Commissioner of State Revenue v MMK Cameroon Pty Ltd
[2001] VSC 239
•24 July 2001
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMON LAW DIVISION
No. 5978 of 2001
| THE COMMISSIONER OF STATE REVENUE (in his capacity as the Comptroller of Stamps) | Plaintiff |
| v | |
| MMK CAMEROON PTY LTD (ACN 079 979 981) (Administrator Appointed) formerly known as TQM LEGAL & ACCOUNTING PTY LTD | First Defendant |
| and | |
| KEITH FERNANDEZ (also known as KEITH JONATHAN FERNANDEZ) | Second Defendant |
| and | |
| MICHAEL KELLY | Third Defendant |
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JUDGE: | Gillard J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 16 July 2001 | |
DATE OF JUDGMENT: | 24 July 2001 | |
CASE MAY BE CITED AS: | The Commissioner of State Revenue v MMK Cameroon Pty Ltd and Ors | |
MEDIUM NEUTRAL CITATION: | [2001] VSC 239 | |
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Revenue – Stamps Act 1958 – application pursuant to s.40 – principles to apply – show cause – privilege against self-incrimination not applicable to operation of section.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr N. Luccarelli QC with Mr D.J. Williams | Solicitor to the Commissioner of State Revenue |
| For the First Defendant | Mr R. White (Solicitor) | White Cleland Pty |
| For the Second Defendant | Mr T. Artemi | Randles Cooper & Co Pty Ltd |
| For the Third Defendant | Mr J.P. Brett | Patrick Dwyer |
TABLE OF CONTENTS
Parties................................................................................................................................................... 2
Section 40 and the Proceeding......................................................................................................... 3
Second Stage....................................................................................................................................... 6
Conclusion......................................................................................................................................... 15
HIS HONOUR:
Before the Court is a summons filed in a proceeding, instituted by originating motion, in which the Commissioner of State Revenue seeks orders, to the effect of calling upon the defendants to show cause, why each should not deliver to him an account upon oath of all duties and sums of money received by the defendants and payable to the Comptroller of Stamps.
The application is made pursuant to s.40 of the Stamps Act 1958 ("the Act").
Parties
The plaintiff, the Commissioner of State Revenue (in his capacity as the Comptroller of Stamps) ("the Commissioner"), is responsible for collecting fees, duties et cetera payable to the Crown.
The first defendant, MMK Cameroon Pty Ltd ("the company"), was formerly known as TQM Legal & Accounting Pty Ltd and carried on the business of providing, inter alia, conveyancing-type services. The company, between 2 December 1997 and 17 October 2000, was authorised by the Commissioner to endorse instruments with stamp duty, pursuant to the Act, on behalf of the Commissioner. The Act required the company to fully account for and to pay to the Commissioner moneys in respect of all stamp duty endorsed by the company.
The company was incorporated on 5 September 1997, and its two directors are the second defendant, Keith Jonathan Fernandez ("Mr Fernandez") and Michael Andrew Magness. The latter played a small role in the conduct of the business.
The company employed, as its office manager, the third defendant, Michael Kelly ("Mr Kelly").
The evidence revealed that Messrs Fernandez and Kelly were employed full-time in the business conducted by the company.
Section 40 and the Proceeding
On 28 May 2001, the Commissioner instituted the proceeding pursuant to s.40 of the Act.
It is necessary to set out in full, the provisions of s.40, namely –
"40. Failure to appropriate moneys received as duty
(1)Every person who having received any sum of money as or for the duty upon or in respect of any instrument neglects or omits to appropriate such money to the due payment of such duty or otherwise improperly withholds or detains the same shall be accountable for the amount of such duty, and the same shall be a debt due from him to Her Majesty and recoverable as such accordingly.
(2)The Supreme Court may upon application, made for that purpose on behalf of the Comptroller of Stamps upon such affidavit as appears sufficient, grant an order requiring any such person as aforesaid or the officer of any court or the executor or administrator of such person or officer to show cause –
(a)why he should not deliver to the Comptroller of Stamps an account upon oath of all duties and sums of money received by such person or officer; and
(b)why the same should not be forthwith paid to the Comptroller of Stamps or to such other person as the Comptroller of Stamps appoints to receive the same.
(3)The Court may make absolute any such order and enforce by attachment or otherwise the payment of any such duties or sums of money as on such proceedings appear to be due together with the costs of the proceedings."
The section is concerned with two discrete matters.
The first is concerned with the obligation to account and the creation of a debt, and the second is a three stage procedure to establish the amount owing and an order for payment.
In order to establish the obligation to account and the creation of a debt, it is necessary to prove –
(i)that a person has received a sum of money;
(ii)that the sum of money is duty upon or in respect of an instrument;
(iii)that the person neglects or omits to appropriate the money in payment of duty, or otherwise improperly withholds or detains the money.
If those matters are established, there is an obligation upon the person who receives the money to account for the duty, and a debt is created payable by the person to the Crown.
Once the obligation to account is established, it triggers the three stage process which may ultimately lead to the payment of the amount.
The first stage occurs when the Court is satisfied, upon sufficient affidavit material, that an order should be made, and makes an order against the person receiving the duty to show cause, why he should not deliver to the Commission an account upon oath of all duties and sums of money received by him and why the same should not be paid to the Comptroller of Stamps.
The second stage occurs after the order is made under the first stage and the person, against whom the order is made, fails to show cause. An order is then made, requiring him to deliver, to the Commissioner, an account upon oath of all duties and sums of money received.
The third stage occurs after compliance with the second stage, when the Court is satisfied that an order should be made requiring the person to pay the amount of duty which appears to be due. The Court may enforce any such order by attachment or otherwise.
The first stage of the process came on for hearing before me on 19 June 2001, and after considering the affidavit material filed by the Commissioner and the affidavit material filed on behalf of the defendants, who at that stage were represented by a solicitor, Mr M.W. Gerkens, the Court made orders requiring each defendant to show cause, why it and he should not deliver to the Commissioner an account upon oath of all duties and why the same should not be paid forthwith to the plaintiff.
On that occasion, Mr Gerkens put a number of submissions to the Court opposing the order, and after considering the submissions, I made the orders. None of his submissions went to the merits. I refer to my reasons for rejecting his submissions, which had all the hallmarks of delay tactics. The affidavit material filed on behalf of the Commissioner established the elements of proof placing an obligation upon each of the defendants to account.
The affidavit material established that the company, during the period from 12 January 1998 to 17 October 2000, received sums of money totalling in excess of $5M which it failed to account for to the Comptroller of Stamps. The evidence also established that Messrs Fernandez and Kelly personally received some of the money which the company had failed to account for.
The affidavit material filed on behalf of the defendants comprised an affidavit of Mr Fernandez and two affidavits of the defendants' then solicitor.
The affidavit of Mr Fernandez stated that he had read the affidavit of Brian Kenneth Wearne sworn 25 May 2001, which was the main affidavit in support of the application, and Mr Fernandez deposed –
"I do not agree with the conclusions drawn by the deponent about the amount of moneys unpaid and intend to contest the substantive orders sought by the plaintiff. I am informed and verily believe that the third named defendant will do likewise."
The balance of his affidavit referred to the volume of documents and the difficulties he faces in considering the voluminous material and verifying the contents. He also stated that he was disturbed by the fact that the matter had been referred to the Victorian Police for investigation, and gave notice that he intended to rely upon his common law privilege against self‑incrimination whenever possible. He understood the third defendant would do likewise.
The two affidavits of the solicitor did not address any of the issues going to the merits.
Accordingly, at that stage I was satisfied of the obligation to account, and was further satisfied that an order should be made calling upon the defendants to show cause why they should not deliver an account upon oath of all duties and sums of money received by them, and why the same should not be forthwith paid to the plaintiff.
Second Stage
What is now before the Court is the second stage of the process.
Although none of the defendants placed any material before the Court on the first occasion, contesting any of the elements of proof establishing the obligation to account, in my opinion, it is open to each defendant, at this second stage of the process, to contest any matters establishing the obligation to account or to raise any matter which would show cause, why each should not be obliged to deliver an account upon oath of all duties and why the same should not be paid.
At the second hearing, Messrs Fernandez and Kelly had retained new solicitors and each was represented by Counsel. Neither filed any material in answer to the relief sought by the Commissioner that each account upon oath for all duties and sums received by them and why the same should not be paid to the plaintiff.
The order made on 19 June 2001, being the first stage of the process, provided –
"1.The defendants show cause, by the filing and service of an affidavit or affidavits on or before 5 July 2001, why:
(a)the defendant should not deliver to the plaintiff an account upon oath of all duties and of all sums of money received by that defendant as and for the duty upon or in respect of any instrument pursuant to the Stamps Act 1958; and
(b)the same should not be forthwith paid to the plaintiff or to such other person as the plaintiff appoints to receive the same."
On 12 July 2001, the day before the hearing of the second stage, the directors of the company appointed an administrator pursuant to s.436A(1) of the Corporations Law. The two directors, namely, Mr Fernandez and Mr Magness, had concluded that the company was either insolvent or likely to be insolvent, and resolved that an administrator be appointed. It appears, from the list of creditors, that the indebtedness of the company was $35,346.67. The Commissioner is not noted as a creditor of the company. The administrator, Mr Anthony Cant, appeared at the second stage represented by Mr White, solicitor, who raised the question of the right of the Commissioner to proceed with the application. He drew the Court's attention to the provisions of s.440D(1) of the Corporations Law which precluded the continuation of the proceeding, during the administration of a company, except with the administrator's written consent or with the leave of the Court.
The second stage came on for hearing late on Friday 13 July 2001 because of court business that day, and I made it very clear that there was a strong inference, especially in light of the arguments put by Mr Gerkens on the first occasion, that the appointment of the administrator was nothing more than a device to stop the Commissioner. Mr Luccarelli QC, who appeared with Mr D.J. Williams for the Commissioner, submitted that the Court should grant leave to continue with the proceeding, and I made it fairly clear that I would do so. On the resumption, on Monday 16 July 2001, Mr White did not oppose leave being granted to continue with the proceeding.
Despite the absence of any evidence contesting any of the factual matters relied on by the Commissioner, Counsel for Messrs Fernandez and Kelly submitted that the Court, in any event, should not make an order requiring their respective clients to deliver to the Commissioner an account upon oath of all duties and sums received.
Mr White, acting on behalf of the administrator, did not oppose an order that the company should give an account upon oath, and Mr Luccarelli QC submitted that the order should be directed to the two directors of the company, Messrs Fernandez and Magness, to provide the account upon oath, on behalf of the company, and no opposition was raised to that proposed order.
The evidence relied on by the Commissioner established that Mr Fernandez was a director and an employee of the company, who was involved in many of the transactions in which duty was paid, and that he was a person who received sums of money for duty in respect of instruments, and failed to pay the sums to the Commissioner. Mr Fernandez did not place any evidence before the Court contesting those factual matters or the inferences that can be properly drawn from that evidence.
Mr Artemi of Counsel submitted that the evidence did not establish the elements of proof which place the obligation to account, but did not amplify on the submissions and in my opinion, it is clear that on that evidence, the Commissioner has established the obligation to account and the creation of a debt.
The question is, at the second stage, has Mr Fernandez shown cause why he should not deliver to the Comptroller of Stamps an account upon oath of all duties received by him and why the same should not be paid to the Comptroller?
The other ground relied upon by Mr Artemi was that requiring Mr Fernandez to provide an account, upon oath, may incriminate him and accordingly, the privilege against self‑incrimination was an answer to the order being made.
Mr Artemi referred to a number of authorities.
In Reid v Howard and Others (1995) 184 CLR 1, former clients of an accountant, having learned that he was misappropriating funds, applied for orders in the Supreme Court of New South Wales to compel him to disclose information. The accountant claimed privilege against self-incrimination. The Court of Appeal in New South Wales accepted the claim for privilege, but made orders compelling disclosure upon conditions intended to protect him from the risk of prosecution. The Crown was not a party to the making of the order.
In the joint judgment of Toohey, Gaudron, McHugh and Gummow JJ, at p.12, their Honours said –
"As already indicated, the appellant's statement to the police has not resulted in the laying of criminal charges. Almost certainly, that is because it lacks detailed particulars of his misappropriations. There can be no doubt the disclosure of the assets upon which the appellant 'applied … moneys or property entrusted to him' by the respondents and, in respect of each of those assets, 'the amount of any moneys and the identity of any property' applied in its acquisition, as required by the various orders which have been made against him, would place him in greater 'peril … of being convicted as a criminal' than the perfectly general admission of fraudulent misappropriation contained in his statement to police. Thus, he is entitled to claim the privilege unless he falls within an exception of the kind contended for by the respondents in the Court of Appeal.
The privilege against self-incrimination may be abridged by statute or waived but, that aside, it has generally been accepted that it is without 'real exception'."
(Emphasis added).
The High Court allowed the appeal and set aside the orders made by the Court of Appeal.
It is clear that the privilege against self-incrimination may be abrogated by the provisions of the statute, express or implied.
Mr Artemi also relied upon the House of Lords decision of Rank Film Distributors Ltd v Video Information Centre (1982) AC 380. The House of Lords, in that case, upheld the privilege in a case where it was alleged that the defendants were making and selling video cassette copies of films in breach of copyright. It was held that the defendants were entitled to rely on the privilege against self-incrimination in the discovery process or by answering interrogatories, since if they complied with orders of that nature, there was in the circumstances a real and appreciable risk of criminal proceedings for conspiracy to defraud being taken against them.
It was submitted that the principle was a well-established principle of the law, and that in the absence of waiver or abridgement by statute, applied to the present proceeding. Emphasis was placed upon the well-established principle that if the Legislature intended to abrogate a common law right, it had to do so in clear, unequivocal language. Reference was made to the well-known passage in Potter v Minehan (1908) 7 CLR 277 at 304, where O'Connor J quoted with approval what was said in Maxwell on Statues, 4th ed. at p.122, namely –
"It is in the last degree improbable that the Legislature would overthrow fundamental principles, infringe rights, or depart from the general system of law, without expressing its intention with irresistible clearness; and to give any such effect to general words, simply because they have that meaning in their widest, or usual, or natural sense, would be to give them a meaning in which they were not really used."
Mr Artemi drew attention to s.168AA(1A) of the Act which specifically dealt with the obligation to comply with a notice even though it might tend to incriminate the person. It is noted that the section 166AA was inserted in 1986 and sub-section (1A) was inserted in 1988.
Section 40 was passed in 1879 in the Colony of Victoria. It was then s.49 of the Stamp Duties Act 1879.
Mr Artemi submitted that the fact that there was nothing in s.40 concerning the principle of self-incrimination, it must follow that the Legislature did not intend to abrogate the right. However, in my opinion, the fact that in 1986, the Legislature thought it appropriate to refer to the matter does not, in my opinion, in any way indicate what the Legislature intended in 1879.
The Act of 1879 was based upon English legislation which also contained a provision similar to the then s.49.
Mr J. Brett of Counsel, for Mr Kelly, drew attention to the antiquity of the provision, and the fact that there is only one reported decision on its application. He suggested that the provision was ineffectual and the Commissioner should have proceeded by some other means. This was similar to an argument put by Mr Gerkens on the first occasion, which I rejected.
The mere fact that it is an ancient piece of legislation and there is only one reported case on its application seems to me to be of little moment. The one reported case is a decision of the Outer House in Scotland in Lord Advocate v Gordon (1901) Sc LT 439, where there was some discussion of the United Kingdom equivalent of the section. The report did not discuss the question of self-incrimination.
The English Act was the Stamp Act 1870, 33 and 34 Vict c 97.
In order to determine the intention of Parliament, it is necessary to go back to the Stamp Duties Act of 1879. There is nothing in that Act which expressly refers to the privilege of self-incrimination.
In considering whether or not the privilege applies in answer to an application under s.49 of that Act, it is necessary to consider the object of the provision.
Under s.7 of that Act, various persons were appointed to sell and distribute stamps in Victoria, and they included every Post Master, officers in the Registrar‑General's office, and any manager of a banking company. In addition, under s.8, the Minister had the authority to license persons to deal in stamps.
Part IV dealt with general regulations, and the sections were concerned with how instruments were to be written and stamped, how they were to be charged for duty, and the means of ascertaining the duty. Section 49 was one of the recovery provisions, and dealt with moneys received and not appropriated to the Comptroller of Stamps.
Bearing in mind the number of outlets available in the Colony of Victoria selling stamp duty, it was necessary to ensure that proper accounting was kept, and that there were means requiring a person to account to the Comptroller of Stamps for any sum of money or duty received.
If the principle against self-incrimination applied to any application under s.49, the purpose of the provision would be severely curtailed and render the provision practically valueless. In many cases where an account is sought, there would be a real suspicion that the failure to account was due to some dishonest conduct. However, the obligation to account does not depend upon proof of any wrongdoing. This is clear from the provisions of s.49(1), now s.40(1). The case of Lord Advocate v Gordon, supra, made that clear where Lord Stormonth Darling said, at p.439, after noting that the person had retained the sum of £10 of his client's money for some three years even though he had promised to pay the duty –
"If that be so, the only other question is whether he has improperly withheld or detained it and the word here to be construed is the word 'improperly'. The word is not 'dishonestly'. It is not necessary for the Crown to make out a case of embezzlement, and they do not allege that, but they say that for a law agent to retain in his own hands for nearly three years a sum which he has represented to his client as having been paid, or as about to be paid, to the government, and which the government are entitled to, is an improper withholding or detention. In this view I entirely agree. There is no possible excuse for the defendant not having settled the government duties at the time."
I may interpolate to observe that the question of privilege against self‑incrimination was not raised in that case.
Mr Luccarelli relied upon the High Court decision of Mortimer v Brown (1970) 122 CLR 493. In that case, a person was required to attend a public examination under s.250 of the Companies Acts 1961-1964. The examinee sought to decline to answer a question on the ground that the answer may tend to incriminate him. The Judge hearing the examination ordered the examinee to answer the question, the Full Court of Queensland agreed with him, and the examinee applied for special leave to appeal to the High Court.
At p.496, Kitto J said –
"But however this may be, on the question that is now before us the circumstance which I find compelling is that the evident purpose of the section, primarily even if not wholly, is to enable a suggestion of fraud or concealment of a material fact to be fully investigated by means of a public examination of certain classes of persons. Such a question in its nature must frequently involve consideration of evidence tending to incriminate individuals. To read down the wide terms of the section so as to allow a danger of self-incrimination as a valid ground for refusing to answer a question would render the provision relatively valueless in the very cases which call most loudly for investigation."
(Emphasis added).
Walsh J, with whom the other members of the Court agreed, at p.499, referred to what Windyer J said in Rees v Kratzmann (1965) 114 CLR 63 at 80 –
"The honest conduct of the affairs of companies is a matter of great public concern today. If the Legislature thinks that in this field the public interest overcomes some of the common law's traditional consideration for the individual, then effect must be given to the statute which embodies this policy."
Walsh J then went on to say –
"This view, with which I am in respectful agreement, means that, having regard to the purpose of s.250 and to the public interest which it is intended to serve, the contention should not be accepted that there should be applied to its construction the principle that a statute should not be construed as being intended to take away common law rights unless that intention is specifically stated."
In my opinion, taking into account what is clearly the purpose of s.40 of the Act, and the public interest which that section is obviously intended to serve, namely, the payment of all moneys due to the Crown being paid to the Crown, it is my opinion that it was the intention of the Legislature that the principle against self-incrimination had no application. To allow the principle to apply to an obligation to account for moneys received, would render the provision practically valueless and defeat its purpose.
In my opinion, the privilege against self‑incrimination is no answer to the obligation to account upon oath for all duties or sums of money received and why the same should not be paid to the Comptroller.
I reject the submissions put on behalf of Mr Fernandez. In my opinion, he has not shown cause why he should not deliver to the Comptroller an account upon oath of all duties received and why he should not pay the duties to the Comptroller.
This brings me to the position of Mr Kelly. He is not, and has never been, a director of the company. However, he was the office manager and was involved in the day to day activities of the company.
Mr Brett submitted that it was inappropriate to make an order under the section, and emphasised the antiquity of the section and the fact there is only one reported case. He suggested that the procedure was antiquated, ineffectual and should not be used. I note his observations, but in my view they are irrelevant to this application. The Commissioner has decided to go down this path and, through Counsel, has frankly admitted that the Office is in the dark as to the total amounts which have been received by the defendants and which should have been paid to the Comptroller of Stamps.
The main argument put forward by Mr Brett, on behalf of Mr Kelly, was that the latter was a mere employee, and the evidence did not establish that he had received any sum of money as duty or for the duty in respect of any instrument. He submitted that on the evidence, one should infer that he received the money purely and simply as an employee of the company, and that the company in fact received the money.
Mr Kelly did not place any evidence before the Court concerning his position with the company and what he did. In particular, there is no evidence as to receipts of moneys and what was done with moneys that he received as an employee. I accept the submission of Mr Brett that the failure to give evidence does not fill any gaps in the evidence, relied upon by the Commissioner, but nevertheless the failure to give evidence in circumstances where an inference is open or in circumstances where one would expect an explanation from a witness, entitles the Court to draw inferences and be bold in doing so – see Jones v Dunkel (1959) 101 CLR 298 and Weissensteiner v The Queen (1993) 178 CLR 217.
I am satisfied on the evidence relied upon by the Commissioner, that Mr Kelly did receive sums of money which were for duty in respect of instruments and that he has failed or neglected to appropriate such money for payment to the Comptroller.
The evidence established that he was one of two persons responsible at the company for endorsing instruments, that he assisted in the preparation of weekly statements lodged at the Commissioner's office, that he handled the day to day running of the company's business, that he did most of the endorsing of instruments, that he personally made cash withdrawals from a trust account, and that he signed a significant number of cashed cheques used to withdraw funds from the trust account. It is clear that some of the duty that was received by the company was paid into that trust account. In addition, some of the funds that were withdrawn from the trust account were to make payments on credit cards.
In my opinion, there is evidence leading to the inference that Mr Kelly did receive money in circumstances where he should have accounted to the Comptroller. He has not sought to contest that evidence.
Further, he has not shown cause why the order should not be made against him to account.
There was some suggestion that since the administrator was in the process of taking possession of the books of account and records, that it would be very difficult for Mr Kelly to comply with any order. That, in my view, does not establish any basis for refusing to make the order.
Mr Brett also relied upon the principle of self-incrimination, but for reasons which I have already stated, I reject the submission.
Conclusion
The main issue on the second stage hearing is whether any of the defendants have shown cause why it or he should not deliver to the Comptroller of Stamps an account upon oath and why the duty should not be paid to the Comptroller of Stamps.
The company, as first defendant, did not seek to show cause and through the administrator, consents to the order. The other two defendants, in my opinion, have failed to show cause and accordingly, the orders should be made.
Subject to submissions from Counsel, I propose to make the following orders –
(i)The plaintiff have leave pursuant to s.440D of the Corporations Law to continue this proceeding against the first defendant.
(ii)By 4.30 p.m. on 7 August 2001, the first defendant by its directors, deliver to the plaintiff an account on oath of all duties and sums received by it since 1 December 1997, as and for duty upon or in respect of any instrument pursuant to the Stamps Act 1958.
(iii)By 4.30 p.m. on 7 August 2001, the second defendant deliver to the plaintiff an account on oath of all duties and sums of money received by him since 1 December 1997, as and for duty upon or in respect of any instrument pursuant to the Stamps Act 1958.
(iv)By 4.30 p.m. on 7 August 2001, the third defendant deliver to the plaintiff an account on oath of all duties and sums of money received by the third defendant since 1 December 1997, as and for duty upon or in respect of any instrument pursuant to the Stamps Act 1958.
(v)That the further hearing of the proceeding be adjourned to 10 August 2001 at 10.30 a.m. in the Practice Court.
(vi)That the costs of the hearing on 13 and 16 July 2001 be reserved.
(vii)That the plaintiff's solicitors draw up this order and it be signed by a Judge pursuant to Rule 60.04(1) of the Rules of Court.
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