Seller v Commissioner of Taxation
[2013] FCA 1373
•18 December 2013
FEDERAL COURT OF AUSTRALIA
Seller v Commissioner of Taxation [2013] FCA 1373
Citation: Seller v Commissioner of Taxation [2013] FCA 1373 Parties: ROSS EDWARD SELLER v COMMISSIONER OF TAXATION; PATRICK DAVID MCCARTHY v COMMISSIONER OF TAXATION File numbers: NSD 658 of 2011; NSD 659 of 2011; NSD 660 of 2011; NSD 661 of 2011; NSD 662 of 2011; NSD 663 of 2011; NSD 664 of 2011; NSD 1074 of 2011; NSD 1077 of 2011; NSD 1079 of 2011; NSD 1080 of 2011; NSD 1081 of 2011; NSD 1082 of 2011; NSD 1083 of 2011 Judge: ROBERTSON J Date of judgment: 18 December 2013 Catchwords: TAXATION – tax appeals – related criminal proceedings pending against the taxpayers – application for stay of tax appeals – judicial discretion – interests of justice – whether real risk of injustice in the criminal proceedings if tax appeals continued Legislation: Evidence Act 1995 (Cth) s 128
Federal Court of Australia Act 1976 (Cth) ss 37AF, 37AICases cited: Australian Securities and Investments Commission v ActiveSuper Pty Ltd (No 5) [2013] FCA 369
Australian Securities and Investments Commission in the matter of Northwest Resources Ltd v Craigside Co Ltd BVI Co Number 74124 named in the Schedule (2013) 93 ACSR 176; [2013] FCA 201
Commissioner of Taxation v Futuris Corp Ltd (2008) 237 CLR 146
Hua Wang Bank Berhad v Commissioner of Taxation (No 15) [2013] FCA 1124
Hurley v Federal Commissioner of Taxation (1992) 37 FCR 11
McCarthy v Commissioner of Taxation [2013] FCA 715
McMahon v Gould (1982) 7 ACLR 202
R v Seller; R v McCarthy (2012) 269 FLR 125; [2012] NSWSC 934
R v Seller; R v McCarthy (2013) 273 FLR 155; [2013] NSWCCA 42
Reid v Howard (1995) 184 CLR 1
Websyte Corporation Pty Ltd v Alexander (No 2) [2012] FCA 562
X7 v Australian Crime Commission (2013) 298 ALR 570; (2013) 87 ALJR 858; [2013] HCA 29Date of hearing:
Date of last submissions:
17 October 2013
4 November 2013
Place: Sydney Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 63 Counsel for Mr Seller: Ms TJ Davy Solicitors for Mr Seller: Pearson Tax Lawyers Counsel for Mr McCarthy: Mr P Bruckner Counsel for the Commissioner of Taxation: Mr DB McGovern SC and Mr AJ O’Brien Solicitors for the Commissioner of Taxation: Australian Government Solicitor
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
NSD 658 of 2011; NSD 659 of 2011; NSD 660 of 2011; NSD 661 of 2011; NSD 662 of 2011; NSD 663 of 2011; NSD 664 of 2011;
BETWEEN: ROSS EDWARD SELLER
ApplicantAND: COMMISSIONER OF TAXATION
Respondent
JUDGE:
ROBERTSON J
DATE OF ORDER:
18 DECEMBER 2013
WHERE MADE:
SYDNEY
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
NSD 1074 of 2011; NSD 1077 of 2011; NSD 1079 of 2011; NSD 1080 of 2011; NSD 1081 of 2011; NSD 1082 of 2011; NSD 1083 of 2011;
BETWEEN: PATRICK DAVID MCCARTHY
ApplicantAND: COMMISSIONER OF TAXATION
Respondent
JUDGE:
ROBERTSON J
DATE OF ORDER:
18 DECEMBER 2013
WHERE MADE:
SYDNEY
THE COURT ORDERS THAT:
1.The interim suppression orders made under s 37AI of the Federal Court of Australia Act 1976 on 17 October 2013 in respect of the confidential exhibits have effect until, and including, 5 February 2014.
2.Counsel are to confer in order to file, by 3 February 2014, an agreed form of orders in respect of the appropriate interlocutory orders to give effect to these reasons for judgment, the costs of the applicants’ interlocutory applications and any suppression orders in relation to the confidential exhibits. If agreement is not reached in respect of a particular matter or particular matters then that should be noted on, and the competing orders set out in, a single document to be filed by that time, 3 February 2014.
3.These appeals are stood over for directions at 9:30 AM on 5 February 2014.
Note:Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
NSD 658 of 2011; NSD 659 of 2011; NSD 660 of 2011; NSD 661 of 2011; NSD 662 of 2011; NSD 663 of 2011; NSD 664 of 2011;
BETWEEN: ROSS EDWARD SELLER
Applicant
AND: COMMISSIONER OF TAXATION
Respondent
JUDGE:
ROBERTSON J
DATE:
18 DECEMBER 2013
PLACE:
SYDNEY
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
NSD 1074 of 2011; NSD 1077 of 2011; NSD 1079 of 2011; NSD 1080 of 2011; NSD 1081 of 2011; NSD 1082 of 2011; NSD 1083 of 2011;
BETWEEN: PATRICK DAVID MCCARTHY
ApplicantAND: COMMISSIONER OF TAXATION
Respondent
JUDGE:
ROBERTSON J
DATE:
18 DECEMBER 2013
PLACE:
SYDNEY
REASONS FOR JUDGMENT
Introduction
The applicant Mr McCarthy applies for some of the orders set out in his interlocutory application filed on 30 April 2013. The principal relief he seeks is that his tax appeals in this Court be stayed pending “the final outcome of Supreme Court Proceedings number 2009/00237509 including any appeal”. The proceedings in the Supreme Court are criminal proceedings. He also seeks an ancillary order that orders for the service of evidence by the applicant in his tax appeals be vacated or varied to the extent necessary. Mr McCarthy’s tax appeals are numbered NSD 1074, 1077 and 1079-1083 of 2011.
The applicant Mr Seller seeks similar orders by his interlocutory application filed on 18 April 2013. His tax appeals are numbered 658-664 of 2011. The criminal proceedings in the Supreme Court against him are numbered 2009/00237556.
Unless it is necessary to do otherwise, I shall refer to Mr Seller and Mr McCarthy as the applicants.
The evidence relied on by the applicants was the affidavit of Mr Pearson of 18 April 2013 and the affidavit of Mr McCarthy of 30 April 2013, together with certain exhibits.
Background
Each applicant has entered a plea of not guilty to a charge of conspiracy to dishonestly influence a Commonwealth official. The amended indictment states that between about 24 May 2001 and about 30 December 2002 at Sydney and elsewhere [Mr Seller/Mr McCarthy] did conspire with each other and divers other persons with the intention of dishonestly influencing a Commonwealth public official, namely the Commissioner of Taxation, in the exercise of his duties as a public official.
The gist of the Crown case as conveyed by an “Outline of the case the Crown will present at trial” concerns an agreement to make false representations to tax officers in the course of an audit by the Australian Taxation Office (ATO), the false representations being to officers of the ATO with the intention of dishonestly influencing them to approve and accept deductions claimed in the 1999, 2000 and 2001 income tax returns of taxpayers who had participated in whisky schemes in those years. The representations were to convey false and misleading information regarding: the association of the accused with and relationship between the entities involved in the whisky schemes of 1999, 2000 and 2001; Chambers Finance Limited; and Grant McKenzie Hong Kong Limited.
The “Outline of the case the Crown will present at trial” stated that to establish the significance and context of the alleged misrepresentations the Crown will prove the nature and details of the tax minimisation schemes which came under investigation by the ATO in the period 2000-2003 inclusive. There were annexed three diagrams of what the Crown intended to prove in that respect. The first was entitled “FY1999 Flow Chart for Australian Spirit Management Pty Ltd – Distilled Spirit Scheme”, the second was entitled “FY2000 Whisky Scheme” and the third “FY2001 Flow Chart for Grant McKenzie Pty Ltd & Brierly Financial Ltd – Distilled Spirit Scheme”. To prove the transactions the Crown intends to tender a folder containing transaction documents for each of the three years in which the schemes were implemented, which supported the description of the schemes shown in the diagrams.
The case will endeavour to prove that the conspiracy was directed to the making of misrepresentations about: whether Chambers Finance Limited was a bona fide finance company and whether it was independent of the promoters and managers of the schemes and whether it was independent of other entities involved in the schemes; and the nature of the undertaking and activities and background of Grant McKenzie Hong Kong Limited and whether it was independent of the promoters and managers of the scheme.
The Crown will seek to prove that Mr Seller and Mr McCarthy acted dishonestly by procuring letters from Chambers Finance Limited for presentation to officers of the ATO which they knew misrepresented the true character of Chambers Finance Limited and misrepresented reasons for Chambers Finance Limited not providing information about itself; procuring letters from Grant McKenzie Hong Kong Limited for presentation to officers of the ATO which misrepresented the true character of Grant McKenzie Hong Kong Limited and misrepresented reasons for Grant McKenzie Hong Kong Limited not providing information about itself; making specified representations which they knew were untrue; and causing solicitors and others to make and support representations to the ATO which Mr Seller and Mr McCarthy knew were untrue.
The general proposition on which each applicant relies by way of submission is that the Crown’s case in the criminal proceedings and the tax proceedings both raise certain factual matters as follows:
(a)the nature of the agreements and understandings between Mr Seller and Mr McCarthy and the extent of their co-operation in relation to the 1999, 2000 and 2001 whisky ventures and the ATO investigation;
(b)the role or roles played by Mr Seller and Mr McCarthy in relation to the whisky ventures and the ATO investigation;
(c)the nature of the relationship between Mr Seller and Mr McCarthy and various others, including Mr Egglishaw, Mr de Figueiredo, Mr Ian Robinson and their associated entities;
(d)the agreement or agreements between entities involved in the whisky ventures and the performance of their respective obligations, including the flow of funds between these entities;
(e)the nature of Grant McKenzie Hong Kong Limited and its business affairs, particularly in relation to the whisky ventures;
(f)the extent of Mr McCarthy’s and Mr Seller’s influence over Grant McKenzie Hong Kong Limited;
(g)the capacity or capacities in which Mr Seller and Mr McCarthy dealt with Grant McKenzie Hong Kong Limited;
(h)the financial accountability of Grant McKenzie Hong Kong Limited to Mr Seller and Mr McCarthy, including the availability of its financial records to the ATO;
(i)the independence of Ian Robinson and Ian Robinson Management Limited from Mr Seller and Mr McCarthy;
(j)the destination of monies paid by Grant McKenzie Hong Kong Limited;
(k)the conduct of Mr Seller and Mr McCarthy in relation to the provision of information to the ATO during its investigation of the whisky ventures in 2000 and onward;
(l)their state of knowledge regarding the truthfulness of representations made to the ATO;
(m)their role in arranging for others to make and support representations to the ATO;
(n)the honesty of Mr Seller and Mr McCarthy and their motivations in the course of the ATO audit; and
(o)the investigations of Mr Quincy Tang, his role in reviewing documents and drawing conclusions from them in relation to the entities, transactions and fund flows.
The applicants also drew attention, as relevant to the issue of prejudice to the Commissioner and delay, to the tax years in question being 1999 to 2001, the assessments being issued at the earliest in 2009 and the objection decisions by the Commissioner coming 22 months after the applicants’ objections to the assessments, the objection decisions being in 2011.
The respondent Commissioner relied first on the agreed fact that both applicants replied to the Commissioner’s position paper referred to in the evidence of each of the applicants and on the contents of those replies. The Commissioner also relied on the fact that each applicant had produced appeal statements and on the contents of those appeal statements. Next it was accepted that, leaving aside certain contentions involving the assessment of third parties, there was an amount in dispute in the tax appeals for each applicant of approximately $8 million including interest and penalties. The Commissioner also drew to my attention that the criminal proceedings would not come on for hearing before the middle of 2014.
Submissions
In his written submissions, subsequently adopted by Mr McCarthy, Mr Seller submitted that the tax appeals and the criminal proceedings both raised as central issues the relationship between the applicant and each of the entities in the whisky ventures. The tax appeals concerned each applicant’s liability to tax and GST in respect of his role in the whisky ventures in which investors sought tax deductions for, amongst other things, the manufacture, storage and insurance of whisky. The Commissioner asserted that each applicant controlled or influenced Australian and offshore entities and developed sham agreements to maintain the facade that those entities were at arm’s length. The Commissioner alleged that income of those intermediary entities was, in truth, income of each applicant. In the criminal proceedings it was alleged that each applicant made false representations as to the independence of each of the intermediary entities involved in the whisky ventures.
Mr Seller submitted that a party to pending criminal proceedings may make an application to stay concurrent civil proceedings where there was a “real risk” of interference with the administration of justice. Reference was made to McMahon v Gould (1982) 7 ACLR 202 at 206 where Wootten J, in deciding whether a civil proceeding brought by a liquidator against the defendant in respect of acts done by him as a director should be stayed until the determination of criminal proceedings involving the same subject matter pending against the director, articulated 12 guidelines as follows:
(a) Prima facie a plaintiff is entitled to have his action tried in the ordinary course of the procedure and business of the court (Rochfort v John Fairfax & Sons Ltd [1972] 1 NSWLR 16 at 20);
(b) It is a grave matter to interfere with this entitlement by a stay of proceedings, which requires justification on proper grounds (ibid);
(c) The burden is on the defendant in a civil action to show that it is just and convenient that the plaintiff's ordinary rights should be interfered with (Jefferson Ltd v Bhetcha [1979] 1 WLR 898 at 905);
(d) Neither an accused (ibid) nor the Crown (Rochfort v John Fairfax & Sons Ltd at 21) are entitled as of right to have a civil proceeding stayed because of a pending or possible criminal proceeding;
(e) The court’s task is one of “the balancing of justice between the parties” (Jefferson Ltd v Bhetcha at 904), taking account of all relevant factors (ibid at 905);
(f) Each case must be judged on its own merits, and it would be wrong and undesirable to attempt to define in the abstract what are the relevant factors (ibid at 905);
(g) One factor to take into account where there are pending or possible criminal proceedings is what is sometimes referred to as the accused's “right of silence”, and the reasons why that right, under the law as it stands, is a right of a defendant in a criminal proceeding (ibid at 904). I return to this subject below;
(h) However, the so-called “right of silence” does not extend to give such a defendant as a matter of right the same protection in contemporaneous civil proceedings. The plaintiff in a civil action is not debarred from pursuing action in accordance with the normal rules merely because to do so would, or might, result in the defendant, if he wished to defend the action, having to disclose, in resisting an application for summary judgment, in the pleading of his defence, or by way of discovery or otherwise, what his defence is likely to be in the criminal proceeding (ibid at 904–5);
(i) The court should consider whether there is a real and not merely notional danger of injustice in the criminal proceedings (ibid at 905);
(j) In this regard factors which may be relevant include:
(i)the possibility of publicity that might reach and influence jurors in the civil proceedings (ibid at 905);
(ii)the proximity of the criminal hearing (ibid at 905);
(iii)the possibility of miscarriage of justice eg by disclosure of a defence enabling the fabrication of evidence by prosecution witnesses, or interference with defence witnesses (ibid at 905);
(iv)the burden on the defendant of preparing for both sets of proceedings concurrently (Beecee Group v Barton (1980) 5 ACLR 33 at 39);
(v)whether the defendant has already disclosed his defence to the allegations (Caesar v Sommer [1980] 2 NSWLR 929 at 932; Re Saltergate Insurance Co Ltd (1980) 4 ACLR 733 at 736);
(vi)the conduct of the defendant, including his own prior invocation of civil process when it suited him (cf Re Saltergate Insurance Co Ltd at 735–6);
(k) The effect on the plaintiff must also be considered and weighed against the effect on the defendant. In this connection I suggest below that it may be relevant to consider the nature of the defendant's obligation to the plaintiff;
(l) In an appropriate case the proceedings may be allowed to proceed to a certain stage, eg, setting down for trial, and then stayed Beecee Group v Barton).
In Websyte Corporation Pty Ltd v Alexander (No 2) [2012] FCA 562, Dodds-Streeton J said:
[109] The court has a discretion to grant a stay of civil proceedings when criminal proceedings involving the same subject matter are on foot or “on the cards”. The court’s discretion should not be exercised lightly in this context, but each case will be determined on its merits. The overriding principle is balancing the interests of justice between the parties.
[110] The court will consider, according to the various formulations, whether there is a real and not merely notional danger of injustice in the criminal proceedings, a likelihood of causing injustice in the criminal proceedings, or a real prospect of substantial injustice therein if the civil proceeding continues. The plaintiff’s entitlement to bring and prosecute its case is also an important consideration in this context.
In Australian Securities and Investments Commission in the matter of Northwest Resources Ltd v Craigside Co Ltd BVI Co Number 74124 named in the Schedule (2013) 93 ACSR 176; [2013] FCA 201 at [16] Jagot J adopted what Dodds-Streeton J said in Websyte Corporation Pty Ltd v Alexander (No 2) [2012] FCA 562 as follows:
• “It is well established that this court has an extensive jurisdiction to stay proceedings in the interests of justice and that ‘the matter is one of judicial discretion’ (See Rochfort v John Fairfax & Sons Ltd [1972] 1 NSWLR 16 at [19] and [21] (sic) per Sugerman ACJ (with whom Holmes and Mason JJA agreed))” (at [53]).
• “On the present state of the law, there is no automatic entitlement to a stay of a civil proceeding simply because there are or may be parallel criminal proceedings involving the same or related subject matter” (at [113]).
• “While many courts have recognised tension between Wootten J’s approach in McMahon v Gould to the right of silence in a parallel civil proceeding and the High Court’s approach to the privilege against self-incrimination in Reid v Howard, it has been recognised that any authoritative re-evaluation of McMahon v Gould should be made only by an appellate court, or perhaps the High Court itself” (at [114]).
• “While McMahon v Gould, unless authoritatively re-evaluated, remains applicable, Wootten J did not purport to establish a rigid code, but expressly recognised that the relevant considerations will vary according to the individual case and that his guidelines were not exhaustive. It is also important to observe that Wootten J did not suggest that potential impact on the privilege against self-incrimination was irrelevant in this context” (at [115]).
• “The ‘real risk of injustice’ relevant in this context can relate either to an actual or potential criminal proceeding” (at [117]).
See also Australian Securities and Investments Commission v ActiveSuper Pty Ltd (No 5) [2013] FCA 369 at [15]-[16] per Gordon J.
It was submitted, by reference to X7 v Australian Crime Commission (2013) 298 ALR 570; (2013) 87 ALJR 858; [2013] HCA 29 at [39]-[42] that the right to silence has a series of underlying rights or matters which are designed to be protected, one of which is the privilege against self-incrimination but another of which is the right in the accusatorial process not to disclose any aspect of an accused’s defence. It was submitted that Mr Seller or Mr McCarthy was entitled to reserve whatever he wanted for the criminal case.
Reference was made to what were said to be uncontroversial findings in R v Seller; R v McCarthy (2012) 269 FLR 125; [2012] NSWSC 934 at [57]-[61] per Garling J as to the factual matters proof which was necessary to sustain the criminal charges:
[57] … I will refer to the compulsory examinations by reference to a table which briefly records the nature and subject matter of the questions which Mr McCarthy was asked.
[58]The transcript of the examinations of Mr McCarthy contains the complete details.
Item Date Exh 3 pg Content 1 14/5/07 55 Payments made by Grant McKenzie Hong Kong Pty Ltd (“GMHK”) to Mr McCarthy and associated entities, including the nature and purpose of the payments. 2 14/5/07 117 Mr McCarthy’s knowledge of, and relationship with, Mr Robert Speirs, and the ownership as at 2007 of Chambers Finance Pty Ltd and GMHK. 3 14/5/07 119–23 Background to and commencement of involvement of Mr McCarthy and Mr Seller in the whisky ventures. 4 14/5/07 124–32 GMHK, its inception, role, legal and beneficial ownership including the role of Strachans. 5 14/5/07 133 Honesty of Mr McCarthy and Mr Seller in relation to the ownership of GMHK. 6 14/5/07 140 Dealings of Mr McCarthy and Mr Seller with Strachans. 7 14/5/07 141 The ownership, control and use of Australian Spirit Management Pty Ltd. 8 14/5/07 146–50, 155–56, 161–163 The inception, ownership, control and use of Chambers Finance. 9 15/5/07 190 Beneficial ownership of Chambers Finance. 10 15/5/07 207ff Outline and description of the whisky ventures including the preparation of and diagrammatic outline of each venture. 11 15/5/07 246–249 Fees and commissions charged by GMHK, and Mr Robert Speirs including the disclosure (or lack of it) to investors of these fees. 12 15/5/07 253–255, 260–265, 277–284 Reasonable commerciality of the terms upon which Chambers Finance participated in the whisky ventures, including advancing loans and the participation of other entities. 13 15/5/07 285–287 Elements of deception in the whisky ventures and the honesty of Mr McCarthy as a promoter of the scheme. 14 15/5/07 290–297 The commerciality and rationality of the whisky ventures. 15 16/5/07 322–333 Outline and description of the whisky venture and essential steps for their functioning. 16 16/5/07 384–386 Dishonesty associated with payments to Mr Conklin and associated entities. 17 16/5/07 364–415 Specific questions relating to the authorship, knowledge of, and contents of a large volume of documents and emails involving a variety of steps in each of the whisky ventures. 18 17/5/07 474 Role of Mr McCarthy in undertaking the work of GMHK. 19 17/5/07 602–607 Explanation by reference to documents of the source and destination of payments made under the whisky ventures. 20 12/9/07 712–714 Honesty of dealings with investors and retained counsel. 21 12/9/07 747 Ownership and control of GMHK. 22 12/9/07 753–754 Beneficial ownership of GMHK. 23 12/9/07 781–794 Role of Chambers Finance and Strachans including correspondence from Mr McCarthy and Mr Seller. [59]This necessarily brief summary is sufficient to conclude that the compulsory examination of Mr McCarthy touched upon factual matters, the proof of which are necessary to sustain the criminal charge.
[60]The examination also covered his view, and understanding, of the nature and structure of the arrangements, including the roles and functions of each of the relevant entities, and whether the ventures were accompanied by features of dishonesty.
[61]These were matters about which Mr McCarthy had a right to silence and which engaged his privilege against self-incrimination generally, and also in respect of the specific charge which he now faces. As well, these are matters which may be relevant to any defence which he advances at trial.
Relevantly identical findings were made in respect of Mr Seller at [78]-[81].
Reference was also made to the decision of the New South Wales Court of Criminal Appeal: R v Seller; R v McCarthy (2013) 273 FLR 155; [2013] NSWCCA 42, reversing the decision of Garling J, at [117]. The applicants relied by analogy on what was there said by Bathurst CJ for the Court that Australian Crime Commission examination transcripts ought not to be used by the CDPP:
[113] In the present case Mr Corkery has been the case officer since 2008. The primary judge accepted that he did not read the transcripts in carrying out his functions as case officer. Mr Corkery also said that he was not told anything about the content of the examinations by his predecessor Ms Shouldice. It was not suggested to Mr Corkery that any of his superiors referred to in para [125](b) of the judgment of the primary judge discussed the transcripts with him. Further, the primary judge accepted that counsel retained by the CDPP have not had access to the transcripts or any information concerning their contents.
[114] In these circumstances, there was no evidence before his Honour to justify his conclusion that the trial would suffer from a fundamental defect as a result of the delivery of the transcripts to the CDPP. Further, there is no evidence to suggest use will be made of the transcripts in the future. In these circumstances the delivery of the material to the CDPP and the finding by the primary judge that one or more of certain officers may have read the transcripts does not justify a permanent stay.
[115] There remains the evidence proposed to be given by Mr Tang. I have considered this evidence and it consists of no more than an analysis by an accountant of the financial consequences of certain transactions evidenced in documents considered by him. Even if it be accepted that Mr Tang derived some form of improper advantage from hearing the evidence of Mr McCarthy and Mr Seller and seeing their transcripts, this would not justify a permanent stay. At most it would lead to the exclusion of his evidence. That is a matter for the trial judge to consider.
[116] In these circumstances the appeal should be allowed and the stay granted by the primary judge be set aside. It follows that irrespective of whether the primary judge had power to make the costs order the subject of Grounds 14 and 15 of the Notice of Appeal, that order should also be set aside.
[117] I should add that it would not be appropriate for the CDPP to make any use of the transcripts in the future conduct of this case. If I were of the opinion that there was a threat that this would occur, I would have made the setting aside of the stay subject to an undertaking by the Director that no further use would be made of them. However, in the circumstances, I do not consider this to be necessary.
It was submitted that Mr Seller and Mr McCarthy would have to go into evidence in the tax appeals about the beneficial ownership and the control of Grant McKenzie Hong Kong Limited and Chambers Finance Limited, being matters included in the summary by Garling J in respect of which they had a relevant right to silence for the purposes of the accusatorial process but which could find its way into the hands of the CDPP. This would be a serious matter of unfairness sufficient even to warrant the stay of the criminal trial. It was also submitted that the applicants in the tax appeals would have to go into evidence about the ownership and control of Australian Spirit Management as well.
In relation to discretion generally and in relation to delay, the applicants relied on Hurley v Federal Commissioner of Taxation (1992) 37 FCR 11 where Hill J said at 13-14:
The true position, in my view, is that the court must weigh up against the Commissioner’s right to have the taxpayer’s application heard and decided, the danger that prejudice or injustice may be caused to the taxpayer in the criminal proceedings. What must be considered is what Sheppard J referred to in Sterling Industries Ltd v NIM Services Pty Ltd (1986) 12 FCR 164 and in Re Baker; Flatwash Pty Ltd v Commissioner of Taxation (Cth) (1987) 87 ATC 4,626 as “the requirements of justice overall”.
Prima facie there are two distinguishing factors between an application to stay or adjourn a tax case and an application to stay or adjourn some other civil proceeding, pending a determination of a criminal trial. First, in a tax case it will be the applicant in this Court who will be seeking the stay or adjournment of his own proceedings. That, however, may be thought to be more a matter of form than substance, since a taxpayer is required by the scheme of the taxation appeal procedures to institute the proceedings to dispute the assessment or lose the right to appeal at all. In Baker, Sheppard J expressed the view (at 4,628) that the fact that it was the applicant who was seeking the adjournment ultimately made no difference to the principles to be applied. With respect, I agree.
Secondly, in the ordinary case of a civil proceeding, the applicant, whose case the respondent is seeking to delay, will not be entitled to relief until the case has been concluded, subject only to the right of any applicant to seek in an appropriate case a Mareva injunction to protect the status quo, until the proceedings are completed. However, the situation in a taxation case is quite different. Absent any stay to prevent the Commissioner from recovering outstanding tax, the Commissioner’s statutory right to recover tax is not affected by the institution by a taxpayer of his appeal. So, the Commissioner may, if he chooses, but subject to such order as a court dealing with the matter may make, obtain judgment and proceed to execution, obtain a sequestration order or in the case of a corporate taxpayer, bring about the appointment of a liquidator of the taxpayer, all before the taxpayer has had a chance of litigating the merits of the assessment. It is for the Commissioner to choose whether he wishes to recover the tax before trial, and if, as counsel for the Commissioner suggests to be the case here, he has not sought to do so, that is a matter for the Commissioner.
This is not, however, to say that the principles to be applied in considering whether a taxation case should proceed in the face of a related criminal proceeding differ from those to be applied in other civil cases where the same dilemma arises. It is merely that the rights of recovery which Parliament has seen fit to confer upon the Commissioner are but another factor to be considered in the exercise of discretion by the court in determining where the interests of justice lie in the particular circumstances of the case.
…
In the present case, the prejudice to the applicants of the taxation appeals proceeding is patent. For them to give evidence in the taxation cases would almost inevitably involve them admitting an important ingredient in the criminal proceedings. For them to not give evidence in the taxation case would almost inevitably lead to their appeals being dismissed and the assessments against them being confirmed. Against this must be weighed the interests of the community in the efficient administration of justice and the interests of the Commissioner in having the appeal, which has been instituted by the applicants, disposed of.
Given that the Commissioner may, if he chooses, seek to enforce payment of the tax, it is hard to see that any prejudice to the Commissioner arises, save the delay of the proceedings. That prejudice is, in my view, clearly outweighed by the prejudice to the applicants if they are forced to a trial of the taxation appeals prior to the criminal trials being disposed of.
The Commissioner submitted that the relevant factors in McMahon v Gould (1982) 7 ACLR 202, which had been subsequently approved in numerous cases, made it clear that a party’s right to silence in respect of criminal proceedings and the fact that that right may have to be effectively waived in the course of conducting civil proceedings dealing with a similar subject matter was not of itself a sufficient reason for a stay to be granted.
The Commissioner summarised the legal position as being that the infringing of the “right of silence” of the taxpayer in the criminal proceedings does not give rise to a right to a stay of the civil proceedings; a stay will only be granted where the infringing of that right and, taking into account any other relevant circumstances, will be unfairly prejudicial to the taxpayer not to be granted a stay of the Part IVC civil proceedings; it did not follow that there was any unfairness to the taxpayer simply by reason of the taxpayer having to “disclose his hand” in the Part IVC civil proceedings; and in determining if there was any unfairness the authorities have had regard to the particular circumstances of the case to determine if there is the risk of substantial injustice by reason of the continuation of the civil proceedings – matters the courts have had regard to are proximity of the criminal hearing, any effect on a jury, whether it may cause some interference to witnesses, whether the taxpayer will be obliged to admit matters that are against his interests or matters the Crown may otherwise have difficulty in proving in any prosecution.
The Commissioner submitted there was some overlap between the issues arising in the tax appeals and the criminal proceedings. Primarily the overlap arose in respect of the extent to which the applicants operated at arm’s length in respect of the various entities constituting the whisky schemes. But the kind of evidence that might be expected to be adduced by the applicants in the tax appeals, i.e. to minimise the relationship between the applicants and the various entities, was likely to be entirely consistent with any evidence the applicants may adduce in defending themselves against the criminal charges. The fact that the applicants may be obliged to show their hand in the civil proceedings was not a basis for a stay. This was particularly so where the failure to disclose the defence is likely to be merely tactical (as the defence is consistent with innocence) rather than involving a real risk of self-incrimination. In other words, the Commissioner submitted, there must be some prejudice other than the fact that their defences will be revealed. This may allow for the filing of evidence consistent with their defence but deferring the hearing of the matter, and the testing of such evidence by way of cross-examination, until a later time, depending on the circumstances at that time.
Other factors relevant to the consideration of the stay application, the Commissioner submitted, were the lengthy delay in the applicants making the stay applications; the lengthy delay before the criminal proceedings were likely to be heard; and that the applicants had caused other proceedings to be commenced in the Supreme Court in respect of seeking to recover moneys held overseas in respect of the whisky schemes.
In oral submissions the Commissioner submitted first that the prosecution in respect of each applicant began in 2009 and the tax appeals post-dated the commencement of the prosecution. Second, the Commissioner submitted that the jurisdiction of the Federal Court was invoked by the applicants themselves.
Third, the Commissioner submitted that the prime facie position was that the tax appeals should proceed to trial in the ordinary course, recognising that if the applicants showed or proved that there was substantial prejudice or real injustice to them by the tax appeals proceeding then that would be a basis upon which the Court would exercise its discretion to stay the proceedings.
The Commissioner submitted that the “right to silence” really masked rather than identified the specific matters that needed to be considered. They divided into two alternatives: whether or not there was a situation of being forced to disclose one’s hand to respond or to make a case, or a position of privilege against self-incrimination. The Commissioner submitted that the fact that the existence of a civil action may result in a decision by the accused person to waive his right of silence was not, in itself, a sufficient reason to stay that action. The real question must be the likelihood of causing injustice in the criminal proceeding: Cameron’s Unit Services Pty Ltd v Kevin R Whelpton & Associates (Australia) Pty Ltd (1984) 4 FCR 428 at 434.
The Commissioner submitted there was prejudice to the Commissioner if the stay were granted. There was approximately $8 million in respect of both of the applicants, being liabilities which were outstanding in relation to the assessments issued in 2009.
Relevant to the assessments being issued some eight or nine years after the tax years in question, the Commissioner asserted that the taxpayer in each case had to prove that there was no fraud or evasion: that was altogether a different position from what one would see if it was said that the Commissioner had sat on his hands for eight or nine years.
The Commissioner submitted that the applicants having invoked the processes of the Court and taken steps in the actions justified the view that there was no reason why the preparation of the case for hearing should be stayed.
The Commissioner submitted that although there was a point of intersection between the tax appeals and the criminal proceedings, the allegations in the Crown case were quite distinct and separate from the issues that would be raised in the tax appeals. There was no part of the applicants’ case in the tax appeals that would be expected to involve an admission of the falsehood of the representations to the ATO officers investigating the deduction of claims of the investors. The case of the applicants was entirely consistent with the position in the criminal proceedings. It was to be noted that neither of the applicants had put on any evidence deposing to any prejudice to them by reason of abandoning a right of silence. Showing their hand was really revealing a consistency with the point of intersection with the prosecution which was not a significant intertwining of the two proceedings.
The Commissioner submitted that the allegations that were made in the criminal proceedings consisted of representations that were said to have been made to officers of the ATO in circumstances where the ATO was investigating the deductibility claims of investors in the whisky schemes. It was important therefore to distinguish between the position relating to the 21 or so whisky scheme investors on the one hand and the profits that were derived from the schemes which were the subject of assessments to Mr McCarthy and to Mr Seller.
In reply, the applicants submitted that the genuineness of the arrangement, the independence of the entities and their relationship to the applicants were important aspects of each case: it was the crux of the criminal proceedings and also the crux of the tax appeals. It was simply not enough to say that the applicants were going to run the same case in both proceedings and therefore there could be no prejudice to a defendant in dealing with the nature of transactions that were relevant to both proceedings.
X7 v Australian Crime Commission (2013) 298 ALR 570; (2013) 87 ALJR 858; [2013] HCA 29 at [124]-[125] dealt with the nature of the prejudice that could arise simply because a person was asked in one proceeding to go into detail. I set out the relevant paragraphs at [43] below. I note however that their Honours were concerned with the relationship between executive enquiries and the criminal justice system and not with the relationship between civil proceedings in a court and criminal proceedings.
As to s 128 of the Evidence Act 1995 (Cth) which concerns privilege in respect of self‑incrimination in other proceedings, the applicants submitted that the decision in HMP Industries Pty Ltd v Graham (unreported, Supreme Court of New South Wales, 17 July 1996), cast doubt on whether the section applied to affidavit evidence filed ahead of the trial. I granted the parties leave to file short supplementary written submissions concerning s 128.
The applicants filed a supplementary submission dealing with other topics on which they were granted leave but not dealing with s 128. The Commissioner submitted that a number of Family Court cases had concluded that a certificate under s 128 could issue in those circumstances. The same approach, it was submitted, was taken in Ollis v Melisari [2005] NSWSC 1016 at [5]-[7]. The Commissioner submitted that the better view was that a certificate was not appropriate in respect of a prepared affidavit prior to the affidavit being read at trial. It was submitted that the reasoning in Hua Wang Bank Berhad v Commissioner of Taxation (No 15) [2013] FCA 1124 was a correct analysis of the position. There, Perram J concluded that the mere swearing of an affidavit under Div 29-1 of the Federal Court Rules 2011 (Cth) cannot be the giving of evidence under s 47 of the Federal Court of Australia Act 1976 (Cth) to which s 128(1) of the Evidence Act can apply. Affidavit evidence is given at trial when it is used under s 47 and that occurs only when it is read in accordance with the practice of the Court.
As to the interlocutory orders already made in the tax appeals, the Commissioner noted that on 25 October 2011, Edmonds J made orders that the applicants file and serve their affidavits in chief by 30 April 2012. Order 6 of those orders required any application to extend the time for filing and serving affidavits in chief beyond 30 April 2012 to be made by way of interlocutory application supported by an affidavit. The applicants noted the orders made by Bennett J on 22 November 2012 that the applicants file the affidavit evidence upon which they intended to rely by 22 February 2013. It was the understanding of counsel for the applicants that the orders were made in the context of the applicants’ limited ability to file evidence given the concurrent criminal proceedings, as maintained by them during the interlocutory stages of the tax appeals. As I understood it therefore the applicants sought an order that the time for compliance with the order made on 22 November 2012 that they file affidavit evidence be extended until the final outcome of the criminal proceedings. This was in the alternative to the more general application that the tax appeals be stayed.
Consideration
In practical terms the difference between the parties turned on whether or not the applicants should now be required to file their affidavit evidence in support of their tax appeals. It was this which was the focus of argument on each of the opposing sides. It was not suggested there was any relevant difference for present purposes between the position of Mr Seller and Mr McCarthy.
The primary subject-matters of overlap between the civil and criminal proceedings are, in my opinion:
(a)the relationship between Mr Seller and Mr McCarthy and various others, including Mr Egglishaw, Mr de Figueiredo, Mr Ian Robinson and their associated entities;
(b)the agreements between entities involved in the whisky ventures and the performance of their obligations, including the flow of funds between these entities;
(c)the nature of Grant McKenzie Hong Kong Limited and its business affairs, particularly in relation to the whisky ventures;
(d)the extent of Mr McCarthy and Mr Seller’s influence over Grant McKenzie Hong Kong Limited;
(e)the capacity or capacities in which Mr Seller and Mr McCarthy dealt with Grant McKenzie Hong Kong Limited;
(f)the financial accountability of Grant McKenzie Hong Kong Limited to Mr Seller and Mr McCarthy;
(g)the independence of Ian Robinson and Ian Robinson Management Limited from Mr Seller and Mr McCarthy;
(h)the destination of monies paid by Grant McKenzie Hong Kong Limited.
In my opinion it would be artificial to seek to separate out any of these matters because the dealings and transactions would need to be dealt with as a whole in the applicants’ evidence in the tax appeals.
It is to be recalled that the Commissioner accepted in his submissions that there was some overlap between the issues arising in the tax appeals and the criminal proceedings and that primarily the overlap arose in respect of the extent to which the applicants operated at arm’s length in respect of the various entities constituting the whisky schemes. However I reject the associated submission to the effect that there can be no real risk of injustice in the criminal proceedings because the evidence that might be expected to be adduced by the applicants in the tax appeals was likely to be consistent with any evidence the applicants may adduce in defending themselves against the criminal charges.
Once it is accepted that there is a commonality between matters of fact in the tax appeals and in the criminal proceedings and once it is also accepted that an order to file and serve affidavits requires the deponent not only to deal with all the factual matters relevant to the tax appeals but also to tell the truth about those matters, then the considerations referred to by Hayne and Bell JJ, with whom Kiefel J agreed, in X7 v Australian Crime Commission (2013) 298 ALR 570; (2013) 87 ALJR 858; [2013] HCA 29, particularly at [124] become relevant. Their Honours there said, albeit in relation to a compulsory executive examination under statutory powers, that:
… the requirement to give answers, after being charged, would fundamentally alter the accusatorial judicial process that begins with the laying of a charge and culminates in the accusatorial (and adversarial) trial in the courtroom. No longer could the accused person decide the course which he or she should adopt at trial, in answer to the charge, according only to the strength of the prosecution’s case as revealed by the material provided by the prosecution before trial, or to the strength of the evidence led by the prosecution at the trial. The accused person would have to decide the course to be followed in light of that material and in light of any self-incriminatory answers which he or she had been compelled to give at an examination conducted after the charge was laid. That is, the accused person would have to decide what plea to enter, what evidence to challenge and what evidence to give or lead at trial according to what answers he or she had given at the examination. The accused person is thus prejudiced in his or her defence of the charge that has been laid by being required to answer questions about the subject matter of the pending charge.
In my opinion, given that the onus of proof is on them, for the applicants to not give evidence in their tax appeals would almost inevitably lead to their appeals being dismissed and the assessments against them being confirmed: see Hurley v Federal Commissioner of Taxation (1992) 37 FCR 11 per Hill J.
Although I accept, as submitted by the Commissioner, that the allegations in the criminal proceedings had at their heart representations that were said to have been made to officers of the ATO where it was investigating the deductibility claims of investors in the whisky schemes, and that the tax appeals concern the profits that were derived from the whisky schemes, in my opinion that is to approach the question at too great a level of generality or abstraction: see the matters set out at [40] above.
In my opinion another important consideration is, as adverted to by the Commissioner, that each applicant will wish to show that the Commissioner was not entitled to amend the assessments at any time, that is, that he was in error in being of the opinion there had been fraud or evasion. I note that in the Commissioner’s appeal statement, under the heading “Fraud or evasion”, an issue is identified as to whether the amended assessments issued by the Commissioner were authorised. Under the heading “Contentions” and under the subheading “Fraud or evasion” the Commissioner states that he has formed the opinion that there was an avoidance of tax in the relevant income years due to fraud or evasion by each applicant. The matters relied on by the Commissioner are denied by the applicants and the applicants deny that the Commissioner has properly formed his opinion that there was avoidance of tax due to fraud or evasion. In particular, the applicants deny that there was any fraud or evasion, say there has not been any fraud or evasion and further say therefore that the Commissioner had no power to amend the applicants’ income tax returns. This seems to me to open up the entire state of mind of each of the applicants and it would be artificial to attempt to separate out that state of mind into issues. The state of mind of each of the applicants will no doubt be central in the criminal proceedings.
I also take into account that related to the tax appeals are proceedings pending in this Court under s 39B of the Judiciary Act 1903 (Cth). Prima facie, those proceedings should be heard with the tax appeals: see Commissioner of Taxation v Futuris Corp Ltd (2008) 237 CLR 146. However, as I held in McCarthy v Commissioner of Taxation [2013] FCA 715 at [45], at present this Court does not have jurisdiction in respect of certain grounds in those applications but the Supreme Court of New South Wales, which is hearing the criminal proceedings, does have such jurisdiction.
I agree with and adopt the principles set out by Hill J in Hurley v Federal Commissioner of Taxation (1992) 37 FCR 11. It follows that I place little weight on the matters relied on by the Commissioner that the prosecution in respect of each applicant began in 2009 and the tax appeals post-dated the commencement of the prosecution or that the jurisdiction of the Federal Court was invoked by the applicants themselves.
Similarly I place little weight on the Commissioner’s submission that there was prejudice to him if the stay were granted in terms of the recoverability of the amounts said to be owing by virtue of the assessments.
The relevant delay can be measured in months as the criminal proceedings are likely to be heard in the second half of 2014. Another factor is that it is most unlikely that the tax appeals could be heard earlier than the criminal proceedings given that the present estimates of the length of hearing of the tax appeals were from about one week up to approximately 4 weeks, I infer for all of the tax appeals taken together.
I do not find that there has been any disqualifying delay on the part of the applicants although the interlocutory processes have been protracted. In this regard it is to be noted that in Mr McCarthy’s tax appeals he filed an interlocutory application on 22 June 2012 seeking an order that the tax appeals be stayed until finalisation of the criminal proceedings. In Mr Seller’s tax appeals he filed an interlocutory application on 21 June 2012 seeking an order that the tax appeals be stayed until finalisation of the criminal proceedings. In March and April 2012 applications to stay proceedings on the indictments were heard in the Supreme Court of New South Wales and on 17 August 2012 proceedings on the indictments were permanently stayed by Garling J. Those orders were set aside by the Court of Criminal Appeal on 1 March 2013 and special leave to appeal to the High Court was refused on 6 September 2013.
In my view the other factors relied on by the Commissioner as relevant to the consideration of the stay application are of little weight. I am not persuaded that there was a lengthy delay in the applicants making the stay applications or that there is a lengthy delay before the criminal proceedings are likely to be heard or that it is of any significance that the applicants caused other proceedings to be commenced in the Supreme Court to seek to recover moneys held overseas in respect of the whisky schemes.
Similarly, I place little weight on the fact that each applicant filed a formal response to the Commissioner’s draft position paper. Each such response was provided in April 2009 and therefore was not the subject of an order of the Court that it be provided. Also those documents preceded the service on Mr Seller and Mr McCarthy in October 2009 of court attendance notices in relation to the criminal proceedings.
As to the applicants’ amended appeal statement filed in January 2012 pursuant to orders made by Edmonds J in October 2011, I place little weight on that document because it is in the nature of pleading and states: “The Applicants without admission say that they make this statement solely for the purpose of identifying issues in dispute in these proceedings and that the facts are as follows.”
I weigh up against the Commissioner’s right to have the applicants’ tax appeals heard and decided and the other matters on which he has relied, the prospect of injustice to the applicants in the criminal proceedings. That prospect and the other considerations to which I have referred lead me to conclude that the interlocutory orders which have been made requiring the applicants to file and serve their affidavits in the tax appeals should be varied to a date shortly after the conclusion of the trial of the criminal proceedings.
That order would be interlocutory and open to a further order being made if the circumstances then showed that any further extension of time would be appropriate. I would not make an order that the time for filing the applicants’ affidavit evidence be extended past the trial of the criminal proceedings. On the face of things, any prejudice would be in relation to the giving of evidence at the trial of the criminal proceedings and not in relation to any appeal subsequent to the trial.
In relation to s 128 of the Evidence Act, I would follow the decision of Perram J in Hua Wang Bank Berhad v Commissioner of Taxation (No 15) [2013] FCA 1124 even though his Honour does not appear to have been taken to the decisions of the Supreme Court of New South Wales or of the Family Court to a different effect. The consequence is that if there is an appropriate mechanism it is not s 128 of the Evidence Act but s 37AF of the Federal Court of Australia Act. However, in my opinion neither of these provisions has any great bearing on the question of prejudice on which the applicants rely. As the plurality said in Reid v Howard (1995) 184 CLR 1 at 17:
Moreover and of more importance, the inherent power and the jurisdiction conferred by s 23 of the Supreme Court Act are to be exercised only as necessary for the administration of justice. Quite apart from the difficulties which the orders of the Supreme Court present for the administration of justice, to which reference has already been made, it is inimical to the administration of justice for a civil court to compel self-incriminatory disclosures, while fashioning orders to prevent the use of the information thus obtained in a court vested with criminal jurisdiction with respect to the matters disclosed. Nor is justice served by the ad hoc modification or abrogation of a right of general application, particularly not one as fundamental and as important as the privilege against self-incrimination.
I do not find it necessary to consider the cases to which I was referred as to the possibility of contempt. Those cases deal with the executive arm of government, including the Administrative Appeals Tribunal, and do not seem to me to be apposite to any question I presently need to decide.
Conclusion
For these reasons I will vary the interlocutory orders made to the effect that the time for filing the applicants’ affidavit evidence in their tax appeals be extended until 28 days after the conclusion of the criminal trial or further order. The parties should bring in appropriate short minutes to give effect to that conclusion.
The parties did not address me on the question of costs although each interlocutory application listed costs amongst the orders sought. My preliminary and tentative view is that the costs of the interlocutory application should be costs in the cause, being the tax appeals.
I stand each matter over to 9:30 am on 5 February 2014 for directions. I extend the interlocutory suppression orders in relation to the confidential exhibits up to and including 5 February 2014.
On that date the three matters to be attended to therefore are the orders to give effect to my conclusions; the question of costs of the interlocutory applications if either party wishes to contend against my preliminary and tentative view that the costs should be costs in the cause; and whether or not the interlocutory suppression orders should be extended and, if so, to what date and on what terms.
Counsel are to confer with a view to filing by 3 February 2014 an agreed form of orders in respect of these matters. If agreement is not reached in respect of a particular matter or particular matters then that should be noted and the competing orders set out in a single document to be filed by that time, 3 February 2014.
I certify that the preceding sixty-three (63) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Robertson. Associate:
Dated: 18 December 2013
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