Mobil Oil Australia Pty Ltd v Federal Commissioner of Taxation

(1963) 113 CLR 475
37 ALJR 182

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(Judgment by: Kitto J)

Between: Mobil Oil Australia Pty Ltd
And: Federal Commissioner of Taxation

Court:

Judges: Dixon CJ
McTiernan J
Kitto J
Taylor J
Windeyer J

Subject References:
Income Tax (Cth)

Hearing date:
Judgment date: 15 October 1963

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Judgment by:
Kitto J

We have before us two sets of questions referred by a Board of Review constituted under Pt. v. of the Income Tax and Social Services Contribution Assessment Act 1936 (Cth) as amended. One set was referred on 19th September 1962, but to some extent (it is not entirely clear to what extent) it was superseded by a new set on 12th November 1962. The result is that we are asked to answer at least nine questions, some being referred at the request of both the Commissioner and the taxpayer, some at the request of the taxpayer alone and some at the request of the Commissioner alone. The questions are divided into many sub-questions. They read somewhat less like an oppressive examination paper than did the original batch, but they are still objectionable as not conforming with the requirements of s. 196 (2), the provision of the Act upon which the authority of the Board to refer questions to the Court depends. The sub-section provides that upon the request of the Commissioner or the taxpayer the Board shall refer to the High Court "any question of law arising before the Board". A question of law arises before the Board when facts have been found "requiring only the certainty of some point of law applied to those facts to determine either the whole case or some particular stage of it - the stage at which the case is stated": Australian Commonwealth Shipping Board v. Federated Seamen's Union of Australasia (1925) 36 CLR 442 , at p 450 . In my opinion it arises also where, in the course of a reference, the Board finds itself unable to perform its function properly without deciding a question, adjective rather than substantive though it may be, which depends wholly upon the application of the law to a situation which has actually developed. Hypothetical questions are plainly not within s. 196 (2), and for that reason, if for no other, all the questions in the second batch fall outside that sub-section. Indeed they depend upon a double hypothesis, all being asked with the introduction : "In relation to (certain) categories of evidence . . . if such evidence is tendered on behalf of the Commissioner . . . and in so far as such evidence is material . . .". Again, questions which, far from asking the legal effect of ascertained facts, demand a disquisition on a general topic cannot be said in the relevant sense to be questions of law which have arisen before the Board. An example is a question that has been submitted in this form: "If the Board has (a particular) power, according to what criterion ought the Board to exercise such power?". The function of this Court is not to give the Board general or abstract advice as to the manner in which it ought to exercise the authority confided to it by the Act: per Starke J. (1925) 36 CLR, at p 462 , but to give a judgment deciding a concrete question of law which must be decided in order that the Board may perform its function in the particular case in accordance with law. (at p497)

Upon this view of the matter none of the questions, as framed, is within the authority of the Board to submit or of this Court to answer. Nevertheless it appears to me that there are certain questions of law which, though not stated in isolation by the Board, are inherent in some of the questions that are stated, and that they are questions which have arisen before the Board so as to require determination for the purposes of the reference. I think we should endeavour to answer these questions. In order to identify them some introduction is necessary. (at p497)

The Board is engaged in hearing references arising out of a decision by the Commissioner to disallow objections to assessments which had been made in virtue of a provision, contained in s. 136 of the Act, which enables the Commissioner in certain circumstances to treat as a taxpayer's taxable income an amount determined by himself, instead of the excess of assessable income over allowable deductions. The object of the provision is discussed in the Texas Case (1940) 63 CLR 382 , at pp 480, 481 . It applies only in a limited class of cases; namely those where a business carried on in Australia is controlled principally by non-residents, or is carried on by a company a majority of the shares in which is held by or on behalf of non-residents, or is carried on by a company which holds or on behalf of which other persons hold a majority of the shares in a non-resident company. And it applies in such a case only if 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. Where both conditions are fulfilled, the person carrying on the business in Australia is made 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. The taxpayer in the present case carries on a business in Australia which falls within the descriptions in the section, and each of the assessments complained of has been made on the footing that it appears to the Commissioner that the business produces less than the amount of taxable income that might be expected to arise from it. On that basis the Commissioner has fixed an amount, being less than the total receipts, as the amount he has determined under the section as the taxpayer's taxable income. (at p498)

In the hearing of the reference the Board has found, as one might expect, that it cannot deal with the matter satisfactorily without taking into consideration a good deal of information, oral and documentary, about businesses in Australia similar to the taxpayer's but carried on by other companies. The Commissioner in making the assessments apparently had regard to information of this character, and the Board obviously ought to have available to it any information the Commissioner can supply or the Board can obtain for itself which may help towards a proper and reasoned decision. But a great deal of information of the kind referred to is information which the companies to whom it directly relates have valid commercial reasons for wishing to keep from their competitors, and in particular from their rival the taxpayer in this case. It is information as to their financial affairs, the profits their accounts disclose, the prices they have paid for their petroleum products, the terms of agreements under which they have obtained supplies, their business methods and arrangements, and the composition and methods of preparation of the goods they sell. In the ordinary course of legal proceedings a Court often has occasion to devise its own methods for obviating unfair prejudice to persons who are required to disclose information about their private concerns. In so far as the Board is faced with a question not of law but of fairness it, like a court, must exercise its own discretion. It cannot submit its discretion on such a question to the High Court by means of a case stated. But the Act makes specific provisions as to secrecy, and both the Board itself and officers of the Taxation Department who have relevant information in their possession find themselves under the necessity of considering as a matter of law how those provisions affect them in relation to the proceedings under the reference. The necessity to do so is particularly pressing because the taxpayer not only desires but claims as of legal right that its representatives be allowed to know the whole of the information that comes before the Board, including any that relates to the affairs of other companies. (at p498)

The secrecy provisions are contained in s. 16. They apply to any person (called in the section an "officer") who is or has been appointed or employed by the Commonwealth or a State, and who by reason of that appointment or employment, or in the course of that employment, may acquire or has acquired information respecting the affairs of any other person, disclosed or obtained under the provision of the Act or any previous law of the Commonwealth relating to income tax. Thus the section applies not only to the Commissioner and to all officers under his departmental authority but also to the members of the Board. The central provision of the section is in sub-s (2). Its effect, so far as material, is that, subject to the section, an officer shall not either directly or indirectly, "except in the performance of any duty as an officer", make a record of, or divulge or communicate to any person, any information acquired by him by reason of his appointment or employment or in the course of that employment, respecting the affairs of any other person, disclosed or obtained under the provisions of the Act. To this sub-s. (6) adds the requirement of an oath or declaration of secrecy, and the sanction of a penalty for breach. (at p499)

Before attempting to define any of the questions of law to be considered it is necessary to mention that the Board has power to obtain relevant information by compulsion. By s. 193 (1) it is given (with immaterial exceptions) all the powers and functions of the Commissioner in making assessments, determinations and decisions under the Act; and a power which the Commissioner has, under s. 264 (1), is by notice in writing to require any person to furnish him with such information as he may require and 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 assessments, and may require him to produce all books, documents and other papers whatever in his custody or under his control relating thereto. By s. 264 (2) the Commissioner also has power to require the information or evidence to be given on oath and either verbally or in writing. Again, by reg. 39 (2) of the Income Tax and Social Services Contribution Regulations, the Chairman of a Board is given similar powers by direct provision; and by reg. 39 (2A) a person is forbidden, without just cause or excuse, to refuse or neglect to comply with a requirement made on him under the regulation, or to answer fully and truly any questions put to him by the Chairman in connexion with a review. By reg. 38 (1) the Chairman is given a general authority to direct from time to time the manner in which reviews shall be conducted. (at p499)

Three concrete questions of law which seem to me to have arisen before the Board and to be in effect submitted to the Court may be expressed as follows:-

(1)

Whether an officer of the Commissioner's staff, having as such acquired information respecting the affairs of persons other than the taxpayer, is forbidden by s. 16 to divulge or communicate that information to the Board in the presence of representatives of the taxpayer.

(2)

Whether the Chairman is forbidden by s. 16 to compel a person other than an officer to give evidence respecting the affairs of a person other than the taxpayer in the presence of representatives of the taxpayer.

(3)

Whether the members of the Board are forbidden by s. 16 to divulge or communicate to the taxpayer's representatives any information respecting the affairs of a person other than the taxpayer which the members acquire in connexion with the reference. (at p500)

It is clear enough that neither the Commissioner nor any authorized member of his staff is forbidden to divulge or communicate information to a Board of Review with a view to assisting the Board in its consideration of a reference; for to give such assistance is in the performance of their general duty under the Act: see Canadian Pacific Tobacco Co. Ltd. v. Stapleton (1952) 86 CLR 1 , at pp 6, 10, 11 , and indeed sub-s. (4) (b) specifically provides that nothing in the section shall be deemed to prohibit the Commissioner, Second Commissioner, or a Deputy Commissioner, or any person thereto authorized by him, from communicating any information to a board exercising any function under the Act. An officer thus communicating information to the Board is, of course, not responsible for any subsequent disclosure of it which the Board may make to another person; but if he divulges the information to the Board in the hearing of other persons he himself, in my opinion, divulges it to those persons as well as to the Board, and by so doing commits a breach of s. 16 unless his divulging of the information to those other persons is "in the performance of any duty as an officer". It seems clearly to be in the performance of such a duty if (as may be assumed) the officer is required by the Board (or its Chairman) to give the information in the presence of the other persons; for the Board (or the Chairman) has authority to impose upon the officer a duty to communicate the information to the Board in the course of the review, and the discretionary power of the Chairman under reg. 38 (1) to direct the manner in which the review shall be conducted plainly extends to determining who may be present at the proceedings. I would therefore answer the first question by saying that an officer is not forbidden by s. 16 to divulge or communicate to the Board in the presence of the taxpayer's representatives anything which the Board requires him to disclose in their presence. (at p501)

The second question likewise depends, in my opinion, upon the words of exception in s. 16 (2), for it seems to me that by compelling a witness to give information in the presence of representatives of the taxpayer the Chairman divulges it to those representatives. The information is, I should hold, simultaneously acquired and divulged. But the Chairman has authority under reg. 38 (1) to allow the representatives to be present during the hearing, and if he allows them to be present it must follow that whatever divulging of information to them by the Chairman results from their presence will occur in the performance of his duty to hear the reference in the manner he sees fit to direct, and therefore will be protected by the exceptive words in s. 16 (2). My answer to the second question would therefore be: No. (at p501)

The third question depends upon similar considerations and I would answer it similarly. If the Board considers that for the more satisfactory determination of the reference it is necessary or desirable to disclose to the taxpayer's representatives information which the Board proposes to take into consideration, so that they may adequately present their case before the Board, the disclosure is, in my opinion, in the course of the Board's duty and no infringement of s. 16 (2). (at p501)

These answers, I realize, fall far short of solving the whole of the Board's problems; indeed they only throw into relief the central difficulty. The Board, or at least the Chairman, is faced with the necessity of deciding as part of the handling of the reference whether to allow the taxpayer's representatives to know what information respecting the affairs of other persons is before the Board and is likely to be taken into consideration against the taxpayer. It is generally true, as the Court observed in Sutton v. Commissioner of Taxation (1959) 100 CLR 518 , at p 524 that natural justice requires that the taxpayer shall know the course that is taken and what is placed before the Board; but the Court was not there deciding as a matter of law that the Board is bound to disclose to the taxpayer every scrap of material that it takes into consideration. A decision that the Board is so bound in a case under s. 136 would involve two steps, first that the nature of the Board's function in such a case is (to use a convenient though inexact expression) quasi-judicial, and secondly that the general proposition stated in Sutton's Case (1959) 100 CLR 518 is absolute, or at least applies without qualification to such a case. Unless both steps are to be taken, the Board has an unfettered discretion as to what it will and what it will not disclose to the taxpayer; and while its sense of fairness will no doubt lead it to make what disclosure it considers can reasonably be made it will have to decide in relation to particular pieces or classes of evidence, as a matter of purely discretionary judgment, whether and to what extent considerations of fairness to other people and the readily understandable and highly important policy which is reflected in s. 16 should deter it from doing all that natural justice might otherwise suggest. (at p502)

The question of law has been debated, therefore, whether the Board is legally bound to conform to the principles of natural justice in dealing with a reference in a case under s. 136. A legal obligation so to act arises in respect of many statutory powers, as is shown by a long line of cases of which the most recent are Ridge v. Baldwin (1963) 2 WLR 935 in the House of Lords and Commissioner of Police v. Tanos (1958) 98 CLR 383 in this Court. It is beyond question that in the ordinary kind of case a Board of Review is not under such an obligation, for its function is merely to do over again (within the limits of the taxpayer's objection) what the Commissioner did in making the assessment - not to give a decision affecting the taxpayer's legal situation, but to work out, as a step in administration, what it considers that situation to be. The Board is "in the same position as the Commissioner himself", as the Privy Council said in Shell Co. of Australia Ltd. v. Federal Commissioner of Taxation [1931] AC 275 , at p 298; (1930) 44 CLR 530 , at p 545 . It is "only another executive body in an administrative hierarchy": Jolly v. Federal Commissioner of Taxation (1935) 53 CLR 206 , per Rich and Dixon JJ. (1935) 53 CLR, at p 214 . But the taxpayer in the present case contends that a review of an assessment made under s. 136 has special features which give it a quasi-judicial character. The function of the Board under that section, like the function of the Commissioner, is not to ascertain and give effect administratively to a liability existing under the Act, but, where the Board forms a certain opinion as to a matter affecting the taxpayer's liability under the ordinary provisions of the Act, to select an amount (of the total receipts of the business) which it considers normal or reasonable: cf. Minister of National Revenue v. Wrights' Canadian Ropes, Ltd. [1947] AC 109 , at p 122 to become the taxpayer's taxable income for the purposes of assessment, and by so doing to cause a special tax liability to arise by force of the section. It must give a decision as to whether s. 136 shall operate to subject the taxpayer to the special tax liability for which it provides, and if so what the amount of the liability shall be. If the decision involves a question of law it will be subject to appeal to this Court; but even where an appeal lies to this Court - and it is then an appeal on fact as well as law - the Court will not substitute its own discretionary judgment for those of the Commissioner or of the Board: Robertson v. Federal Commissioner of Taxation (1937) 57 CLR 147 ; Denver Chemical Manufacturing Co. v. Commissioner of Taxation (N.S.W.) (1949) 79 CLR 296 , at pp 311, 313 ; McEroy v. Federal Commissioner of Taxation (1950) 9 ATD 206 , at p 211 . The Board's function, therefore, is to decide whether to create a liability. To adapt some words of Lord Reid in Ridge v. Baldwin (1963) 2 WLR 935 , at p 946 , although the Board has not to decide, like a judge in a law suit, what is the liability of the taxpayer, it has to decide how the taxpayer shall be treated - "something analogous to a judge's duty in imposing a penalty". It is just such a duty, the taxpayer here contends, that entails an obligation to conform to the substantial requirements of justice, and in particular to give to each party who may be adversely affected an opportunity of adequately presenting its case. On the other side it is said, in effect, that although the Board's recognition of its obligation to act responsibly and not arbitrarily or capriciously (see the Texas Case (1940) 63 CLR 382 , at p 456 ) will cause it to feel a practical necessity of studying the affairs of other companies as well as of the taxpayer in order to qualify itself to reach an informed and reasoned conclusion, its duty is not inherently one of decision based upon investigation and ascertainment of objective matters and for that reason it is not quasi-judicial. (at p503)

I do not think it is necessary to decide the point. Even if the Board is bound in law to act "in the spirit and with the sense of responsibility of a tribunal whose duty is to mete out justice" (to quote Lord Haldane's words in Local Government Board v. Arlidge [1915] AC 120 , at p 132 ) it does not follow (and his Lordship proceeded immediately to say so) that the procedure of each such tribunal must be the same: "what that procedure is to be in detail must depend on the nature of the tribunal" (1915) AC, at p 132 . And notwithstanding what Lord Loreburn said in Board of Education v. Rice [1911] AC 179 about "always giving a fair opportunity to those who were parties in the controversy to correct or contradict any relevant statement prejudicial to their view" (1911) AC, at p 182 , the books are full of cases which illustrate both the impossibility of laying down a universally valid test by which to ascertain what may constitute such an opportunity in the infinite variety of circumstances that may exist, and the necessity of allowing full effect in every case to the particular statutory framework within which the proceeding takes place. By the statutory framework I mean the express and implied provisions of the relevant Act and the inferences of legislative intention to be drawn from the circumstances to which the Act was directed and from its subject-matter: cf. Ridge v. Baldwin (1963) 2 WLR 935 , at p 947 . As Tucker L.J. said in Russell v. Duke of Norfolk [1949] 1 All ER 109 , in a passage approved by the Privy Council in University of Ceylon v. Fernando [1960] 1 All ER 631 , at p 637 , there are no words which are of universal application to every kind of inquiry and every kind of tribunal: "the requirements of natural justice must depend on the circumstances of the case, the nature of the inquiry, the rules under which the tribunal is acting, the subject matter that is being dealt with, and so forth" (1949) 1 All ER, at p 118 . What the law requires in the discharge of a quasi-judicial function is judicial fairness. That is not a label for any fixed body of rules. What is fair in a given situation depends upon the circumstances. And it is not a one-sided business. What is a fair opportunity to allow the taxpayer in a given case is a question which by its very nature forbids an answer in disregard of the interests of other people. This is particularly true where, as here, the statute giving rise to the duty of decision expressly recognizes and aims to protect the interests of others which may come into competition with those of the taxpayer. For this reason the proposition cannot be maintained that even assuming that the Board is legally bound to determine the reference in a case under s. 136 in accordance with the substantial requirements of justice it must disclose all that it has learned about the affairs of other companies. How much it should disclose is a question which this Court ought not to attempt to answer in the abstract. On the opposite hypothesis, that the Board is not bound legally to act in a quasi-judicial manner, all questions as to disclosing information to the taxpayer are questions of pure discretion; but the Board's sense of fairness and responsibility will no doubt make the decision as to how the discretion should be exercised practically indistinguishable from that which it would have to make if faced with a legal necessity to conform to natural justice. (at p504)

There remains one minor question of law that has arisen. It is whether reg. 35 of the Public Service Regulations forbids an officer of the Commonwealth Public Service to disclose the contents of official papers to the Board of Review by direction of the Board or the Chairman of the Board. The regulation provides that except in the course of official duty no information concerning public business or any matter of which an officer has knowledge officially shall be given, directly or indirectly, nor shall the contents of official papers be disclosed, by an officer without the express authority of the Chief Officer. The short answer to the question is that if an officer is required, by a body having legal authority to obtain information compulsorily, to give information or disclose the contents of documents which he has in his official capacity, it is in the course of his official duty to obey the requirement. (at p505)

I have made the foregoing observations upon the only questions of law which I have been able to identify as involved in the questions stated by the Board, but the only formal order which it seems to me we can make is that the questions specifically referred to the Court be referred back to the Board as not being questions of law which have arisen before the Board within the meaning of s. 196 of the Act. (at p505)