Edelsten v. Federal Commissioner of Taxation

Einfeld J

Federal Court

Judgment date: Judgment handed down 7 February 1989.

Einfeld J.

Section 14S of the Taxation Administration Act 1953 (``the Act'') makes provision for the Commissioner of Taxation to prohibit, in certain circumstances, a taxpayer from leaving Australia, by issuing what is called a Departure Prohibition Order (DPO). This is an application by Geoffrey Edelsten to set aside or vary a DPO issued against him on 16 December 1986 by a Deputy Commissioner of Taxation. The applicant also seeks judicial review of the decision to issue the DPO and of the decision of 18 April 1988 not to vary or

ATC 4122

revoke the DPO. The applicant also asks for an order requiring the Deputy Commissioner to vary or revoke the DPO.

The DPO was served on the applicant while he was attending the offices of the Taxation Department to discuss other matters. It is in the following terms:

``Pursuant to sub-section 14S(1) of the Taxation Administration Act 1953, I, IAN BRUCE CARMODY, delegate of the Commissioner of Taxation, believing on reasonable grounds that it is desirable to do so for the purposes of ensuring that GEOFFREY WALTER EDELSTEN, a person subject to the tax liability referred to in the Schedule, does not depart from Australia for a foreign country without -

  • (a) wholly discharging the tax liability; or
  • (b) making arrangements satisfactory to me for the tax liability to be wholly discharged,

hereby prohibit the departure of GEOFFREY WALTER EDELSTEN from Australia for a foreign country.''

The tax liability mentioned in the Schedule was $1,530,679.79.

On 21 September 1987 the applicant was made bankrupt on his own petition. This bankruptcy was later annulled and a sequestration order made on the petition of Full Point Pty. Limited on 10 March 1988. At the time of the first bankruptcy, the applicant's passport was delivered to his trustee, and to the applicant's knowledge is still in his possession. According to the applicant, the trustee is willing to return the passport to enable the applicant to travel overseas, provided that this would benefit creditors. The applicant is at present a PAYE taxpayer.

Section 14T of the Act provides for the variation or revocation of a DPO. Requests for variation were made by the applicant in June and July of 1987 to permit him to travel overseas for the stated purpose of researching a film. A third request was made on 25 March 1988 to permit the applicant to obtain registration as a medical practitioner in Vanuatu or Israel. It is the decision on this request together with the original decision to issue the DPO in December 1986 which are presently in issue.

The decision to issue the DPO - jurisdiction

A threshold question which arises on this aspect of the case is the jurisdictional basis of these proceedings. Three possibilities have been proposed:

(1) Section 14V of the Taxation Administration Act

This provides:

``14V(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.

14V(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.''

Section 14X provides that a court hearing an appeal under sec. 14V against the making of a departure prohibition order may, in its discretion:

``(a) make an order setting aside the departure prohibition order; or

(b) dismiss the appeal.''

Although this Court clearly has jurisdiction under sec. 14V, it is unclear whether it is a hearing de novo or a hearing by way of judicial review. This was considered by Young J. in
Dalco v. Commissioner of Taxation (unreported 13 October 1987) at p. 2 of the judgment:

``It is to be noted that sec. 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 sec. 14V?

The position is complicated by the fact that two avenues of appeal are delineated in sec. 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...

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(p. 3) It is a different case with a Federal Court because the Federal Court system is not so flexible. Under Chapter 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 sec. 14V(2) makes the section subject to Chapter 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.''

This point is also made by Woodward J. in
T v. F.C. of T. 86 ATC 4894 at p. 4895:

``In my view the scheme of the Act is clear, It provides for a person who is made the subject of a departure prohibition order to challenge the making of that order in a court of law. Section 14V of the Act... means that a court has jurisdiction to entertain an appeal against the making of an order, provided that court does not exceed the judicial powers of the Commonwealth by becoming involved in administrative decision-making. The point is underlined by sec. 14X...''

It thus appears on these authorities that the power of the court under sec. 14V is limited to a judicial review of the decision.

(2) Section 5(1) of the Administrative Decisions (Judicial Review) Act (ADJR Act)

There appears to be no question in principle that the decision is also judicially reviewable under the ADJR Act. The only significant distinction between this and the court's powers under sec. 14V may be in the remedies which the court can give.

However, the respondent submitted that I should refuse to entertain the application, or to grant relief, under the ADJR Act, because of the lapse of nearly two years between the issue of the order and the ADJR Act application. The respondent conceded that the strict 28-day time limit prescribed by subsec. (1)(c) and (3)(b)(iii) of sec. 11 does not apply to this decision, but I am not sure that the concession was correct. In any event, the applicant relied on an alleged undertaking to him by a Deputy Commissioner that the DPO would be revoked or varied when he wished to travel overseas.

However, the respondent made no such submission in relation to the Taxation Administration Act. Because sec. 14V of that Act involves the same types of considerations as would be dealt with under sec. 5(1) of the ADJR Act and any different remedies would in my view have no effect on the result of this particular case, it seems to me unnecessary to resolve the issues concerning the delay in making this application. For the purpose of examining the substantive issues which distinctively apply to the ADJR Act, I am prepared to proceed on the assumption that this is an appropriate application to entertain or that it would be appropriate to grant an extension of time.

(3) Section 39B of the Judiciary Act

Again there seems little doubt that mandamus would in principle be an available remedy but I cannot see a reason why it should be used here when there is ample scope available elsewhere. In the circumstances of this case, it does not seem necessary to determine the appropriateness of mandamus.

The scope of a DPO

The DPO was issued under sec. 14S(1) of the Act. This provides:

``14S(1) 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,

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prohibit the departure of the person from Australia for a foreign country.

14S(2) Subject to sub-section (3), a departure prohibition order remains in force unless and until revoked under section 14T or set aside by a court.''

The purpose of this section was considered by Young J. in Dalco (above). His Honour stated at p. 8:

``Section 14T gives the clue that the matters which spark the making of a sec. 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'etre 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 other words, it is only the possibility or likelihood that the taxpayer's departure from Australia would adversely affect the revenue that there should be under this Act a restriction on the right of an individual in a free society to travel without bureaucratic impediment. The power to issue a DPO may not be exercised penally or for other purposes.

Review of the decision

The applicant seeks judicial review of the original decision to issue the order on the following grounds:

The decision in question was made by Mr Ian Carmody, the Deputy Commissioner of Taxation. In making the decision, Mr Carmody had regard to written submissions compiled by an auditor, Mr Barford, to which were annexed additional comments by his supervisor, Mr Thurlow. Mr Barford listed the following considerations in support of his recommendation that a DPO be issued:

Similar considerations were mentioned by Mr Thurlow.

Mr Carmody was cross-examined as to the weight given to these factors. He stated that the perceived intentions of the applicant's wife were not a serious consideration nor was great weight given in isolation to the media reports. The other factors were all taken into consideration to one degree or another. Mr Carmody was aware that the house in Dural was not personally owned, but could not remember if there were enquiries as to the shares.

The applicant submitted that some of the facts in Mr Barford's written reasons were inaccurate and therefore irrelevant considerations. In particular he alleged that:

The applicant also claimed that the following relevant considerations were not taken into account:

He further claimed that the decision was unreasonable as Mr Carmody had failed to obtain up-to-date information.

There are some grounds for the applicant's assertions but the respondent submitted nevertheless that there was ample evidence of a tax debt in December 1986 and factors were building up which suggested that the applicant was planning to leave the country. The respondent admitted that there was a dispute as to the actual debt owing but claimed that this is irrelevant in this case as once the assessment is issued there is liability in law:
Winter v. F.C. of T. 85 ATC 4654, where Lee J. of the New South Wales Supreme Court stated at p. 4658:

``Likewise, when the matter is brought on appeal, the court entertaining the appeal has regard to that liability as appearing in the assessment and no question can be raised as to the existence of that liability where it is shown to be the liability expressed in the notice of assessment: Income Tax Assessment Act sec. 177, 201 (
F.J. Bloemen Pty. Ltd. v. F.C. of T. 81 ATC 4280; (1981) 35 A.L.R. 104).''

Similarly in
D.F.C. of T. v. Mackey 82 ATC 4571 at p. 4574, Moffitt P. stated:

``The policy of sec. 201 is that when an assessment has been made, the Deputy Commissioner has a right to have the tax paid, despite the pendency of an appeal.''

The respondent said that the evidence revealed the applicant to be manipulating his assets so as to produce the impression that he had no control over them, contrary to the facts. The respondent said that this provided more than adequate reason for believing that the applicant's continued presence in Australia may well result in a considerable payment to the revenue of the true and undeniable debt. The respondent in any case submitted that it is permissible for the Commissioner to have regard to considerations extraneous to the immediate tax debt. He referred in this regard to the following passages in Winter (above):

``I do not propose to go into the detail of the evidence here, as it is unnecessary to do so. In my opinion, the evidence given by the plaintiff, far from showing that the Commissioner's opinion was not properly grounded in reason, confirms the reasonableness of the belief of the Commissioner that a departure prohibition order should be made. What the evidence disclosed was the participation by the plaintiff in all the alleged trusts' activities and the ability on his part to transact substantial business... (p. 4665)

On the material which the Commissioner had before him, it was in my view, plainly

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open to him to take the view that the plaintiff might well be disposing of assets, whether trust assets or not, and arranging his affairs to the disadvantage of the Commissioner. In regard to the tax liability, he was entitled to consider that, in view of the size of the liability and the pressure of the legal proceedings involving substantial claims for damages, the plaintiff at least could see a need to avoid the tax liability, as well of course as the liabilities involved in the litigation in which he was a party...

Finally the Commissioner, in my view, was entitled to have due regard to the fact that the plaintiff had no dependants and was free to move about as he wished, subject of course to the normal human influences, arising from his mother and his sister being resident in Australia... (p. 4666)''

I accept the respondent's submissions on these matters.

The applicant finally submitted that there was a denial of natural justice in that he was not given an opportunity to be heard before the order was issued. This point was considered by Young J. in Dalco (above at p. 9) but his Honour considered that the extensive review provisions in the Act militated against there being a right to be heard in advance:

``The legislature gives various rights of appeal to the taxpayer, as I have indicated above, not only under sec. 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 would respectfully add that to give an intended recipient of a DPO advance notice of its imminent issue may rob the whole procedure of efficacy by providing the person with an opportunity to leave the country before the order can be issued. In this case that may have been difficult because the applicant's passport was apparently not in his hands, although it may very well have been accessible to him. None the less, the principle remains intact and I cannot believe that natural justice would intervene to prevent or forestall the making of a duly reviewable order designed to stop a possible fraud on the revenue, thus effectively frustrating the whole procedure. I therefore reject the applicant's submissions in this regard. The applicant has not established that the requisite error of law was made in the issue of the DPO.

The decision not to revoke or vary - jurisdiction

Section 14T of the Act provides that application can be made to the Commissioner for the variation or revocation of a DPO. Section 14U says that the Commissioner may issue a departure authorisation certificate in specified circumstances. In the case of an unsuccessful application, the sections give the Federal Court no right to revoke the order. Section 14Y(1) provides rather that:

``Applications may be made to the Administrative Appeals Tribunal for review of decisions of the Commissioner under Section 14T or 14U.''

This point was considered by Woodward J. in T v. F.C. of T. (above). His Honour stated at p. 4895:

``Once an order is made, and it is not challenged as having been improperly made, detailed provision exists in sec. 14T and 14U for the Commissioner to revoke or vary the order or to issue a `departure authorization certificate'. If the person the subject of the order is dissatisfied with the Commissioner's response to an application pursuant to either of these sections, sec. 14Y(1)...

There can be no doubt that, in the circumstances of this case, this is the course which the applicant should have followed. He wants to have the exercise of an administrative discretion reviewed, not on any legal grounds but on the basis that an unfair or inappropriate decision has been reached. The Administrative Appeals Tribunal may, of course, exercise all the powers and discretions that are conferred on the Commissioner by sec. 14T and 14U. This Court may not.''

The respondent concedes that the Court may hear a judicial review application under the

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ADJR Act. However, as a right of appeal to the Tribunal is provided by the Act, this Court would be justified in refusing to grant such an application. Section 10(2)(b)(ii) of the ADJR Act provides:

``(2) Notwithstanding sub-section (1) -

  • ...
  • (b) the Court may, in its discretion, refuse to grant an application under section 5, 6 or 7 that was made to the Court in respect of a decision, in respect of conduct engaged in for the purpose of making a decision, or in respect of a failure to make a decision, for the reason -
    • ...
    • (ii) that adequate provision is made by any law other than this Act under which the applicant is entitled to seek a review by the Court, by another court, or by another tribunal, authority or person, of that decision, conduct or failure.''

Whether this Court can or should refuse to entertain an application on this ground, as Woodward J. implies, is not necessary to be decided here. This is because one reason for permitting this applicant to proceed wholly in this Court is the desirability that this entire matter be dealt with in one proceeding as far as possible, to avoid duplication and unnecessary expense. In any event, having regard to the arguments advanced and substantive relief sought in relation to this aspect of the case, the better course for the applicant, if successful, would thus appear to be an order in the nature of mandamus under sec. 39B of the Judiciary Act 1903. This provides this Court with jurisdiction to deal with

``... any matter in which a writ of mandamus or prohibition or any injunction is sought against an officer or officers of the Commonwealth.''

The attack on the decision

The provision in sec. 14T that DPOs may be varied or revoked is posited by subsec. (1) on the prerequisite that the tax liabilities of the person concerned have been wholly discharged and

``(a)... the Commissioner is satisfied that it is likely that the tax liabilities to which the person may become subject in respect of, or arising out of, matters that have occurred will be -

  • (i) wholly discharged; or
  • (ii) completely irrecoverable; or

(b) the Commissioner is satisfied that the tax liabilities to which the person is subject are completely irrecoverable...''

Subsection (3) provides that these requirements may be satisfied by arrangements for the relevant payments to be made, presumably at some time in the future.

The applicant submitted that the effect of bankruptcy is that the Commissioner is bound as a matter of law to revoke the DPO. The applicant argued that bankruptcy either causes the debt to become wholly discharged in terms of para. (a), or alternatively that the effect of bankruptcy is that the debt becomes completely irrecoverable in terms of para. (b). Although the Commissioner retains a right of proof in the bankrupt's estate, the applicant said that the debt is no longer a personal debt, and there is therefore no liability for it on the part of the taxpayer.

The applicant referred in this regard to the judgment of the High Court in
Clyne v. D.C. of T. (1984) 154 C.L.R. 589 at p. 594.

``The effect of the bankruptcy however is that the debtor is no longer obliged to pay his creditors; indeed he is disabled from doing so. If he offered payment they could not safely accept it; their right is a right of proof against the estate.''

He also referred to the remarks of Young J. in Dalco (above) at pp. 13-14:

``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 re-arrange 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

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way of dealing with property, but the consequences of sec. 14S, depriving an Australian of his basic rights, to my mind, are not to be affected by mere speculation.''

The respondent replied that bankruptcy does not discharge the debtor from liability, because the whole of the debt owed to the judgment creditor does not need to be completely irrecoverable from the taxpayer to found a sequestration order. In any case he argued that the debt is not completely irrecoverable as the Commissioner can file a proof of debt in the bankruptcy. The respondent further submitted that the debt is not wholly discharged by the bankruptcy. He argued that the combined effect of sec. 14S and 14T is that a DPO in relation to a bankrupt has an automatic three-year life unless it is clear that the bankruptcy will not produce anything. The respondent said that sec. 14S would only apply to some bankrupts and sec. 14T would only be satisfied at the end of the bankruptcy as that is when the bankrupt becomes wholly discharged.

It should also be noted that in Clyne (above), Gibbs C.J., Murphy, Brennan and Dawson JJ. stated at p. 594:

``Amounts which were owed by a debtor at the date of the bankruptcy may, notwithstanding his bankruptcy, still be described as debts, and the Act refers to them as such: see, e.g. ss. 58(3), 84(1), 85(1), 86(1), 153(1), 154(1)(b). They are `debts' from which the bankrupt is not released until he is discharged from bankruptcy: s. 153. However, in our opinion, they are no longer debts `still owing' within the meaning of s. 52(1)(c). Although, as was rightly observed in the Federal Court, one dictionary meaning of `owing' is `that is yet to be paid', the word connotes a sense of obligation to make the payment.''

The respondent argued that the High Court in Clyne was not meaning to suggest that once a sequestration order is made, the individual's liabilities are at an end. Whatever arrangements are made under the bankruptcy will have a direct effect on the creditors. It would be a contradiction in terms, it was submitted, that someone could be an undischarged bankrupt and yet be wholly discharged from liability to any creditor.

In my opinion, Clyne does not support the submission that bankruptcy by operation of law causes the bankrupt's debts to become wholly discharged or completely irrecoverable in terms of sec. 14T. The applicant's contrary argument means that no bankrupt who was at the time of bankruptcy in debt to the Taxation Commissioner, could ever be the subject of a DPO, even if the Commissioner was ``satisfied'' within the meaning of the section that by preventing the bankrupt from leaving the country, the whole or a substantial amount of the taxation debt could be identified and recovered with his assistance. It would also mean that a person who became bankrupt on his own (debtor's) petition with an outstanding taxation liability could thereby avoid a DPO, even if the Commissioner believed that all or some of the tax liability could be recovered if the bankrupt was kept in Australia or if the debtor's petition was fraudulently issued or otherwise voidable.

That cannot be how sec. 14T is intended to be read. It speaks of tax ``liabilities'' not ``debts'' as the High Court addressed in Clyne. I do not think that Clyne requires me to find that the applicant's tax liabilities are spent or non-existent merely by reason of his bankruptcy. Nor, as I understand it, does Clyne compel a finding that the Commissioner is bound to be satisfied that the applicant's liabilities are completely irrecoverable by reason only of his bankruptcy. The applicant's argument fails.

It is thus not necessary to choose between the suggested jurisdictional bases for intervention or to deal with the respondent's alternative argument that the applicant's future tax liabilities by reason of his current status as a PAYE taxpayer would also defeat this application.

The application as amended is dismissed with costs.


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