DAIHATSU AUSTRALIA PTY LTD v DFC of T
Judges:Lehane J
Court:
Federal Court
MEDIA NEUTRAL CITATION:
[2000] FCA 1658
Lehane J
The respondent, the Deputy Commissioner, issued to each of the second, third, fourth and fifth applicants a notice (in each case dated 1 March 2000) requiring him under s 264 of the Income Tax Assessment Act 1936 (Cth) (the Assessment Act) to attend and give evidence before certain named officers of the Australian Taxation Office (ATO) and to produce certain documents. The second applicant, Mr Kratsas, is a director of the first applicant, DAPL, and its public officer. The remaining applicants, Messrs Kohn, Messer and Santos, are employees of DAPL. The notices seek to obtain evidence and documents concerning DAPL's income or assessment.
2. By their further amended application filed on 25 October 2000 (the proceeding was commenced by an application filed on 10 March 2000), the applicants seek relief under s 16 of the Administrative Decisions (Judicial Review) Act 1977 (Cth) (the ADJR Act) (the further amended application refers also to s 15, but there is no claim for relief of the kind contemplated by that section) and s 39B of the Judiciary Act 1903 (Cth). The relief sought includes a declaration that the notices are invalid; an order setting the notices aside; an order quashing or setting aside the decision to issue the notices; and an order prohibiting the Deputy Commissioner from further acting upon or giving effect to that decision and enforcing the notices. Additionally, a declaration is sought to the effect that Mr Kratsas is not obliged to produce a report called for by the notice addressed to him, on the ground that the communications in it comprise legal advice
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given to DAPL by solicitors under a contract of retainer. I have not heard argument on the question whether the claim of legal professional privilege is maintainable; that will remain to be considered if the applicants are unsuccessful in their more general challenges to the notices and the decisions to issue them.3. Those more general challenges were, with one exception, based on various of the grounds specified in s 5 of the ADJR Act. But they all had a common foundation: it is claimed that the decisions to issue the notices were an improper exercise of power (ADJR Act s 5(1)(e)) because, in the light of both the dealings between the ATO and DAPL and the manner in which various officers of the ATO had acted in relation to the affairs of DAPL, the decisions to issue the notices were unfair and were made in bad faith, unreasonably and without regard to relevant matters. In order to deal with that attack on the decisions to issue the notices, it is necessary to examine the facts in some detail. The facts are largely uncontroversial and the evidence is mostly documentary.
Facts; dealings between the ATO and DAPL
4. DAPL, an Australian company, is a subsidiary of Daihatsu Motor Corporation Limited (DMC), a Japanese company. DMC, at relevant times, held ninety-five per cent of the shares in DAPL. The other shares were held by another Japanese company, Nichimen Corporation Limited. DMC manufactures and sells motor vehicles. At relevant times, DAPL bought from DMC motor vehicles and parts and accessories for them, imported them to Australia and sold them by wholesale.
5. On 23 April 1997 the ATO notified Mr Kratsas that it proposed to conduct a tax strategy review (TSR) of DAPL. The letter to Mr Kratsas asked that the ATO be given certain documents. Those documents were provided. The review did not proceed very fast. At a meeting on 4 November 1997 Mr Kratsas informed two ATO officers, Mr Robert Fitton and Ms Muilen Lu, that, for a number of reasons, it would not be convenient for DAPL if the TSR were conducted during the period from November 1997 to January 1998; Ms Lu recorded in a record of the meeting that it was agreed to postpone the review until mid February 1998 ``for good PR with taxpayer''. The ``field work'' for the review in fact began on 9 March 1998, when Mr Fitton and other ATO officers went to DAPL's premises. On that day and the following few days, Mr Messer, who was the Financial Business Manager of DAPL, provided the ATO officers with access to each of the considerable number of documents which they asked to see. They asked for, and were given, photocopies of a number of those documents. Ms Lu, in a file note of 19 March 1998, recorded that she had told Mr Messer that the ATO had the information it needed to finalise the TSR but had informed him that the officers would be recommending that it ``be rolled over as a `specific issue audit''' concerning ``the R & D issue''. A formal report signed by Mr Fitton and dated 31 May 1998 did indeed recommend a specific issue audit in relation to a risk identified as ``payment of royalty/Research and Development to holding company''. Mr Fitton commented in the report that ``without doubt a lot more information is needed to identify the real facts of this issue''. He also expressed the following opinion:
``It is my opinion that the audit be carried out in a more formal manner in view of what I would describe to be a deteriorating level of co-operation by the company and in particular with officers of the company Leon Kratsas and Stephen Breckenridge [sic].''
6. Mr Breckenridge in fact was a partner of KPMG, advisers to DAPL, not an officer of the company. The only detail of the ``deteriorating level of co-operation'' provided in the report was as follows:
``A more formal approach in this matter would be to issue formal notices to the company and tape record all meetings to avoid the possibility of a repeat of the `misinterpretation' by the company of our last meeting (I asked to meet Mr Yuri the Managing Director before he was permanently recalled to Japan and on attending the meeting Kratsas advised that he was not aware of the meeting and that in any event Mr Yuri was not available).''
7. It is not easy on the evidence to see any substantial basis for a suggestion that DAPL and its officers did not cooperate fully in the TSR. Indeed, a letter, apparently written by Mr Fitton, informing DAPL of the completion of the TSR and the proposal to conduct an audit concluded with the sentence:
``I would like to take this opportunity to thank you for your cooperation during the
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review and for the facilities made available to the Review Team.''
8. The audit did not progress with great speed. None of those principally involved gave evidence. Particularly, neither Mr Kratsas nor Mr Breckenridge gave evidence for DAPL. Mr Messer, apart from identifying some documents, gave no evidence of any of the relevant events between mid 1998 and the end of 1999. Nor did any officer of the ATO give evidence. The picture can be pieced together only from documents exhibited to Mr Messer's affidavits and documents produced by the ATO on discovery and tendered by the applicants. From that source it emerges that an international audit review committee, within the ATO, supported the recommendation to turn the TSR into an international audit and supported also the view that a formal approach should be taken to obtaining information. Twelve months, however, appear to have elapsed before any formal step was taken. Meantime, a number of disconnected events seem to have occurred, apparently raising irritation levels on both sides but otherwise not advancing matters very far. Thus, on 30 July 1998 Mr Fitton recorded a conversation with Mr Breckenridge in which:
``I asked stephen [sic] if Leon [Kratsas] was still employed by the company or if there was any possibility that he may be leaving.
Stephen seemed rather surprised by my question and asked if I had heard anything, I stated that I was just concerned that as Leon had been the common denominator for the management of the company that I would be relying on his knowledge of the workings of the company for any information.''
Then Mr Fitton recorded an interview with Mr Breckenridge and Mr Kratsas, attended also by Mr Keith Johnson and Mr Ron Hoad of the ATO, which took place on 4 September 1998. Mr Fitton recorded:
``I asked LK if Mr Juri the previous MD was recalled or was his term simply over. LK said that his term was simply over, I asked if he had been recalled in disgrace to which LK said of course not to which I asked that I would have thought that anyone who presided over an organisation for 5 years and never made a profit should have been recalled in disgrace. I asked if he had been demoted on his return but LK said that he was just in another area and that Mr Juri was not judged on just the profit of the company but 'other' things were taken into account.''
The note also records answers by Mr Kratsas to questions about royalty payments, which Mr Fitton appears to have regarded as unresponsive or evasive. Thirdly, on 24 September 1998 the ATO informed DAPL, by letter, of a proposal to engage an external consultant to assist with aspects of the audit, to advise the ATO on its position and, possibly, ultimately to act ``as an expert witness for the Australian Taxation Office in the event that the Australian Taxation Office position leads to amended assessments which proceed to litigation''. Mr Breckenridge responded vigorously, but not promptly, by letter dated 11 January 1999. Mr Breckenridge identified a number of concerns. For present purposes, however, it is sufficient to quote two paragraphs of the letter:
``DAP is very surprised and alarmed at the tone of your letter. The extraordinary suggestion by you that, at this stage of the audit of DAP, amended assessments might issue and/or that they would proceed to litigation is not only unwarranted and premature, it is not calculated to ensure a smooth and cooperative audit environment.
DAP provided the ATO with all co- operation, assistance and documentation during its Tax Strategy Review earlier this year [sic]. In addition, DAP has been very conscientious in its transfer pricing approach in Australia. KPMG was engaged in 1995 to undertake a Prudential Review of DAP. There is absolutely no reason for the ATO to consider that continued co-operation would not be forthcoming from DAP .''
[The emphasis appears in the original]
9. In fact, the audit seems to have begun in earnest only on 24 April 1999, when an initial meeting took place between members of the audit team and officers and advisers of DAPL. Some - to all appearances, limited - preparatory activity took place within the ATO during the preceding month. On 12 December 1998 Mr Peter Coakley, described as the Transfer Pricing Co-ordinator in the Manufacturing Segment of the ATO, wrote some detailed suggestions addressed to the ``Daihatsu Team'' about the way in which they might proceed: the suggestions concentrated on the first of a four step process, described in the
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ATO's published Taxation Ruling TR 98/11, for testing the arm's length nature of international transfer prices. The first step required the accurate characterisation of international dealings between associated enterprises, and Mr Coakley's suggestions related to the way in which the audit team might obtain a thorough understanding of DAPL's accounts and its business. Meetings of the team were held in March 1999, at which there was discussion of possible approaches to the audit and preparatory work to be undertaken. At a meeting on 1 March 1999 there was, according to a note apparently made by one of those present, discussion of the need to review thoroughly the two published rulings TR 98/11 and Taxation Ruling TR 97/20; and a comment that DAPL ``appears to have very poor documentation'' is recorded. Further discussion about the approach to the audit took place on 5, 9 and 19 March. The note of the meeting on 9 March includes the following:``Auditors felt more preparation time was required.
Discussed the need to know what info we already had. Need to beware of asking for info that we have already asked for and that has been given to us, particularly info given to us in writing. In this regard we all need to re-read TR98/11 at paras. 432-438, especially para 435.''
10. On 28 April 1999 Mr Hoad sent Mr Breckenridge a proposed agenda for a meeting the following day. The agenda stated that the ATO would generally follow the approach described in chapter five of TR98/11: step one would require the auditors accurately to characterise the international dealings between the associated enterprises (principally, no doubt, between DAPL and DMC) and would involve ``attendance at the taxpayer's offices for the purpose of record examination, interviews and inspections.''
11. I mention that proposal about step one particularly because one of the complaints made in argument on behalf of the applicants was that the ATO has never conducted any ``field work'' for the purpose of the audit (as opposed to the TSR). What happened at the meeting of 29 April may, in part, explain why that was so. Once again, my only source of information about what happened on 29 April is the ATO notes tendered by the applicants. There are three sets of notes in evidence, one apparently prepared by Mr Fitton, a second by Mr Hoad (who appears to have been the leader of the audit team) and the third by Mr Forbes Pritchard, another member of the team. The notes differ in detail, but not as to the substance of what happened. In summary, each of the accounts had Mr Breckenridge saying that DAPL had suffered as a result of market conditions, that its staff and administrative resources had been significantly reduced since the conclusion of the TSR and that, accordingly, the ATO's suggestion that the audit process involve a series of interviews and information gathering sessions was not acceptable: all questions from the ATO should be put in writing and directed to two KPMG representatives who would arrange written responses. In any event, Mr Breckenridge is recorded as saying, the ATO probably had most of the information it needed as a result of the TSR. Equally, all the accounts suggest that Mr Breckenridge rejected a suggestion that a formal process, involving the use of notices under s 264, might be adopted. The following passage from Mr Fitton's note suggests that what I have described as irritation levels might not have diminished:
``I asked Breckenridge for an example of how he proposed that the system would work, if for example I asked for information from say the sales manager then I would send in a written request and in due course I would get a reply but would it be signed by that manager or just returned under the general letterhead of KPMG.
Breckenridge's answer was obfuscated and I attempted to obtain a direct answer by asking if that was a yes or no to my question at which he yelled `I am not going to be interrogated by you'.''
According to a note signed by Mr Hoad, he rang Mr Breckenridge on 4 May 1999, told him that the proposal that the audit proceed by way of written questions and answers was unacceptable and that it was the ATO's intention to proceed on a formal basis seeking information under s 264 ``and later where necessary conducting interviews formally''.
12. Then, on 13 July 1999, the ATO issued a notice addressed to Mr Kratsas in his capacity as public officer of DAPL, requiring him, under s 264, to provide certain documents and information. The decision to issue the notice was made by Mr Makinson, a delegate of the
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Commissioner. Reasons prepared by Mr Makinson on 8 July 1999 indicate that he relied largely on a submission by Mr Fitton dated 2 July 1999. The effect of the submission was that, although the International Audit Review Committee had initially supported a formal approach, the ATO had sought to conduct an audit on an informal basis, as it had conducted the TSR. However, DAPL had withdrawn its cooperation:``Daihatsu through their agents KPMG at our last meeting decided that open access would not be granted. KPMG further proposed that all further requests for information should be put in writing and requests would be examined by their legal staff and then answered in writing.
Although DAP advised that they had recently shed staff and that because of a lack of staff they did not have the facilities available to assist on an informal basis, they still refused to make available the records which they had used in the process of creating the prudential audit.
Although Daihatsu have not refused to provide information the proposal that they have put up is so restrictive as to make further progress very slow and inefficient.
It is my opinion that they have now adopted an obstructive approach because Breckenridge stated that he believed that Keith Johnson had already `made up his mind'.''
13. The information which Mr Kratsas was required to provide included confirmation of the identity and shareholding of the current shareholders of DAPL; a description of its organisational structure and changes to it since 1 January 1991; and particulars of numbers of employees in each year since 1 January 1991 and of persons who, since 1 January 1991, had held particular positions within DAPL. The notice also required a list of international agreements between DAPL and related parties entered into or in force after 1 January 1991, other than a Technical and know-how Licence Agreement a copy of which the ATO already had.
14. DAPL's response came in the form of a letter of 2 August 1999 from Mr Breckenridge. Mr Breckenridge expressed dismay that the notice had been addressed to Mr Kratsas, care of DAPL's auditors, rather than to KPMG; said that DAPL would do its utmost to cooperate fully with the ATO but was ``seriously disturbed by the tone of your letter and its appropriateness in the circumstances'' and continued:
``Due to its current lack of local resources, DAP will need to refer your request for assistance to its parent company [DMC]. DMC have advised that it cannot respond before mid-September 1999, due to a number of issues, most notably the planned closure/shut-down scheduled for the week ended 15 August 1999.''
Mr Breckenridge then referred to a number of particular concerns, not all of which bear any obvious direct relationship to the notice issued under s 264.
15. The ATO did not immediately respond in a direct manner to Mr Breckenridge's letter. At least, there is no indication in the material before me that it did. Instead, it wrote to Mr Breckenridge on 9 August 1999 in surprisingly bland terms:
``Reference is made to the ongoing audit of Daihatsu Australia Pty Limited. It is now some time since the representatives of the company and the ATO last met. The ATO proposes therefore that a meeting take place soon to discuss the progress of the audit and the process of working through the fieldwork stage of the audit....''
16. The meeting took place on 24 August 1999. The only evidence of it is to be found in two sets of notes prepared within the ATO. One set was prepared by Mr Coakley. The other bears no indication of its authorship, but indicates that the ATO was represented at the meeting by Mr Coakley, Mr Hoad and Mr Makinson. Mr Coakley's notes appear to have been prepared in November. The other notes appear to be a contemporaneous account of what was said on each side. There is, however, no substantial inconsistency between the two. Both suggest that Mr Coakley said that the ATO wanted an efficient process and that the purpose of s 264 notices was to gain timely responses. Both suggest that Mr Coakley nevertheless agreed to try an approach involving informal written questions and answers. The anonymous notes suggest also that Mr Coakley said that the ATO might need to revoke the s 264 notice and issue a new notice, and that the ATO would ``get back to DAPL on the s 264 issue''.
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17. On 30 August 1999 Mr Coakley wrote a memorandum to Mr Hoad, copies of which were sent to other members of the team. The burden of Mr Coakley's message was that it was necessary to plan the approach to the balance of the audit and to proceed with it promptly. He counselled against any immediate formal requests for records:
``I wouldn't formally go asking for records right now until they clearly demonstrate lack of co-operation. The history is that regular formal notices to Japanese companies does [ sic] not work. However in almost every trading house audit we've issued a few s. 264s or 264A or EOIs.''
Additionally, Mr Coakley suggested that the team should ``work out what happens to the s 264 notice taking into account that you've asked for details potentially about a lot of Japanese expats who are somewhere around the world''. His final exhortation was:
``Please quickly progress to attempting to get more of this crucial information (not by formal notice) before the end of September. I'm working from a base of let's give them September to prove that they will play ball with a less formal process.''
18. On 15 September 1999 the ATO wrote to DAPL. The letter referred to Mr Fitton as the ``contact officer''. It canvassed various matters raised in Mr Breckenridge's letter of 2 August, referred to the meeting of 24 August (at which Mr Fitton had not been present) and proceeded:
``It is also noted that DAP stated at paragraph five [of the letter of 2 August] that it shall respond to the Notice Pursuant to section 264 after mid-September 1999, referral for further consideration of this matter shall be postponed pending receipt of your reply by the end of September.
It is understood that as a result of the meeting on 24 August 1999 that DAP has now agreed to supply requested information on an informal basis and as such the following information is now requested: [ certain further documents and information were specified].''
19. There is no evidence that anything further was provided to the ATO before the end of September. However, on 14 October 1999 Mr Breckenridge wrote to Mr Coakley promising that documents and information would be provided ``in the near future''. In a further letter dated 1 November 1999 addressed to Mr Coakley, Mr Breckenridge claimed to have sent a number of the promised documents to Mr Fitton; he enclosed financial statements of DAPL for the years ended 31 December 1997 and 31 December 1998.
20. Apart from a brief exchange of voicemail messages between Mr Breckenridge and Mr Coakley on 11 November 1999, the evidence discloses no further communication during 1999 between the ATO and anyone on behalf of DAPL. There was, however, activity during that period within the ATO. Particularly, the documents show that, as early as 3 September 1999, Mr Fitton had made contact with the Prosecutions Unit in order to ascertain whether a prosecution might be launched (whether against DAPL or Mr Kratsas is not clear) for failure to comply with the s 264 notice issued on 13 July. A record of a telephone conversation on 7 September between Mr Fitton and an officer of the Prosecutions Unit records advice given to Mr Fitton that he should not issue any further notices without contacting the Unit; Mr Fitton was also told, according to the note, that the letter received on 5 August (apparently that sent on 2 August) should have been responded to, particularly as the date for compliance with the notice had not then expired. A meeting with the Prosecution Unit, this time involving Mr Hoad and Mr Makinson as well as Mr Fitton, appears to have occurred on 14 October.
21. Then, the documents record, there was a meeting of the International Audit Review Committee on 9 November. Among those present were Mr Coakley, Mr Hoad, Mr Fitton, Ms Lu and Mr Makinson. The notes of the meeting prepared by Mr Fitton and Ms Lu record further discussion about the progress (or lack of it) of the audit. Mr Coakley is reported as saying that his impression from the meeting of 24 August was that the information called for by the s 264 notice would be provided. Mr Fitton is recorded as commenting that the previously cooperative attitude of DAPL and KPMG had ceased when they were informed of the proposal to engage an external consultant; and that it was necessary to do something to change the attitude of DAPL, in particular by referring the case for prosecution for non compliance with the notice (as to which advice had already been received). There was a proposal that s 264 notices be served on ``key
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individuals in finance/sales/marketing divisions to give evidence''. Among the recommendations approved by the meeting were the issue of s 264 notices to require production of papers relating to a prudential audit which had been conducted in 1995 by KPMG (or its associated legal firm) and to obtain evidence from employees. There was a recommendation also that a prosecution should proceed.22. The recommendations were carried into effect. DAPL was formally referred to the Prosecutions Unit for prosecution for failure to comply with the July notice; and on 23 December Mr Fitton signed a submission to Mr Makinson recommending the issue to Mr Kratsas of a further s 264 notice; the reasons given included the assertion that the July notice ``was not answered within the set time and virtually none of the information requested has been supplied'' and a statement of the recommendations emanating from the International Audit Review Committee meeting; otherwise, they substantially repeated the reasons supporting the submission for the issue of the July notice.
23. A notice was served on Mr Kratsas. It was dated 11 January 2000 and required him, under s 264, to attend and give evidence concerning the income or assessment of DAPL and, in particular, a number of quite detailed issues listed in a schedule to the notice, and to produce various documents. Telephone conversations and correspondence ensued between Mr Breckenridge and Ms Margaret Oates, the Acting Deputy Commissioner in the Large Business and International section of the ATO. It was agreed that the appointed day for compliance with the notice would be postponed to 14 March and that the notice would be withdrawn and a revised notice issued. A meeting of a considerably expanded International Audit Review Committee took place on 2 February. Notes of the meeting indicate that there was substantial discussion on progress - and lack of it - on a number of fronts since 9 November 1999. It is clear also that there was substantial discussion of the proposed revised notice to be issued under s 264 to Mr Kratsas and the possibility that notices might be issued to other employees of DAPL. The notes record discussion of the drafting of the notices and of what information might usefully be sought under s 264. A draft of a revised notice to Mr Kratsas was settled; the notes record an arrangement that Mr Fitton would ``ring potential key staff to confirm the position they hold within the company and then issue s 264 notices to attend''. A revised notice to Mr Kratsas was issued on 10 February; a notice addressed to Mr Kohn, the National Marketing Manager of DAPL, was issued on 22 February.
24. Meantime, two further events occurred to which the applicants attributed considerable significance. First, the Sun Herald published, on 30 January 2000, in a part of its business section which seems to have been devoted to chat, gossip and minor scandal, an article headed ``The ATO, that's who, Daihatsu''. It read:
``Daihatsu Australia's managing director Kunio Sasaki has received a reminder from the Australian Tax Office after the company failed to supply documents relating to the firm's annual tax audit. The Sydney Tax Office, by reputation a `tame tabby' when it comes to targeting big companies, had one of its tigers on the case when Daihatsu, whose accounting affairs are handled by KPMG's Steve Breckenridge, had to be reminded of its obligations under s 254 [sic] of the Tax Act. ATO acting first assistant commissioner Margaret Oates has let Daihatsu postpone the date to cough up under the Act, which does not allow refusals to speak.''
25. The article clearly enough was based on information received from someone who knew about the audit, and someone who had some knowledge of current views, or gossip, about the Sydney office of the ATO. The author of the article spoke to an employee of DAPL, Mr Wayne Gabriel (who gave evidence), seeking confirmation of the facts, which he did not give. Documents in evidence suggest (but no more) that the author may also have spoken to Mr Breckenridge but, because Mr Breckenridge did not give evidence, I can make no finding as to whether she did so or, if she did, what was said. Mr Breckenridge wrote a letter to Ms Oates complaining vigorously about the article on the basis that, since neither DAPL nor KPMG had an interest in revealing the information, the source must have been within the ATO. The ATO investigated the matter; the documents indicate that the investigation did not reveal the source of the article. In my view, the evidence
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is entirely insufficient to enable me to draw an inference leading to a finding that any particular person, or organisation, was the source of the information. It follows that I do not accept the invitation, issued by senior counsel for the applicants, to find that the ATO (or a particular person within the ATO) ``leaked'' the information.26. Secondly, Ms Oates had taken an interest in the prosecution referral. A file note written by Ms Oates on 9 February 2000 stated that she had asked Mr Edward Van Der Pol (who had replaced Mr Hoad as leader of the audit team) to attend a meeting between the Prosecutions Unit and the Director of Public Prosecutions ``to ensure they understand our concern that our subsequent action may have undermined our intention re the earlier s 264 notice''. A note written by an officer of the Prosecutions Unit suggests that, during conversations and meetings on 14 February 2000, Mr Van Der Pol expressed what might be summarised as reluctant indifference to the prosecution while Mr Fitton was more optimistic about it. Mr Coakley wrote a memorandum dated 22 February 2000 concerning the prosecution referral. In brief, he expressed the view that DAPL might well have got the impression, from what he said at the meeting on 24 August 1999, that the July notice would be ``put to one side'' and that the ATO's letter of 15 September 1999 was not calculated to disabuse DAPL of any such impression. Mr Coakley concluded, ``I do not believe this to be a good prosecution case''. In a note also dated 22 February 2000, Mr Makinson expressed similar views, which he summarised as follows:
``In conclusion, at best there may have been some ambiguity about the status of the original section 264 notice after 24 August 1999 until the present time. The ATO letter of 15 September 1999 did not necessarily resolve this ambiguity. In addition, there are no other letters or file notes which indicate that any other view of the ATO's position on the original section 264 notice, was communicated by the ATO to KPMG or DAPL. It may be reasonable to assume that this ambiguity has not yet been clarified in the minds of Mr Breckenridge of KPMG or officers of DAPL.''
27. The evidence does not reveal whether a decision has been made either to proceed or not to proceed with the prosecution. Certainly there is no evidence that it has proceeded. That, in the circumstances, is perhaps not particularly surprising.
28. A third event should be mentioned, though only because there was evidence about it and it played some part in argument. On 22 February 2000 DAPL announced that its operations would be ``progressively assimilated into Toyota Australia effective from July 1st, 2000''. In other words, DAPL would cease to distribute Daihatsu vehicles; Toyota would take over that role; DAPL's operations, and staff, would be very substantially reduced. It is unnecessary to say anything more about that event: in my view it has no bearing at all on any of the issues between the parties.
29. It will be recalled that the notes of the International Audit Review Committee meeting on 2 February 2000 suggested that Mr Fitton would identify employees of DAPL to whom s 264 notices might usefully be issued, and would contact them. On 24 February Mr Fitton telephoned both Mr Messer and Mr Santos. Both Mr Messer and Mr Santos gave affidavit evidence, and Mr Messer was cross-examined (though not as to his evidence of the conversation). Mr Fitton did not give evidence. The accounts given by Mr Messer and Mr Santos being unchallenged, I accept them. The conversation with Mr Santos is, I think, of no significance. Mr Fitton informed Mr Santos that ``we need to interview you under oath'' and that ``we can summons you to come and see us''. He confirmed Mr Santos' address and suggested possible dates for an interview. Mr Fitton, however, began an otherwise similar conversation with Mr Messer with reference to some other topics. Mr Messer's account was as follows:
``Fitton said: `It is Bob Fitton from the ATO. I would like to offer my condolences regarding the closing of Daihatsu. It must be hard when you have been there a couple of years. I guess you were just starting to move up the ladder and they pulled the rug from under you.'
Messer: `These things happen.'
Fitton: `When will the company close up?'
Messer: `I don't know. All I can say Bob, is that right know [sic] I am working on GST for invoicing.'
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Fitton: `It must be hard with employees in Daihatsu's situation, it is just like what is happening on that National Textiles case.'
Messer: `Look that is not the case with Daihatsu. The company has offered redundancies and furthermore they are bending over backwards to get the staff placed in Toyota. Those that won't be going to Toyota, they are bringing in a management consultant to help them find jobs.'
Fitton: `It must be hard to see directors voting themselves big pay rises.'
Messer: `That's not the case.'
Fitton: `The reason for the call is regarding transfer pricing. How much do you know of the transfer pricing issue?'
Messer: `I know virtually nothing because to be honest with you, Bob, I have been left out of the loop.'''
That drew, once again, a heated protest from Mr Breckenridge to the Commissioner by letter dated 25 February 2000. Mr Fitton, he said, had made unsubstantiated and personal attacks on DAPL's directors which were both inaccurate and potentially defamatory. Mr Fitton had sought information ``by unconventional means'' rather than ``through appropriate channels''. Mr Fitton ``again shows little regard for the best interests of Daihatsu Australia and again demonstrates that he lacks objectivity in his conduct of the audit''. His approach ``border[ed] heavily upon intimidation and opportunism''. Mr Breckenridge asked that Mr Fitton ``be removed entirely from any further involvement'' in the audit.
30. Once again, an investigation was conducted within the ATO. It is unnecessary to describe it in detail. Its conclusion was that Mr Fitton's reference to National Textiles was ill- judged (but no worse) and that it would be desirable to eliminate any further contact, in relation to the audit, between Mr Fitton, DAPL and KPMG. Ultimately, on 29 May, the First Assistant Commissioner wrote to Mr Breckenridge, formally stating the ATO's response. There was an apology ``regarding your perception of the ATO's handling of this issue and, in particular of the actions of Mr Bob Fitton''. The outcome of the investigation was summarised as follows:
``Mr Fitton has been advised that he is not to have contact with yourself, Daihatsu or their employees on this case and he is no longer involved with the audit, except where he has been called on to brief other officers on material with which he is familiar.
In the circumstances, it is accepted that Mr Fitton could be seen to have displayed a certain lack of judgement and sensitivity in mentioning `National Textiles' and commenting generally on Directors to the Daihatsu employees. However, this was not the first time Mr Fitton had spoken to these particular employees and the various transcripts of the relevant conversations do not suggest intimidatory tactics were used by Mr Fitton. A call to confirm positions and titles and availability for interview is a common and accepted practice before a s 264 notice issues. Mr Fitton, nevertheless, has been spoken to about the issue.
There has been no breach of the APS Code of Conduct by Mr Fitton.''
31. The evidence undoubtedly suggests that Mr Fitton took a zealous attitude to the pursuit of the audit and held views as to the appropriateness of particular steps - notably, the proposed prosecution - which were not universally shared within the ATO. It is unnecessary to comment on the conclusion that certain of Mr Fitton's remarks were ill-judged (unnecessary because, once again, a conclusion on that question would lead nowhere in relation to any issue between the parties). It is, no doubt, easy to see why Mr Breckenridge, who was DAPL's adviser and had been principally involved in the discussions with the ATO, should have thought it appropriate for the ATO to raise the question of further notices in the first instance with him. But it is not easy to see why Mr Messer (or for that matter Mr Santos) should have felt particularly intimidated by anything Mr Fitton said: for what it is worth, though both Mr Messer and Mr Santos gave evidence of the event, neither gave evidence that he felt intimidated or overborne.
The March notices
32. The notices under challenge in this proceeding were issued on 1 March 2000. They replaced the February notices issued to Mr Kratsas and Mr Kohn, which were withdrawn. The notice addressed to Mr Kratsas required him to give evidence specifically on, but not
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restricted to, certain topics listed in Schedule 1 to the notice. Those topics were:
- ``(1) Your current employment history with Daihatsu Australia Pty Ltd including the duties, responsibilities and authority of the positions held.
- (2) The Corporate History, Organisational Structures, Business Activities and Financial Performance of Daihatsu Australia Pty Ltd.
- (3) The commercial and financial dealings between Daihatsu Australia Pty Ltd and Daihatsu Motor Corporation Ltd, Daihatsu Motor Sales Ltd and Nichimen Corporation Ltd.
- (4) The functions performed, assets used and risks assumed by Daihatsu Australia Pty Ltd.
- (5) The market conditions experienced by Daihatsu Australia Pty Ltd during the period of the audit.''
33. Mr Kratsas was also required to produce the prudential audit report to which I have already referred; DAPL's share register; an organisational chart or family tree as at 30 June 1999 for DAPL; and international agreements with related parties in force since 1 January 1991.
34. The notices addressed to Messrs Kohn, Messer and Santos were similar. In each case, however, the following words were added at the end of topic (3):
``... especially in the acquisition by Daihatsu Australia Pty Ltd of trading stock and know how from Daihatsu Motor Corporation Ltd and or Daihatsu Motor Sales Ltd and or Nichimen Corporation Ltd and including the negotiation of the international agreements between the companies.''
Each notice called for the production of ``the list or index of all files, agreements and documents held in your department''. The notice addressed to Mr Kohn also required production of marketing agreements and marketing reports or surveys.
35. Each of the four notices required attendance before Edward Van Der Pol, Keith Johnson and Arthur Mills. Mr Fitton (who was one of the authorised officers specified in the January and February notices) was excluded, as was the decision maker, Mr Makinson, who also had been one of those authorised under the January and February notices.
36. On 27 March 2000 Mr Makinson signed statements of reasons, in response to notices under s 13 of the ADJR Act, for his decisions to issue the notices. The four sets of reasons are substantially identical. Each commences with a statement of findings on material questions of fact. It is unnecessary to transcribe those findings or describe them in detail. Broadly they comprise a reasonably comprehensive statement of the events beginning with the letter of 23 April 1997 by which the Commissioner informed DAPL that the TSR would be conducted and concluding with Mr Breckenridge's letter of 25 February 2000 complaining of Mr Fitton's contact with Mr Messer and Mr Santos. Some matters are not specifically referred to: for example, what had been said at the meeting on 24 August 1999 about the fate of the July notice (though notes of the meeting and a copy of the letter of 15 September 1999 are annexed to the reasons); Mr Coakley's suggestions following the meeting about the way in which the audit should proceed; and the later discussions - including the notes prepared on 22 February 2000 by Mr Coakley and Mr Makinson - as to whether the proposed prosecution should proceed. There is a finding that, following receipt of KPMG's letter of 1 November 1999 (and, presumably, the document to which it referred), ``[the] Commissioner's officers were not satisfied that all the information requested had been provided''.
37. The reasons for the decision are, in each case, set out under two headings. The first heading is ``Insufficient Information provided to complete the Audit''. Under that heading Mr Makinson, once again, referred to Mr Fitton's earlier reports and submissions: particularly the alleged difficulties, to which Mr Fitton referred in his December submission, encountered by the auditors in obtaining the information which they needed as set out in the published ruling and the suggestion by Mr Fitton, in his report on the TSR, that ``a lot more information is needed to identify the real facts of'' the royalties issue. Mr Makinson referred also to the considerations advanced by Mr Fitton in the TSR report which - according to Mr Fitton - warranted a formal approach to obtaining information. Again, it may be interpolated, there is no reference to Mr Coakley's suggestions that an informal approach be tried first.
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38. Under the second heading - ``Further Information required from Key Personnel'' - Mr Makinson referred to what was regarded as the inadequacy of the response to the July notice and to the resolutions of the International Audit Review Committee that key staff be identified and s 264 notices issued to them. Mr Makinson then referred to the history of the issue and the withdrawal of the January and February notices. The reasons conclude with a list of the stated topics and the documents required to be produced with, in each case, a brief statement of the reason said to justify the inclusion of each.
Grounds on which review is sought
(a) Vagueness
39. The applicants claim that the notices are invalid and that the decisions were not authorised by s 264 because the notices are vague and uncertain as to the topics listed in Schedule 1 to each notice and are excessively broad in that, in relation to several of the topics, no period of time is specified.
40. This was not a ground developed by the applicants in argument and, in my view, it must fail. Section 264(1) is in very broad terms:
``264(1) The Commissioner may by notice in writing require any person, whether a taxpayer or not, including any officer employed in or in connexion with any department of a Government or by any public authority:
- (a) to furnish him with such information as he may require; and
- (b) to attend and give evidence before him or before any officer authorized by him in that behalf concerning his or any other person's income or assessment, and may require him to produce all books, documents and other papers whatever in his custody or under his control relating thereto.''
Clearly, the evidence which can be required to be given by a notice issued under s 264 must relate to a person's income or assessment. There was no suggestion - there could, I think, be no suggestion - that that requirement was not met. It is not necessary that the notice specify particular topics:
Smorgon & Ors v FC of T & Ors; FC of T & Ors v Smorgon & Ors 76 ATC 4364 at 4373; (1976) 134 CLR 475 at 491-492. If it is not necessary to specify topics at all, it cannot, in my view, be an objection to a notice that it requires the addressee to ``give evidence on oath specifically but not restricted to [specified topics]'', provided at least that the notice makes it clear - as the present notices do - that the evidence to be given is evidence ``concerning the income or assessment'' of a person. Nor, consistently with Smorgon, is it necessary explicitly to limit the period of time as to which evidence generally, or evidence on particular topics, is required.
(b) ``Unfairness'' and related grounds
41. The various grounds on which the applicants rely are specified in the further amended application in considerable detail. It is not necessary, I think, to quote those particulars in full. First, it is said that the decisions to issue the notices were abusive in that they amounted to harassment and intimidation, enlivening s 5(1)(e) and s 5(2)(j) of the ADJR Act. The particulars given are, first, that DAPL incurred significant expense and inconvenience in providing documents to the ATO and access to its records and offices during the TSR. Particulars are then given (including particulars of documents provided during the audit up to 1 November 1999). Secondly, it is said that the ATO made improper approaches to Mr Messer and Mr Santos before the notices were issued: the history is then given of the telephone calls, the complaint and the investigation and its result. Thirdly, it is said that an officer of the ATO provided false information to a journalist for publication so as to embarrass and intimidate DAPL; particulars are then given of the Sun Herald publication and of facts said to demonstrate the untruth of some of what was published.
42. I have already made findings which substantially dispose of this ground. For reasons I have given, I am not prepared to find that an officer of the ATO provided to a journalist the information which led to the writing of the Sun Herald article. Equally, I have found that there was nothing intimidatory about the telephone calls made by Mr Fitton on 24 February 2000. In any case, I find it impossible to see how the making of those phone calls had the result that the issue of the notices amounted to harassment or intimidation of DAPL. As for the first group of particulars, the circumstance that a taxpayer has provided free access to information sought in the course of a TSR does not render the use of s 264 to obtain information in the course of a subsequent audit harassing or intimidatory. One
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of the matters particularised is that DAPL had already provided documents relating to four of the five topics on which Mr Kratsas was required, by the notice addressed to him, to give evidence and, of the documents required to be produced by him, had already provided the share register of DAPL and the agreements. But the fact that certain documents have been produced in relation to topics upon which evidence is required to be given does not have the result that it is harassment or intimidation to ask questions on those topics. Nor does the fact that a share register has previously been made available make it harassment or intimidation to require production of the (updated) share register and, in any event, it is not easy to imagine the circumstances in which a mere requirement to produce that document, even if it had been produced before, could properly be described by that language. And there is, as I understand it, controversy as to whether all the international agreements called for have in fact been provided and I am in no position, on the evidence before me, to resolve that controversy - particularly, to resolve it in favour of the applicants and then to conclude, having done so, that the ground of review relied on is made out.43. In short, in my view this ground is not established.
44. It is convenient to deal together with the claims that the decisions were an abuse of power as being unfair (s 5(1)(e) and s 5(2)(j) of the ADJR Act), that they were made in bad faith (s 5(1)(e) and s 5(2)(d)) and that the making of the decisions was an exercise of power that was so unreasonable that no reasonable person could have so exercised it (s 5(1)(e) and s 5(2)(g)). The particulars of those grounds are somewhat variously expressed, but they have substantially a common basis and they were, appropriately, dealt with together in argument. The case was put mainly on the basis of a doctrine of substantive unfairness emerging initially from the speech of Lord Scarman in
Inland Revenue Commissioners v National Federation of Self-Employed and Small Businesses Ltd [1982] AC 617 (Fleet Street Casuals) at 651-653, restated in
In re Preston [1985] 1 AC 835 at 851-852 per Lord Scarman and particularly at 863-867 per Lord Templeman (with whom Lord Edmund-Davies, Lord Keith of Kinkel and Lord Brightman agreed) and developed in a number of later cases, the most recent being
R v North and East Devon Health Authority; Ex parte Coughlan [2000] 2 WLR 622. Before undertaking, as I shall have to do, a brief review of that line of authority, it is necessary to state the factual basis of the applicants' claim.
45. Unfairness was said to arise from the following combination of circumstances. In its letter to the ATO of 2 August 1999, DAPL had offered full cooperation, while referring to timing and logistical difficulties. Mr Coakley had, at the meeting on 24 August 1999, agreed to try an informal approach and had suggested that there might be a reconsideration of the 13 July 1999 notice. The impression thus given was confirmed by the letter from the ATO of 15 September 1999, in which further information had been sought on an informal basis. Documents had been supplied. The ATO gave no indication to DAPL that it took the view that there had been a failure to comply with that notice. Particularly, DAPL had no hint that active consideration was taking place within the ATO of a prosecution for failure to comply with it. Further, the supposed failure to comply was relied upon by Mr Fitton, in his submission of 23 December 1999 to Mr Makinson recommending that a further notice be issued to Mr Kratsas, as a ground for concluding that DAPL was adopting an obstructive approach to the audit. Mr Makinson had accepted Mr Fitton's submission to that effect, and had also accepted the view expressed by Mr Fitton (despite the provision by DAPL of documents on 1 November in addition to the documents and information made available to the ATO during the TSR) that virtually none of the information requested had been supplied; Mr Makinson, however, had been present at the meeting on 24 August 1999 and knew what had been proposed by Mr Coakley and both he and Mr Coakley had, on 22 February 2000, expressed the view that DAPL and KPMG might well have taken it, from what was said at the meeting of 24 August and from the letter of 15 September, that no further action would be taken in relation to the July notice.
46. The applicants also relied upon, as elements of unfairness, the alleged disclosure to the Sun Herald journalist and the conversation between Mr Fitton and Mr Messer. In relation, particularly, to the allegation of unreasonableness, the applicants relied also on an allegation that Mr Makinson was mistaken in
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finding or concluding, in his reasons for the decisions, that DAPL was resisting providing information and documents and on a claim that, in reaching his conclusion, Mr Makinson had not given any, or any proper, consideration to the extent to which DAPL had in fact provided information and documents up to and including 1 November 1999.47. In the first in the series of authorities on which the applicants rely, Fleet Street Casuals, Lord Scarman held that the Inland Revenue had a legal duty of fairness as between one taxpayer and another. The particular aspect of the duty which his Lordship identified was a duty to deal with taxpayers without discrimination. That particular aspect of fairness was the one on which the respondents in that case relied. Lord Scarman described the duty, at 651, as follows:
``... I am persuaded that the modern case law recognises a legal duty owed by the revenue to the general body of the taxpayers to treat taxpayers fairly; to use their discretionary powers so that, subject to the requirements of good management, discrimination between one group of taxpayers and another does not arise; to ensure that there are no favourites and no sacrificial victims. The duty has to be considered as one of several arising within the complex comprised in the care and management of a tax, every part of which it is their duty, if they can, to collect.''
In Preston Lord Templeman was concerned principally with a different aspect of the duty propounded. His Lordship said this at 866-867:
``In principle I see no reason why the appellant should not be entitled to judicial review of a decision taken by the Commissioners if that decision is unfair to the appellant because the conduct of the Commissioners is equivalent to a breach of contract or a breach of representation. Such a decision falls within the ambit of an abuse of power for which in the present case judicial review is the sole remedy and an appropriate remedy. There may be cases in which conduct which savours of breach of [ contract] or breach of representation does not constitute an abuse of power; there may be circumstances in which the court in its discretion might not grant relief by judicial review notwithstanding conduct which savours of breach of contract or breach of representation. In the present case, however, I consider that the appellant is entitled to relief by way of judicial review for 'unfairness' amounting to abuse of power if the Commissioners have been guilty of conduct equivalent to a breach of contract or breach of representations on their part.''
48. His Lordship proceeded to find that the conduct of the Commissioners was not to be characterised in that way. In
R v Board of Inland Revenue, ex parte MFK Underwriting Agencies Ltd [1990] 1 All ER 91, the Divisional Court stated the principle in similar terms but again found that there was no unfairness. Bingham LJ put the matter on the basis of legitimate expectation. He said, at 110-111:
``If a public authority so conducts itself as to create a legitimate expectation that a certain course will be followed it would often be unfair if the authority were permitted to follow a different course to the detriment of one who entertained the expectation, particularly if he acted on it. If in private law a body would be in breach of contract in so acting or estopped from so acting a public authority should generally be in no better position. The doctrine of legitimate expectation is rooted in fairness. But fairness is not a one-way street. It imports the notion of equitableness, of fair and open dealing, to which the authority is as much entitled as the citizen. The Revenue's discretion, while it exists, is limited. Fairness requires that its exercise should be on a basis of full disclosure. Counsel for the applicants accepted that it would not be reasonable for a representee to rely on an unclear or equivocal representation. Nor, I think, on facts such as the present, would it be fair to hold the Revenue bound by anything less than a clear, unambiguous and unqualified representation.''
49. Similar statements of the law are to be found in
R v Inland Revenue Commissioners, ex parte Matrix-Securities Ltd [1994] 1 WLR 334 at 352 and 356. Cautious indications of a somewhat broader approach appeared in
R v Inland Revenue Commissioners, ex parte Unilever plc [1996] STC 681, a case in which it was held that the Revenue had acted unfairly. Sir Thomas Bingham MR said, at 690:
``The categories of unfairness are not closed, and precedent should act as a guide not a cage. Each case must be judged on its own facts, bearing in mind the Revenue's
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unqualified acceptance of a duty to act fairly and in accordance with the highest public standards.''
His Lordship stressed, however, the unusual character of the particular facts, at 691:
``These points cumulatively persuade me that on the unique facts of this case the Revenue's argument should be rejected. On the history here, I consider that to reject Unilever's claims in reliance on the time- limit, without clear and general advance notice, is so unfair as to amount to an abuse of power.''
Simon Brown LJ said, at 695:
```Unfairness amounting to an abuse of power' as envisaged in Preston and the other Revenue cases is unlawful not because it involves conduct such as would offend some equivalent private law principle, not principally indeed because it breaches a legitimate expectation that some different substantive decision will be taken, but rather because either it is illogical or immoral or both for a public authority to act with conspicuous unfairness and in that sense abuse its power...
In short, I regard the MFK category of legitimate expectation as essentially but a head of Wednesbury unreasonableness, not necessarily exhaustive of the grounds upon which a successful substantive unfairness challenge may be based.
Still less is it necessary to force such a challenge into the strait-jacket of a private law plea of misrepresentation, waiver, acquiescence or some form of estoppel. It may no doubt be helpful to consider whether a person could in private law act with impunity in the manner complained of as unfair in public law proceedings: people's conduct and relationships are, after all, generally regulated in private law according to accepted tenets of fairness. But one must beware of placing too great reliance upon any suggested parallels: they may mislead more than assist.''
Once again, his Lordship proceeded to emphasise that an unfairness challenge will succeed only in exceptional circumstances.
50. It is impossible in a brief summary to do anything approaching justice to the judgment of the Court of Appeal, delivered by Lord Woolf MR, in Coughlan. The judgment states explicitly (see the passage commencing at 646) that an administrative decision may be reviewed on the ground of unfairness where a legitimate expectation of a substantive benefit has been disappointed; the court's task (at 647):
``... in all these cases is not to impede executive activity but to reconcile its continuing need to initiate or respond to change with the legitimate interests or expectations of citizen or strangers who have relied, and have been justified in relying, on a current policy or an extant promise. The critical question is by what standard the court is to resolve such conflicts.''
The judgment proceeds, after reviewing much authority and many commentaries, to conclude that it is not sufficient merely to apply a test of rationality. The passage which I have quoted from the judgment of Simon Brown LJ in Unilever is approved (at 654), but with the qualification that it is not necessary ``to explain the modern doctrine in Wednesbury terms''. The consideration of the principles concludes (at 654) with this paragraph:
``The fact that the court will only give effect to a legitimate expectation within the statutory context in which it has arisen should avoid jeopardising the important principle that the executive's policy-making powers should not be trammelled by the courts:.... Policy being (within the law) for the public authority alone, both it and the reasons for adopting or changing it will be accepted by the courts as part of the factual data - in other words, as not ordinarily open to judicial review. The court's task - and this is not always understood - is then limited to asking whether the application of the policy to an individual who has been led to expect something different is a just exercise of power. In many cases the authority will already have considered this and made appropriate exceptions..., or resolved to pay compensation where money alone will suffice. But where no such accommodation is made, it is for the court to say whether the consequent frustration of the individual's expectation is so unfair as to be a misuse of the authority's power.''
51. That line of English cases has not been the subject of extended consideration by Australian courts. It is, I think, a fair summary to say that, to the extent that it has been
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considered, the reception has been cautious. The cases have been quoted several times without disapproval; they have been applied in circumstances where the availability of a remedy by way of judicial review probably did not depend on the acceptance of any general principle of substantive unfairness; and reservations have been expressed as to the extent of their field of operation.Sunshine Coast Broadcasters Ltd v Duncan (1988) 83 ALR 121 is an early example. Pincus J said at 130:
``This Court is, of course, not bound by the decisions of the House of Lords but they must have persuasive authority, in the absence of any contrary binding decision. Here, it is unnecessary to consider the whole scope of abuse of power by unfair or inconsistent action. The question is a narrower one: if the first respondent, having competing applications before him in respect of the same area, applied a guideline against one and not against another, without any stated or rational justification for that discrimination, is that an abuse of power?''
52. His Honour held that the evidence before him established that that was what had happened and that it was an abuse of power. Similarly, in
Pickering & Ors v FC of T 97 ATC 4893, Cooper J refused an application for summary dismissal or a stay of a proceeding in which, among other things, the applicants sought to challenge the exercise by the Commissioner of a discretion in relation to three taxpayers differently from the way in which he had exercised the same discretion in relation to two others, in circumstances where the taxpayers were all members of the same family and there were no relevant differentiating circumstances. Cooper J accepted, at 4900, that the Commissioner was under a legal duty, when asked to exercise the discretion in favour of the taxpayers, to act fairly. His Honour said at 4901, after referring to authority and academic writing:
``It is clearly arguable that the duty of fairness which the respondent owed to the second, third, fourth and fifth applicants required that the discretion... be exercised in their favour if they were truly in the like situation to the two daughters who received a favourable exercise of the discretion and if the applicants prove upon trial a breach of the duty they will be entitled to have the refusal quashed and the respondent required to exercise the discretion according to law.''
Century Metals and Mining NL v Yeomans (1989) 40 FCR 564 was a case involving a question of procedural, not substantive, unfairness: but the Full Court cited Re Preston, at 591, in support of the proposition that in that case a duty of procedural fairness was owed. Equally, it seems that in
David Jones Finance and Investments Pty Ltd & Anor v FC of T 91 ATC 4315; (1991) 28 FCR 484 the English authorities were cited in support of a proposition that the Commissioner was bound to exercise powers with what was described as ``procedural fairness''. It is important to notice, however, that the decision of the Full Court was one by which an appeal was allowed from the summary dismissal of an application for judicial review. The principal question, which the majority of the Full Court answered in favour of the taxpayer, was whether the ``conclusive evidence'' provision of s 177 of the Assessment Act deprived the Court of jurisdiction to consider, under s 39B of the Judiciary Act, questions relating to the due making of an assessment. Once the conclusion was reached that it did not, the action must be permitted to proceed, the majority held, on the basis that s 177(1) did not authorise the conduct of the assessment process in bad faith or (to some extent) its conduct for improper purposes: and the pleadings alleged an exercise in abuse of power and for improper purposes tantamount, the majority held, to an allegation of bad faith (see at ATC 4330; FCR 503). Finally, the English cases were considered by the Full Court in
Bellinz Limited & Ors v FC of T 98 ATC 4634; (1998) 84 FCR 154. There, the Full Court accepted that the Preston principle had the limited operation given it in Pickering. Beyond that, the Court evidently considered that the principle, whatever its precise ambit, was restricted to ``rare cases'' (see at ATC 4645; FCR 168). It is evident also that the Court was inclined to treat discriminatory treatment, for which no reason is apparent or is advanced, as a form of irrational decision-making. The Court said at ATC 4645; FCR 167:
``It is unnecessary to refer to the numerous other cases, many from areas outside revenue, which were cited to the Court in support of the submission that equality of treatment of taxpayers is an aspect of unreasonableness of decision-making. There
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is little difficulty in accepting that, where a decision-maker, including the Commissioner of Taxation, has a discretion, a principle of fairness will require that that discretion be exercised in a way that does not discriminate against taxpayers: cf Pickering & Ors v FC of T 97 ATC 4893; (1997) 37 ATR 41 and, in another context, New South Wales Aboriginal Land Council v Aboriginal and Torres Strait Island Commission (1995) 59 FCR 369 at 387-388. The same principle may be said to permit judicial review in matters of administration or procedure where a decision-maker acts unfairly by discriminating between different categories of persons. But where the question arises as to the inclusion of an amount in assessable income or the allowance of an amount as a deduction, where no question of discretion arises and where the Commissioner is charged to administer the law (cf s 8 of the Act), and one might say bound so to do in accordance with the language used in the statute as passed by Parliament, it is difficult to see how the Commissioner can properly be said to have acted unfairly, even if there is an element of discrimination, where he has acted in accordance with the law itself. Different considerations arise in other circumstances.''
53. But there is a real difficulty about the application, in Australia, of the Preston principle beyond the limited area considered in Sunshine Coast Broadcasters and Pickering. The basis of the difficulty is explained in the judgment of Gummow J, with whom in this respect Neaves and Ryan JJ agreed, in
Minister for Immigration and Ethnic Affairs v Kurtovic (1990) 21 FCR 193. In a detailed analysis commencing at 207, Gummow J demonstrated that there is no place for the operation of a principle of estoppel in relation to the exercise of discretionary powers conferred by statute. His Honour proceeded to apply that analysis in considering the place of substantive unfairness in judicial review of administrative decisions. Kurtovic involved, as does this case, a question involving a comparison between the current and former treatment of one person, not the inconsistent treatment concurrently of several persons. His conclusions about the place of estoppel in administrative law led Gummow J to conclude (at 220) that a ground of ``unfairness'' analogous to equitable or promissory estoppel should not be accepted. His Honour proceeded to consider whether a concept of unfairness could be supported, involving a process of ``judicial balancing'' between private and public interests (
Laker Airways Pty Ltd v Department of Trade [1977] QB 643). His Honour said at 221:
``But there are two fatal objections to the suggested `judicial balancing' of interests. First, the question of where the balance lies between competing public and private interests in the exercise of a statutory discretion goes to the merits of the case, and is thus one for the decision-maker, not the courts, to resolve. Secondly, a conclusion that a representation or decision is ultra vires ordinarily will preclude its effectiveness. An ultra vires representation is not a mere factor in favour of which the scales of judicial balancing might be allowed to swing, but peremptorily forecloses such deliberation.''
54. Equally, the observations of Mason CJ in
Attorney-General v Quin (1990) 170 CLR 1 at 18-19 do not encourage a view that a principle of substantive unfairness has, in Australian administrative law, much scope. See also, particularly in relation to the applicability of the reasoning in Kurtovic to the Preston principle as applied in Coughlan, M Aronson and B Dyer, Judicial Review of Administrative Action, 2nd ed 2000, pp 120-125; and in relation to the possibility of relief based upon legitimate expectation of a substantive benefit, see pp 332-336.
55. It is not necessary, in order to decide this case, to pursue the analysis further. Let it be assumed (I should not be taken as finding that it is so) that officers of the ATO said at the meeting on 24 August 1999, plainly and unambiguously, that the July notice would not be enforced, that no further notices would be issued under s 264 but that information would be sought, and might be given, informally. Let it be assumed also that, at the meeting and by the letter of 15 September 1999, the representatives of DAPL were clearly given to understand (again, I am by no means to be taken as so finding) that further notices would not be issued until some identifiable event happened, in such a way that, if the representations had been made by a private person, DAPL would, if it acted to its detriment on the faith of them, have had the benefit of an estoppel. Even on those assumptions, to hold
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that the decision to issue the March notices was unfair in such a way as to justify setting them aside would, in my view, fly directly in the face of Kurtovic.56. In any event, the evidence would hardly justify findings corresponding to the assumptions. The ATO notes of the meeting of 24 August 1999 do not provide a foundation for holding that a sufficiently unambiguous representation was made. No one from the DAPL camp gave evidence of what was said at the meeting. The letter of 15 September was at best unclear. Even if the English authorities were accepted without qualification, this would not be one of the clear, rare cases in which the ``unfairness'' ground would succeed.
57. Nor, even if it be assumed (I have indicated that I am not in a position to make a finding about this) that DAPL had provided every document and piece of information which had been asked of it, whether by the notice of 13 July 1999 or informally, does it follow that the Deputy Commissioner, by requiring under s 264 the provision of the evidence and documents specified in the March notices, was acting unfairly in a sense supported by any of the authorities to which I have referred. It was not - could not be - suggested that the March notices require nothing more than had already been asked for (and, perhaps, provided). Nor was it suggested that, but for what was said at the meeting on 24 August 1999 and in the letter of 15 September, it would have been unfair of the Deputy Commissioner to seek the evidence and documents under s 264. That being so, the added element (that everything previously required had been provided) in reality adds nothing to the argument based on estoppel by analogy. Equally, I do not think that the other matters relied on - the referral for prosecution, the apparent difference of opinion within the ATO, or Mr Fitton's conversations with Mr Messer and Mr Santos - in fact add anything of substance. They may have diverted attention from the principal matter at hand, and equally they are apt to divert attention from what is really in issue in this proceeding. Let it be assumed that things happened which fell short (even well short) of best practice. It cannot be said that that assumed fact denied to the Deputy Commissioner the power to proceed with the audit or, more particularly, to exercise the power conferred on him by s 264.
58. For those reasons, assuming substantive unfairness to be an available ground of judicial review, in my view no such ground has been made out in this case. It is easy to see that a good deal of time has elapsed without a great deal of progress with the audit. There seem to have been differences of opinion within the ATO and it is difficult to resist the impression that the degree of consistency and efficiency in the audit process has not been as great as might be desired. It may be that DAPL and its advisers have been justified in reacting with suspicion to certain events and in feeling aggrieved by others (particularly, perhaps, when they learnt of it, the referral for prosecution: it is easy to see the force of the comments of Mr Coakley and Mr Makinson about that exercise). But that does not provide a ground to set the March notices aside.
59. Bad faith as a separate ground, though pleaded, received very little attention in argument. In particular, if it be assumed that Mr Makinson made some findings which were wrong in fact and gave weight particularly to Mr Fitton's views as opposed to others, it does not follow - and it is not actually alleged - that there was any element of dishonesty or any improper purpose in the decisions to issue the notices. Certainly it is not easy to see how an argument based on improper purpose could succeed: there could be no doubt, after all, that the Deputy Commissioner was entitled to conduct the audit and to seek the particular evidence and documents specified in the March notices. There is no suggestion that the notices were issued for a purpose other than that of obtaining information in relation to the particular matters to which the audit was directed. It follows, in my view, that the allegation that the decisions were made in bad faith is not made out.
60. The claim that the decisions were an unreasonable exercise of power in the Wednesbury sense was based upon the proposition that Mr Makinson proceeded on the footing of mistaken findings that the 13 July 1999 notice had not been complied with and that DAPL was resisting providing information and documents to the ATO; against the background of a misguided decision to refer DAPL (or Mr Kratsas) for prosecution; and without proper consideration of the outcome of the 24 August 1999 meeting, the subsequent provision of documents by DAPL or the extent
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to which DAPL had provided documents called for.61. There are a number of difficulties with this. They may explain why little time was spent, in argument, on the unreasonableness ground and why the written submissions on behalf of the applicants on this ground are brief indeed, state the principles for which they contend in the most general way and do not seek to draw any particular connection between those principles and the particulars which they have given of the facts and circumstances on which they rely. To make the point, it is fair, I think, to quote that part of the written submissions in full:
``3.1 As explained in [Coughlan] the Wednesbury principle stands apart from the principle of unfairness articulated in [ Preston].
3.2 It may be that the test propounded by the Wednesbury principle imposes a higher standard than that set by [Preston].
3.3 The Applicants submit that the evidence discloses here that the decision-maker's reasons for issuing the Notices on 1 March 2000 [were] plainly unreasonable by regard to the matters that have been particularised in the letter dated 24 October 2000 from KPMG Legal to AGS especially his failure to give any or any proper consideration to [ the] material facts and circumstances.''
62. The letter of 24 October referred to is one by which the applicants gave further particulars expanding in detail, though not substantially extending the scope of, the particulars given in the further amended application. In fact, also, the further particulars given in the letter are headed ``Ground 3 - Abuse of Power - Decisions Unfair - Sections 5(1)(e) and 5(2)(j) of the ADJR Act''. However, that may be, I have already indicated why, in my view, Australian authority requires that I should treat Coughlan with considerable reserve. Additionally, Australian authority offers no support for a proposition that Wednesbury unreasonableness is a ground of review which is more expansive than the principle of unfairness emerging from Preston. It is sufficient to refer to the statements of the law by Menzies J in
Parramatta City Council v Pestell (1972) 128 CLR 305 at 323 and by Brennan J in Quin at 36-37 and to observe that nothing in the more recent decisions of the High Court in
Abebe v Commonwealth (1999) 162 ALR 1 and
Minister for Immigration and Multicultural Affairs v Eshetu (1999) 162 ALR 577 suggests that a substantially more expansive view is likely to be adopted.
63. In any case, the particulars given do not, I think, advance matters in relation to the ground of unreasonableness even if, in some circumstances, it might be appropriate in support of that ground to attack a decision- maker's findings of (non-jurisdictional) fact. Whether or not there had been ``compliance'' with the July notice (the evidence does not demonstrate, and it was not suggested, that literally everything sought in that notice had in fact been provided), whether or not DAPL's approach to the audit was properly to be characterised as one of resistance, whether or not the referral for prosecution was misguided and whether or not Mr Makinson did not properly consider what documents had been provided by DAPL, the fact remains that there is no suggestion that the ATO was not entitled to seek the evidence and documents called for by the March notices. That being so, it is difficult to see a basis on which the decisions to issue the notices (that is, to invoke the legal mechanism for compelling the giving of the evidence and production of the documents) is to be regarded as one that a reasonable decision- maker could not have made.
(c) Failure to take relevant considerations into account
64. The particulars of this ground are that Mr Makinson failed to have regard to the following matters:
- ``(a) the opinion held by Coakley that the 13 July 1999 notice had been put to one side;
- (b) the opinion held by Coakley (as expressed to Ron Hoad in September 1999) that the 13 July 1999 notice would be withdrawn and a fresh notice issued in lieu;
- (c) the opinion held by Coakley that the letter written by Fitton to KPMG Legal on 15 September 1999 demonstrated confusion;
- (d) his own opinion that the 13 July 1999 notice was not going to be enforced or would be held in abeyance while non formal requests were being trialed;
- (e) his own opinion that Fitton's letter of 15 September 1999 was unlikely to resolve any uncertainty;
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- (f) his own opinion that at the meeting held on 24 August 1999 it appeared that Coakley (his superior officer) was leading the ATO discussions thereat and appeared to be directing the future course of the audit;
- (g) his own opinion as at 22 February 2000 that the ambiguity created by the letter of 15 September 1999 had not by then been clarified in the minds of Stephen Breckenridge of KPMG or officers of the First Applicant.''
65. It is true that neither the findings on questions of fact nor any other section of any of the statements of reasons mentions any of those seven matters. It does not, of course, follow that any of the findings actually made is wrong (and if any of them were wrong that would not, of itself, matter for present purposes). The findings do, however, refer to the meeting on 24 August 1999 and the letter of 15 September 1999. What is not at all obvious is why any of the seven matters were matters which the decision-maker was obliged to take into account when considering whether to make the decisions that the notices should be issued. That formulation is derived from the judgment of Mason J in
Minister for Aboriginal Affairs v Peko- Wallsend Ltd (1986) 162 CLR 24 at 39-40. This is a case where the discretion is (save that the evidence sought must concern a person's income or assessment) unconfined by the terms of the Assessment Act. In those circumstances, as Mason J explains in the same passage:
``[T]he court will not find that the decision- maker is bound to take a particular matter into account unless an implication that he is bound to do so is to be found in the subject- matter, scope and purpose of the Act.''
66. There is, in my view, nothing in the subject-matter, scope or purpose of the Assessment Act (particularly, s 264 and its immediate context) which suggests that the decision-maker was required to take into account arrangements which may have been made in relation to an earlier notice in deciding whether later notices, seeking different information and, in three of the four cases, from different persons, should be issued.
67. For that reason this ground of review is not made out. I should record, once again, that, if my treatment of this ground appears somewhat peremptory, it is because the state of binding authority and its application to the circumstances seem to me to be clear; and the applicants, in their written submissions, made it clear that they relied simply on the particulars and ``not... upon any case authority''.
Conclusion
68. For the reasons I have given, the relief sought in pars V1, 3, 4 and 5 of the further amended application is refused. It will be necessary to set the matter down for argument in relation to the remaining claim, in substance one for a declaration that Mr Kratsas is not obliged to produce the prudential review document. An order as to costs can, no doubt, conveniently await the resolution of that question. I see no obvious reason, however, why costs in relation to all aspects of the application other than the declaration sought in par V2 should not, in the ordinary way, follow the event.
THE COURT ORDERS THAT:
1. The relief sought in pars V1, 3, 4 and 5 of the further amended application be refused.
2. The matter be listed, at a time to be fixed, for argument in relation to the claim for relief made in par V2 of the further amended application and in relation to questions of costs.
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