FEDERAL COURT OF AUSTRALIA

Benchmark Edge Pty Ltd v Deputy Commissioner of Taxation [2011] FCA 636

THE COURT ORDERS THAT:

1.    The Respondent make discovery by list of documents of all documents in the possession, custody or control of the Respondent answering the following descriptions:

(a)    All documents in respect of, or related to the risk to the revenue occasioned by the obligations owed by the First Applicant to the Second Applicant in the power, possession or control of the Commissioner at the time of the making of each decision (paragraph 1(c) of the Applicants’ notice of motion).

(b)    All documents being part of the Debt Recovery File maintained by the Australian Taxation Office (including narratives and account postings) in respect to the First Applicant between the date of any assessments which formed the basis of the tax liabilities which were the subject of the various section 260-5 Notices, and the date of the making of the various decisions under review (paragraph 1(e) of the Applicants’ notice of motion).

(c)    All documents in respect of, or relating to, but not limited to records of meeting, proposals, summaries, position papers, however described submitted to the Respondent for the purposes of the Respondent making the decision to issue the garnishees, the subject of the proceedings (paragraph 1(f) and paragraph 1(m) of the Applicants’ notice of motion).

(d)    All documents in respect of, or related to the decision by the Respondent to issue the garnishees including all telephone records, file notes or other memorandum of discussions between the Respondent and ATO officers in respect to the decision to issue the garnishees (paragraph 1(g) and paragraph 1(n) of the Applicants’ notice of motion).

(e)    All documents in respect of, or related to the risk to the revenue occasioned by the obligations owed by the Third Applicant to the Second Applicant in the power, possession or control of the Commissioner at the time of the making of each decision (paragraph 1(j) of the Applicants’ notice of motion).

(f)    All documents being part of the Debt Recovery File maintained by the Australian Taxation Office (including narratives and account postings) in respect to the Third Applicant between the date of any assessments which formed the basis of the tax liabilities which were the subject of the various section 260-5 Notices, and the date of the making of the various decisions under review (paragraph 1(l) of the Applicants’ notice of motion).

(g)    All documents in respect of, or relating to dealings between the First Applicant and the Second Applicant (paragraph 1(o) of the Applicants’ notice of motion).

(h)    All documents in respect of, or related to dealings between the Third Applicant and the Second Applicant (paragraph 1(p) of the Applicants’ notice of motion).

(i)    All documents in respect of, or relating to dealings between the Respondent and the Second Applicant (paragraph 1(q) of the Applicants’ notice of motion).

2.    The Applicants make discovery, by list of documents, of all documents in the possession, custody or control of the Applicants answering the following descriptions:

(a)    All documents (including file notes, letters, emails and other correspondence) evidencing the matters alleged in subparagraphs 5(a) to (h) of the Affidavit of Ms Emily Jane Anderson, filed 26 August 2010 (paragraph 1(a) of the Respondent’s notice of motion).

(b)    All documents (including notices, file notes, letters, emails and other correspondence) if any, evidencing that the Second Applicant, Shakespeare Haney Securities Limited, was aware, in the period between 18 May 2009 and 27 July 2010, of any, some, or all of the events listed in subparagraphs 5(a) to (h) of the Affidavit of Ms Emily Jane Anderson, filed on 26 August 2010 (paragraph 1(c) of the Respondent’s notice of motion).

3.    Lists of documents be filed and served by both parties, and inspection of the documents by both parties be completed, by no later than 4.00 pm on 16 June 2011.

4.    Costs be reserved.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. The text of entered orders can be located using Federal Law Search on the Court’s website.

REASONS FOR JUDGMENT

1    Before me are two notices of motion, both of which were filed in the Federal Court Registry on 10 May 2011. In both notices of motion the moving party seeks orders for discovery. One notice of motion was filed by the applicants to the substantive proceedings, the other notice of motion by the respondent. It is convenient to describe the notices of motion terms of the moving party, and to deal with them separately.

Background

2    The substantive proceeding in this matter is listed for hearing in four weeks time. The proceeding concerns an amended application filed by Benchmark Edge Pty Ltd (the first applicant), Shakespeare Haney Securities Ltd (the second applicant) and Botanical Marketing Pty Ltd (the third applicant) for an order of review of a decision of the respondent, Mr Duffus, a Deputy Commissioner of Taxation. Although not specifically identified in the amended application, it does not appear to be in contention that the amended application is made pursuant to s 5(1) of the Administrative Decisions (Judicial Review) Act 1977 (Cth) (the ADJR Act). As is clear from the material before the Court, reasons for the decision were sought from the respondent pursuant to s 13 of the ADJR Act, and the grounds of review in the amended application directly reflect the contents of s 5(1)(a), (e), (f) and (j) of the ADJR Act.

3    The relevant decision was that notices pursuant to s 260-5 of Sch 1 of the Taxation Administration Act 1953 (Cth) (the TA Act) be issued and served upon third parties identified in the amended application, in respect of monies owed by those third parties to the first and third applicants. Notices served pursuant to s 260-5 are in the nature of garnishee notices, empowering the Commissioner of Taxation to require a third party to pay amount owing to a taxpayer directly to the Commissioner rather than paying it to or continuing to hold it for the taxpayer.

4    The respondent’s Statement of Reasons relating to the decision is annexed to one of two affidavits of Mr David Williams, a director of the second applicant, sworn 19 April 2011. On 25 May 2011 the respondent filed an amended Statement of Issues summarising the respondent’s case.

5    In summary, issues in dispute between the applicants and the respondent concern whether the applicants were accorded natural justice in the respondent’s decision-making process, whether relevant considerations were taken into consideration by the respondent in that process, and whether the notices were otherwise issued in error of law. The applicants also claim that the second applicant necessarily had priority ahead of any right of the respondent to monies otherwise owed by the first and third applicants, and to that extent priority in respect of the relevant third party debts is a live issue between the parties.

6    The first and third applicants are in the property development business, including development and sale of home units. The third party debtors on whom notices have been served include (and indeed, may all be) purchasers of residential lots from the first and third applicants. It appears that relevant notices were served upon third party debtors of the first applicant between July and December 2010, and that relevant notices were served upon third party debtors of the third applicant in November and December 2010.

7    The relationship (if any) between the first and third applicants is not clear on the information before the Court. However the second applicant claims to be a secured creditor of both the first and third applicants at all relevant times, holding registered mortgages over land and fixed and floating charges over assets of the first and third applicants.

Grounds of review

8    The grounds of review claimed by the first applicant are virtually identical to those of the third applicant. In summary those grounds are:

1.    That a breach of the rules of natural justice occurred in connection with the making of decision or engaging in conduct, as the case may be, in that the respondent failed to give the first and third applicants the opportunity to be heard.

2.    That a breach of the rules of natural justice occurred in connection with the making of the decision or engaging in the conduct, as the case may be, in that the respondent failed to give the second applicant the opportunity to be heard.

3.    The making of the decision or engaging in conduct, as the case may be, was an improper exercise of the power conferred by the enactment in pursuance of which it was purported to be made in that the respondent failed to take relevant considerations into account in the exercise of the power by:

(a)    Not considering the rights of the second applicant as a registered mortgagee and registered charge.

(b)    Exercised a discretionary power in accordance with a rule of policy without regard to the merits of the particular case in that the respondent exercised the power in accordance with the ATO Receivables policy without a proper examination of the rights of the second applicant.

4.    The respondent made an error of law in that the s 260-5 notice was issued and served at a time when no money was due by the third party to the first or third applicants.

5.    The decision is otherwise contrary to law in that:

(a)    At the time of issue of the s 260-5 notice, both the first and third applicants were already in default for the purposes of:

(i)    the registered mortgage held by the second applicant;

(ii)    the registered charge granted in favour of the second applicant.

Relevant principles

9    It is not in dispute that the decision the subject of the amended application is a decision of an administrative character as contemplated by s 3 of the ADJR Act.

10    That the ordinary principles of discovery apply to Federal Court proceedings brought pursuant to the ADJR Act was explained by the Full Court in Australian Securities Commission v Somerville (1994) 51 FCR 38 at 45 and 48. The position was reiterated by the Full Court in Minister for Immigration & Multicultural & Indigenous Affairs v Wong [2002] FCAFC 327 at [23] and again in Jilani v Wilhelm (2005) 148 FCR 255. In Jilani v Wilhelm at [108] the Full Court summarised the principles upon which discovery is ordered in judicial review applications as follows:

    the Court has a discretionary power to order discovery in proceedings for the review of an administrative decision;

    the proper exercise of the power depends upon the nature of the case and the stage of the proceedings at which discovery is sought;

    if a proceeding or claims in it are essentially speculative in nature the Court will not order discovery in order to assist the applicant in a fishing exercise;

    the evidence or material which will be required to establish that the proceeding or particular claims in it are not essentially speculative will vary with the nature and circumstances of the particular case;

    if there is not the slightest evidence or there is no other material to support the bare allegations made in the proceeding, then as a general rule, an order for discovery ought not to be made.

11    The accuracy of these principles in respect of the matters before me is not in dispute.

12    In neither notice of motion before me does the moving party identify the relevant Rule pursuant to which the notice is brought, although in written submissions the respondent contends that the motions seek an order of the Court under O 15 r 5 of the Federal Court Rules. This rule is entitled “Order for General Discovery”, although its contents immediately direct the reader to O 15 r 2 in the following terms:

5. The Court may, at any stage of the proceeding, order any party to give discovery in accordance with rule 2.

13    That applications for general discovery will, almost invariably, be met by an order pursuant to O 15 r 2 is consistent with Federal Court Practice Note CM 5 “Discovery” which provides that, to prevent orders for discovery requiring production of more documents than are necessary for the fair conduct of the case, orders for discovery will ordinarily be limited to the documents required to be disclosed by O 15 r 2(3). As Beaumont J explained in Reading Entertainment Australia Pty Ltd v Birch Carroll & Coyle Ltd [2002] FCAFC 109, O 15 must be read together with the applicable practice note.

14    Order 15 rule 2 provides:

2 (1) A party required to give discovery must do so within the time specified in the notice of discovery (not being less than 14 days after service of the notice of discovery on the party), or within such time as the Court or a Judge directs.

(2) Unless the Court or a Judge orders otherwise, a party must give discovery by servicing:

(a) a list of documents required to be disclosed; and

(b) an affidavit verifying the list.

(3) Without limiting rule 3 or 7, the documents required to be disclosed are any of the following documents of which the party giving discovery is, after a reasonable search, aware at the time discovery is given:

(a) documents on which the party relies; and

(b) documents that adversely affect the party’s own case; and

(c) documents that adversely affect another party’s case; and

(d) documents that support another party’s case.

(4) However a document is not required to be disclosed if the party giving discovery reasonably believes that the document is already in the possession, custody or control of the party to whom discovery is given.

(5) For subrule (3), in making a reasonable search, a party may take into account:

(a) the nature and complexity of the proceedings; and

(b) the number of documents involved; and

(c) the ease and cost of retrieving a document; and

(d) the significance of any document likely to be found; and

(e) any other relevant matter.

(6) If the party does not search for a category or class of document, the party must include in the list of documents a statement of the category or class of document not searched for and the reasons why.

15    Both notices of motion seek orders that lists of documents be filed and served (applicant’s notice of motion para 2, respondent’s notice of motion para 1 and para 2). To that extent, and taking into account the terms of the Practice Note, it appears any discovery ordered in these circumstances was contemplated by the parties to be in terms of O 15 r 2 of the Federal Court Rules.

16    In my view, any discovery obligations of either party arising from the notices of motion before the Court would not extend beyond the four classes of documents listed in O 15 r 2(3).

The applicant’s notice of motion

17    The respondent disputes the relevance of all documents sought by the applicant. The period of time in respect of which the documents are sought was also an issue of contention between the parties, however at the hearing before me last Monday the parties reached agreement as to appropriate qualifying time periods, subject to my findings as to relevance.

18    The applicant seeks discovery of a relatively long list of documents. There is, however, considerable duplication in respect of the list because the applicant seeks discovery of similar documents from the respondent in respect of both the first and third applicants. The documents sought are as follows:

    all documents in respect of, or related to the financial position of the first and third applicants (para 1(a) and para (h));

    all documents in respect of, or related to the extent of other debts owed by the first and third applicants (para 1(b) and para (i));

    all documents in respect of, or related to the risk to the revenue occasioned by the obligations owed by the first and third applicants to the second applicant (para 1(c) and para (j));

    all documents in respect of, or related to the circumstances of the first and third applicants in respect to taxation debts (para 1(d) and para (k));

    all documents being part of the Debt Recovery File maintained by the Australian Taxation Office (including narratives and account postings) in respect to the first and third applicants (para 1(e) and para (l));

    all documents in respect of, or relating to, but not limited to records of meeting, proposals, summaries, position papers, however described submitted to the respondent for the purposes of the respondent making the decision to issue the garnishees, the subject of the proceedings (para 1(f) and para (m));

    all documents in respect of, or related to the decision by the respondent to issue the garnishees including all telephone records, file notes or other memorandum of discussions between the respondent and ATO officers in respect to the decision to issue the garnishees (para 1(g) and para (n));

    all documents in respect of, or relating to dealings between the first applicant and the second applicant (para 1(o));

    all documents in respect of, or relating to dealings between the third applicant and the second applicant (para 1(p));

    all documents in respect of, or relating to dealings between the respondent and the second applicant (para 1(q));

    the authorisations of the decision-maker (para 1(r)).

19    In summary, the applicant submits that:

    Documents described in paras 1(a) to 1(d), 1(h) to 1(k) and 1(o) to 1(p) focus on discovery of documents which the Australian Taxation Office (ATO) had which show the financial position of each company, both as a whole and specifically in respect of the debts owed by each company to the second applicant.

    Documents described in paras 1(e), (f), (g), (l), (m), (n) and (q) are relevant to the information held by the ATO which will speak to their knowledge of the second applicant’s position and the relevancy to the decision-making process itself. The categories are satisfactorily described and require no further particularisation.

    Documents described in para 1(r) relate to the authorities of the decision-maker. In particular, while Mr Duffus is identified as delegate for the Commissioner exercising the power to give the relevant s 260-5 notices, the Statement of Reasons identify Mr Ross Burns as delegate of Mr Steve Vesperman (who is in turn a delegate of the Commissioner) as having approved the issuing of the notices. Accordingly there is an issue as to whether Mr Duffus was the true decision-maker, and the documents sought are relevant to matters directly in issue on the application.

20    The respondent submits in summary that:

    The documents sought in paras 1(a) to (d) and 1 (h) to (k) are apparently sought because they allegedly relate to matters required to be considered in the exercise of the discretion whether or not to issue notices pursuant to s 260-5. Such documents could only be related to the issue whether the rights of the Second Applicant as a registered mortgagee and registered charge had been considered, however it is difficult to see how such documents are relevant. It appears that the applicants might be fishing for new grounds of review.

    The documents sought in paras 1(e) to (g) and (l) to (n) might be relevant to some issues sought to be raised, however the lack of particularity with respect to those documents means that the current request is too broad.

    The documents sought in paras 1(o) to (r) are not relevant to any grounds of review.

Qualifications made in respect of the categories sought in paragraph 1 of the applicants’ notice of motion

21    As I noted earlier in this judgment, during the hearing Counsel informed me that the parties had reached agreement in respect of qualifications to the categories sought in respect of the applicants’ notice of motion, should I be minded to make orders in respect of those individual categories. These qualifications relate specifically to time periods. I requested the parties to forward me those agreed qualifications and after I reserved my decision my chambers received a communication from Tucker & Cowen, the solicitors for the applicants, enclosing those qualifications. They read as follows:

Paragraph 1

1. In respect of paragraphs 1(a) to 1(d), 1 (h) to 1(k) and 1(o) to 1(p), at the end of each category, the following qualification to be added:

“in the power, possession or control of the Commissioner at the time of the making of each decision.”

2. There is no time qualification necessary for paragraphs 1(f), 1(g), 1(m) and 1(n). The parties accept that those categories operate satisfactorily without the need for a time qualification.

3. In respect of paragraphs 1(e) and 1(l) the following qualifications to be added at the end of the relevant paragraph descriptions:

“between the date of any assessments which formed the basis of the tax liabilities which were the subject of the various section 260-5 Notices, and the date of the making of the various decisions under review.”

22    I will now turn to categories of documents sought by the applicant in its notice of motion.

Documents described in paragraphs 1(a) to 1(d) and 1(h) to 1(k)

23    The Statement of Reasons for the relevant decision, dated 19 January 2011 and issued under the hand of Mr Ross Burns of the Australian Taxation Office, includes the following:

In making the decision to cause the Notice to be issued, I had regard to the principles conveyed within the Taxpayers’ Charter and the ATO Receivables Policy.

24    The ATO Receivables Policy to which Mr Burns referred took effect 2 October 2009. In particular the purpose of “Part B The collection of taxation debts, Chapter 12 GARNISHEE” is described as follows:

1. This chapter deals with the Commissioner’s power to recover tax debts from third parties owing money to, or holding money for, a tax debtor and sets out the circumstances in which that power will be used.

25    Paragraphs 4, 5 and 6 of the Policy outline “Considerations – before and after issuing a garnishee notice” as follows:

4. Collection through third parties by serving garnishee notices is often an efficient and cost effective way of obtaining payment of outstanding debts. We will use garnishee notices in circumstances where we consider that action to be the most effective method of obtaining payment of a debt.

5. In considering whether to issue a garnishee notice, we will have regard to:

•    The financial position of the debtor and the steps taken to make payment in the shortest possible timeframe having regard to the particular circumstances of the debtor

•    The extent of any other debts owed by the debtor

•    Whether the revenue is placed at risk because of the actions of the debtor, such as the debtor making payment to other creditors in preference to paying the Commissioner

•    The likely implications of issuing a notice on a debtor’s ability to provide for a family or to maintain the viability of a business

6. We will consider any reasonable request from a debtor to either withdraw, or vary the requirements of, a garnishee notice, provided the debtor makes suitable alternative arrangements for payment.

26    It is not in dispute that the ATO Receivables Policy has recently been replaced by a statement issued by the Australian Taxation Office entitled “Practice Statement Law Administration PS LA 2011/18”. Paragraphs 4, 5 and 6 are reproduced in this document at paras 53, 54 and 55.

27    The ATO Receivables Policy also makes reference to circumstances where a secured creditor has a mortgage over land or property, as follows:

16. Although a garnishee may place the Commissioner ahead of certain earlier secured creditors, we will not always seek to enforce our entitlement. For instance, where a garnishee notice is served on the purchaser of mortgaged land or property, the garnishee will also attach that part of the purchase price which is necessary to pay out the mortgage. The purchaser’s obligation in relation to a garnishee supersedes the obligation or discretion to pay money to a secured creditor in accordance with the debtor’s instructions, however, the sale would not proceed if the seller is unable to provide the purchaser with clear title to the property.

17. Therefore, we will take account of individual circumstances and may require that the notice only apply to that part of the purchaser price to be paid to the vendor or as the vendor directs after the mortgage has been discharge. In any event, where there is evidence that the purpose of the mortgage (whether registered or unregistered) was to defeat the Commissioner’s recovery powers, we will require payment of all or part of the purchase price from the purchaser.

28    These paragraphs are reproduced in Practice Statement Law Administration PS LA 2011/18 para 66 and para 67.

29    Documents sought in paras 1(a), (b) and (c) and paras 1(h), (i) and (j) of the applicant’s notice of motion closely follow the language in the first three bullet points to para 5 of the ATO Receivables Policy set out in this judgment which set out considerations a decision-maker must take into account. Further, para 1(d) and para (k) of the applicants’ notice of motion, by reference to taxation debts of the first and third applicants, raise issues of the overall financial position of those parties which fall within those bullet points to para 5.

30    Mr Sullivan SC submitted during the hearing that it is relevant to understand, in the context of the decision which was made by the decision-maker, how the decision-maker went about the decision (TS 30 May 2011 p 50 ll 27-29). Counsel also drew my attention to the fact that, while the relevant notices were signed by the respondent Mr Duffus, the Statement of Reasons produced by the ATO was under the hand of Mr Burns, and there was, for example, no mention in those reasons of the second applicant or its circumstances.

31    It is clear that, as a general proposition, an administrative decision may be challenged on the basis that relevant considerations were not taken into account by the decision-maker: Minister for Aboriginal Affairs v Peko-Wallsend Ltd (1986) 162 CLR 24.

32    In this case, however, the essence of the respondent’s objection to discovery of documents sought by the applicants in paras 1(a)-(d) and (h)-(k) of their notice of motion is that these documents are not relevant to the applicants’ pleaded case as found in their amended application, including ground 3 where the applicants seek review of the decision on the basis of failure of the decision-maker to take into account certain relevant considerations.

33    And indeed, in respect of the grounds of review as found in the amended application, with one exception to which I will shortly turn, it is difficult to see how the documents sought by the applicants in paras 1(a)-(d) and (h)-(k) are relevant to issues in contention.

34    While it is certainly the case that the financial position of the first and third applicants, the extent of other debts owed by those applicants (including taxation debts), and the risk to the revenue occasioned by the obligations owed by the first and third applicants to the second applicant are issues which fall squarely within the ATO Receivables Policy and therefore were relevant considerations in respect of a decision to serve the s 260-5 notice, again with the exception to which I will shortly turn, in the amended application there are no grounds to which these considerations appear relevant. This is particularly so in light of the breadth of the categories described. The applicants cannot sustain a claim for documents reflecting relevant considerations listed in the ATO Receivables Policy without being able to point to a specific claim of their own referable to those issues in the ATO Receivables Policy.

35    So:

    In grounds 1 and 2 the applicants claim that the respondent failed to give them an opportunity to be heard, and therefore a breach of the rules of natural justice occurred. Documents described in paras 1(a)-(d) and (h)-(k) are not relevant to these grounds.

    In ground 3(a) the applicants claim that the respondent failed to take into account relevant considerations, in that he did not consider the rights of the second applicant as registered mortgagee and registered charge. Documents described in paras 1(a), (b), (d), (h), (i) and (k) are not relevant to these grounds.

    In ground 3(b) the applicants claim that the respondent failed to take into account relevant considerations, in that he exercised powers under the ATO Receivables Policy without a proper examination of the rights of the second applicant. Documents described in paras 1(a), (b), (d), (h), (i) and (k) are not relevant to these grounds.

    In ground 4 the applicants claim that notices were issued and served at a time when no money was due by the third party debtor to the first and third applicants. Documents described in paras 1(a)-(d) and (h)-(k) are not relevant to this ground.

    In ground 5 the applicants claim that, at the relevant time, the first and third applicants were already in default of the second applicant’s registered mortgages and charges. Documents described in paras 1(a), (b), (d), (h), (i) and (k) are not relevant to these grounds.

36    The exception to these general findings of want of relevance in respect of documents sought concerns the documents described in para 1(c) and para (j) of the applicants’ notice of motion. Such documents do, in my view, relate to issues in dispute in these proceedings, namely:

    whether the respondent considered the rights of the second applicant (ground 3(a));

    whether the respondent exercised his power without a proper examination of the rights of the second applicant (ground 3(b)); and

    whether the first and third applicants were already in default at the time of issue of the s 260-5 notices (ground 5).

37    To that extent they are documents which fall within the general disclosure obligation of the respondent in O 15 r 2(3).

38    Mr Bickford for the respondent submitted that, because in the Statement of Reasons there is a statement by Mr Burns that he took into account the ATO receivables policy which refers to the extent of any other debts owed by the debtor, there is no basis for the applicants to claim that the rights of the second applicant were not taken into account (TS 30 May 2011 p 63 ll 5-8). In my view however this assertion in the Statement of Reasons does not conclusively address the claims of the applicants in grounds 3(a), 3(b) and 5 of the amended application, such that these grounds no longer give rise to issues in the proceedings imposing a discovery obligation on the respondent. I adopt this approach in light of the reasoning of the Full Court in Faulkner v Conwell (1989) 21 FCR 41. As Jenkinson J (with whom the other members of the Court agreed) observed at p 47:

But there is in my opinion no sufficient indication in that Act of a legislative intention to deny the Court a means of ascertaining facts, relevant to the discharge of the functions which the Act confers on the Court, which is ordinarily available to a Court engaged in the supervision of administrative action. The Act evinces, in my opinion, no intention that the policy which may be discerned in the provisions of ss 11(3) and 13 should override or displace established curial modes of ascertaining what the reasons for administrative action were. Subsection 11(6), which explicitly confers on an applicant for an order of review a right to rely on a ground not specified in the originating application, perhaps suggests inter alia a legislative recognition that not every statement furnished in pursuance of s 13 will tell the whole truth about the reasons for the decision.

39    Further, I respectfully note and adopt the following observations of the Full Court in Federal Commissioner of Taxation v Nestle Australia Ltd (1986) 69 ALR 445 at 453:

Discovery and inspection are essentially different. They are processes of the courts by which a party may obtain from the opposite party documents relating to issues between them for the purpose of preparing for the trial of the action. A s 13 statement and the court's powers in relation to discovery and inspection are of a basically different nature and different time scales apply to them. Courts may take into account in the exercise of discretion, on an application for discovery or inspection, whether a s 13 statement has been sought or provided, whether it is sufficient and whether it is appropriate to leave the parties to their rights under s 13, including the right to obtain further and better particulars under s 13(7). But to the extent that those matters are relevant they lie solely within the discretion of the court. There is no necessary relation between the two quite separate processes of statements of reasons under s 13 of the Judicial Review Act and the court's powers of discovery and inspection which are procedural machinery of courts to assist in the resolution of conflicts between litigants.

Counsel for the Commissioner also argued that as s 13 provided for the inclusion in the statement under the section of the evidence or other material on which the findings were based and as the s 13 statement in this case itself referred to documents, the curial procedure of discovery either could not or should not apply in the court's discretion. This argument is ill founded. Discovery and s 13 statements are quite different in nature for the reasons already given. No ground has been established for interfering with the primary judge's discretion. (emphasis added)

40    Accordingly, in my view it is appropriate to order that the respondent make discovery of all documents in the possession, custody or control of the respondent answering the following descriptions:

1(c) all documents in respect of, or related to the risk to the revenue occasioned by the obligations owed by the First Applicant to the Second Applicant in the power, possession or control of the Commissioner at the time of the making of each decision.

1(j) all documents in respect of, or related to the risk to the revenue occasioned by the obligations owed by the Third Applicant to the Second Applicant in the power, possession or control of the Commissioner at the time of the making of each decision.

Documents described in paragraphs 1(e), (f), (g), (l), (m), (n)

41    There is complete correspondence between a number of the paragraphs in this group. While para 1(e) and para (l) vary in their respective reference to the first and third applicant:

    paragraph 1(f) is identical to para 1(m); and

    paragraph 1(g) is identical to para 1(n).

42    Further, as I noted earlier in this judgment, the respondent’s objections in respect of these categories of documents are as to the lack of particularity rather than potential relevance.

43    At the hearing, Mr Sullivan SC submitted, in summary, that:

    these categories focus very specifically on the decision-making process, and that apparently the decision-maker did not take into account the rights of the second applicant; and

    the categories are also relevant to the issue of identifying the person who was the actual decision-maker, and whether that person had authority to make the decision (TS 30 May 2011 p 58 ll 19-23).

44    However Mr Bickford for the respondent submitted in summary that while these categories of documents could relate to ground 3 of the application, there was a Statement of Reasons in each case which explains matters which were and were not taken into account, and the breadth of the documents described do not appear to have any relevance to any of the matters in issue.

45    In my view the categories of documents in paras 1(e)-(g) and (l)-(m) are relevant to ground 3. I accept the submission of the applicants that they go to the decision-making process, and in particular whether the rights of the second applicant were taken into account by the respondent. Again, I do not accept the proposition that because there is a statement in the Statement of Reasons of Mr Burns identifying matters which were taken into account, that the respondent is therefore not obliged to disclose documents which are relevant to the issue is agitated in ground 3. The categories in paras 1(e)-(g) and (l)-(m) describe documents upon which the respondent will rely and will adversely affect either his or the applicants’ case. They should be disclosed.

Documents described in paragraphs 1(o),(p) and (q)

46    Although broadly defined, these documents are relevant to the exercise of the decision-making process of the respondent, the material before him in making the relevant decision, and whether he properly took into account the rights of the second applicant as registered mortgagee and chargee. To that extent they bear adjectival relevance to a grounds of review in the amended application, including grounds 3, 4 and 5 of the amended application.

47    They are also relevant to the unnumbered claim in the amended application that the second applicant necessarily had priority ahead of any right of the Respondent to monies otherwise owed by the first applicant. In my view these documents are discoverable by the respondent.

Documents described in paragraph 1(r)

48    As I have already noted in this judgment, the applicants seek the documents described in para 1(r) because in summary there is apparent confusion as to the actual decision-maker in relation to the issue of the notices. For example, in respect of the s 260-5 notices dated 17 December 2010:

    they are signed “Paul Duffus, Deputy Commissioner of Taxation and Delegate of the Commissioner of Taxation”;

    however the Statement of Reasons produced by the Australian Taxation Office in respect of the relevant decisions pursuant to s 13 of the ADJR Act was signed “Ross Burns, Dated 17 March 2011” and included the following introductory paragraphs:

    “I, Ross Burns, Director, Complex and Strategic Recovery, of the Australian Taxation Office (“ATO”), am the decision maker in relation to the decision to issue to [third party debtor] a notice pursuant to section 260-5 of Schedule 1 to the Taxation Administration Act 1953 (“the Act”);

    I am a duly authorised officer of Steve Vesperman, a Deputy Commissioner of Taxation and a delegate of the Commissioner of Taxation;

    On 17 December 2010, pursuant to that authorisation, I approved, for the purposes of the taxation laws, the issue of a notice pursuant to subsection 260-4(2) of the Act…”

49    Accordingly the applicants submit that, as a result, the case is unclear factually in relation to authority, and issues of authority are clearly in issue.

50    Not surprisingly, Mr Bickford for the respondent directed my attention to the grounds of review in the amended application. The applicants have not sought review of the relevant decision on the basis that, for example, there was in fact no proper decision. The applicants counter this lacuna by submitting, in summary, that the current amended application supports an order for disclosure in terms of para 1(r) because:

    they have identified that there was a failure by the decision-maker to take into account certain relevant considerations;

    it is possible that other people in the ATO were doing things as opposed to the decision-maker;

    it is relevant to understand in support of that ground who purported to do what, and what was the authority of those people.

51    I understand the relevant ground to be ground 3 of the amended application.

52    During the course of submissions, Mr Bickford referred me to the decision of the Full Court of the Federal Court in Jilani v Wilhelm. There are a number of principles emerging from that decision which are relevant in respect of this issue. In particular:

    if a proceeding or claims in it are essentially speculative in nature the Court will not order discovery in order to assist the applicant in a fishing exercise (at [108]);

    it is not open to an applicant to make a bare allegation that a decision was made without any basis and then use the process of discovery to find out if the allegation has foundation (at [111]);

    there must be sufficient definition of the issues to enable the Court to see that the documents sought on discovery relate to a live issue; there must at least be something from which the Court can see that there is a real issue the proof of which would be assisted by discovery (at [112]).

53    In this case the applicants have, in the course of submissions, raised the question whether the relevant decision was properly – or indeed, actually – made by authorised delegates by reference to material before the Court. I am not persuaded, however, that the existing grounds of review form the basis of an order for discovery in relation to the question of authority of the decision-maker. While the applicants refer me to ground 3, the only relationship I can identify between this ground and the current application for discovery is the words:

The making of the decision or engaging in conduct, as the case may be, was an improper exercise of the power conferred by the enactment in pursuance of which it was purported to be made.

54    However, these words are immediately qualified by reference to the claimed failure of the respondent to take into account relevant considerations in the exercise of the power. Accordingly, not only is ground 3 focused on specific ways in which relevant considerations were not taken into account in the decision-making process, but the applicants in ground 3 accept that the respondent was the decision-maker.

55    The applicants have pointed to specific material, currently before the Court, which is relevant to the issue they have raised in submissions. However, the application for a discovery order in terms of para 1(r) is simply not contemplated at this stage on the amended application before the Court. The applicants submit that the decision-making process the subject of the amended application should not be considered in a vacuum. However, I am not persuaded that it is “linked” to the existing case before the Court. In the absence of an appropriate articulation of this issue in the amended application, the issue they raise in submissions is essentially speculative or hypothetical (cf comments of Yates J in Forty Two International Pty Ltd v Barnes (No 2) [2011] FCA 210 at [40] and observations of the Full Court in Bailey v Beagle Management Pty Ltd (2001) 105 FCR 136 at 143 [28]). To paraphrase observations of the Full Court in Jilani v Wilhelm, in these proceedings the manner in which the issues are defined by the amended application is such that the authority of the respondent is not a live issue.

56    I note in passing that it is open to the applicants to seek further amendment to the amended application to include a ground of review referable to the authorisation of the decision-maker. Such a ground of review is not unknown in ADJR Act proceedings – I note, for example, cases including Re Australian Wool Testing Authority Ltd v the Commissioner of Taxation of the Commonwealth of Australia [1990] 26 FCR 171 and Asiamet (No. 1) Resources Pty Ltd v Federal Commissioner of Taxation [2003] FCA 35 where the applicant specifically claimed as a ground of review that no decision had been made.

57    It follows that I am not prepared to make an order for discovery in the terms sought by the applicants in para 1(r) of their notice of motion.

The respondent’s notice of motion

58    The documents in relation to which the applicants oppose discovery are as follows:

    All documents (including file notes, letters, emails and other correspondence) evidencing the matters alleged in subparas 5(a) to (h) of the Affidavit of Ms Emily Jane Anderson, filed 26 August 2010 (para 1(a) of the respondent’s notice of motion); and

    All documents (including notices, file notes, letters, emails and other correspondence) if any, evidencing that the Second Applicant, Shakespeare Haney Securities Limited, was aware, in the period between 18 May 2009 and 27 July 2010, of any, some, or all of the events listed in subparas 5(a) to (h) of the Affidavit of Ms Emily Jane Anderson, filed on 26 August 2010 (para 1(c) of the respondent’s notice of motion).

59    It is plain that there is significant overlap between these two categories.

60    I noted earlier in this judgment that Ms Anderson is the solicitor for the applicants in these proceedings. Paragraph 5 of her affidavit sworn and filed 26 August 2010 reads as follows:

On or about the following dates, the First Applicant defaulted in respect to its obligations to the Second Applicant as follows:

a.    19/05/2009 – Administrators appointed to CMC Cairns Pty Ltd

b.    08/07/09 – Administrators appointed to Benchmark Development Company Pty Ltd

c.    31/07/2009 – Liquidators appointed to Benchmark Development Company Pty Ltd

d.    16/09/2009 – Liquidators appointed to CMC Cairns Pty Ltd

e.    15/01/2010 – Administrators appointed to Edge apartments Pty Ltd

f.    12/02/2010 – Liquidators appointed to Edge Apartments Pty Ltd

g.    23/03/2010 – Personal Insolvency Arrangements entered into by Peter Watson and Wolfgang Odenthal

h.    06/04/2010 – Creditor’s Statutory Demand received by Benchmark Edge Pty Ltd (and subsequently expired)

61    In support of their notice motion the respondent submits in summary as follows:

    The allegations in para 5 of Ms Anderson’s affidavit are repeated in the affidavit of Thomas John Haney sworn 15 December 2010. (I note that Mr Haney deposes that he is a director of the second applicant.)

    In the amended Statement of Issues filed by the respondent on 25 May 2011 the respondent states, inter alia, that:

    the second applicant cannot rely upon breaches of the alleged covenants which allegedly occurred prior to the parties entering the fixed and floating charge, such as that referred to in para 5(a);

    the matters alleged in subparas 5(a)-(g) are not shown by the applicants to be events which would cause the alleged floating charge held by the second applicant to crystallise (para [8](c) Amended Statement of Issues).

    It is apparent from the respondent’s Statement of Issues that there is a question in these proceedings as to whether or not the alleged crystallisation of the fixed and floating charge, arising by reason of one or more of the events referred to in para 5 of Ms Anderson’s affidavit, actually decrystallised as a result of the conduct of the second applicant allowing the first and third applicants to continue to deal with the property.

    The documents sought in subpara 1(c) of the respondent’s notice of motion relate to the possibility of waiver and estoppels, which is clearly raised in the respondent’s Statement of Issues.

62    The applicants submit in summary that the Court should refuse to make the orders sought by the respondent because:

    The case put forward in relation to estoppel and waiver by the respondent has no basis. In the absence of a course of dealings between the second applicant and the respondent, any act or omission on the part of the second applicant towards the first applicant could only ever amount to an estoppel or waiver of rights as against the first applicant.

    Alternatively the respondent is fishing – the respondent is simply looking to make a case as to estoppel or waiver.

Documents described in paragraph 1(a)

63    It is clear from the Statement of Issues filed by the respondent that the respondent not only disputes that crystallisation of any floating charge of the second applicant in assets of the first and third applicant occurred as a result of events described in para 5 of Ms Anderson’s affidavit, but in the alternative (in the event that the floating charge did crystallise) the respondent alleges that the second applicant notified the first and third applicants that the charge was no longer fixed in relation to the relevant assets (“decrystallisation”). I note Mr Sullivan SC for the applicants conceded at the hearing that para [8](c) of the respondent’s Statement of Issues (and by analogy, para [12](c)) puts in issue the matters identified in that paragraph (TS 30 May 2011 p 79 ll 28-33). In my view this concession was proper in light of the claim as to priority in the applicants’ amended application and the respondent’s claim in his Statement of Issues.

64    To that extent I consider that the documents described in para 1(a) of the respondent’s notice of motion are discoverable in terms of O 15 r 2(3). However it became clear at the hearing that further objections of the applicants to disclosure of these documents were that:

    they related to uncontentious facts;

    they included documents in the public domain available from a search of the records of the Australian Securities and Investments Commission; and

    therefore, an order requiring disclosure of the documents by the applicants would be oppressive.

65    It is clear that the Court may refuse to make an order for discovery if it would be unduly oppressive to the other party. As Mummery J observed in Molnlycke AB v Procter & Gamble Limited (No 3) [1990] RPC 498 at 503:

The Court takes account of such considerations as the value of the discovery to the person seeking it and the burden imposed on the party giving it, with a view to restricting the volume of documents and the labour and expense involved to that which is necessary for fairly disposing of the issues in the case.

66    Similar observations have been made by Judges of this Court (for example in Allstate Life Insurance Co v Australia and New Zealand Banking Group Limited (No 15) [1995] FCA 1472 at [15], Slick v Westpac Banking Corporation (No 2) [2006] FCA 1712 at [8], Austal Ships Pty Ltd v Incat Australia Pty Ltd [2009] FCA 368 at [136]-[139]). However from the material I have before me I am unable to identify the manner in which the production of documents described in para 1(a) would be oppressive to the applicants as, for example, involving a high volume of documents as well as labour and expense.

67    Further, while it may be the case that some of the documents described are in the public forum, I accept the submission of Mr Bickford that this in itself does not excuse the applicants from an obligation to disclose documents in their possession which satisfy the description in para 1(a).

68    Finally, it is also plain that some of the documents in this category are not in the public forum, for example personal insolvency arrangements and a creditor’s statutory demand described in para 1(a).

69    In my view the applicants should make discovery of these documents.

Documents described in paragraph 1(c)

70    In relation to documents contemplated by para 1(c) of the respondent’s notice of motion, the applicants claim that the documents are sought in respect of a claim which cannot be substantiated, namely conduct of the second applicant constituting waiver or estoppel in favour of the respondent.

71    In my view this objection can be dealt with swiftly. The question of priority between the second applicant’s security interests and rights of the respondent arising from issue of the s 260-5 notices is squarely a mater in issue at trial. Further, whether or not the respondent can substantiate his case that conduct of the second applicant resulted in the decrystallisation of its fixed charges over assets of the first and third applicants such that the second applicant lost priority to the respondent in respect of third party debts owed to the first and third applicants is not an issue determinable at this stage of the proceedings. There is authority relevant to the consequences of conduct of a chargee who takes no steps after crystallisation of a floating charge to enforce the charge (for example G & M Aldridge Pty Ltd v Walsh (2001) 203 CLR 662) as well as relevant academic literature which will undoubtedly be the subject of scrutiny at trial. While the applicants submit conduct of the second applicant cannot be “estoppel” as a matter of law in relation to the respondent, I accept that the respondent’s use of the word “estoppel” concerning the conduct of the second applicant and its effect on the respondent’s position may be the subject of refinement and at this stage does not make his claim untenable.

72    Further, I am not satisfied that the respondent is “fishing” as claimed by the applicants. As the Full Court observed in Bailey v Beagle Management Pty Ltd (2001) 105 FCR 136 at 143:

But historically, the concept of fishing was not concerned with the prior possession of evidence but rather that there was a prior pleading which raised issues for which the evidence sought by the process would be relevant. (emphasis added)

73    In this case para 1(c) of the respondent’s notice of motion is referable to issues identified in the amended application and the Statement of Issues filed by the respondent, as well as material in affidavits filed by applicants in support of the applicants’ amended application (namely, the affidavits of Ms Anderson and Mr Haney).

74    To that extent the issue forms a proper basis of discovery of the documents described in para 1(c) of the respondent’s notice of motion.

Associate:

Dated:    6 June 2011