FEDERAL COURT OF AUSTRALIA

JMA Accounting Pty Ltd & Entrepreneur Services Pty Ltd v Carmody

[2004] FCA 896

TAXATION – access under s 263 of Income Tax Assessment Act 1936 (Cth) – whether Commissioner has power to exclude occupiers from premises – whether the copying of documents which may be irrelevant can be for the purposes of the Income Tax Assessment Act 1936 (Cth) – whether Commissioner can dictate procedure by which legal professional privilege is to be claimed – whether failure to allow claim for legal professional privilege invalidates exercise of access power

Judiciary Act 1903 (Cth) s 39B

Income Tax Assessment Act 1936 (Cth) s 263

Crimes Act 1914 (Cth) s 10

Commissioner of Taxation v Citibank Limited (1989) 20 FCR 403 questioned

Baker v Campbell (1983) 153 CLR 52 considered

Commissioner of Australian Federal Police v Propend Finance Pty Ltd (1997) 188 CLR 501 applied

O’Reilly v State Bank of Victoria Commissioners (1983) 153 CLR 1 referred to

Question of Law Reserved (No 1 of 1998) (1998) 70 SASR 281 followed

Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355 considered

JMA ACCOUNTING PTY LTD AND ENTREPRENEUR SERVICES PTY LTD v MICHAEL CARMODY COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA; KEVIN FITZPATRICK, FIRST ASSISTANT COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA; GREG DALY, NATHAN PAIN, EMPLOYEES OF THE AUSTRALIAN PUBLIC SERVICE; COLIN O’GORMAN, WILLIAM CARPENTER, NOEL DEVAR, KATE FIREY, COLIN O’GORMAN, ANTONIO GALLIOSTRO, CHRISTIAN BERNAT EMPLOYEES OF THE AUSTRALIAN PUBLIC SERVICE

Q 81 OF 2004

DOWSETT J

9 JULY 2004

BRISBANE

REASONS FOR JUDGMENT

The application

1                     This is an application for relief pursuant to s 39B of the Judiciary Act 1903 (Cth) arising out of the exercise by officers of the Australian Taxation Office (the “ATO”) of the right of access to places and documents conferred upon the Commissioner and his authorized officers by s 263 of the Income Tax Assessment Act 1936 (Cth) (the “Act”).

Facts

2                     The applicants are both involved with an accounting practice known as “JMA Accounting”, conducted at Levels 2 and 6, 360 Queen Street, Brisbane and at the Sunnybank Hills Shopping Centre. The nature of the relationship between the applicants and between each of them and the accounting practice is unclear. On 5 and 6 May ATO officers attended at both offices, seeking access to documents and other records pursuant to s 263 of the Act. The relevant officers (or some of them) are the third and fourth respondents. They were investigating the possible involvement of the applicants and clients of JMA Accounting in an arrangement designed to provide false evidence of non-existent tax deductions. The scheme involved the payment of money to overseas parties, which payments were receipted and then repatriated to Australia, less charges.

3                     Section 263 provides:

‘(1) The Commissioner, or any officer authorized by him in that behalf, shall at all times have full and free access to all buildings, places, books, documents and other papers for any of the purposes of this Act, and for that purpose may make extracts from or copies of any such books, documents or papers.

(2) An officer is not entitled to enter or remain on or in any building or place under this section if, on being requested by the occupier of the building or place for proof of authority, the officer does not produce an authority in writing signed by the Commissioner stating that the officer is authorized to exercise powers under this section.

(3) The occupier of a building or place entered or proposed to be entered by the Commissioner, or by an officer, under subsection (1) shall provide the Commissioner or the officer with all reasonable facilities and assistance for the effective exercise of powers under this section.

Penalty: 30 penalty units.’

4                     The execution of the visit to the JMA Accounting premises was organized primarily by Colin William O’Gorman and Nathan Troy Pain. Mr O’Gorman is the Queensland manager of the “Promoters’ Taskforce” in ATO. The taskforce identifies, investigates and seeks to shut down tax avoidance or evasion schemes. The taskforce began relevant investigations in January 2004. Those investigations revealed that on at least 70 occasions clients of JMA Accounting had sent funds offshore through Entrepreneur Services Pty Ltd, one of the applicants. The recipient was an entity in Malaysia, known as “Fiscal Point”. Corresponding amounts of money, perhaps with some small deductions, were then repatriated to this country from an entity called “YWK” in Labuan Province, Malaysia, said to be a known tax haven. The money was repaid to a company in Australia called “Oxford Finance Pty Ltd”. Mr O’Gorman suspected that this company was associated with JMA Accounting or its principals. Those 70 transactions involved an amount of approximately $1.35 million. At least 200 clients may have been involved.

5                     Mr  O'Gorman formed the view that JMA Accounting was actively promoting the scheme, using Malaysian entities and was promoting a similar scheme, using entities in Malta. He considered that a significant amount of revenue was at risk and that the scheme was blatantly illegal, amounting to ‘overt tax evasion as distinct from avoidance’. Because of his perception that the schemes were blatantly illegal Mr O’Gorman considered that the ‘paper trail’ would provide crucial evidence and that there was a real chance that the promoters would seek to destroy documents if they became aware that there was any risk of their being apprehended. It was therefore desirable that ATO have access to documents ‘without notice’ in order to ‘maintain the integrity’ of those documents. Speed was also desirable.

6                     ATO guidelines generally require that access pursuant to s 263 be had on notice. The guidelines also distinguish between access to source and to non-source documents. Mr O’Gorman formed the view that such guidelines should not be followed on this occasion and caused Mr Pain to apply to the First Assistant Commissioner (Mr Fitzpatrick) for his approval of the proposed departure from them. The distinction between source and non-source documents is no longer relevant. Mr Fitzpatrick gave his approval on 8 April 2004 by a document which is exhibited to Malcolm Ma’s affidavit filed 18 May 2004. It provided as follows:

‘In accordance with the Commissioner’s access and information gathering principles as contained in the ATO Access Manual, I am satisfied that circumstances exist which warrant:

·                 Access for the purposes of the taxation law;

·                 Without prior notice; and

·                 Including access to restricted source and non-source documents pursuant to the Commissioner’s guidelines for access to professional accounting advisers’ papers.

Access does not extend to communications that are genuinely the subject of legal professional privilege.

This authorisation applies to all buildings, places, books, documents and other papers for the purposes of the taxation laws and related, directly or indirectly, to:

Ø      JMA Accounting Pty Ltd

Ø      Entrepreneur Services Pty Ltd

Ø      Oxford Finance Group Pty Ltd

Ø      AFGS All Finance & Gearing Solutions Pty Ltd

Ø      Mark Beekmans and any associates (persons or entities)

Ø      John Beekmans and any associates (persons or entities)

Ø      Anthony Beekmans and any associates (persons or entities)

Ø      Any associates of JMA Accounting Pty Ltd, Entrepreneur Services Pty Ltd, Oxford Finance Group Pty Ltd and AFGS All Finance & Gearing Solutions Pty Ltd including persons or entities, staff or business associates

Ø      Any tax avoidance schemes associated with these persons or entities

Ø      Any taxpayers involved in these tax avoidance schemes

Ø      Any other matter, that in the opinion of the Commissioner, relates to tax avoidance schemes, shams, fraud, evasion or a potential breach of the taxation laws.’

7                     On 4 May 2004 Mr O’Gorman briefed those participating in the proposed access visits to the JMA Accounting offices. He addressed the procedures to be adopted, pointing out:

·                 the need for full identification of ATO officers upon arrival at the premises;

·                 the importance of immediate attendance upon the principals of JMA Accounting; and

·                 that communications should be maintained between ATO officers and the “command centre”, meaning the point from which Mr O’Gorman was coordinating activities.

8                     Mr O’Gorman also discussed the procedure to be adopted concerning any claim to legal professional privilege. It was proposed that all material be scanned or copied on to disks which would be duplicated. One copy was to be given to JMA Accounting. The other was to be retained by the Australian Government Solicitor. An undertakings was to be offered that the Australian Government Solicitor would not take access to such information for a period of 14 days in order to allow any claim of legal professional privilege to be made.

9                     Those participating were also briefed on the identity and types of documents being sought, including:

·                 documents pertaining to the suspected schemes and any other schemes which might be revealed during the visit;

·                 client lists;

·                 lists of participants in the schemes;

·                 all relevant financial records relating to the schemes;

·                 documents relating to the practice or its clients; and

·                 any correspondence between relevant parties.

Mr O’Gorman instructed them to be selective in what was scanned or downloaded. However he seems to have expected that the amount of information in question might compel a more general downloading at first instance, with the intention that any irrelevant documents be discarded later. At least in part, this approach was motivated by a desire to minimize inconvenience and disruption to JMA Accounting and its staff.

10                  On 5 May 2004 ATO officers arrived at both offices at about 9.00 am. Mr O’Gorman initially remained at the ATO city office, his “command centre”. At about 10.10 am he was telephoned by Mr Ma, apparently a principal of either or both of the applicants, seeking that the ATO officers refrain from any scanning or downloading until his solicitors arrived. Mr O’Gorman agreed to defer any scanning or downloading until 10.20 am. He then went to the city office of JMA Accounting where he met Ian Tindale, a solicitor acting for JMA Accounting. He advised Mr Tindale that he proposed to scan paper documents and download electronic documents. He explained that two copies would be made of all such material, one to be retained by JMA Accounting and the other to be lodged with the Australian Government Solicitor, with an undertaking that there would be no access to it for a period of 14 days.

11                  In the course of the afternoon there was a discussion between Mr O’Gorman and William Timothy Carpenter (also from ATO), Mark Beekmans and Mr Ma concerning the time at which the office would be closed for the day. Mr O’Gorman said that ATO personnel were prepared to leave at any nominated time. Either Mr Beekmans or Mr Ma nominated 4.45 pm. Mr O’Gorman then advised them that the office would be sealed for the night. Either Mr Ma or Mr Beekmans suggested that the office re-open at 8.30 am on the following morning.

12                  On 6 May 2004 Mr O’Gorman attended at the city office of JMA Accounting and spoke to Nikytas Nicholas (“Nick”) Petroulias who has sworn an affidavit in these proceedings, exhibiting a purported transcript of a tape recording of the conversation. Mr O’Gorman generally disputes the accuracy of the transcript. I will deal with the transcript when I discuss Mr Petroulias’s evidence.

13                  Mr Pain has sworn an affidavit in which he outlines the history of the investigations prior to the access visits. On 5 May 2004 he attended at the Sunnybank premises in company with Greg Daly, an investigator with ATO, Colin Ming Poh Chang, an information technology specialist and other ATO officers. They met a person named Warren Harding who appeared to be in charge of the premises. Mr Pain examined paper documents and nominated those which should be scanned. At about 4.30 pm on 5 May, Mr Pain and Mr Harding had a conversation concerning the time at which the office would be closed. Mr Harding indicated that the office should be closed at about 5.30 pm. The office was sealed and re-opened the next morning.

14                  It will be convenient to address the evidence of most of the other witnesses by reference to the premises at which they attended.

City office

15                  Kate Renee Fryer was employed in the ATO as a research officer. On 5 May 2004 she entered the city office at about 9.00 am in company with Mr Carpenter and Antonio Gagliostro. Mr Carpenter asked to see Mr Beekmans. The receptionist went to an office area located behind the reception area and after a short time, a person appeared. The ATO officers then proceeded to the office area behind the reception desk where a man now known to have been Mr Ma asked them to wait outside. They produced their identification, and Mr Carpenter again asked to speak to Mr Beekmans. Mr Ma then ushered them into a boardroom and asked them to wait there. Nobody appeared and so after a short time, the ATO officers again entered the general office area. Mr Carpenter showed his identification and asked everybody to stop working on the computers. He again asked for Mr Beekmans. There was no reply. A person who turned out to be Mr Beekmans then walked out of the office, carrying a satchel. Mr Carpenter intercepted him at the door and attempted to grab the satchel. Mr Beekmans said that the bag was personal and left the office. Mr Carpenter then asked if the person was Mr Beekmans. Somebody said that he was. Mr Ma called the company’s legal advisers, and a solicitor later arrived. Following a discussion between Mr Carpenter and the solicitor, the search commenced.

16                  Ms Fryer searched paper documents and selected documents for scanning. She asked the staff not to touch computers whilst they were being searched. She denied an allegation made by one deponent that she had said that the ATO was ‘taking control of the premises’. She said that it was more likely that she had said that they were ‘taking access to the premises’.

17                  Mr Carpenter had been involved with Mr Pain in the earlier investigations. On 5 May 2004 at 9.00 am, he entered the city office. His evidence as to ensuing events was substantially the same as that of Ms Fryer. He spoke to Mr Ma, whom he asked to identify himself. Mr Ma refused. He followed Mr Ma around the office until he was satisfied that he was not deleting documents or attempting to remove documents from the premises. Mr Ma subsequently telephoned his solicitor. Mr Carpenter agreed not to examine documents until the solicitor arrived. Mr Tindale, a solicitor, arrived. Mr Carpenter advised him that the usual procedure adopted by the ATO was to scan all documents and download electronic documents onto two disks, one of which was to be retained by the person whose premises were being searched. The other would be retained by the Australian Government Solicitor, with an undertaking not to have access to the material for a period of 14 days in order to allow claims for legal professional privilege to be made. Mr Carpenter then asked Noel Stephen Davar, an information technology specialist with ATO, to commence examining electronic documents. Mr Carpenter and the other ATO officers commenced examination of paper documents. There was a subsequent discussion with Mr Beekmans, Mr Ma and Mr O’Gorman concerning the time at which the office would be closed. The closing time and the opening time on the next morning were nominated by Mr Beekmans or Mr Ma.

18                  In response to an affidavit by Mr Tindale, Mr Carpenter said that neither he nor Michael Gerard Doyle (another ATO officer) had advised Mr Tindale that they would download ‘the whole contents of the hard drives of each of the computers’ or ‘the entire contents of the computer server’. Mr Davar had explained to Mr Tindale the process which he intended to adopt with respect to the server and the computer hard drives. Mr Carpenter did not recall Mr Tindale saying that he intended to claim legal professional privilege in relation to any document.

19                  Mr Doyle entered the city office at about 9.00 am on 5 May 2004 in company with the other ATO officers. His evidence relates primarily to Mr Tindale’s affidavit. He was also present at a conversation between Mr Davar and Mr Ma in which Mr Davar said that it would not be necessary to download the entire content of the hard drives of the computers or the server. Mr Davar said that he would be selective in his searching and would try to minimize the downloading of irrelevant documents. Mr Doyle denied that either he or Mr Carpenter had said to Mr Tindale that they did not have to form an opinion that a document was relevant before downloading it or that they believed the whole database was relevant to their investigation. He recalls that Mr Carpenter advised Mr Tindale as to the process for claiming legal professional privilege.

20                  Mr Davar and Mr Chang, came to Brisbane from Sydney for the purpose of the visits. Mr Chang went to Sunnybank. Mr Davar went to the city office. He understood that ATO was searching for information relating to schemes outlined in briefing notes which were supplied to him, the activities of JMA Accounting, Entrepreneur Services Pty Ltd and other associated companies and the principals or associates of those companies, known clients, overseas transactions or entities or any other schemes which might be identified. They were looking for client lists, minutes of meetings, correspondence, financial documents, including bank records and receipts, tax documents, spreadsheets and other computer documents which might contain such information.

21                  Mr Davar arrived at the city office at about 11.00 am and arranged for a map of the office to be made, which map identified the locations of the computers to which access was to be taken. He then attempted to assess whether any person at the premises had received prior knowledge of the visit or whether any deletion of documents had occurred. Had he considered that deletion had occurred, he would have tried to image the entire hard drive of the relevant computer or server in an attempt to retrieve deleted files. He found nothing to suggest that any warning had been received or that any material had been deleted. He therefore did not deem it necessary to image the hard drives of the computers or the server. To have done so would have taken considerably longer than downloading selected documents. He then made an assessment of the size of each hard drive and searched document types contained in them, the databases, email files, PDF files and other areas. He browsed the files by title and deleted references to some. He selected files on the basis of titles. He first searched Mr Beekmans’ laptop which had a capacity of approximately 28 gigabytes, of which 23 gigabytes contained data. He downloaded approximately 175 megabytes. He then inspected Mr Ma’s computer and noticed that the recycle bin had been emptied and that two emails had been deleted. He viewed the files which had been deleted and determine that they were not relevant to matters arising under the Act. Most of the computers contained 5 or 6 gigabytes of information. He downloaded approximately 1.5 gigabytes from all computers, including those belonging to Mr Beekmans and Mr Ma. This represented less than 3 per cent of all of the electronic information contained on those computers.

22                  The procedure adopted in examining and downloading information on the server was somewhat different. Mr Davar searched by directory and file name. He targeted Word documents, spreadsheets, PowerPoint presentations, emails and PDF format documents. He generally copied emails in bulk. The server had a capacity of 4 gigabytes, of which about 1.2 gigabytes were downloaded. Half of this consisted of what he described as “ACT directories”. He believed these to be client management systems which contained client contacts and software for reading that data. He had been directed to look for client lists. The transcript exhibited to Mr Petroulias’s affidavit referred to a conversation between Mr Petroulias and Mr Davar. Mr Davar considers that the transcript is not complete. He said that he explained to Mr Petroulias that irrelevant material was sometimes inadvertently downloaded as part of the process, as not every file or document could be searched.

23                  Cheri-Ann Serafini was a consultant to Entrepreneur Services Pty Ltd, trading as JMA Accounting. She provided administrative services to JMA Accounting Pty Ltd and to Entrepreneur Services Pty Ltd. She was at the city office on 5 May 2004. She was not working in the reception area. Donna McAllister may have been in that area. She recalls Ms McAllister coming through the door from the reception area, closing it and speaking to Mr Beekmans. Almost immediately afterwards, three ATO officers came through the door. She heard Mr Beekmans tell them to ‘get out’ and that they could see Mr Ma in the boardroom. The officers said that they wanted to see him ‘now’. After a brief argument they went to the boardroom. Subsequently, Ms Fryer asked her not to touch the computers. Ms Serafini then went into the reception area. Ms Fryer said that ATO was ‘taking control of the premises’. The ATO officers walked around the office whilst Mr Carpenter spoke to Mr Ma in his office. At one stage Ms Serafini asked Ms Fryer if she could use the e-mail system to send telephone messages, to which she replied ‘[n]o, it is best not to touch the computers at all’. Ms Serafini was not given permission to use the computers or to resume work. She remained at the office until about 4.30 pm, answering telephones and taking messages. At some stage Mr Ma told her that she could not start work on the following morning until 8.30 am because the ATO officers were sealing the premises. She normally started work at 7.00 am.

24                  Mr Ma was present at the city office on 5 May 2004 from approximately 9.00 am. At about 9.15 am, at the request of Mr Beekmans, he spoke with Mr Carpenter in the boardroom. Mr Carpenter requested access to all records on the premises. Mr Ma said that he wanted to obtain legal advice and asked that nothing happen until he had done so. Mr Carpenter followed him as he moved around the office. When his solicitor telephoned him in response to an earlier call, Mr Carpenter initially refused to leave. He subsequently did so. Mr Carpenter, in his evidence, said that he remained in the room until he was confident that Mr Ma was speaking to his solicitor. There were subsequent discussions between Mr Carpenter and Mr Ma concerning the length of any deferment of access to documents pending arrival of the legal adviser. In the event, access did not commence until the solicitor arrived.

25                  At some stage Mr Ma spoke to Mr O’Gorman by telephone. In the course of this conversation Mr O’Gorman agreed to defer access until 10.15 am. Mr Tindale, the solicitor, arrived at about 9.55 am, according to Mr Ma. At about 10.30 am the ATO officials commenced to examine documents. Mr Ma was advised that the hard drive from each computer would be copied as would be files on the server. He said that neither Mr Carpenter nor any other member of the team identified the documents for which they were looking. He was told that he could not look at the documents which were being scanned, and that he would be given a copy of the documents at a later time. Mr Carpenter, on a number of occasions, asserted that he was entitled to look at any document.

26                  At about 4.40 pm, Mr Ma was advised that the ATO officers were leaving for the day and that the premises would have to be sealed. This occurred. The ATO officers arrived at 8.30 am the next day. Mr Ma met them on the ground floor, and the office was opened. At some stage on 6 May, Mr Ma again requested Mr Carpenter to cease access, claiming that he had received advice from a consultant and wanted to wait until he arrived. Mr Carpenter continued the search. At some stage Mr Carpenter said that as the scanner was broken, they would not be doing any further copying. The consultant mentioned was Nick Petroulias who later spoke to Mr O’Gorman and Mr Carpenter at the premises. Mr Petroulias questioned the validity of the “notice”, presumably the authority from Mr Fitzpatrick. The ATO personnel maintained that it was valid.

27                  Mr Tindale arrived at the city office at about 9.45 am on 5 May. At that stage two or three people were sitting in the reception area. He subsequently learned that they were ATO officers. He then saw two other persons come out of the boardroom. They introduced themselves as Bill Carpenter and Mike Doyle and said that they were from ATO. They provided him with identification and a copy of the letter upon which they relied as authorization for the search of the office. He then spoke to Mr Carpenter and Mr Doyle in the presence of Mr Ma. They said they were looking for anything that would assist in the investigation. They did not reveal with any particularity their reasons for searching or the nature of the investigation. They explained that they would search through paper files, scan those which they wanted and copy them on to compact disks. They said that they would also download the whole of the contents of the hard drives of the computers and the entire contents of the server. Mr Tindale asked why they wanted to download the whole of the contents of the server and the hard drives. They answered that they did not have to form an opinion that a document was relevant before they downloaded it, and that they believed the whole database was relevant to the investigation. Mr Carpenter and Mr Doyle said that Mr Ma and Mr Tindale were ‘under an obligation to assist and co-operate’, or words to that effect.

28                  Mr Tindale said that the applicants would claim legal professional privilege over the documents which the ATO officers intended to copy. Mr Carpenter and Mr Doyle said that they would be given 14 days in which to make any claim to legal professional privilege and that they would provide an appropriate form once the documents had been copied. They said that JMA Accounting would be given a copy of the material which was taken, and that a copy would go to the Australian Government Solicitor.

29                  Mr Tindale subsequently spoke to Mr O’Gorman who again explained the procedure that he proposed to adopt. Mr Tindale may have suggested that the copy of documents be delivered to the registry of the Federal Court instead of to the Australian Government Solicitor. Mr O’Gorman did not agree with this. In the end Mr Tindale agreed that they should be delivered into the custody of the Australian Government Solicitor. Some time later on 5 May, Mr Tindale had another conversation with Mr O’Gorman in which he asked how long the search would continue. He was told that it would take two days and that the office would be sealed overnight. Mr Tindale left at some time between 2.30 pm and 3.00 pm.

30                  Mr Petroulias is a solicitor. On 6 May he was asked by Mr Beekmans to assist at the city office. The reference in his affidavit to 12 May is apparently an error. He arrived at the offices at approximately 10.00 am on 6 May. He had a tape recorder in his pocket and recorded discussions with ATO officers. He caused a transcript to be produced which he says is accurate. It is exhibited to his affidavit. Exhibit 1 contains an electronic record of the conversations together with another transcript. Limited reference to the electronic record suggests that ex 1 is more accurate than Mr Petroulias’s transcript. However the differences are not significant. There is one respect in which both transcripts are in error. On p 16 of ex 1, the following passage appears:

‘So what do we do? Just got to put the thing with AGS so we’ve got nothing to worry about.’

31                  After listening to this passage on the CD, I am satisfied that the passage should be:

‘So we’ve agreed. You’re just going to put the thing with the AGS so we’ve got nothing to worry about.’

32                  Whilst he was at the city office, Mr Petroulias saw the ATO officers copying computer files. He saw an ATO officer copying a list of files which were clearly irrelevant to any matter concerning taxation, including a file called “JMA Birthdays”. The following summary of the conversation between Mr Petroulias, various ATO officers, Mr Beekmans and Ms Serifini is based on references to both transcripts.

33                  Mr Petroulias asserted that the ATO officers appeared to be taking ‘everything’. Mr O’Gorman replied that the authority from Mr Fitzpatrick “overrules” the guidelines as to access and that s 263 applied. He said that the ATO officers would only cease copying documents on the production of an injunction from the Federal Court and that they were taking documents relating to ‘any taxpayers’ involved in tax avoidance schemes and any schemes associated with those entities and any other matter that in the opinion of the Commissioner relates to tax avoidance schemes, shams, fraud, evasion or a potential breach of the taxation laws’.

34                  He explained that two copies of documents which had been downloaded would be made, one for the applicants and one to be left with the Australian Government Solicitor. The latter copy would not be accessed for a period of 14 days to allow applications for legal professional privilege. There was then a discussion about whether Mr O’Gorman had formed the opinion that everything on the server was relevant for the purposes of the authority given by Mr Fitzpatrick. Mr O’Gorman said that they would ‘download the server to a CD’. He said that s 263 of the Act entitled him to access to all books and papers but that they were not presently accessing such documents, merely downloading them in order to place the material with the Australian Government Solicitor. Mr Petroulias said that any such action must be for the purposes of the “Tax Act”. Mr O’Gorman responded that it was. Mr Petroulias said that no critical evaluation of the documents had been performed. Mr O’Gorman said that they had determined that information on the server was of concern and that they were trying to get to the bottom of it.

35                  Clearly, relations between them became strained. Mr O’Gorman became angry and quite assertive. Mr Petroulias, on the other hand, was somewhat provocative.

36                  Eventually Mr Petroulias asked:

‘Well, in deciding to access the entire database. What did you take into account?’

37                  Mr O’Gorman responded:

‘The process is … On the basis of our research of internal systems, projects that we conduct, matters of concern and arise or pursue they are a very serious concern and we potentially introduce process for access without notice, but one of the major reasons for access without notice is document integrity which if asked for. It may not be produced and can’t be done lightly and a fairly assertive procedure and we are aware of that and that’s why we like the officers very strong to hold it in place and it can only be done, access without notice and authorised by Section 263 of the Tax Act full and free access to everything, electronically. However there is also guidelines in place for conduct of audits, access to source and non-source documents, accounting working papers, and in this procedure as well as authorised under 263 to take access, that authorisation authorises the overruling of the source and non-source restrictions guidelines that are in place. The process goes from the normal 263 to the overruling of the restrictions which is authorised by [muffled for approximately 5 seconds] outline of our concern in the submission which was put to the relevant Assistant Commissioner and then to the First Assistant Commissioner and you well know Nick above him are only the Commissioners. And that is the level of which it can only be and must be signed off and authorised. Now what’s been authorised? Access to those areas of concern. You must be well aware of the last, especially the last three, the first whatever are more narrowly specific the last ones also are much broader. In respect of any tax avoidance schemes associated with persons or entities, any tax payers, any tax payers involved in tax avoidance schemes. They don’t have to be listed there. Any tax payer involved or any other matter that in the opinion of the Commissioner that I am representing, as the decision maker. I am the Commissioner for that purpose, who in my opinion relates to tax avoidance schemes, scams, frauds, evasion or potential breach of the Taxation Act. That gives me the legal authority to access anything that pertains to that. Now you have to understand that what we have done yesterday and today and I know this is almost semantics in English, we have not taken access as such. We are not accessing the documentation. We won’t be doing that until after at least two more weeks. We are obtaining the information, leaving a copy of it with JMA. Our copy, the ATO copy, there’s two copies, the ATO copy and JMA’s copy. JMA will be left with it, ATO’s with AGS for fourteen days during which time whatever action is proposed can be adopted. We would then take access to that documentation and examining it and pursuing what it attests to at a point beyond that. So, what we are doing really now is not access as such. We are obtaining the information to be accessed.

…

What does the document say? It’s cost effective for all concerned. Now the office and the officers are bound by law, protocol and so forth. To the extent to which it is diluted from law to protocol to ATO practice, then starts to bring in the human side of it. And we are dealing with various types of people I can guarantee you now that we are, us this group are, very, very experienced, transparent, open, proper, fair, hard. There is no trickery in what we are doing. We will not leave ourselves open to any suggestions of improper process.’

38                  Somebody, possibly Mr Carpenter, then said, apparently referring to the authorization:

‘That document there is meant to be your client’s information. It is not a document that restricts us to client document. You can tell them the guidelines have been lifted and we are still entitled to any document under section 263.’

39                  At one stage Mr Petroulias said:

‘So it’s up to you to determine relevance? So you take everything first? Regardless of whether it’s relevant or not? And then? How can that be justified?

40                  Mr O’Gorman replied:

‘We haven’t accessed the material. We haven’t opened files on the server to say, we are downloading. One significant reason being the question document integrity.’

Sunnybank office

41                  I have previously referred to the evidence of Mr Pain who attended at the Sunnybank office. He arrived there at about 9.00 am with Mr Chang and other ATO officers. Mr Daly, one of the ATO officers, spoke to Mr Harding, producing his identification. He also showed him a copy of the letter from Mr Fitzpatrick. The officers then commenced examining paper documents to determine whether or not they should be scanned. Mr Chang searched the computers and the server and downloaded items which he identified as relevant. Mr Daly explained to Mr Harding the process of downloading and said that whilst a particular machine was being examined, it would not be available for use by office staff. However it would again be available once the examination was finished. Mr Harding asked that the computers be examined in a particular order, and Mr Chang acted upon that request. Mr Daly sought to ensure that there was as little disruption to the office as possible. The times for closing and re-opening the premises were chosen by Mr Harding. The closing time was chosen by him to coincide with the departure of a financial planner who attended at the premises at 4.30 pm. Mr Harding asked that the ATO personnel not inform the planner of the purpose for which they were at the premises. They complied with that request. Mr Harding said that the premises should be re-opened at 8.30 am on the following morning.

42                  Mr Chang understood from his briefing that a priority in the search was to find a list of participants in any scheme being promoted by the applicants. He also searched for any electronic documents that might relate to matters referred to in the briefing, including records relating to offshore arrangements, client files which might relate to such arrangements, loan documentation, financial records and any information which might relate to the promoted schemes or other schemes identified as being promoted by the applicants. He arrived at the Sunnybank office at about 8.45 am and entered the premises at about 9.15 am. He asked the office employees to step away from their computers. All complied. He prepared a plan of the premises, identifying the locations of the computers and then asked a person named Ron to disconnect the server and computers from the outside system. He also obtained information from this person as to how the system was set up.

43                  At about 10.00 am he became aware that someone was entering the system via a telephone line. He learnt that it was Chris “Aldershaw” (actually Oldershaw) from Southside Computers, a company which provided IT services to JMA Accounting. Mr Chang asked him to leave the system. He did so. He then asked Ron to turn off the modem. Mr Harding asked that he commence his search with particular computers. He did so.

44                  In examining each computer he had regard to the size of the hard drive and how much of it was being used. He also had regard to how much work was local to it. He examined recycle bins to see if anything had been deleted and then went to folders and files to gain a familiarity with the general geometry and structure of the information contained in the files. He looked at recent files, having regard to the types of information for which he was looking. He then searched for particular file types such as Word, Excel spreadsheets and for key words which would arise in relation to the information they were searching for within the documents and applications. He said that not all information was copied. He looked at the names of the files. If names were odd he would open them and look at the key words. Material which was downloaded was copied on to a portable hard drive, maintaining, as far as possible, the same structure as appeared on the hard drives of the computers. Where a folder or file contained a large amount of information, he downloaded the entire folder or file. He said that the material downloaded was less than 25 per cent of the material which was contained in all of the computers.

45                  He examined the server in a similar fashion. It held between 22 and 25 gigabytes of information. There were also a number of backup tapes. The tapes were not searched because of time constraints. About 15.8 gigabytes of information were downloaded on to the portable hard drive. About 2.5 gigabytes comprised a copy of an accounting package, containing financial details and data. He thought that it was likely to contain financial information relevant to the search. He also downloaded various applications from the server in case they were necessary in order to read the information which had been downloaded. These applications accounted for about 1.15 gigabytes. Mr Chang explained to Mr Harding that two copies of downloaded files would be prepared, one of which would be given to the applicants and one retained by the ATO. Other evidence suggests that the Australian Government Solicitor was to hold the material. Of the 15.8 gigabytes of information downloaded from the server, 11.5 gigabytes were burnt on to disks. The hard drive was then wiped. Mr Chang denied having imaged the hard drives of any of the computers. One computer contained material which was largely of a personal nature. Ron said that the computer was a home computer. That material was not copied. A disconnected computer in the boardroom contained a large number of emails and a folder containing other documentation. That material was downloaded.

46                  Warren John Harding has sworn two affidavits. He is employed by JMA Accounting Pty Ltd. On 5 May 2004 he was working in the Sunnybank office. At about 9.30 am, five ATO officers arrived at the Sunnybank office, including Mr Daly and Mr Pain. Mr Harding was shown the letter dated 8 April 2004, signed by First Assistant Commissioner Fitzpatrick. He was told that all staff must immediately cease using the computer system. The concept of legal professional privilege was explained to him, and he was told that a team of people, including an information technology specialist, would be conducting a search of the records on the premises and copying the server and the hard drives. Mr Harding told the staff not to use the computer system and sent them home. He spoke to the city office and was told that JMA Accounting was obtaining legal advice. He then told Mr Daly that he would not grant the ATO access until he had received such legal advice. He also said that he was claiming legal professional privilege over all of the documents to which the ATO sought access. Mr Daly said that he would give him until 10.00 am to obtain legal advice and then start to copy files. At 10.00 am Mr Daly said that he was going to start scanning documents.

47                  At about 2.00 pm Mr Daly explained to Reneé Gae Butterfield, a solicitor acting for JMA Accounting, that at the end of the day the office would be sealed and that access would not be available until the following morning. At approximately 5.30 pm the ATO officers indicated that they were going to leave. The doors were sealed. On 6 May, at 8.30 am, Mr Harding met the ATO officers at the door. The seals were removed. Downloading and copying continued. At 10.05 am on 6 May, Mr Harding requested Mr Daly to stop copying and scanning until legal representatives met with Mr O’Gorman at the city office. The ATO officers ceased copying and scanning but not long thereafter, they resumed. Mr Daly said that a large amount of material had been deleted from the hard drive of one of the computers and that this would be scanned. Another personal computer was also scanned for the same reason. At about midday, copies of the scanned documents were burnt on to compact disks and/or DVDs, of which Mr Harding was given copies. The files were then deleted from the laptop which had been in use. The material downloaded from the server and the hard drives was taken away for copying.

48                  In his second affidavit Mr Harding said that Mr Daly told him that the ATO would be ‘going through everything’ and ‘would be copying the server’. He said that this would take a significant amount of time and may need to run overnight. Mr Harding agreed that he had asked that the premises close at 5.30 pm on 5 May when the financial planner left. He said that he asked that the office be opened as early as possible on the 6th and did not nominate 8.30 am. He would have preferred an earlier start. Mr Daly made it clear to him that nobody could be in the premises unless ATO officers were present.

49                  Ms Butterfield went to the Sunnybank office at about midday on 5 May. She met Mr Daly. Ms Butterfield said that she wished to ensure that the search was conducted in accordance with ATO guidelines. Mr Daly told her that ATO officers were copying documents by searching through paper files and scanning documents which they thought were relevant to the notice under which the ATO was conducting its search. They were also searching the server and hard drives on the computers and making copies. At some stage Ms Butterfield said that JMA Accounting claimed legal professional privilege in respect of all documents which were being copied. Mr Daly said that in his view, most of the documents would not be covered by privilege. Mr Daly then said that in order that claims for privilege could be made, the documents would be held by the Australian Government Solicitor for a period of 14 days. He also said that JMA Accounting would be given a CD containing copies of the documents and that JMA Accounting would be required to sign an agreement acknowledging receipt of the CD and confirming that it would be held for 14 days by the Australian Government Solicitor. Ms Butterfield asked for a copy of the proposed agreement and whether it was a standard document. Mr Daly provided her with a hand-written document, a typed version of which was exhibited to her affidavit. It is in the form of an acknowledgement of receipt. It includes an undertaking to be given on behalf of JMA Accounting that the copied material will be examined in its entirety within 14 days and any claim for privilege made. It also records that a claim for privilege was made over the documents. Ms Butterfield did not consider the terms of the agreement to be acceptable ‘as they did not serve to protect JMA Accounting’s interests’. Accordingly she did not sign it.

50                  At some stage Mr Daly told Ms Butterfield that he would be sealing the office overnight. Mr Daly asked her to confirm with JMA Accounting that no one would need to enter the premises overnight and that cleaners or other persons would be made aware that they could not do so. Ms Butterfield asked Mr Daly to keep in mind that the office was located in a shopping centre, and that it was not in JMA Accounting’s interests to alert the public to the fact that an ATO investigation was taking place. Mr Daly agreed to place only one seal on the outside of the front door and two further two seals within the office. Mr Daly said that he and his officers would cause as little disruption as possible and that there was no reason why JMA Accounting’s staff could not come to work on the following day.

51                  Ms Butterfield has examined the material copied and considers that some documents, including correspondence passing between her firm and JMA Accounting in relation to powers of attorney, are subject to legal professional privilege. She also identified the following documents which, she asserts, do not bear upon any matter relating to taxation:

(a) Bartercard application form for Joanne Beekmans;

(b) JMA checklist of staff duties;

(c) JMA birthday lists;

(d) resumés of staff;

(e) job applications for Joanne Beekmans;

(f) staff photographs;

(g) personal correspondence; and

(h) position description and responsibilities for reception staff.

Other evidence

52                  Mr Christopher Oldershaw, a computer service manager, also gave evidence. As is mentioned above, he was employed by a company which provided computer services to JMA Accounting. Mr Oldershaw’s evidence related primarily to the volume of material copied from the computers and the server. He said:

‘5. The material that was copied by the ATO represents almost all of the data that has been created and stored on the computers or server by the Applicants. The remaining space on the hard drives or server contains application software which is necessary for the computers to operate. It is normal for a server and/or computer hard drive to contain large quantities of such application software.

6. It is my opinion that almost all electronic documentation (except the practice management software) relating to the accountancy practice was copied.

7. The ATO have also copied all email store folders.

8. Personal files that are created by employees of the Applicant are stored throughout the server and personal computers. In some instances these personal documents are easily identified and have been saved under a folder entitled ‘personal’ or such other folder names ‘uni timetable’ which identifies the material as being of a personal nature. These folders have been copied by the ATO.

9. With respect to paragraph 26 and 39 of the affidavit of Colin Chang I have calculated that the material which has been copied onto the discs produced and labeled Sunnybank Hills contain 16.23 gigabytes of information.

10. With respect to paragraph 29 of the affidavit of Noel Davar I have calculated that the information downloaded on the disks labeled as the ‘City’ represents 1 gigabyte of server data and approximately 800 megabytes of information from the computers. The total amount of information stored on these discs is 1.8 gigabytes.’

Cross-examination

53                  Mr Oldershaw was cross-examined on his affidavit, as were Messrs Davar and Chang. In the end I found this cross-examination of virtually no assistance. I have no doubt that all three witnesses were seeking to give honest accounts of their actions and findings. It is possible that they were not addressing the same issues. Mr Oldershaw’s evidence was designed to show the portion of material stored on the various computers and servers which had been copied. It was, to say the least, inconclusive. I am satisfied that Mr Davar and Mr Chang exercised some degree of discretion in identifying the material to be copied, having regard to information previously provided to them. However I have little doubt that they erred on the side of caution (from the Commissioner’s point of view) and that they downloaded and copied very substantial amounts of the total material on the computers and servers.

54                  No other witness was cross-examined. Counsel appreciated that the prospects of resolving such disagreements as appeared in the evidence were not good and that the differences in accounts were probably of little importance.

Findings

55                  I am satisfied that the ATO officers were given guidelines as to the kinds of documents which were of interest to Mr O’Gorman and that access to them was required for the purposes of the Act. I am also satisfied that the selection of those guidelines and their application reflected the difficulties inevitably experienced in screening a large volume of material in as short a time as is reasonably practicable. The time constraint was self-imposed, but no doubt reflected a desire to minimize the extent of any disruption to the functioning of the offices. The search was undoubtedly carried out on a broad basis. I am satisfied that Mr O’Gorman and the other ATO officers were aware of the need to offer opportunities for claims to legal professional privilege to be made and determined. There was no intention to avoid such claims.

56                  Much of the interchange between the ATO officers and JMA Accounting personnel, including the lawyers, especially Mr Petroulias, was little more than sparring. Mr Petroulias was, fairly clumsily, trying to trick Mr O’Gorman into statements which might have founded a challenge to the validity of the operation. Mr O’Gorman and the other ATO officers were, in my view, asserting wider powers than they actually had. At least some of their actions may have been attempted bluff. It seems that events proceeded more smoothly at Sunnybank than at the city office.

57                  I do not think that anything hangs upon the various statements made by Mr O’Gorman to the effect that the process of downloading and copying was not part of the process of having access. He was trying to explain the difficulties which he faced in both giving effect to his duties and respecting the right to legal professional privilege. He was not seeking to examine documents over which there were valid claims to privilege. He was rather trying to ensure that any such claim was not used to prevent his having access to unprivileged documents.

58                  Any party requiring further findings of fact may apply.

Section 263

59                  The ATO officers claimed to be acting pursuant to s 263 of the Act and Mr Fitzpatrick’s letter. As I understand it, there is now no challenge to the right of the ATO to relevant access. The applicants rather complain of the way in which such right of access was planned and exercised. This position is reflected in the applicants’ abandonment of grounds 1 and 8 in the application.

60                  Much of the applicants’ case assumes that ATO may only have access to documents which are directly relevant to taxation matters. Subsection 263(1) authorizes access to buildings, places, books, documents and other papers ‘for any of the purposes of this Act’. The subsection does not require that any building, place, book, document or other paper have a particular distinguishing feature such as relevance to taxation matters. It rather limits the purpose for which such access may be exercised. It is quite possible that a document may, per se, have no relationship to taxation, but still be a document to which ATO may have access for the prescribed purpose. It is common ground that the section does not abrogate legal professional privilege. See for example Commissioner of Taxation v Citibank Limited (1989) 20 FCR 403.

61                  Subsection 263(1) is not equivalent to a search warrant provision. It does not, in terms, authorize the seizure of documents. Rather, it provides for ‘full and free access’ to documents. To my mind that does not create a right of exclusive possession, either of premises or documents, enforceable against owners, occupiers or bailees. Although the occupier of a building or place must afford reasonable assistance, that does not necessarily involve total surrender of control over, or access to premises or documents. The subsection does not authorize the Commissioner or his officers to remove documents from the premises; nor does it authorize the exclusion of any other person from the premises or from having access to documents.

62                  Section 263 does not authorize steps designed merely to preserve documents or their “integrity”, in anticipation of any untoward dealings with them, before or whilst ATO exercises its right of access. It would be contrary to subs 263(3) for any person so to deal with relevant documents. If such conduct were threatened, action could be taken to prevent it. This may mean that if ATO wishes to avoid any interference with documents, its officers should remain at the premises until access is completed. Such a course would be very inconvenient for all involved.

63                  This approach to s 263 leads to the conclusion that some of the actions taken on 5 and 6 May were beyond the power conferred by that section. In particular, I cannot see that the ATO officers were authorized to prevent employees from accessing documents, provided that such access did not inhibit its own access. I also see no authority for excluding persons from the premises overnight.

64                  I do not accept that s 263 authorized only the downloading and/or copying of documents which appeared to relate to taxation matters. In my view, the ATO officers were entitled to adopt a process which identified documents of possible interest for the purposes of the Act and to examine and/or copy them. Inevitably, some documents would prove to be irrelevant. Equally inevitably, some relevant documents would be overlooked. Given the suspicion upon which Mr O’Gorman was acting, it would have been appropriate to examine virtually all of the documents found in the offices, at least in a cursory way, and subject to any claim to legal professional privilege.

Legal professional privilege

65                  Subsection 263(1) does not abrogate legal professional privilege. Mr O’Gorman realized that claims to such privilege might be made and that he was not entitled to have access to documents to which privilege attached. He was only entitled to copy documents to which he was entitled to have access. Thus he had no right to copy documents which were subject to legal professional privilege. Yet the ATO officers copied documents, accepting that some of them might have been subject to such privilege.

66                  It was open to Mr O’Gorman to propose an agreement with the applicants that they adopt the course which was, in fact, adopted. In Baker v Campbell (1983) 153 CLR 52 at 105, Brennan J identified the need for such a procedure if, contrary to his Honour’s view, legal professional privilege could be claimed in administrative proceedings such as the execution of a search warrant. In Commissioner of Australian Federal Police v Propend Finance Pty Ltd (1997) 188 CLR 501 at 506, Brennan CJ noted that such a procedure had been devised by the Law Council of Australia in conjunction with the Australian Federal Police. It related primarily, if not solely, to the execution of search warrants at solicitors’ offices. Nonetheless, it seems that the Commissioner has, appropriately, sought to adopt a similar practice in searching other premises. It may be that Mr O’Gorman intended to negotiate such an agreement with JMA Accounting staff, but the behaviour of the ATO officers seemed to assert authority to enforce such an arrangement rather than to invite agreement. This was particularly so at the city office. Much of the difficulty which has been experienced in this matter arose out of that attitude. I will return to this aspect at a later stage.

Cases

67                  A number of cases relevantly inform the approach to be taken to the problem of legal professional privilege. Others deal with the question of invalidity as a result of irregularities in the exercise of a statutory power. In Baker the High Court was concerned with a warrant issued pursuant to s 10 of the Crimes Act 1914 (Cth), which purported to authorize the search and seizure of documents held by a firm of solicitors. Certain documents were subject to legal professional privilege. The question was whether or not the warrant justified their seizure. The High Court had previously held in O’Reilly v State Bank of Victoria Commissioners (1983) 153 CLR 1 that the doctrine of legal professional privilege applied only in judicial and quasi-judicial proceedings and did not prevent a constable acting under the authority of a warrant from searching a solicitor’s office or seizing documents which would be privileged in legal proceedings. In Baker, Gibbs CJ and Mason and Brennan JJ would have followed O’Reilly, holding that legal professional privilege is, in effect, a rule related to judicial and quasi-judicial proceedings and that it has no place in administrative procedures, including the execution of search warrants. The majority took the contrary view. The relevance of the case for present purposes lies in observations made by Mason, Brennan and Dawson JJ. At 76 Mason J said:

‘Quite apart from the force of these considerations there is the problem which I mentioned in O’Reilly and Brennan J. referred to in Pyneboard Pty. Ltd. v. Trade Practices Commission, that of imposing upon unqualified persons the task of deciding difficult questions of legal professional privilege. Their decision of such a question would not be conclusive. A decision of a court (a) on a prosecution for contravention of the statutory obligation, or (b) in proceedings for a declaration as to the existence of the privilege, would be required in order to provide a conclusive answer.

In this respect it is scarcely to be supposed that Parliament, when it imposes the obligation to furnish information, intends that the course of an administrative inquiry or investigation should be delayed or interrupted by the necessity to obtain a final decision of a court on the question whether a claim for legal professional privilege can be sustained in relation to a particular answer or particular documents. This, of course, would be relevant to the existence of a statutory intention to abrogate the privilege, assuming it to be otherwise inherently available. Nonetheless, it is a material factor to be considered in deciding whether the privilege is capable of being claimed in administrative or investigatory procedures. The determination of a claim for privilege in curial proceedings stands in sharp contrast because it entails no similar delay or interruption.

68                  At 105 Brennan J said:

‘If the privileges which affect the obligation to testify or to produce documents in judicial proceedings are to be engrafted upon and to modify powers conferred on investigative agencies, some procedure for determining the validity of a claim of privilege has to be devised. The European Court of Justice prescribed such a procedure …, utilizing for the purpose the Commission’s power to impose fines. But it is quite beyond the power of an Australian court to prescribe such procedures. If the power of search and seizure conferred by a s. 10(b) warrant does not extend to privileged documents, there is no judicial procedure prescribed to resolve contested claims. Declaratory relief or prosecution seem to be the only avenues of judicial resolution.’

69                  Dawson J, who was a member of the majority, discounted these considerations at 131-132. Nonetheless, the present problem highlights the validity of the concerns expressed by Mason and Brennan JJ. Their Honours’ observations suggest that such problems arise from the difficulties inherent in applying the rules of legal professional privilege to administrative action. When this difficulty is recognized, one is inclined to take a rather more liberal view of steps taken to deal with it.

70                  In Citibank, a Full Court of this Court considered the operation of s 263. The search in question had been conducted at the Sydney office of Citibank, a large foreign bank. The ATO officers carried general authorizations which did not refer to the particular case. They were divided into six teams and assigned to different parts of the premises. Each team included one experienced member who was to advise upon any claim for legal professional privilege. However this depended upon there being such a claim, which claim could only be made if a member of Citibank’s staff was available to do so. Two staff members asked for suspension of the search whilst legal advice was obtained. Each request was denied. Copies of many documents were made and taken away. Citibank challenged the validity of the authorizations and of the decisions to issue them and to conduct the search. At first instance, Lockhart J declared that the authorizations were invalid and that the decisions to enter and copy the documents were improper exercises of the power conferred by s 263. The declarations as to the authorizations were set aside on appeal. However the Full Court upheld the declarations concerning the decisions to enter the premises and make copies of documents. At 414-7, Bowen CJ and Fisher J said:

‘The topic of legal professional privilege is a different matter. We agree with the conclusion of Lockhart J that the decision of Mr Booth to conduct the search in the manner in which it was conducted and the actual conduct of the search effectively denied to Citibank the right of asserting legal professional privilege. To be more specific, Citibank in our opinion was denied the opportunity to make adequate claims for privilege in relation to the documents of its clients which were being perused and copied.

…

Lockhart J held correctly in our opinion, that the doctrine of legal professional privilege applied to restrict the powers of the Commissioner under s 263. He went on to say that in his view Mr Booth, whose decision it was to make a search and who had the conduct thereof, paid only lip service to that doctrine. We think with respect, that that comment underestimates the attention which Mr Booth gave, particularly in providing that one member of each team, was given the task of advising on such matters. But in making that decision Mr Booth appears to have completely overlooked the necessity to ensure that in a search so extensive Citibank had the opportunity adequately to protect its clients’ documents and to make claims on their behalf. Mr Booth failed to give adequate or any consideration to this aspect and his manner of conducting the search denied Citibank the opportunity adequately to protect the interests of its clients. He concentrated his attention on the determination of the question whether a claim for privilege could properly be made, appointing to each team an officer whom he considered to be qualified to advise on this question. Attention was even given to the qualifications of certain of Citibank’s officers and in particular whether those who were legally qualified held practising certificates. As neither Mr Chippendale nor his predecessor Mr Crameri held these certificates, a Tax Department officer Mr Dinsdale, was of opinion that he would decide whether documents were subject to legal professional privilege.

…

It was in this regard in our opinion that Mr Booth fell into error. It was not sufficient for him to give consideration only to the question whether a claim made for privilege was justified. He was obliged to ensure that Citibank and it particular its staff had in the circumstances an adequate opportunity to make claims of privilege.’

71                  At 438, French J observed:

‘The need for the Commissioner and his officers to take account of legal professional privilege as a limiting factor, however, reflects a broader principle. The right of access may only be exercised for the purposes of the Act. On premises such as those occupied by the Bank, there will be many documents the subject of a contractual duty of confidence between banker and customer, the examination and copying of which would serve no purpose contemplated by the legislation. In my opinion, the Commissioner and his officers in planning an exercise such as that presently in issue, must take into account those limits on their rights to ensure that so far as is practicable they are not exceeded. And to the extent that such planning would seek to deny to the subject of the access a reasonable and legitimate opportunity to approach the Court for relief, it is calculated not to respect those limits and the access is an improper exercise of power. The Commissioner and his officers are armed with powerful investigative instruments in ss 263 and 264. The very width of those powers demands a watchful concern that their limits not be exceeded.

For present purposes, in my opinion, it is sufficient to say that having regard to the appellant’s failure to make proper provision for the assertion and testing of claims of legal professional privilege, the way in which the right of access was exercised was beyond power.’

72                  Thus it was held that both the decision to enter the premises and the decision to copy documents were improper exercises of the power under s 263 because no proper provision was made for the assertion and testing of claims of legal professional privilege. As a result, the decisions were void.

73                  In Propend, police, in the course of executing a warrant to search a solicitor’s office, followed the procedure which had been agreed between the Law Council of Australia and the Commissioner of the Australian Federal Police to which I have referred above. The solicitor and some of his clients sought declarations that the search and decisions leading to it were void, largely upon the basis of a claim to legal professional privilege over some or all of the seized documents. However it seems that the matter proceeded as a claim for return of those documents involving resolution of the disputed claim to privilege.

74                  At first instance, Davies J declared that certain documents listed in the order ‘are not subject to legal professional privilege’ and ‘that copies of documents made for the purpose of obtaining legal advice, the originals of which are not subject to legal professional privilege are not privileged.’ These declarations were set aside on appeal by the Full Court. In the High Court the Commissioner of Federal Police appealed from that decision. At 513-4, Brennan CJ said, concerning principles governing legal professional privilege:

‘The application of these principles to the instant case presents some difficulty. The difficulty arises because the claim for declaratory relief seems to have been regarded as an incident of, or a step towards, the granting of relief by way of judicial review of the application for search warrants, the issuing of the search warrant and the conduct of the police in executing the search warrants. In truth, the determination of the claim for declaratory relief was not, and could not have been, determinative of the claims for judicial review. The fact that there were privileged documents (or documents that were prima facie privileged) in the premises in respect of which search warrants were sought says nothing as to the validity of the applications for warrants to search those premises, assuming that such applications were “decisions” or “conduct” amenable to review under the Administrative Decisions (Judicial Review) Act 1977 (Cth) or were reviewable pursuant to s 39B of the Judiciary Act. There was nothing to show that the applications were made in bad faith to obtain warrants authorising a search for and seizure of privileged documents. Nor was the decision to issue the warrants invalid. The issuing justice restricted the execution of the warrants so as to ensure observance of the guidelines for dealing with documents in the event that a claim of privilege was made. The conduct of the police in executing the warrants complied with the guidelines. In accordance with those guidelines, the documents for which privilege was claimed were seized under the warrant but were sealed up and delivered to a third party. The guidelines provide, in effect, that when the documents are sealed up and delivered to a third party, the execution of the warrant be suspended pending the decision in proceedings to establish the privilege. If no such proceedings are taken or such proceedings fail, the documents are released into the possession of a police officer to be dealt with under the warrant. In this way, an accommodation is reached between the legislative intention expressed by s 10(1) and the decision in Baker v Campbell.

When a claim of privilege attaching to a document seized under a warrant comes to be determined judicially, the court must ascertain for itself whether the document was brought into existence solely for a privileged purpose and, if it be found or assumed that the document is a copy of an unprivileged original but was brought into existence solely for a privileged purpose, whether the privilege has been lost. In determining the claim of privilege, the court is not reviewing judicially an executive action but is determining a distinct controversy between the person who seeks to inspect the seized document and the person who seeks to maintain its immunity from inspection on the ground of legal professional privilege. To determine that controversy, the court must act upon admissible evidence … .’

75                  At 567-8 Gummow J said:

‘Baker v Campbell did not decide that the warrant in question was, to any degree, invalid. Rather, the Court answered in the negative the question whether the documents the subject of the privilege might properly be made the subject of a search warrant issued under s 10. It follows that the objective of the respondents in initiating the present litigation, namely to protect privileged communications, was not to be attained by seeking judicial review of the decisions leading up to the issue of the warrants. The power conferred upon the authorities designated in s 10 to grant search warrants is to be so construed, in accordance with s 46(1)(b) of the Acts Interpretation Act 1901 (Cth), that any warrant granted thereunder is to be read so as not to exceed that power. The power did not extend to restrict the application of the doctrine of legal professional privilege.

Of course, in the execution of warrants, issues arise as to the application of the privilege and thus the operation of the warrant. The Guidelines were designed to provide a means of preserving the status quo pending curial resolution of a dispute as to the existence of the privilege. In the present case, the means for curial resolution were provided by the application for injunctive and ancillary relief, founded upon s 39B of the Judiciary Act. It was for the respondents, as the party seeking injunctive relief, to establish that the privilege applied in respect of those documents otherwise falling within the terms of the warrant.’

76                  Both passages suggest that claims to legal professional privilege which arise in the course of executing a search warrant will not affect the validity of the decision to issue the warrant or the validity of the search as a whole, at least in the absence of bad faith. I see no reason to apply any other approach to conduct pursuant to s 263. It may be that the views of Brennan CJ and Gummow J are inconsistent with the approach taken in Citibank.

77                  The correctness of the decision in Citibank was questioned by the Full Court of South Australia in Question of Law Reserved (No 1 of 1998) (1998) 70 SASR 281. The Court was there concerned with the exclusion of evidence on public policy grounds and whether seizure of documents was rendered unlawful where the relevant police officer had not considered the possibility that legal professional privilege might exist. It was submitted that failure to allow an adequate opportunity to claim legal professional privilege in respect of a document meant that seizure was unlawful, whether or not the document seized was properly the subject of legal professional privilege. Those propounding this argument relied upon the decision in Citibank. Doyle CJ said, at 293, that the decision of Lockhart J and that of the majority of the Full Court appeared to be based upon the proposition that the power conferred by s 263 must be exercised reasonably and that only a search in the course of which adequate opportunity was given to make a claim to legal professional privilege met that description. Doyle CJ considered that the following passage, which appears at 437 of Citibank, disclosed the reasoning of French J:

‘The rights or powers conferred by s 263 are therefore limited to the extent that they will not authorise access to or copying of books, documents or papers which attract the common law privilege. Where no practical or realistic opportunity is provided for the assertion and testing of claims of legal professional privilege, then the purported exercise of the right of access travels beyond that limit and is beyond power.’

78                  As Doyle CJ understood the decision in Citibank, it rested upon the proposition that failure to allow an adequate opportunity to claim privilege will invalidate the exercise of the power because its exercise will not have been reasonable. At 294, Doyle CJ observed:

‘I accept, of course, that a statutory power must be exercised for the purpose for which the power is conferred, and that an exercise of an extraneous purpose will take the exercise beyond power. I have already indicated that. I also accept, as is well established by the cases, that an exercise of a power of search will fail if a statutory condition, such as reasonable cause to suspect some matter, is absent. I also accept that the exercise of a statutory power can be reviewed on the ground of its unreasonableness, in certain circumstances: see M Aronson and B Dyer, Judicial Review of Administrative Action (1996), p 361ff. In that context, “unreasonableness” is encountered in two different senses. The first sense embraces matters such as having regard to extraneous considerations, or acting upon an improper purpose. The second sense refers to decisions that are, to put it loosely, decisions that no reasonable person could have reached. But, as far as I am aware, whatever scope there might be for judicial review on the grounds of unreasonableness in that latter sense, the courts of Australia have not yet taken the view that a statutory power is invalid unless exercised in a manner that is objectively reasonable, having regard to the limits upon the power being exercised.

To require, as a condition of validity, that a statutory power be exercised in a manner that the court regards as reasonable, having regard to the scope of the power, is a far reaching proposition. It may be that the point has not attracted much attention to date because powers of search and seizure are usually expressed in terms of the existence of a reasonable cause on the part of the searching officer to suspect some state of affairs. The problem arises because the exclusion of privileged documents from the power to search and seize is absolute. It is unconditional.’

79                  At 296-7, his Honour continued:

‘I agree that the power to enter is to be read as a power to enter using such force as could reasonably be considered to be necessary. The same applies to the power to search and to seize. I agree also that the extent of the search and seizure that can be effected is subject to a limitation. The search that is authorised is a search to the extent that could reasonably be regarded as necessary to locate the items searched for. The power of seizure is similarly limited. It follows that I agree in substance with what was said by the Full Court in Crowley v Murphy.

But, in my respectful opinion, it does not follow that every aspect of the entry, search and seizure is subject to a requirement, limiting the validity of the search, that the power be exercised reasonably. The principle of statutory interpretation, to which Franki J referred, limits the scope of the relevant intrusion upon a common law right. The intrusion is entry, search and seizure, using force if necessary. Other aspects of the exercise of the power, such as the time chosen for the exercise of the power, the demeanour of the searchers, and so on, are not for the courts to control.

In other words, the relevant principle is not, in my respectful opinion, that the powers conferred by a general search warrant must be exercised reasonably because they interfere with common law rights. The principle is that the force used to effect the authorised entry and search and seizure must be reasonable, as must the extent of the search and of the seizure.

It follows, in my respectful opinion, that there is no principle that powers under a general search warrant are exercised unlawfully and ineffectively merely because they are not exercised reasonably. It follows that such a principle cannot be used to support a conclusion that failure to allow a reasonable opportunity for legal professional privilege to be claimed means that the power is exercised invalidly. To that extent I respectfully disagree with what was said in Citibank.

…

An approach that conditions the validity of a search upon the reasonableness of the manner in which the power is exercised will engage the courts in lengthy retrospective scrutiny of the conduct of searches. If validity depends upon the reasonableness of the manner in which the power is exercised, it is not easy to see why matters such as the time of day at which entry is made, the number of persons used to effect entry, the manner in which the search is conducted and so on would not become relevant. It is necessary to bear in mind that search warrants are executed under a wide variety of circumstances. The exercise of powers of search and seizure would, or could, become a legal minefield. As it is, the entitlement to challenge the validity of a search warrant by a collateral attack in the course of a criminal trial can disrupt the orderly management of a trial: see Ousley v The Queen (1997) 71 ALJR 1548 at 1566, per McHugh J. If validity were to depend upon a judicial assessment of the reasonableness of the manner of exercise of the powers, the scope for disruption of trials would be all the greater.

As well, there is the difficulty, illustrated by the cases referred to, of deciding what is a reasonable manner of exercising powers of entry, search and seizure.

The courts must be, and are, careful to protect the rights of individuals. But they must be careful not to assume powers that they are ill-equipped to exercise. They must also find a firm basis for a limit placed upon powers apparently conferred by Parliament. Concern over the scope of a power, and recognition of the desirability of a limit, are not, of themselves, a principled basis for a limitation.’

80                  Finally, it is appropriate to refer to the decision of the majority of the High Court in Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355 at [91]-[93] where McHugh, Gummow, Kirby and Hayne JJ said:

‘An act done in breach of a condition regulating the exercise of a statutory power is not necessarily invalid and of no effect. Whether it is depends upon whether there can be discerned a legislative purpose to invalidate any act that fails to comply with the condition. The existence of the purpose is ascertained by reference to the language of the statute, its subject matter and objects, and the consequences for the parties of holding void every act done in breach of the condition. …

Traditionally, the courts have distinguished between acts done in breach of an essential preliminary to the exercise of a statutory power or authority and acts done in breach of a procedural condition for the exercise of a statutory power or authority. Cases falling within the first category are regarded as going to the jurisdiction of the person or body exercising the power or authority. Compliance with the condition is regarded as mandatory, and failure to comply with the condition will result in the invalidity of an act done in breach of the condition. Cases falling within the second category are traditionally classified as directory rather than mandatory. …

… [A] court, determining the validity of an act done in breach of a statutory provision, may easily focus on the wrong factors if it asks itself whether compliance with the provision is mandatory or directory and, if directory, whether there has been substantial compliance with the provision. A better test for determining the issue of validity is to ask whether it was a purpose of the legislation that an act done in breach of the provision should be invalid. This has been the preferred approach of courts in this country in recent years, particularly in New South Wales. In determining the question of purpose, regard must be had to “the language of the relevant provision and the scope and object of the whole statute”.’

81                  In my view, it would be inconsistent with the decision in Project Blue Sky to treat inadequate attention to the question of legal professional privilege as invalidating the exercise of the power conferred by s 263, at least in the absence ofbad faith. The object of s 263 is to facilitate the Commissioner’s performance of his duty under the Act. For the purposes of the Act he and his officers are entitled to access to documents and to copy them, subject only to any valid claim to legal professional privilege. As Mason and Brennan JJ foresaw in Baker, there are real problems in resolving such a claim in the course of an access visit or in executing a search warrant. The power under s 263 cannot be exercised without regard to these problems, but valid exercise of that power is not dependent upon the design of a reasonable method of dealing with them. It may be that Citibank is no longer good law. For reasons which I will give at a later stage, it is not necessary to decide that question.

Grounds for review

82                  The precise nature of the applicants’ complaints and the relief sought are far from clear. Referring to the application, grounds 1 and 8 have been abandoned. In grounds 2 (Sunnybank) and 4 (city office) it is asserted that the conduct in copying the entirety of the computer records without regard to “nature and relevance” was not authorized by s 263. In grounds 3 (Sunnybank) and 5 (city office) it is asserted that the decisions to seek access in that way were not authorized by the section. In grounds 6 (Sunnybank) and 7 (city office) it is asserted that there was no power to exclude the applicants, by their servants or agents, from the relevant premises.

83                  The relief sought is:

‘1. Orders quashing the respondents’ decision to seek access to the applicants’ premises and documents, including computers.

2. A declaration that the conduct of the respondents in,

(a) excluding the applicants from their premises; and

(b) copying the entire contents of the applicants’ computer hard drives;

was unlawful.

3. An injunction restraining the respondents, or any of them, from using information gained by virtue of access to the premises and documents, including computers … .

4. An injunction requiring the respondents, and each of them, to deliver up to the applicants’ solicitors all such documents and records (including … copies …) gained by virtue of access to the premises and documents, including computers, … .

5. Costs.’

84                  The applicants’ case was initially presented upon the basis that each decision to examine and copy a document was a separate decision which was amenable to review. In the course of argument I pointed out to counsel that Citibank (upon which the applicants seem to rely) had not been conducted or decided upon that basis. The conduct of the relevant officers was rather treated compendiously as being entering upon, and remaining upon the premises and deciding to make extracts from, or copies of documents. The applicants then elected to adopt both approaches. They submit that:

·                 the allegedly undiscerning nature of the downloading and copying; and

·                 the alleged failure to make appropriate arrangements concerning legal professional privilege

resulted in the whole of the access visit being beyond power.

85                  As to the first complaint, I consider that it is misconceived. As I have observed, subs 263(1) does not limit the Commissioner’s access to documents which directly concern a tax-related matter. He is entitled to access to all buildings, places, books, documents and other papers, provided that he has such access for the purposes of the Act. Mr O’Gorman’s concerns, which concerns motivated the access visit, were that the applicants and others were involved in a fraudulent scheme designed to assist clients in reducing tax liability. He wished to inspect documents at the premises in order to determine whether or not there had been any such conduct and if so, its extent. He sought to identify broad categories of possibly relevant documents by reference to parties’ names, the nature of transactions and certain types of document. No doubt he cast his net quite broadly but I see no reason to believe that in so doing, he went beyond the power to have access for the purposes of the Act. In argument much was sought to be made of the fact that a birthday list was taken. I cannot see that any adverse inference can be drawn from that fact concerning the search as a whole.

86                  As to legal professional privilege, three questions arise:

·                 the extent to which the question was addressed in preparing for the visit;

·                 whether the search was conducted appropriately; and

·                 the consequences of any inappropriateness in either respect.

87                  I am not sure whether Mr O’Gorman and those acting under his supervision were fully aware of the limitations upon their powers in this regard. It seems, however, that they were aware that they were not entitled to take documents to which legal professional privilege attached, that they should afford an opportunity to the applicants and their employees to make any appropriate claims and that the validity of such claims had to be resolved before the ATO could examine the documents further. The approach which they adopted was a perfectly adequate proposal for achieving that purpose. However I cannot see that the ATO officers were entitled to dictate its adoption. They ought to have made it clear to the applicants and/or their staff that the proposal was simply that, a proposal to which they could agree or disagree. If they disagreed, it would have been necessary for the ATO officers to remain in the premises until all claims to privilege had been resolved. In the case of the city office, Mr Tindale apparently agreed to the proposal. The applicants conducted the case upon that basis. See par 24 of the applicants’ outline of argument. In those circumstances, no complaint can be made concerning the city office. There is no evidence of actual agreement at Sunnybank, although there was also little opposition to the search. Nonetheless, in the absence of agreement, it was beyond the power of the ATO officers to copy documents which were subject to privilege.

88                  The question is whether any privileged documents were copied. The applicants have had the opportunity to identify any documents over which they wish to claim legal professional privilege. Ms Butterfield claims to have identified a small number of such documents. That claim has not been contested. Although it would be unfair to assume that there are no other documents over which a claim might be made, as Gummow J observed in Propend, the onus is on those seeking relief to prove their case. Nonetheless a prima facie case of excess of power is established with respect to those identified documents, and it has not been disputed. It does not follow that all aspects of the search were invalid. In Citibank, the absence of a proper plan preventedCitibank from claiming privilege. That problem does not arise here. There were adequate arrangements for allowing claims to legal professional privilege and for resolving such claims. As I have said, the decision in Project Blue Sky suggests to me that s 263 should not be construed so that the validity of action taken thereunder depends upon there having been no irregularity in the way in which claims to privilege were accommodated. I cannot see that any lasting harm has been done by the irregularity in the way in which the search was carried out. The applicants may still identify the documents over which they claim privilege and make appropriate claims, or at least the contrary has not been suggested. I conclude that any irregularity as to legal professional privilege did not invalidate the exercise of the power. I also do not consider that the other identified excesses of power had that effect.

89                  As to the relief claimed in par 2(a), I have already observed that I see no authority for the exclusion of the applicants or their employees from access to the premises or to documents while the Commissioner is exercising his right of access. Subject to any further argument as to relief, I would be prepared to make declarations accordingly.

90                  As to the order claimed in par 2(b), I have already concluded that it is misconceived. The relief claimed in pars 3 and 4 is largely irrelevant in light of my conclusions.

orders

91                  I will hear submissions as to appropriate forms of order and as to costs.

Associate:

Dated: 9 July 2004