The Ethical Considerations of Alleging Conscious Maladministration or Improper Purpose

Tax Bar Association Seminar

Andrew de Wijn, Daniel Diaz 24 March 2017

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Why allege conscious maladministration?

  • Assessments:
    ‘The income tax is only due and payable if the Commissioner makes an assessment of your income for the year.’
    s 5-5(2)
  • Might not be an assessment you are challenging
    e.g. Departure prohibition order (Bakri)

Why allege conscious maladministration?

You might consider alleging conscious maladministration when:

  • Part IVC proceedings are hopeless
    e.g. Anglo American, Donoghue
  • Attempting to resist recovery action while Part IVC proceedings are on foot
  • As an alternative argument to Part IVC
  • Part IVC (or equivalent) proceedings are not available
    e.g. Bakri (Departure prohibition order)

How is the allegation made?

  • s 39B of the Judiciary Act 1903 (Cth)
  • Cannot be made in a Part IVC proceeding
    Gashi at [40]-[45], Kennedy
    • cf Futuris at [48], Gould at [27] and [82]
  • The allegation cannot be raised solely as a defence to recovery action
    ‘at the very least in order to treat the notice of assessment as a nullity in the present case, the applicant needed to seek some order having that effect’
    Anglo American at [50]

How is the allegation made?

  • Claim is a ‘special federal matter’ under the Jurisdiction of Courts (Cross-Vesting) Act 1987 (see s 3 Cth Act, s 6 state Acts)
    • Must be transferred to Federal Court unless ‘special reasons’ not to
    • See Anglo American, Woods

What is the result of a successful allegation?

  • Orders made by Logan J in Donoghue
    1.The Court declares that each of the following purported income tax assessments is invalid and of no force and effect …
    2.The Court orders that each of the purported income tax assessments is quashed.
  • Don’t forget penalty assessments
  • No need to declare that GIC and SIC are not payable
    See Donoghue (Logan J) at [145]

What is the result of a successful allegation?

  • No assessment which can support recovery proceedings, departure prohibition order, etc.
  • Consider whether the Commissioner can raise a new assessment?
    ‘It will … be for the Commissioner to decide whether, having regard to information not subject to privilege and in the circumstances now prevailing, the issuing of fresh assessments is possible in fact and in law.’
    Donoghue (Logan J) at [146]

What is conscious maladministration?

  • Futuris at [55] and [56]:
    ‘deliberate failures to administer the law according to its terms’
    ‘fraud, bribery, dishonesty or other improper purpose’
  • Gould at [75]:
    ‘conscious maladministration is [not] established where, as here, each applicant accepts that the ATO officers did not deliberately make assessments that they knew to be incorrect or arbitrary, or which were based upon inaccurate information, or which intentionally misrepresented the information in the officer’s possession that was used to make the assessments’

What is conscious maladministration?

  • Denlay at [76]:
    ‘concerned with actual bad faith, not with some form of “constructive” bad faith established by unwitting involvement in an offence.’
  • Reckless indifference was held to be enough by Logan J in Donoghue – but that conclusion must now be doubtful
  • Honestly taking an incorrect view of the law or facts and acting accordingly is not conscious maladministration
    • See ACN 005 057 349

 

Pleading conscious maladministration or improper purpose
Ethical issues

Meredith Schilling

Actual bad faith = state of mind of the following character

Conscious/knowing maladministration

Deliberate/wilful failure/disregard of scope of powers

Central issue = awareness of illegality

Allegations that statutory powers have been exercised corruptly or with deliberate disregard to the scope of those powers are not lightly to be made or upheld: Futuris [60]

A finding of maladministration, let alone conscious maladministration, is not to be made unless plainly alleged and clearly proved: CSR v ACN 005 057 349 [80]

Pleading fraud – general principles

Generalised assertions of “knowledge”, “fraud”, “bad faith” and the like will not suffice

Material facts of the state of mind must be specifically pleaded with full particulars: eg. FCR 16.42

A party who pleads fraud, misrepresentation, unconscionable conduct, breach of trust, wilful default or undue influence must state in the pleading particulars of the facts on which the party relies.

Basis for rule

Advocate’s privilege/immunity – functional connection between advocate’s work and judicial determination: Attwells [2016] HCA 16 at [5]

Gives rise to concomitant responsibility not to make allegations without sufficient basis/reasonable grounds.

This applies, a fortiori, to allegations of fraud and other forms of serious misconduct

Unfounded allegation of fraud

“a serious dereliction of duty and misconduct by counsel”: Rees (2008) 21 VR 478 at [32]-[34] (Ashley and Redlich JJA, and Coghlan AJA)

Breach of counsel’s paramount duty to the court and an abuse of process attracting sanction: see, eg. Ashby [2012] FCA 1411 (Rares J)

Pleader is not required to conduct mental ‘mini-trial’ to determine whether claim will succeed. It is sufficient if the material known provides a reasonable basis for the allegation if nothing else were to be proved (Allstate Life Insurance (1995) 57 FCR 360 at 372 (Hill J)

Proof: Brigginshaw (1938) 60 CLR 336

Sir Owen Dixon at 362:

In respect of grave allegations “”reasonable satisfaction” should not be produced by inexact proofs, indefinite testimony, indirect references”.

See also Evidence Acts (Cth and Vic) s 140 — assessment whether civil standard of proof is met, the court “is to take into account….(a) the nature of the cause of action or defence……and (c) the gravity of the matters alleged.”

Difficulties in articulating material facts? = insufficient basis for allegation

Legal Profession Uniform Conduct (Barristers) Rules 2015 (Vic)

Rule 35

A barrister must promote and protect fearlessly and by all proper and law means the client’s best interests to the best of the barrister’s skill and diligence……

BUT: Client’s interests vs duties to the Court

Rule 4(a): Barristers owe paramount duty to the Court

Rule 4(e): Barristers should exercise their forensic judgments and give their advice independently and for the proper administration of justice, notwithstanding any contrary desires of their clients

Rule 23: A barrister has an overriding duty to the court to act with independence in the interests of the administration of justice

Pleading

Rule 64:

A barrister must not allege any matter of fact in…….any court document settled by the barrister…unless the barrister believes on reasonable grounds that the factual material already available provides a proper basis to do so

Rule 125 :

allege”….includes conduct constituted by settling or opening on pleadings…..

Pleading fraud/serious misconduct - rule 65

A barrister must not allege any matter of fact amounting to criminality, fraud or other serious misconduct against any person unless the barrister believes on reasonable grounds that:

(a)available material by which the allegation could be supported provides a proper basis for it; and

(a)the client wishes the allegation to be made, after having been advised of the seriousness of the allegation and of the possible consequences for the client and the case if it is not made out.

“Believes on reasonable grounds…..”

George v Rockett (1990) 170 CLR 104 – ‘belief’

Belief is an inclination of the mind towards assenting to, rather than rejecting, a proposition and the grounds which can reasonably induce that inclination of the mind may, depending on the circumstances, leave something to surmise or conjecture.

Prior v Mole [2017] HCA 10 - ‘reasonable grounds’

....the existence of facts sufficient to induce that state of mind in a reasonable person.

Objective test

Reliance on opinion of instructing solicitor

Rule 66

A barrister may regard the opinion of the instructing solicitor

-that material which is available to the solicitor is credible,

-being material which appears to the barrister from its nature to support an allegation to which rules 64 and 65 apply,

as a reasonable ground for holding the belief required by those rules.

Consequences – the proceeding and costs

  • Strike out/summary judgment
  • Civil Procedure Act 2010 (Vic) s 18
    • A person to whom the overarching obligations apply must not make any claim or make a response to any claim in a civil proceeding that— ….(d) does not, on the factual and legal material available to the person at the time of making the claim or responding to the claim, as the case requires, have a proper basis.
  • Federal Court of Australia Act 1976 (Cth) ss 37M and 37N
  • Costs – against client
  • Costs – against counsel/lawyer
    • CPA s 29; FCAA s 37N(4)
    • Consumer matter (provision of legal services) LPUL ss 285 ff; compensation order s 290 and Part 5.5.

Consequences - disciplinary

Section 296 LPUL: ‘unsatisfactory professional conduct

……includes conduct of a lawyer occurring in connection with the practice of law that falls short of the standard of competence and diligence that a member of the public is entitled to expect of a reasonably competent lawyer.

Section 298: ‘conduct capable of constituting unsatisfactory professional conduct or professional misconduct’ includes…..conduct consisting of a contravention of the Uniform Rules

More serious consequences

Section 297 LPUL: ‘professional misconduct’

Unsatisfactory professional conduct of a lawyer, where the conduct involves a substantial or consistent failure to reach or maintain a reasonable standard of competence and diligence; and

Conduct of a lawyer whether occurring in connection with the practice of law or occurring otherwise than in connection with the practice of law that would, if established, justify a finding that the lawyer is not a fit and proper person to engage in legal practice

CLIENT EXPECTATIONS

Rule 42: A barrister must not act as the mere mouthpiece of the client or of the instructing solicitor and must exercise the forensic judgments called for during the case independently, after the appropriate consideration of the client’s and the instructing solicitor’s wishes where practicable.

Rule 105(g)….briefs that may be refused or returned…..

…..if the barrister’s advice as to the preparation or conduct of the case, not including its compromise, has been rejected or ignored by the instructing solicitor or the client………