The Tax Man, the Law Institute, and the public interest

Update, 14 May 2009: Justice Pagone has given a second judgment determining this dispute, which I posted about here.

Original post: Justice Pagone gave judgment in Law Institute of Victoria Limited v Deputy Commissioner of Taxation [2009] VSC 55 on 26 February 2009. His Honour noted, as ‘trite’, that the Tax Man’s power of compulsion, found as it is in a Commonwealth statute, trumps by virtue of s. 109 of the Commonwealth Constitution the obligation in the Legal Profession Act, 2004 (Vic) on the Law Institute to keep information obtained by it in carrying out its functions secret.  And that the Tax Man’s power is subject to public interest immunity.  But his Honour said the immunity needed to be considered document by document, and could not be claimed only by virtue of the characteristics of the person in possession of the information, in this case the Institute.

Three things which seem yet to be discussed at this point in proceedings interest me, in addition to the obvious issue of the future prospects of the Law Institute’s vigorous pursuit of the public interest by the non-provision of information and documents. But unless you’re a lawyer regulation geek, you might want to skip the next few paragraphs and continue reading from there, where the less arcane aspects of the judgment are further summarised.

Geek points

First, reliance was placed on what a judge said in 1990 about the Law Institute in support of the proposition that ‘the statutory duties being discharged by the LIV are of public importance and significance.’  At that time, its functions under the predecessor of the now-repealed Legal Practice Act, 1996 were very different from those under the Legal Profession Act, 2004.  It was the legal regulator. Today, the LIV may, with the approval of the Legal Services Board, make conduct rules which are subordinate to rules by the principal rule making organ, the Board: s. 3.2.9; it has a right to be consulted about various things, for example before the Board ‘publishes’ rules made by the Board: e.g. s. 3.2.12; it must publish various things, such as new Practitioner Remuneration Orders in the Law Institute Journal: e.g. s. 3.4.23; it can nominate members of the Board of Examiners: s. 6.5.9.  (In effect, by virtue of savings provisions dealing with the transition between the 1996 and 2004 Act, it has other functions temporarily, too.)  That’s it.  But because the Board and the Commissioner have the power to delegate various powers under the Act, and because they have exercised that entitlement merrily, the Institute has a status somewhat akin to days of old at the pleasure of those institutions.  (Plus ça change etc.) The fact that the Institute’s relevant powers are derivative of the powers of the delegator seems to me relevant, since it might be said that it is the functions of the delegator which ought to be analysed in the public interest analysis, as will probably be the case when the evidence is in and the analysis actually takes place.  (The Legal Services Board is also a model litigant, incidentally, albeit under the Victorian mode litigant guidelines, and so the Institute qua delegate of the Board presumably is too; it would be odd if the parliament intended that a model litigant could shed its status by delegating its functions to another.)

Second, the secrecy provision at the heart of the judgment does not even mention the Institute.  Of all the categories of person bound by the obligation, the only one which could possibly apply is s. 6.4.5(f): ‘a person to whom the Board or the Commissioner has delegated functions’.  That seems to raise a question of whether the provision binds the Institute from the moment that either institution first delegates a single function, regardless of the relationship of the function to the information held by the Institute (which seems at first glance an unlikely interpretation to me) or whether it serves only to extend to delegates (such as the Institute) of the secrecy obligations imposed by the other sub-sections on persons such as the Legal Services Commissioner, and the Legal Services Board, in relation to the information obtained in carrying out the delegator’s task, as delegate.  There is a paucity of law about what the secrecy obligations in the Act should be understood to mean, so the decision on this point is awaited by this geek at least with interest.

Third, it seems likely that some of the documents pre-date December 2005 when the 2004 Act commenced and the 1996 Act was largely repealed. Those documents were, insofar as seems likely to be relevant to this case, required to be handed over by the Institute to the Legal Services Board by item 8.13 of the transitional provisions of the 2004 Act.  So unless the Board gave them all back to the Institute, it seems likely that the Institute is in fact the custodian rather than the owner of the documents.  Quite what effect that might have on the analysis, I do not know, but there might be a question about whether information in documents lent back to the Institute by the Board was acquired by the Institute in the performance of functions under the Act, for only such information is governed by s. 6.4.5.

Back to the main game now

The Tax Man sought to use his statutory power of compulsion to compel the production of documents about a solicitor’s practising certificate history, documents generated by audits of his practice, and documents shedding light on the circumstances in which he ceased to practise as a solicitor.  Neither party led any evidence about why the public interest favoured or told against acquiescence to the compulsion.  Instead, the battle was joined as follows: the Tax Man said his power of compulsion trumped the Institute’s statutory secrecy obligation, with the result that he won, while the Institute said even if that were so, the documents were protected by public interest immunity by virtue of nothing more than that the Institute does important things. Justice Pagone was impressed by neither submission.

Though this was the trial of the Institute’s suit for a declaration, Justice Pagone decided to adjourn it to allow both sides to adduce evidence about the factors which should inform the public interest analysis.  Though the Tax Man was the defendant and would ordinarily be entitled to put the Law Institute applicant to its proof, Justice Pagone said, the Tax Man is a model litigant (delving deep into his accumulated wisdom to generate the impressive footnote no. 41) and as a:

‘proponent of part of the public interest to be balanced in this proceeding against that invoked by the LIV, has an important role to play to assist the Court in reaching the correct answer.’

And though the Law Institute had failed to adduce evidence of the circumstances which tell in the public interest against acquiescence by it to the compulsion, that failure was also not one which should be dealt with as in an ordinary civil trial, his Honour said.  Because the interests of the public were at stake, and the ascertainment of the public interest was a job for the Court, conduct of the Law Institute as a litigant in an adversarial contest ought not to determine the public interest, since it is not one which may be waived by individual players, such as the Law Institute.

The judgment is sufficiently succinct that it is difficult to condense, and you might as well just go read it.  Still, if you want a flavour of the Supreme Court’s thinking, you could try this:

’13 Counsel for the Commissioner contended that the documents in the LIV’s possession in this case are unlike those in Middendorp because none of the documents described by the LIV seem to require protection of informers or “whistle blowers” such as had been the case in Middendorp.[32] It is nonetheless possible that some of the documents in the categories described by the LIV may attract the doctrine of public interest immunity notwithstanding that they were not provided by whistleblowers, or that they were (or some were) provided pursuant to a duty to provide them to the LIV, or that the receipt of any document by the Commissioner would be subject to the secrecy provisions in s 16. Public interest immunity is not restricted to the protection from disclosure of the identity of whistleblowers or the information which they may give. The information in the LIV’s possession may attract the public interest immunity for any number of reasons. The documents came into possession of the LIV subject to a statutory compulsion on the LIV to observe confidentiality. In that respect, the LIV is subject to constraint from divulging that material to third parties similar to that on the Commissioner under s 16 of the 1936 Act.[33] The public interest against disclosure, even to the Commissioner, is not absent merely because the LIV may have obtained the information under compulsion or by reason of a duty on the part of another in providing it to the LIV.[34] That the information held by the LIV was not volunteered in this case by a whistleblower may be a relevant circumstance amongst others in considering where the balance lies, but is not the only, or in this case the determining, factor. Similarly, the mere fact that the information is sought by the Commissioner, who is subject to a secrecy provision in the 1936 Act, is not sufficient to determine the matter in his favour in this case any more than in Middendorp.

14 Some of the documents may attract the immunity whilst others might not. It is difficult to see, for example, how public interest immunity could apply to any document in the possession of the LIV which would not have attracted the doctrine in the possession of the person from whom it had come to the LIV. Thus, for example, documents taken by the LIV from [the solicitor] would not in my view attract the privilege merely because they were in the possession of the LIV pursuant to a statutory function if the documents would not have attracted the immunity in the hands of [the solicitor]. On the other hand, the doctrine is capable of being attracted to protect from disclosure, even as against the Commissioner, information that might be provided by an informant. That, in my view, is because the public interest in encouraging informants in the discharge of the functions of the LIV extends to the encouragement of disclosure to the LIV of information which an informant would not wish to have disclosed to the Commissioner. The important public interest discharged by the LIV should not be hindered or impaired by the possibility that an informant might be unwilling to volunteer information for fear that it may be used for a wholly different purpose if given to the Commissioner. Similarly, in my view, documents created by or for the LIV in the course of discharging its statutory function may attract the doctrine of public interest immunity. In that regard it is difficult to see how a balancing of the competing interests would necessarily favour the Commissioner’s access to secondary information generated by or for the LIV itself in the exercise of its duty which might, perhaps, be capable of a creation independently by the Commissioner from the source data otherwise available to him. It is also conceivable that some of the information in the documents relate both to the tax affairs of [the solicitor] and to the tax affairs of others. In such circumstances there are, in my view, difficult and competing considerations to evaluate and balance against each other in deciding whether the doctrine of public interest immunity prevents disclosure of the documents sought.[35] Such information given to the LIV may not be volunteered in the same way as by a whistle blower but may nonetheless be given in circumstances where their confidence, privacy and potential privilege[36] from disclosure might reasonably have been expected.[37] In such cases I do not think it a sufficient answer in favour of disclosure that the Commissioner would either necessarily receive the information pursuant to a statutory duty to keep it secret or that the Commissioner could otherwise obtain the information from the person who had given it to the LIV or from some other source.

15 The analogy urged upon me by senior counsel for the Commissioner between the Commissioner’s duty to keep information secret under s 16 of the 1936 Act and the implied undertaking referred to in Irving[38] falls short of sufficient equivalence: the implied undertaking limits the use of information for the purposes of the litigation in which it is obtained, whilst s 16 does not on its face prevent the Commissioner using information obtained for any statutory purpose available to him, or duty imposed upon him, once the information is in his possession. As I observed in Griffiths & Beerens v Duggan (No 2),[39] a government regulator who comes by documents in the course of litigation may, perhaps, receive the information with a duty imposed by law or statute to use the information such that the undertaking may not be capable of being implied; that is to say, that the duties upon receipt of information received in the course of litigation may be such that the implication against use cannot be made. In any event, the duty in s 16 to keep information secret is not expressed to fetter the Commissioner’s use of information in the discharge of his duty.[40]

The workings of the LIV, or of a government department, or any other person or body discharging important public functions, should not be interfered with lightly. The exercise of a statutory power of compulsion (whether by the Commissioner or other repository of such a power) against the LIV or other body or person discharging public duties and functions to provide information, has the capacity to interfere with, and potentially damage, the discharge of those duties and functions. There may be circumstances when, and there may be documents which, the Commissioner may demand production from a person or body exercising public duties and functions otherwise attracting public interest immunity, but the Court’s duty to balance competing public interests requires more than the Commissioner’s assertion of a claim: a Court needs to be satisfied that the potential interference and damage to the countervailing public interest is what the balance of competing interests requires.

18 Amongst the documents sought by the Notice, for example, are records of “any audit conducted” in respect of [the solicitor’s] trust account, and amongst the documents said to come within the terms of the Notice are “auditor’s reports” and correspondence from trust account auditor “to the LIV”. The Notice, therefore, seeks and, if complied with according to its terms, would appear to have produced to the Commissioner not only the documents of a taxpayer ([the solicitor]) or of third parties, but also those created solely by or for the LIV in the exercise of its statutory duties and function. It may be one thing for the Commissioner to seek by compulsion from the LIV the documents either of the taxpayer whose affairs are the subject of an inquiry by both the LIV and the Commissioner or of or from third parties to the LIV, but it is a different matter, and different considerations arise, when what the Commissioner seeks under compulsion are the documents of the body undertaking and discharging its statutory duty and function and which came into existence in the exercise of that duty and function. What relevance (if any) the LIV’s work, analysis, conclusions, opinions, observations, notes or comments may have to the Commissioner’s investigation into [the solicitor’s] tax affairs is not a matter for me, but the potential hindrance and damage to the LIV’s work by the Commissioner’s claim for them is a matter capable of attracting public interest immunity.

[32] Middendorp Electric Co Pty Ltd v Law Institute of Victoria [1994] 2 VR 313; see also Sankey v Whitlam [1978] HCA 43; (1978) 142 CLR 1; Alister v R [1983] HCA 45; (1984) 154 CLR 404; D v National Society for the Prevention of Cruelty to Children [1977] UKHL 1; [1978] AC 171; Royal Women’s Hospital v Medical Practitioners Board of Victoria (2006) 15 VR 22.

[33] Canadian Pacific Tobacco Co Ltd v Stapleton [1952] HCA 32; (1952) 86 CLR 1; Federal Commissioner of Taxation v Nestle Australia Ltd (1986) 86 ATC 4760.

[34] See Kanthal Australia Pty Ltd v Minister for Industry, Technology and Commerce (1987) 14 FCR 90; Duncan v Cammell Laird & Co Ltd [1942] UKHL 3; [1942] AC 624, 629-43 (Simon LC); Lord v Commissioner of A.F.P. (1997) 74 FCR 61.

[35] Alister v R [1983] HCA 45; (1984) 154 CLR 404; (1984) 154 CLR 469.

[36] For example any legal professional privilege attaching to documents which had not been waived: see Commissioner of Taxation v Citibank Ltd (1989) 20 FCR 403.

[37] See: Consolidated Press Holdings Ltd v Federal Commissioner of Taxation (1995) 95 ATC 417; Kanthal Australia Pty Ltd v Minister for Industry, Technology and Commerce (1987) 14 FCR 90; Duncan v Cammell Laird & Co Ltd [1942] UKHL 3; [1942] AC 624, 629-643 (Simon LC).

[38] [1990] VR 429, 437 (Murphy, Gray and Beach JJ).

[39] [2008] VSC 230, [11].

[40] Canadian Pacific Tobacco Co Ltd v Stapleton [1952] HCA 32; (1952) 86 CLR 1, 6; Federal Commissioner of Taxation v Nestle Australia Ltd (1986) 86 ATC 4760, 4764; cf Consolidated Press Holdings Ltd v Federal Commissioner of Taxation (1995) 95 ATC 4178 in which Whitlam J held that the taxpayer had a legitimate and reasonable expectation that information provided would not be communicated to others without an opportunity to be heard.

[41] Commonwealth Attorney-General, “Appendix B: The Commonwealth’s obligation to act as a model litigant” Legal Services Direction 2005; PS LA2007/12: Conduct of Tax Office litigation in courts and tribunals; Bruce Quigley “The role and Implications of Litigation in Tax Administration”, Australian Petroleum Production & Exploration Association, Annual Conference, Hobart, 22 November 2007; Dale Boucher “An Ethical Code… Not a Code of Conduct” (1996) 79 Canberra Bulletin of Public Administration 3, 4; GA Del Pont, Lawyer’s Professional Responsibility in Australia (2006, Thomson) 296-297; see also: Melbourne Steamship Co Ltd v Moorehead [1912] HCA 69; (1912) 15 CLR 333, 342; SCI Operations Pty Ltd v Commonwealth (1996) 139 ALR 595, 613, 614, 621; Yong Jun Qin v Minister for Immigration and Multicultural Affairs (1997) 144 ALR 695, 704; Hughes Aircraft Systems International v Airservices Australia (1997) 146 ALR 1, 40, 41; Scott v Handley [1999] FCA 404; (1999) 58 ALD 373, 383-4; White v Minister for Immigration Multicultural Affairs [1999] FCA 1433, [81]; OneTel Ltd v Deputy Commissioner of Taxation [2000] FCA 270; (2000) 171 ALR 227, 233; ACCC v Warner Music Australia Pty Ltd [2000] FCA 647; Challoner v Minister for Immigration Multicultural Affairs [2000] FCA 1601; NAFK of 2002 v Minister for Immigration Multicultural Indigenous Affairs [2002] FCA 1374, [9]; NAOY v Minister for Immigration [2002] FMCA 275, [8]; Wodrow v Commonwealth of Australia [2003] FCA 403, [38] – [43]; ABB Power Transmission Pty Ltd v ACCC [2003] FCAFC 261, [35].

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