The Administrative Decisions (Judicial Review) Act 1977 (Cth) section 5 provides for a review of an administrator’s decision on the grounds of a breach of procedural fairness. The taxpayer can apply to the Federal Court for a review of the decision making process, but not the merits of the decision. A decision by the Commissioner to utilize section 263 and/or 264 powers is a reviewable decision.
Section 39B was introduced into the Judiciary Act 1903 (Cth) in 198383 ‘to confer on the Federal Court the full amplitude of the original jurisdiction of the High Court under s75(v) (of the Constitution).’ 84 This power cannot be limited or qualified by any statute. The Federal Court has jurisdiction with respect to any matter in which a writ of mandamus or prohibition or an injunction is sought against an officer of the Commonwealth.
The Administrative Appeals Tribunal (AAT) has the function of reviewing a decision of a Commonwealth officer on its merits. The AAT substitutes itself for the primary decision maker and may exercise all the powers and discretions conferred upon the decision maker in order to determine what decision should have been made under the relevant legislation. A decision of the AAT is deemed to be a decision of the decision maker. AAT proceedings are
78 George Gear MP, Statement by the Assistant Treasurer, (9th August 1994) Detailed Government Response – Major Issues Press Release 9, 11. For a discussion of Report 326, see Maria Italia, ‘Legal Professional Privilege and Accountant-Client Confidentiality. A Comparative Study – Australia and New Zealand.’ (1996) 2 (2) New Zealand Journal of Taxation Law and Policy 75.
79 The Guidelines for the Exercising of Access Powers to External Accountants’ Papers were issued by the Commissioner in November 1989.
80 In June 1990, following on from the High Court decision in Baker v Campbell (1983) 153 CLR 53, the ATO agreed with the Australian Law Council on the Guidelines on access to Documents held on a Lawyers’ Premises. The Australian Federal Police and the Law Council of Australia have an agreement about the execution of search warrants on lawyer’s offices where the Police are investigating an offence under taxation law. (March 1997). < http://www.lawcouncil.asn.au/lawcouncil/images/LCA- PDF/a-z-docs/ExecutionofAFPSearchWarrantsonLawyers%27Premises.pdf.>
81 Commissioner of Taxation and Others v Citibank Ltd (1989) 20 FCR 403. 82 Allen, Allen & Hemsley v Deputy Commissioner of Taxation (1989) 20 FCR 576. 83 Statute Law (Miscellaneous Provisions) Act (No 2) 1983 (Cth).
84
David Jones Finance & Investments Pty Ltd v Federal Commissioner of Taxation (1991) 28 FCR 484, 496 (Morley and French JJ).
not adversarial in the strict sense. ‘The tribunal is in the shoes of the Commissioner and may use any material put before it in reaching its decision.’85
Procedural fairness is concerned with ensuring that administrators follow particular processes to ensure that their decision making process is fair. The concept evolved in the context of administrative law, with Lord Denning developing the concept of ‘legitimate expectations’ in
Schmidt v Secretary of State for Home Affairs.86 His Lordship determined that the principles of procedural fairness could be extended to those interests that were not classified as ‘legal rights’. A ‘legitimate expectation’ is not itself a legal right. The High Court approved the concept of legitimate expectation in Heatley v Tasmanian Racing and Gaming Commission.87
Its application was defined by Mason J, in the landmark case of Kioa v West.
...the law has now developed to a point where it may be accepted that there is a common law duty to act fairly, in the sense of according procedural fairness, in the making of administrative decisions which affect rights, interest and legitimate expectations, subject only to the clear manifestation of a contrary intention.88
In Consolidated Press Holdings89 Lockhart J extended the concept to the tax arena.
…a taxpayer’s interest in the confidentiality and secrecy of its financial information was sufficient to impose an obligation of procedural fairness upon the Commissioner when the Commissioner was proposing to show the information to a third party.90
The taxpayer has a legitimate and reasonable expectation that the material provided to the ATO would not be communicated to persons outside the ATO without the taxpayer being consulted and being given the opportunity to argue against that course of action.91
The validity of section 264 notices have been challenged on the grounds that they were ambiguous, or insufficiently clear in their description of the document or classes of documents required to be provided to the Commissioner. In May92 the appellant challenged the validity of a section 264(1)(a) notice alleging that the Commissioner’s ‘fishing expedition’ was too wide and therefore an improper exercise of his power under the ITAA. May’s argument was that there had been a denial of procedural fairness because the firm’s clients had not been given the opportunity to be heard before the notice was issued. Goldberg J held that notice was valid, it had not been issued for an improper purpose, and that the
85 Saunders v Federal Commissioner of Taxation (1988) 19 ATR 1289, 1296 (Northrop J). 86
[1969] 2 Ch 149.
87 (1977) 137 CLR 487, (Aickin, Murphy, Mason, and Stephen JJ with Barwick CJ dissenting).
88 (1985) 159 CLR 550. See Sir Anthony Mason, ‘Procedural Fairness; Its Development and Continuing Role of Legitimate Expectation’ (2005) 12 Australian Journal of Administrative Law 103.
89
Consolidated Press Holdings Ltd v Federal Commissioner of Taxation (1995) 57 FCR 348. 90 Ibid 357-8 (Whitlam J).
91 Ibid 355[E] (Whitlam J). See Chapter seven where the issue of legitimate expectations arise in more recent cases involving the Commissioner’s Guidelines and the legitimate expectations of taxpayers that the Commissioner will act in accordance with the Guidelines.
requirements of procedural fairness did not apply to entitle a taxpayer to be heard prior to the issue of notices.93 The Full Federal Court confirmed Goldberg J’s decision.
… in Sixth Ravini Pty Ltd v Deputy Commissioner of Taxation at 362, Northrop J regarded the conjunction of the inquisitorial and coercive characteristics of the s 264(1) powers as making it difficult to see how the need to comply with the requirements of natural justice could be expected before the Deputy Commissioner issued and served a notice.94
…It is broadly accepted that, traditionally, natural justice both contained and has been confined to two principles: that no person be condemned unheard; and that no person be judge in his or her own cause.95
…The appellant in the present case is inviting us to extend natural justice’s scope in a third direction so as to require a person affected by a decision to be given a warning that the decision has been made so that that person may take appropriate steps to protect his or her own interest by challenging the decision if grounds exist for so doing. It is not an invitation we accept.96
In denying May’s application for special leave to appeal,97 the High Court reinforced that the Full Court of the Federal Courtis ordinarily the ultimate court of appeal in tax matters.
…court has said more than once that the Full Court of the Federal Court is the ultimate court of appeal in taxation matters, subject only to the exceptional cases in which the Court grants special leave to appeal.
“It follows that a question of fundamental principle must arise for decision in such a matter before this court will grant special leave.” (Federal Commissioner of Taxation v Westfield Ltd (1991) 22 ATR 400, 402).98
In David Jones99 the taxpayer argued that the Commissioner’s decision to depart from a 30 year practice without any warning, and with retrospective effect, constituted: an abuse of process; lack procedural fairness and a legitimate expectation which warranted intervention from the Court. O’Loughlin J dismissed the application and cited Issacs ACJ in Federal Commissioner of Taxation v Clarke.
The Act so far trusts the Commissioner and does not contemplate, in my opinion a curial diving into the many official and confidential channels of information to which the Commissioner may have recourse to protect the Treasury.’100
However, the Full Federal Court101 allowed the appeal, finding that O’Loughlin J had erred on the effect of the operation of section 177 of the ITAA. It held that section 177(1) does not authorise the assessment process to be conducted in bad faith102 or protect the Commissioner from inquiry into the bona fides of the exercise of his statutory powers; in those
93 Ibid.
94 May v Commissioner of Taxation (1999) 92 FCR 152, 159 [18]. 95 Ibid 161-2 [30].
96
Ibid 162 [31] (Branson, Finn and Kenny JJ). 97 Australian Tax Practice No 136, 16 July 1999.
98 Federal Commissioner of Taxation v Rowe (1997) 187 CLR 266, 275 (Brennan CJ, Dawson, Toohey and McHugh JJ).
99
David Jones Finance & Investments Pty Ltd v Federal Commissioner of Taxation (1990) 90 ATC 4730.
100 (1927) 40 CLR 246, 276.
101 David Jones Finance & Investments Pty Ltd v Federal Commissioner of Taxation (1991) 28 FCR 484 (Morling, Pincus and French JJ).
circumstances, the mere tender by the Commissioner of his notice of assessment does not dispose of the matter.103 They also found that section 177 does not displace the jurisdiction conferred on the Federal Court by section 39B of the Judiciary Act 1903 (Cth),104 finding that in the proper exercise of that jurisdiction in the Federal Court, the ‘due making’ of an assessment, its amount and all particulars of it are open to inquiry.105