FEDERAL COURT OF AUSTRALIA

Deputy Commissioner of Taxation v Chemical Trustee Limited (No 7) [2012] FCA 1280

THE COURT ORDERS THAT:

1.    The notice to produce issued by the respondent on 25 September 2012 be set aside.

2.    Paragraphs 2, 4 and 5 of the notice to produce issued by the respondent on 8 October 2012 be set aside.

3.    Paragraph 3 of the notice to produce issued by the respondent on 8 October 2012 be amended to read as follows:

All documents that were considered by the decision-maker and were relied on for the purpose of making the 20 September 2012 assessments.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

1    On 25 September 2012, the solicitors for Chemical Trustee Limited served a notice to produce documents on the solicitors for the Deputy Commissioner of Taxation. The notice was in the following form:

To the Applicant:

The Respondent requires you to produce documents or things to the Registrar of the Court on 3 October 2012. In particular the Respondent requires the following documents or things from the date range 1 July 2012 to date:

1.    All communications (including notes of conversations) to and from Aris Zafiriou, or including Aris Zafiriou, that refer to Chemical Trustee Limited, whether by its name or not;

2.    All documents created by Aris Zafiriou or viewed by Aris Zafiriou that refer to Chemical Trustee Limited, whether by its name or not;

3.    All communications between the ATO personnel assigned to ‘Operation Rubix’ that refer to Chemical Trustee Limited, whether by its name or not;

4.    All material (including communications) that evidence, or refer to, how the quantum of the liabilities imposed on Chemical Trustee Limited by assessments dated 20 September 2012 was determined.

5.    All documents created by the ATO personnel assigned to ‘Operation Rubix’ that refer to Chemical Trustee Limited (whether by its name or not), including documents that are as yet incomplete.

6.    All communications or documents related to freezing orders over Chemical Trustee’s assets, or the possibility of seeking freezing orders over Chemical Trustee’s assets.

7.    All documents that discuss the possibility of dissipation in the assets of Chemical Trustee, Bywater Investments Limited, and/or Derrin Brothers Properties.

2    The Deputy Commissioner has moved to set aside this notice to produce. He does so on a number of bases. The principal one of these is that the notice constitutes a substitute for discovery. It is not in dispute that the use of a notice to produce for that kind of purpose is impermissible.

3    The question which arises on this aspect of the matter is whether the notice to produce should bear that characterisation. In my opinion it plainly should. Each of the prayers or paragraphs in the notice to produce begins with the words ‘all communications’ or ‘all material’ or ‘all documents’ and, viewed as a whole, it seems to me this notice is unusually broad. It is, indeed, a substitute for discovery. That is a sufficient reason to set it aside.

4    The Commissioner also raised the point that the notice had not been made returnable on a day upon which the Court would be either conducting a trial or a hearing or at which a Registrar or an examiner would be presiding in order to take evidence. This matters because of the terms of Federal Court Rules 2011, r 30.28, which is, so far as relevant, as follows:

30.28 Notice to produce

(1)    A party may serve on another party a notice, in accordance with Form 61, requiring the party served to produce any document or thing in the party’s control:

(a)    at any trial or hearing in the proceeding; or

(b)    at any hearing before a Registrar or any examiner or other person having authority to take evidence in the proceeding.

…

(3)    If a notice under subrule (1) specifies a date for production, and is served 5 days or more before that date, the party served with the notice must produce the document or thing in accordance with the notice, without the need for a subpoena for production.

5    It seems to me that the point is well made as well and provides an additional basis for setting aside the notice to produce.

6    The order I will make is that the notice to produce issued by Chemical Trustee Limited on 25 September 2012 be set aside.

7    On 8 October 2012 Chemical Trustee Limited issued another notice to produce to the Deputy Commissioner, this time including a proper return date. This notice is in the following terms:

To the Applicant:

The Respondent requires you to produce the following documents or things to the Registrar of the Court by 9:30 am on Wednesday 17 October 2012:

1.    All delegations or written authorities granted to the ATO officer who purported to raise the assessments against Chemical Trustee on 20 September 2012.

2.    Any documents that disclose the basis on which assessments were raised against Chemical Trustee on 20 September 2012.

3.    All documents that were before the decision maker who made the 20 September 2012 assessments.

4.    All documents evidencing the provision of information or evidentiary material, obtained through NSD 652-656/2011, NSD 799/2012 and NSD 785/2012, to officers of the ATO involved in making the assessments of 20 September 2012, or otherwise related to the following statement form the 18 September 2012 affidavit of Aris Zafiriou:

Further, since the assessments were issued a vast amount of additional material has come to the attention of the Applicant. Additional material has become available through the part IVC proceedings’

5.    The information and evidentiary material actually provided to the ATO officers, per the previous paragraph of this Notice to Produce.

(Emphasis in original.)

8    The Deputy Commissioner did not dispute the entitlement of Chemical Trustee Limited to seek that which appears in paragraph one.

9    In respect of paragraph three, the Deputy Commissioner suggested that he would be content to accept it if rather than reading ‘All documents that were before the decision-maker…’ it read instead, ‘All documents that were considered by the decision-maker and were relied on for the purpose of making the 20 September 2012 assessments’. Chemical Trustee Limited indicated during the course of the hearing that it was content to accept that form of paragraph three.

10    The principal question which arises in relation to this notice to produce concerns a contention by Chemical Trustee Limited that the Deputy Commissioner has utilised material from the Part IVC proceedings in reaching the decision to issue the assessments. Mr Hyde Page drew my attention to paragraph six of the affidavit of Mr Aris Zafiriou, sworn on 18 September 2012. Paragraph six is as follows:

The Applicant has an ongoing statutory obligation to investigate the business activities and taxation obligations of taxpayers. In this regard the investigation of the activities of the Respondent has continued since the original assessments were issued. Further, since the assessments were issued a vast amount of additional material has come to the attention of the Applicant. Additional material has become available through the Part IVC proceedings and continuing investigations performed by the ATO. This further material, in conjunction with the material that was already in the possession of the Applicant, now indicates that financial transactions that relate to the respondent are in the order of $191 million, which is substantially in excess of what was understood to be the financial activity of the Respondent when the original assessments (referred to in para 5 above) were made.

11    Of particular relevance are the second and third sentences which, on one reading, might suggest that the documents obtained in the Part IVC proceedings were utilised in the creation of the assessments. I should say that I think there is a more benign interpretation of paragraph six open, but for the purposes of the present application that does not matter. I propose to proceed on the basis that paragraph 6 does provide the evidentiary effect for which Mr Hyde Page contends.

12    The end to which that argument is bent is to attempt to show a breach of the implied undertaking not to use documents obtained through compulsory process in one proceeding in other proceedings without first obtaining the leave of the Court in the first proceeding. A breach of that undertaking is a contempt of court: Hearne v Street (2008) 235 CLR 125. The argument was that, if the Commissioner had utilised documents from the Part IVC proceedings in breach of the implied undertaking, this would amount to a species of illegal conduct in the preparation of the assessments, and this, in turn, would constitute a jurisdictional error in the issue of the notices of assessments so that the protection conferred upon the notice by s 177(1) of the Income Tax Assessment Act 1956 (Cth) would not arise: cf. Deputy Commissioner of Taxation v Futuris Corporation Ltd (2008) 237 CLR 146.

13    I am prepared to accept the plausibility of that argument for present purposes. The difficulty with paragraphs four and five of the notice to produce, so it seems to me, is that they are – to the extent that they are different to paragraph three – otiose. Paragraph three will cause the Deputy Commissioner to disgorge, in effect, all of the documents which were utilised in the decision-making process. If those documents include documents which were obtained in breach of the Hearne v Street undertaking from the Part IVC proceedings, then that will be apparent from the answer to paragraph three.

14    Paragraph four adds only to paragraph three to the extent that it will reveal the existence of documents that came from the Part IVC proceedings which have come into the hands of officials other than the persons issuing the notices of assessment or, although coming into the hands of the persons issuing the notices of assessment, in fact not thereafter being utilised by them in reaching the decision so to issue. That category of documents does not relate to the Futuris issue which has been articulated. I accept that documents of that kind may well lead to a chain of inquiry or may even, as Mr Hyde Page colourfully put it, reveal the existence of a ‘smoking gun’. However, smoking guns have no place in notices to produce. As has been repeatedly emphasised, notices to produce are not a substitute for discovery and the comfort which Chemical Trustees seeks to get from paragraphs four and five is not a comfort which is procedurally available under a notice to produce. Accordingly, I would be minded to set aside paragraphs four and five.

15    Objection was also taken to paragraph two. Again, to the extent that paragraph two seeks anything which is not covered by paragraph three, it is likely to be either in the nature of discovery or too broad and I would in those circumstances, likewise, set it aside.

16    The orders I will make in relation to the notice to produce issued on 8 October 2012 is that I will set aside paragraph two, I will vary paragraph three in the manner I have already indicated, and I will set aside paragraphs four and five.

Associate:

Dated:    28 November 2012