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A recent judgment in an interlocutory hearing in the Federal Court of Australia has raised the fascinating question of what redress might be available against a revenue authority for changing its mind. In Macquarie Bank Limited v Commissioner of Taxation, the applicant sought to restrain the Commissioner of Taxation from acting on his changed view on the law relating to Overseas Banking Unit (‘OBU’) expense allocations. The applicant has commenced judicial review proceedings against the Commissioner which are yet to be heard. The interlocutory application was for urgent injunctive relief to prevent the Commissioner acting on his stated intention for the Australian Taxation Office (ATO) to “apply retrospectively the Commissioner’s new view on the law concerning the allocation of OBU expenses”. Griffiths J rejected the interlocutory application.
Assuming that Macquarie Bank pursues the substantive proceedings in this matter, it will need to overcome some significant hurdles in order to succeed. There is, at present, little scope for preventing a public authority from changing its mind in Australia. There is no doctrine of public law estoppel; public authorities are not bound to their promises in Australia if this would cause them to act ultra vires or would fetter their discretion. The Australian High Court has also consistently rejected substantive enforcement of legitimate expectations and, more recently, has stated that the phrase should be “disregarded” even in reference to the obligation to provide procedural fairness. The extent of the problem facing Macquarie Bank is neatly summarised by the grounds of judicial review on which they propose to rely:
There are several grounds of judicial review challenge. They include a primary claim that the decision [to act on a revised view of the law relating to OBU expenses] is Wednesbury unreasonable. Further grounds are also raised of illogicality or irrationality, no evidence to support the decision, failure to take into account a relevant consideration or taking into account of an irrelevant consideration, failure to observe the requirements of natural justice, excess of authority resulting in the decision being ultra vires, and a failure to comply with procedures which the decision-maker, it is said, was required to observe.
There are few modern examples of Wednesbury unreasonableness being argued successfully in Australian courts. Like the related ground of illogical or irrational fact finding, it demands nothing short of absurdity on the part of a decision maker. This would be difficult to prove particularly where Macquarie Bank has deliberately avoided making any allegation of bad faith against the Commissioner or the ATO (although the two grounds are not coextensive, they share substantial overlap which has been noted in regard to Warrington LJ’s famous example in Short v Poole Corporation  Ch 66). As a “primary claim”, an argument that the Commissioner has acted in a Wednesbury unreasonable manner does not inspire great confidence, given that it is a ground which has never had better than a remote chance of success.
A secondary problem is that the Australian High Court has interpreted the legislative scheme contained in the Income Tax Assessment Act 1936 as limiting the opportunities to challenge decisions of the ATO through judicial review where statutory review or appeal procedures are provided. The rare exceptions to this approach relate to “allegations of bad faith or fraud or abuse of power”, which have not at this stage been articulated in the proceedings commenced by Macquarie Bank.
The fact that Macquarie Bank’s case will be hard to make out does not, however, mean that it lacks merit. Specifically, the applicant’s claim that “the indication given by the Commissioner as to his change of view is in breach of the ATO practice statement PSLA 2011/27” demands consideration. The Practice Statement in question is a soft law instrument entitled “Matters the Commissioner considers when determining whether the Australian Taxation Office (ATO) view of the law should only be applied prospectively”. If the Commissioner acts on his stated intention to apply his altered view of the law concerning OBU expenses retrospectively, and to do so falls outside the terms of the Practice Statement, one might justifiably conclude that those (including Macquarie Bank) who have arranged their affairs in reliance on the ATO’s previously stated legal view as to OBU expenses, along with the terms of the Practice Statement, have been penalised without any fault.
The facts are reminiscent to some extent of those in R (Davies) v The Commissioners for Her Majesty’s Revenue and Customs, in which the Supreme Court considered a vaguely expressed soft law guidance note which purported to indicate when a person ceased to be resident in the UK for tax purposes. The Supreme Court held by majority that the guidance note had not been complied with by the applicants in any case but the case was troubling (and members of the Court of Appeal gave voice to their concerns in this regard) given that the soft law guidance note was on every account very poorly drafted but was nonetheless sufficiently convincing to guide the commercially sophisticated applicants to arrange their affairs on the faith of it.
There can be no doubt that soft law issued by revenue authorities is treated seriously by those looking to arrange their affairs in accordance with the law. It is frequently the case that the view of the law taken by the revenue authority is incorrect, a circumstance which may be pointed out by a court or which the revenue authority may come to realise unaided. In such cases, the revenue authority must of course revise its stated view of the law on a given subject. I doubt that Macquarie Bank would contest this statement in its proceedings. However, this need not oblige a revenue authority to apply its changed view retrospectively. The discretion invested in revenue authorities with regard to the collection of revenue has been recognised at least since the Fleet Street Casuals Case and the Commissioner’s powers to secure an optimal (rather than the maximum) collection of revenue is recognised in Australia both by the ATO and the legislature.
While it is to be hoped, however, that the court which hears the substantive application brought by Macquarie Bank will bear in mind the immense practical power of soft law, it will be confined by the legal framework of judicial review in Australia. There is, on the current state of the law, little hope that Macquarie Bank will be able to constrain the broad discretion invested in the Commissioner with regard to the collection of taxation revenue.
Greg Weeks is a Lecturer in Law at the University of New South Wales
Suggested citation: G. Weeks, ‘Can you stop the Revenue from acting on a change of mind?’ UK Const. L. Blog (25th February 2013) (available at http://ukconstitutionallaw.org)