In Commissioner of Taxation & Darling [2014] FamCAFC 59 (4 April 2014) the Full Court (Thackray, Strickland & Murphy JJ) in proceedings in which the Commissioner of Taxation was not a party considered an appeal by the Commissioner from Macmillan J’s dismissal of its application to be released from an implied obligation not to make use of affidavits he had obtained from the court file under FLR 24.13(1)(c) for purposes other than those of the proceedings”, being the purpose of an audit into the husband’s affairs being conducted by the Australian Taxation Office (“ATO”) (paras 1-24).
The Full Court said (at para 4) that the appeal concerned “… the scope of an obligation articulated in these terms by the High Court in Hearne v Street (2008) 235 CLR 125 at [96]:
“Where one party to litigation is compelled, either by reason of a rule of court, or by reason of a specific order of the court, or otherwise, to disclose documents or information, the party obtaining the disclosure cannot, without the leave of the court, use it for any purpose other than that for which it was given unless it is received into evidence.”
The ATO had attended the Melbourne Registry with permission from the Registry Services Manager to examine the file without notice to the parties and had “tagged” documents of interest (paras 10-11). The ATO then wrote to the Court seeking permission to copy those documents, seeking access again under s 263 of the Income Tax Assessment Act 1936. The Registry Manager “after consultation with the Case Management Judge” consented (para 18). After obtaining copies, the Commissioner applied to the Family Court for leave to intervene and an order releasing him from the implied obligation not to make use of the documents for purposes other than those of the proceedings (para 23).
The Full Court considered the basis on which the ATO were granted access to the documents, saying (at paras 78-79):
“… With respect to the primary judge, we consider the better view is that access to the file was sought from, and granted by, members of the court’s administrative staff, and that access was permitted only because of the invocation by the ATO of its coercive powers. We have formed this view for these reasons:
1. The first tranche of the documents was inspected in December 2009, when ATO officers attended at the Court, having received no response to earlier correspondence. There is no suggestion that any judge (or even a registrar) had any involvement. Given later correspondence, a possible inference is that the ATO used its s 263 powers to obtain access, especially as the names of the parties were not disclosed in the earlier correspondence and no reasons had been advanced to show what ‘proper interest’ the Commissioner had in seeking access to the file.
2. The request the ATO subsequently made for access to the file and copying of documents pursuant to r 24.13(1)(c) was denied.
3. The letter of 20 May 2010 did not say the decision had been made by the Case Management Judge. It said that, after consulting with the Case Management Judge, ‘we now consent to the Australian Taxation Office inspecting the file …’
4. Apart from stating the obvious point that the file had already been inspected (the request now was to make copies of documents), a number of observations can be made about the letter of 20 May 2010:
• there is no indication of who “we” was intended to encompass. It could scarcely be thought to include a judge, who may give leave or permission or make orders, but who does not “consent”;
• it is entirely unclear what the Case Management Judge was asked or what he said in response, but there can be no real suggestion that his involvement was anything other than informal and/or advisory;
• no order was extracted and we were not taken to any document on which the Case Management Judge had made any notation, which would be the regular way in which a judicial officer would signify a formal direction, instruction or order made in chambers;
• while it is true, as the primary judge noted, there was no ‘appeal’, the question might be asked, ‘appeal against what?’. The parties were not even aware the ATO had made a ‘request’. They were unaware that the file had been inspected. They were unaware of any involvement of a judge. Even had they inspected the file they would not have been entitled to see correspondence passing between the Court and the ATO – see r 24.13(4).
( … )
… We will therefore determine the appeal on the basis that:
• permission was not given by a judge, but rather by administrative staff;
• permission was not given pursuant to r 24.13, rather it was refused; and
• access was obtained by use of the Commissioner’s coercive powers.”
Considering the implied obligation to only use documents for the purpose of proceedings, the Full Court said (from para 89):
“… The Commissioner argued that he was not subject to the obligation because he was a stranger to the proceedings, and had (allegedly) obtained the documents with the Court’s permission. It was submitted that it was implicit in the alleged grant of permission that the Commissioner could use the documents in performing his duties, since otherwise the permission was of no utility.
( … )
[101] The plurality in Hearne v Street accepted that the implied obligation extends not only to parties, but to ‘anyone else’ into whose hands documents come, provided they knew the material was generated in legal proceedings. The same view had been expressed by the majority in the NSW Court of Appeal, whose decision was upheld by the High Court (see Hearne v Street at [92]).
[102] As the plurality in Hearne v Street said, at [103]:
‘[The obligation] would be of very limited protection if it were only personal to the litigant … For that reason the authorities recognise a broader principle by which persons who, knowing that material was generated in legal proceedings, use it for purposes other than those of the proceedings are in contempt of court.’
( … )
[107] … when regard is had to the underlying purpose of the obligation, we see no reason to treat a stranger to the litigation any differently to someone with a direct connection (provided the stranger is aware the documents were generated in, or for the purposes of, litigation). The primary purpose of the principle is to protect privacy and encourage frank disclosure in litigation. This purpose would not be fostered by reading down the principle.”
The Full Court then considered the implied obligation in the context of legislation, saying (from para 135):
“… Senior counsel for the Commissioner was wise to eschew any suggestion that the implied obligation must give way to ss 263 and 264 of the [Income Tax] Assessment Act, since that proposition could not stand following the decision of the High Court in Daniel’s Corporation [Daniels Corporation International Pty Ltd v Australian Competition and Consumer Commission (2002) 213 CLR 543] ( … )
[136] Daniel’s Corporation dealt with the scope of powers conferred on the Australian Competition and Consumer Commission by s 155 of the Trade Practices Act 1974 (Cth), which we accept as being essentially equivalent to those conferred by s 263 of the Assessment Act. The High Court held that the power under s 155 to issue notices for production of documents did not authorise production of documents to which legal professional privilege attached. This is, therefore, an important illustration of the application of the ‘principle of legality’, which appears to have had its earliest expression in Australia in Potter v Minahan [1908] HCA 63; (1908) 7 CLR 277 at 304, where O’Connor J quoted Maxwell On Statutes:
‘It is in the last degree improbable that the legislature would overthrow fundamental principles, infringe rights, or depart from the general system of law, without expressing its intention with irresistible clearness; and to give any such effect to general words, simply because they have that meaning in their widest, or usual, or natural sense, would be to give them a meaning which they were not really used.’
[137] We accept, as was submitted for the Commissioner, that the implied obligation is an obligation to the Court which is imposed by law and therefore does not constitute a right that attaches to the individual producing the documents: Bourns v Raychem Corporation [No 3] [1999] 1 All ER 908 at [16], cited with approval in Hearne v Street at [106]. Nevertheless, the principle underlying the obligation is a fundamental one, and is based on acceptance of the fact that:
‘The use of discovery involves an inroad, in the interests of achieving justice, upon the right of the individual to keep his own documents to himself; it is an inroad that calls for safeguards against abuse … (Harman v Secretary of State for Home Department [1983] 1 AC 280 at 300 per Lord Diplock cited with approval in Hearne v Street at [107]).’
[138] One of those safeguards is the application of the principle of legality, which ensures that the implied obligation will not be abrogated by statute unless that abrogation is brought about by words of irresistible clarity.
( … )
[140] … we consider the principle of legality should be applied just as firmly in the case of a statutory provision imposing a duty on a public officer as it is in the case of a statutory provision giving a power to a public officer. We do not consider it is logical to accept (as senior counsel for the Commissioner did) that the obligation is a limitation on the Commissioner’s powers to access buildings and documents, but to then assert that the obligation is not a limitation when he is carrying out his duty to make an assessment by making use of documents obtained by use of those powers.
( … )
[142] We proceed on the basis that if the Commissioner’s powers of coercion do not extend to demanding documents from a court file, the purported use of those powers for that purpose prima facie constitutes contempt. To then make use of the documents obtained by such means would seem to us to aggravate the contempt. …
[143] We are unable to find anything in the text of s 166 and 167 of the Assessment Act which could be construed as ‘clear words’ relieving the Commissioner from compliance with the implied obligation. Nor is there anything in the legislation which would provide a basis for concluding there is a ‘necessary implication’ that he has been relieved from compliance. Using the phrase employed in Daniels Corporation, at [32], it is far from obvious that application of the obligation to the Commissioner would significantly impair the performance of his duties. Indeed, his own manual suggests the contrary.”
Having found that the ATO was obliged to comply with the implied obligation, the Full Court allowed the appeal to the extent of granting leave to the ATO so that it could use the documents obtained from the Court file for other, defined, purposes, saying (from para 198):
“… … we consider the discretion should be exercised in favour of the Commissioner for the following reasons:
1. The Commissioner is performing an important public duty. There is no reason to doubt the opinion of his officers that having access to the documents will assist in the conduct of the audit. The public interest is advanced by ensuring all taxpayers pay their fair share of tax. (Deputy Commissioner of Taxation v Karas [2012] VSC 143 at [59]).
2. The Commissioner is engaged in a substantial, targeted audit. It is not a ‘random audit’ of the type discussed in Industrial Equity Ltd v Deputy Commissioner of Taxation and Crawley [1990] HCA 46; (1990) 170 CLR 649 (and even then the audit was sanctioned by the High Court, albeit in the context of a s 264(1) notice).
3. Although many of the annexures to the affidavits may be available to the Commissioner from other sources, the parties’ own assertions about the history of acquisition of assets would be available only to the Commissioner by interview with the parties in which they may have an incentive not to be frank. Furthermore, it is common ground, as examination of “JSS-11” would in any event suggest, that many of the assets are held outside the jurisdiction ( … )
( … )
6. There are restrictions on the way in which the Commissioner can use the information obtained from the court file which would ensure that the documents do not venture into the public arena, thus ensuring there is no breach of s 121 of the Family Law Act: Bailey v Australian Broadcasting Corporation at 490 [[1995] 1 Qd R 476].
7. The affidavits and financial statements were not given in discovery or obtained under a warrant but were sworn by the parties for the purposes of the proceedings and therefore in the expectation that they might be read in open court. Having served the documents, the decision as to whether the documents would pass into the public domain moved from the control of the party who filed them. Whilst in no way determinative, this factor is of significance: Moage Ltd (in liq) v Jagelam [2002] NSWSC 953; (2002) 43 ACSR 173 at [22].
( … )
[199] In our view the most important consideration is whether or not granting the Commissioner relief from the obligation is likely to discourage litigants from making a frank disclosure. There is already a heavy obligation on litigants in Family Court proceedings to make such a disclosure, and they are required to provide a written undertaking to the court that they have done so. See Chapter 13 of the Rules and authorities too numerous to mention.
[200] Most importantly, it is vital to recognise that there is already a disincentive to litigants to be frank with the Family Court about tax evasion because it is (or should be) well-known that the Court can and does refer such matters to the authorities for investigation.”
The Full Court then said “it should not be thought that we condone the conduct of the ATO officers who obtained access to the file by use of coercive powers in circumstances which arguably constituted a contempt of court. In being prepared, for present purposes, to overlook this interference with the processes of the court, we have taken into account the fact that the Commissioner did not seek to use the documents without first approaching the Court to obtain release from the implied obligation” (para 202). The Full Court added that it “should also not be thought that we condone the making of decisions by court staff about access to the court file or the making of decisions without notice to the parties” which “should be the exception rather than the rule” and that ordinarily, “notice ought to be given to the parties to allow them to be heard as to whether the requesting party has established a ‘proper interest’ [under FLR 24.13(1)(c)] and also whether the requesting party ought to be released from the implied obligation, or whether conditions should be imposed” (para 203).