Hohnen v Hopkins
[2020] WADC 98
•2 JULY 2020
JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA
IN CIVIL
LOCATION: PERTH
CITATION: HOHNEN -v- HOPKINS [2020] WADC 98
CORAM: GLANCY DCJ
HEARD: 3-7 FEBRUARY 2020
DELIVERED : 2 JULY 2020
FILE NO/S: CIV 3686 of 2017
BETWEEN: MARK AINSWORTH HOHNEN
CATHERINE ANNE HOHNEN
Plaintiffs
AND
RICK GAVIN HOPKINS
Defendant
Catchwords:
Claim for damages for losses suffered as a result of tax advice given by former accountant - Negligence - Breach of contract
Legislation:
Income Tax Assessment Act 1936 (Cth)
Income Tax Assessment Act 1997 (Cth)
Result:
Plaintiffs' claim dismissed
Representation:
Counsel:
| Plaintiffs | : | Mr G M Abbott |
| Defendant | : | Mr P G McGowan |
Solicitors:
| Plaintiffs | : | Armeli & Molony Lawyers |
| Defendant | : | DLA Piper |
Case(s) referred to in decision(s):
Fox v Percy [2003] HCA 22; (2003) 214 CLR 118
Girgis v Poliwka (No 6) [2019] WASC 230
John Holland Ltd v Kellogg Brown & Root Pty Ltd [2015] NSWSC 451
GLANCY DCJ:
1. Introduction
1.1 Parties
The plaintiffs in this action are Mr Mark Hohnen and his wife Mrs Catherine Hohnen. The defendant is their former accountant, Mr Rick Hopkins.
1.2 Nature of the claim
The plaintiffs' claim for loss and damages suffered as a result of negligent advice which they claim was given by the defendant to Mr Hohnen and his in‑house accountant Ms Janis Sawyer, in connection with the tax planning done towards the end of the 2012 financial year and the lodgement of their 2012 tax returns. In the alternative, they claim that the loss and damage was occasioned by reason of breach of an implied term of the contract between the parties that the defendant would use all reasonable skill and care in carrying out that work and that his tax advice and the tax returns prepared for the plaintiffs would be correct and in accordance with the Income Tax Assessment Act 1997 (Cth) and the Income Tax Assessment Act 1936 (Cth).
1.3 Outcome
For the reasons set out below, the plaintiffs have not satisfied me on the balance of probabilities that the advice was given. I am, therefore, unable to find that the defendant caused the plaintiffs' loss and damage. Accordingly, I find in favour of the defendant in this action.
For the sake of completeness, in the event that I am wrong about the issue of causation, I would have assessed the first plaintiff's damages in the sum of $205,103.50 and those of the second plaintiff in the sum of $155,903.93.
2. Issues in Dispute
2.1 Statement of claim
The writ of summons and statement of claim was filed on 10 October 2017.
The details of the contractual relationship between the plaintiffs and the Mark Hohnen Family Trust and the defendant are pleaded. It is said that it was an implied term of those contracts that the defendant would use all reasonable care, skill and diligence in the performance of those contracts to ensure that the plaintiffs complied with their obligations under the Income Tax Assessment Act 1997 (Cth) and the Income Tax Assessment Act 1936 (Cth).[1]
[1] Minute of proposed amended statement of claim, par 10.
It is also pleaded that the defendant owed the plaintiffs a duty of care requiring him to exercise all reasonable care, skill and diligence as an accountant in the preparation of accounting advice, taxation liability advice, income tax returns and special purposes financial statements and to take proper care that those things would be correct and in accordance with the Income Tax Assessment Act 1997 (Cth) and the Income Tax Assessment Act 1936 (Cth).[2]
[2] Amended statement of claim, par 11.
It is pleaded that the defendant breached that duty of care and the terms of his contract when he provided the plaintiffs with oral advice that if they entered into an arrangement, the details of which are set out below (Arrangement), the payment to them of $2.1 million by Mr Meagher would not need to be declared in their tax returns which they then relied upon when their tax returns were submitted to the Australian Taxation Office (ATO) for the financial year ending 30 June 2013.[3]
[3] Amended statement of claim, par 14.
It is claimed that as a consequence of their reliance on the advice the plaintiffs have suffered loss and damage: Mr Hohnen in the amount of $206,092.82 and Mrs Hohnen in the amount of $159,181.53.[4]
2.2 Amendment of statement of claim at trial
[4] Amended plaintiffs' particulars of damage, pars 1 - 2.
At the commencement of the trial the plaintiffs were given leave to amend their pleadings. The amendments made what were effectively two substantive changes to the pleadings.
First, the date on which the pleadings assert that the plaintiffs sold their shares in Oakhampton was amended from '5 March 2012' to 'on or about 29 June 2012'.[5]
[5] Amended statement of claim, pars 1(b), 2(b) and 3(b).
Second, until trial it was pleaded that Mr Hopkins' advice was given at two meetings held at his office on 14 May 2012 and 31 May 2012.[6] The pleadings were amended:
a.to specify that the meetings of 14 May 2012 and 31 May 2012 were attended by Mr Hohnen and Ms Sawyer;
b.to assert that the advice was given not just at those meetings, but also:
(i)at a meeting held on 18 June 2012 which was attended by Mr Hohnen; and
(ii)at meetings held on or around 19 June 2012 and 22 June 2012 which were attended by Ms Sawyer on behalf of the plaintiffs; and
(iii)in a telephone discussion with Ms Sawyer which took place on 28 June 2012.
[6] Amended statement of claim, par 12, particulars.
The locations where it is said that those additional meetings and telephone calls took place, the substance of the discussions and the advice given in the course of them, and the documents relied upon by the plaintiffs as providing support to the content of the discussions were also particularised for the first time in the amendments.[7]
2.3 Defence
[7] Amended statement of claim, par 12, particulars.
The fact of the pleaded contracts between the parties was admitted by the defendant.[8] However, Mr Hopkins says he did propose the Arrangement and that he did not advise Mr Hohnen or Ms Sawyer that the plaintiffs would not be liable for income tax on the payments received from Mr Meagher as part of the Arrangement.[9] He accepts that, had he done so, he would have been in breach of the contract to provide professional services which he had entered into with Mr and Mrs Hohnen.[10] He also accepts that the advice would have been negligently given had it been given as is contended by the plaintiffs.[11]
[8] Defence, pars 6 - 9.
[9] Defence, par 12.
[10] Defence, par 13.
[11] Defence, par 13.
The defendant says that as an experienced accountant, he would not endorse, suggest or participate in such an obvious and crude tax avoidance scheme and that, had he done so, it would have been obvious to any reasonable person that it would amount to tax avoidance and that the plaintiffs could not have relied upon it.[12] Specifically, it is said that the plaintiffs could not have relied upon it for two reasons. First, because Mr Hohnen was a sophisticated and experienced businessman who would have known the alleged advice was wrong and second, because Mr Hohnen was assisted in his business, accounting and taxation affairs by his in-house accountant Ms Sawyer, who, by reason of her education, training and expertise would also have known the alleged advice in respect of the Arrangement was wrong.[13]
2.4 Issues
[12] Defence, par 13.
[13] Defence, pars 21.1 - 21.2.
As can be seen from the above, the issues to be determined in this case are:
1.Did the defendant give the advice?
2.If so, did the plaintiff rely on that advice?
3.If the defendant did cause the plaintiff loss and damage losses, what is the quantum of the losses?
The defendant took no issue with the quantum of damages claimed by the plaintiffs but the losses were not agreed between the parties.
3. Witnesses and Mrs Hohnen
Four witnesses gave evidence at the trial. Mr Hohnen, his in‑house accountant and financial adviser Ms Janis Sawyer, and his long‑term friend and business associate Mr Peter Meagher gave evidence for the plaintiffs. Mr Hopkins was the only witness for the defence.
Although she is a plaintiff in these proceedings Mrs Hohnen did not give evidence at the trial. It was said in the plaintiffs' opening submissions that because Mrs Hohnen was not involved in any discussions where it was said the advice was given, she could give no relevant evidence although her 2012 tax return was prepared in a manner that was consistent with the advice given by Mr Hopkins.[14]
[14] ts 63.
The defendant accepted that the outcome in relation to Mr Hohnen's claim would be the outcome in relation to Mrs Hohnen's claim.[15]
[15] ts 325.
4. Approach to evidence
The plaintiffs contend that Mr Hopkins' advice was given orally at meetings and in phone discussions between Mr Hopkins and either one or both of Mr Hohnen and Ms Sawyer, as particularised in par 12 of the amended statement of claim. There are no contemporaneous notes made by any party to those meetings or telephone discussions which specifically record that Mr Hopkins proposed the Arrangement and advised that the payments from Mr Meagher would be able to be treated as non-taxable gifts. However, in addition to the oral evidence of their witnesses, the plaintiffs also relied upon the content of various documents, which were particularised at par 12 of the amended statement of claim, to support the assertion that Mr Hopkins gave the advice to the effect that they have alleged.
The plaintiffs nevertheless accept that the resolution of this case will depend, in significant part, upon my assessment of the honesty, accuracy and reliability of the evidence given by the witnesses.
In considering the oral evidence which was given in the course of the trial I have borne in mind that:[16]
Human memory is fallible and that that fallibility has a tendency to increase with the passage of time, particularly where disputes and litigation interfere and the process of memory become overlaid, often subconsciously, by self-interest.
[16] Girgis v Poliwka (No 6) [2019] WASC 230 [117] (Vaughan JA).
I have also had regard to the following apposite statement of Hammerschlag J in John Holland Ltd v Kellogg Brown & Root Pty Ltd:[17]
Where a party seeks to rely upon spoken words as a foundation for a cause of action, including a cause of action based on contract, the conversation must be proved to the reasonable satisfaction of the court which means that the court must feel an actual persuasion of its existence or occurrence. … In the absence of some reliable contemporaneous record or other satisfactory corroboration, a party may face serious difficulties of proof. Such reasonable satisfaction is not a state of mind that is obtained or established independently of the nature and consequences of the fact or facts to be proved.
[17] John Holland Ltd v Kellogg Brown & Root Pty Ltd [2015] NSWSC 451 [94].
I have also had regard to the High Court's view, expressed in Fox v Percy,[18] that, while the established principles regarding witness credibility continue to apply, the occasions on which these principles are regarded as critical will be reduced by coming to conclusions based on contemporary material, objectively established facts and apparent logic of events thus limiting reliance on the appearance of the demeanour of witnesses.
[18] Fox v Percy [2003] HCA 22; (2003) 214 CLR 118 [31].
5. Facts not in dispute
Many of the facts which form the backdrop to this action are not in dispute.
5.1 Mark Ainsworth Hohnen
The unchallenged evidence which I accept establishes the following in respect to Mr Hohnen's education, qualifications and business experience.
Mark Ainsworth Hohnen was born in Papua New Guinea in 1950. At the time of the trial he was 69 years of age.
Mr Hohnen did his final years of schooling at Christ Church Grammar School and after a period of time working as a jackaroo, he moved to the UK in 1969 to attend Agricultural College.[19] He cut that course short and left with a certificate in Agriculture in order to join a stockbroking firm where he then worked for about three years. He returned to Australia to take over the running of Cape Mentelle winery and others of his father's various business interests when his father became unwell. He did so through a company which held a portfolio of business interests over time including Cape Mentelle and Cloudy Bay Wines. Mr Hohnen subsequently developed Cape Mentelle and Cloudy Bay wineries with such success that they were eventually acquired by Lois Vuitton Moet Hennessy. While he was running his father's companies he also had interests in property, hotels, and Indian Ocean Resources which was a gold-mining company.[20]
[19] ts 64.
[20] ts 65.
Mr Hohnen has been a director of a large number of both private and publicly listed companies.[21] Exhibit 1:100 and exhibit 1:101 identify the companies of which Mr Hohnen had been a director or company secretary before 16 December 2019 which was the date on which those two exhibits were created. Those exhibits evidence that Mr Hohnen has been a director of 134 companies over his 40 years in business, and that at the time of trial, Mr Hohnen was a director of 16 companies, two of which were publically listed companies.
[21] ts 63; In evidence Mr Hohnen said he was unable to recall precisely of how many companies he was currently a director saying 'that’s something Janis would have to answer for me'.
Mr Hohnen has conducted his personal financial affairs through numerous vehicles. He has a superannuation fund, a family trust, a consulting company and other corporate vehicles. He makes large charitable donations.
Mr Hohnen is assisted in the management of his financial affairs by Ms Janis Sawyer. She is his in-house accountant.
From the evidence of Mr Hohnen's experience in business and the many corporate structures through which he managed his affairs and his significant financial success, I infer that Mr Hohnen has had significant engagement with the Australian tax system (albeit assisted by Ms Sawyer and various accountants) such that had Mr Hopkins proposed the Arrangement, Mr Hohnen would have at least asked questions about its lawfulness either of Mr Hopkins or Ms Sawyer. No evidence was given that he did so.
5.2 Janis Anne Sawyer
The unchallenged evidence which I accept establishes the following in respect to Ms Sawyer's education, qualifications, employment and business experience.
Janis Anne Sawyer was born in England in 1951. She migrated to Australia in 1977.[22] While she was in England Ms Sawyer completed a nine month course at Bristol technical college and then completed four years as an articled clerk with an accounting firm which resulted in her qualifying as a chartered accountant.[23] Her accounting qualification was recognised in Australia.[24] After moving to Australia Ms Sawyer completed a course by which she became qualified to register as a tax agent and she maintained that qualification until June 2011.[25]
[22] ts 139 - ts 140.
[23] ts 140.
[24] ts 140.
[25] ts 140.
Ms Sawyer obtained employment as an auditor with Coopers & Lybrand upon relocating to Australia. She worked in that firm for six years before leaving to take up a position working for Mr Hohnen as the company secretary and group accountant for Oceanic Equity in 1983.[26]
[26] ts 140.
While employed as the company secretary and group accountant for Oceanic Equity, Ms Sawyer also provided Mr and Mrs Hohnen with assistance with their personal finances. She assisted in their tax planning and in the provision of information and instructions to their accountant and she paid their bills from their bank accounts.
Ms Sawyer was paid a salary for that work until she established her own consulting firm, Janela Financial Services, in 1989.[27] Through Janela Financial Services Ms Sawyer continued to provide the same services to Mr and Mrs Hohnen and continued her appointments to positions in companies associated with Mr Hohnen. Her company charged by the hour for the consultancy services she performed. Initially the preponderance of her work was for the Hohnen Group although she also took on clients outside of the Hohnen Group.
[27] ts 188.
Since 1983 Ms Sawyer has held the role of company secretary of 23 companies.[28] She has also held the position of director of a number of those companies. Many of those companies are associated with Mr Hohnen or were so at the time she was appointed to her position.[29]
[28] Exhibit 1:106.
[29] ts 189.
Prior to relinquishing her registration as a tax agent Ms Sawyer prepared the accounts and tax returns for the companies in the Hohnen Group including Oakhampton.[30]
[30] ts 141 - ts 142.
Ms Sawyer's evidence, which I accept, was that Mr Hohnen had been very good to her over many years, including by providing her with accommodation in the UK on at least 12 occasions when she was there for both personal and business reasons.[31]
[31] ts 208 - ts 209.
In his evidence Mr Hohnen said of Ms Sawyer:[32]
She's engaged as my personal accountant, dogsbody.
[32] ts 66.
From the evidence before the court I find that Ms Sawyer is an experienced company secretary, accountant and tax agent.
The evidence also established that she had had for many years a close professional relationship with Mr Hohnen who trusted her with the day to day management of his business and personal financial affairs.
5.3 Peter Francis Meagher
The unchallenged evidence which I accept establishes the following matters of Mr Meagher.
Peter Francis Meagher is now retired. Prior to retirement Mr Meagher worked as a finance director of various companies.
Mr Meagher was awarded a Bachelor of Economics degree by the University of Western Australia in 1969. He also obtained a Bachelor of Commerce degree from that same university in about 1978. He is a member of the Australian Society of Certified Practising Accountants.[33]
[33] ts 237 - ts 238.
Mr Meagher's own accountant is Mr Glenn Montague.[34]
[34] ts 240.
Mr Meagher has known Mr Hohnen for about 30 years having been employed by Oceanic Equity from about 1980 - 1983 when Mr Hohnen was the managing director.[35]
[35] ts 238.
Mr Meagher had known Ms Sawyer for about 25 years. He knew her because she did the accounting work for Oceanic Equity during the time when he worked there with Mr Hohnen.[36]
5.4 Rick Gavin Hopkins
[36] ts 340.
The unchallenged evidence which I accept establishes the following in respect to Mr Hopkins' education, qualifications, accounting experience and his professional engagement by the plaintiffs.
Rick Gavin Hopkins graduated from the University of Western Australia in 1987 with a Bachelor of Commerce. He later obtained a postgraduate diploma at Curtin University. He also obtained a graduate diploma in applied finance and investment from the Financial Services Institute of Australasia.[37]
[37] ts 254 - ts 255.
Mr Hopkins has worked in the financial services sector since 1986. He obtained his qualifications as a chartered accountant within a couple of years of graduating and commencing work. Mr Hopkins practices predominantly in the area of tax.[38]
[38] ts 259.
Mr Hopkins has been a member of the Tax Institute since 1987 and was the Chair of the State Council of the Institute in 2017 and has held various committee positions with the Chartered Accountants Australia and New Zealand which is the overarching body for chartered accountants.[39]
[39] ts 259.
Mr Hopkins initially worked at Arthur Anderson before taking up a position at Barrington Partners in January 1993 as a manager, a position just below partner level.[40] Mr Hopkins became a partner of Barrington Partners in June 1997. Barringtons has been known by various names over time. In 2011 and 2012 Barringtons was known as Barringtons Your Business Advisors Pty Ltd. Sometime later it merged with PKF Lawler and PKF Lawler ultimately changed its name to Hall Chadwick Pty Ltd.[41]
[40] ts 255 - ts 256.
[41] ts 256.
Mr and Mrs Hohnen became clients of Mr Hopkins when their former accountant, Mr Hewitt, retired from the practice in the late 1990s. From that time until 2011 he prepared the tax returns for Mr and Mrs Hohnen, for the Mark Hohnen Superannuation Fund and for Vynben Proprietary Limited, the trustee of the superannuation fund.[42]
[42] ts 257.
Mr Hopkins has known Ms Sawyer in her capacity principally as financial advisor or in‑house accountant for Mr Hohnen for about 20 years.[43]
[43] ts 257.
Mr Hopkins took over the provision of taxation services for Oakhampton from Ms Sawyer in 2011. Oakhampton's accounting work stayed with Ms Sawyer.[44]
5.5 Oakhampton
[44] ts 258.
The unchallenged evidence[45] which I accept establishes the following matters in relation to Oakhampton.
[45] Exhibit 1:97 is a copy of the ASIC extract for Oakhampton Pty Ltd.
Oakhampton Pty Ltd was established on 10 December 1984. It was established by Mr Hohnen and Mr Meagher who are former business associates and long‑term friends in order that they could make small joint investments through it. Mr Hohnen and Mr Meagher thought that investing together through a company would ensure that they would meet regularly.
The shares in Oakhampton were held as follows:
a.Mr Meagher and his wife held 440 shares through the Peter and Olga Meagher Superannuation Fund;
b.Mr Hohnen held 150 shares;
c.Mrs Hohnen held 150 shares; and
d.the Mark Hohnen Family Trust held 360 shares.
This meant, effectively, that Mr Hohnen held, or controlled, 60% of the shares in Oakhampton. Throughout this judgment these shares are collectively referred to as the 'Hohnen shares' or the 'Hohnen interests'. Mr Meagher held, or controlled, the remaining 40%.
At all relevant times Mr Hohnen and Mr Meagher were directors of Oakhampton.
Mrs Hohnen was a director of Oakhampton in the first half of 2012. The records indicate that she ceased to be a director of Oakhampton on 18 June 2012.[46] In fact that date is not correct. The decision to resign as a director was taken at the end of June 2012, but the date of her resignation was backdated in the relevant paperwork.[47]
[46] Exhibit 1:97.
[47] Exhibit 1:28; ts 226.
At all times Ms Sawyer was Oakhampton's company secretary.[48]
[48] Exhibit 1:97.
In the early part of 2012 Oakhampton received approximately $3.7 million from the sale of shares which it had held in Kalahari Minerals Limited (Kalahari).
Oakhampton was wound up and was deregistered on 14 August 2013.
5.6 Arrangement and the plaintiffs' 2012 tax returns
The details of the Arrangement entered into by Mr Hohnen and Mr Meagher, with the assistance of Ms Sawyer, and set out below, were not in dispute.
In 2012 Mr Meagher's superannuation fund was in pension phase. In simple terms this meant that any fully franked dividends which were paid to his superannuation fund from Oakhampton would be tax free. He would also have the benefit of any franking credits declared by Oakhampton. In contrast, because of the way in which their shares were held Mr Hohnen and Mrs Hohnen would be required to pay tax on any fully franked dividends they received.
Because of his income earned through other sources in the 2012 financial year it was not thought to be financially advantageous to Mr Hohnen to receive his share of the profits held in Oakhampton in one payment before 30 June 2012. Mr Meagher, however, wished to receive the entirety of his share of the profits held by Oakhampton in the 2012 financial year.
In an attempt to reduce the Hohnens' interest's tax liability and facilitate the payment of Mr Meagher's share of the profits in Oakhampton in the 2012 tax year, Mr Hohnen and Mr Meagher agreed:
1.to sell the shares in Oakhampton held by Mr Hohnen, Mrs Hohnen and the Mark Hohnen Family Trust to the Peter and Olga Meagher Superannuation Fund for a 'nominal' sum;
2.to cause Oakhampton to declare a fully franked dividend of $2.6 million and a franking credit of $1,145,285 and to pay that dividend to the Peter and Olga Meagher Superannuation Fund prior to 30 June 2012; and
3.that Mr Meagher would then pay to Mr Hohnen a sum which equated to approximately 60% of the dividend and franking credits, less the nominal sum paid for the shares.
Mr and Mrs Hohnen would then treat the payment made by Mr Meagher as a gift. That would mean it would not be declared as income in their tax returns and would be tax free.
The Arrangement was given effect to, as follows:
a.The Hohnen shares in Oakhampton were sold to the Peter and Olga Meagher Superannuation Fund. The share transfers were executed on or around 29 June 2012 but the parties to each sale back-dated the documents so that the sales were said to have occurred on 5 March 2012, a date which preceded Oakhampton's receipt of the funds from the sale of its Kalahari shares. Ms Sawyer chose that date.
b.The parties set the nominal sum for the sale of Hohnen shares in Oakhampton as $100,000.
c.Oakhampton's tax instalment for the last quarter of 2012 was varied by the payment of an additional $600,000. This meant that Oakhampton had then paid sufficient tax in the 2012 financial year to allow it to declare a fully franked dividend in respect of the entire profit made on the Kalahari share sale.
d.Oakhampton declared a dividend of $2.6 million and a franking credit of $1,145,285 on 29 June 2012 which was paid to the Peter and Olga Meagher Superannuation Fund.
e.Mr Meagher made a payment of $2.1 million to Mr Hohnen in three instalments. $500,000 was paid on 5 July 2012, $1 million was paid on 9 October 2012 and $600,000 was paid on 5 April 2013.
A decision was also taken that Mrs Hohnen should cease to be a director of Oakhampton. That decision was made in late June 2012 although, as I have already noted above, the notice given to ASIC claimed Mrs Hohnen ceased to be a director of Oakhampton on 18 June 2012.
Mr and Mrs Hohnen submitted tax returns for the financial years ending 30 June 2012 and 30 June 2013 in which the payments received from Mr Meagher were not declared.
5.7 The tax audit
In fact, the payments received by Mr Hohnen from Mr Meagher were taxable because the Arrangement constituted:
a.an arrangement to which the Capital Gains Tax market value substitution rule (s 116-30 of the Income Tax Assessment Act 1997 (Cth)) applied;
b.arrangements that constituted a 'dividend strip' caught by the dividend stripping provisions in the general anti-avoidance provisions and the dividend was assessable without franking credits (s 177E of the Income Tax Assessment Act1936 (Cth)); and/or
c.arrangements caught by the general anti-avoidance provision operating in its own right (s 177D of the Income Tax Assessment Act 1936 (Cth)).[49]
[49] Statement of claim, par 16; Defence, par 13.
The ATO audited Mr Meagher's tax affairs and, as a result, conducted a review of Mr and Mrs Hohnen's tax affairs for the financial years ending 30 June 2011 to 30 June 2014.[50] Mr Hohnen gave evidence he was advised of the ATO's audit in September 2015.[51] Exhibit 1:74 is a copy of a letter from the ATO to Mr Hohnen confirming the review into the income tax and superannuation regulatory obligations of Mark Hohnen and associated entities dated 11 January 2016. Exhibit 1:80 is a letter dated 27 May 2016 from the ATO advising Mr Hohnen that the review had been escalated to an audit.
[50] ts 90 - ts 91.
[51] Exhibit 1:41; ts 91.
Mr and Mrs Hohnen engaged Mr Ken Schurgott to provide them with legal advice and assistance in resolving the audit with the ATO.[52] Mr Schurgott was working initially at Brown Wright Stein lawyers and then at Schurgott & Co lawyers in the period in which he provided legal services to Mr and Mrs Hohnen in connection with the audit.[53]
[52] ts 91.
[53] ts 91.
Mr and Mrs Hohnen made a voluntary disclosure to the ATO and amended and resubmitted their 2012 tax returns declaring the receipt of the $2.1 million from Mr Meagher.[54]
[54] Exhibit 1:71; Exhibit 1:95.
As part of their resolution of this matter with the ATO, in addition to the additional tax they were required to pay as result of the amendment of their tax returns, Mr and Mrs Hohnen were each required to pay a penalty and a shortfall interest penalty.[55]
[55] Exhibit 1:88.
In the course of considering the appropriate penalty to be imposed, the ATO issued a document entitled Summary of Our Penalty Position on Mark Hohnen: The Commissioner's Position,[56] in which the following assertions were made:
Mark Hohnen intentionally disregarded the income tax laws by implementing the scheme and converting the dividend income due to him and the other two shareholders of Oakhampton to a form of untaxable gifts. He did this by planning with a long-standing friend (Peter Meagher) to wash the taxable income through a tax-free superannuation fund. He also had an agreement with Peter Meagher to return these funds as gifts.
Mr Hohnen's involvement in the scheme stretch far beyond recklessness and the false and misleading statements made are deliberate choices made with actual knowledge and a choice to deliberately ignore the law.
Remission of penalty
Mr Hohnen's educational background and the experience at strategic management level of the public listed companies are not commensurate with the contention that Mr Hohnen was not aware that the scheme was contravening any taxation laws.
[56] Exhibit 1:85.
In his cross-examination Mr Hohnen agreed that the Commissioner's position as set about above was correct[57] but explained in re‑examination that he had acted at all times on the advice of Mr Hopkins.[58]
[57] ts 120.
[58] ts 135.
6. Assessment of witnesses
Set out below are the findings I make from my observations of the evidence given by the witnesses.
6.1 Mr Hohnen
Mr Hohnen gave evidence to which I will refer in some detail below. As he did so, I was left with an impression of Mr Hohnen as an unsatisfactory witness. There were several aspects of his evidence and conduct in this litigation that I found unsatisfactory.
First, as I have noted previously, the pleadings were amended at the commencement of the trial to particularise meetings and telephone calls at which the oral advice was said to have been given by Mr Hopkins. It is concerning that these additional details were pleaded only at the commencement of the trial. It seems inherently implausible that crucial meetings and discussions at which the advice was said to have been given would have been identified only on the eve of the trial. Second, despite those amendments, Mr Hohnen did not give specific evidence of having been told by Mr Hopkins at any time that the Arrangement was legitimate from a tax point of view. He gave evidence in re‑examination that he 'was acting on advice from Rick Hopkins',[59] he said 'the whole structure was driven by Rick'.[60] His evidence was that, at the time he filed his tax return, '[I]n the back of my mind I was questioning but I was assured by Rick at the time that it was perfectly - perfectly in order'.[61] But, importantly, Mr Hohnen did not give evidence of any particular meeting or telephone discussion where he was specifically advised by Mr Hopkins that entering into the Arrangement was a lawful means of reducing his tax liability. Mr Hohnen's evidence was that Mr Hopkins 'had an idea' and he (Mr Hohnen) 'told him to take it to Ms Sawyer'.[62]
[59] ts 138.
[60] ts 138.
[61] ts 138.
[62] ts 77; ts 82.
It is also notable that Mr Hohnen did not give evidence that Ms Sawyer had told him that Mr Hopkins had told her that the Arrangement was legitimate from a tax point of view.
Third, Mr Hohnen acknowledged in his evidence that he had not undertaken any review of his electronic records[63] for the purposes of complying with his obligations to provide discovery. He gave evidence that he made no inquiries himself because he is not literate in this area and he 'relies on Janis who is highly paid and his accountants to do the work for me'.[64] He said in evidence 'I leave all of that to Janis'.[65] Yet Mr Hohnen gave no evidence that he instructed Ms Sawyer to search his personal computers or devices and no evidence that he made them available to her for that purpose. His lack of proper engagement in the litigation process is not to his credit and suggests, at best, a cavalier attitude to his obligations.
[63] ts 97.
[64] ts 97.
[65] ts 97.
It was my impression that Mr Hohnen was evasive in answers to many questions where it seemed the answer might paint him in a bad light and, at times, unnecessarily so. For example, when cross‑examined about executing the share transfer forms by affixing his electronic signature the following exchange occurred:[66]
The date that's on here is false insofar as it suggests that was the date on which your signature was appended? Isn't that right---I can't recall.
That answer is simply disingenuous. The backdating of those forms was an essential element of the Arrangement. Mr Hohnen was present in court at the commencement of the trial when his counsel amended the pleadings to reflect the fact that the shares were not transferred on 5 March 2012 as had been pleaded until then. It is simply not possible that Mr Hohnen did not recall the backdating of the share transfer forms.
[66] ts 97.
Another example arises from answers to questions about when discussions between him and Mr Meagher about the possibility of transferring the Hohnen shares first occurred. When he was asked repeatedly whether there were any discussions between himself and Mr Meagher about transferring the Hohnen shares in Oakhampton in March 2012, Mr Hohnen repeatedly answered that he could not recall.
When pressed a final time about the issue by being asked:[67]
So I put it to you again, the date here, 5 March 2012, was false and you knew it?
Mr Hohnen then gave the following answer:[68]
I don't – I can't comment. I only act on advice from Rick.
[67] ts 113.
[68] ts 113.
If it were the case that an agreement to transfer the Hohnen shares had been reached in March but that Mr Hohnen simply could not recall it, then the Agreement could not have been proposed and advised upon by Mr Hopkins because the consistent evidence of Mr Hohnen, Ms Sawyer and Mr Hopkins, which I accept, was that that issue of the difference in the tax treatment of any dividends paid to Mr and Mrs Hohnen and to the Peter and Olga Meagher Superannuation Fund was first raised with Mr Hopkins for consideration in May 2012.
Mr Hohnen's asserted inability to recall whether he and Mr Meagher discussed and agreed to the share transfer before May, thereby leaving open the suggestion that there may have been such an agreement, is totally at odds with his case at trial. Not only can that evidence be rejected for that reason but it is also demonstrative of a lack of candour in his evidence.
A further example of Mr Hohnen's unsatisfactory and defensive attitude as a witness concerned the evidence given by him regarding the signing of his tax return declaring that the consideration he received from the sale of his shares in Oakhampton was $54,546. The following exchange took place in cross-examination:[69]
In fact, you knew they were worth millions?---yes.
And to say that there were [sic] $54,546 would be a lie, wouldn't it?---I was acting on instructions from Rick.
Answer my question, please. To say that these shares were worth $54,546 would be a lie, wouldn't it?---No.
They weren't worth - they were worth that, is that what you're saying?---No.
They were worth millions, were they not?---Yes.
Right. And to say otherwise would be false, wouldn't it?---Yes.
And in putting this consideration in, that's false, isn't it?---Yes.
[69] ts 114.
In my view, Mr Hohnen's initial denial that falsifying the consideration received for the shares was a lie is demonstrative of the defensive attitude that he displayed in many of his answers and of an unwillingness to answer honestly questions where truthful answers would reflect poorly upon him.
Finally, the plaintiffs have claimed as part of their damages the cost of accounting fees paid to PKF Lawler for accounting services for the period to 22 December 2015. The relevant invoice 82152 forms part of exhibit 1:73. The invoice describes the fees as being for 'Oakhampton Pty Ltd Matters' which are detailed in the invoice as:
Preparation of responses to questions from the Australian Taxation Office (ATO) regarding transactions in Oakhampton Pty Ltd including:
·Foreign currency deposits;
·Sale of shares and calculation of gains;
·Transfer of shares; and
·Payment of dividends.
Providing advice on possible tax implications of outcomes of ATO audit including calculation of tax payable on three differing scenarios.
Reconciliation of Financial Information in Quickbooks to answers provided to ATO.
Meeting with Rick Hopkins and Janis Sawyer on 7 October 2015.
Meeting with Rick Hopkins, Mark Hohnen and Janis Sawyer on 9 October 2015.
Various discussions between Rick Hopkins and Janis Sawyer regarding the same.
Discussions, correspondence and advice regarding the above.
Despite this, Mr Hohnen's own evidence was that he did not discuss the audit with Mr Hopkins because Mr Schurgott advised him not to do so.[70]
[70] ts 92.
The documentary evidence, made closer to the time and forming part of the plaintiffs' own case, must be accepted over Mr Hohnen's evidence on this issue. While the matters the subject of the litigation are now some years old and memory is fallible, it is difficult to accept Mr Hohnen as a reliable witness given his apparent failure to recall the meetings and discussions documented in the invoice.
6.2 Ms Sawyer
Ms Sawyer also gave evidence in a manner that left me with the impression that she was an unsatisfactory witness.
Ms Sawyer gave evidence that she did not have a good understanding of the tax system saying instead that she had 'an understanding'.[71] Accepting that tax can be a complicated subject matter, this seemed to me to be unnecessarily defensive and disingenuous for someone who had been a registered tax agent until 2011.
[71] ts 196.
Ms Sawyer also gave what I regard as evidence which lacked credibility when she said that she had not been selective about what documents to produce as part of the discovery process but simultaneously acknowledged that there were documents which existed which ought to have been produced but which had not been. Three examples of that are:
a.that she did not produce the email by which she said she requested Mr Hohnen's personal assistant in England to arrange for Mr Hohnen to affix his electronic signature to the share transfer forms;[72]
b.that while she produced a page from her diary for 19 June 2012 to support her evidence that she met with Mr Meagher on that date, she did not produce any other pages of her diary for dates when meetings are said to have taken place;[73] and
c.that she initially gave evidence that she had not checked her server to ascertain whether she had had any email communication with Mr Hohnen in relation to the meeting which she had with Mr Meagher on 19 June 2012[74] but accepted, when pressed, that she had checked her server because she had produced a selection of emails from that server.[75]
[72] ts 200.
[73] ts 211 - ts 212; Exhibit 1:25.
[74] ts 213
[75] ts 202; ts 213.
Ms Sawyer gave evidence that that she could not explain the failure to produce relevant documents which she acknowledged existed but maintained that she had not been selective about what documents to discover.[76] She ultimately agreed in cross-examination that she had looked for documents and had decided what to provide.[77] These answers are most unsatisfactory. In my view, the evidence was demonstrative of a desire to conceal documents which may have been unhelpful to the plaintiffs' case.
[76] ts 201.
[77] ts 203.
Ms Sawyer gave evidence that she knowingly backdated the share transfer form by which the Hohnen shares in Oakhampton were transferred to the Peter and Olga Meagher Superannuation Fund.[78] Her evidence was that she chose the date of 5 March 2012 in order that it would appear that the transfer had occurred before Oakhampton had received the money from the sale of the Kalahari shares.[79] She gave evidence that she knew the date was false.[80]
[78] ts 195.
[79] ts 195.
[80] ts 195.
In cross-examination Ms Sawyer gave evidence that she had destroyed the letter which Mr Meagher had provided to Mr Hohnen which recorded his agreement to give back the sum of $2.1 million which represented the true value of the shares in Oakhampton bought by Mr Meagher and the value of the franking credits attributable to those shares.[81] Her evidence was that that letter was a written record of what Mr Hohnen and Mr Meagher had previously agreed.[82] Ms Sawyer said that that letter had been prepared to protect Mr Hohnen in case anything happened to Mr Meagher before he had paid the money to Mr Hohnen. Ms Sawyer's evidence was that she destroyed the letter after the money had been paid to Mr Hohnen simply because that letter was no longer needed. She said its destruction was not done for the purpose of hiding the evidence of the details of the Arrangement.[83]
[81] ts 203.
[82] ts 206.
[83] ts 205.
That explanation for destroying the letter Mr Meagher had written is, in my view, simply not credible in circumstances where Ms Sawyer gave evidence that she had, among other things, been dishonest about various matters in order to bring about the Arrangement including:
a.being complicit with Mr Hohnen in attempting to conceal documents recording aspects of the Arrangement from the ATO in the event of a review;[84]
b.intending to pass off as 'tardiness' the filing of the ASIC notice of change in shareholding in Oakhampton when the truth was that the date of transfer specified in the notice was fictitious;[85] and
c.being knowingly involved in the backdating of the share transfer forms.[86]
[84] At ts 223 - ts 224 Ms Sawyer gave evidence that she had noted 'the attachment to be filed separately and not produced in the event of a review' on an invoice from Barringtons (exhibit 1:43) to which was attached a summary of the work undertaken the subject of the invoice. Her evidence was that the intention was to conceal from the ATO information regarding tax planning undertaken in preparation for the 2012 tax returns.
[85] ts 158.
[86] ts 195.
The date specified as the date when Mrs Hohnen ceased to be a director of Oakhampton in the ASIC notice which Ms Sawyer prepared is 18 June 2012.[87] Ms Sawyer gave evidence that she acted on Mr Hohnen's instructions in specifying that date.[88] In cross‑examination Ms Sawyer found it difficult to acknowledge that there was any connection between having Mrs Hohnen cease to be a director of Oakhampton and the Arrangement. Initially her evidence was that there was no connection saying 'I think we just wanted her out before 30 June'.[89] She later conceded that the Arrangement discussed between Mr Meagher and Mr Hohnen was 'part of' the reason that led to Mrs Hohnen resigning as a director.[90]
[87] Exhibit 1:28.
[88] ts 222 - ts 223.
[89] ts 226.
[90] ts 226.
The way in which Ms Sawyer gave evidence about this issue led me to conclude that Ms Sawyer was unwilling to give honest or frank evidence about matters which may have reflected poorly on her or upon Mr Hohnen.
Ms Sawyer also gave evidence that she regarded the transaction as being 'in a grey area',[91] and yet gave no evidence that she queried the matter with Mr Hopkins or that he expressly advised her that it would be legitimate means of reducing Mr and Mrs Hohnen's tax liability.
[91] ts 230 - ts 231.
I do not accept that Ms Sawyer, with her qualifications as an accountant and her long experience as a tax agent and given her longstanding involvement in tax planning matters for Mr and Mrs Hohnen, having identified concerns about the legitimacy of the proposed Arrangement, would have simply accepted that advice without question.
6.3 Mr Meagher
Mr Meagher gave no evidence of having been told by Mr Hopkins himself that the arrangement would be legitimate for tax purposes. He also gave no evidence that Mr Hohnen had told him he had received that advice from Mr Hopkins or that he had been told by Ms Sawyer that she had been advised by Mr Hopkins that the Arrangement was legitimate. He did not even give evidence that Mr Hohnen had told him that Ms Sawyer had been told by Mr Hopkins that the Arrangement would be legitimate. On the contrary, his evidence was that 'he thought' Mr Hopkins had conceived of the Arrangement.[92]
[92] ts 242.
He gave evidence that he never took separate accounting or legal advice about it, that he may have had a general discussion about it with Mr Hohnen but that the specific discussions and paperwork were between himself and Ms Sawyer.[93]
[93] ts 244.
Nothing in Mr Meagher's manner of giving evidence or in his evidence itself caused me to consider Mr Meagher to be anything other than an honest witness.
Mr Meagher's evidence of what he thought Mr Hohnen had been told by Mr Hopkins takes the matter of whether Mr Hopkins gave the advice nowhere.
6.4 Mr Hopkins
Mr Hopkins gave evidence that he was not told prior to the commencement of these legal proceedings that there was a proposal that Mr Meagher's superannuation fund would buy all of the shares in Oakhampton held by Mr and Mrs Hohnen and their trust.[94] He denied having been told that part of that proposal would involve the consideration for those share sales being said to be $100,000 and denied being told that as part of the transaction Mr Meagher would subsequently pay Mr Hohnen $2.1 million.[95] That he had not been told before the litigation commenced seems at odds with the invoice for accounting services number 82152[96] to which I have referred which indicates he met with Mr Hohnen and Ms Sawyer in October 2015 regarding the ATO audit. This apparent inconsistency caused me some concern about Mr Hopkins' reliability in relation to that matter.
[94] ts 275 - ts 276.
[95] ts 275.
[96] Exhibit 1:73.
It was my assessment that Mr Hopkins was at times defensive and argumentative in his answers to questions asked of him in cross‑examination. For example when being asked in cross‑examination about his record keeping, it was put to him that if a note had been kept of a meeting or telephone call, it would have been identified in the course of discovery. The following exchange took place:[97]
But you had a look for every- - -?---Yes, yeah.
- - -all your notes and you know, you couldn't find them- - -?---Bloody hell.
- - -is that correct?---Absolutely.
You'd say you did a thorough – a thorough search to do your discovery? Yep. Christ.
Beg your pardon?---sorry.
Did - sorry, did you- - -?---No, no. No. Yes.
So when you met with Ms Sawyer and Mr Hopkins - Mr Hohnen on 31 May, you can't be sure whether you kept a note of that meeting, is that right?---Correct.
That's because your note-keeping seems to be pretty hit and miss? ---Yes.
[97] ts 286 - ts 287.
In respect of the advice he says he gave at the meeting on 31 May 2012, which he says, was more detailed advice, Mr Hopkins was asked 'Isn't that the kind of advice you should keep a note of?' His response was 'it was a question that was asked and I gave a preliminary view so that's debatable'.[98] When he was then asked 'what is the debatable bit about? Why wouldn't you keep a note of advice you've given?' He replied 'Well, in this case I didn't'.[99]
[98] ts 287.
[99] ts 287.
One aspect of Mr Hopkins' evidence was troubling. It seems unusual that Mr Hopkins did not see any concern with being instructed to prepare tax returns for Mr and Mrs Hohnen while in possession of transfer forms indicating the Hohnen interests in Oakhampton were sold on 5 March 2012 for a total of $100,000 despite knowing that:
a.the Hohnen interests represented 60% of the shares in Oakhampton;
b.in late May 2012 Oakhampton had approximately $3.7 million cash on hand;
c.Mr Hohnen was unhappy about having to pay tax on dividends which were to be paid to him from Oakhampton; and
d.he had adjusted Oakhampton's tax instalment for the final quarter of 2012 to the extent that would allow Oakhampton to pay out all the cash on hand as one fully franked dividend in the financial year ending 30 June 2012.
There was nothing in the way in which Mr Hopkins gave evidence as about that evidence itself that caused me to find he was a dishonest witness, as opposed and being unreliable about the matter I have already identified above.
7. Was the advice given?
As I have already noted, it is pleaded that the advice was given by Mr Hopkins during meetings and telephone discussions which occurred in May and June 2012. The dates on which those are said to have taken place, the substance of the discussions and the documents which support those assertions were particularised by the plaintiff.
It is said that the plaintiffs rely on the substance of the totality of the particularised meeting to show that Mr Hopkins gave the advice as alleged.[100]
7.1 Meeting of 14 May 2012
7.1.1 Pleadings
[100] Amended statement of claim, par 12, particulars.
It is pleaded by the plaintiffs that a meeting was held at Mr Hopkins' office on 14 May 2012 which was attended by Mr Hopkins, Mr Hohnen and Ms Sawyer. The substance of that meeting is particularised as being:[101]
General tax planning for the plaintiffs and the entities with which they are associated, including discussions relating to likely levels of income, donations and contributions to superannuation and general discussions about Oakhampton, including how the profits held by Oakhampton could be distributed tax effectively to Oakhampton's shareholders and the possible use of a super fund to hold Oakhampton shares.
[101] Amended statement of claim, par 12(3)(a).
The defendant admitted that a meeting between Mr Hopkins, Mr Hohnen and Ms Sawyer took place on 14 May 2012, pleading that the purpose of the meeting was 'to discuss tax planning for the 2012 financial year'.[102]
7.1.2 Mr Hohnen's evidence
[102] Defence, par 12.1.
Mr Hohnen gave evidence that he attended the meeting on 14 May 2012. He recalled attending it but not who arranged it. Mr Hohnen did not keep notes of the meeting. When asked if he could recall any specific conversations that took place at the meeting his answer was that he recalled saying '30 June is looming and we must get ourselves set'.[103] Mr Hohnen said he could not recall whether he had a discussion about how Oakhampton's assets were to be dealt with.[104]
7.1.3 Ms Sawyer's evidence
[103] ts 71.
[104] ts 71.
Ms Sawyer gave evidence that she attended a meeting with Mr Hopkins on 14 May 2012 with Mr Hohnen 'to start doing some planning for the 2012 year'.[105] Her evidence was that in preparation for the meeting she sent an email to Mr Hopkins dated 9 May 2012[106] containing a summary of the Hohnen's expected income for the 2012 financial year, the estimated income of the Hohnen Group and of the deductions she considered were available.
[105] ts 144.
[106] Exhibit 1:9.
That email makes reference to income being derived from the sale of Kalahari shares by both Oakhampton and Vynben Pty Ltd as trustee for the Mark Hohnen Superannuation Fund.
Ms Sawyer gave evidence that she kept some notes of the meeting of 14 May 2012.[107] Ms Sawyer's evidence was that she was not in the practice of making comprehensive notes of everything said in meetings. She said:[108]
If anything significant discussed I would write it down, but usually it's a reminder. So it's not detailed notes of everything that was said in the meeting.
[107] Exhibit 1:11.
[108] ts 146.
In her evidence Ms Sawyer gave no details about the substance of the matters discussed at the meeting of 14 May 2012 other than to identify matters which she had to follow up after the meeting. She was unable to do that of her own recollection without reference to her notes. Even then, she was unable to be certain what was meant by certain matters in the notes, particularly the reference to spreadsheets. She was able to recall that she was required to pay the HBF medical insurance before 1 July, and that there was consideration still to be given to issues such as the amount of any donation to be made by Mr Hohnen and whether it would be made through a Foundation.[109]
[109] ts 147.
Ms Sawyer was able to recall, after refreshing her memory by reference to two emails sent between Barringtons and her not long after the meeting on 14 May 2012, that she was required to prepare some further information on the costs base and gains which had been made on Kalahari shares held in Mr Hohnen's name and in Oakhampton's name so that capital gains could be assessed.[110] Ms Sawyer said she was unable to recall the specific discussion about Oakhampton which took place on 14 May 2012 but presumed it was about quantifying the gains.[111]
7.1.4 Mr Hopkins' evidence
[110] ts 148.
[111] ts 148.
Mr Hopkins gave evidence that he did meet with Mr Hohnen and Ms Sawyer on 14 May 2012. He gave evidence that he specifically recalled the meeting and gave detailed evidence about the discussion which took place during it.[112] His evidence was that the discussion included the fact that it anticipated that Oakhampton would generate cash from the sale of shares before the end of the financial year.[113] His evidence was that at that meeting Mr Hohnen's expectation was that Oakhampton would generate income, pay its tax and retain the cash. His evidence was that that was preferable from Mr Hohnen's point of view.[114]
7.1.5 Documents
[112] ts 259 - ts 260.
[113] ts 260.
[114] ts 260 - ts 261.
Mr Hopkins gave evidence that he did not personally make a note of the matters discussed at the meeting of 14 May 2012 but he did have a 'Memo to File' prepared by his associate Ms Catherine Screaigh. Mr Hopkins' evidence was that after the meeting he 'downloaded' it to Ms Screaigh, by which he meant that he recounted to her the contents of the discussion which she then used to prepare a file note.[115]
[115] The Memo to File is exhibit 1:10.
That Memo to File is consistent with Mr Hopkins' evidence of his recollection of the matters canvassed at that meeting.
The Memo to File records:
for the 2012 financial year, Oakhampton is not going to pay a dividend and the cash related to the capital gain will sit in the bank account.
There is no record in the Memo to File of any discussion about how the difference in Mr Meagher's holdings and the Hohnen's holdings in Oakhampton would result in different tax treatment for them should Oakhampton pay out a dividend, no record of any query about how that could be avoided having being raised and no record of Mr Hopkins advising about how to structure Mr Hohnen's tax affairs to avoid that consequence.
Ms Sawyer's notes which are exhibit 1:11 are extremely brief. They record:
1.prepay HBF by 1/7;
2.Spreadsheets 14/5 1 pm RH MH JS $1m - Vynka foundation non-resident - Ben?
To the extent they record matters arising at the meeting they are not inconsistent with Mr Hopkins' Memo to File or his evidence. They certainly make no reference to discussions about Mr Hohnen's tax position upon receipt of dividends from Oakhampton. They do not record Mr Hopkins suggesting the Arrangement or advising on its lawfulness.
7.1.6 Findings
I find, based on the consistent evidence of Mr Hohnen, Ms Sawyer and Mr Hopkins that they did meet on 14 May 2012 and that the purpose of the meeting was to start the tax planning for Mr and Mrs Hohnen and Oakhampton, because the end of the 2012 financial year was looming.
I find Mr Hopkins' Memo to File is the best record of the substance of those discussions given that they are comprehensive and were made close to the time when the meeting was held and because neither Mr Hohnen nor Ms Sawyer gave evidence which contradicted what is recorded in it.
Based on that evidence, I find that the issue of Oakhampton's profit from the sale of its Kalahari shares formed part of the discussions but the discussions were concerned with identifying the capital gains made from that transaction.
I am unable to be satisfied, based on the evidence which was given, that the meeting included a discussion about how the profits held in Oakhampton could be distributed tax effectively to the shareholders and the possible use of a super fund to hold Oakhampton shares as was pleaded by the plaintiffs. Indeed, I am positively satisfied that it was not discussed at that meeting.
7.2. Meeting of 31 May 2012
7.2.1 Pleadings
The plaintiffs plead that Mr Hohnen and Ms Sawyer attended a meeting with Mr Hopkins at his office on 31 May 2012. It is pleaded that the meeting involved general tax planning discussions about the plaintiffs and the entities with which they are associated and planning for Oakhampton's profits to be distributed tax effectively.[116]
[116] Amended statement of claim, par 12(3)(b).
The defendant admits a meeting took place on 31 May 2012.[117]
7.2.2 Mr Hohnen
[117] ts 261, he also pleads in the alternative that if the advice was given it was not relied upon by the plaintiffs.
Mr Hohnen's evidence was that he recalled attending a meeting with Mr Hopkins in 31 May 2012. When asked if he recalled what was discussed at that meeting his answer was:[118]
My recollection is Rick said I have an idea and I said discuss it with Janis.
[118] ts 71.
When asked what the plan was in relation to, Mr Hohnen answered it related 'to the distribution from Oakhampton'.[119]
[119] ts 71.
The fact that Mr Hohnen said he asked Mr Hopkins to take the plan to Ms Sawyer, tends to suggest that Mr Hohnen did not think Ms Sawyer was present at the meeting.
Mr Hohnen gave evidence about an email dated 28 May 2012 which he sent to Mr Hopkins and Ms Sawyer[120] in which he asks Mr Hopkins if it would be possible to meet on Thursday 'to tidy up anything before Janis departs' (Thursday being 31 May 2012). He then gave evidence about an email he sent to Ms Sawyer and copied to Mr Hopkins' assistant, Kara Meschiati, confirming the requested meeting had been scheduled for '12 Thursday at Barringtons'.[121] In that email he asked Ms Sawyer for information about the current cash held by Oakhampton. Mr Hohnen said that he could not say why it was important that Mr Hopkins receive that information other than that one of the issues which was unresolved after the meeting of 14 May 2012 was what was to happen with Oakhampton and the Hohnen Group.[122]
7.2.3 Ms Sawyer
[120] Exhibit 1:14.
[121] Exhibit 1:15.
[122] ts 73.
Ms Sawyer gave evidence that she sent an email to Mr Hopkins on 24 May 2012[123] in which she asked him to let her know how the tax planning was coming along.
[123] Exhibit 1:13.
Ms Sawyer gave evidence that she attended the meeting on 31 May 2012. She said she made some notes of the meeting.[124]
[124] Part of exhibit 1:11.
Ms Sawyer was unable to independently recall the content of the discussion of 31 May 2012 and had to rely on her notes to refresh her memory. Her evidence then was that although there had been a discussion about how to more efficiently structure the Hohnen Group investment in Oakhampton, they were, at that point, looking at the possibility of Mr Hohnen buying out Mr Meagher's interest in the company.[125] Her evidence was that nothing was decided about Oakhampton at that meeting and that it had concluded with Mr Hopkins agreeing to go away and consider the issue 'to see how more efficiently we could utilise it within the Hohnen tax planning'.[126]
7.2.4 Mr Hopkins
[125] ts 149.
[126] ts 150.
Mr Hopkins gave evidence that he recalled the meeting of 31 May 2012.[127]
[127] ts 268.
Mr Hopkins gave evidence that at the meeting he presented four options about how income within the Hohnen Group could be managed to come up with the best tax outcome in a document.[128]
[128] Which is at trial bundle pages 237 - 240 (inclusive) which form part of exhibit 1.8 and which is headed 'The Hohnen Group Tax payment schedule 2012/2013' (the Schedule).
Mr Hopkins also gave evidence that there was some discussion at that meeting about the profit Oakhampton would make in that financial year and the timing of its tax payment. Mr Hopkins said that Mr Hohnen raised the issue of the difference in the tax treatment of the profit made by Mr Meagher and that made by Mr Hohnen. Mr Hopkins described Mr Hohnen as being 'cheesed off' about the difference between their positions.[129] His evidence was that at that meeting Mr Hohnen asked whether it might be possible to restructure Oakhampton to reduce the potentially large dividend that would have to come out in future years similar to that which he had previously experienced with Harley,[130] which was another company within the Hohnen Group. He gave evidence that one option raised by either Ms Sawyer or Mr Hohnen was the possibility of Mr Hohnen buying Mr Meagher's shares in Oakhampton.[131] Mr Hopkins' evidence was that no advice was given by him about those issues on 31 May 2012. He said he was asked the question and took it away to think about and discuss with Mr Meagher's financial advisers because they would need to consider whether the 'associate provisions', which prevent superannuation funds from dealing with certain assets from members of the fund or their associates, might prevent such a sale from occurring.[132] His evidence was that he had a discussion about that issue in general terms with Mr Hohnen at the meeting.[133] His evidence was that at the meeting on 31 May 2012 he had been unable to tell Mr Hohnen whether the relationship between Mr Hohnen's interests and Mr Meagher's interests amounted to related parties or associates because he was not aware of the background of the connection between them, for example, he did not know whether they shared things and how they made decisions.[134]
7.2.5 Documents
[129] ts 268.
[130] No evidence was given by any witness about what had in fact been previously experienced with Harley.
[131] ts 268.
[132] ts 269.
[133] ts 269.
[134] ts 269.
Exhibit 1:13 is the email from Ms Sawyer to Mr Hopkins asking how the tax planning was coming along.
Exhibit 1:14 is the email from Mr Hohnen to Mr Hopkins requesting a meeting.
Exhibit 1:15 is the email from Mr Hohnen to Ms Sawyer informing her of the meeting scheduled for 31 May 2012 and asking for information regarding the current cash in Oakhampton.
In my view, while those emails:
a.confirm the evidence given by all parties that there was a meeting between them held on 31 May 2012; and
b.support the evidence given by Mr Hohnen, Ms Sawyer and Mr Hopkins that the tax planning had not been finalised at the meeting of 14 May 2012,
they shed no light on the issue of what was discussed at either the meeting of 14 May 2012 or the meeting of 31 May 2012.
Exhibit 1:16 is an email from Mr Meagher to Ms Sawyer dated 30 May 2012. In it Mr Meagher refers to a discussion he had had with Mr Hohnen about his superannuation arrangements and the benefits of transition to retirement pensions. Mr Meagher also says in it that Mr Hohnen thought he had that arrangement in place but wanted Ms Sawyer to put it on the agenda for when she meets with Mr Hopkins 'this week' to discuss his tax. It tends to support the evidence that some discussion about that issue was had at the meeting of 14 May 2012.
Ms Sawyer's notes of the meeting of 31 May are part of exhibit 1:11. They referred to '12' (the time Mr Hohnen's email of 28 May indicates was the time the meeting was to commence) and she has recorded the initials 'MH', 'RH' and 'JS' in those notes. Her evidence was that her notation was a record of the fact that Mark Hohnen and Rick Hopkins had been in attendance at the meeting.[135]
[135] ts 146.
Mr Hopkins produced no notes of the meeting of 31 May 2012. He initially gave evidence that he did not recall making a file note of the meeting. He said he may have done so although his search of the accounting practice's records did not identify any such note.[136] By way of explanation Mr Hopkins gave evidence that he was not a good record keeper or time recorder and was not in the practice of making a note of every meeting or phone call.[137] In cross-examination he also said that he had not kept a note of the content of the meeting of 31 May 2012 because the principal piece of advice was the Schedule given out at the meeting and that because the advice about the potential for Mr Hohnen to buy out Mr Meagher's shares was only preliminary advice meant he did not think it was necessary to make a file note.[138]
[136] ts 290.
[137] ts 284.
[138] ts 285; ts 286.
Each page of the Schedule sets out the tax which would be payable by Mr Hohnen, Mrs Hohnen and Oakhampton in different hypothetical scenarios. Scenario 1 sets out the tax position based on the Fernan[139] distribution going to Mark, Catherine, Ben, Jane and Kumla Unit Trust with Mr Hohnen claiming $35,000 worth of donations. Scenario 2 sets out the tax position with the Fernan distribution going to the same persons named in Scenario 1 but with Mr Hohnen claiming $1 million of donations. Scenario 3 shows the position if Mr Hohnen sets up a new company which receives 100% of the Fernan distribution and Mr Hohnen claims $1 million in donations. Scenario 4 sets out the position if Mr Hohnen sets up a new company which receives 100% of the Fernan distribution and Mr Hohnen claims $35,000 in donations. Each scenario shows Oakhampton paying tax and retaining the profits into the 2013 financial year.
[139] Fernan being the company through which Mr Hohnen provides his consulting services.
The contents of the Schedule are consistent with Mr Hopkins' account of the discussion which took place at the meeting on 31 May 2012 to which I have referred above. Given that the evidence of Mr Hohnen and Ms Sawyer was that the issue of how Oakhampton might be restructured for more tax effective distribution of its profits was first raised at that meeting, it is unsurprising that the Schedule, prepared in advance of that meeting, contains no reference to that possibility.
That the issue was raised at the meeting, as Ms Sawyer and Mr Hopkins both said in evidence that it was, is also given support by Mr Meagher's email dated 30 May 2012.[140]
[140] Exhibit 1:16.
Exhibit 1:17 is an email from Mr Meagher to Mr Hohnen dated 31 May 2012 which was sent at 2.33 pm. In it Mr Meagher wrote:
To overcome the problem of tax benefits to me from dividends but not to you, I wonder if it is possible for Oakhampton to pay a dividend to me only? Or if we could create a new class of shares or preference shares which had special dividend rights? Anyway I will speak to Glenn and get him to get in touch with Rick.
That document indicates what was in Mr Meagher's mind at the time it was written. It also further confirms the evidence given by Mr Hopkins and Ms Sawyer that at the time the tax planning was being undertaken Mr Hohnen was concerned that, as things were currently structured, he would pay more tax on any dividends paid to him from Oakhampton than would Mr Meagher and that he and Mr Meagher were considering ways by which that outcome might be avoided, including by raising with their accountants the possibility of restructuring Oakhampton.
7.2.6 Findings
It is not in dispute that the meeting of 31 May 2012 occurred.
I accept the evidence given by Mr Hopkins that at that meeting Mr Hohnen raised with him his displeasure with the fact that he would have to pay tax on any dividend received from Oakhampton but that Mr Meagher would not and that the question of whether Oakhampton could be restructured was raised for consideration.
The furthest Mr Hohnen's evidence about that meeting went was that Mr Hopkins said he had 'an idea'. No evidence was given about what that idea was.
Based on the evidence of Ms Sawyer and Mr Hopkins, I accept that at the meeting some general consideration was given to the possibility of Mr Hohnen buying the shares held in Oakhampton by the Peter and Olga Meagher Superannuation Fund.
I accept Mr Hopkins' account of the discussion of 31 May 2012. It was detailed and reflects the documents and it was generally consistent with the evidence given by Ms Sawyer.
However, I am not satisfied that anything even approaching the structuring of the Arrangement was proposed by Mr Hopkins. I am also not satisfied that Mr Hopkins gave advice about the tax treatment of payments to be made by Mr Meagher to Mr Hohnen as part of the Arrangement.
7.3. Meeting of 18 June 2012
7.3.1 Pleading
It is pleaded that:
a.Mr Hohnen attended a meeting with Mr Hopkins on 18 June 2012 and that at that meeting Mr Hopkins said that he had considered the Oakhampton position and had thought of a way which could minimise the tax that the plaintiffs would have to pay when Oakhampton's profits were distributed;
b.Mr Hohnen said he would adopt the plan if it was legitimate and Mr Hopkins responded that it was; and
c.Mr Hohnen then asked Mr Hopkins to contact Ms Sawyer and explain the details to her so that she could arrange the necessary paperwork if Mr Hopkins thought the plan was legitimate.[141]
7.3.2 Mr Hohnen
[141] Minute of proposed amended statement of claim dated February 2020, par 12(c), particular 3(c)(i) - 3(c)(iii).
No evidence was given by Mr Hohnen of having attended a meeting with Mr Hopkins on 18 June 2012. However, in establishing their claim the plaintiffs rely, inter alia, on an email from Mr Hohnen to Ms Sawyer of 18 June 2012.[142]
[142] Exhibit 1:22.
That email, which was copied to Mr Meagher says, in part,
Hi Janis. Welcome home. Rick has come up with a good plan re Oakhampton. Can you contact him to action please? I'm departing tonight for Dubai, then Tanzania and Namibia. I arrive in Dublin on 28 June.
That email tends to suggest that there was some meeting or telephone discussion between Mr Hopkins and Mr Hohnen at which some idea was conveyed by Mr Hopkins to Mr Hohnen. However, no details of when Mr Hopkins informed Mr Hohnen of the plan and its nature is set out in the email. Mr Hohnen was asked if he remembered when the discussion with Mr Hopkins referred to in that email took place and he answered that he could not.[143]
7.3.3 Mr Hopkins
[143] ts 83.
Mr Hopkins gave evidence that, after the meeting of 31 May 2012, he had two telephone discussions with Mr Montague, Mr Meagher's accountant, in June. He said the first occurred before 5 June 2012, and the second in the week afterwards.[144] His evidence was that in the first telephone call they discussed the differing positions of Mr Meagher and Mr Hohnen and each expressed their preliminary thoughts. His evidence was that Mr Montague's preliminary thoughts were 'around some kind of dividend access share' or priority dividend and his own question for Mr Montague was whether it was open for Mr Meagher to sell his interests in Oakhampton to Mr Hohnen and he also raised the possibility of a loan as a solution to the dividend problem.[145] Mr Hopkins' evidence was also that they discussed what Mr Meagher's position might be in terms of arms-length transactions on a sale of the share within Oakhampton shareholders 'and other solutions'.[146]
[144] ts 290.
[145] ts 291.
[146] ts 291 - ts 292.
Mr Hopkins agreed that he sent an email to Mr Hohnen on 5 June 2012[147] in which he indicated that Mr Meagher seemed flexible and that he would call him back to discuss some ideas that might work from a technical perspective.
[147] Exhibit 1:20.
Mr Hopkins gave evidence that he spoke to Mr Hohnen by telephone on 14 or 15 June 2012 and that in the course of that discussion he informed Mr Hohnen that he had had a number of discussions with Mr Montague and that it was open to Mr Hohnen or his interests to buy out the Meagher interest or vice versa on the basis that they were dealing at arms‑length in connection with the event. His evidence was that that was the extent of the advice given in the conversation.[148]
[148] ts 270.
His evidence was that the reference to him having come up with a 'good plan' in the email Mr Hohnen sent to Ms Sawyer and copied to Mr Meagher[149] must have been a reference to the existence of that flexibility.[150] He gave evidence that he did not think he had another conversation with Mr Hohnen between that discussion and 30 June 2012.[151]
7.3.4 Documents
[149] Exhibit 1:22.
[150] ts 271.
[151] ts 271.
There are no notes of any meeting between Mr Hohnen and Mr Hopkins on 18 June 2012.
The email from Mr Hopkins to Mr Hohnen which is exhibit 1:20 was sent on 5 June 2012. It reveals that at that time Mr Hopkins had had a discussion with Mr Montague and intended to call him again. It concludes with Mr Hopkins writing to Mr Hohnen saying he would call him if the next discussion with Mr Montague, in which he proposed to discuss 'some ideas that might work from a technical perspective', are positive.
7.3.5 Findings
I find that Mr Hopkins' email of 5 June 2012 and Mr Hohnen's email to Ms Sawyer dated 18 June 2012 establish that there was some communication between Mr Hohnen and Mr Hopkins after 31 May 2012 and before the email of 18 June 2012 was sent.
Mr Hohnen did not give evidence in accordance with the pleaded assertions that in the course of discussions he had with Mr Hopkins on 18 May 2012 he said to Mr Hopkins that he would adopt the Arrangement if it were legitimate. Nor did he give any evidence that Mr Hopkins had advised him that the Arrangement was legitimate or that he asked Mr Hopkins to explain the details to Ms Sawyer so that she could arrange the paperwork if Mr Hopkins thought the Arrangement was legitimate. His evidence was simply that Mr Hopkins had come up with a plan which he had told him to 'take to Ms Sawyer'. His email to Ms Sawyer asks her to contact Mr Hopkins to action it.
Given Mr Hopkins' evidence that he had a discussion with Mr Hohnen on 14 or 15 June 2012 and had no further discussion with him before 30 June 2012, I am not satisfied that Mr Hohnen met with Mr Hopkins on 18 June 2012.
I find it more likely that the reference to a 'plan' referred to in the email of 18 June 2012 was a reference to the plan communicated by Mr Hopkins to Mr Hohnen in a telephone conversation on either 14 or 15 June 2012 as was the timeframe indicated in Hopkins' evidence.
I find, based on the email of 18 June 2012, and the evidence given by Mr Hohnen and Ms Sawyer, that Mr Hohnen instructed Ms Sawyer to discuss with Mr Hopkins a plan which Mr Hopkins had come up with. There is no evidence, however, upon which I could be satisfied on the balance of probabilities that Mr Hopkins had communicated to Mr Hohnen the details of a plan which equated to the Arrangement, that Mr Hohnen had asked for confirmation that it would be legitimate or that Mr Hopkins advised that it would be legitimate as was pleaded in the amended statement of claim.
7.4 Meeting on or around 19 and 22 June 2012 and telephone discussion of 28 June 2012
7.4.1 Pleadings
The plaintiffs plead that on 19 and 22 June 2012 Mr Hopkins gave advice to Ms Sawyer to the effect that it would be lawful to enter into the Arrangement and that the payments made by Mr Meagher to Mr Hohnen could be treated as gifts in respect of which the plaintiffs would not be liable to pay tax.[152]
[152] Amended statement of claim, par 12(3)(d).
The matters which are said to have been discussed at that meeting are particularised as follows:
a.the precise price at which the plaintiffs and the Mark Hohnen Family Trust would sell their shares;
b.the documentation required for the share sales;
c.the timing of the lodgement of the share transfers and other notifications to ASIC;
d.the amount of the dividends and franking credits that should be declared;
e.the timing of the directors' meeting required to declare the dividend and franking credits; and
f.the matters that would justify Peter Meagher making the contemplated gifts to the plaintiffs (in their personal capacities and as trustees of the vendor of the shares).[153]
[153] Amended statement of claim, pars 12(3)(d)(i) - 12(3)(d)(vi).
It is also pleaded that on 28 June 2012, Mr Hopkins and Ms Sawyer had a telephone discussion in which aspects of the Arrangement were discussed and the advice given. The particulars of the discussion pleaded are:
a.Mr Hopkins said words to the effect that Mr Hohnen would sell his Oakhampton shares to Mr Meagher for a nominal amount in the sum of $100,000; and
b.Mr Meagher would then pay Mr Hohnen the sum of $2.6 million as a gift.[154]
7.4.2 Ms Sawyer
[154] Amended statement of claim, pars 12(3)(e)(i) - 12(3)(e)(ii).
Ms Sawyer gave evidence that she had not spoken with anyone about the content of the 'plan' before she received the email of 18 June 2012 from Mr Hohnen asking her to talk to Mr Hopkins about it.[155] That is consistent with her evidence that no advice about the Arrangement was given at the meetings of 14 and 31 May 2012.
[155] ts 153.
Ms Sawyer gave evidence that she recalled meeting with Mr Hopkins after receipt of that email from Mr Hohnen, although she was unable to say precisely where or when the meeting took place.[156] While she was unsure of the precise date of the meeting she said she was certain that it occurred between 18 and 22 June 2012 because she recalled that the meeting took place in Perth and she was out of Australia either side of those dates.[157]
[156] ts 155.
[157] ts 157.
Ms Sawyers' evidence was that she made notes of that meeting. The notes said to have been made of that meeting are exhibit 6 and also exhibit 1:24. They are notes made on paper labelled 'VIP Club'. Ms Sawyer explained that she makes her notes on recycled paper.[158]
[158] ts 157.
Ms Sawyer's evidence was that at the meeting she discussed the plan that Mr Hopkins had come up with which involved the Hohnen shares being sold to the Peter and Olga Meagher Superannuation Fund. Her evidence was that the 'whole structure of the plan was discussed'.[159] In answer to the question '[A]nd whose suggestion was the structure?' Ms Sawyer replied 'Mr Hopkins'.[160] Ms Sawyer was asked '[A]nd did you ask him any questions about the structure?' to which her response was:[161]
Yes. We obviously - we - we discussed the dating because it would have to be backdated, the transfer. So I would have commented about - I was thinking about what had to be done to put the structure into place so what are the things if you - if you do a share transfer you have to notify ASIC of change in shareholders. So I recall stating I would have to lodge a late form with ASIC and I stated something along the lines, 'it wouldn't be the first time I'd lodged something late'. I just remember making that comment. We discussed the value of the share transfer - so of 60 per cent. So 50,000 was a number that was put forward. I'd obviously questioned that because I've ... I must have questioned it because it was a low amount. And then it was basically to be a nominal amount so I've written 200 or 300. It could be 200 or 300. Whatever it was it was going to be a nominal amount.
[159] ts 158.
[160] ts 158.
[161] ts 158 - ts 159.
When asked who had made the suggestion that the share transfer be recorded as having taken place at a time before there was any cash in Oakhampton, Ms Sawyer said:[162]
Mr Hopkins would have raised it because that was necessary, was in the context of the plan.
[162] ts 165.
Ms Sawyer gave evidence that she had met with Mr Meagher on 19 June 2012. She said that as she was not sure whether she met with Mr Meagher before or after the meeting with Mr Hopkins and so she cannot be sure how much of the Arrangement she discussed with Mr Meagher.[163] In cross-examination Ms Sawyer denied that the notes made on the 'VIP Club' paper which she says are notes from her meeting with Mr Hopkins were notes made about the meeting she had had with Mr Meagher on 19 June 2012.[164]
[163] ts 166.
[164] ts 226.
It is difficult to understand how Ms Sawyer could have discussed any aspect of the Arrangement with Mr Meagher if she had met with him before the meeting with Mr Hopkins because, according to her evidence, no part of the Arrangement had been discussed with her by Mr Hopkins prior to that meeting. This causes me to doubt the reliability of her evidence in relation to both the content of discussion and its timing.
Ms Sawyer gave evidence that she received an email from Mr Hopkins via his assistant on 28 June 2012.[165] Ms Sawyer gave evidence that that email set out the proposed dividends which could be paid by Oakhampton over two financial years: being 2012 and 2013. Her evidence was that, at the time the email was written, Oakhampton had not paid sufficient tax to allow it to pay out the entirety of the cash held by it as one fully franked dividend and so the email showed the dividend being paid over two years.[166] The email asked Ms Sawyer to arrange a suitable time to 'discuss the numbers'.
[165] Exhibit 1:30.
[166] ts 168.
Ms Sawyer gave evidence that she responded by contacting Mr Hopkins by telephone on 28 June 2012 from Singapore and discussed the preference that the Oakhampton dividend be paid in one amount before 30 June 2012. When asked '[A]nd did this discussion have any relationship to the - the previous matters that you'd discussed at your meeting on the 19th or thereabouts, with Mr Hopkins?' Ms Sawyer replied:[167]
Yes. It was a finalisation of all those matters and how we would pay the dividend and how the - the cash that the Meagher super fund would then receive would then be remitted back to Mr Hohnen.
[167] ts 169.
Ms Sawyer was then asked 'So there was a discussion about the remission of the cash, in the telephone call that you had, whilst you were in Singapore?' Her answer was 'Yes, I believe there was.'[168]
[168] ts 170.
Ms Sawyer's evidence was that she made notes of that discussion on notepaper from the hotel where she was staying at the time.[169]
[169] Exhibit 7.
Ms Sawyer said that the nominal sum to be ascribed as the consideration for the transfer of the Hohnen interest in Oakhampton was discussed during that telephone call. Her evidence was as follows:[170]
And you had previously discussed, hadn't you, with - sorry did you discuss the numbers with Mr Hopkins during this telephone conversation on the 28th? ---Yes, I believe I did. Yes, because we - we agreed on a number on [sic] 100,000.
Because in your original - your note of the telephone conversation on about 19 June, there was a discussion of other [sic] nominal numbers- - -?---Yes.
- - -as you put it?---We start - we - there - we started at 50,000, 200 or 300,000. We eventually settled on 100,000.
7.4.3 Mr Hopkins
[170] ts 175.
Mr Hopkins gave no evidence of having had a meeting with Ms Sawyer in Perth on a date between 19 and 22 June 2012. Rather, he gave evidence that he had three telephone discussions with her after 18 June 2012. His evidence was they took place on 20, 22 and 28 June 2012.[171]
[171] ts 271.
His evidence was that the first discussion on 20 June 2012 was a 'replica' of the discussion he had had some time earlier with Mr Hohnen in that he explained to Ms Sawyer that there was the flexibility in Mr Hohnen buying out Mr Meagher provided that the vendor is dealing with the seller at arms-length in connection with the event.[172] He said that Ms Sawyer did not tell him what she proposed to do. In cross‑examination Mr Hopkins was asked whether there was a discussion about what would constitute an arms-length dealing. His evidence was that he did not have a detailed discussion about what constituted 'arms-length in connection with the event' at that time but that he had talked to both Mr Hohnen and Ms Sawyer about that issue at their meeting on 31 May 2012, had spoken about it with Mr Montague in the discussions he had with him and also further discussed it with Mr Hohnen on 14 June 2012.[173] Mr Hopkins said it was not a novel concept for a commercial person.[174]
[172] ts 271.
[173] ts 309.
[174] ts 310.
His evidence was that the telephone discussion on 22 June 2012 was held for the purpose of wrapping up the year-end discussions. He said it encompassed discussion about 'the Ben Hohnen tax return', the distribution pattern, confirmation of the final donation amount and the level of franking credits available in Oakhampton.[175]
[175] ts 272.
Mr Hopkins' evidence was that following that discussion on 22 June 2012, he asked his assistant Ms Kara Meschiati to send an email to Ms Sawyer setting out the 'final numbers' and asking for her to organise a suitable time to call him.[176] The email was sent on 28 June 2012. Mr Hopkins said it showed dividend payments being made over two years because franking credits are only available after a tax payment is made and typically the tax is paid in the year following the receipt of the moneys. That is, because the majority of Oakhampton's income was received in 2012 the expectation was the tax would be paid in 2013.[177]
[176] Exhibit 1:30; ts 272.
[177] ts 273.
Mr Hopkins was asked about whether he had a telephone conversation with Ms Sawyer on 28 June 2012 and he said that he did not think there had been one.[178] His evidence was that he was next asked to prepare the variation paperwork necessary to bring forward into the June quarter the lion's share of the tax that would be payable by Oakhampton in 2013 so that the cash held by Oakhampton could be paid out as one fully franked dividend in 2012 rather than spreading it over 2012 and 2013 tax years.[179] He said he prepared the paperwork and he thought that instructions for him to sign the paperwork came through. His evidence was that he knew that the varied instalment activity statement was filed.[180]
[178] ts 273.
[179] ts 273.
[180] ts 274.
8. Documents
Mr Hopkins produced no file notes of telephone discussions which he gave evidence about. Haphazard record keeping was his explanation for the lack of notes.[181]
[181] ts 284.
Ms Sawyer gave evidence that exhibits 1:24 and 1:32 were her notes of the telephone discussions which she had with Mr Hopkins on 19 June 2012 and 28 June 2012 respectively. An examination of those notes reveals that they are consistent with Ms Sawyer's account of the substance of those discussions. However, acceptance of the notes as an accurate record of the discussion requires Ms Sawyer's evidence of the discussions to be found to be honest, accurate and reliable.
Exhibit 1:30 is the email and attachments sent to Ms Sawyer by Ms Meschiati on behalf of Mr Hopkins. It sets out dividends which could be paid from Oakhampton as fully franked dividends over two years having regard to the tax already paid by it for the 2012 financial year and the franking credits available to it.
The cover email states that the calculations are provided as the basis for discussions.
9. Findings
I am not satisfied that Mr Hohnen and Mr Hopkins met on 18 June 2012 as was pleaded although I do accept, on the basis of the email Mr Hohnen sent to Ms Sawyer on 18 June, that Mr Hohnen and Mr Hopkins had had some discussion about tax planning subsequent to 31 May 2012 and before that email of 18 June 2012 was sent.
Given Mr Hohnen's lack of evidence as to the contents of that discussion I am not satisfied on the balance of probabilities:
a.that Mr Hopkins set out the details of the Arrangement in that discussion;
b.that Mr Hohnen instructed Mr Hopkins that he would adopt the Arrangement if Mr Hopkins considered it was legitimate; or
c.that Mr Hohnen told Mr Hopkins to explain the details of the Arrangement to Ms Sawyer so that she could prepare the paperwork if Mr Hopkins thought it was legitimate.
Given the concerns I have about the honesty, accuracy and reliability of the evidence given by Ms Sawyer and because Mr Hopkins' evidence was not implausible and because there was nothing about the way in which he gave evidence that caused me to doubt his honesty, accuracy and reliability on this point as a witness, I am not satisfied on the balance of probabilities that Ms Sawyer met with Mr Hopkins in person on 19 June 2012 and that in that discussion he laid out the details of the Arrangement as was pleaded and as Ms Sawyer said he did.
I find it highly improbable that, if the Arrangement had been detailed to Ms Sawyer and Mr Hohnen, and advice as to its lawfulness given before 28 June 2012, Mr Hopkins' email of that date would have set out calculations of the dividends over two years and contain a request for Ms Sawyer to identify any inaccuracies.
For the same reasons, while I am satisfied that Mr Hopkins and Ms Sawyer spoke by telephone on 28 June 2012 I am not satisfied on the balance of probabilities that Ms Sawyer's account of that conversation was honest, accurate and reliable.
10. Did Mr Hopkins give the advice?
Remembering that Mr Hohnen's evidence was that Mr Hopkins had come up with a good plan by 19 June 2012 and he had told Mr Hopkins to 'take it to Janis' and that he gave no evidence that the details of the plan had been spelled out to him at or before 19 June 2012, it is notable that no evidence was given either by Mr Hohnen or Ms Sawyer that Ms Sawyer conveyed to him the details of the Arrangement after the meeting she said she had with Mr Hopkins on or about 19 June 2012, or after the telephone discussion which Ms Sawyer said she had with Mr Hopkins about the Arrangement on 28 June 2012.
In cross-examination Ms Sawyer gave evidence that she regarded the Arrangement, in particular the gifting of the money to Mr Hohnen by Mr Meagher as 'grey'.[182] It is noteworthy that, while she said Mr Hopkins conceived all aspects of the Arrangement, she did not at any time say that she had queried with him whether the funds paid to Mr Hohnen by Mr Meagher would be properly treated as a gift for tax purposes and that no income tax would be required to be paid on those funds.
[182] ts 231.
I find it implausible that Ms Sawyer would have failed to keep a note that Mr Hopkins had given advice as to the legitimacy of the Arrangement in light of her evidence that although she was not in the habit of making notes of everything said at meeting it was her practice to make a note of matters of importance and of matters which she was required to follow up.[183]
[183] ts 146.
The notes which the parties claim they made at the time are not of great assistance in resolving the issue. None record all aspects of the Arrangement. Those which are in evidence do not specifically record that Mr Hopkins advised that the Arrangement was lawful. In my view, the documents tendered in this case only support the plaintiffs' case if the evidence given by Mr Hohnen and Ms Sawyer is preferred to the evidence of Mr Hopkins about what the notes record and about what was said by Mr Hopkins in meetings and telephone discussions.
Given:
a.Mr Hopkins' evidence of the content of the discussions which he had with Mr Hohnen and Ms Sawyer was not implausible;
b.despite the frustration which was apparent from the way in which Mr Hopkins answered some questions asked of him in cross-examination, there was nothing in his evidence which caused me to find he was not a credible witness;
c.the documents are essentially neutral in this case;
d.that Mr Hohnen and Ms Sawyer have both given evidence that they were prepared to knowingly falsify records to bring the Arrangement into effect and had demonstrated an intention to conceal documents in the event of a review by the ATO;
e.the absence of specific evidence from Mr Hohnen and Ms Sawyer that Mr Hopkins specifically advised them that the Arrangement was legitimate and there would be no requirement to pay tax on the payments made by Mr Meagher; and
f.the generally unfavourable views I formed of both Mr Hohnen and Ms Sawyer as witnesses,
the plaintiffs have not satisfied me on the balance of probabilities, as it was their obligation to do, that Mr Hopkins gave the advice which it was claimed he did in relation to the structuring of the Arrangement and the way in which the payment made by Mr Meagher to Mr Hohnen pursuant to the Arrangement would be treated for tax purposes.
11. Reliance
As the plaintiffs have not satisfied me to the requisite standard that Mr Hopkins gave the advice, there is no rational basis for me to make any findings in relation to reliance.
12. Assessment of loss and damage if liability had been established
In case I am wrong in relation to causation, I will deal with the issue of the quantum of damages to which the plaintiffs would be entitled. As I noted earlier in these reasons, although the defendant did not agree to the quantum of damages it was accepted that there was no issue raised by the defendant in relation to quantum.[184]
12.1 Fees for professional services charged for defendant's professional services regarding the preparation and lodgement of the plaintiffs' original 2012 tax returns
[184] ts 253.
The plaintiffs claim from the defendant the moneys paid by Mr Hohnen to Mr Hopkins in connection with the preparation and lodgement of the plaintiffs' original 2012 tax returns.
The fees charged by Barringtons Chartered Accountants for payment for services from 1 May 2012 to 28 June 2012 are detailed on invoice 213524.[185] The sum charged was $5,464.27.[186]
[185] Exhibit 1:43.
[186] Exhibit 1:43.
As I have already found, Mr Hopkins worked for Barringtons Chartered Accountants at that time and was responsible for the preparation and lodgement of Mr and Mrs Hohnen's 2012 tax returns.
Ms Sawyer gave evidence that Mr Hohnen approved the payment of that invoice by her on his behalf.[187]
[187] ts 225.
I accept that unchallenged evidence of Ms Sawyer and find that Mr Hohnen did pay the sum of $5,464.27 to Barringtons for the services provided by Mr Hopkins involved in the planning for, preparation and lodgement of Mr and Mrs Hohnen's original 2012 tax returns.
12.2 Legal fees for resolving audit issues with the ATO
The plaintiffs tendered invoices for services provided by lawyers engaged specifically to resolve the audit with the ATO and submit amended 2012 tax returns.[188]
[188] Exhibit 2; Exhibit 1:79; Exhibit 1:81; Exhibit 1:84; Exhibit 1:87; Exhibit 1:90; Exhibit1:96.
Mr Hohnen gave evidence that it was in September 2015 that he first became aware that Mr Meagher's tax affairs might be reviewed. His evidence was that his response was to instruct Ms Sawyer to give whatever assistance was necessary.[189]
[189] ts 91.
He gave evidence that he first understood that the ATO might be looking at his financial position and that of his wife and other Hohnen related entities upon receipt of a letter from the ATO dated 11 January 2016.[190]
[190] ts 91. The letter is exhibit 1:74.
Mr Hohnen gave evidence that after being informed about the audit he sought a reference for a tax lawyer to 'review my situation and advise me'[191] and that Mr Ken Schurgott was recommended to him. He gave evidence that he engaged Mr Schurgott and that ultimately a settlement was reached with the ATO. Mr Hohnen's evidence was that Mr Schurgott provided his services initially through the firm Brown Wright Stein and then through his own firm Schurgott & Co.[192] He gave evidence that he received invoices for that work and that those invoices were paid.[193]
[191] ts 91.
[192] ts 91.
[193] ts 93.
I accept Mr Hohnen's unchallenged evidence that Mr Schurgott was engaged to provide him with advice in respect of the ATO audit. I accept that the invoices relate to work done by Mr Schurgott in connection with the ATO audit. The invoices total $40,080.96.
The Plaintiffs also claim the sum of $3,277.60 for legal services provided by Schurgott & Co jointly to Mrs Hohnen and Mr Hohnen for the period 12 September 2016 to 9 January 2017 detailed on invoice 49. This amount has already been included in the calculation of the legal fees Mr Hohnen incurred in dealing with the ATO and I see no reason why it should be claimed again in relation to Mrs Hohnen. The way this case was run without the involvement of Mrs Hohnen and given the quantum of damage was unchallenged I accept Mr Hohnen's evidence that the invoices from Schurgott & Co were paid as evidence that invoice 49 was paid.
Accordingly, I find that the first plaintiff paid $40,080.96 (inclusive of GST) and the second plaintiff did not pay any additional amount for legal services provided in connection with the resolution of the audit arising from their original 2012 tax returns.
12.3 Accounting fees for resolving audit issues with the ATO
The plaintiffs have also claimed the fees that were paid to PKF Lawler, where Mr Hopkins worked at that time, for accounting services provided in the period 10 July 2015 to 17 July 2015 detailed on invoice 78985 in the amount of $1,665.58 and in the period to 22 December 2015 detailed on invoice 82185 in the amount of $3,015.84.
The invoice for the period 10 July 2015 - 17 July 2015 was part of the trial bundle but was not tendered by the plaintiffs. No evidence was given about the services referred to in that invoice.
In the absence of evidence regarding provision of and payment for accounting services provided between 10 July 2015 - 17 July 2015, those fees cannot form part of any damages to be awarded to the plaintiffs.
The invoice 82152 issued on 22 December 2015 for services provided in the period ending 30 October 2015 was tendered and became exhibit 1:73. The invoice is for $3,015.84 inclusive of GST. The invoice describes the fees as being for 'Oakhampton Pty Ltd Matters' which are detailed in the invoice as:
Preparation of responses to questions from the Australian Taxation Office (ATO) regarding transactions in Oakhampton Pty Ltd including:
·Foreign currency deposits;
·Sale of shares and calculation of gains;
·Transfer of shares; and
·Payment of dividends.
Providing advice on possible tax implications of outcomes of ATO audit including calculation of tax payable on three differing scenarios.
Reconciliation of Financial Information in Quickbooks to answers provided to ATO.
Meeting with Rick Hopkins and Janis Sawyer on 7 October 2015.
Meeting with Rick Hopkins, Mark Hohnen and Janis Sawyer on 9 October 2015.
Various discussions between Rick Hopkins and Janis Sawyer regarding the same.
Discussions, correspondence and advice regarding the above.
Mr Hohnen's own evidence was that he did not discuss the audit with Mr Hopkins because Mr Schurgott advised him not to do so. That oral evidence is contradicted by the documentary evidence tendered by the plaintiffs and the plaintiffs' own claim for damages in respect of that work. Given that Mr Schurgott was not engaged until 2016, perhaps Mr Hohnen meant that he had no further conversations with Mr Hopkins after he was advised not to. However, no clarification was made in his evidence and resolving that difference would only be a matter of speculation.[194]
[194] In exhibit 2 on page 3 there is a billing item for a tele conference between Mr Hopkins, Mr Hohnen and Mr Schurgott.
I prefer the documentary evidence to that given by Mr Hohnen that he did not discuss the audit with Mr Hopkins. The invoice was issued closer to the time covered by it and Mr Hohnen gave evidence that he had difficulty recalling certain aspects of the history of this matter.
I am satisfied on the balance of probabilities that Mr Hopkins did provide accounting services to Mr Hohnen as set out in exhibit 1:73 in connection with the ATO audit of the Hohnen affairs.
In that circumstance I find that the plaintiffs did pay to the defendant the sum of $3,015.84 claimed in the invoice exhibit 1:73 issued by PKF Lawler for accounting services relating to the ATO audit arising from the lodgement of the plaintiffs' original 2012 tax returns.
I find that the evidence establishes that Mr Hohnen incurred $3,015.84 in accounting fees in connection with the resolution of the audit.
12.4 Penalties paid to the ATO
Mr Hohnen gave evidence that both he and Mrs Hohnen were required to pay penalties to the ATO as a consequence of the errors in their 2012 tax returns.[195]
[195] ts 92.
Exhibit 3 is an uplift from the ATO's portal for each of Mr Hohnen, Mrs Hohnen and the Hohnen Group that the plaintiffs submit identifies the payment by each of them of additional taxation, interest and penalties. No objection to its admissibility as a business record was taken by the defendant.
I find that that evidence establishes Mrs Hohnen was required to and did pay to the ATO the sum of $117,000 as a penalty as a result of lodging the original 2012 tax return.
I find that the evidence establishes that Mr Hohnen was required to and did pay to the ATO the sum of $117,000 as a penalty as a result of lodging the original 2012 tax return.
12.5 Shortfall penalty interest
The plaintiffs claim the shortfall penalty interest each was required to pay to the ATO as part of the resolution of this matter. Exhibit 3 shows Mr Hohnen paid $42,903.79 on 8 December 2016 for 'Shortfall interest charge' and that on 21 December 2016 he received a credit of $3,361.36 as 'remissions of shortfall charge (SIC) for the 2012 income year'. Accordingly I find that the evidence established that Mr Hohnen paid $39,542.43 by way of shortfall interest to the ATO in connection with the 2012 income year.
Similarly exhibit 3 shows that Mrs Hohnen first paid a shortfall interest charge for tax shortfall for the 2012 income year calculated from 23 May 2013 to 8 December 2016 of $1,654.12. Then on 8 December 2016 Mrs Hohnen paid a further $41,609.63 for the period calculated from 23 May 2013 to 14 December 2016. It also shows she received a credit of $4,359.82 for 'remission of shortfall interest charge (sic) for the 2012 income year' on 21 December 2016. On the basis of that evidence I find that Mrs Hohnen paid to the ATO the sum of $38,903.93 by way of shortfall interest for the 2012 income year.
12.6 Conclusion on damages
I find that the evidence established that Mr Hohnen was required to pay the sum of $205,103.50 as a penalty, short fall interest penalty and for legal and accounting services as a consequence of his initial failure to lodge accurate 2012 tax returns.
I find that the evidence established that Mrs Hohnen was required to pay the sum of $155,903.93 as a penalty, short fall interest penalty and services as a consequence of her initial failure to lodge accurate 2012 tax returns. Although she was jointly liable for the legal fees in invoice 49, that has been assessed as part of the fees incurred by Mr Hohnen.
In total, I find that as a consequence of the plaintiffs' failure to lodge accurate 2012 tax returns they were required to pay the sum of $361,007.43 by way of penalties, short fall interest penalties and for legal and accounting fees.
13. Conclusion
Having found that the plaintiffs have not made out their claim I propose to dismiss the plaintiffs' claim and to enter judgment for the defendant.
I will hear the parties as to costs.
I certify that the preceding paragraph(s) comprise the reasons for decision of the District Court of Western Australia.
CH
Associate to Judge Glancy1 JULY 2020
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