This Full Federal Court decision is an appeal, by the Commissioner of Taxation, from an interlocutory decision made by Foster J. The FFC allowed the Commissioner’s appeal and set aside a subpoena that required the Commissioner to produce various documents. Foster J’s decision is reported as  FCA 358. The case turned on whether the subpoenaed documents were ‘necessary for the purpose of carrying into effect the provisions of … a *taxation law…” under the secrecy tax law secrecy provisions in Div 355 of Sch 1 to the TAA (s355-75(1)(a)). This was always going to be an interesting case as the Commissioner was not a party to the relevant actions.
Having said that, I will have to explain the back ground in order to make sense of the s355-75(1)(a) ‘necessary’ point.
The subpoenaed documents had been prepared for the purposes of an earlier, but related, action in which the Commissioner funded the liquidators, of BCI Finances Pty Ltd; Binqld Finances Pty Ltd and 2 other companies (the Tax Debt Companies), to help recover the tax debts that had forced them into liquidation. These companies were associated with the Binetter family, part of which had run the well know ‘Nudie’ juice business, that they later sold. The Liquidators sought compensation from the directors, of these Companies – broadly members of the Binetter family. The Tax Debt Companies sought compensation, from these directors, for breach of their duties when they guided these liquidated companies into the schemes that lead to the tax debts (the Directors Recovery Action). The Liquidators succeeded in getting judgement for the tax debt based losses, against 4 of the 6 directors, against whom they took action. The liability part of this action was the decision of Gleeson J, reported at  FCA 1351. The recovery part of this Directors Recovery Action remains on foot.
But the subpoena was issued as part of a subsequent, but similar, action. This was brought by the same Liquidators (of the same Tax Debt Companies). They sued Tamarama Fresh Juices Australia Pty Limited and other companies, in which the Commissioner believed the proceeds from the sale, of the ‘Nudie’ juice business, reposed (the Nudie Entities). This too, was to help collect the tax debts owed by the Tax Debt companies.
The basis for bringing this second action (the Nudie Proceeds Action) was for compensation from the defendants on the basis that they knowingly received the ‘fruits’ (no pun) of the breaches of the various duties of the directors of the plaintiff Tax Debt Companies, as well as (or alternatively) claims for compensation for knowingly assisting in the breaches of these directors’ duties.
Application to stay the liquidator’s second recovery action
The Nudie Entities sought orders that this second action be dismissed, or permanently stayed, based on an ‘Anshun Estoppel’ argument (namely the principles explained by the High Court in Port of Melbourne Authority v Anshun Pty Ltd  HCA 45) or as an abuse of process.
Foster J explained the basis for this stay action as follows:
23. In this proceeding, so the argument runs, the liquidators, who control all of the plaintiffs in both proceedings, seek to establish the involvement and participation, of the Nudie entities, in the very breaches of duties that were alleged in [the action against the directors] by reason of the common directorship of the plaintiffs [the Tax Debt Companies] and the Nudie entities, with the consequence that the Nudie entities are said to have known or to be fixed with the knowledge of the scheme, involving the Israeli and Swiss banks (the eleventh, twelfth and thirteenth defendants in this proceeding). The Nudie entities argue that the plaintiffs in this proceeding seek to re-agitate, in this proceeding, identical issues to those litigated by them in [the action against the directors] and determined by Gleeson J in the liability judgment. The Winmar companies [other Binetter companies also joined as Respondents] argue the same points.
24. The Nudie entities also contend that, because the plaintiffs did not join them as defendants in [the Directors Recovery Action], having made a deliberate forensic and strategic decision not to do so, they are now estopped from proceeding against the Nudie entities in this proceeding. The Nudie entities also submit that, for essentially the same reasons, this proceeding is an abuse of process. The Winmar companies make the same contentions.
25. The Commissioner is the only external creditor of each of the plaintiffs.
26. It will be argued by the Nudie entities and the Winmar companies that the choices made in early 2015 by the liquidators of the plaintiffs as to which individuals and Binetter-related entities would be sued by one or more of the plaintiffs, and which would not, and the choices made by the Commissioner as to which Binetter-related entities would be sued directly by him, and which would not, were decisions made by the liquidators and several officers of the ATO acting in concert pursuant to an agreed plan of action which had been devised by those persons with the intention of securing control of the proceeds of sale of the Nudie Juice business in order to recoup the losses to the revenue occasioned by the Binetters’ fraudulent tax evasion scheme, which was at the heart of the reasons given by Gleeson J for finding all but two of the defendants guilty of multiple breaches of duty in the liability judgment.
27. The documents sought by the Nudie entities, by means of the subpoena, will very likely expose for the consideration and evaluation, by the Court, the conduct of the liquidators and of the ATO officers, which led to [the Directors Recovery Action] being commenced in early 2015 with only one plaintiff, BCI Finances, and this proceeding being commenced on 3 December 2015, with four plaintiffs, the same four plaintiffs who were, by then, also the plaintiffs in [the Directors Recovery Action], the second, third and fourth plaintiffs having been added as such on 7 June 2015.
The information sought by subpoena
The information the Nudie Entities subpoenaed was that which passed between the Liquidators and the Commissioner’s office in the course of funding, planning and monitoring the Directors Recovery Action. Foster J, at first instance, set out the information subpoenaed as follows.
- The evidence tendered by the Commissioner established that:
(a) Each of the documents called for by the subpoena had been received by the Commissioner or sent to the liquidators by the Commissioner for the purposes of tax recovery in accordance with the Commissioner’s functions under Ch 2 of Sch 1 to the Tax Administration Act 1953 (Cth) (TAA); and
(b) The documents in question were:
(i) Provided by the liquidators to the Commissioner, or by the Commissioner to the liquidators, in order to enable the Commissioner to consider the liquidators’ request for indemnity from the Commissioner for the costs of litigation in relation to debts owed to creditors, including the Commissioner;
(ii) Provided by the liquidators to the Commissioner, or by the Commissioner to the liquidators, in order to facilitate the progress of tax recovery proceedings, including by providing updates from the liquidators to the Commissioner regarding the use of indemnity funds and the progress of liquidation proceedings; or
(iii) Disclosed by the Commissioner to the liquidators, in the course of performing his duties under s 355-50 of Sch 1 to the TAA, in order to assist with proceedings to recover revenue.
- At par 22 of her affidavit affirmed on 3 March 2017, Ms Chau said, in respect of that category of documents described at [31(b)(iii)] above:
These documents were provided to the Liquidator by the Commissioner under s355-50 of Schedule 1 to the TAA to assist with proceedings to recover revenue because the causes of action run by the liquidators would facilitate the core of the Commissioner’s duties, which is recovery of taxation revenue. But for the SAD 5 and SAD [sic] 1600 proceedings, the Commissioner would not have been able to recover any funds in relation to breaches of the taxation law by certain entities because the Commissioner was the sole third party creditor of the Nudie entities.
Subpoena’s effectiveness turned on an exception to the tax secrecy provisions
It was common ground that the information subpoenaed was relevantly: “protected information” under s355-30 of Sch 1 of the TAA (ie. “was disclosed or obtained under or for the purposes of a law that was a *taxation law … when the information was disclosed or obtained”) and thus, the Commissioner was not allowed to disclose it (under s355-25) unless one of the exceptions applied. The relevant exemption was for taxation officers ‘performing their duties’ (now in s355-50).
These ‘secrecy provisions’ used to be contained in s16 of the ITAA36 but, in December 2010, they moved to Div 355 of the TAA1. To construe the new provisions, Foster J reviewed the case law on this exemption under both the old and new provisions (and this is a good review of the applicable law).
There is, however, a restriction on the extent to which ‘protected information’ can be disclosed, in Court. This is was the provision that ultimately governed the fate of the Commissioner’s application to set the subpoena aside. It is in s355-75(1) of the TAA1 and provides as follows.
355-75 Limits on disclosure to courts and tribunals
An entity who is or was a *taxation officer is not to be required to disclose to a court or tribunal *protected information that was acquired by the entity as a taxation officer except where it is necessary to do so for the purpose of carrying into effect the provisions of:
(a) a *taxation law; or
Reasons for NOT setting the subpoena aside – at first instance
The approach which Foster J took in interpreting this provision, can be seen in the following paragraphs from his decision.
109. The Nudie entities submitted that, when interpreting the exception in s 355-75 of the TAA, the Court should adopt the interpretation of the word “necessary” favoured by Davies J in Propend. That is, I should interpret that word as meaning “requisite” or “plainly appropriate”. I accept that submission.
110. The Nudie entities then submitted that, where protected information sought under a subpoena has been collected by the Commissioner and provided by the Commissioner to a third party (here, the liquidators of the plaintiffs) so as to enable that third party to commence a proceeding which has as its primary purpose or aim the recovery of tax indirectly, it is [also] ‘necessary’, for the carrying into effect of the provisions of a taxation law, for the documents to be provided to the defendant parties in any such proceedings to the extent that they are relevant to the conduct of those proceedings by those defendant parties. That submission is correct and I also accept it.
And in summing up, Foster J said the following.
114. It is true that the claims for relief made in this proceeding are claims for compensation against the defendants for knowing receipt of the fruits of breaches of directors’ duties by the directors of the plaintiffs and/or claims for compensation for knowing assistance in the breaches of such duties. However, the raison d’etre of the proceeding is the restoration to the plaintiffs of their losses occasioned by the implementation of an alleged tax fraud in circumstances where funds so restored to the plaintiffs will immediately be passed across to the Commissioner as the only creditor of the plaintiffs. The ultimate aim of the present proceeding or, the real purpose of the present proceeding, is to recover the unpaid tax which is the subject of the various assessments issued by the Commissioner against the plaintiffs. If that complexion of the present proceeding is correct, then it would be quite wrong to allow the Commissioner to disclose protected information to the liquidators for the purpose of advancing the liquidators’ and the plaintiffs’ interests in the present proceeding and thus the recovery of unpaid tax, while at the same time withholding the same documents from the defendants. Such a one sided outcome would not be conducive to the recovery of the correct or true amount of tax and would not be in the interests of justice. The disclosure sought by the Nudie entities is, therefore, necessary for the purpose of carrying into effect a taxation law being those parts of the Commonwealth taxation law which allows the Commissioner to issue assessments and to recover unpaid tax.
Reasons the Full Court set the subpoena aside on appeal
By the time the appeal came before the Full Federal Court, both sides had changed their arguments, as noted in para 4 of the FFC decision.
4. … the arguments presented by both parties in the appeal differed from those made to the primary judge. The Commissioner, the recipient of the subpoena who sought an order setting the subpoena aside based on s 355-75, no longer argued that for disclosure of “protected information” to be “necessary…for the purpose of carrying into effect the provisions of a taxation law” the purpose must arise directly from the taxation legislation. The respondents, as the party who had served the subpoena, no longer argued that “necessary” meant nothing more than “plainly appropriate” for the purpose of carrying into effect the provisions of taxation law. It was thus common ground in the appeal that “necessary” meant more than merely “appropriate”, no matter how manifest the propriety might appear, the best synonym for “necessary” being “requisite”.
And, in any event, the FFC found against the Nudie Entities (and for the Commissioner) by setting aside the subpoena. Its conclusion is set out at para 6 as follows.
6. We do not consider that the disclosure required by the subpoena can be said to be “necessary…for the purpose of carrying into effect the provisions of a taxation law” merely because the Commissioner is the only external creditor of the plaintiff companies and the compensation sought is equivalent to the taxation liabilities which the plaintiff companies owed to the Commissioner. This conclusion, in our view, follows from the relevant provisions of Sch 1 to the Taxation Administration Act.
The Full Court expanded on this in paras 9 and 10 as set out below.
9. Apart from this, and as explained below, we are satisfied that the disclosure sought by the subpoena is not for the purpose of “carrying into effect the provisions of a taxation law”. The primary judge’s description at  that the “ultimate aim of the present proceeding or, the real purpose of the present proceeding, is to recover the unpaid tax which is the subject of the various assessments issued by the Commissioner against the plaintiffs” may be accepted as reflecting the Commissioner’s purpose in funding the actions by the liquidators of the plaintiff companies and voluntarily disclosing protected information to the liquidators. The Commissioner’s purpose, however, is not the test. The test is whether the disclosure is necessary for the purpose of carrying into effect the provisions of a taxation law. The required relationship is thus between the disclosure and giving effect to the provisions of a taxation law, and the required criteria are that the relationship is one of purpose (in contrast, for example, to mere effect or consequence) and necessity (in contrast, for example, to mere relevance, convenience, desirability or propriety).
10. In the present case, the relationship between the subpoena in aid of an application to stay a proceeding as a consequence of which the Commissioner, as a creditor, may stand to recover in the winding up of the plaintiff companies an amount equivalent to unpaid tax debts is too tenuous and remote be characterised as disclosure for the purpose of “carrying into effect the provisions of a taxation law”, let alone the disclosure being “necessary” for that purpose.
(FCT v Tamarama Fresh Juices Australia Pty Ltd & Ors  FCAFC 154, Full Federal Court, Middleton, Gilmour and Jagot JJ, 25 September 2017.)