Richard Walter Pty Ltd v Com of Taxation

[1997] HCATrans 38

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney  No S122 of 1996

B e t w e e n -

RICHARD WALTER PTY LIMITED

Applicant

and

COMMISSIONER OF TAXATION

Respondent

Application for special leave to appeal

BRENNAN CJ
McHUGH J
GUMMOW J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON THURSDAY, 13 FEBRUARY 1997, AT 10.47 AM

Copyright in the High Court of Australia

MR D.F. JACKSON, QC:   If the Court pleases, I appear with my learned friend, MR M. CASHION, for the applicant.  (instructed by Rosenblum & Partners)

MR A.H. SLATER, QC:   If the Court pleases, I appear with MS M.M. GORDON for the respondent.  (instructed by the Australian Government Solicitor)

BRENNAN CJ:   Yes, Mr Jackson.

MR JACKSON:   Your Honour, if I could turn first to what is described in the summary of argument as the Jones v Dunkel point.  May I say three things in addition to what is in the summary.  The first is this, and it is clear, in our submission, that the primary judge did regard the failure to call witnesses as germane to two questions - this is in response to something in our learned friend’s submissions - the first question being whether the witness, Mr Holden, should be believed and, secondly, to the ultimate question of sham.

May I, in that regard, refer your Honours to page 33 of the application book at lines 20 to 50.  Your Honours will see in that passage the reference, between lines 20 to 25 to “It must be inferred” et cetera.  Then lines 30 to 35, “significant in a case such as the present”  and there is an allegation of sham.  Then, at the bottom of the page:

I do not accept Holden as a reliable witness.....and would accept his evidence only where it is corroborated -

et cetera.  So that your Honours will see, looking at that passage, that it is apparent that the issue of not calling other witnesses went to the ultimate issue, as well as to the question simply as it is suggested, whether Mr Holden should be believed.  Your Honours, the same ultimate result would not necessarily have come about if the judge had not been, as we would contend, in error on the issue.

Could I come then to the second and third points which are the nature of the error and what, in our submission, is its importance.  The nature of the error, your Honours, is that to which we have adverted in paragraphs 15 and 16 of our summary of argument.

BRENNAN CJ:   This is your amended summary of argument, is it, Mr Jackson?

MR JACKSON:   The one that added a paragraph, your Honour, yes.  The particular paragraphs are unchanged, though.  In relation to paragraphs 15 and 16, what we submit, your Honours, is that in the light of the finding that the primary judge had made at page 31, lines 31 to 35, that Mr Holden had unfettered power and discretion to move money around the group as he determined to be appropriate.  In our submission, in the light of that finding, one would ask, in our submission, what was the other potential witness, Dr Wenkart, to give evidence about?

The second thing was there remained the question whether the inference should be drawn.  In our submission, the judge at first instance and the majority in the Full Court appear to have elided the several questions arising under this head.  May I take your Honours in that regard very briefly to page 33 line 20, the passage I mentioned a moment ago, where his Honour says:

The only witness called by the applicant was Holden.....It must be inferred -

and your Honours will then see what his Honour goes on to say.  He appears to draw the inference - appears to say it must be inferred simply because of the fact of non-calling.  Then, in the Full Court, page 70 ‑ ‑ ‑

McHUGH J:   Before you leave 33, is not your problem that on 33, having referred to the fact that Holden was the only witness called and you would expect the other witnesses would not assist the applicant’s case, the judge went on to say:

However, I do not accept Holden as a reliable witness -

So Holden was disbelieved, not because other witnesses were not called.  It had nothing to do with the failure to call any other witnesses.

MR JACKSON:   With respect, your Honour, on the same page, line 44, he says:

I do not accept Holden as a reliable witness.....and would accept his evidence only where it is corroborated by credible testimony or evidence or where objective circumstances -

et cetera.

McHUGH J:   I know, but even if the judge was completely wrong about what he said from line 20 to line 40, it has really got nothing to do with the case.  In fact, I have some difficulty in seeing why he made those remarks because he seems to have decided the case on the question of credit concerning Holden and there being no corroborating evidence, for whatever reason, your case failed on this point.

MR JACKSON:   In arriving at the view concerning the credit of Holden his Honour does appear, in our submission, to have taken into account the fact that other witnesses were not called.  In that passage which appears at lines 20 to 50 on that page that, in our submission, is the effect of what he is saying.

McHUGH J:   My difficulty is in seeing how the judge got to that from the fact that these other people were not called.

MR JACKSON:   I do not know that I can take it beyond ‑ ‑ ‑

McHUGH J:   Yes, I know, I follow what ‑ ‑ ‑

MR JACKSON:    ‑ ‑ ‑what I have said, except that it is apparent that it is apparent - his Honour sets out, in the preceding few pages, various considerations.  Then he speaks of the position of the witness, Holden, and then, in arriving at his view on Holden, he seems to take into account - I am sorry, I should say at line 20 he says, “The only witness called.....was Holden”.  He then immediately says, “It must be inferred that” and so on.  Then further down the page, in deciding whether to accept him or not, he says he would accept his evidence only, your Honours will see from there on.  So that, your Honours, our submission would be that the approach taken by the judge was, in one way or another, incorrect in that regard.

But could I just say in relation to what was done in the Full Court.  Your Honours will see Justice Lockhart at page 70 line 49, and your Honours will see the reference at the bottom of the page there by Justice Lockhart simply to adoption of an approach, apparently, similar to that of the primary judge, and Justice Hill at page 96, about line 20.  What we are seeking to say is that the several questions in the case in relation to this issue are rather elided by the way in which the conclusion is drawn that there must be an inference adverse in effect by virtue of the failure to call in the end Dr Wenkart.

BRENNAN CJ:   Leaving the name Jones v Dunkel aside, is not this case which turns simply on a proposition that the judge did not place reliance upon the evidence of Mr Holden and there was no other evidence which led him to the conclusion that the assessment was excessive?

MR JACKSON:   Could I deal with that as a second issue, with respect, your Honour.  I am just about to come to that.  If I could just say one more thing in relation to what I was saying before, what I call, if I may, your Honours, the Jones v Dunkel, by way of short description rather than anything else.

BRENNAN CJ:   Yes, so long as we do not misunderstand, by citing the name of a case, that we are involved in some major question of law which is really a question of the ordinary reasoning that leads to a conclusion of fact.

MR JACKSON:   All I was going to say in relation to that, which is really the third aspect of this first point, is that the importance of the issue does really arise because the judgments tend to give a wider operation to the drawing of inferences by reference to what is commonly, though perhaps unnecessarily, described as the Jones v Dunkel principle, than ordinary experience or, as indicated in the Jones v Dunkel statement of principle, would have.  That is why, your Honours, the issue is one of some importance because the view taken by the primary judge and then, of course, in the Full Court does, in our submission, not pay attention to the fact that in applying human experience to these events - the events or the evidence - one does not just draw the conclusion that because a witness is not called the appropriate result follows.

Could I go then to the second area and that is the question whether, assuming the payments were not loans, was it shown that the assessments were excessive?  Your Honours, it is of course the case that the taxpayer bears the burden of showing that the assessment is excessive.  The standard of proof, however, is not proof beyond reasonable doubt.  One does not have to exclude every possibility.  In this case, the finding that was made was that the moneys were not loans and were not to be repaid.  Your Honours will see the finding set out specifically at the bottom of page 34, going over to the top of page 35.  The moneys were then used as funds to lend and invest and I will go to the relevant passage in just a moment.  But may I say just this before doing so.  One can readily understand that the profits that the appellant might have made from investing those moneys, once received, would themselves be income but, we would submit, there is no particular reason why the receipt of the moneys in the first place would itself be a receipt of income rather than a receipt of capital.

The issue, your Honours, is discussed at page 35, line 48, in a passage which goes through to the top of page 37.  What was said ultimately was that - and your Honours will see at the bottom of page 36, line 46, “The payment of the money to Richard Walter” et cetera was an element in a profit making scheme.  But, your Honours, having said that, it was simply, on the evidence, money paid to Richard Walter which Richard Walter was itself able to invest.  If one goes to what was said about it by Justice Hill and the way in which he treated it as being income rather than as having any other nature, that appears at page 105, line 18.  It commences there, your Honours, and goes through for a couple of pages, but may I refer your Honours especially to page 106, about line 25, where he says:

It would be open for a court to conclude in these circumstances that in the years in question Richard Walter was a finance company in the sense that it was carrying on a business of borrowing and lending money in circumstances where its money was, in effect, its trading stock.

But, of course, the finding that it was sham meant that it was not a borrowing of money at all.  So that the situation that obtained was simply that money was paid over, the money was there not to be refunded, it was used for particular purposes, certainly, but it was not money borrowed and it was money which, in our submission, was of its nature, in the facts as they emerged, capital.

McHUGH J:   But it was received on a current basis, received every two or three days, was it not, by a finance company?

MR JACKSON:   Yes.

McHUGH J:   And the onus is on you to show that it was not income.

MR JACKSON:   Certainly, your Honour, but what emerged from the evidence - and, your Honour, we were entitled to rely on the evidence as it emerged - was that it was money which there was no obligation to repay.  It was not money that, itself, came from carrying on any business other than, in effect - any business of investing the money, it was simply money that came in to be used in business and not to be refunded.

McHUGH J:   One does not know what it was.  The onus is on you, and that is the point, is it not?  You have to show that the money that you received was  not income.  Now, you say, “Well, all that is there is - we are a finance company, we receive money every two or three days, we are in the business of borrowing and lending money.”  Now, maybe it was capital, maybe it was not.  But the onus is on you.

MR JACKSON:   Your Honour, in the absence of anything - if I could just put it this way:  the evidence shows where the money came from.  The evidence shows it was paid over and the finding was it did not have to be paid back.  In those circumstances, we would submit that there is nothing to, looking at the facts as they arose, nothing at all to give it the character of income and if one were to look at the nature of it, it appears to be capital.  It is then used, but is not itself money that comes in as, in our submission, in any way income.

McHUGH J:   But it was not for the Commissioner to show it has a character of income, it was for you to show that it did not have the character.

MR JACKSON:   Your Honour, I appreciate that, that is why I referred earlier to the question of it not being - one does not have to prove beyond reasonable doubt.  One looks at the facts as they emerge in the end. 

Your Honours, could I say one further thing about it.  As appears from page 14, your Honours will see a diagram which set out what the arrangements were.  You will see in the top right corner of the diagram about line 15 the taxpayer’s name, Richard Walter, and then the moneys coming across described as “Loans” from the Morlea Partnership.  That was a partnership which consisted of two trustees who are set out down below.  The moneys paid belonged, of course, beneficially to those two trusts and the moneys were disbursed, of course, by the trustee, assuming the finding of sham, to a person who took them with a full knowledge of the circumstances.  I say “a person who took them with a full knowledge of the circumstances” because it was the same person who arranged all the transactions, on the finding made by the judge.  In our submission, moneys of that kind would then be held, in the light of that finding, by the appellant as either a constructive or resulting trustee and section 96 of the Income Tax Assessment Act says, of course, that except as provided by the Act a trustee is not liable to pay income tax. 

Now, your Honours, the position which would obtain, in our submission, would be that the moneys would be held as moneys to which the two trustees were presently entitled beyond the constructive or resulting trust.  In those circumstances - and, your Honours, I should say immediately this was not a point that was argued below ‑ ‑ ‑

GUMMOW J:   I was wondering about that.

MR JACKSON:   I say that immediately.  But the existence of the trusts was recognised and discussed in various parts of the reasons and the various parts of the evidence.

Your Honours, the last matter to which we wish to make some submissions concerns the quantum found by the judge and also found on appeal.  As appears from the primary judge’s reasons at page 30, line 54, the money did not all go all one way.  It is paragraph 4 commencing at the bottom of page 30, and your Honours will see there were very considerable payments back of the moneys in question.  Now, the result - and your Honours will see this then discussed by Justice Hill at page 110 where he deals with the quantum of assessment and penalty.  The fundamental question, if I could put it shortly without going to the numbers of dollars involved. is whether there should or should not have been some credit, in effect, given for the moneys that had been paid back in each of the years.  Your Honours will see at page 110 about line 48 that his Honour says that:

If the payments.....were in fact not loans, then the fact later that some amount was paid by Richard Walter to Morlea could not operate logically to reduce the assessable income of Richard Walter.

Now, your Honours, the position, in our submission, was that what had to be decided in the end was whether, of course, the assessment had been shown to be excessive.  If the moneys that were paid were moneys that were being treated as moneys which were to be attributed to income, the question which arose was how much was the income.  In relation to that question, we would submit we were entitled to have taken into account, either as moneys paid back, because in a case like this they would seem to bear, in our submission, a similar character, have them treated either as a deduction or have them treated as a refund of part of the money that had been paid.

Your Honours, at least in relation to that issue, in our submission, if I can put that at the conclusion, in effect, of what we wish to say, that in calculating what was the amount of income, we had demonstrated that the true amount was less than the amount of the assessment.

Your Honours, those are our submissions.

BRENNAN CJ:   We need not trouble you, Mr Slater.

This application relates to the steps taken by the trial judge in coming to the conclusion that the taxpayer had not discharged the onus of showing that the assessment was excessive.  The submission that the trial judge placed too much reliance on the absence of one or more witnesses who might have been called by the taxpayer is not one which commands a grant of special leave.  The conclusion that the taxpayer had not shown that the whole of the moneys that were admittedly received by the taxpayer did not have the character of assessable income is a conclusion of fact dependent on the particular facts of the case.  On neither point is the case one which warrants a grant of special leave.  Accordingly, special leave will be refused.

MR SLATER:   If the Court pleases, we ask for an order that the costs of the application be paid by the Administrator of the applicant.

BRENNAN CJ:   Have you anything to say about that, Mr Jackson?

MR JACKSON:   No, your Honour. 

BRENNAN CJ:   There will be an order for costs accordingly.

AT 11.08 AM THE MATTER WAS CONCLUDED