5.1 As Australia’s principal revenue collection agency, the ATO has considerable powers and resources at its disposal which give rise to advantages over the vast majority of taxpayers. This is particularly evident in the case of litigation, given that the ATO has access to specialist knowledge and is more experienced and better resourced than the majority of taxpayers, particularly small businesses and individuals.

5.2 This recognition of the significant disparity in power and resources between the Crown and other litigants provided the genesis for what would ultimately become the MLO.

5.3 This Chapter will first describe the MLO and the prior reviews which have examined them before turning to stakeholder concerns and the ATO’s processes for monitoring, evaluating and reporting on compliance.

What is the MLO?

5.4 Recognition of the Commonwealth’s obligation to behave as a model litigant occurred at the highest judicial levels in the early 20th century, reflected by the often-quoted remarks of Chief Justice Griffith in the High Court:

I am sometimes inclined to think that in some parts—not all—of the Commonwealth, the old-fashioned traditional, and almost instinctive, standard of fair play to be observed by the Crown in dealing with subjects, which I learned a very long time ago to regard as elementary, is either not known or thought out of date. I should be glad to think that I am mistaken.376

5.5 Similar sentiments have been expressed by other members of the judiciary, as an elaboration of the views initially set out by Griffith CJ. For example, in Sebel Products Ltd v Commissioners of Customs and Excise, Vaisey J noted:

… the defendants being an emanation of the Crown, which is the source and fountain of justice, are in my opinion bound to maintain the highest standards of probity and fair dealing, comparable to those which the courts, which derive their authority from the same source and fountain, impose on the officers under their control.377

5.6 Similarly, King CJ stated in Kenny v South Australia:

The Court and the Attorney-General, to whom the Crown Solicitor is responsible, have a joint responsibility for fostering the expeditious conduct of and disposal of litigation. It is extremely important that the Crown Solicitor’s Office set an example to the private legal profession as to conscientious compliance with the procedures designed to minimise cost and delay.378

5.7 Over time such judicial observations on the standards required of Commonwealth litigants were developed and consolidated into the MLO which are presently contained in Appendix B to the LSD 2005, as issued by the Attorney-General’s Department pursuant to section 55ZF of the Judiciary Act.379

5.8 An important feature of the MLO is that it does not confer any enforceable rights or remedies on taxpayers. The MLO is only enforceable by, or on the application of, the Attorney-General380 who may also impose sanctions for non-compliance.381 Furthermore, non-compliance with the MLO cannot be raised in proceedings except by, or on behalf of, the Commonwealth.382

5.9 The ATO has indicated in discussions with the IGT that it is not aware of any cases where the Attorney-General’s Department has sought to enforce or impose sanctions on the ATO for non-compliance with the MLO.383 Moreover, there does not appear to be any instances of sanctions or other enforcement action which have been applied to an agency for non-compliance with the MLO.

5.10 The position that the MLO does not give rise to any enforceability or action by the taxpayer has been confirmed to be legally correct by the Federal Court in cases where taxpayers have unsuccessfully sought to enforce the MLO against the ATO. Such a case is the decision of Caporale v Deputy Commissioner of Taxation, in which the Federal Court stated:

… no private rights are conferred by Appendix B ‘The Commonwealth’s obligation to act as a model litigant’ …384


The terms of these provisions indicate an intention that the Directions are a means of control by the Attorney-General of Commonwealth legal work. In my opinion they are not designed to create obligations owed by the persons or bodies referred to in s 55ZG to others, especially other litigants.385

5.11 The Office of Legal Services Coordination (OLSC) within the Attorney-General’s Department administers the MLO and provides guidance notes and educational functions to agencies to help them comply with the MLO.386 Allegations of breaches may be brought to the attention of the OLSC by way of agencies self-reporting or through complaints made directly to the OLSC.387

5.12 The OLSC has released a Compliance Framework which sets out its compliance approach and responsibilities as well as the responsibilities of agencies and legal service providers under the LSD 2005, including the obligation to act as a model litigant.388 It emphasises greater agency responsibility for understanding the MLO and ensuring compliance through self-identification and self-investigation of alleged breaches, with the OLSC’s role being to receive alleged breach notifications from agencies.389 Prior to the release of this framework in 2013, all investigations of alleged MLO breaches were undertaken by the OLSC.

Prior reviews of the MLO

5.13 The MLO itself has been the subject of, or considered, in a number of reviews, including by:

  • the Productivity Commission;
  • the SCTR; and
  • the IGT.

5.14 These are briefly discussed below.

Productivity Commission

5.15 In June 2013, the Productivity Commission was tasked with undertaking a broad-based review on access to justice arrangements in Australia’s civil justice system.390 As part of its inquiry, the Productivity Commission examined the effectiveness of the MLO, as well as those of a number of different States, and their application in litigation at all levels of government.

5.16 The Productivity Commissioner received submissions and considered a range of options to improve compliance with the MLO. Such options included enshrining the requirements in legislation, establishing an independent agency to investigate complaints, improving the role of the courts in responding to breaches of the MLO or allowing private parties to enforce the MLO.391

5.17 Ultimately, the Productivity Commission concluded:

The Commission’s view is that model litigant obligations should apply to all levels of government as well as their legal representatives. To be effective in regulating governments’ litigation behaviour, each jurisdiction should introduce a best practice complaints framework. Ombudsmen are ‘ready-made’, independent bodies that could receive and review complaints, report to the relevant department and refer appropriate matters to legal profession regulators where a lawyer’s professional conduct is an issue.392

5.18 In addition, the Productivity Commission also recommended:


The Australian, State and Territory governments (including local governments) and their agencies and legal representatives should be subject to model litigant obligations.

  • Compliance should be monitored and enforced, including by establishing a formal avenue of complaint to government ombudsmen for parties who consider model litigant obligations have not been met.
  • State and Territory Governments should provide appropriate assistance for local governments to develop programs to meet these obligations.393

5.19 The Government’s response to this recommendation highlighted its view that enforcement of the obligations was a matter for the Attorney-General:

While Commonwealth officers owe obligations to the Commonwealth under the Directions, the Directions are not intended to provide a remedy, cause of action or any personal rights in addition to those already available through administrative or judicial review. This was confirmed in Caporale v Deputy Commissioner of Taxation [2013] FCA 427.

The question of compliance with the Directions, including the Model Litigant Obligations, is a matter between the Attorney-General and the relevant Commonwealth agency or Department. Any other approach could give rise to technical arguments and result in additional costs and delay in litigation involving the Commonwealth.

Where an individual is unhappy with the handling of their complaint by an agency, they may seek a review by the Commonwealth Ombudsman.394

House of Representatives Standing Committee on Tax and Revenue

5.20 The SCTR recently released a report on Tax Disputes in 2015,395 which included a discussion about the MLO as it applies to the ATO. The SCTR identified from submissions to the inquiry that there are concerns that the ATO does not always comply with the MLO. It considered that this perception may, at least in part, be due to taxpayers expecting that the ATO will make concessions or litigate in a benevolent manner despite it having no obligation to do so.396

5.21 The SCTR concluded that the ATO should better manage expectations and engage with taxpayers before litigation. The following two recommendations were made to the ATO in respect of the MLO:

Recommendation 9

The Committee recommends the Australian Taxation Office better engage with taxpayers prior to litigation so that they are aware of what the model litigant rules require, and do not require, of the Australian Taxation Office.397

Recommendation 10

The Committee recommends the Australian Taxation Office approach the Australian Government Solicitor to determine if they can provide advice and assistance to the Australian Taxation Office in terms of best practice in complying with the model litigant rules.398

5.22 In response, the ATO has indicated that it commenced discussion with the Attorney-General’s Department in relation to both these recommendations.399

Inspector-General of Taxation

5.23 In a number of previous reviews, the IGT has referred to the ATO’s obligation to act as a model litigant, namely:

  • The Management of Tax Disputes (the Tax Disputes review);
  • Review into the Australian Taxation Office’s use of early and alternative dispute resolution (the ADR review); and
  • Review of Tax Office management of Part IVC litigation (the Part IVC Litigation review).

5.24 Relevant aspects of these reviews are discussed below.

The Tax Disputes review

5.25 This review was conducted in 2015 to assist the SCTR in the abovementioned Tax Disputes inquiry. The review examined the governance framework for the resolution of tax disputes in Australia which includes a number of legislative and administrative mechanisms designed to ensure early and efficient dispute resolution, including the MLO. The IGT noted stakeholder concerns about the MLO, namely that it lacks enforceability and that there appears to be a disconnect between the Government’s intended purpose for the MLO and the community’s understanding and expectations of it.400

5.26 The IGT acknowledged in that review that the issue of enforceability of the MLO is a matter which warrants consideration in conjunction with other government agencies and departments, including the OLSC and the Attorney-General’s Department. The IGT proposed to explore these issues in more detail in this review.401

The ADR review

5.27 This review was commenced in 2011 in response to concerns that the ATO utilises ADR sparingly and, as a consequence, forgoes opportunities to resolve disputes efficiently without the need for litigation.402 In examining the issues raised in that review, the IGT noted that the MLO requires the ATO to avoid, prevent and limit the scope of legal proceedings wherever possible, including by giving consideration to ADR processes before initiating legal proceedings.

5.28 The IGT’s recommendations included bringing early engagement and ADR to the forefront of ATO dispute resolution approaches by treating all disputes as suitable for ADR, except where genuine disputes as to law arise and where there is public interest in having the matter judicially determined.403

The Part IVC Litigation review

5.29 This review was concluded in 2006 and examined the ATO’s approach to litigation. A key finding by the IGT was the strong community perception that the ATO’s approach and conduct was not consistent with the MLO.404 The IGT formulated a range of recommendations directed at improving the ATO’s compliance approach to litigation, including that:

  • the ATO, should issue a formal public statement on its approach to tax litigation. As part of this statement, the ATO should make taxpayers aware of the MLO at the outset of litigation and that the OLSC is responsible for administering the guidelines, including considering any alleged breaches of the MLO; and
  • the ATO should develop practical guidelines for staff on the application of the MLO.405

5.30 Whilst reference was made to the MLO in previous IGT reviews, these reviews did not specifically examine the ATO’s processes to monitor, evaluate and report on its compliance with the MLO. Furthermore, it should be noted that some of these reviews have aged and since they were published, new processes and guidance, such as the OLSC’s release of the Compliance Framework in 2013 regarding agency compliance with the MLO, have been issued which may have changed the way in which the ATO approaches its obligation.

Summary of stakeholder concerns

5.31 Stakeholders recognise that the MLO seeks to guide appropriate, honest and fair handling of claims and litigation by the Commonwealth. However, concerns have been raised regarding:

  • enforcement of the MLO as well as the role of government and the courts in responding to alleged breaches;
  • ATO assurance that its officers are complying with the MLO, including the adequacy of the ATO’s systems and processes used to monitor and report on compliance with the MLO;
  • management and resolution of MLO complaints; and
  • education and guidance on the purpose and intent of the MLO.

5.32 It should be noted that many of the concerns raised in this review, such as those relating to compliance with the MLO and the adequacy of the current enforcement arrangements, were also identified in the Productivity Commission’s report.406

Enforceability of the MLO

Stakeholder concerns

5.33 Concerns have been raised in submissions about the nature and design of the MLO, particularly in respect of the effectiveness of the current enforcement framework. Moreover, submissions made to the IGT have noted that, even in relation to identified breaches of the MLO in litigation, the courts are unable to comment or impose sanctions.

5.34 Whilst the OLSC provides a channel through which stakeholders may raise concerns regarding agencies’ compliance with the rules, submissions to the IGT have expressed concern that, where complaints of breach are made against the ATO, there seems to be no action taken to enforce the MLO. It has been noted that whilst the Attorney-General may impose sanctions for non-compliance with the MLO, the frequency and nature of any sanctions imposed is unclear.407

5.35 Some submissions made to the IGT suggest that there may be a lack of understanding by the community regarding the general purpose and intent of the MLO. In particular, some stakeholders have observed that taxpayers may not be fully aware that the obligation is one which is owed to the Commonwealth rather than to the community at large and that breaches of the MLO do not lead to substantive tax outcomes.

Relevant materials

5.36 It is well established that the MLO does not confer any rights of enforcement upon taxpayers or tax practitioners who believe that the Commonwealth has transgressed the MLO. The issue of enforcement and the range of stakeholder concerns in this regard have been well-reflected in the Productivity Commission’s report.408

5.37 By way of general information on the MLO, the ATO’s website states:

The ATO as a model litigant – its officers, solicitors and counsel – is required to act with complete propriety, fairly and in accordance with the highest professional standards in handling claims and litigation. This also requires that the ATO not start legal proceedings unless it is satisfied that litigation is the most suitable method to resolve a dispute.409

5.38 The ATO’s practice statement on the conduct of litigation, PSLA 2009/9, makes similar statements.410

5.39 There is limited information on the ATO’s website about how taxpayers may raise concerns regarding the ATO’s adherence to the MLO. Some information is accessible through Dispute Resolution Instruction Bulletin 2013/10 (DR IB 2013/10), an internal document, which is made available on the ATO legal database. Furthermore, at the commencement of litigation, the ATO has directed its staff to notify taxpayers and their representatives of the MLO, including a ‘notice to comply’ with the obligations.411 Relevantly, that notice provides an address to which complaints on breaches of the MLO may be raised.412

5.40 The enforcement of the MLO is the sole remit of the Attorney-General and his or her department. The ATO has, therefore, not provided any relevant materials on the enforceability of the MLO.

IGT observations

5.41 The IGT acknowledges the concerns raised by stakeholders on the lack of enforceability of the MLO. However, it should be noted that whilst the MLO itself is not enforceable by taxpayers, many of the MLO principles can also be found in other legislation and court rules which are enforceable and can give rise to sanctions by the courts where a breach is found. For example, paragraph 2(d) of the MLO, which requires the Commonwealth to endeavour to avoid or limit the scope of legal proceedings by giving consideration to ADR, has direct parallels to the requirements imposed on litigants in the Civil Dispute Resolution Act 2011. The latter requires parties to take genuine steps to resolve a dispute prior to commencing litigation in the Federal Court.413 Failure to do so may result in adverse costs being imposed by the Court.414

5.42 Another example is the requirement for the Commonwealth to deal with claims promptly and not cause unnecessary delay in the handling of claims and litigation.415 This is broadly consistent with the requirements in the Federal Court Act 1976 for litigants to act in a manner that facilitates the just resolution of disputes as quickly, inexpensively and efficiently as possible.416 Failure to discharge this obligation may give rise to sanctions being imposed personally on the parties or their lawyers.417

5.43 It should also be noted that the MLO imposes a standard of conduct which is similar, if not identical, to the ethical and professional obligations of lawyers through their professional associations.418 Such associations also provide channels for complaint resolution against practitioners who may have transgressed the relevant code of conduct or ethics requirements.419

5.44 Having regard to the above, taxpayers can already seek enforcement of a number of rights that are similar or equivalent to those in the MLO. Nevertheless, some stakeholders have argued that due to the complexities within the tax system and the significant powers of the Commissioner, the ATO should be held to a higher standard and that the MLO should be enforceable by the court either of its own volition or on the application of taxpayers. Similar suggestions were also made, in a more general sense, to the Productivity Commission’s inquiry.420

5.45 The IGT notes that it is not within his remit to make any recommendations to the Attorney-General or the Attorney-General’s Department regarding the operation and enforceability of the MLO. However, it is also not necessary for the IGT to make any recommendation in this regard as the Productivity Commission has already done so. In response to that recommendation, the Government had said:

The question of compliance with the Directions, including the Model Litigant Obligations, is a matter between the Attorney-General and the relevant Commonwealth agency or Department. Any other approach could give rise to technical arguments and result in additional costs and Page 5 of 7 Relevant Recommendation number/s Commonwealth Response delay in litigation involving the Commonwealth.421

5.46 Based upon the submissions received as well as matters which have been brought to the IGT’s attention through complaints, it would appear that education on the purpose and enforceability of the MLO is required to manage taxpayer expectation. Whilst the ATO has some information on its website and through PSLA 2009/9, neither sources of information make it clear that the obligation is owed to the Commonwealth and only enforceable by the Attorney-General, the corollary being that there are no enforcement rights available to the taxpayer. Where this is not made clear in public communications, some taxpayers and tax practitioners may unwittingly assume that the ATO’s non-compliance with the MLO leads to substantive tax outcomes (for example, litigation being dismissed).

Investigating allegations of MLO breaches

Stakeholder concerns

5.47 In submissions to the IGT, stakeholders also raised concerns about a lack of clarity as to how allegations of MLO breaches are dealt with by the ATO, leading to a lack of confidence as to whether they are appropriately investigated. In examples raised with the IGT, it has been suggested that where complaints are raised concerning breaches of the MLO, the ATO tends to focus on the substantive tax issues in dispute rather than examining whether the conduct which is the subject of the complaint has breached any aspect of the MLO.

5.48 Stakeholders also raised concern that allegations of breaches of the MLO were referred by the ATO complaints section to the very area (and sometimes officers) whose actions were the subject of the complaint. Those officers were then tasked with assessing their own conduct and responding to the taxpayer directly, thereby raising issues of bias and lack of independence.

Relevant materials

5.49 The ATO’s approach to litigation is set out in the practice statement, PS LA 2009/09 which, amongst other things, provides guidance to ATO officers about the obligation to act as a model litigant. Additional guidance on dealing with MLO concerns is available to ATO staff through DR IB 2013/10 as well as OLSC’s Guidance Note 3.

5.50 Whilst the OLSC generally administers the LSD 2005, its Guidance Note 3 on compliance with the MLO confirms that it does not resolve complaints regarding breaches:

If you are a party to a claim and/or litigation involving the Commonwealth and you want to make an allegation of non-compliance, you should contact the agency directly and particularise your concerns relating to their compliance with the Directions. OLSC does not resolve complaints from members of the public about agency compliance. If you contact OLSC, you will be advised to forward your complaint to the relevant agency. That agency will notify OLSC of your concerns in accordance with the Compliance Framework.422

5.51 The IGT has not been able to find any publicly available information regarding how complaints about the MLO are handled by the ATO. Whilst the DR IB 2013/10 provides general information on how complaints about the MLO are received and considered by RDR staff, it does not clearly set out the processes to be followed. The ATO has advised that such complaints are managed by the RDR BSL and the processes adopted are as follows:423

  • MLO issues are received through a number of different channels, including through self-identification or complaints. When MLO issues are received or identified, they are allocated to an RDR investigator who has not previously had active involvement in the matter. There are currently 18 trained RDR investigators at the EL1 or EL2 levels. In some sensitive cases, issues may be allocated to investigators outside RDR such as ATO General Counsel.
  • The investigators assess complaints and complete Agency Notification Reports (ANR) which include assessments of the MLO allegations. ANRs are reviewed and approved by the RDR Assistant Commissioner, or his or her authorised EL2 officers, before being reported to OLSC. Where the report has been reviewed and authorised by the EL2 officer, a copy is provided to the Assistant Commissioner.
  • During the course of the investigation, the investigator notifies the officer who is the subject of the MLO allegation and communicates the findings and outcome of the investigation. The investigator is also required to keep the taxpayer informed throughout the process, including seeking information or clarification, communicating the outcome of the investigation and providing them with an opportunity to respond.
  • A spreadsheet of all allegations of breaches of the MLO, together with outcomes, is maintained for internal monitoring and reporting purposes.

5.52 The ATO has also advised that work is underway with the complaints support team to improve scripting to enable more accurate identification of RDR complaints in order to reduce complaint handling time and improve the client experience.424

5.53 The above processes reflect the approach taken by the ATO where concerns about the MLO are raised as specific complaints. However, the ATO has advised the IGT that, generally, MLO allegations are raised in the course of active litigation, either in Court or as part of the taxpayer’s submissions. Where such allegations are received, the ATO is cognisant of the need to maintain a degree of independence in its investigation whilst also adhering to professional codes of conduct for communication between solicitors in litigation. The ATO has indicated that it is open to exploring strategies through which it may more effectively discharge its obligation to independently and impartially investigate MLO allegations in such circumstances.

IGT observations

5.54 There is clearly a perception of bias where allegations of MLO breaches are being referred to the BSL to which the complaint relates – namely, RDR. The IGT had previously identified the risk of such perceptions in the context of objections being considered within the same BSLs that issued the audit decision.425 Flowing from those observations, the IGT, as well as the SCTR426, recommended legislative change to create a separate appeals area, within the ATO led by a newly appointed Second Commissioner, to deal with objections amongst other things. In the meantime, the ATO transferred the objection function out of the then Compliance Group and into the Law Design and Practice Group. As a result, the Government was of the view that the course of action recommended by the IGT and the SCTR was not warranted at that time.

5.55 In the current case, the IGT considers that the ATO needs to be more mindful of the perceptions of bias and address the risk of actual and perceived conflicts of interest by closely considering its current processes.

5.56 The stated process for receiving, considering and responding to allegations of potential breaches of the MLO is contained in DR IB 2013/10 which is publicly available through the ATO’s Legal Database.427 However, unless taxpayers are aware of the document, it would be difficult for them to locate it on the database.

5.57 Even where taxpayers are able to access this document, the instructions do not clearly set out the responsibilities of the relevant officers within the ATO. For example, whilst the first step of the consideration process is for the relevant ATO officer to discuss the matter with their manager or team leader, the instructions then go on to say that the Dispute Resolution section will consider the circumstances and prepare a report for the Assistant Commissioner.428

5.58 DR IB 2013/10 is unclear as to whom within the Dispute Resolution section would be responsible for considering the circumstances and preparing the report, and which Assistant Commissioner would consider the matter. Furthermore, the instructions do not seem to contemplate whether these officers should be independent of the matter or the officer who is subject of the complaint.

5.59 Moreover, whilst DR IB 2013/10 indicates that the taxpayer will be ‘kept informed of the progress and outcome of the review,’ it not clear whether further input will be sought from the taxpayer and their representatives before the ATO’s report and determination are finalised even though the ATO’s own internal processes, as communicated to the IGT, contemplate such actions.

5.60 Given that the numbers of alleged breaches are low, the IGT considers that, at this stage, the ATO should focus on improving community confidence by enhancing the independence and transparency of its processes to investigate allegations of MLO breaches. The IGT acknowledges the challenges in doing so where MLO concerns are raised during active litigation. However, these challenges may be addressed through implementation of such strategies as:

  • ensuring that the ATO’s intended process is either publicly available and communicated to the taxpayer upon receipt of the allegation or complaint, including how the ATO will manage issues of independence;
  • providing the ATO Complaints function with sufficient expertise to undertake MLO investigations and working closely with them to investigate MLO issues in an independent and impartial manner; and
  • where it is necessary to engage the RDR BSL, doing so in line with a communication protocol which maintains the independence, both actual and perceived, of the ATO Complaints function.

Compliance and reporting

Stakeholder concerns

5.61 Submissions suggest that in the experience of some stakeholders, ATO officers have acted in ways that are inconsistent with the MLO as they believe that there is little or no sanction for such conduct. For example, in one case it was contended that the ATO had raised new arguments after the taxpayer had filed evidence in respect of a particular matter. This would effectively preclude the taxpayer from adequately addressing the issue and having to seek further directions from the court which delayed resolution of the matter. In this case, it was alleged that the ATO had opportunity to raise these arguments through a number of preliminary stages but failed to do so. Other allegations made in submissions include practitioners observing cases where the ATO had relied on pure technicalities.

5.62 Stakeholders have also observed that the ATO is not required to report on its compliance with the MLO other than simply to report alleged breaches. Some stakeholders are of the view that purely reporting on potential breaches is inadequate and that the ATO should be required to demonstrate its compliance with the MLO more generally. In addition, stakeholders consider it imperative that alleged breaches are appropriately recorded, including the outcomes of any investigation or enforcement action, to maintain the integrity of the system.

Relevant materials

5.63 The ATO monitors its compliance with the MLO through requirements for internal self-identification and reporting.429 All staff from within the RDR BSL, who manage litigation matters, are required to complete an online assurance questionnaire on an ongoing basis in relation to aspects of their work.430 Amongst other things, the questionnaire asks:

  • Have you complied with the obligations under the Legal Services Directions 2005?
    • Please describe reasons for the failure.
    • What remedial action has been taken in respect of the failure?
  • Has anything occurred on any case that is potentially reportable to OLSC?
    • What court was this case in?
    • Please describe the potentially reportable instance.431

5.64 The ATO has advised the IGT that the online assurance questionnaire responses provided by RDR staff are consolidated in a report that is generated at the end of each month. This consolidated report seeks to identify the level of compliance by staff as well as any instances of non-compliance with the MLO.432 Furthermore, the questionnaire also seeks to remind staff of their obligations under the LSD 2005.

5.65 It should be noted that external legal service providers engaged by the ATO are not required to provide the ATO with assurance of their compliance in the same manner as RDR staff i.e. completing the online questionnaire. However, they are all members of the Legal Services Multi-Use List (LSMUL) which is administered by the Attorney-General’s Department. Those seeking to be part of the LSMUL must demonstrate:

… their understanding of and capacity to meet the requirements of the Legal Services Directions. This should include arrangements to ensure that the requirements relevant to the performance of legal services in the public sector environment are met.433

5.66 Clause 8 of the LSMUL deed between the Attorney-General’s Department and the legal service providers requires that they comply with the LSD 2005 and the MLO and, moreover, identify and advise the agency (for example, the ATO) of any significant issues which may need to be reported to OLSC in this regard. Non-compliance with any aspect of this clause may lead to the work being withdrawn or the legal service provider not being paid.434

5.67 In relation to external reporting of MLO issues, the ATO has advised the IGT that it has recently implemented a new centralised complaints area within the RDR BSL. This area is responsible for receiving and managing all RDR complaints (including those relating to the MLO) as well as monitoring and reporting of those complaints. Its functions include reviewing and allocating RDR complaints, following up on the progress of complaints to ensure service standards are being met, providing training and procedural support to officers managing complaints, and liaising with the wider ATO complaint coordinators.435 As this area has been recently established and is still settling the relevant functions and procedures,436 the IGT has not had an opportunity to review its effectiveness.

5.68 Where the ATO identifies an allegation or instance of non-compliance, it is required to report to the OLSC as soon as practicable about any possible or apparent breaches of the MLO. This is normally done by completing an agency notification form.437 After each financial year, the Commissioner must also provide a certificate of compliance to the OLSC setting out the extent to which he believes the ATO has complied with the LSD 2005 and the MLO.438

5.69 In addition to providing its reports to OLSC, the ATO has also previously reported publicly on its non-compliance with the MLO, including in its annual reports for certain years,439 in publications on its litigation work440 and on its website.441 However, the IGT notes that no such reporting appeared in its annual report or website for the 2014-15 financial year.

5.70 At the IGT’s request, the ATO has provided details on the numbers of allegations it has investigated and the outcomes of those investigations over four financial years between 2011-12 and 2014-15 (inclusive). These statistics are set out in Table 9 below.442

Table 9: Numbers of alleged breaches of the Legal Services Directions, including the MLO and outcomes of those investigations
  2011-12 2012-13 2013-14 2014-15
New allegations received and reported N/A 15 17 18
Investigations finalised 15 29 23 16
Alleged breaches dismissed 10 27 20 8
Confirmed breaches 5 2 3 8

Source: ATO

5.71 The statistics provided by the ATO indicate that only a relatively small number of allegations of breach are received each year (15 in 2012-13, 17 in 2013-14 and 18 in 2014-15). Of these allegations, 7 per cent and 13 per cent were confirmed as actual breaches in 2012-13 and 2013-14 respectively. In 2011-12 and 2014-15, however, the proportion of confirmed breaches is higher, being 33 per cent and 50 per cent, respectively.

5.72 Whilst the statistics for 2014-15 indicate a significant jump in confirmed cases from the previous years, due to the low numbers of finalised cases in each year, it is difficult to draw meaningful trends from the data that is, 50 per cent represents only eight instances in which the ATO had confirmed that its officers breached the MLO.

5.73 The OLSC also publishes statistical data on breaches of the LSD 2005 as reported by all agencies on its website. Table 10 below sets out these consolidated statistics.

Table 10: Breaches of the Legal Services Directions, including the MLO
Year Matters carried forward New matters Examined and found non-compliant Examined and found compliant
2011-12 16 94 42 18
2012-13 50 93 14 33
2013-14 10 67 5 30
2014-15 42 90 30 77

Source: Attorney-General’s Department

5.74 Table 10 above shows that the OLSC recorded 30 substantiated instances of non-compliance with the LSD 2005 in the 2014-15 financial year. The OSLC website indicates that of the 30 non-compliant matters, 16 related to non-compliance with the MLO.443 When read together with the ATO’s own statistics, the IGT notes that half of these instances of MLO non-compliance in 2014-15 were attributable to the ATO.

5.75 It is important to understand that these statistics may be affected by a number of factors. First, the ATO, by the very nature of its jurisdiction and remit, is one of the most frequent litigants in the civil justice system which gives rise to more cases being pursued through federal and state courts. Secondly, it may be reflective of the quality of the ATO’s self-reporting of breaches that gives rise to a higher proportion of reported cases than other agencies. Thirdly, the numbers alone do not disclose the nature of the breach itself. Whilst there may be a higher proportion of breaches, the nature of these breaches may be administrative in nature and not impinge on the substantive aspects of the litigation itself.

5.76 The ATO has indicated that it takes its obligations under the LSD 2005 seriously and is proactive in initiating reports of potential breaches to OLSC. The ATO believes that this may explain the higher rates of self-reporting of potential breaches and the relatively small number of determined breaches.444

IGT observations

5.77 In relation to improving ATO officers’ adherence to the MLO, the IGT is of the view that the improvement sought above to the way alleged breaches are investigated should also result in an increased level of compliance.

5.78 Turning to public reporting of allegations of non-compliance, the current statistics indicate that only a small number of alleged breaches are reported annually by the ATO, and only a fraction of these are confirmed to be actual breaches after investigation.445 Against the backdrop of many thousands of cases in which the ATO litigates (either as plaintiff or defendant) annually, the statistics tend to indicate that the ATO is generally complying with its obligations under the MLO.

5.79 There are IGT complaint cases in which potential breaches of the MLO may have taken place, indicating there are matters that should have been investigated that were neither reported as alleged breaches nor investigated. By way of example, in one case, the ATO had adversely assessed the taxpayer on the basis of third party information but did not disclose that information to the taxpayer. In the AAT, the ATO was directed to provide the third party information to the taxpayer following which the ATO effectively conceded the matter. The taxpayer has since sought compensation from the ATO for the time and costs associated with the unnecessary litigation. The IGT is also aware of another matter in which the ATO sought to resile from agreed settlement at ADR, forcing the taxpayer to institute legal proceedings to compel the ATO to honour its agreement.

5.80 Whilst the above cases may not be conclusive, they do indicate that the ATO’s system for monitoring, reporting and investigating MLO breaches could be more closely scrutinised and bolstered.

5.81 In this respect, stakeholders have suggested that having an external agency, such as the IGT, monitor and report on alleged ATO breaches of the MLO would provide an appropriate degree of independence and validation. Whilst the IGT considers that such an approach could be useful in enhancing taxpayer confidence, the IGT’s monitoring of the ATO’s compliance would only be possible to the extent that the IGT is made aware of alleged breaches either through the complaints handling function or by reports from the ATO. Therefore, there seems to be little utility in transferring the function to the IGT as the outcome is unlikely to be any different.

5.82 The IGT is of the view that a better course of action would be to seek improvements to the ATO’s own monitoring and reporting processes. First, whilst the ATO has established processes to monitor officer compliance with the MLO, for example through the mandatory completion of assurance questionnaires, these processes are largely dependent on officer self-reporting. In discussions with the IGT, the ATO advised that such self-reporting is not independently validated by senior staff within the ATO.446 Such validation could take the form of sample testing or conducted in a similar manner to monitoring compliance with Charter principles, as described in Chapter 3.

5.83 Secondly, the ATO should report more consistently and comprehensively on its non-compliance with the MLO and, in particular, it should publicly report, in redacted and summary form, the outcome of any investigation and the remedial action taken by the ATO.

5.84 As one of the largest litigants in the Commonwealth, the IGT believes that there is scope for the ATO to actively develop best practice approaches to both monitoring and reporting of alleged MLO breaches. In doing so, the ATO should consult with the OLSC to ensure that proposed processes to be implemented align with OLSC’s Compliance Framework and whole-of-government imperatives.

Recommendation 3

The IGT recommends that the ATO:

  1. improve its public communication and guidance on the nature of the MLO and the limitations including that only the Attorney-General may enforce the rules;
  2. improve its investigation process for alleged MLO breaches by:
    1. informing taxpayers at the outset how the allegations will be investigated;
    2. developing strategies to improve, actual and perceived, independence and impartiality of the process and in doing so consider enhancing the capability of the ATO Complaints Unit to undertake such investigations; and
  3. in consultation with the OLSC, identify opportunities to enhance its public reporting on allegations of MLO breaches, including the outcome of investigations and any remedial action taken, on an annual basis.

ATO response

(a) and (b) Agree in part.

The ATO will ensure that taxpayers are advised of our approach to investigating alleged MLO breaches in any initial response to a complaint. We will also review current arrangements for investigation of potential MLO breaches to determine how best to deal with model litigant matters when concerns are raised about appropriate levels of independence and impartiality, including consideration of the role of the ATO Complaints Unit.

(c) Disagree.

The OLSC retains the oversight of the MLO legislation and compliance framework for the whole of the Commonwealth. The ATO will only make changes to our public reporting on model litigant matters consistent with advice and approval from the OLSC.

376 Melbourne Steamship Limited v Moorhead (1912) 15 CLR 133, per Griffith CJ.

377 Sebel Products Ltd v Commissioners of Customs and Excise (1949) 1 Ch 409, per Vaisey J at 413.

378 Kenny v South Australia (1987) 46 SASR 268, per King CJ at 273.

379 Judiciary Act 1903, s 55ZF.

380 Judiciary Act 1903, subsection 55ZG(2).

381 Legal Services Directions 2005, para [14.1].

382 Judiciary Act 1903, subsection 55ZG(3).

383 IGT meeting with the ATO, 30 March 2016.

384 Caporale v Deputy Commissioner of Taxation [2013] FCA 427 at [39].

385 Ibid, at [44].

386 Attorney-General’s Department, ‘Legal Services Directions and guidance notes’ <www.ag.gov.au>.

387 Office of Legal Services Coordination (OLSC), ‘Guidance Note 3’ (undated) <www.ag.gov.au>.

388 OLSC, ‘Legal Services Directions 2005 – Compliance Framework’ (undated) <www.ag.gov.au>.

389 Ibid, paras {7] and [30].

390 Productivity Commission, Access to Justice Arrangements Report No. 72 (September 2014) pp iv–vi.

391 Ibid, pp 436 - 440.

392 Ibid, p 440 (Recommendation 12.3).

393 Ibid, pp 54 and 442 (Recommendation 12.3).

394 Attorney-General’s Department, ‘Response to the Productivity Commission’s report into access to justice arrangements’ (29 April 2016) p 4 <www.ag.gov.au>.

395 Above n 11.

396 Ibid, p 47.

397 Above n 11, p 47.

398 Ibid, p 48.

399 Above n 361, p 11.

400 Above n 44, p 109.

401 Ibid, pp 109-110.

402 IGT, Review into the Australian Taxation Office’s use of early and Alternative Dispute Resolution (May 2012) p 111.

403 Ibid, p vi.

404 IGT, Review of Tax Office management of Part IVC litigation (April 2006) p 67.

405 Ibid.

406 Above n 390, p 440.

407 Ibid, p 439.

408 Ibid, pp 433-436.

409 ATO, Litigation – our policies <www.ato.gov.au>.

410 ATO, Conduct of Litigant and Engagement of ATO Dispute Resolution, PSLA 2009/9, 19 December 2013, paras [13].

411 ATO, Obligation to act as a model litigant, DR IB 2013/10, paras [9] and [10].

412 Ibid, para [22].

413 Civil Dispute Resolution Act 2011, ss 4, 6, 7.

414 Civil Dispute Resolution Act 2011, sub-s 10(2) and s 12.

415 Appendix B of the Legal Service Directions 2005, paragraph 2(a).

416 Federal Court Act 1976, ss 37M and 37N.

417 Modra v State of Victoria [2012] FCA 240.

418 See for example: Legal Profession Uniform Law Australian Solicitors’ Conduct Rules 2015 (NSW).

419 See for example: The Law Society of New South Wales, Complaints and discipline (undated) <www.lawsociety.com.au>.

420 Above n 390.

421 Above n 394.

422 Attorney-General’s Department, Compliance with the Legal Services Directions 2005 (July 2015) para [29].

423 IGT discussion with the ATO, 14 July 2016.

424 ATO, ‘RDR Executive Submission: RDR – Complaints Resolution’ (11 March 2016).

425 Above n 44.

426 Above n 11.

427 ATO, ‘Legal Database’ <law.ato.gov.au>.

428 Above n 411, paras [17] and [18].

429 ATO, ‘Legal Services Directions 2005, Compliance Certificate Checklist 2014-15’.

430 ATO, ‘Attachment 1 – Assurance questionnaire’ (undated).

431 Ibid.

432 IGT discussions with the ATO, 14 July 2016.

433 Attorney-General’s Department, ‘Legal Services Multi-Use List and Service Providers’ <www.ag.gov.au>.

434 Attorney-General’s Department, ‘Legal Services Multi-Use List Deed’ <www.ag.gov.au>.

435 ATO communication to the IGT, April 2016.

436 ATO, ‘RDR Executive Submission: RDR – Complaints Resolution’ (11 March 2016).

437 Above n 387, para [16].

438 Ibid, para [19].

439 Commissioner of Taxation, Annual Report 2010-11 (2011) p 107; Commissioner of Taxation, Annual Report. 2011-12 (2012) p 95; Commissioner of Taxation, Annual Report 2013-14 (2014) p 75.

440 ATO, ‘Your Case Matters – 3rd ed’ (March 2013) <www.ato.gov.au>, pp 34–35.

441 ATO, ‘Litigation – our costs’ (19 May 2014) <www.ato.gov.au>.

442 ATO, ‘Legal Services Directions 2005, Compliance Certificate Checklist’ for 2013-2015.

443 OLSC, ‘Compliance and reporting’ (undated) <www.ag.gov.au>.

444 Above n 440, p 35.

445 Commissioner of Taxation, Annual Report 2013-14 (2014), p 75.

446 IGT discussion with the ATO, 14 July 2016.