FEDERAL COURT OF AUSTRALIA

Sop & Sop Pty Ltd v Commissioner of Taxation [2019] FCA 102

ORDERS

THE COURT ORDERS THAT:

1.    Compliance with r 4.01(2) of the Federal Court Rules 2011 (Cth) be dispensed with for the purpose of hearing and determining the respondent’s interlocutory application dated 30 October 2018 and Mr Mato Sop have leave to represent the applicant for those limited purposes.

2.    Pursuant to s 31A(2) of the Federal Court of Australia Act 1976 (Cth), judgment be given for the respondent on the ground that the applicant has no reasonable prospect of successfully prosecuting the proceeding.

3.    Leave to amend the originating application be refused.

4.    Pursuant to r 24.15(1) of the Federal Court Rules 2011 (Cth), the subpoena to produce documents addressed to the respondent and issued by the Court on 22 October 2018, be wholly set aside.

5.    The applicant pay the respondent’s costs of and incidental to the proceeding, including the costs of the respondent’s interlocutory application dated 30 October 2018 and any reserved costs, as agreed or as assessed in default of agreement.

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

REASONS FOR JUDGMENT

KENNY J:

1    By its originating application filed on 30 July 2018, the applicant, Sop & Sop Pty Ltd, applies under s 39B of the Judiciary Act 1903 (Cth) for an injunction, to restrain the Commissioner of Taxation and his employees and agents from requiring the applicant to provide certain documents set out in schedules to a letter from the Deputy Commissioner of Taxation (also referred to below as the Commissioner) dated 24 April 2018 and from conducting a review of client files, or of the applicant’s practice, as “foreshadowed in” that letter. The applicant maintains that it is entitled to this relief on the basis that “the decision to require the documents and conduct the review” was defective on a number of bases.

2    The application was supported by three affidavits of Mr Mato Sop, which were sworn on 26 July 2018, 4 October 2018 and 18 October 2018 respectively.

3    On 22 October 2018, a subpoena to produce documents was issued, with leave, to the Commissioner. By the subpoena, the applicant seeks the production of internal communications connected with the sending of the 24 April 2018 letter, as well as internal communications concerning various other items of correspondence, including statutory notices, passing between the Australian Taxation Office (ATO) and the applicant.

4    The Commissioner applies by way of interlocutory application dated 30 October 2018 for an order under s 31A(2) of the Federal Court of Australia Act 1976 (Cth) (FCA Act) and r 26.01(1)(a) of the Federal Court Rules 2011 (Cth) that judgment be given for the respondent on the ground that the applicant has no reasonable prospect of successfully prosecuting the proceeding. The Commissioner also applies for an order under r 24.15(1) of the Rules that the subpoena to produce documents, which was addressed to the Commissioner and issued by the Court on 22 October 2018, be set aside.

5    The Commissioner’s interlocutory application was supported by the affidavit of Vincent Daniel Tavolaro affirmed on 30 October 2018.

6    The Court dispensed with compliance with r 4.01(2) of the Rules for the purposes of hearing and determining the Commissioner’s interlocutory application and associated matters, and granted leave to Mr Mato Sop to represent the applicant for these limited purposes. The Commissioner was represented by senior and junior counsel.

Background

7    The applicant is a registered tax agent within the meaning of the Tax Agent Services Act 2009 (Cth). Around April 2018 the Commissioner formed the view that officers in the ATO should perform a review of the applicant’s practice for the 2015 and 2016 financial years, and review the tax affairs of 100 clients of the applicant for the 2017 financial year, in order that the Commissioner obtain a better understanding of the applicant’s practice in those financial years.

8    On 24 April 2018, the Commissioner caused a letter to be sent to a director of the applicant, Mr Ivan Sop. The letter:

(a)    informed him that the ATO would be commencing a review of the applicant’s practice;

(b)    informed him that two ATO officers “would like to visit [his] office” on a specified date;

(c)    sought confirmation as to whether he was available to meet on the proposed date;

(d)    requested that, in advance of the proposed meeting, the officers be provided with certain records of the applicant’s practice for the 2015 and 2016 financial years; and

(e)    requested that, in advance of the proposed meeting, the officers be provided with certain records of 100 clients of the applicant for the 2017 financial year.

9    Notices were subsequently issued to the applicant’s directors under s 353-10(1) of Schedule 1 to the Taxation Administration Act 1953 (Cth) seeking the production of substantially the same documents as those identified in the 24 April 2018 letter and requesting that they attend and give evidence.

10    It is also convenient to note here that the applicant also sought an order joining each of the applicant’s directors (Messrs Ivan and Stjepan Sop) as additional applicants in the proceeding and leave to amend the originating application so as to seek orders restraining the Commissioner and his employees and agents in substance from:

(a)    requiring any of the applicants to provide the material listed, or for the applicant’s directors to attend the interviews referred to, in the notices from the Commissioner to the applicant’s directors dated 17 August 2018 and 22 August 2018;

(b)    inspecting any of the documents referred to in the notices; and

(c)    conducting an audit of the files and records of the applicant’s clients or former clients, listed in an email dated 26 September 2018 from an ATO officer to a director of the applicant, or of the 2016 and 2017 tax returns of the applicant’s directors.

11    The applicant’s proposed amendment was sought on the basis that the decisions to request the interviews, audits and materials were defective on the same bases alleged in the applicant’s claim for relief in relation to the 24 April 2018 letter.

Summary judgment—ApplICANT’S PROSPECTS OF SUCCESS

When is summary judgment appropriate?

12    The first issue concerns whether summary judgment should be given for the Commissioner under s 31A(2) of the FCA Act.

13    Under s 31A(2), the Court may give judgment for a respondent against an applicant in relation to the whole or any part of a proceeding if the Court is satisfied that the applicant has no reasonable prospect of successfully prosecuting the proceeding or that part of it. For the purposes of this section, a proceeding or the relevant part need not be “hopeless” or “bound to fail” for it to have no reasonable prospect of success, and the provision does not limit any other powers that the Court may have: s 31A(3) and (4). The terms of s 31A(2) are reflected in r 26.01(1)(a) of the Rules.

14    No hard and fast rule can be laid down as to when summary judgment is available. Much depends on the case at hand. Nonetheless, generally speaking, summary judgment would appear appropriate when well-established propositions of law deny the prospect of success. Summary judgment would appear inappropriate where there are “factual issues capable of being disputed and in dispute” on which the resolution of the proceeding, or part of it, depends: see QS Holdings Sarl v Paul’s Retail Pty Ltd [2011] FCA 853; 92 IPR 460 at [16]; and Polar Aviation Pty Ltd v Civil Aviation Safety Authority (No 4) [2011] FCA 1126; 203 FCR 293 at [17], affirmed in Polar Aviation Pty Ltd v Civil Aviation Safety Authority [2012] FCAFC 97; 203 FCR 325 at [93].

15    Summary dismissal under s 31A is “a serious step taken only with great care and if it is possible to conclude with confidence that there is no reasonable prospect of success”: Danthanarayana v Commonwealth [2016] FCAFC 114 at [4]. There are, naturally enough, a variety of circumstances that may attract a summary judgment application under s 31A of the FCA Act and, on each occasion, the critical question is that set by the statute – has the moving party persuaded the Court that the opposing party has no reasonable prospect of success: see QS Holdings at [16] and Polar Aviation [17].

Parties’ submissions on summary judgment

16    As senior counsel for the Commissioner put it, there were “two distinct foundations” for the Commissioner’s application for summary judgment. First, the Commissioner contended that the applicant’s originating application did not challenge a decision amenable to judicial review under s 39B of the Judiciary Act. The Commissioner contended that, to the extent that any public power was exercised in connection with the writing of the 24 April 2018 letter, in requesting documents or in indicating to the applicant that there would be a review, that power was found in the Commissioner’s responsibility for the general administration of the Income Tax Assessment Act 1936 (Cth) (ITAA 1936) and the Administration Act. The Commissioner submitted that no legislative provision was invoked in requesting the material listed in schedules attached to the letter or in intimating that the Commissioner intended to conduct a review of the applicant’s practice and its clients, or conducting such a review. The Commissioner submitted that no consequence attended a failure to provide the requested material, although the outcome of the review might be an audit and, potentially, the subsequent reassessment of a taxpayer’s tax liabilities. Referring to Halls v Federal Commissioner of Taxation [2014] FCA 775; 225 FCR 417 and Meredith v Commissioner of Taxation [2001] FCA 1135; 48 ATR 6, the Commissioner submitted that there was no basis upon which the Court might make an order of the kind sought by the applicant and, for this reason, the originating application has no reasonable prospect of success.

17    In written submissions, the Commissioner also submitted that the applicant’s application for injunctive relief in relation to the review of the applicant’s practice was in substance an application for relief in the nature of a writ of prohibition. That is, the applicant was in substance seeking an order prohibiting the Commissioner and those relying on his decisions from acting on the decision to conduct a review, which decision was alleged to be defective. The Commissioner argued in effect that the applicant sought to prohibit the Commissioner from forming an opinion or intention for which neither the ITAA 1936 nor the Administration Act provided, and since no jurisdictional error could be established, then the applicant had no reasonable prospect of obtaining relief of that kind. The Commissioner argued that it would make no difference if the relief that the applicant sought was characterised as injunctive relief because the Court ought not to grant an injunction: (a) where prohibition could not issue; (b) where there could be no vindication of equitable or legal rights; and/or (c) to prevent an officer of the Commonwealth “doing no more than forming an opinion or intention … not explicitly provided for in the legislation”.

18    The second aspect of the Commissioner’s case for summary judgment concerned the grounds on which the applicant seeks relief, specifically, that the supposed “decisions” to require the production of materials and to conduct a review of the applicant’s practice were:

•    made for improper purposes

•    excessive, oppressive, and an abuse of power

•    over-zealous; and

•    not consistent with previous actions of the respondent, and therefore unfair to the applicant.

19    The Commissioner submitted that there was no evidence that might support these grounds. The Commissioner also contended that some of the grounds, such as “over-zealousness”, were not grounds of review known to the law.

20    In written submissions, the applicant maintained its opposition to the requests made by the Commissioner for the reasons stated in its originating application. The applicant denied that the requests in the letter of 24 April 2018 lacked force and could have been ignored without any consequences. The applicant submitted that this was inconsistent with subsequent correspondence from the Commissioner and the Commissioner’s actions, which “indicated that the Commissioner wished and wishes to enforce the requests”.

21    At the hearing, the Court gave Mr Mato Sop the opportunity to respond to the Commissioner’s submissions and to identify any legal basis upon which the supposed decisions were amenable to review under s 39B of the Judiciary Act. Mr Sop stated that:

to audit 100 clients and to continuously now audit our practice … in our opinion, is excessive and … we haven’t got the manpower to comply with all that. … And that’s why we’re here … asking for help … so that we can maybe negotiate with the Commissioner for a lesser number.

22    In addition, the applicant submitted further that, even if the requests in the 24 April 2018 letter were not enforceable, the notices issued to the applicant and its directors under s 353-10 of Schedule 1 to the Administration Act were enforceable and the proper subject of an application for restraining orders. This issue can arise only if the applicant is granted the leave it seeks to amend its originating application.

Consideration of summary judgment application

23    The focus of the applicant’s originating application was the letter dated 24 April 2018, sent by the Commissioner to Mr Ivan Sop, as the applicant’s director. In substance, the letter notified the applicant that it was the Commissioner’s intention to conduct a review of the applicant’s activities as a registered tax agent and to collect information and, in this context, asked the applicant’s director to co-operate with the Commissioner by meeting with two ATO officers to discuss a number of identified matters and in providing certain identified information to them prior to that meeting.

24    Neither the proposed review of the applicant’s activities nor the notification of it given in the April 2018 letter was an exercise of any express statutory power to conduct a review. Nor, indeed, was the Commissioner’s request for the material identified in the schedules to that letter. There was no legal compulsion to co-operate with the Commissioner as requested; and neither the applicant’s directors nor the applicant were liable to suffer any legal detriment if their co-operation was not forthcoming. In other words, the letter did not make any change in the applicant’s or its directors’ legal position.

25    Pursuant to s 8 of the ITAA 1936, the Commissioner has responsibility for the general administration of the ITAA 1936. Pursuant to s 3A of the Administration Act, the Commissioner also has responsibility for the general administration of the Administration Act. In holding the Commissioner responsible for the general administration of these statutes, the Parliament must be taken to have conferred concomitant authority to discharge the Commissioner’s responsibilities. This authority extended to conducting a review of the applicant’s activities and writing to give notice of the Commissioner’s intention to do so, and requesting the applicant’s and its directors’ co-operation by the provision of information.

26    Forming an intention to conduct a review and giving notification of that intention is not a “decision” amenable to judicial review, as French J’s analysis in Meredith indicates. In Meredith a question arose as to whether decisions, constituted by resolving to take action to issue a determination under Part IVA of the ITAA 1936 (but not the determination itself) were reviewable under the Administrative Decisions (Judicial Review) Act 1977 (Cth) (ADJR Act) or the Judiciary Act. French J held that they were not reviewable under either Act. His Honour dismissed a claim for certiorari under s 39B of the Judiciary Act, on the basis that the court could not quash or set aside what a person thought or intended, even if these thoughts or intentions may foreshadow an action or decision in exercise of statutory power. French J said (at [21]):

The so-called decision is at best the formation of an opinion or intention which is not provided for in the Act. It has no statutory significance. It is therefore not amenable to being quashed or set aside which is the only relief claimed pursuant to s 39B of the Judiciary Act. The law cannot quash or set aside what people think or intend even if their thoughts or intentions are the precursors of statutory action. In so far as relief is claimed under s 39B of the Judiciary Act the claim is, in my opinion, manifestly untenable and should, in respect of this “decision” be dismissed

27    It may be accepted that this case differs from Meredith in that, by requesting the materials and arranging a meeting with the applicant’s director, the Commissioner may have gone beyond merely forming an intention to review, by proposing to take steps preparatory to it. As Besanko J’s decision in Halls illustrates, however, in circumstances like the present, the analysis should be much the same and the outcome, no different.

28    A question also arose in Halls as to the competency of judicial review proceedings under the ADJR Act and the Judiciary Act. The ATO had conducted an audit of the applicant’s Business Activity Statements, after which ATO officers had prepared an interim audit report. The applicant commenced the proceedings, seeking a declaration that the report’s findings were beyond power and injunctions restraining the respondent from proceeding to a final decision on the audit. His Honour upheld the Commissioner’s objection to competency, holding that the proceedings were incompetent under both statutes. Besanko J accepted (at [14]) that there was no legislative requirement or provision for the making of an interim audit report, and that the audit process was “not otherwise provided for in legislation”. Similarly to this case, his Honour held (at [13]) that the source of the Commissioner’s power to undertake an audit in that case was s 3A of the Administration Act. Besanko J held (at [25]) that the applicant had no reasonable prospect of successfully prosecuting the proceeding under s 39B of the Judiciary Act because there was no decision for the purposes of the relief which might be granted under that provision. His Honour explained (at [25]) that “[t]he findings are interim findings and there is nothing to quash or set aside”. He considered at [25] that French J’s observations in Meredith at [21] were applicable in Halls too.

29    It might be thought that the Commissioner had ventured further into accomplishing the intended result (the audit) in Halls than in Meredith, or in this case where the 24 April 2018 letter indicated only that the Commissioner proposed to conduct a review of the applicant’s activities, and to that end sought to arrange for some preparatory steps to be taken. The outcome in Halls and Meredith did not, however, turn upon this kind of factual difference. There is therefore no reason to treat this difference as relevant in this case.

30    There is another difference, however, between this case and Halls and Meredith. In this case the applicant seeks injunctive relief, rather than the issue of writs of certiorari and prohibition or the like. Leaving aside the issue whether the applicant has misconceived the relief it seeks (a matter touched on by the Commissioner in written submissions), it does not seem to me that this difference leads to a result any different from that in Halls or Meredith. As already stated, the review itself was not to be conducted under any legislative provisions providing for review but as an aspect of the Commissioner’s responsibility for the general administration of the Administration Act and the ITAA 1936. Any co-operation that the applicant chose to give the Commissioner in conducting the review, including meeting with ATO officers or providing information, was voluntary. There was no “decision” that might be held unlawful in the sense of being beyond statutory power, and no consequential alteration in the applicant’s legal position that might support judicial review on grounds of the kind the applicant has identified or the grant of injunctive relief. Accordingly, there could be no basis for enjoining the Commissioner even if this were the appropriate remedy.

31    For these reasons, I accept that, as the Commissioner submitted, the applicant’s originating application does not challenge a decision amenable to judicial review and the relief it seeks and, therefore, the applicant has no reasonable prospect of successfully prosecuting the proceeding under s 39B of the Judiciary Act.

32    There are, moreover, a number of other considerations that would also support this latter conclusion. They include that the grounds identified by the applicant as founding the relief it seeks are overly broad and lack any evidentiary foundation. The applicant has not identified any basis, including in the affidavits that it has filed, for the allegations that the supposed “decision to require the documents and conduct the review” was: “made for improper purpose”, “excessive, oppressive, and an abuse of power”, “over-zealous” and “not consistent with previous actions of the respondent, and therefore unfair to the applicant”. There is simply no foundation identified by the applicant or otherwise discernible in the material before the Court that might support the factual findings on which the applicant’s stated grounds depend. Furthermore, as senior counsel for the Commissioner observed, some of the grounds on which the applicant seeks to rely are not known to the law.

proposed amendments to originating application

Parties’ submissions regarding the proposed amendments

33    In its written submissions, the applicant reiterated that it sought leave to amend its originating application so as to “seek orders restraining the [Commissioner] from enforcing the notices of 17 and 22 August 2018, or pursuing the other subsequent requests and notices”.

34    At the hearing senior counsel for the Commissioner submitted that paragraphs (a) and (b) of the amendments proposed by the applicant (as set out in Mr Mato Sop’s 4 October 2018 supplementary affidavit) made no sense, bearing in mind that the notices issued under s 353-10 of Schedule 1 to the Administration Act on 17 and 22 August 2018 had nominated dates for compliance that had since passed. Both parties apparently accepted, for present purposes, that the applicant’s directors did not comply with the notices that the Commissioner issued to them; and senior counsel for the Commissioner submitted that there was “nothing in the material before the Court to the effect that the Commissioner has decided to take what one might describe as a prosecutorial step by reason of failure to comply with the notice”. Senior counsel for the Commissioner submitted that, in these circumstances, there is “presently no foundation for the amendment that … would seek to impugn the notices that have ceased to have legal effect”.

35    In relation to paragraph (c) of the applicant’s proposed amendments (as set out in Mr Mato Sop’s 4 October 2018 supplementary affidavit), senior counsel for the Commissioner submitted that the 26 September 2018 email advising that audits would be commenced with respect to a number of the applicant’s clients was merely a statement of intention to commence an audit and, therefore, of the same nature as the 24 April 2018 letter. He stated that “so far as the attempt to restrain the audit [is concerned] … that’s no more than the announcement of a decision to collect information which … by itself has no legal consequence. And, therefore, could not found relief”.

Consideration of the proposed amendments

36    The applicant’s application to join the applicant’s directors and amend its originating application requires reference to some additional matters.

37    By letters dated 17 August 2018 and 22 August 2018 addressed respectively to each of the applicant’s two directors, the Commissioner gave notice under s 353-10 of Schedule 1 to the Administration Act that each of them was required to produce certain documents to the Commissioner, and to attend and give evidence at a particular place on a specified day in September 2018.

38    It is evident that the time for compliance with these notices has passed. For present purposes, it may be accepted that the applicant’s directors did not produce the documents or attend to give evidence as required by the notices. Mr Mato Sop did not deny the Commissioner’s statements to this effect. In the circumstances, save for the issue of any penalty for non-compliance, there can be no live controversy as to whether the notice was operative when issued. There seems nothing to be gained by paragraphs (a) and (b) of the amendment proposed in Mr Mato Sop’s 4 October 2018 supplementary affidavit, given that each of the notices in question has run its course.

39    As to the penalty issue, there is no evidence that the Commissioner has decided to take any prosecutorial steps by reason of the applicant’s directors’ failure to comply with the notices issued to them. The most that Mr Mato Sop could say in this regard for the applicant is that the Commissioner has proceeded to issue further notices to the directors in substantially the same terms as the original notices.

40    In paragraph (c) of these proposed amendments, the applicant applied to include an application for an order restraining the conduct of a foreshadowed audit of the files and records of the applicant’s clients as “listed in the email dated 26 September 2018”. Reference to that email shows that it advised the applicant that the Commissioner proposed “shortly” to commence an audit on 20 of the applicant’s clients. The email was in substance no more than a statement of intention. For the reasons stated by French J in Meredith at [21] (see [26] above), this proposed amendment could not found the relief the applicant would seek. The same may equally be said of the communications referred to in paragraphs 8 and 9 of the applicant’s submissions dated 12 November 2018.

41    Furthermore, the proposed amendments would apparently rely on the existing grounds, which, as already discussed, are overly broad, without any evidentiary foundation, and in some instances, unknown to the law.

42    For these reasons, the proposed amendments have no merit, and leave to amend should be refused.

application to set aside Subpoena

43    The final issue is whether the subpoena to produce documents addressed to the Commissioner should be set aside.

Parties’ submissions on the subpoena

44    The Commissioner submitted that if an order for summary judgment against the applicant were made, it would follow that the subpoena should be set aside. The Commissioner further contended that the subpoena should be set aside, in any event, on the basis that there was no evidence to support the grounds advanced by the applicant to impugn the supposed decision to conduct a review of the applicant and its clients. The Commissioner relied on statements in Jilani v Wilhelm [2005] FCAFC 269; 148 FCR 255 at [111], acknowledging that they were made in the context of discovery but contending the same principles were applicable in the context of an application to set aside a subpoena.

45    The applicant submitted that if the originating application were maintained, then the subpoena was justified. The documents the subject of the subpoena issued to the Commissioner, so the applicant said, “are likely to confirm the allegations of improper purpose, abuse of power, excessive zealousness, inconsistency with previous actions, and unfairness”.

Consideration

46    At the hearing of the Commissioner’s application for summary judgment, the Court adjourned the return of the subpoena on the basis that if the Commissioner were successful, then the subpoena should be set aside.

47    For the reasons stated above, I would give judgment for the Commissioner on the ground that the applicant has no reasonable prospect of successfully prosecuting the proceeding. This conclusion would also lead me to set aside the subpoena to produce documents addressed to the Commissioner. In these circumstances, it is unnecessary to consider the Commissioner’s alternative submission that the subpoena should be set aside in the absence of any evidence that might support the grounds for relief set out in the applicant’s originating application.

Disposition

48    For the reasons stated, I would make the following orders:

1.    Compliance with r 4.01(2) of the Rules be dispensed with for the purpose of hearing and determining the Commissioner’s interlocutory application dated 30 October 2018 and Mr Mato Sop have leave to represent the applicant for those limited purposes.

2.    Pursuant to s 31A(2) of the FCA Act, judgment be given for the Commissioner on the ground that the applicant has no reasonable prospect of successfully prosecuting the proceeding.

3.    Leave to amend the originating application (as sought in Mr Mato Sop’s supplementary affidavit sworn on 4 October 2018 and in the applicant’s submissions dated 12 November 2018) be refused.

4.    Pursuant to r 24.15(1) of the Rules, the subpoena to produce documents addressed to the Commissioner and issued by the Court on 22 October 2018, be wholly set aside.

5.    The applicant pay the Commissioner’s costs of and incidental to the proceeding, including the costs of the Commissioner’s interlocutory application dated 30 October 2018 and any reserved costs, as agreed or as assessed in default of agreement.

Associate:

Dated:    11 February 2019