In recent times many have written on the lengths the Australian Taxation Office (ATO) has gone to protect its officers that have erred, in particular with the extensive use of confidentiality clauses in the settlements it reaches with aggrieved taxpayers The Tax Office and the Expensive Muzzle on Complaints.
However if you believe you have incurred unwarranted costs or other losses or that you were mistreated by the ATO, broadly speaking there are two alternatives available to you:
- A cause of action in the tort of Misfeasance in Public Office; or
- Applying for compensation under the Scheme for Compensation for Detriment caused by Defective Administration (CDDA Scheme).
Misfeasance in Public Office
Damages for the tort of Misfeasance in Public Office are available if you suffered damage due to the malicious and unjustified use of power by a public officer, which includes an officer of the ATO. Successfully proving this allows you to recover the loss or damage suffered as a result of the action taken by the ATO officer. However, the utility of this cause of action is limited by the elements required to successfully prove a claim of Misfeasance in Public Office.
Mengel
In the High Court decision of Northern Territory of Australia v Mengel (1995) 185 CLR 307, Deane J identified the elements of misfeasance in public office as:
- (a) an invalid or unauthorised act;
- (b) done maliciously;
- (c) by a public officer;1
- (d) in the purported discharge of his or her duty;
- (e) which causes harm to the plaintiff.2
The last three elements of the tort are straightforward and would be able to be established fairly uncontroversially. However, the first two elements of the tort prove more difficult.
Despite there being some debate as to the exact delineation of the first two elements of the tort, the jurisprudence in this area seems to suggest that that the tort is limited to exercises of power that are invalidated either by the fact that there is no power to be exercised or because the power miscarried for some other reasons. Thus, this abuse element of the tort concerns the state of mind of the relevant officer and requires that the public officer have either:
- (a) acted maliciously – that is, with an intention of causing injury to you;
- (b) acted with actual knowledge that there was no power to engage in the conduct complained of; or
- (c) acted with reckless indifference as to the availability of power to support the conduct. 3
The difficulty is that it must be shown that the ATO officer had actual knowledge that their conduct was beyond their power or recklessly disregarded the means of acquiring that knowledge. Unless you were granted access to internal correspondence, it would be problematic to ascertain the subjective knowledge of the specific officer complained of and their subjective intention at the time of engaging in the conduct impugned.
Frangieh
DCT v Frangieh is a recent illustration of the severity of conduct required to establish a case for misfeasance in public office. In that case, an application to summarily dismiss a cross claim of misfeasance was dismissed. The Supreme Court of NSW referred to Mengel.
In the first misfeasance claim, it was alleged that the audit undertaken was undertaken in a way that no reasonable person acting in the capacity of an ATO officer performing that task would have undertaken and was not a bona fide attempt to ascertain the taxpayer’s position, and was undertaken in bad faith. Invalid acts, and indicia of actual knowledge or recklessness of those invalid acts had been pleaded.
In the second misfeasance claim, it was alleged that the proceedings maintained against the taxpayer were commenced and maintained for an improper purpose to facilitate the improper motivations of the officers, perpetuate the agenda that had been formed, and exacerbate the disruption, burden, loss and damage to the taxpayer (particulars of malicious intent include – knowledge that the assessments were incorrect, knowledge that the assessments were issued outside the time period prescribed for amending the assessments and knowledge/reckless indifference that the assessments were made in bad faith).
Finally the third misfeasance claim also related to the maintenance of legal proceedings against the taxpayer for an improper purpose, namely to continue to undermine the review of a taxation decision known to be incorrectly causing disruption and forcing the claimant to expend further time and money in relation to the proceedings (particulars of malicious intent include – knowledge that there was no possibility of collecting the claimed amount, knowledge that pursuing legal action could bankrupt the taxpayer and knowledge that the taxpayer had six dependents and would struggle or fail to support them.
Donoghue
Whilst it is on appeal, the decision of the Federal Court in Donoghue v FC of T [2015] FCA 235 is of interest. There assessments issued by the Commissioner were quashed on the basis that the assessments issued as a result of conscious maladministration, being that taxation officers had recklessly relied on material which they always believed might be the subject of Mr Donoghue’s right to legal professional privilege (at [145]-[146], and referring to the decision in Mengel)
CDDA Scheme
Due to the high threshold of evidence required to establish the tort of Misfeasance in Public Office, it may be prudent to instead consider seeking relief under the CDDA Scheme. The CDDA Scheme is an administrative scheme that offers compensation on a moral, rather than legal, obligation to do so, if you have detriment due to a government agency’s defective administration. The ATO is listed as one of the non-corporate Commonwealth entities covered by the CDDA Scheme.
Defective Administration
Under the CDDA Scheme, defective administration is defined to include:
- A specific and unreasonable lapse in complying with existing administrative procedures;
- An unreasonable failure to institute appropriate administrative procedures;
- An unreasonable failure to give the proper advice that was within the officer’s power and knowledge to give; or
- Giving advice that was incorrect or ambiguous.
Detriment
To be eligible, you must have suffered a quantifiable financial loss.
Direct Link
The action of the ATO officer must have directly caused the detriment to you and the type of detriment suffered must have been reasonably foreseeable by the officer. The types of losses being directly linked to the defective administration, and thus may be claimed include but are not limited to:
- Professional fees, to the extent that they are assessed to be reasonable;
- Interest for delays in providing funds; and
- Bank or other administrative fees you have incurred as a result of the defective administration.
Time Limit
There is no time limit on when a claim under the CDDA Scheme can be made but because of the requirement that the detriment be reasonably foreseeable, the longer the period of time between the event and the claim, the more difficult it may be to gather sufficient facts or evidence.
Discretionary Nature
The primary limitation to compensation under the CDDA Scheme is the fact that the scheme is entirely discretionary, meaning the ATO is not obliged to make any payments under the CDDA Scheme. However, as the Finance Department has issued some guidance as to how decisions makers should consider applications under the CDDA Scheme there is arguably scope for challenging miserly awards or compensations claims that have rejected outright.
Transfer of Function to IGT
From 1 May 2015, the administration of the CDDA Scheme in relation to complaints made against the ATO has been transferred to the Inspector General of Taxation (IGT) from the Commonwealth Ombudsman. Being an independent statutory body that investigates systemic issues in the Australian taxation framework, the IGT is generally regarded as being particularly well-positioned to address complaints of defective administration by the ATO.
Although the IGT is unable to compel the ATO to take any particular course of action, the IGT is able to make a recommendation that compensation should be payable by the ATO under the CDDA Scheme The IGT may also be able to assist in situations where the conduct complained of encompasses:
- Issues with the timeliness of responses to requests;
- Issues with the conduct of ATO officers;
- Issues with the availability of ATO services; or
- Issues with whether the ATO auditor has considered all relevant information that you have provided.
Investigations by the IGT may even reveal “bad faith”, so the work done by the IGT may be a platform for a claim of Misfeasance in Public Office.
How we can help
In the rare case where evidence is available of ATO “bad faith” of the bases we suggested, we may be able to bring a claim for you for Misfeasance in Public Office.
Alternatively, in the past payments have been made under the CDDA Scheme where the taxpayer has suffered detriment as a result of defective administration by the ATO including:
- When incorrect advice was provided;
- When a penalty or a debt is was wrongly imposed;
- When personal property is damaged or documents are lost by the ATO;
- When a computer error results in a delayed payment; and
- When there was an unreasonable delay in approving an application.
We understand that these claims have been resolved in payments in the order of $100,000 without needing approval of the highest levels.
Pointon Partners has expertise in all aspects of tax, litigation and can assist you in making complaints against the ATO, whether in an action of tort, or under the CDDA Scheme.
If you believe that you have serious grounds for a complaint against the ATO or have any queries in relation to this tax update, please contact the writer Robert Gordon, or Anthony Pointon.
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1 It can hardly be disputed that an officer of the ATO who issues exorbitant assessments will be considered a holder of public office. In Tampion v Anderson [1973] VR 715 it was held that public office is one ‘the holder of which owes duties to members of the public as to how the office shall be exercised’. The holder of public office can also be considered a ‘person employed to perform a statutory power or duty in which the public has an interest’ (E v K [1995] 2 NZLR 239).
2 Mengel.
3 However, it is prudent to note that the third limb of the abuse element only appeared in the judgments of Brennan J and Deane J, and was not strictly considered by the plurality in Mengel. On the other hand, the entire court expressly clarified that the liability for this tort would not be established where the officer concerned ought to have known that they lacked the relevant power to engage in the conduct complained of. That is, the tort of misfeasance in public office cannot be proven merely on the basis that the officer had constructive knowledge of the lack of power.