Deputy Commissioner of Taxation v Joseph Frangieh (No 2)

1. [1]

   HER HONOUR: On Wednesday 16 March 2016, shortly before the day’s adjournment, counsel for the Deputy Commissioner of Taxation handed up a copy of Mr Frangieh’s tax return for the year ending 2012 emanating from the Australian Taxation Office (“Taxation Office”). Counsel for Mr Frangieh objected at the time on the basis of two objections. Firstly, that the documents were not prepared by Mr Frangieh and that they do not necessarily reflect a return as lodged by him. Secondly, that the Taxation Office was not entitled to use the tax payer’s documents for a non tax related purpose, that is, the defence of proceedings in tort, due to secrecy provisions contained in the tax administration legislation.

2. [2]

   The following morning, counsel for Mr Frangieh indicated his objection was based on an offence contained in the Taxation Administration Act 1953 (Cth) (“TAA”) which prevents disclosures of protected taxpayer information. Counsel for Mr Frangieh submitted that there had been four disclosures of protected information. The first disclosure was by officers of the Taxation Office to the solicitors for the Commissioner. The second disclosure was from the solicitors for the Commissioner to senior counsel acting for the Commissioner. The third disclosure was when the document was handed to counsel acting for Mr Frangieh and the fourth disclosure was when senior counsel acting for the Commissioner provided the document to this Court (“the disclosures”). (T290.40-46).

3. [3]

   After hearing legal argument, I decided that there had been no disclosure of protected information. The documents prepared by the Taxation Office in relation to Mr Frangieh’s tax returns for the financial years 2008 to 2012 were admitted into evidence over objection and were marked Exhibits 10 to 13. he trial proceeded. I now give my reasons for this decision.

Background

1. [4]

   By further amended statement of claim filed 29 July 2013, the Deputy Commissioner of Taxation claimed a total of $3,331,770.82 from Mr Frangieh which included liabilities under an amended notice of assessment in relation to Mr Frangieh’s income tax, a notice of assessment and liability to pay penalty and subsequent shortfall and general interest charges, as well as moneys arising from Mr Frangieh’s failure to pay running balance account deficits.

2. [5]

   By cross claim filed 19 June 2015, Mr Frangieh seeks damages against the Deputy Commissioner of Taxation for misfeasance in public office, abuse of process and breach of duty to act in good faith. There are three misfeasance in public office claims, two abuse of process claims and one claim of breach of duty to act in good faith. The causes of action against Deputy Commissioner of Taxation employees are in relation to:

3. [6]

   The Deputy Commissioner of Taxation’s further amended statement of claim was dismissed in 2015 and all that remains to be determined in these proceedings is Mr Frangieh’s cross claim.

Tax Laws Amendment (Confidentiality of Tax Payer Information) Act 2010 Cth

1. [7]

   Counsel for Mr Frangieh referred to provisions of the Tax Laws Amendment (Confidentiality of Taxpayer Information) Act 2010 (Cth). Part 1 of this act amended Schedule 1 of the TAA.

2. [8]

   Division 355 of Schedule 1 of the TAA relates to confidentiality of taxpayer information. It prohibits the disclosure of information about the tax affairs of a particular entity, except in certain specified circumstances: TAA, Sch 1, s 355-1.

3. [9]

   The objects of the Division are set out in s 355-10 of Sch 1 to the TAA in the following terms.

4. [10]

   The main protection for taxpayer confidentiality is the offence contained in s 355-25: TAA, Sch 1, s 355-20. Section 355-25 relevantly reads:

5. [11]

   The terms “protected information” and “taxation officer” are relevantly defined in s 355-30. It reads:

6. [12]

   The offence created by s 355-25 is subject to a number of exceptions: see, eg, s 355-45 (disclosure of publicly available information); s 355-47 (disclosure of periodic aggregate tax information); and s 355-50 (disclosure in performing duties). The generality with which each of these exceptions is expressed is not limited by reason of the existence of other exceptions: s 355-40.

7. [13]

   Most relevant for present purposes is s 355-50, which is in the following terms:

Submissions

1. [14]

   Counsel for Mr Frangieh referred to Commissioner of Taxation v Nestle Australia Ltd (1986) 12 FCR 257; 69 ALR 445 (“Nestle”). In Nestle, the Commissioner had sought to rely on s 16(2) of the Income Tax Assessment Act 1936 (Cth) (“ITAA”) to resist the production of documents pursuant to an order for discovery made in the pre trial stages of a proceeding brought by the taxpayer under the Administrative Decisions (Judicial Review) Act 1977 (Cth) (“Judicial Review Act”) to review the Commissioner’s decision to refuse an extension of time for payment of income tax. At the time, s 16(2) of the ITAA read:

2. [15]

   It is important to note that s 16 of the ITAA was the precursor to s 355-25 of the TAA. Section 16 of the ITAA was repealed in 2010 upon the introduction of Div 355: Tax Laws Amendment (Confidentiality of Taxpayer Information) Act, Sch 2 Item 32.

3. [16]

   In Nestle, the Full Federal Court (per Bowen CJ, Lockhart and Shepherd JJ) held that s 16(2) did not render the Commissioner or his officers immune from the processes of discovery and inspection.

4. [17]

   In relation to s 16(2), the Court stated (at 261 and 262):

5. [18]

   Counsel for Mr Frangieh submitted that s 355-50 operates only in relation to the imposition, assessment, collection or recovery of tax because they are an essential part of the machinery which Parliament has provided to ensure that tax is levied and collected according to law. According to counsel for Mr Frangieh, these current civil proceedings for misfeasance in public office, abuse of process and breach of duty to act in good faith fall outside the imposition, assessment, collection or recovery of tax. He submitted that the exceptions in s 355-50 do not apply, including those mentioned in items 1 and 3 of the table. Hence, the disclosures referred to earlier in this judgment are disclosures to which s 355-25 applies. He also submitted that s 355-50 may have once applied while the Commissioner’s claim for the recovery of unpaid tax was on foot. However, as the further amended statement of claim in these current proceedings was dismissed in July 2015, s 355-50 was no longer applicable.

6. [19]

   Senior counsel for the Deputy Commissioner of Taxation referred to 12 Years Juice Foods Australia Pty Ltd v Commissioner of Taxation [2015] FCA 741; Re Young and Federal Commissioner of Taxation [2008] AATA 155; 100 ALD 372; and the Explanatory Memorandum for the Tax Laws Amendment (Confidentiality of Taxpayer Information) Bill 2010 (Cth) (“the explanatory memorandum”).

7. [20]

   In 12 Years Juice Foods, Edmonds J discussed the interplay between ss 355-25 and 355-50 TAA. At [47] and [48] his Honour stated:

8. [21]

   In Re Young, the Deputy Presidents of the Administrative Appeals Tribunal, PE Hack and BH McPherson, discussed s 16(2) of the ITAA in relation to misfeasance in public office and malicious prosecution in light of an application for access under the Freedom of Information Act 1982 (Cth). At [22], [23] and [30] the Deputy Presidents stated:

9. [22]

   In the explanatory memorandum relating to the “Judicial and administrative proceedings related to a taxation law”, clause 5.20 reads:

10. [23]

    Senior counsel for the Deputy Commissioner of Taxation submitted firstly that under s 355-50, the prohibition under s 355-25 does not apply if the entity is the taxation officer and the record of disclosure is made while performing the entity’s duties as a taxation officer in defending an action of misfeasance in public office by a taxation officer when performing his or her duties. Senior counsel also submitted that although this Court is not bound by it, the logic in the decision of the Administrative Appeals Tribunal in Young is compelling.

11. [24]

    Senior counsel for the Deputy Commissioner of Taxation also drew attention to the prefatory words in s 355-50(2) that say “without limiting subsection (1)”. He submitted that the disclosure is for the purpose of civil proceedings that are related to a taxation law as set out in s 355-50(2), item 3. Finally, he submitted that the exception in s 355 ought to be interpreted widely. In Nestle (at 262), the Full Federal Court held that the phrase “except in the performance of any duty as an officer” in s 16(2) of the ITAA should be interpreted widely. Counsel submitted that the same interpretation should be given to s 355. Counsel for the Deputy Commissioner of Taxation submitted that a wide interpretation is set out in the explanatory memorandum where it says that an exemption applies “in relation to proceedings that are directly or indirectly related to a taxation law.”

Consideration

1. [25]

   Mr Frangieh did not produce copies of his tax returns on discovery, nor at the hearing. In order for senior counsel for the Deputy Commissioner of Taxation to cross examine Mr Frangieh on his own taxation returns, copies of the tax returns held by the Taxation Office were disclosed by taxation officers to their legal advisors, counsel for Mr Frangieh and this Court.

2. [26]

   The production of copies of the tax returns falls within item 3 of s 355-50(2), that is, the disclosures were for the purpose of defending civil proceedings for malicious prosecution, abuse of process and breach of duty to act in good faith, which are proceedings related to taxation laws. At the heart of these proceedings is the manner in which certain taxation officers conducted an audit and issued an amended assessment concerning Mr Frangieh in relation to the 2007 financial year. Further, the expression “in performing duties as a taxation officer” in subsection (2) is to be widely interpreted in accordance with Nestle at 261 and 12 Years Foods at [48] to include defending Mr Frangieh’s cross claim. Hence, the disclosures fall within s 355-50. Section 355-25 does not apply.