Attorney-General George Brandis has been plunged into fresh controversy over his dealings in a High Court dispute involving the failed Bell Group of companies, after senior Tax Office officials revealed they sought legal advice because they were "concerned" he would shut them out of the case.
A parliamentary inquiry, set up by Labor with the support of the crossbench, is examining whether Senator Brandis struck a secret political deal with the Western Australian government about the carve-up of the Bell Group's assets.
The alleged deal would have allowed the conservative WA government to leapfrog the ATO and other creditors to recoup almost $1 billion from the companies.
But the alleged arrangement was contrary to federal tax laws and was ultimately ruled invalid by the High Court.
At a parliamentary hearing on Monday night, Tax Office second commissioner Andrew Mills said the ATO had heard "bureaucratic whispers" that Senator Brandis might issue a legally binding direction stopping the ATO intervening in the High Court case.
Mr Mills said the ATO was "concerned" that "we really should be in a position to know how we should respond in that situation" if the rumours were accurate and "so we began to seek whether or not it was possible to obtain [legal] advice in relation to that".
Robert Puckridge, assistant commissioner of the tax counsel network, said the rumoured direction would have put the ATO in an "invidious position".
Mr Puckridge said "legal advice was sought" on March 4 last year but advice was "never given" as it "became apparent no advice was necessary". Senator Brandis told Mr Mills on March 7 no direction would be issued.
Mr Mills told a previous hearing of the inquiry that the ATO had "upheld [its] position as an independent administrator and independence in our decisions throughout the course of this matter".
"Neither the commissioner nor I, or any other decision-maker in the ATO, were lent on by a minister or their office or directed to do anything other than what we did," he said on December 7 last year.
Senator Brandis has denied he instructed former solicitor-general Justin Gleeson, SC, not to point out legal flaws in WA laws allowing the state government to leapfrog other creditors, after a challenge was mounted by creditors in the High Court.
Mr Gleeson ultimately appeared in the High Court for both the ATO and the Commonwealth and argued the laws were contrary to federal tax laws and constitutionally invalid. The High Court agreed.
After the hearings in the Bell Group case concluded, Senator Brandis issued a controversial direction preventing ministers and government departments including the ATO seeking Mr Gleeson's advice without his written approval.
The Bell Group case has been cited as the pivotal moment in the breakdown in the relationship between the two men.
Mr Gleeson sensationally resigned as the government's chief independent legal adviser on October 24, saying his relationship with Senator Brandis was "irretrievably broken".
Senator Brandis and his department have been asked repeatedly in the Bell Group inquiry if he tried to issue a binding direction stopping the ATO from intervening in the case.
He has previously told the Senate he ultimately accepted Mr Gleeson's advice that the Commonwealth should intervene in the Bell Group case along with the ATO.
His department has relied on public interest immunity grounds in declining to answer questions about whether he contemplated issuing a direction to stop the ATO intervening in the case.
Senator Brandis said on March 8 he "agree[d] with the objection made" and did not answer the question.
Documents obtained by the opposition under freedom of information suggest such a direction was contemplated.
"Possible Attorney-General's direction under the Judiciary Act," reads the subject line of an email sent by Mr Mills to Commissioner Chris Jordan and others last year.
Comment was sought from the Attorney-General.
