On 3 August 2018, Justice Bromwich of the Federal Court handed down his decision in Commissioner of Taxation v ACN 154 520 199 Pty Ltd (in liq) (formerly EBS & Associates Pty Ltd) [2018] FCA 1140. The decision reaffirmed the findings of previous cases stating internal legal advice will be outside the jurisdiction of section 37(2) of the Administrative Appeals Tribunal Act 1975 (Cth) (AAT Act) if it was not before the decision-maker, and the Administrative Appeals Tribunal (Tribunal) therefore cannot order respondent agencies to produce such advice under section 37(2) of the AAT Act.

The decision also went further, calling into question the relevance, for the purposes of Tribunal proceedings, of any ‘subjective’ material, even if that material was before the decision-maker.

The facts

Section 37(2) of the AAT Act provides that where ‘the Tribunal is of the opinion that’ particular documents beyond those already produced by the respondent Commonwealth agency ‘may be relevant to the review of the decision by the Tribunal’, the Tribunal can give a notice requiring the production of those documents.

The Tribunal proceedings in this case concerned a decision of the Deputy Commissioner of Taxation (Commissioner) to reject a tax credit claim from EBS & Associates Pty Ltd (EBS). This decision increased the amount of GST payable by EBS. As a result, EBS owed the ATO $122 million in unpaid GST, and incurred an administrative penalty of $58 million.

EBS was found to not qualify for their claimed GST tax credits because their business of purchasing scrap gold and transforming it into gold bullion was not considered by the Commissioner to be ‘refining’, refining being an activity which attracts tax credits under A New Tax System (Goods and Services Tax Act 1999 (Cth).

In applying to the Tribunal to have the non-payment penalty remitted, EBS argued that legal opinions prepared by the ATO’s internal legal advisors may be relevant to the decision under review. In doing so, EBS claimed the Commissioner had received legal advice that the position adopted by EBS was correct, and that the position of the Commissioner was unlikely to be upheld by a court. EBS argued that the existence of such legal advice would demonstrate that its position had been ‘reasonably arguable’, for the purposes of determining whether a penalty should be imposed on it. On the basis of this argument by EBS, the Tribunal ordered the Commissioner to produce the relevant legal advice documents under section 37(2) of the AAT Act.

The Commissioner made an application to the Federal Court, appealing the Tribunal’s decision to compel production of the legal advice. In doing so, the Commissioner argued that the Tribunal’s decision under section 37(2) of the AAT Act was invalid, as it was not reasonably open to the Tribunal to find that the legal advice sought by EBS was relevant to the Tribunal’s review of the Commissioner’s decision.

The decision

The Federal Court allowed the Commissioner’s application, and ordered that the decision of the Tribunal to require production of the legal advice be set aside. In doing so, the Court held that the subjective legal opinions of the Commissioner’s legal team were irrelevant to the Tribunal’s task, which was to make an objective assessment of whether to remit the non-payment penalties.

Any internal legal advice held by the Commissioner concerning EBS and the no refining issue cannot be of any relevance to the objective question that the Tribunal is required to ask of itself once the facts have been determined.”

Bromwich J began by noting the test provided in R v Connell; Ex parte Hetton Bellbird Collieries Ltd (1944) 69 CLR 407, in which Latham CJ found that ‘where the existence of a particular opinion is made a condition of the exercise of power, legislation conferring the power is treated to referring to an opinion which… can be formed by a reasonable man who correctly understands the meaning of the law under which he acts’. In this case, the opinion required to be formed was that the documents sought under the order ‘may be relevant’ to the decision the Tribunal was required to make.

His Honour concluded, at paragraph 49 of his judgment, that it was ‘impossible’ to see how the factors taken into account by the Tribunal can be expanded to include ‘subjective’ material, especially if the material was not before the original decision maker, and was not known to EBS (and, therefore, could not have affected its decision to claim the relevant tax credits). His Honour further stated that, even if the legal advice had been seen by the original decision maker, or was known to EBS, it is still ’far from clear that such material would necessarily be relevant’.

Accordingly, Bromwich J concluded that the Tribunal had formed its opinion that the ATO’s ‘internal legal advices concerning EBS and the no refining issue may be relevant upon a basis that was not open to it’, as it was formed based on ‘an incorrect understanding of the meaning of the law in question’. Therefore the decision was beyond the Tribunal’s jurisdiction, and was set aside by the Court.

The learnings

The decision of the Court in this case builds on similar judgments in Re Thomas Cook Australia and Collector of Customs (1994) 34 ALD 301 (Thomas Cook Australia), where the Tribunal found that a legal opinion was not a document which ’records fact relevant to the decision-maker in the making of his decision to refuse the claim for drawback.’ Similarly, in Australian Prudential Regulation Authority v VBN (2005) 88 ALD 403 (APRA v VBN), the Court found that section 37(2) of the AAT Act does not extend to expressions of legal opinion or advice which may have been available to the decision maker but were not considered.

Given these authorities, it appears clear that any legal advice which was not considered by the decision-maker will not be ‘relevant’ for the purposes of section 37(2) of the AAT Act. Noting that the test for the scope of documents to be included in an agency’s Tribunal documents under section 37(1) of the AAT Act, being whether the documents are ‘relevant to the review of the decision by the Tribunal’, is the same as the section 37(2) test, such documents also would not need to be produced by the respondent agency in its section 37 documents.

Bromwich J’s judgment appears to go further than Thomas Cook Australia and APRA v VBN, however, to the extent that his Honour queried the relevance of legal opinions or other subjective views even if they were before the decision-maker. In doing so, his Honour drew a clear distinction between objective material, which contains facts of relevance to the decision to be made by the Tribunal, and subjective material, such as the opinions of internal legal advisers, which does not provide factual information of relevance to the Tribunal’s decision.

While this statement by Bromwich J was by way of obiter, it nonetheless raises the prospect that Commonwealth agencies could argue, contrary to the assumption adopted in APRA v VBN (which was followed in Re Sumabe Pty Ltd and Minister for Health and Ageing [2011] AATA 799), that legal opinions which were provided to the decision-maker, or other statements of subjective opinion provided by departmental officers, are not relevant to the Tribunal’s task in re-making the decision under review and therefore are not subject to production under either section 37(1)(b) or section 37(2) of the AAT Act.