Investigative Powers of the ASIC, the ACCC and the ATO: A Guide for Regulatory Officers
As specialist government agencies and creatures of statute mandated to achieve a public purpose, the Australian Securities and Investments Commission (ASIC), the Australian Consumer and Competition Commission (ACCC) and the Australian Taxation Office (ATO) all possess far reaching powers to exercise their respective functions and obligations. All possess coercive powers to conduct examinations, inspect premises and documents and compel the production of documents or information. Unlike the ASIC and the ACCC, which as market regulators have powers to instigate civil and criminal proceedings, the ATO is not a prosecuting agency but an administrative and investigative body.
The case law concerning the exercise of such agency powers, and the scope of statutory obligations in particular the Full Federal Court’s recent ruling in Commissioner of Taxation v Donoghue  FCAFC 183 (Donoghue) (case note annexed), reveals:
- a policy of favouring the objectives of these agencies and their governing legislation over individual rights; and
- a recognition that information sharing and interagency cooperation is essential to the successful implementation of targeted investigations with overlapping areas of interest (typically composing ‘task forces’ and referred to as ‘operations’ or ‘projects’).
- Agency Functions
ASIC is responsible for administering federal corporate and financial services legislation including: Australian Securities and Investments Commission Act 2001 (ASIC Act), the Corporations Act 2001 (Corporations Act), the National Consumer Credit Protection Act 2009, the Business Names Registration Act 2011 and legislation governing insurance and superannuation. In overseeing the corporate and financial services market, ASIC advises, monitors, investigates, enforces and prosecutes in a number of areas including:
- Corporate fundraising;
- Financial product disclosure;
- Financial market licensing; and
- Financial services professional standards (such as those applicable to auditors and liquidators).
By administering the Competition and Consumer Act 2010 (CCA), including the Australian Consumer Law, the ACCC facilitates the open and efficient operation of national infrastructure and services and promotes competition, fair trading and consumer protection. Like ASIC, in administering an extensive and complex body of law, the ACCC advises, monitors, investigates, enforces and prosecutes. Its areas of regulation include:
- electricity, gas and water;
- airports and aviation services;
- postal services;
- rail services;
- the shipping industry;
- mergers and acquisitions;
- consumer products (including advertising and safety);
- industry standards and codes (such as those applicable to franchises); and
- wheat export.
In addition to ensuring access to national infrastructure, the ACCC endeavours to stamp out anti-competitive conduct (such as misuse of market power, predatory pricing and exclusive dealing) and protect consumers by enforcing industry specific safety standards. Like ASIC, the ACCC’s mandate is to protect and improve the integrity and viability of the markets it oversees for the benefit of all Australians.
The ATO’s ambit is not as extensive as that of ASIC or the ACCC. Sitting within the Treasury portfolio, serving the Treasurer and Minister for Revenue and Financial Services, the ATO is responsible for implementing the Australian taxation system established by legislation such as the Income Tax Assessment Act 1997 (ITAA97), the Income Tax Assessment Act 1936 (ITAA36), the Tax Administration Act 1953 (TAA), the Fringe Benefits Tax Assessment Act 1986 and subject specific tax legislation such as the Petroleum Resource Rent Tax Assessment Act 1987.
In implementing the tax regime, the ATO gathers information, raises income tax assessments, responds to objections, enforces tax debts and investigates unlawful tax conduct such as tax evasion. The ATO implements a system rather than oversees a market but, like ASIC and the ACCC, it serves a critical public purpose through the exercise of statutory powers.
- Powers of Investigation – An Overview
As reflected in the functions of these agencies, investigating possible contraventions of the Corporations Act, the CCA, or tax legislation (as the case may be), is a crucial aspect to these agencies’ operations. In order to enable this information gathering process, all three agencies have extensive coercive powers to elicit information by a number of means including:
- compulsory examinations;
- notices to produce documents, books or other evidence; and
- inspection rights and/or search and seizure regimes.
The section 155 power of investigation has been described as the “lynchpin” of the ACCC’s powers. This could be said of the ATO and ASIC’s equivalent information gathering powers.
Section 12A(6) of the ASIC Act provides ASIC with the ‘power to do whatever is necessary for or in connection with or reasonably incidental to the performance of its functions.’ This broad provision is in addition to the regulator’s general power of investigation under s13 and numerous specific information-gathering powers.
The various bodies created under the ASIC Act to oversee particular activities and professions (such as the Takeovers Panel and the Companies Auditors and Liquidators’ Disciplinary Board) also have their own powers to conduct hearings and summons witnesses and can elicit information this way. Thus the ASIC regime provides for both general and subject specific investigative powers.
- Information Gathering Powers
When can ASIC use its general investigative power under s13 of the ASIC Act?
Section 13 of the ASIC Act provides ASIC with a power to investigate ‘as it thinks expedient for the due administration of the corporations’ legislation’ where there is reason to suspect:
- a contravention of the ASIC Act or Corporations Act (other than an excluded provision); or
- a contravention of a federal law which concerns either:
- the management or affairs of a body corporate or managed investment scheme (MIS) or financial products; or
- fraud or dishonesty which relates to a body corporate, a MIS or financial products;
- a registered liquidator is not or may not be (or has not or may not have been) faithfully performing their duties as required under the Corporations Act; or
- a contravention of the unconscionable conduct and consumer protection provisions in the ASIC Act may have occurred; or
- unacceptable circumstances have or may have occurred in relation to a takeover.
Section 14 deals with investigations instigated by ministerial direction in which instance ASIC is obliged to investigate.
Application of section 13
Once an investigation has begun under s13 the power to investigate is not limited to the initial event or suspected contravention. Once triggered, the legal parameters of ASIC’s power are determined by its functions and objects, that is, in accordance with s1(2) of the ASIC Act (Australian Securities Commission v Lucas (1992) 7 ACSR 198).
“Reason to suspect” has been interpreted by the Courts to mean more than mere suspicion but less than prima facie evidence (Queensland Bacon Pty Ltd v Rees (1996) 115 CLR 266). A reason to suspect is established if the ASIC delegate holds the suspicion and has reasonable grounds for doing so (National Companies and Securities Commission v Sim (No 2) 1986 11 ACLR 171). An investigation can be stayed if it is established that ASIC did not hold the requisite suspicion to trigger s13 (National Companies and Securities Commission v Sim (No 2) 1986 11 ACLR 171).
When are ACCC’s investigative powers under s155(1) of Part XII of the CCA triggered?
If the Commissioner has reason to believe that a person has information relevant to any of the following:
- a contravention or possible contravention of the CCA;
- a designated water or communications matter under the CCA;
where the ACCC is considering:
- revoking and/or substituting an authorisation or clearance;
- an application to the Tribunal to revoke or substitute an authorisation;
- issuing an objection notice in respect of a corporation’s anti-competitive or cartel conduct;
the Commissioner can issue a notice to that person to:
- elicit information;
- obtain documents and/or other evidence; and
- compel an examination before the Commission (s95S also provides a mechanism for evidence on oath and a power to issue a summons).
Section 95ZK(1) notice
In addition to s155(1)(a) and (b), section 95ZK(1) of the CCA provides another means by which the ACCC can issue a notice to obtain documents and information. The precondition for its use is more specific. The sought after information must pertain to one of the following:
- a locality notice;
- an ACCC enquiry into the recipient of the notice;
- an ACCC enquiry into the supply of goods or services of the kind being provided by the recipient; or
- the ACCC’s monitoring of the supply of goods and services of the kind being supplied by the recipient.
Limitations on s155 and s95ZK(1) notices
Section 155(7A) and (7B) of the CCA exempts documents containing information obtained in a Cabinet meeting and legally privileged information from the operation of s155. While s155(7) excludes the privilege against self-incrimination from operating as grounds for not noncompliance with a s155 notice, s155(2A) prevents a s155(1) notice being used solely as a means to circumvent the permitted operation of the privilege against self-incrimination in respect of criminal proceedings or the imposition of a penalty. Specifically, where:
- a s95ZK(1) notice;
- an inquiry; or
- a summons under s95S;
has failed to provide the ACCC with relevant information because the recipient claimed privilege against self-incrimination in respect of criminal proceedings or the imposition of a penalty.
Different emphasis – s155 of the CCA v s13 of the ASIC Act
An importance difference between the s13 ‘reason to suspect’ threshold applicable to ASIC’s general investigative powers and the ‘reason to believe’ requirement under the ACCC’s powers is that, whilst both operate as a condition precedent to the use of the power, reason to believe refers to the ACCC’s belief as to whether the intended recipient can provide relevant information and not, contrary to s13 of the ASIC Act, as to whether or not a contravention is suspected or a triggering circumstance exists (WA Pines Pty Ltd v Bannerman (1980) ATPR 40).
When can the ATO use its information gathering powers?
Unlike the general investigative powers of ASIC and the ACCC, there is no requirement that the Commissioner of Taxation (or his or her delegate) has ‘reason to believe’ or ‘reason to suspect’ any contravention in respect of a tax law or particular circumstances required to trigger the ATO’s power to issue a notice to obtain information and evidence under s353-10 of Schedule 1 of the TAA. This threshold, however, does apply to offshore notices under s264A of the ITAA36. Section 353-10 of Schedule 1 of the TAA empowers the Commissioner to issue notices to:
- elicit information;
- obtain documents; and/ or
- compel an examination.
Section 354-5 of the TAA provides the same mechanism in respect of eliciting information about rights and interests in property.
Section 264A of Schedule 1 of the ITAA36 empowers the Commissioner to issue offshore information notices which brings information outside Australia about Australian taxpayers within the ATO’s reach where the Commissioner has reason to believe the intended recipient has such information. This is a critical provision for investigations into tax evasion, money laundering and fraud such as the Project Wickenby. This is also an avenue of broad powers that other agencies may wish to access.
For information pertaining to the Petroleum Resources Rent Tax Assessment Act 1987, s108A applies the s264A offshore notice mechanism. Offshore notices can also be issued under s33 of the Register of Foreign Ownership of Agricultural Land Act 2015.
Section 19(c) of the ASIC Act provides ASIC with the power to examine a person under oath if it believes or suspects on reasonable grounds that the person has information relevant to a matter it is, or about to, investigate. This is a commonly utilised provision. The ACCC and the ATO are likewise able to compel examinations by issuing a notice under their general powers of investigation (s155 of the CCA and s353-10(1)(b) of the ITAA36).
Production of books and documents
- issue notices to produce in relation to auditor information and other information relating to financial services and financial products – Division 3 of Part 3 ASIC Act;
- inspect books – s29 ASIC Act;
- compel the production of books – ss30, 31, 32A and 33 ASIC Act;
- notice must be specific as to which books are required, to whom they should be given, and where and when – s 87 ASIC Act;
- some notices are to specified persons (s30,31 and 32A) but s33 notice can be given to anyone (even a person with no involvement in the investigation ASIC v Lucas (1992) 7 ACSR 676); and
- compel certain licensees to assist ASIC in gathering information including under ss792C, 821C and 912E of the Corporations Act.
Limitations on power to produce books
ASIC’s power to compel the production of books under ss30, 31, 32A and 33 can only be exercised in accordance with the purposes set out in s28. These purposes, however, are very broad and include:
- for the purpose or performance of any of ASIC’s functions or powers;
- to ensure compliance under the Corporations Act or ASIC Act;
- in relation to a suspected contravention under one of the above Acts or a federal law which concerns the affairs of a body corporate or corporate fraud or dishonesty; and
- for the purposes of an investigation under Part 3 Division 1 of the ASIC Act including contempt proceedings for disobeying an order made under s1323 of the Corporations Act re ASIC v Sigalla (No 2) (2010) 79 ACSR 198.
The ACCC and ATO can also compel the production of documents and the provision of information through issuing a s155 and s353-10 notice respectively.
Obligation to co-operate with a notice to produce
A recipient must comply with a notice to produce unless they have a reasonable excuse for non-compliance – s63(1) ASIC Act. A reasonable excuse includes a “sufficient practical difficulty in complying within the time” (Corporate Affairs Commission (NSW) V Yuill (1991) 172 CLR 319). Breach of contractual confidence is not a reasonable excuse but a person is protected from liability for such a breach under s 92 ASIC Act (ASIC v Zarro (1991) 105 ALR 227).
In Riley McKay Pty Ltd v Bannerman (1977), then Chief Justice Bowen of the High Court held that an ASIC notice to produce books cannot be set aside because it will be inconvenient for the recipient to comply with even if this involves considerable effort and time. Similarly, recipients of a notice have a responsibility to make enquiries and investigate (if need be) to produce what is specified in the notice (Dunlop Olympic Ltd v Trade Practices Commission (1982) 62 FLR 145).
Reason for notice and form of notice
Provided a notice to produce substantially complies with the form stipulated in the agency’s regulations it will be valid even where not all relevant matters are specified in the notice. The notice will only be invalid where it fails to correctly identify the matter to which it relates as the recipient cannot then determine whether it is within the agency’s power to issue (ASIC v Sigalla (No 2) (2010)).
Division 4 – Disclosure of information powers
Division 4 of the ASIC Act enables the regulator to elicit information from specified individuals and businesses in respect of market and corporate dealings in financial products and trust property including from:
- financial services businesses in respect of the acquisition and disposal of financial products – s41;
- trustee companies in respect of the acquisition and disposal of trust property – s42;
- directors, a secretary or senior manager in respect of:
- a trustee company’s affairs including the acquisition or disposal of trust property, the company’s financial position and audit information – s44; and
- dealings in financial products by a body corporate including the acquisition and issue of shares s43;
- operators of clearing or settlement facilities in respect of the identity and conduct of individuals involved in a financial products dealing – s41(4); and
- operators of financial markets in respect of the identity of individuals involved in an acquisition or disposal dealing on that market – s41(3).
When can ASIC use its Division 4 powers?
The operation of the above information gathering powers are limited to the purposes set out in s40 (for ss41 and 42) and for the operation of ss43 and 44, subsection 1 of each provision.
For information gathering under ss41 and 42, the purpose must be one of the following as set us under s40:
- exercising a function or power under the ASIC or Corporations Act (other than excluded provisions);
- ensuring compliance with the above legislation;
- an alleged or suspected contravention of the above legislation;
- an alleged or suspected contravention of a federal, state or territory law which involves corporate affairs or corporate fraud or dishonesty;
- an alleged or suspected contravention by a trustee company which involves fraud or dishonesty under a federal, state or territory law; and
- for the purposes of an investigation under Division 1.
Section 43 applies where ASIC is considering exercising its powers under the Corporations Act in respect of financial service providers and financial products (such as giving directions to a financial service provider to suspend dealings in a financial product under s 794D) or where a contravention under the Corporations Act is suspected (in respect of specified matters such as under Chapter 6C) or corporate fraud or dishonesty is suspected. Section 44 only applies to trustee companies suspected of fraud or dishonesty.
In addition to Division 4, ASIC can compel the provision of information in the following ways:
- by requiring a financial services provider to supply information in a substantiation notice – Part 2 Division 2 ASIC Act;
- by directing in a written notice to a licensee to provide information about the financial services it provides under s912C of the Corporations Act; and
- by requiring market and financial services licensees ‘assist’ ASIC in its functions (g. s792D and s912E ASIC Act).
Powers of search and seizure
Under sections 35-36 of the ASIC Act, ASIC can apply to a magistrate for a search warrant to inspect, copy and/or seize books. In order to obtain a warrant the magistrate must be satisfied that the applicant has reasonable grounds for suspecting the books will be on particular premises within the next 3 days. No offence needs to be specified on the warrant.
Once in possession of the seized books, s37 of the ASIC Act enables ASIC to:
- make copies;
- retain seized books for as long as necessary; and
- permit the use of such books in a proceeding.
Part XID of the CCA provides the ACCC with a similarly powerful search and seizure regime.
Inspections of premises without a warrant
An ACCC inspector can enter premises to investigate the safety of consumer goods. Section 353-15 empowers the Commissioner of Taxation to enter any premises (at all reasonable times) to inspect any documents, goods or other property.
Can ASIC’s coercive powers be used once an investigation has begun?
Austin J in ASIC v Elm Financial Services Pty Ltd  NSWSC 859 found that there is no general principle which justifies reading down the plain words of s19 and s32A of the ASIC Act to prevent the regulator from using these and other coercive investigative powers against a defendant to a civil proceeding already commenced by ASIC. Such a general restriction would be an unacceptable impediment to the regulator’s functions.
However, ASIC must be cautious to not exercise coercive powers after a proceeding has begun where the information gained may give the regulator a strategic advantage in the litigation. This will amount to contempt of court and (depending on the dominant purpose of the officer exercising the power) exercising a power for an improper purpose.
- ASIC Information Sharing and Authorised Disclosure
Information sharing arrangements
ASIC has a Memorandum of Understanding (MOU) with each of the ACCC and the ATO in respect of information sharing, referrals and collaboration. Each agency has roles dedicated to liaising with sister agencies and co-ordinating efforts under task forces to maximise efficiency and safeguard the integrity of the investigative process.
Laws of Information Sharing
The ASIC Act has express powers to disclose information:
- in respect of copies of transcripts – s25(3) (note common law procedural fairness restriction);
- in respect of books relating to registered schemes – s39A; and
- where disclosure is authorised under s127.
Section 127(1) of the ASIC Act imposes a general obligation on ASIC to take reasonable measures to ensure information disclosed to it in the course of exercising its powers or functions or confidential information, and protected information, is not disclosed in an unauthorised manner.
Authorised bodies under s127 of the ASIC Act
Section 127(2A) specifies a number of agencies/bodies that are authorised recipients of ASIC information:
- Clean Energy Regulator;
- Reserve Bank of Australia;
- Climate Change Authority;
- Secretary of Department to advise the Minister; and
- Royal Commissions.
Note that the ATO and the ACCC are not stipulated. However, the ATO appears to fall under the definition of ‘agency’ under the Freedom of Information Act 1982 (FOI Act) pursuant to s127(4)(a).
Authorised circumstances under s127 of the ASIC Act
A number of subsections in s127 set out circumstances in which disclosure of information is authorised including:
- Where the Chairperson (or his or her delegate) is satisfied that the particular information will enable or assist any of the following bodies or persons in performing their lawful functions:
- CAMAC, Takeovers Panel, Disciplinary Board, Review Board and Financial Reporting Council;
- any Department of the Australian Public Service (APS) that corresponds to a Department of State of the Commonwealth (a ‘Department’ under the FOI Act);
- a prescribed authority and Norfolk Island authority as defined under the FOI Act;
- the Australian Financial Institutions Commission;
- the Superannuation Complaints Tribunal;
- prescribed professional disciplinary body;
- an officer of the Office of Law Enforcement Co-Ordination;
- a State or Territory government department or agency;
- a foreign body (but not a foreign agency) for regulatory purposes;
- a foreign agency or government; and
- an international business regulator.
- Where the information relates to the application of the Corporations Act auditor requirements and/or how an audit of a company, registered scheme or disclosing entity was conducted, this information can be disclosed to the relevant directors, audit committee or senior manager to assist in the proper management of the company’s affairs;
- Where the person who provided the information has consented to its release;
- Where a member, staff member, ASIC delegate (or a person assisting or acting for or authorised in one of the aforementioned roles) discloses the information for the purpose of performing their functions (this could be utilised when information sharing with the ACCC).
Section 127(6) provides that none of the specific instances of authorised disclosure envisaged under s127 should limit what may otherwise constitute authorised disclosure. That said, unless the intended recipient is an expressly authorised body or circumstantial category, (or when in doubt as to whether disclosure is permitted under the ASIC Act), the Chairperson’s authorisation should be sought prior to the release of the information including where the information is to be provided to the ATO or the ACCC. In our view (and as a last resort), it could be argued that the MOU between the agencies provides such authorisation.
Are the ATO and the ACCC authorised bodies under s127?
As the Federal Government’s primary revenue collection agency, the ATO is a Department of the APS which corresponds to the Department of Treasury and Finance and therefore presumably an authorised entity for the purposes of receiving information under s127. The ACCC is not a Department but an independent authority of the Australian government and a ‘Category B statutory agency’ with all staff employed under the Public Services Act 1999. The ACCC does not, therefore, appear to fall under the list of stipulated authorised bodies. However, in our view and assuming the information being shared is for a legitimate purpose under the ASIC Act and within the ASIC officer’s purview of responsibility, information can be shared with ACCC under s127(3) of the ASIC Act.
Conditional release of information and discretionary nature of powers
As the facts in AWB Ltd v ASIC  FCA 1877 reflect, confidential information (in that case transcripts of s19 examinations and witness statements) will often be released subject to conditions to ensure ASIC complies with its general obligation of confidentiality under section 127(1).
Referring to the High Court case of Johns v Australian Securities Commission (1993) 178 CLR 408 (Johns), Her Honour Gordon J in AWB v ASIC emphasised that the Chairperson’s (or his or her delegate’s) decision to release information in accordance with s127 is discretionary. Likewise, the conditions that the Chairperson (or his or her delegate) selects to impose on the release of information are discretionary and, as demonstrated in AWB v ASIC, the Chairperson is under no obligation to accept conditions proposed by parties affected by the disclosure (in that case AWB).
Statutory restrictions on releasing information
In addition to providing a mechanism for imposing conditions on the release of information, s127 restricts the manner of release in some circumstances. For example, where auditor information is being released the responsible auditor must be notified seven days prior. As well as notification requirements there are restrictions regarding to whom the information may be disclosed (again with audit information only to senior level managers, directors and audit committees). For this reason, it is crucial to check this section before disclosing any information in case there are specific limitations arising from the subject matter of the information.
ATO’s authorised release of information to ASIC and confidentiality under the CCA
Items 1 of Table 3 of Schedule 1 of the TAA permits the disclosure of ATO information to ASIC if it “is for the purpose of performing any functions or exercising any powers under any Act or instrument, or part of any Act or instrument, of which the Commission has the general administration”.
Like s127 of the ASIC Act, s155AAA of the CCA limits the manner in which, and to whom, information can be shared by the ACCC. It provides a list of authorised bodies and persons (including to the Minister, the Australian Bureau of Statistics and Royal Commissions) and circumstances which warrant release such as where the information provider has consented and where the information is already in the public domain (s127 of the ASIC Act does not expressly provide for this but arguably this can be implied).
- Exercising Investigative and Information Sharing Powers
Overarching principle of conformity with legislative purpose
All three agencies are required to exercise their powers in accordance with the purposes of their governing legislation; in pursuit of the agency’s authorised functions and objects. For example, in the case of ASIC, it “must strive to maintain, facilitate and improve the performance of the financial system and the entities within that system in the interests of commercial certainty, reducing business costs, and the efficiency and development of the company”. The other aspect to ASIC’s objects is the promotion of “confident and informed participation of investors and consumers in the financial system”. Whilst these objects are necessarily broad and aspirational, they are also useful guiding principles to return to when the boundaries of lawfully exercising a power are unclear.
Further, in terms of professional liability and administrative law, when the Courts are assessing whether an officer has acted within power in respect of a particular provision, or has acted with a proper purpose and otherwise according to law, Courts will often return to these broader principles, the purpose of the Act, and measure the decision made by the officer against these objects.
No dichotomy of power between agencies acting for a proper purpose
Provided officers exercise their powers with a legitimate purpose in mind and meet any statutory requirements for their exercise, there is no dichotomy of power between agencies co-operating be it through joint conduct of an investigation or information sharing. That is, such conduct will not offend the law even if the purposes of the relevant agency officers derive from separate inquiries (LHRC v Deputy Commissioner of Taxation (No 3)  FCA 52 (LHRC) (case note annexed).
Judicial approach to information sharing
Further, recent rulings in the Federal Court have upheld the necessity of authorised interagency information sharing and individual attempts to quarantine information to one agency on the basis of individual rights have failed. His Honour Perry in LHRC which, inter alia, dealt with the appropriateness of information sharing between the ATO and the Australian Crime Commission (ACC) in investigating tax fraud as part of Project Wickenby, is unambiguous about the expectation that such specialist agencies will and should work closely to achieve the objectives of specialist investigations.
Procedural fairness or natural justice and the exercise of statutory powers
The exercise of statutory powers is subject to the rules of natural justice. The High Court decisions of Ainsworth v Criminal Justice Commission (1992) and Annetts v McCann (1990) have rendered this principle a cornerstone of administrative law.
How natural justice or procedural fairness manifests in practice and to what degree one ought to be afforded its benefits depends on the context: the power being used and the purpose for using that power. Justice McHugh in Johns (at 472) had this to say about the relationship between procedural justice and the scope of ASIC’s power to investigate:
“…the need to preserve the confidentiality of ASIC’s investigation does not exclude procedural fairness, but reduces its content, perhaps in some circumstances to nothing”.
This is not to say that any agency should ever operate on the assumption that no natural justice should be afforded. As reflected in the ASIC guidelines on releasing information and ASIC practices generally, Johns made clear that where the disclosure of information is “apt to affect adversely” the interests of the information provider and he or she (or the company) is prima facie entitled to have such information kept confidential, he or she must be given an opportunity to oppose its release. Rather, McHugh’s observation is indicative of the judicial tendency to prioritise the objectives of a tax payer funded agency that serves the public interest over an individual or corporation’s rights on the basis that it is in the public interest and in accordance with legislative intention to do so.
The operation of the protection against self-incrimination
Sections 68(1) of the ASIC Act abrogates the privilege against self-incrimination as a means for refusing to provide information, sign a record or produce documents. Section 68(3) provides a mechanism for the privilege to operate in respect of criminal proceedings or proceedings imposing a penalty. There are, however, some important exceptions such as banning orders and disqualification orders under the Corporations Act. Effectively, the privilege against self-incrimination (this applies to the ACCC also under s 155(7) of the CCA) cannot be used to refuse to provide information. Its potential immunity is limited to the purposes to which the self-incriminating information can be applied: protecting individuals from criminal prosecution or penalties that are not otherwise excluded.
Claiming legal professional privilege
It is established law that, unless expressly excluded by statute, a government agency or authority in exercising compulsory powers must give the person the subject of those powers a reasonable opportunity to claim legal professional privilege (Federal Commissioner of Taxation v Citibank Ltd (1989) 20 FCR 403). The ASIC Act does not preclude the operation of legal professional privilege and is therefore subject to this procedural requirement.
Third party claims to privilege
However, provided such an opportunity is afforded, this is the end of an agency’s obligations in respect of this privilege. The responsibility for asserting legal privilege rests with the privilege holder. Her Honour Gordon’s ruling in AWB v ASIC made it clear that ASIC is under no obligation to notify a third party that the exercise of its compulsory powers in respect of another individual may result in that individual providing information that is subject to a claim of privilege by the third party.
Receipt and use of privileged information
Her Honour Gordon also stressed that while ASIC cannot compel the production of legally privileged materials (as it can non-privileged materials), the immunity does not operate to prevent ASIC from receiving privileged information (be they disclosed inadvertently or otherwise) and using such information within the legislative parameters of its functions and powers (e.g. when an authorised request for disclosure is made) (Cowell v British American Tobacco Australia Services Ltd  VSCA 301). This is in part due to the nature of the privilege, that is, it is an immunity from disclosure not a cause of action conferring rights to restrain a party or seek damages.
More recently, the Full Federal Court in Donoghue affirmed this approach to the operation of legal privilege and took it one step further. The Full Court held that s166 of the ITAA36 obliges the Commissioner to consider all information in raising tax assessments irrespective of its source or lawfulness, e.g. in breach of confidence or privilege (Donoghue had alleged that the information was subject to legally professional privilege). In their joint judgment, Perram and Kenny JJ stated:
“Section 166 exhibits a policy which explicitly privileges the need to have accurate assessments made on the information available over other private law rights.”
- The doctrine of conscious maladministration and constraints on power
The doctrine of conscious maladministration and the tort of misfeasance in public office operates as a constraint on the exercise of power for those working at agencies such as the ATO, ASIC and the ACCC. However, as recent attempts demonstrate, claims of this nature are difficult to establish. In Lock v ASIC  FCA 31(Lock), the first threshold of establishing a duty of care was not met and Donoghue served to reiterate the ATO’s powers to implement its purposes and functions and, in particular, its statutory obligations.
No maladministration in Donoghue
In Donoghue, the Full Federal Court held that not only had there been no conscious maladministration by the ATO audit officers and the ACCC examiner involved in conducting their investigation into Donoghue’s tax affairs but that there had been no maladministration of any sort on the part of either agency.
Legal privilege: an immunity not a cause of action
The essence of Donoghue’s argument was that various administrative review grounds could be made out (constituting conscious maladministration) because his private right to claim legal privilege had been recklessly or wilfully overlooked. Aside from the fact that Donoghue’s entire case was misconstrued as it was predicated on the false assumption that the doctrine of legal privilege gives rise to an actionable right, the Court found that the information sharing and the conduct of the investigation was entirely within the legal parameters of the agencies’ powers.
No maladministration in Lock
In Lock, the Federal Court also addressed the scope of the doctrine of conscious maladministration and the tort of misfeasance in public office as it applies to ASIC with respect to private investors who suffered economic loss due to the conduct and collapse of Storm Financial Ltd. The Court struck out the plaintiff’s claim of conscious maladministration on the grounds they had failed to establish a reasonable cause of action.
No duty of care and no obligation to exercise powers
The Court found that ASIC owed no duty of care to the Storm investors to exercise its varies powers for two main reasons. First, the circumstances did not reveal a “sufficiently close relationship to give rise to a duty of care”. Secondly, the powers the plaintiffs argued should have been exercised by ASIC (such as imposing a license condition or an enforceable undertaking) are discretionary. They impose no obligation on ASIC (unlike the Commissioner of Taxation’s obligation to use all available information to raise tax assessments in Donoghue). Rather, they equip ASIC with legal avenues for investigation and enforcement which it may use as it sees fit to implement its statutory agenda.
The three P’s – a safeguard to the exercise of statutory powers
Thus the case law favours the broad interpretation of power by agencies and is unlikely to either invalidate the action of a regulatory officer or allow an officer to be prosecuted for the tort of maladministration. However, as a matter of precaution, we recommend regulatory officers ask the following three questions before exercising a statutory power:
- (Power) Where is my power coming from to do this? ( section 19 of the ASIC Act);
- (Purpose) What is my purpose for doing this (eg to obtain information in respect of a company providing financial services suspected of a particular offence) and does it fall within my agency’s legislative purpose?; and
- (Parameters) What parameters constrain my exercise of this power? For example, what conditions have been placed on the use of this information by another agency? What conditions should I place on the use of this information by another agency? Are there any common law restraints such as affording the affected party or parties the opportunity to opposed the release of information?
- Judicial Approach to Agency Powers Generally
The Courts’ reasoning in Donoghue and Lock is reflective of the Courts’ approach to the construction of agency investigative powers as enabling provisions designed to facilitate these agencies to carry out their functions. For example, Pioneer Concrete (Vic) Pty Ltd v TPC (1982) 152 CLR 460 and the Federal Court in Allied Mills Industries Pty Ltd v TPC (1981) ATPR.
The broad scope of agency powers, and the priority given to the functions of government agencies over individual rights, has caused some commentators to be critical of the ATO, for example, for conducting ‘covert operations’. Conducting covert operations is entirely within the ATO’s legal parameters and indeed a key function of the agency as it is with ASIC and the ACCC. Moreover, in our view (and contrary to popular public opinion), the legal frameworks supporting the operations of ASIC, the ACCC and the ATO enable these agencies to go further than they do in practice as these agencies’ approach to applying their coercive powers is, overall, conservative.
- Conclusion: the implications of Donoghue for ASIC
In light of Donoghue, a pertinent question for ASIC is whether the same reasoning that the Full Federal Court applied to the Commissioner’s statutory obligation would hold true, in principle, to the discretionary exercise of ASIC’s compulsory powers of investigation and information sharing practices. In our view it does because of the jurisprudence on agency powers outlined above and because of cases such as AWB v ASIC. In that case, Her Honour Gordon was clear that:
- the law permitted ASIC to receive information that allegedly offended AWB’s private right to legal privilege;
- to use that information for the legitimate purpose of sharing it with the Australian Federal Police; and
- that ASIC’s power to disclose such information under s127 of the ASIC Act is a discretionary power.
An important area yet to be tested is whether in the Donoghue case, the ATO could have provided that information to ASIC. In other words, whether the information in the hands of the ATO, was effectively cleansed of any taint. In our view, ASIC could be confident in prosecuting that case.
Case Note: Commissioner of Taxation v Donoghue  FCAFC 183
Quorum: Kenny, Perram and Davies JJ
- A disgruntled former adviser of Donoghue provided the ATO with documents which Donoghue alleged attracted legal professional privilege. The ATO used these documents in preparing three income tax assessments (penalty notices) that became the basis for an enforcement proceeding against Donoghue for payment of a tax debt in excess of $30 million. The ATO also had a departure prohibition order against Donoghue as Donoghue contested his status as an Australian resident.
In response, Donoghue lodged notices of objection in respect of each assessment and sought an injunction to restrain the Commissioner from further using the documents. An interim injunction was granted but the information in the documents had already been used in preparing the assessments.
- Based on the allegedly privileged nature of the documents, Donoghue commenced judicial review proceedings to quash the assessments on the grounds that the Commissioner had engaged in conscious maladministration and acted in bad faith in exercising its decision-making powers and sought declaratory relief that the assessments were invalid. Donoghue also challenged the departure prohibition order.
- In March 2015, the primary judge ruled in Donoghue’s favour in every respect except bad faith (somewhat inconsistently as his Honour found there had been ‘reckless disregard’).
- The Commissioner appealed to the Full Federal Court on a number of grounds including that the primary judge had erred in assuming that the common law immunity of legal privilege had any application to the obligation under section 166 of the ITAA that the Commissioner use all available information in making assessments.
- The Commissioner argued that the only relevant action was breach of confidence (a claim Donoghue abandoned at trial) but such a claim could not succeed as general policy favours the accuracy of assessments over private rights to confidence.
- The appeal was upheld and the decision of the primary judge set aside with an order for costs.
- Kenny and Perram JJ reasoned (with Davies J agreeing) that “…s 166 not only permits the Commissioner to act upon information which he has in his possession regardless of how he came to have it. Section 166 exhibits a policy which explicitly privileges the need to have accurate assessments made on the information available over other private law rights.”
- Their Honours went on to say that the cases of Denlay v Federal Commissioner of Taxation  FCAFC 63 and Awad v Commisioner of Taxation  FCA 1288; (2000) 104 FCR 106 together establish that the Commissioner is obliged to use information even if he knows it is privileged or confidential.
- In light of the s166 obligation, their Honours ruled that no conscious maladministration (or maladministration of any sort) had occurred and that the notices of assessment were valid.
- Their Honours flagged the possibility that because of the wording of s166 (the use of the word ‘information’ not documents), s166 may not protect the Commissioner if a breach of confidence claim is run before the Commissioner has read the documents but while they are in his possession.
- Their Honours agreed with the Commissioner that the primary judge misapplied the doctrine of legal professional privilege and clarified that legal privilege operates as immunity to the production of documents but does not give rise to any actionable right.
Case Note: LHRC v Deputy Commissioner of Taxation (No 3)  FCA 52
Quorum: Perry J.
- Under the Project Wickenby Determination (the special investigation into systematic tax evasion using offshore tax havens) the ATO referred a matter to the Australian Crime Commission (ACC) “to gain strategic and operational intelligence relating to the knowledge that [the applicant] may have in relation to Operation [M]” (a line of inquiry into a Sydney firm’s suspected illegal tax avoidance activities).
- Four ATO audit officers, who had been investigating the tax affairs of the applicant and associated trusts, were present at the examination and had provided the examiner with possible questions to ask the applicant and a profile of him. Their presence was authorised by the examiner and under the Project Wickenby Determination.
- The examiner made non-publication orders restricting the dissemination of the examination transcript to prosecuting authorities but expressly allowed for its use by the ATO in its tax assessments.
- The Commissioner issued amended income tax assessments to the applicant in respect of which the applicant lodged an objection and subsequently a section 14ZYA notice to have the objection determined. The Commissioner issued a section 264 notice requiring the applicant to attend an interview.
- The applicant alleged that the Commissioner could not use the powers under section 264 as this power was confined to the raising of tax assessments and could not be used in determining an objection.
- The applicant objected to the ATO using the transcript from the ACC examination claiming, inter alia, it defeated the protections in the ACC Act
- The applicant challenged the legality of the examination on a number of grounds including:
- the summons for examination was issued for an improper purpose;
- the examination was conducted contrary to law because of the presence of the four ATO audit officers – contravening the statutory requirement the examination be held ‘in private’ and where non ACC staff are present the examinee be given the right to comment (which he was denied) and further that their presence was unauthorised because they were ‘persons associated with the possible prosecution of the person giving evidence’; and
- the ACC examiner was acting at the behest of the ATO and therefore under dictation.
- The DCT refuted all of the above and submitted, inter alia, that:
- it was ‘appropriate’ and lawful for the ATO and ACC to collaborate and information share when investigating conduct that involved criminal tax evasion such as conduct the target of Project Wickenby and Operation M.
- Whatever information the ATO had ascertained about an individual’s undisclosed income or the concealment of assets had to be conveyed to the ACC to pursue the criminal offence of defrauding the Revenue
- s264A powers had no temporal restriction and could be used at any time in furtherance of a purpose under the Act, that is, towards ascertaining the taxable income of a taxpayer.
Perry J ruled in favour of the Commissioner and noted the following:
- information sharing between specialist government agencies is precisely the kind of cooperation that the ACC Act “both envisages and facilitates” and was specifically authorised by the Project Wickenby Determination;
– no grounds for judicial review were made out in respect of the exercise of powers from either the ATO officers or the ACC examiner; and
– case law endorses a broad approach to a specialist agency’s powers to fulfil its functions.
Co-authored by Chloe Armstrong.