James v Chief Commissioner of State Revenue [2011] NSWSC 331 (20 April 2011)

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James v Chief Commissioner of State Revenue [2011] NSWSC 331 (20 April 2011)

Last Updated: 2 May 2011

Supreme Court New South Wales

Case Title:	James v Chief Commissioner of State Revenue
Medium Neutral Citation:	[2011] NSWSC 331
Hearing Date(s):	28 March 2011
Decision Date:	20 April 2011
Jurisdiction:
Before:	Gzell J
Decision:	Some documents to be produced in redacted form, others the defendant relieved from production on the basis of pubic interest immunity.
Catchwords:	PROCEDURE - Discovery and interrogatories - notice to produce - public interest immunity - whether should inspect documents - whether should read affidavit - revelation of methods of operation and identity of sources of information
Legislation Cited:	Uniform Civil Procedure Rules 2005 Taxation Administration Act 1996 Evidence Act 1995 Taxation Administration Act 1953 (Cth)
Cases Cited:	Alister v The Queen [1984] HCA 85; (1983-1984) 154 CLR 404 Commissioner of Police New South Wales v Nationwide News Pty Ltd [2007] NSWCA 366; (2008) 70 NSWLR 643 The Commonwealth v Northern Land Council [1993] HCA 24; (1992-1993) 176 CLR 604 KC Park Safe Pty Ltd v Commissioner of State Revenue (Vic) 98 ATC 4,655 Maloney v New South Wales National Coursing Association Ltd [1978] 1 NSWLR 60 Spargos Mining NL v Standard Chartered Australia Ltd (No 1) (1989) 1 ACSR 311 National Crime Authority v Gould [1989] FCA 477; (1989) 23 FCR 191 Young v Quin (1985) 4 FCR 483
Texts Cited:
Category:	Interlocutory applications
Parties:	David Anthony James (Plaintiff) Chief Commissioner of State Revenue (First Defendant) Rabobank Australia Ltd (Second Defendant) Bruce Adams (Third Defendant) Boonchoo Suriyachan (Fourth Defendant) Kevin Graham Johnson (Fifth Defendant)
Representation
- Counsel:	Counsel: D Allen (Plaintiff) G Lindsay SC/S Kaur-Bains (First Defendant)
- Solicitors:	Solicitors: Hunt & Hunt (Plaintiff) Crown Solicitor (First Defendant)
File number(s):	2010/128672
Publication Restriction:

Judgment

1. The Plaintiff, David Anthony James, issued a notice to produce documents within specified categories. There was nothing to produce under pars 3 and 6 of the notice to produce and that is not a matter of contest.
   
2. The Defendant, Chief Commissioner of State Revenue, objects to the production of documents specified in pars 1 and 2 of the notice on the grounds of relevance. He seeks an order setting aside those paragraphs pursuant to the Uniform Civil Procedure Rules 2005, Pt 21 r 11(1).
   
3. The Taxation Administration Act 1996, s 72 enables the Chief Commissioner to require a person, by written notice, to provide him with information; to attend and give evidence; or to produce an instrument or record to him.
   
4. In the principal proceedings which, at this stage is confined to an amended summons, Mr James seeks a declaration that the Chief Commissioner's decision to issue notices under s 72 to three persons and a bank are invalid, of no effect, vexatious, made in bad faith, ultra vires and for an improper purpose. He seeks an order in the nature of certiorari quashing the decision and an order in the nature of prohibition requiring the Chief Commissioner to take no action to enforce the notices.
   
5. Paragraphs 1 and 2 of the notice to produce are in the following terms:
   

"You are required to produce the following documents or things for inspection by the Plaintiff by 15 November 2010.

1. A copy of all documents evidencing the grade of employees within the Office of State Revenue, the powers applicable to each grade of employee (including powers of direction over other grades of employee), and any title applicable to any grade.

2. A copy of any document evidencing the grade of any of the following persons in the period 1 July 2009 to 31 March 2010:

a) Michael Sofiak;

b) Mihaela Brebene;

c) Antoinette Seeman;

d) Paul Reid;

e) David Morse;

f) David Martin;

g) Michelle Ridd;

h) Deborah Vaccher; and

i) Shlyamala Thavaneshan."

6. It was submitted on behalf of the Chief Commissioner that since the amended summons seeks relief with respect to only four notices under s 72, par 1 is far too broad.
   
7. In written submissions on behalf of Mr James, it was said that he only sought production of a document giving a general list of jobs, functions and authorisation. It was submitted that such a document was required to match the grade of the person to the powers and authority given to that person.
   
8. It seems to me that there is forensic purpose in having access to such a document if it exists and I would allow a notice to produce in that limited form, but not in terms of par 1, to be directed to the Chief Commissioner.
   
9. In relation to par 2, I was told that the Chief Commissioner concedes that documents in relation to Michael Sofiak, Paul Reid and David Morse are relevant. Mr James presses par 2 in relation to Mr Martin who was the officer who conducted an internal review of the decision to issue a second s 72 notice to Mr James. Mr James says that no real review was conducted.
   
10. Again, I see forensic purpose in the production of the documents sought in par 2 against Mr Martin as well. But the Chief Commissioner is entitled to an order setting aside par 2 as against Mihaela Brebene, Antoinette Seeman, Michelle Ridd, Deborah Vaccher and Shlyamala Thavaneshan.
    
11. Paragraphs 4, 5 and 7 of the notice to produce are as follows:
    

"4. A copy of all communications from or on behalf of the 1 st Defendant to the Australian Taxation Office in the period 1 January 2009 to date and relating to:

a) David Anthony James;

b) Any of the entities known or suspected to be associated with him; and

c) Any of the persons known or suspected to be associated with either David James or the entities referred to in 4 b) above, including employees of those entities.

5. A copy of all notices issued to any person, firm, entity or authority (but not including any documents produced in reply to those notices) in relation to the "David James Investigation" as described in paragraph 6 of the affidavit of Michael Sofiak sworn 3 September 2010.

...

7. A copy of all investigation summaries and individual summaries, including those exhibited to the affidavit of Michael Sofiak sworn 3 September 2010 without any redaction, deletion or covering of any of the text of those summaries and relating to the "David James Investigation"."

12. With the exception of four letters identified in the open affidavit of Anthony Graeme Johnston sworn on 17 December 2010, the Chief Commissioner objects to production under par 4 of the notice to produce on the basis of public interest immunity.
    
13. Under par 5 the Chief Commissioner likewise objects to production other than some 12 specified documents.
    
14. Under par 7 the Chief Commissioner objects to the production of masked portions of an investigation summary of Mr James and individual summaries for Bruce Adams, Kevin Graham Johnson and Boonchoo Suriyachan.
    
15. With respect to the investigation summary of Mr James, Mr Johnston says the parts that are masked either relate to persons or s 72 notices not the subject of these proceedings and/or are subject to client legal privilege.
    
16. The individual summaries for Mr Adams, Mr Johnson and Mr Suriyachan are in two parts. The first sets out background information relating to the individual intended to be served with a s 72 notice and the reasons for the issue of the notice. The second part sets out suggestions for questions that might be put to the individual on a s 72 examination. It is the second part that has been masked.
    
17. The Evidence Act 1995, s 130(1) provides that if the public interest in admitting into evidence information or a document that relates to matters of state is outweighed by the public interest in preserving secrecy or confidentiality in relation to the information or document, the court may direct that the information or document not be adduced as evidence.
    
18. Section 131A(1) extends the operation of s 130 to pre-trial disclosure requirements. The Chief Commissioner relies upon the following provisions of s 130(4):
    

"Without limiting the circumstances in which information or a document may be taken for the purposes of subsection (1) to relate to matters of state, the information or document is taken for the purposes of that subsection to relate to matters of state if adducing it as evidence would:

...

(c) prejudice the prevention, investigation or prosecution of an offence; or

(d) prejudice the prevention or investigation of, or the conduct of proceedings for recovery of civil penalties brought with respect to, other contraventions of the law; or

...

(f) prejudice the proper functioning of the government of the Commonwealth or a State."

19. The affidavit of Michael Sofiak of 3 September 2010 establishes that the Chief Commissioner is investigating Mr James and his relationship to a number of companies to ascertain whether there has been a failure to declare for payroll tax purposes wages paid by entities that might constitute members of a group of entities for payroll tax purposes.
    
20. Mr James claimed that one such company, Liquor National Pty Ltd, did not trade and did not employ staff. Information obtained from the ATO showed that it did trade and did employ staff.
    
21. Mr James maintains that BAS statements for Liquor National and Liquor National Wholesale Pty Ltd disclosed wages for employees who worked for Brodav Pty Ltd.
    
22. There was a large discrepancy between wages in the financial statements of Print National Pty Ltd with disclosures to the ATO for the year ended 30 June 2007. Mr James said that the wages for Brodav were incorrectly included in BAS statements for Print National.
    
23. Mr James informed Mr Sofiak that under business licence agreements between Brodav and Print National and between Brodav and Liquor National Wholesale, Brodav ran the operations of the two companies. Mr Adams was the manager who operated the logistics side of the business of Liquor National Wholesale and the Chief Commissioner has issued a notice under s 72 to him.
    
24. Financial statements for the year ended 30 June 2007 of Wine National Pty Ltd disclosed wages far less than those revealed to the ATO. Mr James said that Wine National disclosed wages to the ATO for employees who worked for Douglas Hawkins Pty Ltd. No BAS or PAYG summary statements have been lodged with the ATO. Mr James informed Mr Sofiak that the contact person for Wine National was Mr Suriyachan and a s 72 notice has been issued to him.
    
25. Mr James informed Mr Sofiak that a new company, FPT Operations Pty Ltd, took over the offset printing side of the business conducted by Print National after the licence agreement with Brodav ended.
    
26. A charge over FBT Operations in favour of Rabobank Australia Ltd to a maximum liability of $100 M was guaranteed by Mr James and a number of companies associated with him.
    
27. A charge in favour of Rabobank to a maximum liability of $1 B over Killara 10 Pty Ltd was also guaranteed by Mr James and a number of companies. This was during a period when Mr James was not an officer. A notice under s 72 has issued to Rabobank.
    
28. Mr James said that Executive Brands Pty Ltd was never party to an agreement to do anything. Information supplied by the ATO revealed that in the 2009 financial year, bank account details of Executive Brands are the same as for Liquor National. Mr Johnson is shown in ASIC records as the shareholder of Executive Brands and a s 72 notice was issued to him.
    
29. In Alister v The Queen [1984] HCA 85; (1983-1984) 154 CLR 404 at [4]; 412, Gibbs CJ adopted what had been said in Sankey v Whitlam as follows:
    

" Sankey v Whitlam establishes that when one party to litigation seeks the production of documents, and objection is taken that it would be against the public interest to produce them, the court is required to consider two conflicting aspects of the public interest, namely whether harm would be done by the production of the documents, and whether the administration of justice would be frustrated or impaired if the documents were withheld, and to decide which of those aspects predominates. The final step in this process - the balancing exercise - can only be taken when it appears that both aspects of the public interest do require consideration - i.e., when it appears, on the one hand, that damage would be done to the public interest by producing the documents sought or documents of that class, and, on the other hand, that there are or are likely to be documents which contain material evidence. The court can then consider the nature of the injury which the nation or the public service would be likely to suffer, and the evidentiary value and importance of the document in the particular litigation. But the anterior question arises - should the court look at the documents to assist it in answering these question?"

30. In considering whether to inspect documents in order to determine whether they should be disclosed, Gibbs CJ and Murphy J said the court should attach special weight to the fact that the documents may support the defence of an accused in criminal proceedings. And Brennan J said it was necessary to consider the gravity of the charge, the nature of the issues, the evidence in the case and the terms of the affidavit claiming public interest immunity.
    
31. In Commissioner of Police New South Wales v Nationwide News Pty Ltd [2007] NSWCA 366; (2008) 70 NSWLR 643 at 648 [35] Mason P with whom Ipp and Basten JJA agreed, the latter adding some observations of his own, said that claims to public interest immunity require close judicial scrutiny.
    
32. And in The Commonwealth v Northern Land Council [1993] HCA 24; (1992-1993) 176 CLR 604 at [7]; 616 the court said that a claim of public interest immunity must be weighed against the competing public interest of the proper administration of justice, which may be impaired by the denial to a court of access to relevant and otherwise admissible evidence.
    
33. There are well-recognised categories and subcategories of public interest immunity, but such a claim is not confined to cases involving cabinet documents, police investigation or methodology, revelation of police informers, security matters or criminal proceedings. Pubic interest immunity can extend to protecting documents that involve organisations that are authorised under an act of parliament to bring legal proceedings.
    
34. In an appropriate case it is appropriate for the Chief Commissioner to claim public interest immunity. In KC Park Safe Pty Ltd v Commissioner of State Revenue (Vic) 98 ATC 4,655, Beach J said at 4,659 that there was a public interest in protecting the sources of information that can assist government agencies in enforcing the law and that applies as much to revenue authorities as to criminal authorities.
    
35. Public interest immunity has been held to apply to information given to the Corporate Affairs Commission (Maloney v New South Wales National Coursing Association Ltd [1978] 1 NSWLR 60) and to the National Companies & Securities Commission (Spargos Mining NL v Standard Chartered Australia Ltd (No 1) (1989) 1 ACSR 311).
    
36. I have concluded that I should inspect the documents. There are potentially serious repercussions to Mr James from the investigation, which has revealed serious discrepancies between wage information provided to the Chief Commissioner and wage information provided to the ATO. Avoidance of payroll tax by non-grouping of companies is in question and the guarantors of the very large charges over FBT Operations and Killara 10 suggest that they may include entities that should be grouped. In addition, the investigation of Mr James may include consideration of whether he has committed offences by understating wages subject to payroll tax and whether he should be prosecuted. There are also offences for failing to keep proper records under the Taxation Administration Act, Pt 8 that may be considered. More serious is the suggestion that business agreements were fictitious and part of a tax avoidance scheme and the suggestion that signatures on documents had been forged.
    
37. The documents in question are described in a confidential affidavit of Anthony Graeme Johnston sworn on 17 December 2010. It was submitted that I should not read the affidavit. The documents would speak for themselves.
    
38. But as Foster J pointed out in National Crime Authority v Gould [1989] FCA 477; (1989) 23 FCR 191 at [30]; 198:
    

"The affidavit may, itself, contain material, which if disclosed could adversely affect public interest. The very reasons advanced in the affidavit for the non-disclosure of the materials sought may themselves indicate facts the disclosure of which in a public forum might well be inimical to the proper and efficient conduct of the operations of the NCA."

39. In my view, that must be so. One cannot ignore the affidavit in determining whether the balancing exercise should be undertaken.
    
40. The documents within the description in par 4 of the notice to produce to which objection to production is taken on the ground of public interest immunity are letters passing between the Office of State Revenue (OSR) and the ATO.
    
41. Three of the four documents in question seek information from the ATO in accordance with the Taxation Administration Act 1953 (Cth), s 13J which dealt with the provision of Commonwealth taxation information to State taxation authorities.
    
42. The documents may have relevance to Mr James' case that the s 72 notices addressed to Mr Adams, Mr Johnson, Mr Suriyachan and Rabobank were issued in bad faith.
    
43. The production of at least portion of these documents will not alert Mr James to a field of inquiry of which he is already aware. Paragraph 4 of the notice to produce identified the documents sought as those passing from the Chief Commissioner to the ATO.
    
44. On the other hand, the identity of some of the entities about which information was sought by the OSR if made known to Mr James would prejudice the investigation of offences. There are serious allegations arising under the investigation including forgery of signatures to documents. Balancing those competing public interests it seems to me that the appropriate course would be to redact the schedules by masking the name, ABN and financial period with respect to any entity not mentioned by Mr Sofiak in his affidavit.
    
45. The fourth document in this category contains information provided to the ATO under the Taxation Administration Act, s 82. It may have some relevance to the bad faith case of Mr James. On the other hand it contains outlines of what the OSR believes to be sham transactions to avoid tax liabilities. In my view production of this document to Mr James would seriously prejudice the OSR's investigation of possible offences. The balancing exercise is clearly in favour of non-production on the basis of public interest immunity.
    
46. The Chief Commissioner is entitled to an order that he be relieved of the obligation to produce, under par 4 of the notice to produce, a letter dated 29 October 2010 with OSR reference OD/HD ATO 1549.
    
47. Police methods of operation is a classic category of public interest immunity. As Beaumont J said in Young v Quin (1985) 4 FCR 483:
    

"Prima facie, in my view, the matters sought to be opened up in the cross-examination of Inspector Wheatley fall squarely within a traditional head of the public interest, viz, that these methods of operation and the identity of police sources of information should not be publicly disclosed."

48. Since public interest immunity is not confined to criminal proceedings, a similar category of pubic interest immunity arises with respect to methods of investigation and sources of information of the OSR. In my view, in carrying out the duty of investigating whether civil offences have been committed, it would be injurious to the OSR if its methods of investigation and sources of information were revealed.
    
49. The documents in answer to par 5 of the notice of motion, production of which are resisted on the grounds of public interest immunity are requests for information from various sources. Production of the documents would reveal OSR methods of operation to the prejudice of its future activities. The documents also identify from whom information is sought and the nature of that information. To be required to produce the documents would, in my view, prejudice future investigations by the OSR.
    
50. It was submitted that once the requests for information had been delivered they were in the public domain and any claim of public interest immunity was lost.
    
51. I do not accept that submission. The argument would apply to any request for information by the police in a criminal investigation and render futile the traditional category of public interest immunity for police methods of operation and police sources of information.
    
52. It was submitted that it was on the cards that these documents would reveal improper purpose and bad faith. In my opinion they do not.
    
53. The Chief Commissioner is entitled to relief from further production of documents under par 5 on the grounds of public interest immunity.
    
54. The redactions in the summary of the David James investigation and in the summaries of Mr Evans, Mr Johnson and Mr Suriyachan produced under par 7 of the notice to produce mask, as Mr Johnston explained in his open affidavit, questions to be asked in s 72 examinations. If the questions are known in advance, the investigation of possible offences is prejudiced because witnesses aware of the questions may not provide an honest answer.
    
55. In Mr James' summary the first redaction of text at p 4 prevents revelation of a line of inquiry and a source of information inimical to future investigations. The second redaction at p 5 masks a matter of legal professional privilege and the third redaction is of a line of inquiry that would prejudice the investigation of Mr James if known to him. The allegation is that the entities referred to in the masked text were parties to a sham arrangement.
    
56. The final redaction before the table of questions or lines of inquiry mask the identity of companies within the David James group with respect to changes of directors or shareholding and would reveal a line of inquiry and source of information to the OSR with respect to that allegation.
    
57. With regard to the entities identified in the amended summons, there was no redaction of the Rabobank summary. With respect to the redactions in the summary of Mr James in relation to Mr Suriyachan, Mr Johnson and Mr Adams, the redactions in the table mask lines of inquiry that should be followed in the examination of those individuals. Finally the portion with respect to a statement from a Rabobank employee contains lines of investigation that should be taken.
    
58. The table to Mr James' summary masks out the identity of the persons to be examined other than those the subject of the amended summons.
    
59. The investigation including the question of sham transactions involves an under disclosure of wages to the OSR compared with disclosure to the ATO as outlined in the affidavit of Mr Sofiak of approximately $3 M.
    
60. Far from the redacted summaries under par 7 of the notice to produce revealing on the cards an improper purpose or bad faith, they reveal legitimate lines of inquiry in an investigation of this magnitude involving serious questions of the commission of offences.
    
61. The remaining documents under par 7 of notice to produce contain questions to be asked of persons under s 72 notices other than for entities the subject of the amended summons. If those documents were produced they would indicate to Mr James lines of inquiry to be put to individuals thereby prejudicing the investigation and identifying prospective sources of information.
    
62. If Mr James has any legitimate interest in knowing the identity of the prospective examinees and the lines of inquiry to be followed with respect to them, the public interest in open inquiry is far outweighed in the balancing exercise by the public interest in non-disclosure.
    
63. The Chief Commissioner is, in my view, entitled to an order relieving him from further production of documents under par 7 of the notice to produce.
    
64. So far as the confidential affidavit of Mr Johnston is concerned, I am of the view that disclosure of paragraphs 1-10 and 17 and 18 would not compromise the investigation of Mr James.
    
65. The remaining paragraphs and the items in the 1 st to 4 th schedules and the remaining annexures should be masked and the document redacted in that fashion should be produced.
    
66. The balance of the affidavit falls into the same categories as the redacted portions of the summaries of Mr Adams, Mr Johnson and Mr Suriyachan and the other information that I have held to be immune from production by reason of public interest immunity.
    
67. As I have rejected claims to be relieved from production of some documents as not being covered by public interest immunity, the appropriate course is for me to refrain from making orders, or to make orders and stay them, until the Chief Commissioner has had the opportunity to consider whether he wishes to put on further evidence or appeal my decisions.
    
68. In Alister at [8]; 415, Gibbs CJ said:
    

"In the present case the trial judge, Lee J., was faced with a difficult decision. His difficulty was made the greater by the fact that if he had decided to inspect the documents, it would have been his duty to defer making an inspection to give the Attorney-General an opportunity to test his decision on appeal if he wished to do so, notwithstanding the inconvenience that would result from interrupting the trial in that way."

69. I will stand the matter over to hear further from counsel. And I will hear the parties on costs.
    

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