Federal Court of Australia

Commissioner of Taxation v [Respondent] [2023] FCA 1176

ORDERS

THE COURT ORDERS THAT:

1.    Prayers 6, 6A and 7 of the further amended interlocutory application filed on 21 September 2023 are dismissed.

2.    Orders 11 and 12 of the interim orders made on 14 September 2023 are continued in force in respect of any details that name or otherwise identify [the third respondent to the application] or [the fourth respondent to the application]; any communications sent to or from [the third respondent to the application] or [the fourth respondent to the application]; and any reference in any document filed in these proceedings to [the third respondent to the application] or [the fourth respondent to the application]:

(a)    until the determination of any application for suppression or non-publication orders in respect of that document by [the third respondent to the application] or [the fourth respondent to the application]; or

(b)    if no such application is made by 4.00 pm on Thursday 5 October 2023, until 5.00 pm on that day.

3.    Order 1 is stayed until 5.00 pm on Wednesday 4 October 2023.

4.    These orders and the accompanying reasons are not to be published otherwise than to the parties to the further amended interlocutory application filed on 21 September 2023 and their legal representatives until the expiry of the stay in order 3, and thereafter are to be published only in redacted form (so as not to identify [the third respondent to the application] or [the fourth respondent to the application]) until the expiry of order 2.

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

REASONS FOR JUDGMENT

KENNETT J:

1    The applicant (the Commissioner) seeks declarations that the first respondent ([respondent]) contravened s 290-50(1) of Schedule 1 to the Taxation Administration Act 1953 (Cth) (the TAA), by being the promoter of a tax exploitation scheme, and a pecuniary penalty under s 290-50(3) of the same Schedule.

2    [The respondent] was at relevant times a tax partner in a major accounting firm. He also was (and remains) a legal practitioner and a registered tax agent.

3    The primary case of the Commissioner characterises relevant conduct of [the respondent] as involving the promotion of a scheme referred to as the “Tax Loss Access Scheme” to one or more of [redacted] between November 2016 and April 2021. Three more specific schemes are pleaded in the alternative:

(a)    the “[redacted] Scheme”, alleged to have been promoted to one or more of [redacted] in the period November 2016 to April 2021;

(b)    the “[redacted] Scheme”, alleged to have been promoted to one or more of [redacted] in the period June 2019 to April 2021; and

(c)    the “[redacted] Scheme”, alleged to have been promoted to one or more of [redacted] in the period April 2018 to November 2020.

4    Currently before me is an interlocutory application, filed by [the respondent], seeking suppression orders under s 37AF of the Federal Court of Australia Act 1976 (Cth) (the Federal Court Act). The respondents to this application are the Commissioner, [redacted] and several corporate entities. It is not necessary to detail the connection that these persons have with the subject matter of the proceedings, other than [the third respondent to the application] (whose position is mentioned further below).

5    On 14 September 2023 I made the following interim orders by consent:

11.     Pursuant to s 37AI of the Federal Court of Australia Act 1976 (Cth) there be no further disclosure, by publication or otherwise, of:

11.1.     documents filed in the proceedings and the information contained in them, including the fact that the documents have been filed; and

11.2.     that claims of the nature contended for in these proceedings have been brought against the Respondent,

except to the Applicant and Respondent and second to eighth and tenth to sixteenth respondents to the Application and their respective legal advisers and by the Applicant for the purposes of compliance with any statutory obligations or by either party for the purposes of the conduct of the proceeding who have been notified of this order. This order applies:

11.3.     to all media including but not limited to print, radio, television, internet and social media;

11.4.     to all persons, including any media organisation, present in the court whether in person or electronically;

11.5.     to the Applicant and the Respondent and the fifth to eighth and tenth to sixteenth respondents to the Application and any other persons who are notified of these orders;

11.6.     anywhere in the Commonwealth;

11.7.     until final determination of the application for orders pursuant to s 37AF of the Federal Court of Australia Act 1976 (Cth) or until further order of the Court.

12.     No access is to be granted to any document filed in this proceeding to any person apart from the parties or those representing them in these proceedings, until 5pm on the date for hearing of the application for orders pursuant to s 37AF of the Federal Court of Australia Act 1976 (Cth) or until further order of the Court.

6    I also made orders for service of the interlocutory application on the respondents other than the Commissioner, and fixed [the respondent’s] application for ongoing suppression orders for hearing on 29 September 2023.

7    By his further amended interlocutory application, [the respondent] seeks the following ongoing orders under s 37AF:

6.     Pursuant to s 37AF of the Federal Court of Australia Act 1976 (Cth) and on the grounds referred to in s 37AG(1)(a) and/or (1)(c) of the Act, there be no disclosure, by publication or otherwise, of:

(a)     documents filed in the proceedings and the information contained in them, including the fact that the documents have been filed, insofar as they refer to the name of the Applicant, the former accounting firm of the Applicant, witnesses, and taxpayers; and

(b)     the nature of the claims in the proceedings that claims of the nature contended for in these proceedings have been brought against the Applicant,

except to the Applicant and Respondents and their respective legal advisers and by the Respondent for the purposes of compliance with any statutory obligations or by either party for the purposes of the conduct of the proceeding to persons who have been notified of this order. This order applies:

(i)     to all media including but not limited to print, radio, television, internet and social media;

(ii)     to all persons, including any media organisation, present in the court whether in person or electronically;

(iii)     to the Applicant and to the Respondents and any other persons who are notified of this order;

(iv)     anywhere in the Commonwealth;

(v)     until final determination of the question of whether the bringing of the proceedings is time barred or until further order of the Court.

6A.     The name of Applicant, the former accounting firm of the Applicant, respective witnesses, and respective taxpayers referred to I [sic] the evidence be referred to by way of a pseudonym, until final determination of the question of whether the bringing of the proceedings is time barred or until further order of the Court

7.     No access is to be granted to any document filed in this proceeding (insofar as they refer to, or are not redacted to remove, the name of the Applicant, the former accounting firm of the Applicant, witnesses, and taxpayers) to any person apart from the parties or those representing them in these proceedings, until final determination of the question of whether the bringing of the proceedings is time barred or until further order of the Court.

8    Sections 37AF and 37AG of the Federal Court Act provide as follows:

37AF Power to make orders

(1)     The Court may, by making a suppression order or non-publication order on grounds permitted by this Part, prohibit or restrict the publication or other disclosure of:

(a)     information tending to reveal the identity of or otherwise concerning any party to or witness in a proceeding before the Court or any person who is related to or otherwise associated with any party to or witness in a proceeding before the Court; or

(b)     information that relates to a proceeding before the Court and is:

(i)     information that comprises evidence or information about evidence; or

(ii)     information obtained by the process of discovery; or

(iii)     information produced under a subpoena; or

(iv)     information lodged with or filed in the Court.

(2)     The Court may make such orders as it thinks appropriate to give effect to an order under subsection (1).

37AG Grounds for making an order

(1)     The Court may make a suppression order or non-publication order on one or more of the following grounds:

(a)     the order is necessary to prevent prejudice to the proper administration of justice;

(b)     the order is necessary to prevent prejudice to the interests of the Commonwealth or a State or Territory in relation to national or international security;

(c)     the order is necessary to protect the safety of any person;

(d)     the order is necessary to avoid causing undue distress or embarrassment to a party to or witness in a criminal proceeding involving an offence of a sexual nature (including an act of indecency).

(2)     A suppression order or non-publication order must specify the ground or grounds on which the order is made.

9    As is apparent from the terms of the further amended interlocutory application, [the respondent] relies on the grounds set out in s 37AG(1)(a) and (c). These will be considered in turn.

Section 37AG(1)(a): necessary to prevent prejudice to the proper administration of justice

10    [The respondent] relies on the damage to his reputation among clients and prospective clients (and consequent commercial damage) which he is concerned may arise from disclosure of the nature of the allegations against him. The prospect of such damage is obvious. He is accused of significant misconduct as a tax practitioner.

11    It has often been observed that reputational damage, inconvenience and embarrassment do not in themselves provide a basis for concluding that the ground in s 37AG(1)(a) is made out: see, for example, Lee v Deputy Commissioner of Taxation [2023] FCAFC 22; 296 FCR 272 at [90] (Thawley, Stewart and Abraham JJ) (Lee). These are frequent if not inevitable consequences of involvement in litigation, and must normally be accepted as part of the price of conducting disputes in a curial system based on the principle of open justice. Adverse personal consequences to a litigant provide a basis for an order on the ground in s 37AG(1)(a) only if they can be seen to lead to some potential adverse consequence (“prejudice”) to the administration of justice itself.

12    Furthermore, s 37AG(1)(a) requires that the proposed order is “necessary” to prevent “prejudice” of that kind. Although “necessary” in this context may not mean absolutely essential (see R v AB [2018] NSWCCA 113; 97 NSWLR 1015 at [75]–[78] (Rothman J) (AB), considering analogous NSW legislation), and the concept of “prejudice” also evokes some form of risk assessment (AB at [31]–[32] (Meagher JA)), the language of necessity does not invite any balancing of interests or evaluative assessment of the public interest (Hogan v Australian Crime Commission [2010] HCA 21; 240 CLR 651 at [30]–[31] (French CJ, Gummow, Hayne, Heydon and Kiefel JJ) (considering the predecessor of ss 37AF–37AG). What is “necessary” must be assessed in the light of the prominence given by s 37AE of the Federal Court Act to the principle of open justice; and the assessment must focus resolutely on the particular purposes identified in s 37AG(1)(a) to (d) (relevantly here, preventing “prejudice to the administration of justice”).

13    [The respondent] relies on A v Commissioner of Taxation [2016] FCA 1307 (Perram J) (A v Commissioner). In that case, the applicant sought to set aside notices issued to him by the Commissioner. The notices were issued in the context of a dispute concerning the applicant’s tax liabilities and required him to disclose information concerning his affairs. That dispute followed a process of audit and a conclusion on the part of the Commissioner that the applicant had engaged in fraud and evasion. The dispute had not (yet) come before the Court under Part IVC of the TAA and was therefore confidential; the applicant’s side of the story had not been told and would not be told unless the matter went further.

14    In A v Commissioner at [11]–[12], Perram J referred to the frequently cited observations by Jacobson J in Rinehart v Rinehart [2014] FCA 1241; 320 ALR 195 at [21]–[31]. In the course of those observations, Jacobson J made the point (at [28]) that one reason why reputational distress in litigation is not enough to make out the ground in s 37AG(1)(a) is that such distress usually arises in an environment where parties are heard and can respond to each other. This, as Perram J noted, would not happen in the circumstances of A v Commissioner: the allegations of misconduct against the applicant would inevitably enter the public domain, but the proceeding would not provide any occasion to answer those allegations (because it would necessarily concern only the legality of the notices issued by the Commissioner). This, in his Honour’s view, called for suppression orders to be made (at [13]–[14]).

15    [The respondent] seeks to build on the reasoning in A v Commissioner in the following way.

(a)    Section 290-55(4) and (5) prohibit the Commissioner from applying for orders under s 290-50 against an entity in relation to a scheme more than four years after the entity last engaged in the conduct said to constitute the relevant breach. Section 290-55(6) provides that these limitations do not apply if the relevant scheme involved “tax evasion”.

(b)    The Commissioner’s originating application is therefore incompetent, unless it is established that (i) the pleaded “schemes” involved “tax evasion” (which is disputed) or (ii) [the respondent’s] activity in promoting those schemes continued up to a time less than four years before the originating application was filed (ie 18 August 2019).

(c)    If the originating application is held to be incompetent for this reason, it will necessarily be dismissed without any finding on the substantive merits of what is alleged against the applicant. He will therefore not have an opportunity to respond, in the course of the litigation, to what is put against him.

16    Counsel for the Commissioner pointed out that, on the Commissioner’s pleaded case, [the respondent] engaged in conduct as a promoter of the Tax Loss Access Scheme until 13 April 2021. In relation to the narrower schemes pleaded in the alternative, he is alleged to have promoted the [redacted] Scheme up to (at least) 19 September 2019, the [redacted] Scheme up to 22 August 2019 and the [redacted] Scheme up to at least 26 September 2019. On this basis, she submitted, an issue as to the application of s 290-55 arose only in relation to one of the schemes pleaded in the alternative (being the [redacted] scheme). However, I was informed by counsel for [the respondent] that the dates pleaded by the Commissioner in this regard were not admitted, so that it could not be assumed that any part of the relevant conduct would be found to have occurred after the relevant time for the purposes of s 290-55(4) or (5). In other words, there would be a dispute as to whether the proceeding is competent to any extent.

17    Nevertheless, I do not think that this argument assists [the respondent] in making out the ground for a suppression order in s 37AG(1)(a). There is a narrower and a broader reason for this.

18    The narrower reason is that resolving the dispute as to competence will involve evidence, argument and a need to make findings concerning:

(a)    what conduct of [the respondent] constituted being a promoter of either the Tax Loss Access Scheme or each of the narrower schemes, and when it occurred; and

(b)    where the relevant conduct ended before 19 August 2019, whether the scheme concerned had the characteristics of a “scheme involving tax evasion”.

19    It is unrealistic to expect these issues to be able to be resolved following a preliminary hearing. Each plainly involves questions that ought not to be decided otherwise than in the light of all the relevant evidence in the case. Questions of competency will therefore almost certainly need to be decided as part of the final judgment.

20    Further, even if it were realistic to hold a preliminary hearing on the issues of competency, it is apparent that that hearing would need to canvass not only what [the respondent] actually did and at what times, but whether or not he was involved in “evasion”. The Commissioner would need to adduce evidence on these topics and [the respondent] would have an opportunity to answer it as part of the curial process.

21    The circumstances of the present case are therefore quite different from those that presented themselves in A v Commissioner.

22    The broader reason is that, even if there is a realistic prospect of the case being disposed of after a preliminary hearing limited to questions of competency (with the consequence that allegations of misconduct against [the respondent] enter the public domain but are not debated in the proceeding), that does not go any further than establishing unavoidable reputational distress to [the respondent]. The necessary link with “the proper administration of justice” is not made out. Prejudice to the administration of justice is not established simply because the allegations against [the respondent] may not be tested and decided on their merits (assuming that to be correct), not least because the Court is entitled to proceed on the basis that any reporting of the allegations would be undertaken responsibly (cf Kaplan v State of Victoria [2022] FCA 590 at [50] (Mortimer J).

23    It is significant that the applicant for suppression orders in A v Commissioner was the applicant in the proceeding. This was also the case in Applicant X v Australian Prudential Regulation Authority [2005] FCA 1288, where Lindgren J made orders suppressing the identities of applicants who sought orders to the effect that the respondent (APRA) had no power to make orders disqualifying them. (The orders made by APRA had been based on a report containing very damaging conclusions concerning the applicants, but the challenge to APRA’s power depended on questions of law and did not engage with the merits of those conclusions.) The Full Court took the same approach in relation to the appeal from his Honour’s judgment on the substantive issues in the case: Applicant Y v Australian Prudential Regulation Authority [2005] FCAFC 222 (Emmett, Allsop and Edmonds JJ) (Applicant Y). In the course of their joint reasons, their Honours noted (at [13], [16]) that the applicants would not have commenced the proceedings or continued them if the suppression order had not been made. (The substantive issues were the subject of a further appeal to the High Court (X v Australian Prudential Regulation Authority [2007] HCA 4; 226 CLR 630. Kirby J (at [86]–[92]) expressed doubts concerning the appropriateness of the suppression orders but there was no argument on the issue.)

24    Where an applicant in a proceeding before the Court faces the prospect of damaging allegations or other material entering the public domain in the course of the proceeding, without an opportunity to rebut those allegations or that material in the context of the proceeding, it may be that the prospect of such material being disclosed will deter that applicant (or others in a similar position) from coming to court to protect their legal rights. This prospect is clearly capable of being regarded as inimical or prejudicial to “the proper administration of justice” (although that conclusion is not always reached, as the question is context-specific (see, eg, Huikeshoven v Secretary, Department of Education, Skills and Employment [2021] FCA 1359 (Jackson J))). Attention to this factor is evident in Applicant Y and should, in my view, also be understood to underpin the decision in A v Commissioner. Absent that factor, there was nothing to elevate the unfortunate position of the applicant in A v Commissioner into something that threatened prejudice to the administration of justice. If A v Commissioner were taken to stand for the broad position put by [the respondent]—effectively, that the ground in s 37AG(1)(a) is made out because the damaging allegations against him may not be tested in the proceeding—it would be difficult to reconcile with the stream of authority holding reputational distress to be insufficient in itself: see Lee at [93]–[95].

25    The position is different where proceedings commenced in the Court involve potential disclosures of material that the respondent would prefer not be made public. Respondents are necessary participants in proceedings whether they like it or not, and are therefore (at least normally) not capable of being deterred from seeking vindication of their rights by the prospect of embarrassment or distress. Cases can possibly be imagined where a respondent, despite having a good defence to a claim, could be driven to consent to judgment by desperation to avoid public disclosure of material damaging to their reputation. Such an outcome could, depending on the nature of the issues in the case, potentially be seen as prejudicial to the proper administration of justice. However, I was not referred to a case in which this conclusion was reached; and it has not been suggested that [the respondent] is in this position.

26    No other basis was articulated upon which disclosure of the allegations against [the respondent] would diminish public confidence in, or otherwise prejudice, the administration of justice. They are not comparable with, for example, sensitive personal information irrelevant to the main issues (cf, eg, Porter v Australian Broadcasting Corporation [2021] FCA 863 at [84] (Jagot J)).

27    The ground provided by s 37AG(1)(a) for making a suppression order is not made out.

Section 37AG(1)(c): necessary to protect the safety of any person

28    The evidence in support of this ground goes no higher than evidence given on information and belief that [the respondent] has suffered “immense anxiety and stress” and has consulted a psychologist, who recommended “ongoing sessions”. There is no evidence capable of being tested concerning the effect of the potential disclosures on [the respondent’s] mental health. This material falls well short of establishing that the proposed suppression orders—or any particular orders—are “necessary” to avoid unacceptable risk to [the respondent’s] health (cf AB v CD [2019] HCA 6; 93 ALJR 321 at [15] (Nettle J)).

29    The evidence also does not take account of the fact that proceedings are already on foot, in the Supreme Court of New South Wales, in which [the respondent] is sued by some of the persons to whom he is alleged to have promoted the schemes that are the subject of the present case. Clearly there is a significant factual overlap between that case and the present one. No suppression orders have been sought in the Supreme Court. To the extent that [the respondent] suffers from anxiety caused by the prospect of allegations against him being aired in public, it is far from clear that suppression orders in the present case would play a significant part in protecting his health.

30    This makes it unnecessary to consider whether protection from anxiety arising from reputational concerns, on the part of a person who is the subject of allegations of misconduct, is within the concept of “the safety of any person” in s 37AG(1)(c).

Disposition

31    The interlocutory application must be dismissed in so far as it seeks ongoing suppression orders (ie prayer 6 set out at [7] above). The order proposed in prayer 6A, requiring [the respondent] and his former accounting firm to be referred to by way of pseudonyms, also comes within the scope of s 37AF(1) and is to be regarded as a species of suppression order. Prayer 6A, too, must therefore be dismissed (noting also the observations of the Full Court in Ogawa v President of the Australian Human Rights Commission [2022] FCAFC 160; 294 FCR 221 at [28]–[31] (Rares, Perry and Hespe JJ)).

32    It also follows that there is no proper basis to make the order sought by prayer 7 of the interlocutory application. Requests for access to documents should be dealt with, as they arise, consistently with Rule 2.32 of the Federal Court Rules 2011 (Cth) and the applicable practice note.

33    The Court’s orders will be stayed for 24 hours to allow [the respondent] to consider whether to make an application for leave to appeal.

34    At the hearing on 28 September, counsel appeared for one of the respondents to the further amended interlocutory application, [the third respondent to the application]. He made an oral application for material referring to [the third respondent to the application] to continue to be suppressed on a temporary basis so that he could consider whether to make an application for ongoing orders. At that time counsel envisaged being able to file submissions in support of an application later this week. I indicated that I would take this course. The parties have not agreed to a form of orders to accomplish this; and this morning [the third respondent to the application] (and a company associated with him) have provided proposed orders that would allow them until 27 October to file submissions in support of an application.

35    I have come to the view that it is appropriate for [the third respondent to the application], if he wishes to seek suppression orders, to file an application seeking those orders by 4 pm on Thursday 5 October. I will extend the operation of the existing orders, in so far as they apply to material concerning [the third respondent to the application] and the company referred to above, until either 5.00 pm on that day or the determination of any application that he makes. The matter is before me for case management on Monday 9 October, and I will use that hearing to make any timetabling orders that are necessary.

Associate:

Dated:    12 October 2023

SCHEDULE OF PARTIES