SUPREME COURT OF NEW SOUTH WALES - EQUITY DIVISION

DALCO v FEDERAL COMMISSIONER OF TAXATION

YOUNG J

12, 13 October 1987 - Sydney

Young J This is an appeal under s 14V of the Taxation Administration Act 1953 (Cth). Ordinarily this appeal in this court would come before the Administrative Law Division, but as the case involves a person who wishes to leave Australia on Friday next and there was time in this division the matter has been brought here.

The appeal is against the making of a departure prohibition order by the Commissioner of Taxation under s 14S of that Act. Sub section (1) of that section is as follows:

"Where-
(a) a person is subject to a tax liability; and (b)

the Commissioner believes on reasonable grounds that it is desirable to do so for the purpose of ensuring that the person does not depart from Australia for a foreign country without-
(i) wholly discharging the tax liability; or (ii)

making arrangements satisfactory to the Commissioner for the tax liability to be wholly discharged,

the Commissioner may, by order in accordance with the prescribed form, prohibit the departure of the person from Australia for a foreign country."

When an order is made under s 14S the recipient may take any one of a number of courses. First, he may merely accept it or he may apply under s 14T for the Commissioner to discharge the order or he may apply for a departure authorisation certificate under s 14U or he may appeal to the Federal Court under s 14V or appeal to this court under that section or appeal to the Federal Court under the Administrative Decisions (Judicial Review) Act 1977 and there may be other avenues he has as well. If he is dissatisfied with his application to the Commissioner under s 14Tor 14U then he has a further right of review to the Administrative Appeals Tribunal under s 14Y.

Section 14V is as follows:

"(1) A person aggrieved by the making of a departure prohibition order may appeal to the Federal Court of Australia or the Supreme Court of a State or Territory against the making of the departure prohibition order.

"(2) This section has effect-
(a) subject to chapter III of the Constitution; and

(b) notwithstanding anything contained in section 9 of the Administrative Decisions (Judicial Review) Act 1977 ."

It is to be noted that s 14V does not set out what sort of appeal the court is hearing. There are many possibilities. The appeal can be by way of judicial review. The appeal can be a rehearing, it can be a hearing de novo or it can be some sort of an amalgam of those types of appeals. Accordingly, the initial question is what sort of appeal has the legislature in mind in s 14V?

The position is complicated by the fact that two avenues of appeal are delineated in s 14V, one to the Federal Court and the other to this court or any other State or Territorial Supreme Court. This court and most of the other Supreme Courts have plenary powers, the powers of the courts of Common Law and Equity in England last century and in the case of this court, by virtue of s 23 of the Supreme Court Act 1970 all the jurisdiction necessary to do justice in New South Wales. There is no difficulty for a New South Wales court hearing an appeal from an administrative board or authority to have a hearing de novo or to deal with an administrative matter, given initially to an administrative authority, the proceeding before the court being considered an appeal. This happens on all levels of the judicial system from appeals against suspension of drivers' licences by the Commissioner of Motor Transport, which go to the Local Court, to appeals from decisions of the Builders Licensing Board, which go to the District Court, to appeals against decisions of the Corporate Affairs Commission or the National Securities Commission, which go to this court. It is a different case with a Federal Court because the Federal Court system is not so flexible. Under Ch III of the Constitution the Federal Court exercises the judicial power of the Commonwealth and there is a very clearly defined distinction between judicial review and rehearing an administrative matter. Despite the fact that some persons involved in these matters may have two Commissions which enable them to do one thing under one Commission and another thing under another Commission, generally speaking the Federal Court may only deal with an appeal by way of judicial review.

It is significant that s 14V(2) makes the section subject to Ch III of the Constitution. It just seems to me to recognise that an appeal to the Federal Court has to be read down to dealing only with matters of judicial review, but that an appeal to a Supreme Court may be wider. Of course, when considering the nature of the appeal to the Supreme Court one would have to bear in mind that it would be a rather bizarre result for the rights of the parties to be different depending on what court the appeal went to, but offset against that is the fact that the Federal Court's powers are circumscribed of necessity by the Constitution itself.

It is thus not surprising that different views as to the nature of the appeal have been taken in the Federal Court and in this court in the only three appeals that have been the subject of reference in the Law Reports to date. Unfortunately, those cases, like this, were cases where urgent decisions had to be made so that the reasoning in the decision is perhaps not as full as it might have been had the court had the luxury to spend some time in considering all the ramifications of the statute.

Cases such as Briggs v DCT (WA) (1985) 16 ATR 888; 85 ATC 4569 and T v FCT (1986) 18 ATR 1; 86 ATC 4894, appear to confine the appeal to the question as to whether the Commissioner made the correct decision. A matter which, as Toohey J pointed out in Briggs case, may be difficult because the Act imposed no obligation on the Commissioner to ever give reasons.

The third case, Winter v FCT (1985) 16 ATR 977; 85 ATC 8654 before Lee J, was one where that learned judge at (ATR) 981-2; (ATC) 4658-9 took a wider view of the court's role. His Honour said:

The court, however, on an appeal under s 14X is given the power "in its discretion to set aside the departure prohibition order or dismiss the appeal", and this plainly leaves it finally to the court, both to have regard not only to the material taken into account by the Commissioner but to any other material put before it which is relevant, to the belief in the Commissioner, that it is desirable to make a departure prohibition order pursuant to s 14S and relevant to the consequences to the plaintiff of being denied his freedom to leave the country as and when he wishes. Notwithstanding that the section would entitle the court to set side a departure prohibition order even though the court found that the Commissioner held a belief on reasonable grounds as required by the section, it is to be borne in mind that the responsibility for the collection and recovery of tax is placed upon the Commissioner and a decision by him on reasonable grounds, that the departure prohibition order ought to be made, should not, in my view, lightly be set aside. On the other hand the fact that a departure prohibition order operates as a significant fetter upon a citizen's freedom to go where he wishes, it requires the court to conclude affirmatively that there are reasonable grounds for the belief of the Commissioner and that conclusion can only be drawn after an examination of the material which the Commissioner had before him and upon which formed his belief and any evidence brought by the plaintiff which qualifies or throws doubts upon the effect which might otherwise be given to that material. If the court is satisfied of the existence of reasonable grounds for the Commissioner's belief, it then must finally decide from the whole of the evidence before it whether, in its discretion, the order is to be set side or to remain in force. In the present case the Deputy Commissioner, after receiving the plaintiff's summons and affidavit, filed an affidavit which annexed a specification of the grounds upon which he relied and also the contents of the departmental file to which he had regard in coming to his conclusion. Both the plaintiff and the Deputy Commissioner gave oral evidence before me.

The leading decision of the High Court of Australia on the aspect of courts gleaning the intention of the legislature as to what sort of appeal it is hearing is Builders Licensing Board v Sperway Constructions (Sydney) Pty Ltd (1976) 135 CLR 616; 14 ALR 174. Mason J, as his Honour then was, at (CLR) 619; (ALR) 176 and onwards sets out the various types of appeals that may be involved at (CLR) 621; (ALR) 177-8, especially remarking that he sets aside the case of an appeal to the Federal Court which exercises its judicial power under Ch III of the Constitution, but says that it is a matter, the answer to which:

Will depend on an examination of the legislative provisions rather than upon an endeavour to classify the administrative authority as one which is entrusted with an executive or quasi-judicial function … it is a question of elucidating the legislative intent, a question which in the circumstances of …

the case before his Honour he did not consider was eliminated by the Delphic utterances that the appeal was by way of a rehearing. In this case I do not even have the advantage of any Delphic utterances.

That passage has been applied on many occasions, the most recent and perhaps most significant was by Beach J in Humes Ltd v Unity APA Ltd (1986) 11 ACLR 641 and 668 and following.

Sir Nigel Bowen, when Chief Judge in Equity, examined the problem in Re Gem Exploration & Minerals NL [1975] 2 NSWLR 584. That case involved an appeal by a company against the refusal by the Corporate Affairs Commission of an extension of time for holding its annual general meeting. His Honour said that the word "appeal" was a word of flexible meaning at 587 and see McCullin v Crawford (1921) 29 CLR 186 at 192-3 and is capable of denoting either a review or a hearing de novo. His Honour said (at (NSWLR) 588) that the principle clue is to be found in what the court may do under the section, but the court must - no matter what the appeal is - have very much in mind the fact that the administrative body is charged with the administration of the Act and has the task of ensuring that its policy is given effect, so that no matter what the nature of the appeal, the court must always pay due regard to the decision of the administrative body.

It is not to be doubted that the Federal Parliament may confer on this court power to review an administrative decision of the Commonwealth administrative authority. Ordinarily, s 9 of the Administrative Decisions (Judicial Review) Act 1977 excludes that role but cases such as appeals, up until recently from the Commonwealth Employees Compensation Authority or from Income Tax Boards of Review, to State courts were examples of this procedure that had been in vogue for many many years.

The only clues that seem to be given as to what this court should do are that its powers under s 14X are "in its discretion" to either set aside the order or to dismiss the appeal. Although at first blush it appears that the court can either grant the order or dismiss the appeal, it is significant that the section uses the words "in its discretion". These are strange words to employ if the court is merely to look to see what happened before the Commissioner and ask itself whether the Commissioner was able to hold a belief on reasonable grounds. Secondly, that, although the power of the court to make orders may be circumscribed, it may well be that in the course of the proceedings the court may take undertakings. For instance, it may be that the court would take an undertaking from a taxpayer that he would not whilst overseas visit certain places or do certain things. Provided that the court was sufficiently certain that the taxpayer would return to Australia so that he could be attached for breach of his undertaking, that may be a matter which would affect the court's discretion as to what it should do.

The other clue is s 14T. It is suggested by Woodward J in T's case, supra, that, because the Federal Court is limited to judicial review, a person who wants to attack the Commissioner's discretion must apply under s 14T or s 14U and then go to the Administrative Appeals Tribunal if dissatisfied with that application. That is understandable enough as a decision of the Federal Court, but where the appeal is to this court, as I have said, constitutional provisions do not dictate such a roundabout route. Whether that be right or not, s 14T clearly indicates that if the Commissioner is satisfied that the tax liabilities to which the person is subject are completely irrecoverable then the Commissioner shall revoke the order. It is to be noted that the imperative "shall" is used.

It appears that the view has been taken within the department that if the Commissioner is not able to say that he is satisfied that the tax liabilities are completely irrecoverable, then that is a reason why an order under s 14S should be made. Whilst it is true that s 14T does give some clues as to the purpose of s 14S with respect to those who have taken a different view, it seems to me that that view of s 14T is too narrow.

It was notorious that up until a decade or so ago each person leaving Australia had to have a tax clearance before leaving the country. That system proved practically and administratively too cumbersome and was abandoned. Departure prohibition was re-introduced on a more limited basis by the 1984 amendment and it does not seem to me that its re-introduction in this form was intended to cover the same grounds as the all embracing tax clearance system. There were some more limited bases on which taxpayers were to be deprived of what has been said in certain international treaties referred to in the Human Rights Commission Act 1981 to be the rights of all free people, that is, to depart their country and return to it at will. Section 14T gives the clue that the matters which spark the making of a s 14S order are that the recoverability of tax will be affected by the departure of the taxpayer from Australia. Accordingly, once the Commissioner is satisfied that the tax is completely irrecoverable then it cannot be the case that collection of the tax will be affected by the taxpayer going outside Australia and the raison d'être for making the order has gone so that the order must be revoked.

I am of the view that that is the way that one approaches the section. The Commissioner is to believe on reasonable grounds that it is desirable to stop a person leaving Australia because it is necessary to collect the tax that is owed to the government and that that discharging of the tax liability will be affected by the person going overseas.

In the instant case the Commissioner has given evidence, has put before the court his minute of decision and has been cross-examined on it. When I say "the Commissioner", the actual decision was made by the New South Wales Deputy Commissioner of Taxation, Mr Cortese under delegation, and there is no doubt at all that he was properly authorised to make that determination.

It has been put to the court that because the words "the Commissioner believes on reasonable grounds" are employed in the section then, once the fact is demonstrated that the Commissioner in fact had that belief, that is the end of the matter. That is certainly the situation in many cases: see those reviewed by Hunt J in Henry Comber Pty Ltd v FCT (1985) 16 ATR 693 at 700-1; 82 FLR 154 at 160-1, though if the Commissioner's view was on an erroneous basis the court then reconsiders the matter itself because, if the Commissioner's view is set aside, he would otherwise have to redecide the matter on the basis of then current information: see Kolotex Hosiery (Aust) Pty Ltd v FCT (1975) 132 CLR 535 at 568; 5 ATR 206 at 232 per Gibbs J. See also Australasian Scale Co Ltd v Commissioner of Taxation (Qld) (1935) 53 CLR 534 at 555.

However, in the instant case it does not seem to me that those decisions are exactly applicable. The legislature gives various rights of appeal to the taxpayer, as I have indicated above, not only under s 14V. The scheme of the Act appears to be that the Commissioner can make this decision administratively and it may be, without hearing anybody, on suspicion and without giving his reasons, but that the matter is of such great moment that the Commissioner's opinion is not to be conclusive but is able to be reviewed in the ways in which I have indicated and, in particular, the reviewing court is to have a discretion about whether it will make the order to set aside the Commissioner's certificate or not.

I return then to the minute that was relied upon by the Commissioner in this case.

The Commissioner indicated he had reached the belief that it would be desirable to issue the order because (a) the taxpayer has a substantial tax liability; (b) he was not satisfied that the tax liability will be completely irrecoverable because of four matters there set out; (c) the taxpayer did not have any known ties, business or personal, which would prevent his permanent departure from Australia; and (d) the taxpayer is facing a committal hearing and has had his passport returned to him by the Director of Public Prosecutions.

There is no contest really as to para (a). There is an income tax assessment against the plaintiff of over $4.5 million and although there are appeals upon which judgment has been reserved in relation to that assessment I follow Lee J in Winter's case, supra, and, for the present purpose, assume that there is the tax liability in accordance with the assessment.

Putting aside para (b) for a moment, under para (c) there is certainly the fact the taxpayer has been twice married and by his first marriage he has three children, two of whom are adults and the third aged 14, living with his former wife. His second wife lives with him in Sydney, she has a business, but she is a French citizen who has permanent resident status in Australia. However, whilst the position may have been stronger for the taxpayer if he had his own business and perhaps a few infant children who were dependent on him, who would be left in Australia whilst he went overseas, he is not by any means a person who does not have substantial connection with Australia. He has been a permanent resident of Australia all his life; he swore that he did not conduct any business overseas or have any residences overseas; before the present matters which relate to what is commonly called "bottom of the harbour" tax offences he had never been charged with any criminal offence. His wife owns a house at 13 Stephen Street, Paddington, which is his permanent residence; since he was granted bail in the criminal courts in 1985 he has never caused any problems for the authorities. Thus whilst the Commissioner's statement was true, with respect it was not the whole picture.

So far as para (d) is concerned, the matter goes both ways. It is, of course, true that there was no need to issue a departure prohibition order whilst the plaintiff was on bail, the conditions of which were that his passport should be held by the Director of Public Prosecutions. The evidence shows that the Director of Public Prosecutions took the view that it would have no chance of opposing an application by the plaintiff to delete the bail condition that his passport be held and, accordingly, dispensing of that condition was consented to. The Director of Public Prosecutions evidently considered that there was only a very slight chance that the defendant would not return to Australia at the end of his proposed 14 day holiday in New Caledonia. Accordingly, there is the factor that it is now possible for the taxpayer to go overseas and, although he says that he only wants to go away for 14 days for a holiday to New Caledonia to recover from the stress of the prosecution, it is possible that he will roam further afield. However, on the other hand, the prosecuting authority seems to have no fear that the plaintiff is not going to return in 14 days.

Mr McGovern in his able submissions for the Commissioner said that there are two different matters involved. The Director of Public Prosecutions is merely concerned that the plaintiff will return to Australia to continue facing the committal proceedings, whereas the Commissioner is interested in collecting his tax. This is true. It is also true that the taxpayer has had the opportunity to make substantial borrowings and has been involved with various trusts which appear to have had, at least six years ago, some investments in Swiss and Austrian bullion accounts with banks of Europe. It is also true that there may be some attack made on the way in which the property at Vaucluse was sold some years ago. However, all this is of a very speculative and vague nature and it does not seem to me that on balance the point that the Director of Public Prosecutions has restored the taxpayer's passport for the purpose of him taking a two week holiday is one that is a weighty matter for issuing this sort of order.

Accordingly, one goes back to para (b). The Commissioner's view was that he was not satisfied that the tax liability will be completely irrecoverable. It seems to me that, whatever the nature of this appeal, that was the wrong test. That was the matter which the Commissioner had to consider if an application was made to discharge the order under s 14T and he was to consider the matter at that stage. What he had to do when initially granting a s 14S order was to take into account, on the one hand, as his evidence shows he did, the right of an Australian to travel freely throughout the world, but, on the other hand, how that right would affect the recovery and collection of tax.

On this matter there are two main things to be said. First, there are questionable matters which were put to the plaintiff in the witness box as to what happened in the past, but to a great degree these are all speculative matters, matters where the Commissioner may very well have a suspicion but may mean that he could not issue a revocation order under s 14T, but really not matters that are so weighty as would make any reasonable person think that there were realistic chances of recovering tax from those sources.

The second and, to my mind, most convincing matter is the fact that as a result of the taxation assessment bankruptcy proceedings were commenced against the plaintiff. A petition to make the plaintiff bankrupt was issued in the Federal Court and the Federal Court granted a stay of those proceedings until after the taxation appeal, which is currently pending before Yeldham J in this court, was disposed of. An undertaking was given by the taxpayer to the Federal Court not to dispose of any assets other than in the ordinary course of business. That undertaking can, of course, be enforced in the Federal Court by way of attachment. The bankruptcy proceedings are merely stayed, they are not abandoned. If those proceedings are revivified after the taxation appeal before Yeldham J is finalised and an order for sequestration is made against the taxpayer then, under s 115 of the Bankruptcy Act, the taxpayer's bankruptcy will relate back to the earliest available act of bankruptcy within six months of the issue of the petition. It would seem from the decision in Re Dalco (1986) 17 ATR 906 that that was probably some date early to mid-1986.

Accordingly, the Commissioner is protected so far as tax recovery is concerned, not only by the undertaking given to the Federal Court, but also by the provisions of the Bankruptcy Act so that even if the speculative event occurred and the time overseas was used by the taxpayer to rearrange his affairs then, upon his return to Australia (which the prosecuting authority seems to think is most likely), adequate steps can be taken to protect the Commissioner, so far as collection of tax is concerned, by anything that had happened whilst overseas. Of course, it is always open to the wit of man to work at some secret way of dealing with property, but the consequences of s 14S, depriving an Australian of his basic rights, to my mind, are not to be affected by mere speculation.

Accordingly, if the appeal is, as I think it is, a plenary appeal to this court to decide on all the evidence before the court, and I am to exercise a discretion whether I should set aside the order or not, I would set aside the order. If, on the other hand, I am wrong on that and I am conducting a more limited inquiry as to whether the taxation Commissioner was properly of the belief under s 14S(1)(b) in my view his exercise of forming a belief miscarried in the way in which I have indicated and again I should allow the appeal.

Accordingly, in my view, the order made by the Commissioner of Taxation on 2 October 1987 under s 14S of the Taxation Administration Act should be set aside. I order that the defendant pay the plaintiff's costs of the proceeding. The exhibits are to remain with the papers.