Commissioner of Taxation v Darling
Document type: Decision Impact Statement
Venue: High Court (M34 of 2014 (High Court of Australia))
Judgment date: 15 August 2014
Date published: 1 October 2014

Summary of decision:
Outlines the ATO's response to the Full Family Court's decision granting the Commissioner relief from the implied obligation not to use documents obtained from the court file.

Overview of facts:
Mr Darling (the husband) and Ms Darling (the wife) were parties to Family Court proceedings (the Proceedings). | The Australian Taxation Office (ATO) had commenced an audit of the husband's income tax affairs in June 2009. | In mid-December 2009, ATO officers were given permission by the Registry Manager to examine the file in the Proceedings. Some documents were "tagged", but copies were not made. | On 9 February 2010, the ATO wrote to the Court seeking permission to copy the "tagged" documents under r 24.13(1)(c) of the Family Law Rules 2004 (Cth) (the Rules). The ATO did not give notice of its request to either of the parties. | On 1 March 2010, the Registry Manager refused the ATO's request to access the file under the terms of r24.13 of the Rules. | On 29 April 2010, the ATO wrote to the Court referring to the Commissioner's access powers under section 263 of the Income Tax Assessment Act 1936 and again requesting access to the file to copy the documents. | On 20 May 2010 the Registry Manager granted the ATO access to the file. | On 3 June 2010 and 17 December 2010 respectively, ATO officers inspected the file and copied documents from it. | On 7 December 2010, the Proceedings were dismissed by consent. | On 3 July 2012, the Commissioner sought leave to intervene in the Proceedings to be released from the implied obligation articulated in Harman v Secretary of State for Home Department [1983] 1 AC 280 (adopted by the High Court in Hearne v Street (2008) 235 CLR 125) not to use documents obtained from the file for a purpose not related to the Proceedings. | Issues decided by the court | At first instance the Family Court dismissed the Commissioner's application and held that he remained under an implied obligation not to make use of the documents for a purpose not related to the litigation. The primary Judge was not satisfied that the Commissioner had shown that there were special circumstances justifying his release from the implied obligation; or that his release from the obligation was necessary or in the public interest; or that such a release should override the public interest in maintaining the privacy of the parties to the proceedings. | The Full Court of the Family Court granted the Commissioner leave to appeal and set aside the primary Judge's order on the basis that the exercise of discretion not to release the Commissioner from the implied obligation miscarried. | The Full Court was critical of the conduct of ATO officers seeking access to Court documents by the use of the Commissioner's access powers. However, the Court was prepared to overlook any interference with the processes of the Court, because the ATO did not seek to use the documents without first seeking to approach the Court to be released from the implied obligation. | The Full Court rejected the Commissioner's new grounds of appeal, that the implied obligation did not apply to the Commissioner as a stranger to the litigation and in the context of his powers to make assessments under section 166 and 167 of the Income Tax Assessment Act 1936 (Cth). | The Full Court considered the way in which the discretion should be exercised, and noted that there must be a difference between cases involving private commercial disputes and those, such as this case, where the applicant seeking release from the implied obligation is performing a public duty. The Full Court considered the following considerations were relevant to the exercise of the discretion in the Commissioner's favour: - The Commissioner was performing an important public duty. - The Commissioner was engaged in a substantial, targeted audit. - 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. - The cogency of any evidence would be the subject of scrutiny in any proceedings that may be instituted after the Commissioner completes the audit and makes assessments. - The release of the Commissioner from the obligation would not be "inconvenient" to the husband. Nor would there be any prejudice to the husband, unless the documents did establish he has not been meeting his taxation obligations: - 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 section 121 of the Family Law Act (Cth) - The affidavits and financial statements were sworn by the parties for the purposes of the proceedings and therefore in the expectation that they might be read in open court. - The fact the Commissioner does not carry the burden of proving the accuracy of his assessment was irrelevant. - Albeit brief, and expressed in general terms, the ATO officer sufficiently stated the purpose for which the documents were required in his affidavit. | - The Commissioner was performing an important public duty. - The Commissioner was engaged in a substantial, targeted audit. - 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. - The cogency of any evidence would be the subject of scrutiny in any proceedings that may be instituted after the Commissioner completes the audit and makes assessments. - The release of the Commissioner from the obligation would not be "inconvenient" to the husband. Nor would there be any prejudice to the husband, unless the documents did establish he has not been meeting his taxation obligations: - 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 section 121 of the Family Law Act (Cth) - The affidavits and financial statements were sworn by the parties for the purposes of the proceedings and therefore in the expectation that they might be read in open court. - The fact the Commissioner does not carry the burden of proving the accuracy of his assessment was irrelevant. - Albeit brief, and expressed in general terms, the ATO officer sufficiently stated the purpose for which the documents were required in his affidavit. | The Full Court considered that the most important consideration was whether or not granting the Commissioner relief from the implied obligation was likely to result in discouraging parties from making full and frank disclosures to the court. The Full Court noted that the Family Court can and does refer matters involving tax evasion to the relevant authorities for investigation. The Full Court concluded that releasing the Commissioner from the implied obligation would not result in any greater disincentive to parties being frank with the court. | The High Court found that there was no point of law suitable to a grant of special leave.

Issues decided:
At first instance the Family Court dismissed the Commissioner's application and held that he remained under an implied obligation not to make use of the documents for a purpose not related to the litigation. The primary Judge was not satisfied that the Commissioner had shown that there were special circumstances justifying his release from the implied obligation; or that his release from the obligation was necessary or in the public interest; or that such a release should override the public interest in maintaining the privacy of the parties to the proceedings. The Full Court of the Family Court granted the Commissioner leave to appeal and set aside the primary Judge's order on the basis that the exercise of discretion not to release the Commissioner from the implied obligation miscarried. The Full Court was critical of the conduct of ATO officers seeking access to Court documents by the use of the Commissioner's access powers. However, the Court was prepared to overlook any interference with the processes of the Court, because the ATO did not seek to use the documents without first seeking to approach the Court to be released from the implied obligation. The Full Court rejected the Commissioner's new grounds of appeal, that the implied obligation did not apply to the Commissioner as a stranger to the litigation and in the context of his powers to make assessments under section 166 and 167 of the Income Tax Assessment Act 1936 (Cth). The Full Court considered the way in which the discretion should be exercised, and noted that there must be a difference between cases involving private commercial disputes and those, such as this case, where the applicant seeking release from the implied obligation is performing a public duty. The Full Court considered the following considerations were relevant to the exercise of the discretion in the Commissioner's favour: - The Commissioner was performing an important public duty. - The Commissioner was engaged in a substantial, targeted audit. - 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. - The cogency of any evidence would be the subject of scrutiny in any proceedings that may be instituted after the Commissioner completes the audit and makes assessments. - The release of the Commissioner from the obligation would not be "inconvenient" to the husband. Nor would there be any prejudice to the husband, unless the documents did establish he has not been meeting his taxation obligations: - 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 section 121 of the Family Law Act (Cth) - The affidavits and financial statements were sworn by the parties for the purposes of the proceedings and therefore in the expectation that they might be read in open court. - The fact the Commissioner does not carry the burden of proving the accuracy of his assessment was irrelevant. - Albeit brief, and expressed in general terms, the ATO officer sufficiently stated the purpose for which the documents were required in his affidavit. - The Commissioner was performing an important public duty. - The Commissioner was engaged in a substantial, targeted audit. - 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. - The cogency of any evidence would be the subject of scrutiny in any proceedings that may be instituted after the Commissioner completes the audit and makes assessments. - The release of the Commissioner from the obligation would not be "inconvenient" to the husband. Nor would there be any prejudice to the husband, unless the documents did establish he has not been meeting his taxation obligations: - 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 section 121 of the Family Law Act (Cth) - The affidavits and financial statements were sworn by the parties for the purposes of the proceedings and therefore in the expectation that they might be read in open court. - The fact the Commissioner does not carry the burden of proving the accuracy of his assessment was irrelevant. - Albeit brief, and expressed in general terms, the ATO officer sufficiently stated the purpose for which the documents were required in his affidavit. The Full Court considered that the most important consideration was whether or not granting the Commissioner relief from the implied obligation was likely to result in discouraging parties from making full and frank disclosures to the court. The Full Court noted that the Family Court can and does refer matters involving tax evasion to the relevant authorities for investigation. The Full Court concluded that releasing the Commissioner from the implied obligation would not result in any greater disincentive to parties being frank with the court. The High Court found that there was no point of law suitable to a grant of special leave.

ATO view of decision:
The Commissioner accepts the decision of the Full Court of the Family Court that the implied obligation applies to the Commissioner as a stranger to the litigation. | The ATO's policies were updated in 2011 to instruct ATO officers not to seek to inspect or copy documents from court files by relying on access powers, because such conduct could constitute contempt of court. | Where the Commissioner, as a non-party to litigation, seeks access to court documents for use other than in the proceeding in which the documents were filed, the Commissioner will make an application to the court for release from the implied obligation. The Commissioner will have regard to the factors considered by the Full Court of the Family Court in making any such application.

Administrative treatment:
Implications for ATO precedential documents (Public Rulings & Determinations etc) | N/A | Implications for Law Administration Practice Statements | N/A

Legislative references: Income Tax Assessment Act 1936 166 167 263 264 Taxation Administration Act 1953 (Cth) 121 Family Law Act 1975 355-50 of Schedule 1 Family Law Rules 2004 355-50 of Schedule 1
Case references: Deputy Commissioner of Taxation v Karas [2012] VSC 143 Hearne v Street (2008) 235 CLR 125 [2008] HCA 36 Griffiths & Beerens Pty Ltd v Duggan (No 2) [2008] VSC 230 Moage Ltd (in liq) v Jagelman (2002) 43 ACSR 173 Johnson Tiles Pty Ltd v Esso Australia Ltd (2000) 104 FCR 564 [2000] FCA 1572 Federal Commissioner of Taxation v Dalco (1990) 168 CLR 614 [1990] HCA 3 (1990) 20 ATR 1370 (1990) 90 ATC 4088 Adam P. Brown Male Fashions Pty. Ltd. v Philip Morris Inc. (1981) 148 CLR 170 Federal Commissioner of Taxation v Australia and New Zealand Banking Group Ltd (1979) 143 CLR 499 79 ATC 4039 (1979) 9 ATR 483 Bailey v Australian Broadcasting Corporation [1995] 1 Qd R 476 T & T (1984) FLC 91-588 House v The King (1936) 55 CLR 499
Subject references: Tax administration Commissioner's powers Access & entry powers Powers to obtain information