BY ANNA HUGGINS
The recent Full Federal Court decision in Pintarich v Deputy Commissioner of Taxation (‘Pintarich’) raises questions about the extent to which traditional administrative law doctrines are still fit for purpose in the digital age. In this case, a taxpayer received a computer-generated letter from the Australian Taxation Office (ATO) ostensibly waiving most of the general interest charge (GIC) on a tax debt. The ATO subsequently advised the taxpayer that he was, in fact, liable to pay additional GIC as the letter had been issued in error. The taxpayer unsuccessfully applied to the Federal Court for judicial review. On appeal, the majority of the Full Federal Court found that no decision had been made as the automated letter was not accompanied by the requisite mental process of an authorised officer.
In October, the High Court refused the taxpayer’s application for special leave on the basis that the proposed appeal had insufficient prospects of success. This unsuccessful special leave application represents a missed opportunity for the High Court to consider whether traditional understandings of administrative decision making need to be reconsidered in the light of the government’s increasing reliance on automated processes. The Australian Government now has a whole-of-government vision for digital transformation, which aims to use automated systems to eliminate almost all manual processing and case management, reducing the need for bespoke systems. Traditional administrative law doctrines may need to evolve in order to continue to provide meaningful protections for individuals in this context.
The case of Pintarich will have implications for the reliance that Australian taxpayers can place on computer-generated correspondence from the ATO. It raises interesting and complex questions about when an authorised officer makes a decision, and whether traditional conceptions of what constitutes a decision are still appropriate in the digital era. It also highlights the impact of unreviewable errors in automated processes on public trust and confidence in government decision making, and the challenges of using administrative law to scrutinise such processes.
What constitutes a ‘decision’?
Before exploring the broader implications of automated administrative decision making, the findings in Pintarich warrant closer examination. The facts of this case are that the taxpayer, Mr Pintarich, had failed to file timely tax returns for his income between 2010 and 2013. On 10 November 2014, the Deputy Commissioner of Taxation (‘Deputy Commissioner’) issued a statement of account for outstanding tax liabilities of $1.16 million. This figure comprised primary tax of approximately $821,000 and GIC of approximately $335,000. Two weeks later, Mr Pintarich’s accountant wrote to the ATO on behalf of his client seeking a full waiver of the GIC. Mr Celantano had been authorised to exercise certain powers in the position of Deputy Commissioner, and was allocated Mr Pintarich’s request for remission of GIC. During a subsequent phone conversation between Mr Pintarich and Mr Celantano in early December 2014, a payment arrangement was discussed. Each party had a different understanding of whether the payment arranged was inclusive of the total tax liability, including the GIC, or whether the question of remitting the remainder of the GIC was still to be considered.
Following a further conversation with Mr Pintarich’s accountant, on 8 December 2014, Mr Celantano ‘keyed in’ information into a computer-based template that automatically generated a letter from the ATO (the December 2014 letter). The letter was headed ‘Payment arrangements for your Income Tax Account debt’, and bore the signature block of the Deputy Commissioner. Relevantly, the letter stated:
Thank you for your recent promise to pay your outstanding account. We agree to accept a lump sum payment of $839,115.43 on or by 30 January 2015.
This payout figure is inclusive of an estimated general interest charge (GIC) amount calculated to 30 January 2015. Amounts of GIC are tax deductible in the year in which they are incurred.
As this makes clear, the letter stated that the ATO was willing to accept substantially less than the $1.16 million Mr Pintarich was originally said to owe. It suggested that almost all of the interest that Mr Pintarich originally owed had been waived. Significantly, Mr Celantano did not check or review the contents of the automated letter before it was sent to Mr Pintarich. On the basis of this letter, Mr Pintarich borrowed funds from his bank and paid the ATO the sum of $839,115.43 on 30 January 2015.
There were two purported ‘decisions’ in this matter. Mr Pintarich argued that the automated correspondence was evidence of a ‘decision’ by the Deputy Commissioner to waive the remaining GIC. The second ‘decision’ was made by the Deputy Commissioner in May 2016. Applying s 8AAG of the Taxation Administration Act 1953 (Cth), the Deputy Commissioner determined that only a partial remission of the total GIC owing would be granted. From Mr Pintarich’s point of view, this later ‘decision’ was ultra vires, as the discretion under s 8AAG had already been exercised and communicated to him via the December 2014 letter. The issue before the Court, then, was whether the computer-generated letter constituted a ‘decision’ by the Deputy Commissioner to waive the remaining GIC if the taxpayer paid the agreed sum by 30 January 2015.
At first instance before the Federal Court, Mr Pintarich unsuccessfully sought judicial review of the May 2016 decision. The primary judge held that the December 2014 letter did not purport to communicate or record a decision on the application for remission of GIC, as the letter and the surrounding circumstances did not evidence the process of deliberation, assessment and/or analysis on the part of the authorised officer required for the making of a decision. Thus, the May 2016 decision was not ultra vires as no previous decision on the remission of the GIC had been made.
Mr Pintarich then appealed to the Full Federal Court which, by majority, held that the December 2014 letter did not evidence a valid ‘decision’ made by the Deputy Commissioner. According to the majority (Moshinsky and Derrington JJ), who were persuaded by the reasoning of Finn J in Semuningus v Minister for Immigration and Multicultural Affairs (‘Semuningus’), a valid decision requires two elements to be satisfied:
- there must be a ‘mental process’ of reaching a conclusion; and
- there must be an objective manifestation of that conclusion.
The majority held that a ‘natural reading’ of the December 2014 letter conveyed that the Deputy Commission agreed to accept a payment of the specified lump sum amount by 30 January 2015 in full discharge of the taxpayer’s primary tax and GIC liabilities. Despite this, they agreed with the primary judge that there was no ‘decision’ as, on the facts presented, there was no mental process to reach a conclusion by the Deputy Commissioner.
Justice Kerr in dissent agreed that the reasoning of Finn J in Semuningus is a fair representation of what is usually involved in a valid decision. However, he was sceptical of the utility of applying this reasoning in all contexts, including where decisions are made by automated ‘intelligent’ decision-making systems. He observed that: ‘What was once inconceivable, that a complex decision might be made without any requirement of human mental processes is, for better or worse, rapidly becoming unexceptional’. His Honour implied that the legal conception of what constitutes a decision may need to evolve to reflect the reality that technology is altering how decisions are made in practice. Justice Kerr also critiqued the artificiality of the majority judgment that effectively allowed the ATO to disregard part of the December 2014 letter as not being a ‘decision’, while the payment arrangement communicated in the letter was to be treated as a binding decision.
Automated processes and public trust and confidence in government decision making
The decision in Pintarich raises fairness concerns, and has potential flow-on consequences for public trust and confidence in government decision making. Indeed, the majority acknowledged that the Court’s decision may be perceived as unfair if the Commissioner could go back on what was communicated in the December 2014 letter. Moreover, they recognised that the outcome contributes to ‘administrative uncertainty’ as taxpayers and others may not be able to rely on written communications of decisions from government agencies. Similarly, Kerr J in dissent observed that the outcome of this decision is productive of ‘administrative uncertainty and confusion’.
According to the majority, these concerns were outweighed by the low probability of similar circumstances arising in the future. In contrast to the majority’s observation that the circumstances of this case are ‘quite unusual’, Kerr J observed that ‘Automated systems are already routinely relied upon by a number of Australian government departments for bulk decision making’. This latter perspective is supported by a July 2017 news article by Elvery, which compiled a list of 29 legislative provisions from 11 federal government agencies which explicitly authorise computers to make decisions on behalf of the responsible officer. Since 2010, statutory amendments have meant that certain decisions within the departments of Social Services, Health, Education and Training, Immigration and Border Protection, Agriculture and Water Resources, and Veterans’ Affairs can now be made by computers. The pace of change appears set to accelerate further with Australia likely to follow the United States in employing machine-learning algorithms and other digital decision-making tools in a broad range of administrative settings. The increasingly pervasive use of automated, ‘intelligent’ systems by Australian government agencies, and the likelihood of errors arising due to problems with the underlying coding or data inputs, calls into question the majority’s view that ‘this type of situation is unlikely to arise very often’.
Public trust and confidence in government decision making will be undermined if public officials are able to retract ‘decisions’ communicated in computer-generated correspondence, and if individuals are therefore unable to rely on this correspondence. Following the unsuccessful application for special leave to appeal to the High Court, ATO Commissioners, including Tax Commissioner Chris Jordan, appeared before Senate Estimates to discuss, among other things, the ramifications of the decision in Pintarich for Australian taxpayers. Senator Eric Abetz asked the ATO Commissioners what the agency would be doing to give assurance to taxpayers that they can rely on ATO correspondence. As Senator Abetz observed, this issue is significant as ‘People’s livelihoods are at stake’, and if the ATO makes mistakes it should ‘own up to them and not make the taxpayer suffer’. The ATO’s Second Commissioner, Neil Olesen, agreed that the fact that an automated letter was sent in error was not a good look for the agency, and that steps would be taken to ensure that future correspondence automatically generated by a computer can be relied upon.
The challenges of using administrative law to scrutinise automated processes
The outcome in Pintarich underscores the challenges of using traditional administrative law principles and precedents to scrutinise automated processes. Since 2004, there has been guidance from the Administrative Review Council encouraging the design of automated administrative systems in a way that aligns with administrative law values of lawfulness, fairness, rationality, openness and efficiency. This report catalysed the Commonwealth Ombudsman’s Office 2007 report on A Better Practice Guide to Automated Decision Making aimed at assisting Australian agencies to successfully employ automated systems. Despite this long-standing guidance, the recent high-profile controversy arising from Centrelink’s Online Compliance Intervention (OCI) system, colloquially referred to as ‘robodebt’, highlighted a disjuncture between the design of this automated system and a key principle of administrative law. Specifically, in June 2017, the Senate Standing Committee on Community Affairs produced a report that criticised this system for its ‘fundamental lack of procedural fairness’ at ‘every stage of the OCI program’.
In a related vein, in his dissenting judgment in Pintarich, Kerr J expressed concern that the majority’s decision would ‘turn on its head fundamental principles of administrative law’ if decision makers are entitled to rely on a distinction between their subjective mental processes and the objective manifestation of those processes through a ‘decision’ letter sent in his/her name. Mr Pintarich had argued that the presumption of regularity was undermined by the ATO’s decision to pursue him for GIC despite issuing a letter that on its face indicated that the remaining GIC had been waived. According to the principle of regularity, the executive’s interpretation of the law has presumptive status: ‘Where a public official or authority purports to exercise a power or to do an act in the course of his or her duties, a presumption arises that all conditions necessary to the exercise of that power or the doing of that act have been fulfilled’. Justice Kerr’s comments underscore the need for legal understandings to evolve to reflect the significant changes in administrative decision making brought about by automated processes. If administrative law doctrines are treated as static, individuals affected by errors in automated processes may be left with limited avenues for redress, further undermining public confidence in government decision-making processes.
Automated processes hold promise for enhancing the efficiency and consistency of administrative decisions, particularly in high volume decision-making contexts. However, these advantages need to be weighed against the risks to public trust in government decision making caused by computer-generated errors, for which traditional administrative law doctrines thus far appear to provide limited protection. As alluded to by Kerr J in his dissenting judgment in Pintarich, a preferable outcome is for legal conceptions of what constitutes a decision and other administrative law doctrines to evolve to reflect the reality of how decisions are made in practice in the digital age. Mr Pintarich’s unsuccessful appeal to the High Court represents a missed opportunity to further consider what constitutes a decision in an evolving administrative decision-making context.
 Minister for Natural Resources v New South Wales Aboriginal Land Council (1987) 9 NSWLR 154, 164 (McHugh J).
Anna Huggins is a Senior Lecturer at Queensland University of Technology.
Suggested citation: Anna Huggins, ‘Automated Processes and Administrative Law: The Case of Pintarich’ on AUSPUBLAW (14 November 2018) <https://auspublaw.org/2018/11/the-case-of-pintarich/>.