CONSOLIDATED PRESS HOLDING LIMITED & ORS v FC of T & ANOR

Judges:
Lockhart J

Court:
Federal Court

Judgment date: Judgment handed down 27 April 1995

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Lockhart J

Introduction and facts

This case raises important questions concerning the construction and operation of s. 16 of the Income Tax Assessment Act 1936 (the Act) (often described as the secrecy provision) which prohibits officers of the Commonwealth or a State from divulging information about the affairs of other persons acquired by them under the provisions of the Act.

The factual background to the matter is in a brief compass.

On 21 December 1994 notices of assessment to income tax were issued by the first respondent, the Commissioner of Taxation (the Commissioner), to the three corporate applicants (the taxpayers).

By letter of 13 January 1995 the taxpayers sought from the Commissioner, pursuant to s. 206 of the Act, an extension of time for payment of tax due under the assessments. The letter of 13 January also sought, pursuant to s. 207, determinations that the date from which additional tax for late payment was to be computed be extended, and that any additional tax for late payment which may become payable, be remitted. Conversations and correspondence ensued between representatives of the taxpayers and officers of the Commissioner, also their respective legal advisers. In the course of those discussions and correspondence, information was sought by the Commissioner and the Australian Government Solicitor (the AGS) from the taxpayers concerning a number of matters, including the financial position of the taxpayers.

Officers in the Australian Taxation Office (the ATO) formed the view that it was necessary to engage an expert outside the ATO in the field of accounting to examine the material submitted to the Commissioner by the

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taxpayers in support of their applications under ss. 206 and 207 to determine properly their claims, to assess their financial position and to understand the legal and commercial implications of the requests so far as the financial position of the taxpayers was concerned. An officer of the Commissioner consulted the AGS about engaging an expert accountant to perform this task. Subsequently, on 25 January 1995, the AGS wrote to Mr Walker, a member of the firm of Messrs. Ferrier Hodgson, chartered accountants, to assist the Commissioner in relation to the financial impact of the assessments on the taxpayers. The taxpayers learnt for the first time on 7 February 1995 that an external expert had been engaged by the Commissioner for this purpose. There then followed considerable correspondence and discussions between the parties and the AGS.

In the result the taxpayers commenced this proceeding under s. 39B of the Judiciary Act 1903 to restrain the Commissioner from divulging to the AGS, and to partners and employees of Ferrier Hodgson, information concerning the affairs of the taxpayers on the basis that, by divulging information of this kind, the Commissioner had contravened s. 16 of the Act. The taxpayers sought to restrain the AGS from divulging information to Ferrier Hodgson, also on the basis of alleged contravention by the AGS of s. 16.

A considerable body of evidence, mainly documentary, was before the Court at the trial; but my brief summary of the facts already given sufficiently states the evidence, except with respect to one issue which will involve a statement of the evidence in more detail. That issue, raised by the taxpayers, concerns their assertion that they had a legitimate and reasonable expectation that the Commissioner would not divulge or communicate or cause to be divulged or communicated, information respecting their affairs to any person outside the ATO, or, in the alternative, outside the ATO and the AGS, without first consulting the taxpayers, or without their first being given the opportunity either to withdraw their applications under ss. 206 and 207 of the Act, or to suggest blanking out of confidential material which need not be seen by an outside expert. The taxpayers assert that their expectation was not fulfilled and they seek relief accordingly. The resolution of this issue turns on the facts of the case which I shall deal with later when considering the issue.

In the document described as ``Further Further Amended Application under Section 39B of the Judiciary Act 1903'' filed on 4 April 1995 by the applicants, a declaration was sought also that it was an improper or unreasonable exercise of the power of the Commissioner or the AGS to divulge this information to Ferrier Hodgson (para. 2B of the document); but this claim was abandoned at the hearing.

Section 16 of the Act

Section 16 has been present in the Act since its commencement in 1936. The form of the section has changed since then in certain respects, but in substance it has remained the same. Its predecessors in Commonwealth Income Tax legislation were s. 12 of the Income Tax Assessment Act 1922 and s. 9 of the Income Tax Assessment Act 1915. The requirement that officers of State taxation departments observe secrecy regarding the affairs of taxpayers had been present also in legislation of the States for a considerable time. In New South Wales the relevant statutory provisions were s. 7 of the Land & Income Tax Assessment Act 1895 (NSW), s. 6 of the Income Tax (Management) Act 1912 (NSW), s. 5 of the Income Tax (Commonwealth) Collection Act 1923 (NSW), s. 6 of the Income Tax (Management) Act 1928 (NSW) and s. 8 of the Income Tax (Management) Act 1936 (NSW). Comparable provisions in the Income Tax Legislation of Victoria were s. 4 of the Income Tax Act 1895 (Vic), s. 6 of the Income Tax Act 1915 (Vic), s. 6 of the Income Tax Act 1928 (Vic) and s. 7 of the Income Tax (Assessment) Act 1936 (Vic).

Section 16 is designed to ensure that officers of the Australian Taxation Office maintain secrecy regarding the affairs of taxpayers. The section reflects the intent of the Parliament to balance two competing areas of public interest: on the one hand the interests of taxpayers in having the privacy of their financial information respected; and on the other hand the facilitation of the administration of governmental business. Taxpayers are responsible for reporting their income and outgoings. It is essential if the confidence of taxpayers is to be maintained that private information concerning their finances and affairs will not be disclosed except in the special circumstances mentioned in the various sub-sections of s. 16. The voluntary disclosure

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by taxpayers of this confidential information concerning their assessable income and outgoings is vital to the efficient operation of Australia's taxation laws. If taxpayers lack this confidence, reluctance may develop to disclose voluntarily the requisite information.

This public interest element is important in the tax legislation of other countries. In Canada, a helpful analysis of the two competing areas of public interest is to be found in the judgment of the Full Court of the Supreme Court of Canada in
Slattery v Doane Rayment Limited 93 DTC 5443 especially per Iacobucci J. at 5446.

The duty of taxation officers to observe secrecy was expressed in these terms by the Judicial Committee, in relation to legislation in Ceylon similar to s. 16 of the Act, in
Gamini Bus Co Limited v Commissioner of Taxation Colombo [1952] AC 571 at 579:

``a very necessary rule of conduct to be observed by the officials concerned, since it is of the highest importance that the affairs of an individual and identifiable income taxpayer should not be disclosed... to anyone outside... their Lordships would strongly deprecate the production or use of such a document if it did in effect disclose information about other identified or identifiable taxpayer...''

Similar statements were made in
Knight v Commr of IR [1991] 2 NZLR 30 in relation to the equivalent section in the New Zealand legislation by the New Zealand Court of Appeal per Cooke P. at 35 and Richardson J. at 39. See also
Commr of IR v ER Squibb & Sons (1992) 14 NZTC 9146.

I turn to the relevant subsections of s. 16.

Subsection (2) of s. 16 is the pivotal subsection because it ensures the observance of secrecy. It prohibits ``an officer'' from directly or indirectly making a record of, or divulging or communicating to any person, any information respecting the affairs of another person acquired by the officer by reason of his or her appointment or employment by the Commonwealth or in the course of that employment. This prohibition is subject to the important exception that it does not extend to the making a record of or divulging or communicating that information in the performance of any duty as an officer. The prohibition extends during the period of office and after he or she ceases to be an officer.

Similar secrecy obligations are imposed on officers of the Commonwealth by other Acts which the Commissioner is responsible for administering: for instance, ss. 3C and 8XB of the Taxation Administration Act 1953 (the Administration Act) and s. 8 of the Taxation (Interest on Overpayments) Act 1983. The Administration Act also contains provisions which prohibit persons requesting the tax file numbers of other persons (s. 8WA) and recording or using or divulging or communicating the tax file numbers of other persons except for certain specified purposes (s. 8WB). Documents to which the secrecy obligations apply are exempt documents for the purposes of the Freedom of Information Act: s. 38 of that Act; see also
FC of T v Swiss Aluminium Australia Limited & Ors (No 2) 86 ATC 4364.

The exception to the obligation of secrecy imposed by subsection (2) is where the information is divulged in the performance of the officer's ``duty''. The concept of ``duty'' has been considered in a number of reported cases. It has been said to be wide in both its meaning and content. In
Canadian Pacific Tobacco Co Ltd & Anor v Stapleton (1952) 86 CLR 1 Dixon C.J. said at 6:

``The word `duty' there is not, I think, used in a sense that is confined to a legal obligation, but really would be better represented by the word `function'.''

This passage has since been adopted on a number of occasions in judgments of courts including
Mobil Oil Australia Pty Ltd v FC of T (1963) 13 ATD 135; (1962-1963) 113 CLR 475;
FC of T v Nestle Australia Ltd 86 ATC 4760 at 4764; (1986) 12 FCR 257 at 261-262, see also at first instance 86 ATC 4499 at 4502; 11 FCR 453 at 456-457;
Saunders v FC of T 88 ATC 4349 at 4358-4359;
Aimpe v Secretary, Department of Transport (1986) 13 FCR 124 at 136-137;
Herscu v R (1991) 173 CLR 276 at 282-283, where a similar phrase in s. 87 of the Queensland Criminal Code was considered; also
Re Clarkson [1982] VR 522 involving an equivalent provision in the Victoria Pay-roll Tax Act.

The circumstances in which information concerning the affairs of taxpayers may be disclosed by officers are extended further by subsection (4) of s. 16 which is intended to facilitate the administration of governmental business. That subsection provides that nothing

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in s. 16 shall be deemed to prohibit the Commissioner, or persons authorized by the Commissioner, from communicating information to a number of persons, boards, commissions or tribunals specified in paragraphs (a) to (l). It is unnecessary to mention all such persons or bodies but they include persons performing, in pursuance of their appointment or employment by the Government, any duty arising under any Act administered by the Commissioner of Taxation for the purpose of enabling that person to carry out any such duty (a); any board exercising any function under any Act administered by the Commissioner (b); the Repatriation Commission for the purposes of the administration of law relating to pensions (d); the Secretary to the Department of Social Security for the purposes of the administration of the law of the Commonwealth relating to pensions, allowances or benefits (e); the Health Insurance Commission for the purpose of administration of the Childcare Rebate Act 1993 (fa); the Australian Statistician for certain purposes under the Census and Statistics Act 1905 (ga); the Secretary, Department of Defence, for the purpose of administering Commonwealth laws relating to payments in respect of dependants of members of the Defence Force (h); the Insurance and Superannuation Commissioner for certain purposes (hc); the Secretary to the Department of Immigration and Ethnic Affairs for the purpose of assisting in locating persons who are unlawfully in Australia (hd); a Royal Commission (k) and the Treasurer for the purpose of exercising certain powers (l).

Detailed provisions governing information communicated to Royal Commissions are dealt with in s. 16(4A) to (4D), also communications to the Attorney-General (s. 16(4E)), communications to the Commissioner of the Australian Federal Police (s. 16(4F)) and the Director of Public Prosecutions (s. 16(4FA)).

Whilst all of these subsections (ss. 16(4) - 16(8FA)) permit divulgence of confidential information to the respective authorized recipients, subsection (5) operates to impose the same obligation of secrecy as is imposed under subsection (2).

Subsection (5) provides as follows:

``Any person to whom information is communicated under subsection (4) other than paragraph (4)(k) or (4)(1), and any person or employee under his control shall, in respect of that information, be subject to the same rights, privileges, obligations and liabilities, under subsections (2) and (3), as if he were an officer.''

``Officer'' is defined by sub-s. (1) of s. 16 in the following terms:-

``16(1)...

``officer'' means a person who is or has been appointed or employed by the Commonwealth or by a State, and who by reason of that appointment or employment, or in the course of that employment, may acquire or has acquired information respecting the affairs of any other person, disclosed or obtained under the provisions of this Act or of any previous law of the Commonwealth relating to income tax;

...''

This definition of ``officer'' was expanded in 1985 by the insertion of sub-s. (1A) in the following terms:

``16(1A) For the purposes of this section, a person who, although not appointed or employed by the Commonwealth, performs services for the Commonwealth shall be taken to be employed by the Commonwealth.''

Subsection (1A) was introduced into the Act by Act No 123 of 1985 (s. 10(a)), effective from 28 October 1985. It was intended to extend the definition of an officer for the purposes of s. 16 to include a person who, although not appointed or employed by the Commonwealth, performed services for the Commonwealth. The Second Reading Speech of the Minister and the Explanatory Memorandum to the Bill, gave as an example, an officer of an overseas government service in Australia under exchange arrangements. But this is cited as an example; it is not an exhaustive statement of the persons who come within the extended definition of ``officer''.

I see no warrant for reading sub-s. (1A) other than according to its literal language. It is intended to expand the class of persons who answer the description of ``officers'' for the purposes of s. 16 so as to ensure that they are brought within the framework of the statutory duty of prohibition against divulging information imposed by sub-s. (2). An essential feature of s. 16 is that it imposes duties on ``officers'' to observe secrecy by rendering

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them liable to the prohibition which s. 2 imposes and the consequent sanctions if that prohibition is breached.

Subsection (1A) is a recognition by the Parliament of the changing role of the Australian Tax Office and its need to engage the services of persons who are not necessarily appointed or employed by the Commonwealth, but who perform services for the Commonwealth in the course of which they may acquire confidential information about taxpayers. The Parliament recognized that the ATO increasingly may call for the engagement by the Commissioner from time to time of persons, who are not officers of the Commonwealth, to perform duties for the Commissioner and who may be engaged ad hoc for that purpose.

The Commissioner's functions include, not only collecting tax and recovering unpaid amounts, but resolving disputes for taxpayers, providing advice to taxpayers concerning their rights and obligations under the taxation laws of the Commonwealth, assessing the liability to taxation of taxpayers, auditing the financial affairs of taxpayers to establish their assessable and taxable incomes and deductions and prosecuting offenders under the taxation laws. The Commissioner may need to have access to specialist expertise which is not available at the time within the Australian Tax Office itself. It is important in the public interest that the Australian Taxation Office is aware of the commercial implications of the decisions of its officers.

The most effective way to ensure the observance of secrecy by such persons (deemed officers) is to bring them within the umbrella of the definition of ``officers'' under sub-s. (1) of s. 16; and this is exactly what the Parliament has done by expanding the definition in subsection (1A). Otherwise, it would be necessary for the Commissioner or some other agency of the Commonwealth, when retaining persons to perform services for the Commonwealth who are likely to obtain secret information, to enter into special contractual arrangements with all the attendant problems of unevenness that may arise throughout the various offices of a large department such as the Australian Taxation Office. It is better that the general umbrella of prohibition imposed by subsection (2), and the consequent sanctions for its breach, extend to those persons by their being deemed to be ``officers'' for the purposes of s. 16.

A point of vital importance is that s. 16 is a constraining, not an empowering, provision. Section 16 is not a source of the Commissioner's power to engage people to perform services at all. It says nothing about that question. It is confined to prohibiting the divulging of information concerning the affairs of taxpayers and others when acquired by officers in the course of their duties. The Commissioner's powers to engage people to perform services are found elsewhere in the Assessment Act and the Taxation Administration Act 1953: see s. 8 of the Act and s. 3A of the Taxation Administration Act.

In one sense, by stating that nothing in s. 16 should be deemed to prohibit the Commissioner (and others with his authority) from communicating any information to the authorities specified in subsection (4)(and some later subsections), it has an enabling effect in that it enables the Commissioner to do that which otherwise may be prohibited by sub-s. (2); but essentially s. 16 is a constraining, not an empowering section.

For the Commissioner to engage persons outside the ATO to perform services to enable the Commissioner to perform better his or her functions requires considerable care, both in the process of selecting those persons and preserving the need to maintain the secrecy of taxpayers' affairs. It is important that the confidence of taxpayers is maintained in the taxation system and its integrity.

In my opinion the Commissioner was empowered to instruct the AGS and Mr Walker to examine the implications of the requests by the taxpayers under ss. 206 and 207, with the result that they and other persons employed by them (also Mr Walker's partners) performed services for the Commonwealth and therefore were all subject to the prohibition against divulging information imposed by s. 16(2). In fact, the persons involved in Mr Walker's firm were two partners to whom only the broad identity of the taxpayers was made known, a senior officer of Mr Walker's firm and Mr Walker's secretary.

Some attention was devoted in argument to the position of the AGS and counsel instructed by it to act for the Commissioner in litigation or in an advisory capacity. Whatever may have been the position before the introduction of sub-

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s. (1A) to s. 16 in 1985, solicitors and counsel retained by the Commissioner must now be taken to be employed by the Commonwealth for the purposes of s. 16 because they perform services for the Commonwealth. They are brought under the umbrella of secrecy imposed by s. 16. Before 1985 the position was that disclosure of information respecting the affairs of taxpayers by the Commissioner to the AGS or counsel would be in the performance of the Commissioner's duty to collect tax and prosecute offences. Hence, the divulging of that information by the Commissioner was not prohibited by s. 16(2). Section 16(5) does not operate (and never has) to subject the AGS and counsel to the same obligations to maintain secrecy that are imposed upon the Commissioner, because they are not persons to whom information is communicated under sub- s. (4), unless it can be said that they perform duties arising under an Act administered by the Commissioner (para. (a) of subsection (4)), which in my opinion is not a correct analysis of the position of the AGS and counsel, their respective appointments and their relationship with the Commissioner.

Also the ethics of the relevant professional bodies governing the conduct of barristers and solicitors would ensure the observance of secrecy concerning the information gained by them in the course of performing their professional duties for their client. Civil remedies would also be available for breach of the confidential relationship which each enjoys with the client. Whether they could be liable for criminal sanctions under the Commonwealth Crimes Act 1914 is not a question which need be decided. Since 1985, however, the duty of the AGS and counsel to keep the affairs of their clients secret now has a statutory source in s. 16(2).

I reject the argument advanced on behalf of the applicants that the appointment of the Australian Government Solicitor to act in relation to the request by the applicants under ss. 206 and 207 of the Act was unlawful and constituted a contravention of s. 16.

The attack made by the applicants upon the Commissioner's appointment of the AGS and Mr Walker therefore fails so far as the construction of s. 16 is concerned.

Legitimate Expectation

I turn to the question whether the applicants had a legitimate and reasonable expectation that the Commissioner would not divulge or communicate information concerning the affairs of the applicants to persons outside the Australian Tax Office without first consulting the applicants or, at least, without giving them the opportunity either to withdraw their applications under ss. 206 and 207 or to amend them in some way.

It is well established in Australian administrative law that legitimate expectation may give rise to a duty to observe procedural fairness: see
Haoucher v Minister for Immigration & Ethnic Affairs (1989-1990) 169 CLR 648;
Attorney-General (New South Wales) v Quin (1989-1990) 170 CLR 1 and
Century Metals & Mining NL v Yeomans (1989) 40 FCR 564. It was observed in Haoucher and Quin that the presence of a legitimate expectation conditions the existence of a person's right to procedural fairness and the corresponding duty of the decision-maker to observe procedural fairness in the treatment of the person's claim or case. The content of the duty depends upon the circumstances of the particular case, but its existence is determined by the application of legal principle.

It is necessary to state the facts which relate to this issue. The evidence was given in the main by affidavit and by documents tendered in evidence. Mr Walker was cross-examined briefly. Mr GC Carrol, a senior officer employed in the Appeals and Review Group of the ATO at Bankstown (which is the relevant office of the ATO) was cross examined. He has the conduct of this proceeding on behalf of the Commissioner. I am satisfied that Mr Carrol genuinely formed the view that the Commissioner needed to engage an expert chartered accountant from outside the staff of the ATO to assist the Commissioner in considering and determining the applications made to him by the taxpayers under ss. 206 and 207. He wanted some independent person to review the material submitted by the taxpayers in support of their applications with a fresh mind and not previously connected with the matter. He formed the view that the Commissioner needed assistance from outside the ATO on the commercial aspects and implications, particularly the financial implications, to the Consolidated Press Group as to the grant or refusal of the applications. He was concerned about questions of the capacity of the taxpayers to pay what are substantial

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amounts of tax and the implications of payment of it to the Consolidated Press Group. I am satisfied that the Commissioner acted in good faith in engaging Mr Walker.

I should say at this stage that Mr Walker (not his firm) was retained by the Commissioner but obviously he needed to have recourse to his firm's facilities and staff. As mentioned earlier, he limited the number of people in the employ of Ferrier Hodgson to the minimum.

After 13 January 1995 (when Mr Cherry wrote to the Commissioner on behalf of the taxpayers, lodging applications under ss. 206 and 207) there were telephone conversations between Mr Cherry and officers of the ATO relating to further information sought by the Commissioner to enable him to consider the request of the applicants. Mr Carrol consulted the AGS on 18-19 January 1995 on the question whether an external expert might be retained to assist the Commissioner. There were subsequent communications between the ATO and the AGS concerning this matter, in particular engaging an outside expert. On or about 25 January 1995 (the date is not precisely clear) there was a telephone conversation between a solicitor employed by the AGS and Mr Walker with respect to his prospective retainer. The retainer was confirmed by letter of 25 January from the AGS to Mr Walker and the terms of the retainer were set out in the letter. A copy of Mr Cherry's letter of 13 January 1995 and the annexures thereto was enclosed with the letter of retainer. On the same day (25 January) Mr Walker opened his file and commenced work on the matter. By letter dated 27 January 1995 from Mr Cherry to the ATO, financial statements were enclosed as sought by the ATO in earlier correspondence.

Mr Walker did further work after 25 January 1995 pursuant to his retainer. On 30 January 1995 he sent a fax to the AGS in which he accepted the terms of the retainer, set out the hourly rates of Ferrier Hodgson, its partners and personnel, provided a summary of a preliminary analysis by Mr Walker and requested that certain further information, which he described, be obtained from the applicants. On 31 January 1995 Mr Carrol, on behalf of the ATO, sent to the AGS copies of all the additional information that had been received from Mr Cherry on 27 January. By letter dated 31 January 1995 the AGS sent Mr Walker financial statements provided to the ATO by Mr Cherry under cover of his letter of 27 January. The AGS requested further information from Mr Cherry by letter of 1 February 1995. There was a telephone conversation on the same day between Mr Cherry and a solicitor in the employ of the AGS. On 6 February 1995 there was a telephone conversation between that solicitor and Mr Cherry, followed by a letter from the AGS to Mr Cherry of the same day in which it was stated that further information and documents were required to enable the Commissioner to consider properly the request for extension of time.

On 7 February 1995 there was a telephone conversation between Mr Cherry and a solicitor engaged by the AGS during which Mr Cherry learnt for the first time that an external expert had been retained by the Commissioner through the agency of the AGS. Mr Cherry expressed concern about this matter. Correspondence, faxes and discussions then ensued between representatives of the parties, culminating in the institution of this proceeding.

Before Mr Walker commenced his work for the Commissioner, the solicitor employed by the AGS who was looking after the matter stressed to Mr Walker the importance of a high degree of secrecy concerning the work which he was retained to do.

Both men were aware of the importance of ensuring that the minimum number of people employed by Ferrier Hodgson had access to the confidential information concerning the taxpayers, although obviously Mr Walker had to have work done of a secretarial and support nature. Both the AGS and Mr Walker adopted procedures to ensure confidentiality of this information.

Mr Walker did not inform his partners about the matter except by speaking to two of them to say that there was an issue with the Consolidated Press Group and the Commissioner of Taxation about income tax. Detailed evidence was given about the steps taken by Mr Walker to ensure security of his mission; but I need not refer to it other than to say that the members of Ferrier Hodgson's staff who assisted him were ``a senior'' and Mr Walker's secretary. He stressed to them the importance of confidentiality and secrecy. A computer operator who works solely in Ferrier Hodgson's data processing area played a very minor role in the matter.

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In my opinion the taxpayers had a legitimate and reasonable expectation that the material which they had provided and were continuing to provide to the Commissioner in support of their applications under ss. 206 and 207, would not be communicated to persons outside the Australian Taxation Office and the Australian Government Solicitor without the applicants first being consulted, so that they could decide what bearing this would have on their applications. They should have been given an opportunity to consider and make submissions on the following matters before Mr Walker was retained and material sent to him:-

• 1) why such further communication of information to persons outside the ATO and the AGS should occur at all;
• 2) the identity of the person selected. The material provided to the ATO by Mr Cherry was obviously sensitive financial and commercial information concerning the applicants. They may have had something to say about the identity of the firm of chartered accountants selected. As it happened the AGS chose a firm which was probably less likely than many (as their work is largely in the insolvency field) to have conflicts of duties and interest, but that does not answer the point;
• 3) whether the applicants might wish to withdraw their applications altogether, thus obviating the need for the information to be divulged or communicated;
• 4) whether the applicants might wish to make submissions to limit the material which was to be made available to the outside consultant;
• 5) whether the identity of the applicants and their tax file numbers should be disclosed to the consultant.

The observance of the requirements of natural justice as extending to circumstances where a public authority proposed to deliver to another public authority confidential transcripts was referred to in
Johns v Australian Securities Commission & Ors (1992-1993) 178 CLR 408, especially per Brennan J. at 430-431. The possibility that the applicants might wish to make submissions to the Commissioner that he not furnish certain information to the accountants is not academic.

In fact, the whole of the documents supporting the applicants' applications under ss. 206 and 207 were sent to Mr Walker without any attempt being made to cull from them material which he might not need, including the tax file numbers of the applicants.

The course of dealings between the ATO and the AGS on the one hand and the applicants through Mr Cherry on the other establish that the ATO and the AGS led the taxpayers to believe that their applications under ss. 206 and 207 of the Act were being examined solely by the Commissioner and his own officers with the assistance of the AGS. There was no revelation to Mr Cherry until 7 February 1995 of the fact that an outside chartered accountant was to be appointed, or, indeed, had been appointed. In the meantime the applicants had furnished further information to the Commissioner concerning their applications.

In the long run the duty of the Commissioner to accord procedural fairness to the applicants is directly referable to the proper administration of the Act because it is not conducive to the confidence of taxpayers if highly sensitive and important information about their finances and affairs may be revealed to persons or bodies outside the ATO, in particular chartered accountants who may act for competitors of the taxpayers themselves, without taxpayers having some say on the five points to which earlier reference has been made.

In my opinion the power of reference to Mr Walker was not properly exercised by the Commissioner in accordance with the rules of natural justice.

No doubt this case will be carefully examined by the Commissioner to ensure that the rules of natural justice are observed in the future. Plainly, there was no wilful or intentional breach of them. The ATO is a responsible authority, and it will doubtless ensure that in the future its procedures are designed to ensure that legitimate expectations of taxpayers of the kind which have arisen in this case are fulfilled.

The Court proposes to direct that the Commissioner retake possession from Mr Walker and Messrs Ferrier Hodgson of documents, papers and materials coming into his or their possession or bought into existence since 13 January 1995 containing information respecting the affairs of the applicants or any of them and all copies that have been made in respect thereof.

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The judgment of the Court is not a bar to the Commissioner appointing chartered accountants in the future to examine the applications of the applicant under B8. 206 and 207; indeed, not a bar to the appointment of Mr Walker. But, if any such further appointment is to be made it should be preceded by appropriate discussions between the ATO and the applicants to ensure that the requirements of natural justice are observed.

What I have said is not to be taken as an expression of a general view that whenever the Commissioner proposes to engage outside experts (whether chartered accountants or others) he must necessarily first consult with the relevant taxpayer. There may be occasions when appointments of this kind do not require prior consultation with or notice to taxpayers. My judgment is based squarely on the facts of this case.

As to costs, the issues as to the proper construction and application of s. 16 were the primary issues involved in the case, but the legitimate expectation issue also was important. In my opinion, the appropriate order for costs of the proceeding is that the Commissioner pay one-half of the costs of the applicants of this proceeding including reserved costs, if any. Otherwise there should be no order as to the costs of any party.

THE COURT ORDERS THAT:

1. The Commissioner of Taxation retake possession from Peter Murray Walker and Messrs Ferrier Hodgson, Chartered Accountants, of all documents, papers and materials coming into his or their possession or bought into existence since 13 January 1995 containing information respecting the affairs of the applicants or any of them and all copies that have been made in respect thereof.

2. The Commissioner of Taxation pay one- half of the costs of the applicants of this proceeding, including reserved costs, if any.