The Hogan Dilemma – How can you go with a DPO?

Settled Principles

His Honour held that the following propositions emerge from the decision of the Full Federal Court in Poletti v Commissioner of Taxation,⁴ in relation to this type of appeal:⁵

His Honour accepted, following Poletti, that there were three principal questions to be resolved on the appeal:

(a) Whether the person is subject to a tax liability?;

(b) Whether the Commissioner held the belief of which s 14S(1)(b) speaks?; and

(c) Whether reasonable grounds existed for the formation by the Commission of the requisite belief?

His Honour rejected a submission on behalf of the Appellant that there were two stages to an appeal under s 14V ⁶.

Findings by Logan J

His Honour accepted Pattenden was subject to a tax liability but found there was a discrepancy between the office minute and the DPO issued on 21 May 2008 by the delegate of the Commissioner.⁷  His Honour rejected as “unattractive”⁸ a submission on behalf of the Commissioner that, in a relative sense, the discrepancies were “minor” because, “notwithstanding that the nature of the power to make a DPO admits of the application of the Carltona principle, it nonetheless remains a power that entails a serious intrusion on a person’s freedom of movement”.

There was therefore every reason to expect that the “non-procedural aspects of the decision” will be made only by the authorised officer and the decision to insert a different taxation liability was that of an unauthorised subordinate.  His Honour held that inserting the additional taxation liability and the further payments was not a “procedural step”.  Neither was the affixing of the facsimile of the Deputy Commissioner’s signature to a DPO in that form⁹. His Honour considered the additional entries were not severable¹⁰. 

His Honour rejected a submission that the use of the words “I support your recommendation to seek a DPO” evidenced an endorsement of an approval decision made by an unauthorised subordinate as opposed to evidencing the making of a decision in terms of the subordinate’s recommendation¹¹.

His Honour was critical of the fact it took over a month after deciding a DPO should be made before the DPO was issued and observed that the delay was not explained in evidence.  His Honour considered the word “forthwith” in s 14S(4) meant “as soon as reasonably practicable”.  He was not satisfied that had occurred in this case¹².

His Honour concluded:

As to the requisite belief, whilst his Honour concluded “it is by no means impossible to see how it was open for the requisite belief to be held on reasonable grounds not just subjectively but objectively”, his Honour found that, on the evidence before the Court as to the position at the time that DPO was made, the factors to which he had adverted did not warrant a conclusion that reasonable grounds for the requisite belief existed¹⁴ because there had been a material change to the “taxation liability,” as set out in the schedule to the DPO, from that which was the subject of advice to Mr Benson. For that alternative reason also the DPO was set aside.

His Honour rejected the submission of the Appellant that the existence of an undetermined objection was a relevant consideration which the Commissioner was bound to take into account in the exercise of his discretion whether or not to issue a DPO, and that the Court should also take that matter into account in the exercise its discretion whether or not to grant relief on appeal.  His Honour also rejected the submission that the Commissioner was bound to take into account the Commissioner’s Receivables Policy and that any omission so to do gave rise to an administrative law error¹⁵.

In reaching his findings, his Honour stated, “as it happens, I have answered two of the three questions described in Poletti’s case favourably to Mr Pattenden.  I did not understand the Commissioner to submit that, if so, I retained a discretion to preserve the DPO”.¹⁶  In fact, submissions were made on behalf of the Commissioner that, even if one or more of the questions posed in Poletti’s case were answered favourably to Pattenden, in the exercise of its discretion, the Court could take into account facts which had arisen after the decision to make the DPO which were relevant to the exercise of the discretion whether or not to grant relief and decline to grant relief where that evidence led to a conclusion the DPO should not be set aside, notwithstanding defects in the making of the DPO.

In that regard, his Honour was referred to admissions made by Pattenden, in his evidence, that, although returns had been lodged on behalf of Crown Insurance for each of the years ended 30 June 2003, 2004, 2005 and 2006 and the tax assessed on the deemed assessment arising by lodgment of those returns had been paid,¹⁷ Mr Pattenden had instructed his solicitors to lodge objections against those deemed assessments with a view to recovering the monies paid, and did not believe that either he personally, or Crown Insurance, had any taxation liability with respect to any of the years in question, and that he had no intention of paying any tax with respect to any of those years.  His Honour did not refer to these submissions in his reasons.

Is the Decision in Pattenden correct?

In my respectful opinion the decision of Logan J that the language of s 14S of the TAA 53 does not compel a conclusion that a DPO may only be made after consideration of the total taxation liability, however arising, of an individual is correct.  No intention which would displace the interpretative rule found in s 23(b) of the Acts Interpretation Act 1901 (Cth) (“the Interpretation Act”) that “words in the singular number include plural and words in the plural number include the singular” is evident.

Further, his Honour correctly observed that s 14S contemplates the making of a decision to issue a DPO by the Commissioner or a delegate who has formed the belief, on reasonable grounds, that it is desirable that a person, subject to a particular tax liability, not depart Australia without “wholly discharging” that tax liability; or making arrangements satisfactory to the Commissioner for that tax liability to be “wholly discharged”.  The value judgment entailed in the decision is necessarily referable to “wholly discharging” or making satisfactory arrangements for “wholly discharging” the taxation liability in respect of which the decision is made.

These were the considerations which led his Honour to the conclusion that it would be a “usurpation” of the authority vested in Mr Benson to make a DPO for Mr Benson’s unauthorised subordinate to presume to insert into what purported to be a DPO, made by or on behalf of Mr Benson, a tax liability that was different to that in respect of which the authorised officer had made his decision on behalf of the Delegate¹⁸.

His Honour accepted that it was proper for an authorised person, having made a decision to issue a DPO, to consign to a subordinate “consequential, wholly procedural, clerical or ministerial” tasks such as the affixing of a facsimile signature of the Deputy Commissioner to the DPO, or communication to Pattenden of the making of the DPO.  However, his Honour held the changes made to the taxation liability set out in the schedule to the DPO from the amounts referred to in the office minute were not “wholly procedural, clerical or ministerial” changes, but more properly characterised as “non-procedural changes”, i.e. changes of a substantive nature.  

His Honour’s decision in relation to this aspect of the matter is open to some question for the following reasons:

Reasonable Grounds at the Time to make the DPO was Made

Logan J preferred the approach exemplified in George v Rockett²⁰.  Logan J held that whether reasonable grounds existed for the holding of the requisite belief was “an objectively determined postulate”²¹.

In George, the High Court stated the relevant law as follows:

A similar approach was adopted in Ruddock & Ors v Taylor²³, where the High Court held that what constituted reasonable grounds for suspicion had to be judged against what was known or reasonably capable of being known at the relevant time.

A different approach was adopted by the High Court in McKinnon v Secretary Department of Treasury²⁴ in relation to the proper construction of s 58(5) of the Freedom of Information Act 1982 (Cth).  Hayne J held that the Tribunal’s task on such an application was to decide whether the conclusion expressed in the Minister’s certificate can be supported by logical arguments that, taken together, are reasonably open to be adopted and that, if adopted, would support the conclusion expressed in the certificate.  Callinan and Heydon JJ held that if one reasonable ground exists to support a claim of contrary to the public interest, even though there may be reasonable grounds the other way, the conclusiveness will be beyond review²⁵.

In a joint dissenting opinion, the Chief Justice and Kirby J²⁶  said:

Under the TAA, the Commissioner is required to form the relevant belief referred to in s 14S(1)(b) “on reasonable grounds”.  The “reasonable grounds” which will be relevant to the formation of the relevant belief are not stated anywhere in Part IVA, and the Commissioner is given a wide discretion to decide what factual material available to him ought to be regarded as relevant and what weight should be given to each relevant fact²⁸.  The matters which would be relevant must be ascertained having regard to the proper construction of the relevant section, in the context of the part of the TAA in which it appears, and having regard to the subject-matter, scope and purpose of the relevant provision²⁹.

The Court does not have the power, on an appeal, to exercise the discretion reposed in the Commissioner in s 14S(1) of the TAA³⁰.  The Court may, on an appeal, in the exercise of its discretion, make an order setting aside the DPO, or dismiss the appeal³¹.  The grounds upon which the Court might set aside the DPO are not stated in Part IVA but would include where the Applicant was able to demonstrate, by admissible evidence, that insufficient grounds in fact existed to enliven a valid exercise of the discretion referred to in s 14S(1)(b) of the TAA.  In other words, no decision-maker, properly instructing themselves as to the relevant facts in existence at the time the decision was made, and properly instructing themselves as to the law, could have made the decision which is the subject of the appeal.

Such a review has some similarity to the task confronting an Applicant in demonstrating unreasonableness, in the Wednesbury sense³².  In Minister for Immigration v Eshetu³³, Gummow J said³⁴:

The evidence in Pattenden was not all one way.  Whilst a number of factual errors had been made in the office minute, no individual error was critical in accordance with the validity of the decision ultimately made, and the question was whether there was enough uncontroversial factual material to justify the formation of the relevant belief “on reasonable grounds”.  His Honour held that there was not and that, viewed objectively, the facts which existed at the date of the decision did not “warrant a conclusion that reasonable grounds for the requisite belief then existed”.³⁵

His Honour did not deal with the question of whether there was any residual discretion to refuse relief under s 14X of the TAA 53.  There would not, in practice, be many occasions, if any, where the court would not set aside a DPO when the court had concluded that reasonable grounds did not exist for the requisite belief, in my view.³⁶

Judicial Review Grounds

In Kirk v Industrial Relations Commission of New South Wales; Kirk Group Holdings Pty Ltd v WorkCover Authority of New South Wales (Inspector Childs)³⁷ (“the Kirk case”), the High Court gave consideration to its earlier decision in Craig v South Australia³⁸.

In Kirk³⁹ the plurality observed that it was neither necessary nor possible to attempt to mark the metes and bounds of jurisdictional error.  However, their Honours referred to the collection of authorities prepared by Professor Aronson in “Jurisdictional Error Without the Tears”⁴⁰.  According to Professor Aronsen the following categories of jurisdictional error have been recognised:

At [72], the plurality considered a number of propositions which emerged from their earlier decision in Craig. 

First, in Craig the Court stated,⁴¹ as a general description of what is jurisdictional error by an inferior court, that an inferior court falls into jurisdictional error “if it mistakenly asserts or denies the existence of jurisdiction or if it misapprehends or disregards the nature or limits of its functions or powers in a case where it correctly recognises that jurisdiction does exist”. 

Second, the Court pointed out⁴² that jurisdictional error “is at its most obvious where the inferior court purports to act wholly or partly outside the general area of its jurisdiction in the sense of entertaining a matter or making a decision or order of a kind which wholly or partly lies outside the theoretical limits of its functions and powers”. 

Third, the Court amplified⁴³ what was said about an inferior court acting beyond jurisdiction by entertaining a matter outside the limits of the inferior court’s functions or powers by giving three examples:

The line between jurisdictional error and mere error in the exercise of jurisdiction may be particularly difficult to discern in some cases.⁴⁴

At [73], in Kirk the plurality said:

Indeed, there has been a further recent development in relation to the scope of jurisdictional error.  In Minister for Immigration and Citizenship v SZMDS⁴⁵ the High Court dealt with the development and scope of “illogicality” and “irrationality” as a separate ground of review for jurisdictional error in relation to the reasons for decision of an administrative decision-maker.  Usually this arises in circumstances where a public officer must be “satisfied” of some fact or circumstance. 

The High Court has observed, on a number of occasions, with reference to s 75(v) of the Constitution in relation to jurisdictional error, that where a statutory power is conferred the legislature is taken to intend that the discretion is to be exercised reasonably and justly.⁴⁶

At [130] in the joint judgment of Justices Crennan and Bell their Honours said:

“In the context of the Tribunal’s decision here, ‘illogicality’ or ‘irrationality’ sufficient to give rise to jurisdictional error must mean the decision to which the Tribunal came, in relation to the state of satisfaction required under s 65, is one at which no rational or logical decision-maker could arrive on the same evidence.  In other words, accepting for the sake of argument, that an allegation if illogicality or irrationality provides some distinct basis for seeking judicial review of the decision as to a jurisdictional fact, it is nevertheless an allegation of the same order as a complaint that a decision is ‘clearly unjust’ or ‘arbitrary’ or ‘capricious’ or ‘unreasonable’ in the sense that the state of satisfaction mandated by the statute imports a requirement that the opinion as to the state of satisfaction must be one that could be formed by a reasonable person.  The same applies in the case of an opinion that a mandated state of satisfaction has not been reached.  Not every lapse in logic will give rise to jurisdictional error.  A court should be slow, although not unwilling, to interfere in an appropriate case.”⁴⁷

AVENUES OF REVIEW   

In summary, the avenues of review available are as follows:

Alternative-Judicial Review

The right to seek judicial review of all of the abovementioned decisions is subject to the limitations which arise upon tender of a duly certified notice of assessment or amended assessment, having regard to ss 175 and 177 of the Income Tax Assessment Act 1936 (“the ITAA 36”).⁵⁰

As the Full Court of the Federal Court observed in Poletti⁵¹:

GROUNDS OF REVIEW

In Pattenden Logan J said⁵²:

There is no particular reason why a person seeking to review a decision of the Commissioner to issue a DPO should not proceed by way of an appeal under s 14V of the TAA 53 and, in the alternative, an ADJR application and an application for review under s 39B of the Judiciary Act 1903 (Cth) (“the JA”).

The available grounds of review appear to be quite broad and may now include an argument that the decision to issue the DPO is vitiated by the illogicality and/or irrationality of the reasons of the decision-maker.  Although not every lapse in logic will give rise to jurisdictional error, there are some cases where this ground might well succeed.

CONCLUDING REMARKS

Not surprisingly, the Commissioner rarely issues DPOs in my experience.  It is a fairly draconian power and one which should be exercised with an appropriate degree of caution and consideration for the likely effects which the issue of a DPO will have on the recipient thereof. 

Similar powers do exist in other circumstances. For example, Supreme Courts have a power to issue, on application of a creditor, an order restraining the departure of an absconding debtor in certain circumstances.⁵³  The movements of bankrupts can also be restrained under various provisions of the Bankruptcy Act 1966 (Cth).

Notwithstanding those powers, the power of a public official to issue an order restraining the departure from Australia of a tax debtor, who may well dispute their indebtedness and not have had the opportunity to test the correctness of the Commissioner’s assessment through the objection and appeal procedure referred to in Part IVC of the TAA 53, might fairly be regarded as an exceptional power, the exercise of which should be, and is, the subject of appropriate judicial oversight. 

Taxation officers who have overstepped the mark have been the subject of stringent judicial criticism.  In Pattenden a further attempt was made by the ATO to restrain Mr Pattenden’s departure after the decision and reasons of Logan J had been handed down.  His Honour indicated that contempt proceedings against the officers in question would have been in order if that DPO had not been revoked prior to the matter coming back on before him.

In some ways it is a pity that Mr Hogan did not see fit to challenge the Commissioner’s decision to issue the DPO by way of one of the several mechanisms referred to herein.  So doing might well have advanced the jurisprudence in this area.  It is, however, entirely understandable that he preferred to reach an accommodation with the ATO that allowed him to depart without the inevitable delay associated with an appeal and/or judicial review proceedings. 

Having said that, in my experience, the courts are prepared to deal with these matters most expeditiously, if the circumstances warrant it.⁵⁴

Peter Bickford

Footnotes

1. See Pattenden v Commissioner of Taxation (Cth) (2008) 175 FCR 1.
2. Section 14R(1) does not apply if the departure is authorised by departure authorisation certificate which can be issued pursuant to s 14U (see s 14R(2)).
3. See s 14Y(1) TAA53.
4. (1994) 52 FCR 154.
5. Pattenden v Commissioner of Taxation (2008) 175 FCR 1 at [8].
6. Pattenden v Commissioner of Taxation (2008) 175 FCR 1 at [10] — [12].
7. Pattenden v Commissioner of Taxation (2008) 175 FCR 1 at [13]-[14].
8. Pattenden v Commissioner of Taxation (2008) 175 FCR 1 at [51].
9. Pattenden v Commissioner of Taxation (2008) 175 FCR 1 at [52].
10. Pattenden v Commissioner of Taxation (2008) 175 FCR 1 at [55].
11. Pattenden v Commissioner of Taxation (2008) 175 FCR 1 at [31] — [32].
12. Pattenden v Commissioner of Taxation (2008) 175 FCR 1 at [38].
13. Pattenden v Commissioner of Taxation (2008) 175 FCR 1 at [56].
14. Pattenden v Commissioner of Taxation (2008) 175 FCR 1 at [108] — [109].
15. Pattenden v Commissioner of Taxation (2008) 175 FCR 1 at [114] — [118].
16. Pattenden v Commissioner of Taxation (2008) 175 FCR 1 at [112].
17. Albeit after the making of the DPO.
18. His Honour made it clear that he was referring only to primary or additional tax liabilities which are fixed, not to general interest charges which necessarily accrued from day to day; see reasons [49].
19. This seems to have been accepted by his Honour at [48] of his reasons.
20. (1990) 170 CLR 104 at 112 in relation to this question.
21. See Polletti’s case at p 161.
22. George at 112.
23. (2005) 222 CLR 612.
24. (2006) 228 CLR 423.
25. Gleeson CJ and Kirby J gave a joint dissenting opinion.
26. McKinnon at [10] and [11].
27. See Bradley v The Commonwealth (1973) 128 CLR 557, at 574-575; Nakkuda Ali v MF De S Jaryaratne [1951] AC 66; Inland Revenue Commissioners v Rossminster Ltd [1980] AC 952.
28. Minister for Aboriginal Affairs v Peko-Wallsend Pty Ltd (1986) 162 CLR 24, at 39-41, per    Mason J.
29. Peko-Wallsend (supra).
30. See ss 14V(2)(a)-14X TAA; and Chapter III of the Constitution.
31. See s 14X TAA.
32. See Associated Provincial Picture Houses v Wednesbury Corporation [1948] 1 KB 223.
33. (1999) 197 CLR 611.
34. At [137].
35. See Pattenden at [108].
36. See Pattenden at [115].
37. (2009) 239 CLR 531.
38.  (1995) 184 CLR 163 at 176 to 180, [66] to [70] in the judgment of the plurality.
39. At [71].
40. Groves and Lee, Editors, Australian Administrative Law: Fundamentals, Principles and Doctrines, (2007) 330 at 335 to 336.
41. (1995) 184 CLR 163, at 177.
42. (1995) 184 CLR 163, at 177.
43. (1995) 184 CLR 163, at 177 to 178.
44. See Craig, at 178, and the cases referred to therein.
45. (2010) 84 ALJR 369. 
46. See Minister for Immigration and Citizenship v SZIAI (2009) 83 ALJR 1123, at 1127 [15] and fn16; Kruger v The Commonwealth (1997) 190 CLR 1, at [36], per Brennan CJ; [2010] 84 ALJR 369 per Crennan and Bell JJ. 
47. Gummow ACJ and Kiefel J gave a separate joint dissenting judgment.  Their Honours analysed jurisdictional error, at [16] to [31], and the importance of proper reasons, at [32] to [36]. 
48. See s 14W. 
49. See s 14Y TAA 53. 
50. See Commissioner of Taxation v Futuris Corporation Limited (2008) 237 CLR 146. 
51. Supra at p 160;  see also observations of Logan J in Pattenden at [8]. 
52. At [8(d)] of his Honour’s Reasons. 
53. See, e.g., Rule 935 Uniform Civil Procedure Rules 1999 (Qld);  the modern equivalent of the old writ of capias ad respondendum. 
54. See, e.g., Poletti where the Delegate of the Deputy Commissioner of Taxation issued the DPO on 10 August 1994;  the appellant appealed against the making of the order; the appeal was heard by Beazley J and dismissed; and the appellant appealed to the Full Court which was convened to hear the appeal on 16 August 1994 and handed down its decision on 8 September 1994.