of taxpayers. In my opinion, this is so even if attention is confined to the statements of reasons prepared pursuant to s 13 of the ADJR Act. The conclusion is a fortiori if regard is had to all relevant circumstances, including the Commissioner's expressed concern about tax planning arrangements threatening the revenue and the findings relating to the involvement of E & Y and the partners in tax planning arrangements or in giving advice about such arrangements.

Were the notices outside the statutory power?

77. For the reasons I have given, the ``purpose'' underlying the issue of the notices to the partners was within the scope of the power conferred by s 264(1)(a) of the ITAA. I do not think that the decisions to issue the notices, or the manner of implementing the decisions, were ``excessive'', in the sense that the issuing of the notices transcended the limits of the statutory power.

78. The statements of reasons recorded that the ATO's credit team had formed the view that E & Y had advised clients in the use of ``certain mass marketed tax planning products'' (par 13). The audit had also indicated that a number of tax planning arrangements had been used in relation to the affairs of the partnership and of partners (par 14). The statements further recorded that the audit team had reviewed information or advice in the possession of the ATO in relation to tax planning activities of the Sydney partners of E & Y (par 22 and par 19 of the statement provided to Mr Crowe). Each of the three partners was said to have been selected because a judgment had been made that he was one of ``the more aggressive partners of E & Y in Sydney'' (par 24). Moreover, there was said to be evidence that suggested that E & Y had been involved in advising their clients in relation to ``the sort of matters that were of concern to the ATO'' (par 36).

79. In my opinion, there is clearly a ``rational relationship'' between the purpose the Commissioner was purporting to implement by the issue of the notices and the manner in which he exercised his powers under s 264(1)(a) of the ITAA. The notices were issued to three partners who, on the findings made by the decision- maker, were among the more aggressive Sydney partners of a firm that was found to have advised clients in the use of certain mass marketed tax planning products, and some of whose partners had used tax planning arrangements in relation to their personal affairs. For present purposes, it is not necessary to consider whether there was any material to support the decision-maker's findings (I come to that issue shortly). The point is that, on the basis of those findings, it could hardly be disputed that lists of clients for whom the three partners provided services might well assist the Commissioner to take steps designed to ensure that those clients, and other taxpayers who might have used similar tax planning products or entered into similar tax planning arrangements, paid the appropriate amount of tax in respect of their assessable income calculated in accordance with the ITAA. Similarly, the lists might well assist the Commissioner in understanding and responding to tax planning arrangements used or recommended by the firm and the partners.

80. It is true that the client lists would be likely, even on the findings made by the decision-maker, to include clients who had never received ``aggressive tax planning advice'' or had never entered into arrangements of the kind identified by the statements of reasons. That fact cannot establish that there was no rational relationship between the purpose sought to be achieved and the

ATC 4758

purported exercise of the statutory power, nor that the information sought was ``disproportionate''. One of the objectives underlying the issue of the notices was to determine which clients had received aggressive tax planning advice or had entered into tax planning arrangements thought to threaten the revenue. In the same way as a random audit of taxpayers is hardly likely to demonstrate that every taxpayer whose affairs have been audited has understated his or her true assessable income, so not every client for whom the partners provided services would have been shown to have taken advantage of tax planning advice or arrangements. Nonetheless, investigations and compliance programs must start somewhere.

81. The applicants' submissions seemed to assume that compliance with the notices issued to the partners would require them to divulge what would otherwise be confidential information. I am prepared to accept, although I do not think it self-evident, that providing lists of clients for whom services were provided during a particular period divulges what would otherwise be information confidential to the clients concerned. But the fact that the notices require the partners to divulge confidential information does not, of itself, show that the issue of the notices was ``excessive'' in the relevant sense. It is very likely that a notice issued under s 264(1)(a) of the ITAA to partners in the firm of accountants, requiring information to be provided in respect of the affairs of clients, will force the recipients of the notice to divulge what would otherwise be confidential information. That the decision- maker appreciated this in the present case is demonstrated by the express reference in the statements of reasons to the partners' duty of confidentiality to clients (par 37). It is the statute that empowers the Commissioner to issue notices that require the recipients to depart from the confidentiality ordinarily owed to clients. The fact that the notices operate in accordance with the intention of the statute cannot be a reason for holding that the decisions to issue the notices were beyond the powers conferred by the statute. It might be different if, in a particular case, it was shown that the Commissioner, in making the decision to issue the notices, had failed to take into account the confidentiality of the information sought from the recipient of a notice. No submission to this effect was made in the present case.

82. Similarly, the fact that compliance with the notice might have an impact upon the standing or commercial reputation of the partners or the firm itself, does not demonstrate that the decisions to issue the notices were excessive in a relevant sense. The statements of reasons record that the decision-maker took into account notices issued to other firms and attempted to ensure that there was a degree of consistency between the various notices. In any event, it was not suggested that the decisions to issue the notices were vitiated by a failure to take into account the impact of the notices upon the standing or commercial reputation of the partners or the firm itself. In these circumstances, the fact that the notices may have adverse commercial consequences for the recipients does not demonstrate that the decisions to issue them travelled beyond the limits of the statutory power.

83. I should record that Mr Robertson submitted that it would be a valid exercise of the power conferred by s 264(1)(a) of the ITAA for the Commissioner to require the partners of an accounting firm to supply client lists, regardless of whether the Commissioner or his delegate made findings that the firm, or individual partners, had any involvement in tax planning arrangements or advice which posed a threat to taxation revenue. According to Mr Robertson, if it is in order for the Commissioner to audit taxpayers randomly (as the High Court held in Industrial Equity), it must be in order to select on a random basis the firms required to divulge client lists.

84. Industrial Equity was a somewhat different case from the hypothetical example posed by Mr Robertson. The taxpayer in Industrial Equity had not been selected for audit on a truly random basis, but because it was considered to be one of the one hundred largest taxpayers in the country. In Mr Robertson's example, the selection of firms required to supply client lists would, presumably, be on a truly random basis. It is not, however, necessary to decide in this case whether the factual differences between Industrial Equity and Mr Robertson's example are significant. The decisions to issue the notices in the present case were not the product of a random process, but were based on investigations and findings relating to the involvement of the firm and the

ATC 4759

partners in tax planning arrangements or advice. That was a sufficient basis, in my view, to establish a clear link between the information required from the partners and the ascertainment of the taxable income of taxpayers.

Wednesbury unreasonableness

85. What I have said so far deals in large measure with the applicants' submissions on Wednesbury unreasonableness. Dr Griffiths, however, emphasised what was said to be the ``flimsy'', ``skimpy'' and even ``pathetic'' nature of the material used by the Deputy Commissioner to justify the selection of the three partners as recipients of the notices. This was said to show that the decisions to issue the notices were ``perverse'' and thus liable to be set aside on grounds of Wednesbury unreasonableness.

86. The applicants did not submit that the Deputy Commissioner's findings constituted findings as to jurisdictional facts such as might attract the principles discussed by Gummow J in
Minister for Immigration and Multicultural Affairs v Eshetu (1999) 197 CLR 611 at 650-659. Nor, as I have pointed out, did the applicants contend that there was no evidence to justify the making of the decisions to issue the notices. The contention was that the material, taking into account the evidence of the partners, was too meagre to justify the conclusion that the partners or the firm had participated, in any substantial way, in tax planning arrangements or in the giving of tax planning advice.

87. It is an open question as to whether Wednesbury unreasonableness provides a basis for judicial review, where the unreasonableness is said to lie in the irrationality, illogicality or perverseness of a fact-finding process: see
Abebe v Commonwealth (1999) 197 CLR 510 at 578-579, per Gummow and Hayne JJ; Eshetu at 626, per Gleeson CJ and McHugh J; at 656-657, per Gummow J;
Upham v The Grand Hotel (SA) Pty Ltd (1999) 74 SASR 557 at 584-585, per Doyle CJ and Bleby J; M Aronson and B Dwyer, Judicial Review of Administrative Action (2nd ed 2000), at 281-282. I shall assume in the applicant's favour that irrational, illogical or ``perverse'' findings of fact can attract judicial review on the grounds of Wednesbury unreasonableness.

88. On this assumption, the short answer to the applicants' contention in the present case is that, for reasons I have already explained, the evidence given by the partners was not admissible in support of the Wednesbury unreasonableness submission. It is only the material that was before the decision-maker that can be taken into account in determining whether such a submission is well-founded.

89. If attention is limited to the material before the decision-maker, all that can be said is that other decision-makers may not have taken the same view of the role played by the partners or the firm in giving tax planning advice or participating in tax planning arrangements. I would certainly not dissent from a characterisation of the material before the Deputy Commissioner on this issue as somewhat flimsy, especially in relation to Mr O'Donnell and Mr Crowe. But the fact that material is flimsy does not demonstrate, as Dr Griffith's reliance on the proffered evidence of the partners implicitly acknowledged, that no reasonable decision-maker, acting reasonably, could have reached the factual conclusions recorded in the statements of reasons.

90. In Mr McCormack's case there was material before the decision-maker to suggest his involvement in one of the arrangements of concern to the ATO. (In making this observation, I do not suggest that there was anything improper or inappropriate in Mr McCormack's involvement in equity linked bonds.) Other decision-makers might not have drawn the same conclusions about Mr McCormack's role in tax planning arrangements on the basis of the limited information available. But the conclusions were not devoid of material to support them and the process of reasoning was not irrational or entirely lacking in logic.

91. In Mr O'Donnell's case, the material was more equivocal, but there was some information suggesting that he had been involved, in an unspecified way, in the ``incorrect treatment'' of certain share options. That was a less than incontrovertible basis for concluding that Mr O'Donnell had actively participated in tax planning arrangements or in giving the planning advice. But the process of reasoning, while incomplete, was again not irrational, illogical or utterly without foundation. The same can be said of the material relating to Mr Crowe.

92. It is also to be borne in mind, as Mr Robertson submitted, that the applicants were

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aware for a considerable time prior to the making of the decisions in early July 2001 to issue the s 264 notices that the Deputy Commissioner intended to select three partners to receive the notices. The names of the three proposed partners were notified to Mr Kirkwood on 28 May 2001, a week before the first notices were issued and five weeks before the notices the subject of these proceedings were issued. The applicants did not attempt to put to the decision-maker material of significant probative weight negating the suggestion that the firm or the partners had been involved in aggressive tax planning arrangements or advising clients about such arrangements.

93. It follows that the ``flimsy'' character of the material before the decision-maker does not justify concluding that the decisions to issue the notices were unreasonable in the Wednesbury sense, or otherwise beyond the power conferred by s 264(1)(a) of the ITAA.

Conclusion

94. The applicants' challenge to the decisions to issue the s 264 notices fails. All three proceedings must be dismissed. In each case the relevant applicants must pay the Deputy Commissioner's costs.

THE COURT ORDERS THAT:

1. The application be dismissed.

2. The applicant pay the respondent's costs.

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