Federal Commissioner of Taxation v Australia and New Zealand Banking Group Ltd.

(1979) 143 CLR 499

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(Decision by: Mason)

FEDERAL COMMISSIONER OF TAXATION v AUSTRALIA AND NEW ZEALAND BANKING GROUP LTD.

Court:

Judges: Stephen J
Gibbs A.C.J.

MasonJacobs
Murphy JJ.

Judgment date: 9 NOVEMBER 1979

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Decision by:
Mason

There are here two appeals and a cross-appeal brought from the decision of Stephen J. delivered on 9th December 1977, in which his Honour dismissed an action for a declaration that certain notices issued by the Commissioner of Taxation ("the Commissioner") pursuant to the powers conferred by s. 264 (1) of the Income Tax Assessment Act 1936, as amended ("the Act") directed to The Australia and New Zealand Banking Company Limited ("the Bank") were valid, but declared that similar notices directed to the Smorgons were valid. The decision arose out of a further attempt by the Commissioner to require the production of documents relating to the income and assessment of the Smorgons, following Stephen J.'s judgment in Smorgon v. Australia and New Zealand Banking Group Ltd. (1976) 134 CLR 475 (at p530)

In the present case each notice was issued by the Commissioner under s. 264 (1) and sought to compel the person to whom it was directed to produce for inspection by the Commissioner's delegate the contents of certain safe deposit boxes situated in the Bank premises. The Commissioner issued several notices to the Bank, each in slightly different form, so that the Court has to consider the validity of various forms of notice. (at p530)

Three main classes of objection were taken by the Bank and the Smorgons in relation to the validity of all the notices. First, the ambit of the Commissioner's investigatory powers under ss. 263 and 264 (1) was canvassed and it was argued that certain conditions precedent to the exercise of the Commissioner's rights under each section should be implied so as to prevent the Commissioner from undertaking a "fishing expedition". Secondly, it was argued that the notices were defective in form as they were each expressed too widely and therefore on their face exceeded the Commissioner's power under the section. Thirdly, in relation to the notices directed to the Bank, it was submitted that the Bank lacked "custody" or "control" of the documents within the safe deposit boxes and could therefore not be compelled to produce them. (at p531)

It is convenient to deal with this third point first. Section 264 (1) of the Act provides:

"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." (at p531)

The rights of the customer and the Bank with respect to each safe deposit box are regulated by pro forma written agreements to which the Bank and individual members of the Smorgon family are parties. Each agreement provides:

"I/We . . . HEREBY ACKNOWLEDGE having received from the Bank two identical keys numbered as in the schedule in respect of the said Safe Deposit Locker (herein referred to as 'the Locker') the Bank holding a third and different key by means whereof the Locker may be double locked and in consideration of the Bank granting me/us the use of the Locker upon the terms and conditions herein contained I/we agree with the Bank as follows:-

. . .

2. To retain one of the said identical keys under my/our own control at all times until the same is returned to the Bank

3. To place the other of such identical keys (herein called 'the duplicate key') in a packet to be sealed by me/us and to deliver the same into the custody of the Bank to be retained by the Bank in safe keeping and during the continuation of this agreement to be used only to replace the key held by me/us upon my/our written request in the event of the loss or destruction of the latter key. The Bank shall be responsible for the safe keeping of the duplicate key and for prevention of improper use thereof.

4. The key handed to me/us is to remain the property of the Bank and is returnable on demand and shall in any event be returned to the Bank upon termination of my/our use of the Locker. Any repairs to the keys are to be solely by the Bank.

5. Subject to this agreement I/we may have access to the Locker at any time or times during the normal hours in which the said Safe Deposit facilities are open to the public for business and my/our access to and use of the Locker shall be in accordance with and subject to such Rules and Regulations as the Bank shall from time to time think fit to make.

6. In case of emergency (of which the Bank shall be the sole judge) the Bank shall be entitled to close the said Safe Deposit facilities to me/us or to all customers for such period as in the circumstances the Bank shall consider reasonably necessary.

. . .

8. The Bank is entitled in its discretion to terminate my/our use of the Locker at any time by notice in writing signed by the Manager for the time being of the said Branch or any other officer of the Bank authorised in that behalf. Upon determination of my/our use of the Locker, I/we shall remove all property from the Locker and surrender the key thereof to the Bank whereupon the Bank is to refund to me/us any unexpired portion (calculated on a monthly basis) of the charge paid in advance for the use of the Locker. In default of my/our removing such property the Bank may remove the same and make such arrangements for the custody thereof at my/our risk and expense as the Bank shall think fit.

. . ."

Clause 1 authorizes the Bank to charge for the use of the box, cl. 7 prohibits the placement of dangerous goods in the box and by cl. 9 the Bank accepts and limits its responsibility to that "legally required of gratuitous bailees having the custody of the property of other persons". (at p532)

Clearly in the circumstances of this case, where no action to terminate any of the agreements has been taken by any of the parties to them, the Bank is contractually bound not to use the duplicate key which it holds (cl. 3). However, it was not contested that if on its true construction the Act required the Bank to deliver up the contents of the boxes to the Commissioner pursuant to the notices then the Bank would commit no breach of contract by doing so. The real question is whether, given the disposition of keys and location of the boxes within the premises of the Bank, together with the exercise by the Bank of what Stephen J. called "negative superintendence as guardian of the security of the boxes", the Bank has the contents of the boxes in its custody or under its control within the meaning of s. 264. (at p532)

The primary definition of "custody" in the Shorter Oxford English Dictionary is "Safe keeping, protection; charge, care, guardianship". Without more, the degree of protection for the security of the contents of the boxes which the Bank provides justifies the conclusion that the documents were in the custody of the Bank. It is of no consequence that the Smorgons have rights of access (specifically provided by cl. 5 of the agreements) to the contents of the boxes, though it may be that during any period of time when the customer actually avails himself of his right of access to the box and has it open the contents are no longer in the custody, or at any rate the sole custody, of the Bank. In my opinion the Bank has custody of the contents of a locked safe deposit box situated on its premises. (at p533)

The content of "control" is somewhat different from that of "custody"; however, both are "wide enough to include many types of possession which are not commensurate with full ownership" (Johnston Fear & Kingham v. The Commonwealth (1943) 67 CLR 314 , at p 324 , per Rich J.). It is difficult to ascribe a precise meaning to "control" in s. 264 as the content of the word is normally dictated by its context and can vary from sole absolute dominion over the object "controlled" to "something weaker than 'restraint', something equivalent to 'regulation'" (Bank of New South Wales v. The Commonwealth (1948) 76 CLR 1 , at p 385 , per Dixon J.). Although the use of the composite expression "in his custody or under his control" does not assist us in determining the precise limits of the meaning of "control", it does evidence a legislative intention to employ the words in their widest sense. (at p533)

In the circumstances of this case where the Bank has the actual ability to open the boxes without damage to them, though contractually bound not to do so, and where no box can be opened without the Bank first providing access to it and a key, it is my opinion that the Bank does have "control" over the documents to a sufficient degree to come within the scope of that word as it is used in s. 264 (1) (b). (at p533)

There is to my mind no reason to limit the scope of "custody and control" to "exclusive custody and control". The decision in Dollfus Mieg et Compagnie S.A. v. Bank of England (1949) Ch 369 is of no assistance in this case. The decision of Jenkins J. that the bailor (the Tripartite Commission which represented the governments of the United Kingdom, France and the United States) retained possession, for the purpose of the rules relating to sovereign immunity, of certain gold bars held on a bailment by the Bank of England in a "Gold set-aside Account" (that is, held in a vault with other gold but kept separate for the purpose of returning it in specie) was in no way inconsistent with the exercise of custody or control by the bank. The decision said nothing about the nature of the bailment from the bank's point of view. (at p533)

Even the view that custody, or possession, must reside exclusively in one person at any given time (Paton, Bailment in the Common Law (1952), pp. 6-9) does not relieve the Bank from compliance with a lawful notice to produce documents under s. 264. Whether or not Professor Paton is right in his suggestion that on true analysis the bank in the Dollfus Mieg Case (1949) Ch 369 had exclusive possession yet Tripartite Commission retained control over the disposition of the gold bars, it seems clear that in that case, as in the present case, there was scope for the exercise of some "control" by both the bailor and bailee. In these circumstances the Bank falls, at the least, within the ambit of the exercise of "control" under s. 264 whether or not it also has possession or custody of the documents. (at p534)

Section 264 appears in Pt VIII of the Act - "MISCELLANEOUS". The section is preceded by ss. 262A and 263. Section 262A, which was introduced into the Act in 1943, requires every person carrying on a business to "Keep sufficient records in the English language of his income and expenditure to enable his assessable income and allowable deductions to be readily ascertained" and to retain such records for at least seven years. Sections 263 and 264 then arm the Commissioner with rights and powers to inspect documents. The rights and powers so conferred are not limited to the records which a person carrying on a business is obliged to keep by s. 262A. (at p534)

By s. 263 the "Commissioner, or any officer authorized by him in that behalf, shall at all times have full and free access to all buildings, places, books, documents and other papers" for any of the purposes of the Act. This right of access is not confined to documentary records which relate to the income of the person in whose possession they are at a given time. The Commissioner's right of access extends to documentary records for any of the purposes of the Act. He may therefore examine, but not seize, documentary records relating to the income of a person other than the person who has possession of the records. (at p534)

The power conferred upon the Commissioner by s. 264 to require a person to furnish information, to attend and give evidence and to require the production of books, documents and other papers enables him to obtain information and inspect documents when the "full and free access" given by s. 263, for whatever reason, is inadequate to enable him to inspect documentary records, though I can see no reason why the exercise of the power should be restricted to these circumstances. Section 264 makes no reference back to s. 263; nor does s. 264 condition the power which it confers upon an exercise of the right of access given by the earlier section, or an attempt to exercise that right. The later section should therefore be construed according to its terms. They are not to be cut down and distorted by the making of a vague and indefinite implication based on the existence of the earlier provision. The fact is that ss. 263 and 264 serve two different purposes. Section 263 is a general provision giving the Commissioner a right of access. It makes lawful that which otherwise would be unlawful, e.g. entry upon premises, the examination of a document. The succeeding section arms the Commissioner with inquisitorial and coercive powers. However, this difference supplies no reason for departing from the language of s. 264 which is expressed in the widest terms. (at p535)

Except in one respect the powers given by s. 264 should be circumscribed only by reference to the limitations which are expressed in that section. Thus, in s. 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 par. (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. (at p535)

The expression "relating thereto" refers back to "his or any other person's income or assessment", not to "attend and give evidence", despite the somewhat inappropriate setting out of the sub-section. It is therefore within the Commissioner's power to require a person, who is not required to attend to give evidence, to produce books, documents and other papers pursuant to s. 264 (1) (b). In this respect I agree with the remarks of Stephen J. in the earlier Smorgon Case, when he said (1976) 134 CLR, at p 485 : "the second part of par. (b) is independent of what immediately precedes it; it is not a power ancillary to, and only capable of exercise in aid of, the first part. On the contrary it is a self-contained provision. . . . It depends for its effective meaning upon the opening words of s. 264 (1), but not upon anything in the first part of par. (b)." (at p535)

The consequence of all that I have said is that the Commissioner is at liberty to choose to require the production of documents or the attendance of persons pursuant to s. 264 without first exhausting his right of access pursuant to s. 263. (at p535)

And, for a similar reason there is nothing in the suggestion that an issue or dispute of fact must first arise between a taxpayer and the Commissioner before the Commissioner can invoke s. 264. There is simply no basis for the implication of such a limitation. 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 inquires, 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 s. 264 is principally, if not exclusively, directed. (at p536)

What I have already said about s. 264 also determines the view I take of the formal objections to the Commissioner's notices which were raised by the Smorgons in this case. As Stephen J. has pointed out, the notices to each of the Smorgons are in the same form. Each requires the addressee to attend and give evidence before a Mr. Peters, whom the notice authorizes for that purpose. The evidence to be give is stated to concern the income of, and the ascertainment of the taxable income and the tax payable thereon by, a large number of named individuals, firms, funds and companies in respect of a period of twelve years of income. The notices go on to require the production of all books, documents and papers in one or more of four numbered safe deposit boxes. (at p536)

Four notices were addressed to the Bank. Three of them, the long form of notice, one dated 14th February 1977 and two dated 23rd February 1977 require the Bank, by its proper officer, to attend before Mr. Peters, again authorized for that purpose, and, in connexion with the income of, and the ascertainment of the amount of taxable income and the tax payable thereon by, the taxpayers for the same twelve years, to produce all books, documents and papers in the four safe deposit boxes. The fourth notice to the Bank (the short form), also dated 23rd February 1977, without referring to anyone's income or tax, simply requires the production by the Bank of all books, documents and papers in the four safe deposit boxes. (at p536)

The Commissioner's power to require production under s. 264 (1) (b) is limited to documents relating to a person's income or assessment. Consequently, the Commissioner may not legally require the production of all the contents of a specified box or even all the documents therein, but only such of them as relate to a person's income or assessment. For this reason there is a fatal defect in the short form of notice addressed to the Bank dated 23rd February 1977 as it does not describe the documents required to be produced except by reference to their location. (at p537)

What par. (1) (b) has in mind is that a notice may be given requiring the recipient to produce "all books, documents and other papers" in his custody or control "relating thereto", that is, to the income or assessment of the person whose name is stated in the notice. It is then for the recipient to decide for himself, difficult though the task may be, which of the documents answer the description. If his decision is wrong he exposes himself to prosecution and penalty. (at p537)

The existence of this hazard is not a sufficient basis for the conclusion that the section requires the Commissioner to give a notice in such terms as would enable the recipient on reading it and on examining the documents in his custody or control to determine whether they fall within the ambit of the Commissioner's powers. 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. (at p537)

It is not in dispute that a notice given under par. (1) (b) may validly require the production of something less than all the books, documents and other papers in the custody or control of the recipient relating to the income or assessment of the named person. It may, for example, specify particular documents. Such a notice, if correctly drawn, will make it clear that the requirement extends to the particular documents because they are included in the class of documents of which the Commissioner is authorized to require production. (at p537)

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-a-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. (at p538)

The two notices to the Bank dated 23rd February 1977 in the long form contain an appropriate description of the documents to be produced and are valid. The class is limited to documents relating to the income of, and/or the ascertainment of the amount of taxable income of, and the tax payable thereon by, the named persons, though this description of the class is immediately followed by the assertion that the class consists of all the documents in the safe deposit boxes. However, the notice dated 14th February 1977, which is also in the long form, merely describes the documents to be produced as those which are located in the safe deposit boxes, without in any way asserting that they are documents which relate to the income or assessment of the named persons. It is therefore invalid. (at p538)

All the notices to the Smorgons use a third formula for describing the documents and a more difficult question arises in relation to them. After calling upon the addressee to give evidence before Mr. Peters concerning the income and/or the ascertainment of the taxable income and tax payable by the persons who are named, the notices state:

"AND IN CONNECTION THEREWITH I DO FURTHER HEREBY REQUIRE YOU to produce at the said place and time all books, documents and other papers located in safety deposit box numbered (number) situate at the Australia and New Zealand Banking Group Limited, Stock Exchange Branch, 351 Collins Street, Melbourne." (at p538)

In my view the demand to produce documents contained in this form of notice goes beyond that which the Commissioner may legally make. The words "in connection therewith" refer back to the investigation, that is, the investigation of the income and taxable income of the persons named and the tax payable thereon, and do not seek to define the relationship between the subject matter of the investigation and the documents. A person receiving such a notice may deduce that certain documents in the safe deposit box need not be produced because their character is so remote that they can have no relevance to the investigation. However, the notice itself in terms purports to require the production of "all books, documents and other papers" in the box without indicating that they relate to the income or assessment of the persons named. It is not to the point that all the documents in the box may, for all we presently know, fall within the ambit of the Commissioner's power. I have given my reasons for concluding that the demand for production must be so formulated that it expresses the limitation imposes by the section. (at p539)

Another matter raised by the Smorgons relates to the delegation by the Commissioner to the Deputy Commissioner, Melbourne, of his powers under s. 264, for the notices were executed by the Deputy Commissioner, Melbourne, as the delegate of the Commissioner. The actual instrument of delegation was dated 8th December 1976 and was executed by the Commissioner pursuant to s. 8 of the Taxation Administration Act 1953. The instrument was expressed to be a delegation under that Act of "such of my powers and functions under the Acts specified in the Schedule to this Delegation, or under those Acts as amended from time to time, as are respectively specified in that Schedule". In the Schedule, against the marginal heading "Income Tax Assessment Act 1936" there appear the words "All of my powers and functions except those under", followed by a list of sections and subsections which do not include s. 264. (at p539)

It was submitted, first, that the delegation was not authorized by s. 8 of the Taxation Administration Act because it permits the Commissioner to delegate "in relation to a matter or class of matters, or in relation to a State or part of the Commonwealth . . . all or any of his powers or functions" under a taxation statute and not otherwise. What the Commissioner has done is to delegate his powers under s. 264 to the Deputy Commissioner in relation to each and every matter. None the less it is a delegation in relation to a class of matters, the class being the whole of the matters. It was argued, secondly, that the reference in the delegation to "those Acts as amended from time to time" constituted it as a delegation of prospective powers. There are a variety of answers to this argument of which only the most obvious need be mentioned. First, the reference is intended to do no more than correctly describe the statutes by their current titles from time to time so as to negative the suggestion which might otherwise be made that the delegation has no application to the statute once it is amended. Next, s. 264 has not been amended at any time, so that the delegation is not relevantly of a prospective power. (at p539)

The cross-appeal by the Commissioner, the Deputy Commissioner and Mr. Peters against the Smorgons seeks, first, a declaration that they or one or more of them are entitled under s. 263 to access to the documents in the safe deposit boxes. There is an allegation in the statement of claim filed by the cross-appellants that they were refused access to the boxes. This allegation was traversed by the Bank and the Smorgons. At the hearing before Stephen J. no evidence was directed to this issue. It is therefore not surprising that no mention of it is made in his Honour's judgment. When asked, Mr. Liddell, for the cross-appellants, though at first disavowing reliance on s. 263, later in the argument reluctantly embraced the section, despite the absence of evidence on the point. For this reason alone it is inappropriate that any declaration should now be made upon the question. However, in the light of my earlier comment on s. 263 that its effect is to make lawful what otherwise would be unlawful, I would go on to say that the section does not impose an obligation on the owner or occupier of premises or on the person having custody or control of a safe deposit box, to produce a key to the Commissioner or his representative to enable him to gain access. It is not a section which arms the Commissioner with a coercive power or which imposes obligations on persons to make the statutory right of access effective. (at p540)

The case for the order for production by the Smorgons of the documents in the safe deposit boxes hinges on the validity of the notices directed to them. As I have held them to be invalid, the order should not be made. (at p540)

The third order sought in the cross-appeal is an injunction restraining the Smorgons from taking possession of material in the boxes pending production. No argument was addressed to this topic and for that reason I would not make the order sought. The question is none the less a live question. Can the Smorgons remove the documents from the boxes after a valid notice for production under s. 264 has been given to the Bank? I do not think that they can. The Bank's obligation to produce attaches to documents in its custody and control at the time when notice to produce was given to the Bank and by reason of the existence of that obligation the Bank cannot disable itself from performing its statutory obligation. It is not to the point that the Smorgons have contractual rights as against the Bank; they are overriden by the statutory obligation. (at p540)

For these reasons I would allow the Commissioner's appeal and the appeal by the Smorgons. I would dismiss the cross-appeal. I would make appropriate declarations of invalidity on all the notices issued by the Commissioner except the two notices in the long form directed to the Bank dated 23rd February 1977. (at p541)