FEDERAL COURT OF AUSTRALIA
Kevin Denlay v Commissioner of Taxation [2010] FCA 1434
IN THE FEDERAL COURT OF AUSTRALIA | |
| Applicant | |
AND: | Respondent |
DATE OF ORDER: | |
WHERE MADE: |
THE COURT ORDERS THAT:
1. The application is dismissed.
2. The applicant pay the respondent’s costs of and incidental to the application, to be taxed if not agreed.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. The text of entered orders can be located using Federal Law Search on the Court’s website.
QUEENSLAND DISTRICT REGISTRY | |
GENERAL DIVISION | QUD 347 of 2010 |
BETWEEN: | KEVIN VINCENT DENLAY Applicant
|
AND: | COMMISSIONER OF TAXATION Respondent
|
JUDGE: | LOGAN J |
DATE: | 17 DECEMBER 2010 |
PLACE: | BRISBANE |
REASONS FOR JUDGMENT
1 On 3 November 2008, the respondent Commissioner of Taxation issued to the applicant, Mr Kevin Vincent Denlay, a series of notices notifying the making of amended assessments for the 2002 to 2007 income years, at least purportedly pursuant to the Income Tax Assessment Act 1936 (Cth) (ITAA36) and the Income Tax Assessment Act 1997 Cth (ITAA97). The effect of those assessments as issued, if made according to law, was to render Mr Denlay indebted to the Commonwealth in a total amount of $1,103,578.45, payable to the Commissioner on 27 November 2008. Penalty notices were separately issued by the Commissioner to Mr Denlay at the time when the notices of amended assessment issued.
2 It is necessary to adopt the qualifications “at least purportedly” and “if made according to law” in respect of the amended assessments because of the nature of the claim brought and of the relief sought by Mr Denlay in this proceeding.
3 Initially, Mr Denlay objected to the amended assessments and, upon being dissatisfied with the resultant objection decision of the Commissioner, appealed to this Court against that objection decision – proceeding No QUD 151 of 2009 (the taxation appeal). It is common ground that it is convenient first to hear this proceeding, rather than hear it in conjunction with the taxation appeal. The hearing of the taxation appeal has therefore been deferred, pending the hearing and determination of this proceeding.
4 As a result of interlocutory discovery in the taxation appeal, certain documents came to the attention of Mr Denlay which amplified the background circumstances in which the Commissioner had come to obtain copies of documents (the LGT documents) originating from the LGT Group in Liechtenstein. It was already apparent to Mr Denlay from the reasons for decision furnished to him under cover of a letter from the Commissioner dated 4 November 2008 that information contained in the LGT documents had provided the basis upon which the amended assessments had come to be made. What he came to believe, as a result of documentation obtained on discovery, was that those background circumstances were such as to render the making of the amended assessments unlawful.
5 As a consequence, Mr Denlay commenced the present proceeding pursuant to s 39B of the Judiciary Act 1903 (Cth) in which he seeks, inter alia, an order quashing the amended assessments. He sought and obtained in the taxation appeal a release from the implied undertaking not to use a document discovered in that proceeding otherwise than for the purposes of that proceeding and an order permitting the use of such documents in this proceeding.
6 The position of Mr Denlay’s wife, Mrs Mirja Helena Denlay, is not materially distinguishable from his. She, too, is the recipient of amended assessments having a like foundation and has come to object against them and then to commence a taxation appeal (QUD 152 of 2009). She has likewise sought the judicial review of the decisions to make those amended assessments and an order quashing them (QUD 348 of 2010). Another area of common ground is that the result in her husband’s judicial review proceeding will determine that in hers.
statutory framework for making assessments
7 Liability to income tax is governed now both by the ITAA36 and the ITAA97. The two Acts must be read together. The provisions relevant to the making and amending of assessments remain in the ITAA36.
8 An “assessment” is defined by s 6 of the ITAA36 to mean, materially, “the ascertainment of the amount of taxable income (or that there is no taxable income) and of the tax payable on that taxable income (or that no tax is payable)”. Section 170 of the ITAA36 permits the amendment of assessments in specified circumstances. One such circumstance, and that apparently relied upon here, is where the Commissioner is of the opinion that there has been fraud or evasion (Item 5 in the table under s 170(1)).
9 Section 174 of the ITAA36 requires the Commissioner to give notice of the assessment to the person liable to pay the tax as soon as conveniently possible after the assessment is made.
10 Section 175A of the ITAA36 permits a taxpayer dissatisfied with an assessment to object against it in the manner specified in Part IVC of the Taxation Administration Act 1953 (Cth) (TAA). In turn, Part IVC of the TAA affords a taxpayer dissatisfied with the Commissioner’s decision, in respect of any such objection, the choice of seeking the review of that objection decision by the Administrative Appeals Tribunal or appealing to this court against that objection decision. Mr Denlay chose the latter of these alternatives in his initiation of the taxation appeal. In any such appeal the Court “may make such order in relation to the decision as it thinks fit, including an order confirming or varying the decision”: s 14ZZP of the TAA. Where such an order has become final, the Commissioner must, within 60 days, “take such action, including amending any assessment or determination concerned, as is necessary to give effect to the decision”: s 14ZZQ of the TAA.
11 To understand the nature of the challenge which Mr Denlay seeks to make it is necessary to set out in full certain other provisions in the ITAA36 relating to assessments and to the Commissioner’s obtaining information for that purpose:
166 Assessment
From the returns, and from any other information in his possession, or from any one or more of these sources, the Commissioner shall make an assessment of the amount of the taxable income (or that there is no taxable income) of any taxpayer, and of the tax payable thereon (or that no tax is payable).
167 Default assessment
If:
(a) any person makes default in furnishing a return; or
(b) the Commissioner is not satisfied with the return furnished by any person; or
(c) the Commissioner has reason to believe that any person who has not furnished a return has derived taxable income;
the Commissioner may make an assessment of the amount upon which in his judgment income tax ought to be levied, and that amount shall be the taxable income of that person for the purpose of section 166.
169 Assessments on all persons liable to tax
Where under this Act any person is liable to pay tax (including a nil liability), the Commissioner may make an assessment of the amount of such tax (or an assessment that no tax is payable).
173 Amended assessment to be an assessment
Except as otherwise provided every amended assessment shall be an assessment for all the purposes of this Act.
175 Validity of assessment
The validity of any assessment shall not be affected by reason that any of the provisions of this Act have not been complied with.
177 Evidence
(1) The production of a notice of assessment, or of a document under the hand of the Commissioner, a Second Commissioner, or a Deputy Commissioner, purporting to be a copy of a notice of assessment, shall be conclusive evidence of the due making of the assessment and, except in proceedings under Part IVC of the Taxation Administration Act 1953 on a review or appeal relating to the assessment, that the amount and all the particulars of the assessment are correct.
(2) The production of a Gazette containing a notice purporting to be issued by the Commissioner shall be conclusive evidence that the notice was so issued.
(3) The production of a document under the hand of the Commissioner, a Second Commissioner, or a Deputy Commissioner, purporting to be a copy of a document issued by either the Commissioner, a Second Commissioner, or a Deputy Commissioner, shall be conclusive evidence that the document was so issued.
(4) The production of a document under the hand of the Commissioner, a Second Commissioner, or a Deputy Commissioner, purporting to be a copy of or extract from any return or notice of assessment shall be evidence of the matter therein set forth to the same extent as the original would be if it were produced.
(5) To avoid doubt, subsection (4) applies to a copy or an extract of a document that was given to the Commissioner on a data processing device or by way of electronic transmission unless the taxpayer can show that the taxpayer did not authorise the document.
263 Access to books etc.
(1) The Commissioner, or any officer authorized by him in that behalf, shall at all times have full and free access to all buildings, places, books, documents and other papers for any of the purposes of this Act, and for that purpose may make extracts from or copies of any such books, documents or papers.
(2) An officer is not entitled to enter or remain on or in any building or place under this section if, on being requested by the occupier of the building or place for proof of authority, the officer does not produce an authority in writing signed by the Commissioner stating that the officer is authorised to exercise powers under this section.
(3) The occupier of a building or place entered or proposed to be entered by the Commissioner, or by an officer, under subsection (1) shall provide the Commissioner or the officer with all reasonable facilities and assistance for the effective exercise of powers under this section.
Penalty: 30 penalty units.
Note: See section 4AA of the Crimes Act 1914 for the current value of a penalty unit.
264 Commissioner may require information and evidence
(1) The Commissioner may by notice in writing require any person, whether a taxpayer or not, including any officer employed in or in connexion with any department of a Government or by any public authority:
(a) to furnish him with such information as he may require; and
(b) to attend and give evidence before him or before any officer authorized by him in that behalf concerning his or any other person’s income or assessment, and may require him to produce all books, documents and other papers whatever in his custody or under his control relating thereto.
(2) The Commissioner may require the information or evidence to be given on oath or affirmation and either verbally or in writing, and for that purpose he or the officers so authorized by him may administer an oath or affirmation.
(3) The regulations may prescribe scales of expenses to be allowed to persons required under this section to attend.
12 The general administration of each of the ITAA36, the ITAA97 and the TAA is consigned to the Commissioner: see, respectively, ss 8, 1-7 and 3A of those Acts. In that administration the Commissioner is assisted by three Second Commissioners of Taxation: s 4, of the TAA. Each of the Commissioner and the Second Commissioners is appointed by the Governor-General for a term of seven years and is eligible for reappointment: s 5(1) of the TAA. None of these officials is subject to the Public Service Act 1999 (Cth) (Public Service Act): s 5(2) of the TAA. Apart from the Second Commissioners, the staff necessary to assist the Commissioner in the general administration of various taxation laws are persons appointed under the Public Service Act: s 4A(1) of the TAA. Collectively, those officers and the Commissioner constitute a Statutory Agency for the purposes of that Act of which the Commissioner is the Head: s 4A(2) of the TAA. That statutory agency is known as the Australian Taxation Office (ATO).
a challenge based on futuris
13 Though it will be necessary later in these reasons to examine the same in greater detail, it is convenient at the outset briefly to summarise the nature of the challenge to the amended assessments which Mr Denlay came ultimately to make in this proceeding.
14 Mr Denlay’s submissions took as their starting point the conclusions reached in Commissioner of Taxation v Futuris Corporation Ltd (2008) 237 CLR 146 (Futuris) at [55]-[56] that:
(a) s 175 of the ITAA36 does not bring within the jurisdiction of the Commissioner when making an assessment a deliberate failure to administer that Act according to its terms; and
(b) such failures manifest jurisdictional error which attracts the jurisdiction to issue constitutional writs which is conferred on the High Court by s 75(v) of the Constitution (Cth) and relevantly replicated in the jurisdiction conferred on this court by s 39B(1) of the Judiciary Act.
15 Also by reference to Futuris (at [55]), Mr Denlay’s submission was that a deliberate failure to administer the ITAA36 according to its terms when making an assessment constituted the commission of the tort of misfeasance in public office. It was further submitted, by reference to Futuris (at [55]), that conduct which would constitute that tort was relevantly informed by principles enshrined in s 13 of the Public Service Act. Attention was particularly directed to s 13(4) of that Act, which provides:
(4) An APS employee, when acting in the course of APS employment, must comply with all applicable Australian laws. For this purpose, Australian law means:
(a) any Act (including this Act), or any instrument made under an Act; or
(b) any law of a State or Territory, including any instrument made under such a law.
16 One such Australian law, it was submitted, was s 400.9 of the Criminal Code 1995 (Cth) (the Criminal Code), as scheduled to the Criminal Code Act 1995 (Cth) and as in force prior to 13 December 2006:
400.9 Possession etc. of property reasonably suspected of being proceeds of crime etc.
(1) A person is guilty of an offence if:
(a) the person:
(i) receives, possesses, conceals or disposes of money or other property; or
(ii) imports money or other property into, or exports money or other property from, Australia; and
(b) it is reasonable to suspect either or both of the following:
(i) the money or property is proceeds of crime in relation to a Commonwealth indictable offence or a foreign indictable offence;
(ii) the money or property is proceeds of crime, and the person’s conduct referred to in paragraph (a) takes place in circumstances referred to in subsection (3).
Penalty: Imprisonment for 2 years, or 50 penalty units, or both.
(2) Without limiting paragraph (1)(b), that paragraph is taken to be satisfied if:
(a) the conduct referred to in paragraph (1)(a) involves a number of transactions that are structured or arranged to avoid the reporting requirements of the Financial Transaction Reports Act 1988 that would otherwise apply to the transactions; or
(b) the conduct involves using one or more accounts held with ADIs in false names; or
(c) the value of the money and property involved in the conduct is, in the opinion of the trier of fact, grossly out of proportion to the defendant’s income and expenditure; or
(d) the conduct involves a significant cash transaction within the meaning of the Financial Transaction Reports Act 1988, and the defendant:
(i) has contravened his or her obligations under that Act relating to reporting the transaction; or
(ii) has given false or misleading information in purported compliance with those obligations; or
(e) the defendant:
(i) has stated that the conduct was engaged in on behalf of or at the request of another person; and
(ii) has not provided information enabling the other person to be identified and located.
(3) Subparagraph (1)(b)(ii) applies if the conduct in question takes place:
(a) in the course of or for the purposes of importation of goods into, or exportation of goods from, Australia; or
(b) by means of a communication using a postal, telegraphic or telephonic service within the meaning of paragraph 51(xx) of the Constitution; or
(c) in the course of banking (other than State banking that does not extend beyond the limits of the State concerned).
(4) Absolute liability applies to paragraph (1)(b).
(5) This section does not apply if the defendant proves that he or she had no reasonable grounds for suspecting that the money or property was derived or realised, directly or indirectly, from some form of unlawful activity.
Note: A defendant bears a legal burden in relation to the matter in subsection (5) (see section 13.4).
17 The importance of 13 December 2006 was submitted to be that the Commissioner’s receipt overseas and subsequent importation into Australia of the information in the LGT documents, upon the analysis of which he later came to make the amended assessments, occurred prior to this date and that amendments to this and other sections within Div 400 of the Criminal Code made by the Anti-Money Laundering and Counter-Terrorism Financing (Transitional Provisions and Consequential Amendments) Act 2006 (Cth) came into force that day. The receipt, importation and possession of that information was said to be in contravention of s 400.9 of the Criminal Code as it then stood.
18 In relation to s 400.9 of the Criminal Code and as refined in the course of Mr Denlay’s submissions, the critical issue came to be narrowed to the element found in s 400.9(1)(b)(i) and whether it was reasonable to suspect that either the information or at least the electronic repository of it obtained by the Commissioner was property which was the proceeds of crime in relation to a foreign indictable offence. That foreign indictable offence was said to be found in the criminal law of Liechtenstein.
19 In turn, so the submission went, especially having regard to:
(a) s 13(4) of the Public Service Act; and
(b) what was said in Futuris in relation to s 175 of the ITAA36 and jurisdictional error such as would attract the granting of a constitutional writ,
the Commissioner’s use of the information in the process of assessment was impermissible under the ITAA36 and constituted conscious maladministration such that each of the amended assessments should be quashed.
20 The focus of s 400.9(1)(b)(i) is on whether “it is reasonable to suspect” a particular state of events in relation to, materially, property. It was common ground between the parties that this statutory formulation posited an objective test: George v Rockett (1990) 170 CLR 104 at 112-113. I agree. As stated in that case (170 CLR at 112), the test “requires the existence of facts which are sufficient to induce that state of mind in a reasonable person”. Whether it is “reasonable to suspect” is to be tested in light of the all of the prevailing circumstances, as proved to be known. In McKinnon v Secretary, Department of the Treasury (2006) 228 CLR 423 at [12] Gleeson CJ and Kirby J considered that this objective test, “involves an evaluation of the known facts, circumstances and considerations which may bear rationally upon the issue in question” Though this observation was made in what proved to be a minority judgment, the difference between their Honours and the majority was as to what was entailed in the review by the Administrative Appeals Tribunal of a Ministerial certificate that it would be contrary to disclose a document under freedom of information legislation, not what was entailed in the objective test as described in George v Rockett.
21 It can be seen from this summary of Mr Denlay’s submission that, in relation to s 400.9 of the Criminal Code, its focus came to be on the known prevailing circumstances at the time of the receipt, importation and possession of the information prior to 13 December 2006. The obtaining of that information might be regarded as a step in the Commissioner’s ascertaining of what came to be specified as Mr Denlay’s taxable income in the various amended assessments. It is to be remembered though that the process of assessing did not conclude until some two years later when the amended assessments were made and notice thereof issued.
The commissioner’s receipt of information and related circumstances
22 On the basis of various documents discovered by the Commissioner and exhibited to the affidavit of Mr Denlay’s solicitor, Mr Tiplady, I make the following findings of fact in relation to the Commissioner’s receipt, importation and possession of the LGT documents.
23 Between 23 and 25 October 2006, at an undisclosed location outside Australia, a Mr Heinrich Kieber was interviewed by three senior officers of the ATO, Mrs Jan Farrell, the Senior Assistant Commissioner – International, Mr Michael Monaghan, the Deputy Commissioner – Serious Non-Compliance and Mr Michael O’Neill, an Assistant Commissioner of Taxation. Mr Kieber attended the interview voluntarily. It is evident from the transcript of the interview that other persons were also present at times but their identities, together with some other parts of the transcript, are masked in the copy of the transcript which is in evidence. Neither party submitted that it was relevant to examine the masked parts of the transcript.
24 On 23 October 2006 Mr Kieber told the officers that he had previously worked in Liechtenstein for a bank which was part of the LGT Group (LGT). He said that, when so employed, he was responsible for LGT’s electronic data and, indeed, for implementing the bank’s electronic database. LGT, he said, was owned by a Foundation the beneficial owners of which were the royal family of Liechtenstein. Within the LGT Group, he said, was the LGT Bank and LGT Trust Services.
25 At the same time, Mr Kieber gave the officers a letter dated 23 October 2006 entitled “Australia and Heinrich Kieber” which covered his handing over (on the following day according to the interview transcript) of copies of documents in paper format and also in electronic format, the latter being housed on two compact discs (CD). Mr Kieber had organised the documents into “chapters” directed to particular subjects. Chapter C was entitled, “The LGT Trust Services, Liechtenstein // The Australian Files”. Collectively, the paper documents and CDs comprise what I term the LGT documents.
26 During his initial questioning on 23 October 2006 by the officers as to the covering letter and the structure and ownership of the LGT Group and his employment there, Mr Kieber gave a rather rambling answer in the course of which he stated:
And so somehow ….., destiny or whatever, has brought me to ….. before I left, I could have stayed there but I left myself, and I finished the project and teaching everybody I could have – they could have given me – they wanted to give me another project doing the same - ….. the bank or differently up there, so I said, you know, I – I took an opportunity to obtain a copy of – a hard disk copy of the complete database of the trust accounts.
27 There then followed this exchange which, though lengthy, is desirably set out in full given the nature of the challenge which Mr Denlay seeks to make to the amended assessments.
Q22 How did you do that?
A22 Well, I don’t want to go into specifics, you know – of course, everybody can know that I have breached the law there.
Q23 Yeah.
A23 Because – and doing that, it’s the law, like it’s worse than murder. Well, as long as you – once you give it, then it’s worse than murder.
Q24 Right.
A24 And so I haven’t – if you want, I can I haven’t threatened anybody, I haven’t killed anybody, I haven’t used guns - - -
Q25 Yes.
A25 - - - I just – as you always know the weakest point in a system is always the humans. And as I said in a letter, actually, I was very unhappy about the situation and I – in January 2003 -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- in 1993 – 2003, sorry. …..?
Q26 Dan.
A26 Dan. So I was – I think a lot, should I enter or not and it was more like an over-reaction. It was that I did it now, like writing letters, ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- Yes, I can say here to be clear that LGT Bank knows I have the stuff.
Q27 They know
A27 They know? They know I have the client’s data. What they don’t know is that I have all the other stuff. Of course, they were very concerned, you can imagine. They were very concerned.
MR O’NEILL:
Q28 When you say they had all the other stuff, what do you mean by - - -
A28 Other stuff is all the internal lists and memos and strategies, and for example, I just found one – have you seen – for example strategies or …... in English. What’s …? ….. If you’re ….. you go to a lawyer firm and say, make me an expert – make - - -
Q29 Opinion
A29 - - -opinion, but a better word for opinion, it’s called sometimes – called sometimes ….. if somebody is mentally insane so you’ve got to find out if he’s guilty or not of having done a crime. So the court’s orders - - -
Q30 An expert report.
A30 Expert report. So I just recall an expert report from a law firm in York regarding trust and foundations. It’s somewhere on the disk, maybe you’ve seen it, and the firm is called “Lang” Lang ….. I have it here.
LGT - - -
Mr .......... (Australian voice):
Q31 Sorry – sorry – if they know you’ve stolen something from them - - -
A31 Well, we didn’t call it “stolen”. I mean, I didn’t – I didn’t ….. from a legal point of Liechtenstein, “stolen” is only if it has – if it has a monetary value on it. If this is the – if this is – if that’s a back-up tape, which is a copy ….. the value of course would be three francs, four francs, so that’s what it’s worth. It’s true, it only makes value – it only make value if I could see it Russians so …. use it – use it breaching another law.
Q32 But if they had your card - - -
A32 No.
Q33 - - - for stealing their - - -
A33 Imagine – imagine – I mean, imagine if they would charge me, whatever and it would go public, the last thing they would want is to go public, and I haven’t threatened anything, I haven’t said ….. because I was very pissed off – sorry to use that word, it’s a French word - - -
MR O’NEILL:
Q34 Have they – have they approached you?
A34 No, I approach them.
Q35 You’ve told them - - -
A35 In January before I left Berlin I wrote a letter to the prince.
Q36 Yes. And what happened?
A36 Well, not much happened. They – of course, all the alarm bells went off in Liechtenstein because I mentioned in that letter also some court cases which I don’t believe there should be …. and when they promised me somehow that they will not harm me because of course I – it was like over-reaction, I was not planning stuff. As I said before, it was a one time opportunity, it was not a planned thing.
Q37 Yes.
A37 And actually it’s not first time, it happens sometimes in Liechtenstein, people do that just for different reasons. One is alcoholic and he has financial problems, whatever, and ….. And the thing that I can say now is that I told them, “I don’t have it any more, I destroyed it,” and they hope we keep everything under cover.
Q38 Did they write back to you?
A38 No, they can’t, of course, they don’t write those things. They – I went back to Liechtenstein.
Q39 Yes. But they spoke to you?
A39 Of course. I know it’s very – that’s why I say, because I’m …..
Q40 Henri, it would be useful for us to understand what products the bank, the trust - - -
A40 Ladies and gentlemen ….. Australia, last call.
[Masking out in Exhibit copy]
28 In the course of his interview the following day and at the express request of Assistant Commissioner O’Neill, Mr Kieber gave explanations in relation to some of the Australian “Chapter C” data on the CDs which he had handed over. One such explanation related to an entity recorded in the transcript as the “Durae Foundation”, the beneficial owner of which was recorded as a person with the Christian names “Kevin Vincent” born on 3 March 1951 from Glengarry, New South Wales, 2486. His explanation included the following:
And the partner was in the name of – Durae Foundation ….. “We – he or she or we – undersigned person declare here that, at the end – finally “ –beneficial owner to all the assets are” – there is only one person here, then this person here, called ….. Kevin Vincent, born on the 13th March – sorry, 3rd of March, ’51, and from Glengarry in New South Wales, 2486. Living: Australia; Nationality: Australian.
All of this information is according to beneficial owner. He should have given us a passport copy, but I’ll be – in this case, I didn’t see one. That means we don’t have one, otherwise we would have it. So, there’s not proof that actually we have – it actually doesn’t comply with the rules. Maybe he didn’t want to be ….. but – or he – I’m sure he showed it. Yes, I’m sure. But we didn’t – for some reason nobody took a photocopy of that. That’s enough. That’s why.
And then, of course, this was made in the 18th of June, 2001, even, please recall, on the M2, it says, “This foundation was founded in ’92.” That means for nine years, this document was not said necessary, because only when the compliance law came into force on the 1st of January, 2001, the agency trust, like any other trust company, had to rush in and do all the documents for already-existing stuff.
So, until – until the – let’s say from ’92, until that date, the bank didn’t know who was beneficial owner. It was not a requirement. So, only the trust company knew for those nine years. But since – since 18th – the June 18th, 2001, when this document was sent up to the bank, the bank then saw, “Aha, behind Durae Foundation is this Mr – this Kevin, from Australia.” They didn’t know, up to then and of course, the person – the person that – it’s not a customer – it’s not the beneficial owner who signs that, because beneficial owner cannot sign, cannot sign in the name of – of the foundation, so it’s always the people from the trust company and, you remember, Profile Management Trusts is the – the – is the company of – all the staff are included of the trust services, and they sign collectively, together, this document, and then it’s going to be sent up to the bank. And this document is at the bank’s records, the original one; a copy keeps with the trust company. They only makes one version.
Later in the interview that day Mr Kieber provided the officers with, inter alia, further detail as to how to interpret the data recorded on the CDs in relation to the “Durae Foundation”.
29 In the course of the interview on the next day, 25 October 2006, and in the presence of Senior Assistant Commissioner Monaghan, Mr Kieber gave the following answers to questions posed by Assistant Commissioner O’Neill:
Q133 The material you obtained from LGT, can you tell us a bit about that story?
A133 Well, it’s a few words. I have it.
Q134 Yes.
A134 No, I – of course, as you can imagine, due to might have personal dislike of such things, you know, and a combination of other things, I had a great opportunity to find – or to see, not to find – to see a gap in the security system.
Q135 Yes.
A135 And I had to make a ….. decision, and I did.
Q136 Yes. And that was a computer tape of some description?
A136 I won’t comment on that.
Q137 Okay.
A137 In this direction ….. It’s electronic, yes.
Q138 And some digital image?
A138 Yes.
Q139 Okay. The – after you’d taken the tape, you spoke to someone at LGT or - - -
A139 No. I’ve taken the tape and then I still was working some weeks.
Q140 Right.
A140 And then I – I – my project was finished and I left normally.
Q141 Yes.
A141 They didn’t notice that tape was – that the – whatever I took was missing.
Q142 Right.
A142 To my own surprise.
30 During the course of this overseas interview and in response to an inquiry from the officers Mr Kieber stated that he was willing to come to Australia to be interviewed further in relation to the material which he had provided.
31 By 16 November 2006 Assistant Commissioner O’Neill was able to report to a third party in respect of the information received from Mr Kieber that, “Our preliminary work suggests that the information from this person is valuable.” Inferentially, the LGT documents by this stage had been:
(a) imported or caused to be imported into Australia by one or more of Senior Assistant Commissioner Farrell, Deputy Commissioner Monaghan and Assistant Commissioner Michael O’Neill;
(b) subjected to preliminary analysis by Assistant Commissioner O’Neill and officers of the ATO working under his control.
32 By April 2007 an investigation under the name “Project Jade” was being conducted by the ATO to exploit the information contained in the LGT documents to the end of identifying those who had evaded liability to income tax in Australia and the amounts of tax evaded. By that stage, the ATO had formed the view that the LGT Group of companies:
(a) was controlled by the Crown Prince of Liechtenstein, Prince Hans-Adam II;
(b) included two entities:
(i) the LGT Trust, which was described as a trust service company located within Liechtenstein; and
(ii) the LGT Bank, which provided banking services within and outside Liechtenstein.
33 Mr Denlay and his wife were two of the persons who were then the subject of the Project Jade investigation. As at April 2007 the Commissioner’s analysis of the LGT information, Australian income tax returns lodged by them and information from the Australian Transaction Reports and Analysis Centre (AUSTRAC), the body continued in existence by the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth), had led him to form the following views about Mr and Mrs Denlay, as evidenced by their inclusion in an official ATO briefing presentation:
The Dorje Foundation was established in November 1992.
Bank Statements from the LGT Bank show that as at January 2002 $ US 1.88m was held in the Foundation’s account.
Notes from the LGT Bank show that Mr Kevin Denlay is the beneficial owner of the assets of the Dorje Foundation. Notes also show that Mr Denlay’s spouse Mrs Marja Denlay (Pykalainen) has a beneficial entitlement to the assets. Background information held by the bank indicate that Mr Denlay owns a deep sea diving business.
Tax return data shows that Mr Denlay’s taxable income has varied from $9 020 to $24 461 in the period 2001 to 2005.
Mr Denlay returned foreign source income of approximately $45 000 in each of the 2001 to 2005 years. In those years he advised that he did not have transactions with international parties nor did he have interests in overseas entities.
Tax return data shows that Mrs Denlay’s taxable income has varied from $5 054 to $20 876 in the period 2001 to 2005. In those years he advised that he did not have transactions with international parties nor did he have interests in overseas entities.
AUSTRAC analysis shows that Mr Denlay has received approx $928 000 in 97 transactions from overseas since 1999. None of these amounts have come directly from Liechtenstein. Mr Denlay has also sent overseas approx $89 000 in 22 transactions in the same period. None of these sent directly to Liechtenstein.
AUSTRAC analysis shows that Mrs Denlay has received approx $354 000 in 11 transactions from overseas since 1999. None of these amounts have come directly from Liechtenstein. Mrs Denlay has also sent overseas approx $11 000 in 23 transactions in the same period. None of these sent directly to Liechtenstein.
34 The “Durae Foundation” recorded in the October 2006 interview transcript seems to have been a translation or typographic error for both in this official briefing note and thereafter in ATO documentation what is apparently the same body is referred to as “the Dorje Foundation”.
35 Mr Kieber came to Australia not later than 30 May 2007. On that date he swore an affidavit in New South Wales attesting to the position formerly held by him in the LGT Group and to the provenance ultimately in the records of the LGT Group of the LGT documents provided by him to the ATO.
36 On 7 September 2007 Deputy Commissioner Monaghan wrote to Mr and Mrs Denlay’s legal representatives notifying them that the Commissioner was conducting an audit into their taxation affairs.
37 By the end of February the following year the Commissioner’s Project Jade staff were preparing to interview Mr Denlay pursuant to s 264 of the ITAA36 the following month with counsel having been engaged for that purpose. At a Project Jade case officer meeting in Sydney on 28 February 2008 there was discussion about whether the LGT documents would be admissible in income tax litigation with it being noted that legal advice was being taken on that subject. It is apparent from the minutes of the meeting that the Commissioner had formed the view that the derivative use of the information in the LGT documents was permissible but did have a concern that, in light of then recent media publicity as to obtaining of information from Liechtenstein by various revenue authorities, the legal representatives of those under investigation may claim that the information was obtained illegally and not enter into further discussions.
38 One of the ATO officers noted in the minutes of this meeting as having tendered an apology for his inability to attend that meeting is Assistant Commissioner O’Neill. As with Deputy Commissioner Monaghan’s authorship of the audit notification I infer from this apology that Assistant Commissioner O’Neill had an ongoing involvement in the investigation which culminated in the making of the amended assessments.
39 Also in February 2008, on 15 February, the LGT Group issued to the world at large a media communiqué entitled, “LGT illegally disclosed data material limited to the client data stolen from LGT Treuhand in 2002 – Further information about the offender and the circumstances of the data theft”. Given the month of issue of this communiqué, the reference to recent media publicity in the minutes of the ATO meeting later that month is unlikely to have been a coincidence. It is not possible to say that the media communiqué was in the hands of the Commissioner prior to the meeting but, as is evident from its discovery, a copy of the media communiqué was in the possession of the Commissioner prior to the issuing in November 2008 of the amended assessments.
40 There was some controversy at the hearing as to the extent to which the contents of the various factual representations made in the LGT Group media communiqué were admissible under the Evidence Act 1995 (Cth) as proof of those facts. The result of the ruling which I made in the course of the trial was reflected in a version of the communiqué which became Exhibit 4 in which the portions ruled inadmissible were struck out in red ink. This controversy occurred prior to the narrowing of Mr Denlay’s case so as to focus, so far as Australian illegality by or on behalf of the Commissioner is concerned, on “reasonable to suspect”. In that context, the whole of the contents of the media communiqué have a relevance in their own right, just as information bearing upon the formation of a suspicion as to the provenance of the LGT documents, irrespective of the extent to which any representation in the document might be admissible to prove the actual occurrence of a fact. That being so, and because of what is said in the media communiqué, both as to the LGT documents and Mr Kieber, it is desirable to set out the contents of the communiqué in full (the portions ruled inadmissible as to proof of facts represented are shown in italics):
LGT: Illegally disclosed data material limited to the client data stolen from LGT Treuhand in 2002
Further information about the offender and the circumstances of the data theft
Vaduz, 24 February 2008 – As already assumed in the first media communiqué issued by LGT Group on 15 February 2008, in as far as LGT is concerned, the data material illegally disclosed to the German authorities is limited, with almost complete certainty, to the client data stolen from LGT Treuhand in 2002. On the basis of the indications and circumstantial evidence, LGT is assuming that the data was stolen and illegal disclosed by the same offender. Accordingly, the criminal offence previously registered against a person unknown is to be re-registered directly against the convicted data thief. Now that the facts of the case have become clearer, and on account of the great media interests, LGT is publishing further details about the offender and the circumstances surrounding the theft of the data.
For LGT Group, all the facts now point – despite contradictory statements from sources said to be close to the German intelligence service – to the fact that the data material illegally disclosed to the German authorities is limited, in as far as LGT is concerned, to the client data stolen form LGT Treuhand in 2002. LGT issued a statement on 15 February 2008 about the data theft and the presumed connection with the events in Germany. Even though other rumors have been circulated about these occurrences, LGT Group is assuming on the basis of numerous indications that the person, who illegally passed the data on to the German intelligence service, is the same former employee of LGT Treuhand who stole the data in 2002. Apparently, there is a possibility that law firms were interposed as intermediaries. LGT will now re-register its report of a criminal offence committed by a person unknown directly against the convicted data thief.
Apparently, the stolen data material has also been illegally disclosed, directly or indirectly, to other authorities. According to reports in the media, the previously convicted offender was paid a sum of several millions for the information and was provided with a new identity. LGT regards such methods as being extremely offensive, particularly as it is apparently accepted that the person concerned could also misuse the confidential client data for other criminal purposes.
The data stolen in 2002 comprises various different types of records. They concern approximately 1’400 client relationships of LGT Treuhand, which were established before the end of 2002. The largest proportion, about 600 clients, are resident in Germany. The figure circulated in the media of 4’527 sets of data represents the number of beneficiaries of all the foundations contained in the data material stolen from LGT Treuhand in 2002. The figure should not be confused with the number of clients, who have deposited assets in one or more foundations which in turn have one or more beneficiaries. Furthermore, the generalization put forward in some cases that all the clients affected are tax offenders is to be utterly refuted.
Data theft in 2002 – facts about the offender and the circumstances of the theft
On 15 February 2008, LGT Group announced in a media communiqué that a former employee of LGT Treuhand in Vaduz had stolen client data in 2002; that a criminal case had been registered against him and that he has been subsequently convicted. Furthermore, LGT stated that as a result of contacts between the parties the client data was supposedly returned, and that the data theft related solely to client relationships of LGT Treuhand which had been established up to the end of 2002. The State Court and the Office of the Liechtenstein Public Prosecutor supplemented LGT’s communication on 19 February 2008 with information about the relevant legal aspects.
In the meantime, it has become increasingly clear that the so-called “informant” of the BND German intelligence service is indeed the same convicted data thief who illegally disclosed the client data stolen in 2002. Consequently, and on account of the great interest shown by the media, LGT is now in a position to publish further – from a client perspective partially non-relevant – details regarding the circumstances of the data theft. In order to provide a comprehensive overview, LGT is also publishing information, by way of exception and in consultation with the parties concerned, which does not relate to LGT Treuhand, but rather to other entities
The former employee, who was convicted of the data theft, is a Liechtenstein citizen named Heinrich Kieber (HK). He was active from October 1999 as an external employee of an IT-company, and from April 2001 to November 2002 as an employee of LGT Treuhand. He was tasked, within the scope of the transfer of data inventories to an electronic archive, with checking the scanned documents At the time of his recruitment and during his employment with LGT Treuhand, he had not been previously convicted of a crime. However, as would become known later, an arrest warrant had been issued against HK, which was not accessible for examination during the standard checks carried out on new employees.
This arrest warrant was link to a real estate deal in Spain in 1996, which HK had allegedly financed with uncovered checks, and was issued by the Spanish criminal prosecution authorities in 1997, firstly at national and subsequently at international level. In October 2001, HK was sentenced by the Liechtenstein State Court to pay the injured party a sum of approximately CHF 600’000. HK lodged an appeal against this sentence, which was rejected by the Liechtenstein High Court in October 2002. In November 2002, the Liechtenstein public prosecutor brought a case of serious fraud against HK in connection with the real estate deal in Spain. In the same month, HK left LGT Treuhand and fled abroad. As it later emerged, prior to leaving he had illegally taken client data from his employer and copied them onto four DVDs.
In January 2003, HK sent a letter and a tape cassette to H.S.H. Prince Hans-Adam of Liechtenstein. HK stated that he felt he had been unfairly treated by the judicial authorities. He demanded assistance in solving his legal problems, including the issuing of two new passports, otherwise he would pass on the stolen client data to foreign media and authorities. The demands were rejected, the State Court issues an arrest warrant, and the public prosecutor lodged an indictment against HK. LGT Treuhand succeeded in making contact with HK In May 2003, it persuaded him to return to Liechtenstein and face the legal consequences The Liechtenstein High Court assured him of safe conduct up to the date of the court proceedings Within the scope of the court proceedings, the DVDs with the stolen client were supposedly returned to LGT Treuhand, which later destroyed them. The costs of legal counsel for HK and of his apartment in Liechtenstein were borne by LGT Treuhand.
In October 2003, HK – who had confessed and shown remorse – was sentenced in the first instance by the Criminal Court to four year’s imprisonment for serious fraud, dangerous threats, unlawful compulsion and suppression of documents. Subsequently, in a personal letter to H.S.H. Prince Hans-Adam, HK requested him – in view of his appeal against the conviction – to confirm that he had never felt threatened by HK, which H.S.H. Prince Hans-Adam verified. The final judgment of the High Court in January 2004 convicted HK of serious fraud, unlawful compulsion and suppression of documents, and sentenced him to a term of imprisonment of one year, which was made conditional for a probationary period of three years. The conviction for fraud was based on the previously mentioned real estate deal in Spain; the attempted unlawful compulsion referred to the demands in the letter to H.S.H. Prince Hans-Adam; and the suppression of documents related to the data theft at LGT Treuhand. HK was cleared of the criminal charges of spying in connection with professional or business secrets because the court assumed that at the time of the theft of the client data he did not intend to disclose their contents to foreign entities. The international arrest warrant issued by the Spanish criminal prosecution authorities was rescinded in October 2004 and the criminal proceedings in Spain were suspended in November 2005.
In April 2005, HK addressed another letter to H.S.H. Prince Hans-Adam, in which he petitioned the Prince for a pardon. This request for a pardon was turned down by H.S.H Crown Prince Alois in agreement with the competent authorities. However, in May 2005, the right to information about the criminal records of HK was restricted to criminal prosecution authorities, which would have occurred ipso jure from January 2006 LGT Group is not aware of HK’s present whereabouts. According to reports in the media, he is living under a new identity in Australia.
41 On 27 February 2008 the Liechtenstein Office of the Public Prosecutor issued the following press release detailing action which it was taking in respect of Mr Kieber:
Press release from the Office of the Public Prosecutor
Due to the recent media reports in connection with the alleged unlawful dissemination of data, the Liechtenstein Office of the Public Prosecutor has announced that preliminary judicial inquiries have meanwhile been initiated against Heinrich Kieber and unknown perpetrators. The investigations concern suspicion of spying out business secrets for the benefit of a foreign party pursuant to § 124 paragraphs 1 and 2 of the Criminal Code and data theft pursuant to § 131a of the Criminal Code.
In this connection, requests for legal assistance have meanwhile also been transmitted to the competent public prosecutor’s offices in Bochum and Munich.
The purpose of these requests is to obtain information on the actual identity of the informants in connection with the suspected crimes. Additionally, the Liechtenstein Court of Justice is requesting information on the type and scope of the data disclosed by the suspects to the foreign authorities, and the circumstances leading to transfer of this data to the German authorities. This information is necessary to evaluate the relevance of the suspects’ acts under criminal law.
Once again, it is not possible to say whether this document was in the hands of the ATO by the time of the meeting in Sydney on 28 February 2008 but its contents were known to those concerned in the issuing of the amended assessments prior to the making of those assessments.
42 It is apparent from the reasons which were furnished by the ATO in November 2008 that the information in the LGT documents in respect of the “Dorje Foundation” had both a direct as well as a derivative use in the Commissioner’s formation of an opinion that transactional entries in these documents related to Mr Denlay’s income earning activities while a resident of Australia. That led to the inclusion in his assessable income for the 2002 income year of funds which were in the “Dorje Foundation” account and, in subsequent income years, of amounts considered to represent a return on the investment of the funds in the “Dorje Foundation” account.
43 Another derivative use was that the information caused the Commissioner to initiate a more wide ranging inquiry in relation to Mr and Mrs Denlay's financial dealings using the resources of AUSTRAC. This, in turn, disclosed an international money transfer which, when correlated with other information discovered in the course of the investigation, was shown to be the proceeds of the sale in October 2006 of a circa 12th century Nepalese statue called a Vajrapani. The profit on this sale came to be viewed by the Commissioner as assessable in the 2007 income year under s 15-15 of the ITAA97 (profit making undertaking or plan).
44 Such direct and derivative use of information in the LGT documents is evident in the following excerpt from the Commissioner’s reasons for making the amended assessments:
MATERIAL FACTS AND EVIDENCE
8. The subject of this audit is the Australian resident taxpayer Kevin Vincent Denlay, TFN
9. You were born in Australia on 3 March 1951.
10. During the 1970s and 1980s you lived and worked extensively in the Kathmandu Valley of Nepal. You have been a resident of Australia for tax purposes since you returned to Australia to live permanently in 1984 or 1985.
11. Your current residential address is 36 Glengarrie Road, Glengarrie, NSW. You are the sole owner of this 7.17Ha property. This property was acquired by you on 2 April 1987.
12. You currently reside with your spouse, Mirja Helena Denlay.
13. You were married to Mirja Pykalainen on 27th January 1989.
14. You are an experience ‘technical diver’. You have an extensive global profile in the areas of undersea wreck discovery/exploration, undersea photography, and ‘mixed gas’ dive instruction.
15. In the past, you have operated a business in Australia as a sole trader. The business has been marketed under the names of “Alternative Diving Services”/”Altdive”/”Action Unlimited Photographics”.
16. The Commissioner is investigating arrangements and services provided by the LGT Bank in Liechtenstein (LGT) to Australian resident taxpayers.
17. The Commissioner has been provided with documents (the LGT documents) concerning client accounts of LGT.
18. The documentation links various individuals (with Australian addresses) to offshore companies and foundations managed by the LGT.
19. “Kevin Vincent Denlay” is one name appearing on the LGT documents.
20. …
25. You were required to furnish information and documents to a named officer of the Commissioner by 20 December 2007 pursuant to section 264 of the ITAA 1936 and you complied with this request.
26. You were also required to attend and give evidence under oath pursuant to section 264(1)(b) of the ITAA 1936. You were interviewed by Counsel assisting the Commissioner on 12th and 17th March 2008 and 21st May 2008. At this time you were examined with reference to the material obtained at your residential premises, your responses provided to the section 264 notice (which was due 20 December 2007), the LGT documents, and information ascertained by the Commissioner from Tax Office systems and public sources. Nyst Lawyers, your legal representatives, have been provided with transcripts of the section 264 interview.
27. To date, you have not sought to review or alter your comments made under oath.
LGT
28. The LGT documents in the possession of the Tax Office indicate the following:
The founding date of an entity called the Dorje Foundation was 23 November 1992.
Kevin Vincent Denlay, address Glengarrie Road, Glengarrie NSW Australia 2486, date of birth 03.03.1951, is the beneficial owner of the funds in the Dorje Foundation bank account/s number 014 6778.
Marja[sic] Helena Pykalainen, address Glengarrie Road, Glengarrie NSW Australia 2486, date of birth 02.08.1953, is the beneficial owner of the funds in the Dorje Foundation bank account/s 024 5858.
In respect of Mirja Denlay’s account, Robin Higham had a Power of Administration from 21 October 1998. The Power of Administration was revoked on 4 January 2000.
As at 31 December 2001, Kevin Denlay’s account had a balance of $682 859.23 USD.
Sonya Sprenger or Dagmar Gachter (of LGT) held a ‘client meeting’ in Hong Kong on 27 February 2002.
Funds of the Dorje Foundation appear to have ‘exited’ to the Prasidial Anstalt on or about 18 March 2002.
The ‘origin of funds’ in the Dorje Foundation is said to be “Property sale in Australia, income from business activity in Australia – owing [sic] a deep sea diving center (exploration, pipeline laying/maintenance, treasure hunt)
29. The Commissioner has sought and found evidence that corroborates the information of the LGT documents.
With respect to Robin Higham, a figure named on the LGT documents
30. Email correspondence between rhigham@ibm.net and altdive@iaccess.com.au (Kevin Denlay’s email account) dated 10 October 1998 and between robin.higham@dial.pipex.com. and robin_d_higham@hotmail.com dated 18 January 1999 was obtained by the Commissioner on 30 May 2007 under section 263 of the ITAA 1936. The email of 10 October 1998 contains the phrase “Very nice seeing you both again”. The Commissioner infers that this is a reference to a face-to-face meeting recently (with reference to the date of the email) held between you, your spouse Mirja and Robin Higham. The email goes on to provide financial advice to you. This October 1998 visit to Robin Higham corresponds with his appointment as Power of Administration over Mirja Denlay’s account within the Dorja Foundation.
31. At interview, you admitted that you had met with Robin Higham as recently as the late 1990s.
With respect to the client visit on 27 February 2002:
32. The LGT document containing the date of a client visit on 27 February 2002 makes reference to the Dorje Foundation, and “LGT Investment Management Hong Kong”. The inference drawn by this document is that a meeting, relating to the Dorje Foundation, held on 27 February 2002 took place in Hong Kong.
33. According to Department of Immigration and Citizenship (DIAC) records, you and Mirja Denlay travelled to Hong Kong between 24 February 2002 and 3 March 2002, coinciding with the ‘client visit’ reported on the LGT documents.
34. At interview, you could not recall any specific knowledge of this trip.
With respect to the ownership and origin of funds in the Dorje Foundation:
35. At interview, on the 17 March 2008, you answered that to your knowledge, there are not other persons named “Kevin Denlay” working in the field of diving and photographics. The Commissioner cannot identify any other individuals of the same name in this occupation.
36. You have in the past, and currently operate a business as a sole trader in Australia marketed as either “Alt Dive” or “Alternative Diving Services.” This activity utilizes your specialist skills as a “Nitrox” diver, allowing you to dive to greater depth than SCUBA divers. During the 1990s, you were one of a very few resident Australians with these skills. This occupation as a deep sea diver is also reference in the LGT documents.
37. The Commissioner considers that the personal details (which are highly specific and difficult to replicate) provided on the LGT documents, including full name, date of birth, address, occupation and spouse, correctly identify you as the owner of account 014 6778 within the Dorje Foundation. Furthermore, the information contained on the LGT documents provided to the Commissioner identifies you as the beneficial owner of a quantum of funds housed in the LGT Bank at 31 December 2001.
38. The Commissioner’s view is that the series of transactions evidence in the LGT documents, i.e., the birth of the Dorje Foundation in Nov 1992 the account balances at 31 December 2001 the exit to the Prasidial Anstalt in March 2002, on the balance of probabilities, relate to the income earning activities of you while a resident of Australia.
39. Throughout the course of the interview under oath, you claimed that you had no knowledge of any LGT Bank accounts or the Dorje Foundation. When presented with copies of the LGT documents, you failed to provide any meaningful explanation of their contents. Given time for reflection on the matter between interviews, you could offer no input as to why your name and your personal details appear on the LGT documents.
Vajrapani
40. As part of an audit into your affairs, a comprehensive analysis of international funds transfers relating to you was conducted using data collected by the Australian Transaction Reports and Analysis Centre (AUSTRAC).
41. AUSTRAC data indicates that you were the beneficial customer of an incoming International fund transfer of USD $427 000 on 10 October 2006. The ordering customer is reported as being Richard Olsen, with a reported address of 5151 Bonny Doon Rd, Santa Cruz, CA. USA.
42. Email correspondence dated 7 September 2006 between you and propheasants@cs.com (Richard Olsen’s email address) indicates that this transfer represents the proceeds of sale of a circa 12th century Nepalese statute called a Vajrapani (the Vajrapani). (The sale was concluded in October 2006)
43. Email correspondence spanning the period October 2005 to October 2006 indicates that the strategy used to sell the Vajrapani was determined between you and Richard Olsen.
44. In an email from Kevin Denlay to Richard Olsen dated 22 October 2005, you likened the Vajrapani to ‘other investments’.
45. At interview, you answered that Richard Olsen is an old friend and a “very famous art dealer”, dealing in high end art.
46. At interview, you stated that Olsen sold the Vajrapani on your behalf, received the funds and remitted them to you from his bank in California.
47. At interview you admitted that you fabricated a document which purported to be a Bill of Sale from Kevin Denlay to Enoch Denlay (your son) of an “Antique 18th Century Nepalese Vajrapani bronze statue sold to Enoch Denlay on 31st December, 1999 for the sum of $12000 USD”.
48. At interview, you stated it was a document “we made up for my son to carry the statue to the USA” and was false in each detail.
49. At interview on 17 March 2008, you sought to clarify what you had said on the purposes of fabricating the documents in the following way:
“You showed me a couple of invoices that were, basically, not exactly correct invoices for that statue and you implied that I made them up to evade taxes or duty in the US. Well that’s not the case because there’s no duty or taxes taking that item into the United States. There is on selling it and that was paid in California when it was sold. So I just wanted to clarify that I didn’t make those up to avoid any taxes or duties. I made them up specifically so my son could take – take the item and it would look like his because that would have just made it a lot easier. There still was no duty or anything involved, or tax, but it would have been a lot easier if he could say it was his as he – and the value – because he had to carry it and we were afraid, because it weighed so much and the box it was in was a little bit big, that they would want to make him put it in the hold of an aeroplane and that’s certainty what we didn’t want to do.”
50. You stated in interview that from about 1976/1977 until mid 1984, you had been involved in buying and selling statues.
51. At interview, you said that in the time you lived in Nepal, you and Richard Olsen engaged in the business of selling art. You acted as the middle-man. Sometimes you bought items so as to then resell them.
52. You have been aware of the value of the item since as early as 1991, when you had it appraised at Sotheby’s Australia.
53. At interview, you said that the Vajrapani was purchased with the purpose of selling it at a profit relatively soon after buying it, but that did not transpire because there was some doubt about its authenticity. When you sold it, the market was good, but in keeping with how you thought a statue of that quality would appreciate, you thought it was better to sell it privately, because if it didn’t sell at auction, that could “sort of taint the piece somewhat.”
54. You did not declare any income in your 2007 income tax assessment that can be attributed to the profits from the sale of the Vajrapani.
Your financial position when returning to Australia
55. You returned to Australia to live permanently in 1984 or 1985 and you have been a resident for tax purposes from that time.
56. When asked at interview what your assets were when you returned to Australia to live permanently, you provided the following:
You said that you had some Asian art – maybe 10 or a dozen pieces. You could not give an estimate of the value of the art. You said that you did not have them valued. You could not say whether it was in the range of hundreds of dollars, tens of thousands of dollars, hundreds of thousands of dollars or millions. You said to put them somewhere within those ranges, would be guessing/speculating.
You also had somewhere between 10 and 50 Tibetan and Nepalese carpets. You still have them. You do not know their value.
You could not recall what cash reserves you had. You could not recall if it was hundreds of dollars, tens of thousands of dollars or hundreds of thousands of dollars.
You could not recall if the property you purchased used funding drawn from cash reserves when you came back to Australia.
You do not think any had debts/liabilities, but you can’t recall any more on that issue.
criminal proceedings in Liechtenstein against mr Kieber
45 For the purposes of this proceeding, the Commissioner admitted that Mr Kieber had been convicted in October 2003 in the Liechtenstein Criminal Court of offences against the following sections of the Liechtenstein Criminal Code (LCC):
(a) serious fraud, contrary to §146 and §147, para 2 of the LCC;
(b) violence and dangerous threat against the Prince of Liechtenstein, contrary to §249 of the LCC (I additionally rely on the expert evidence of Dr Helmet Schwarzler, an Attorney at Law in Liechtenstein, as to the content of §249 of the LCC);
(c) attempted duress, contrary to §15 and §105, para 1 of the LCC;
(d) suppression of documents, contrary to §229, para 1 of the LCC.
46 The Commissioner further likewise admitted that Mr Kieber had appealed against his conviction for these offences to the Liechtenstein High Court and that, in January 2004 his appeal was partly upheld The result of this appeal was that only his convictions for the following offences were upheld:
(a) serious fraud, contrary to §146 and §147, para 2 of the LCC;
(b) attempted duress, contrary to §15 and §105, para 1 of the LCC;
(c) suppression of documents, contrary to §229, para 1 of the LCC.
The result of the appeal was that Mr Kieber was sentenced to imprisonment for 1 year which was wholly suspended upon his being placed on probation for 3 years.
47 The precise text of the charges which were the subject of these first instance and appellate proceedings in Liechtenstein was not proved by evidence in this proceeding. Nor was any formal court record of these proceedings and their outcome proved. The admitted convictions and the result of the appeal do correlate with the information in the LGT media communiqué. In any event, there is nothing in the evidence which suggests that the Commissioner was aware, prior to the issuing of the amended assessments, of the precise text of charges which had been laid in Liechtenstein or had copies of the formal record of either the first instance or appellate court proceedings there, as opposed to having information about such proceedings as a result of being in possession of the LGT media communiqué.
other provisions in Liechtenstein’s criminal law
48 At the request of Mr Denlay’s solicitors, Dr Schwarzler furnished an opinion as to the criminal law of Liechtenstein and how it applied in 2002 on the basis of certain assumed facts. Having regard to his evidence, I am satisfied that Dr Schwarzler is qualified by reason of his education, admission to practice and experience to express an opinion as to the content and application of the criminal law of Liechtenstein.
49 Dr Schwarzler was asked to assume the following facts:
1. A person was an employee of an entity within the Liechtenstein Global Trust Group of Companies (“LGT Bank”) during the period 2000 until 2002 (“the employee”)
2. The employee had access to LGT Bank client data during his employment;
3. The employee was a citizen of Liechtenstein;
4. The employee obtained electronic copies of LGT Bank client data, including a complete database of the trust accounts of LGT Bank, prior to his leaving of LGT Bank at the end of 2002;
5. The employee believed that LGT Bank client data was authentic;
6. The employee copied and took the data without authority or the knowledge of LGT Bank;
7. In January 2003 the employee wrote to the Prince of Liechtenstein informing him that the employee held copies of the LGT client data;
8. At or around the time the employee wrote to the Prince of Liechtenstein the employee fled Liechtenstein;
9. In July 2003 the employee returned to Liechtenstein and was informed by the Prince of Liechtenstein and LGT that he would not be harmed for his actions;
10. In October 2006 the employee met with Michael Monaghan, Michael O’Neil and Jan Farrell of the Australian Taxation Office (“the ATO”) at an undisclosed location outside Australia;
11. The employee provided the ATO with copies of LGT Bank client data;
12. The employee welcomed monetary reward as an informant/witness from the ATO.
50 On these assumptions, Dr Schwarzler was asked to express an opinion as to what offences against the criminal law of Liechtenstein had been committed by the putative employee. In expressing his opinion, Dr Schwarzler further assumed that the employee had acted wilfully and with the intent required in order to fulfil the offences against Liechtenstein criminal law which he described in his opinion.
51 On these assumptions, Dr Schwarzler expressed the following opinion as to offences against the criminal law of Liechtenstein, as in force in 2002, which would have been committed by the employee:
Based on the above assumptions under the Liechtenstein laws applicable in 2002, in particular the Liechtenstein Criminal Code of 24 June 1987 (LGBI 1988/37) and the Liechtenstein Bank Act of 21 October 1992 (LBGI 1992/108), the employee would have committed the following felonies:
Spotting of business or trade secrets in favour of a foreign country according to § 124 para 1) and 2) Criminal Code
Data corruption according § 126a para 1) Criminal Code
Evaluation and breach of professional secret according to § 121 para 1) and 4) Criminal Code
Data theft according to § 131a Criminal Code
Violation of bank secrecy according to Art. 63 para 1) a) Bank Act
52 Of these offences, Dr Schwarzler stated in respect of the offence of “data theft” contrary to §131a of the Liechtenstein Criminal Code that, “In order to fulfil the offence of data theft a person has to procure automated processed data he may or may not alone dispose of with the intent to unjust enrich himself or a third party” [sic].
53 No evidence was led before me that Mr Kieber had received any financial reward from the Commonwealth of Australia either via the ATO or any other department or agency of the Commonwealth.
how mr denlay’s futuris based challenge was developed
54 On the basis his submission that the concept of conscious maladministration was informed by s 13(4) of the Public Service Act, rather than delineated by it, Mr Denlay submitted that “deliberate non-compliance with an Act by officers of the ATO, being employees [under the Public Service Act], as a step in the process of making an assessment under the ITAA36 may alone manifest jurisdictional error”. An assessment so affected would not, it was submitted, answer the description of an “assessment” and therefore not attract the operation of s 175 of the ITAA36.
55 It was submitted that there was nothing in s 400.9 of the Criminal Code which suggested that it did not apply to officers of the Commonwealth. Reliance was placed on Bropho v Western Australia (1990) 171 CLR 1 at 21 for the proposition that, subject to any express statutory provision to the contrary, Crown servants are not, in the performance of their duties, immune from the general criminal law.
56 It was further submitted that, by virtue of s 400.15 of the Criminal Code, s 15.2 of that Code applied so as to give it extra-territorial operation in respect of conduct by an Australian citizen or an Australian resident. The statements recorded as being made by Assistant Commissioner O’Neill and Deputy Commissioner Monaghan when they interviewed Mr Kieber abroad in October 2006 that they worked respectively in Sydney and in Canberra were said to show that, at the least they were Australian residents.
57 As to the reference in s 400.9(1)(b)(i) of the Criminal Code to property which is proceeds of crime in relation to a foreign indictable offence, Mr Denlay drew attention to the definition of “foreign indictable offence” in s 400.2. That provides, materially:
by s 400.2(3):
foreign indictable offence means an offence against a law of a foreign country constituted by conduct that, if it had occurred in Australia, would have constituted an offence against:
(a) a law of the Commonwealth; or
(b) a law of a State or Territory connected with the offence;
that may be dealt with as an indictable offence (even if it may, in some circumstances, be dealt with as a summary offence). Note: See subsection (4) for when a law of a State or Territory is connected with the offence.
by s 400.2(4):
(4) For the purposes of the definition of foreign indictable offence in subsection (3), a State or Territory is connected with the offence if:
(a) a dealing in money or property takes place in the State or Territory; and
(b) the money or property would be proceeds of crime, or could become an instrument of crime, in relation to the offence if the offence were a foreign indictable offence.
58 These provisions, it was submitted, posed a “double criminality” test. Relevantly, that meant that Mr Denlay had to establish that Mr Kieber’s taking of the LGT documents from the LGT Group constituted an offence not only against the criminal law of Liechtenstein but also, because, on the evidence, the place in Australia into which those documents had been brought was New South Wales, also against the criminal law in force in New South Wales, i.e. either or each of an offence against a Commonwealth criminal law or a New South Wales State offence.
59 As to offences against the criminal law of Liechtenstein, Mr Denlay pointed to those identified by Dr Schwarzler in his opinion. As to offences against the criminal law in force in New South Wales, Mr Denlay pointed to either or each of:
(a) s 477.1 of the Criminal Code; or
(b) s 308C of the Crimes Act 1900 (NSW) (NSW Crimes Act).
60 In the period October to December 2006, s 477.1 of the Criminal Code provided:
Section 477.1. Unauthorised access, modification or impairment with intent to commit a serious offence
(1) Intention to commit a serious Commonwealth, State or Territory offence A person is guilty of an offence if:
(a) the person causes:
(i) any unauthorised access to data held in a computer; or
(ii) any unauthorised modification of data held in a computer; or
(iii) any unauthorised impairment of electronic communication to or from a computer; and
(b) the unauthorised access, modification or impairment is caused by means of a carriage service; and
(c) the person knows the access, modification or impairment is unauthorised; and
(d) the person intends to commit, or facilitate the commission of, a serious offence against a law of the Commonwealth, a State or a Territory (whether by that person or another person) by the access, modification or impairment.
(2) Absolute liability applies to paragraph (1)(b).
(3) In a prosecution for an offence against subsection (1), it is not necessary to prove that the defendant knew that the offence was:
(a) an offence against a law of the Commonwealth, a State or a Territory; or
(b) a serious offence.
(4) Intention to commit a serious Commonwealth offence
A person is guilty of an offence if:
(a) the person causes:
(i) any unauthorised access to data held in a computer; or
(ii) any unauthorised modification of data held in a computer; or
(iii) any unauthorised impairment of electronic communication to or from a computer; and
(b) the person knows the access, modification or impairment is unauthorised; and
(c) the person intends to commit, or facilitate the commission of, a serious offence against a law of the Commonwealth (whether by that person or another person) by the access, modification or impairment.
(5) In a prosecution for an offence against subsection (3), it is not necessary to prove that the defendant knew that the offence was:
(a) an offence against a law of the Commonwealth; or
(b) a serious offence.
(6) Penalty
A person who is guilty of an offence against this section is punishable, on conviction, by a penalty not exceeding the penalty applicable to the serious offence.
(7) Impossibility
A person may be found guilty of an offence against this section even if committing the serious offence is impossible.
(8) No offence of attempt
It is not an offence to attempt to commit an offence against this section.
(9) Meaning of serious offence
In this section:
serious offence means an offence that is punishable by imprisonment for life or a period of 5 or more years.
61 It was submitted that the definition of “access to data Held in a computer” in s 477.1 was, having regard to the definition of that expression in s 476.1, applicable to the copying of data undertaken by Mr Kieber prior to the cessation of his employment wit the LGT Group. Further as to why this definition was applicable, it was submitted that, having regard to the reference by Mr Kieber in his interview abroad with the ATO officers to he and his team being required to read every document in the LGT Group’s archive on their computer screens, the following inferences were open:
(a) that there was one electronic archive accessible through multiple computers;
(b) those computers were linked in a network;
(c) that computer linkage was effected by the use of modems in computers transmitting communications by means of guided or unguided electromagnetic energy.
62 As to the element of an intention to commit a “serious offence” (as defined by s 477.1(9) of the Criminal Code), it was submitted that the offences of blackmail or extortion contrary to the then s 100 of the NSW Crimes Act (or equivalents in the criminal law of other Australian States and Territories) would be committed if the conduct described in the media communiqué had occurred there. The conduct there described which was highlighted in his submission was the making of a threat to the Crown Prince of Liechtenstein with a view to securing assistance from the government of that Principality arising out of a transaction in Spain in which Mr Kieber had apparently been engaged or so as to obtain new passports. Under New South Wales law, the penalty for an offence against the then s 100 exceeded five years imprisonment.
63 Alternatively, as to the Australian “serious offence” element, Mr Denlay pointed to that created by s 139.1 of the Criminal Code:
Section 139.1. Unwarranted demands of a Commonwealth public official
A person is guilty of an offence if:
(a) the person makes an unwarranted demand with menaces of another person; and
(b) the demand or the menaces are directly or indirectly related to:
(i) the other person’s capacity as a Commonwealth public official; or
(ii) any influence the other person has in the other person’s capacity as a Commonwealth public official; and
(c) the first-mentioned person does so with the intention of:
(i) obtaining a gain; or
(ii) causing a loss; or
(iii) influencing the official in the exercise of the official’s duties as a Commonwealth public official.
Penalty Imprisonment for 12 years.
64 Finally and in any event in relation to s 477 of the Criminal Code, it was submitted that an offence against s 477.1 was, given the penalty for its contravention. Itself a “serious offence” by definition.
65 Section 308C of the NSW Crimes Act materially provides:
(1) A person who causes any unauthorised computer function:
(a) knowing it is unauthorised, and
(b) with the intention of committing a serious indictable offence, or facilitating the commission of a serious indictable offence (whether by the person or by another person),
is guilty of an offence.
Maximum penalty: The maximum penalty applicable if the person had committed, or facilitated the commission of, the serious indictable offence in this jurisdiction.
66 Mr Denlay pointed out that the definition of “unauthorised computer function” in s 308C(2)(a) of the NSW Crimes Act includes any unauthorised access to any data held in any computer. He submitted that the maximum penalty in this instance, if the conduct had occurred in New South Wales, would be supplied by s 100 of the NSW Crimes Act. That provided at the time:
Whosoever sends, delivers, or utters, or directly or indirectly causes to be received, knowing the contents thereof, any letter or writing demanding any property of any person, with menaces or any threat, and without reasonable cause, shall be liable to imprisonment for ten years.
A contravention of s 100 was a “serious indictable offence” as defined (s 4 of the NSW Crimes Act). The conduct by Mr Kieber described the media communiqué included, so the argument went, the writing of a letter to the Crown Prince of Liechtenstein demanding the issue of new passports and this conduct, in the circumstances described, had it occurred in New South Wales, would constitute a contravention of s 100 of the NSW Crimes Act.
67 So it was that, in one or the other or each of the ways just described, it was possible to identify, so it was submitted, an offence against a law of the Commonwealth or of New South Wales for the purposes of the definition of “foreign indictable offence”.
68 As to the element of “reasonable to suspect”, Mr Denlay particularly highlighted answers 22, 23 and 31 in the transcript of the overseas interview of Mr Kieber on 23 October 2006. Against this background, he submitted that:
It is simply inconceivable, in light of these statements, that [the ATO interviewing officers], and other ATO officers involved in the making of the Purported Amended Assessments, had no reasonable grounds for suspecting that [the LGT documents] from some form of unlawful activity. This is especially so, given that a suspicion is no more than “a positive feeling of actual apprehension or mistrust, amounting to ‘a slight opinion, but without sufficient evidence’”.
The passage quoted as to what constituted “suspicion” was taken from the judgment of Kitto J in Queensland Bacon Pty Ltd v Rees (1966) 115 CLR 266 at 303-304. On this basis, it was submitted that there was no scope for any ATO officer to invoke the defence for which s 400.9(5) of the Criminal Code made provision.
69 On this basis it was submitted that the starting point for the process by which the amended assessments came to be made was an offence against a law of the Commonwealth in circumstances that could hardly be said to be inadvertent. Closer in time to the making of the assessments, it was submitted that the contents of the minutes of the Project Jade meeting on 28 February 2008 revealed an apprehension within the ATO that the LGT documents had been obtained illegally. Given that what constituted conscious maladministration was informed by s 13(4) of the Public Service Act, here, it was submitted, was such a case.
70 Mr Denlay highlighted, quite properly, in his submissions, the statement made by the majority in Futuris (at [10]), in the context of a challenge to the validity of an assessment, that “as a matter of discretion, relief under s 75(v) [of the Constitution] and s 39B [of the Judiciary Act] may be and often will be withheld where there is another remedy provided by Part IVC [of the TAA]”. Further highlighted was the additional observation by the majority (at [48]) that the pendency of a proceeding by Futuris under Part IVC should have led the Full Court to refuse discretionary relief in any event”. It was submitted, as was indeed the case, that Mr Denlay’s s 39B challenge had been initiated with a view to its being heard concurrently with the taxation appeal but had, at the Commissioner’s request, been heard first and the taxation appeal adjourned, so as to accommodate, from the Commissioner’s perspective, the convenient conduct of the present application. It should be said at once that, equally properly, the Commissioner acknowledged that this proceeding had taken its separate course for this reason and, on this basis, expressly disavowed any reliance upon the existence of the taxation appeal as a basis for refusing such relief to which Mr Denlay might otherwise be entitled.
the commissioner’s response
71 In summary, the Commissioner’s submissions were as follows:
(a) Before it could be concluded that an assessment was not made bona fide, it must be sown that there was either “conscious maladministration” of the assessment process for which the ITAA36 provides or some deliberate failure to administer that Act according to its terms: Futuris at [22], [52] and [55]; and Marijancevic v Mann, A Deputy Commissioner of Taxation (2008) 73 ATR 709 at [13]. Read in context, the reference to “the law” in [55] of the majority judgment in Futuris was submitted to be the ITAA36.
(b) By analogy with what was said as to the position in New Zealand in Westpac Banking Corporation v Commissioner of Inland Revenue [2009] 2 NZLR 99 at [92], so far as an allegation of conscious maladministration in the process of making an assessment is concerned, the focus must be on whether the officer who made the assessment acted in good faith and in the belief that he was entitled so to do.
(c) On the evidence, all of the officers of the ATO, be they those who interviewed Mr Kieber, were later involved in investigating his taxation affairs in the course of Project Jade or who made the amended assessments were seeking to administer the ITAA36 (and to the extent relevant to assessment of taxation liability, ITAA97) according to its terms. The information provided by Mr Kieber was relevant to this end.
(d) Having regard, in particular, to ss 166, 263 and 264 of the ITAA36, what the Commissioner may take into account is not to be read down by reference to how the material was obtained either at all or at least where the Commissioner did not cause to be taken illegally the source material from which the information was given to him. Reference was made by analogy to what was said to be the like position of the United States Internal Revenue Service (IRS): Burdeau v McDowell 256 US 465 (1921); United States v Janis 428 US 433 (1976).
(e) The evidence did not support a conclusion that any ATO officer knew or believed that he or she was not entitled to use the information in the LGT documents including, especially, use the information for the purpose of making the amended assessments.
(f) Nor could it be suggested that the officers knew or believed that they were committing an offence against s 400.9 of the Criminal Code either in the way alleged by Mr Denlay or otherwise (even assuming, which was denied, that the elements of s 400.9 were present).
(g) Further, the allegation of the commission of an offence against that provision, at a substantive level, ignored the operation of s 10.5 of the Criminal Code in respect of actions authorised by law (relevantly, the ITAA36) and, at a procedural level, did not meet the standard of proof dictated by s 140(2) of the Evidence Act in relation to the proof of conduct of such alleged gravity.
(h) In any event, it would be incongruous if material illegally obtained could, depending on the exercise of a judicial discretion which took into account competing public interests: Bunning v Cross (1978) 141 CLR 54, be used in the exercise of the judicial power of the Commonwealth yet be unusable at all in the exercise of the executive power of the Commonwealth.
consideration
72 In Commissioner of Taxation v Clarke (1927) 40 CLR 246 at 276, Isaacs ACJ, having referred to the equivalents of s 177 of the ITAA36 in the Income Tax Assessment Act 1922 (Cth) (s 9) and its predecessor, the Income Tax Assessment Act 1914 (Cth) (s 35), remarked, “The Act so far trusts the Commissioner and does not contemplate, in my opinion a curial diving into the many official and confidential channels of information to which the Commissioner may have recourse to protect the Treasury.”
73 By this proceeding, Mr Denlay has procured just such a curial diving. Having regard to what was said by the majority in Futuris in the passages quoted below, it is now the case that, in a narrow class of case, curial diving into official and confidential channels of information to which the Commissioner has had recourse is contemplated or, at least, possible. The relevant passages in Futuris, which, as will be appreciated from the summary of their respective submissions, were relied upon by each party, are these:
23 The significance of s 175 for the operation of the Act and for the scope of judicial review outside Pt IVC is to be assessed in the manner indicated in Project Blue Sky Inc v Australian Broadcasting Authority. That case decided that the description of provisions as either mandatory or directory provides no test by which the consequences of non-compliance with a statutory criterion can be determined. Rather, consistently with the reasons in Project Blue Sky of McHugh, Gummow, Kirby and Hayne JJ, the question for the present case is whether it is a purpose of the Act that a failure by the Commissioner in the process of assessment to comply with provisions of the Act renders the assessment invalid; in determining that question of legislative purpose regard must be had to the language of the relevant provisions and the scope and purpose of the statute.
24 Section 175 must be read with ss 175A and 177(1). If that be done, the result is that the validity of an assessment is not affected by failure to comply with any provision of the Act, but a dissatisfied taxpayer may object to the assessment in the manner set out in Pt IVC of the Administration Act; in review or appeal proceedings under Pt IVC the amount and all the particulars of the assessment may be challenged by the taxpayer but with the burden of proof provided in ss 14ZZK and 14ZZO of the Administration Act. Where s 175 applies, errors in the process of assessment do not go to jurisdiction and so do not attract the remedy of a constitutional writ under s 75(v) of the Constitution or under s 39B of the Judiciary Act.
25 But what are the limits beyond which s 175 does not reach? The section operates only where there has been what answers the statutory description of an "assessment". Reference is made later in these reasons to so-called tentative or provisional assessments which for that reason do not answer the statutory description in s 175 and which may attract a remedy for jurisdictional error. Further, conscious maladministration of the assessment process may be said also not to produce an "assessment" to which s 175 applies. Whether this be so is an important issue for the present appeal.
…
55 The issue here is whether, upon its proper construction, s 175 of the Act brings within the jurisdiction of the Commissioner when making assessments a deliberate failure to comply with the provisions of the Act. A public officer who knowingly acts in excess of that officer's power may commit the tort of misfeasance in public office in accordance with the principles outlined earlier in these reasons. Members of the Australian Public Service are enjoined by the Public Service Act (s 13) to act with care and diligence and to behave with honesty and integrity. This is indicative of what throughout the whole period of the public administration of the laws of the Commonwealth has been the ethos of an apolitical public service which is skilled and efficient in serving the national interest. These considerations point decisively against a construction of s 175 which would encompass deliberate failures to administer the law according to its terms.
56 Such failures manifest jurisdictional error and attract the jurisdiction to issue the constitutional writs. To the extent that there is any indication to the contrary in what was said by Mason and Wilson JJ in F J Bloemen Pty Ltd v Federal Commissioner of Taxation that should not be followed.
57 It should be added that, with respect to the remedy of injunction, what was said in the joint reasons in Plaintiff S157/2002 v The Commonwealth indicates that injunctive relief clearly is "available for fraud, bribery, dishonesty or other improper purpose".
[Footnote references omitted]
74 The reference (at [55]) in the joint judgment in Futuris to “the tort of misfeasance in public office in accordance with the principles outlined earlier in these reasons” is a reference by the majority to the following earlier passage in their reasons (at [11]):
This Court has accepted that in that context [the context being formulations of the tort of misfeasance in public office] it is sufficient that the public officer concerned acted knowingly in excess of his or her power. The House of Lords has since indicated that in English law recklessness may be a sufficient state of mind to found the tort. The affinity between tort law and public law has been remarked upon in this Court; that affinity reflects the precept that in a legal system such as that maintained by the Constitution executive or administrative power is not to be exercised for ulterior or improper purposes.
[Footnote references omitted]
75 The reference by the majority in Futuris (at [55]) to s 13 of the Public Service Act does not, for example, mean that any failure by a Commonwealth public servant to comply with any Australian law constitutes “conscious maladministration”. In that sense, I disagree with Mr Denlay’s submission that the content of conduct which amounts to “conscious maladministration” is “informed” by s 13(4) of the Public Service Act. Rather, I take the point made in Futuris (at [55]) to be this. Conduct which purports to be the making of an assessment but which is proved to be not that but instead a deliberate failure not to administer the governing legislation according to its terms results not in an “assessment” any formal defect in the making of which is, by virtue of s 175 of the ITAA, nonetheless an act of the Commissioner within jurisdiction but rather in an administrative act which is not an “assessment” at all. Section 175 has no application to such an act. Like any Commonwealth statute, s 175 of the ITAA36 must be construed subject to the Constitution and to the limits of legislative competence: s 15A of the Acts Interpretation Act 1901 (Cth). The jurisdiction to control by the grant of the remedies for which s 75(v) of the Constitution makes provision is vested by the Constitution in the High Court and may not be removed by Parliament (save in compliance with the manner and form permitted by s 128 of the Constitution). One does not therefore adopt a construction of s 175, where another is open, which would exceed that limitation on Commonwealth legislative competence. It is that same jurisdiction which is relevantly vested in this court by s 39B of the Judiciary Act.
76 Conduct by an officer of the Commonwealth which constitutes a deliberate failure to administer a law according to its terms, conduct which is tainted by an ulterior or improper purpose, “conscious maladministration” has never been lawful under the system of government established and maintained under the Constitution: Futuris at [11]. The relevance of the reference to s 13 of the Public Service Act in Futuris (at [55]) is that, included within this contemporary statement of “The APS Code of Conduct”, is an intolerance of conduct amounting to such conscious maladministration. That intolerance is not unique to our times but rather, as is also stated by the majority in their reasons, has formed part of the ethos of the Commonwealth public service from its inception. That ethos, in turn, reflected an ethos which by then was regarded as a feature of good public administration in the United Kingdom and its colonies. It is in this sense only that the content of conscious maladministration is informed by s 13 of the Public Service Act.
77 As to the content of the type of conduct that constitutes conscious maladministration and thus jurisdictional error amenable to constitutional writs, the majority in Futuris (at [11]) highlight an affinity between the tort of misfeasance in public office and public law. They draw attention to what was said in the High Court in Sanders v Snell (1998) 196 CLR 329 at [42] and, in turn to the approval there given to the nature of that tort as discussed in Northern Territory v Mengel (1995) 185 CLR 307 at 345. That is that it is an intentional tort, the precise limits of which are still undefined but which requires proof of an intention to cause harm or of an intention to act in excess of an officer’s power.
78 There is another common law affinity with public law which, in my opinion, offers assistance when describing that type of conduct which will constitute conscious maladministration amenable to a constitutional writ. That affinity comes from the common law offence of misconduct in public office. As recently explained by Redlich JA (with whom Ashley JA and Hansen AJA agreed) in R v Huy Vinh Quach [2010] VSCA 106 at [46], after a comprehensive review of authority, the elements of this common law offence are:
(1) a public official;
(2) in the course of or connected to his public office;
(3) wilfully misconducts himself; by act or omission, for example, by wilfully neglecting or failing to perform his duty;
(4) without reasonable excuse or justification; and
(5) where such misconduct is serious and meriting criminal punishment having regard to the responsibilities of the office and the officeholder, the importance of the public objects which they serve and the nature and extent of the departure from those objects.
79 In an illuminating article, Finn P, “Official Misconduct” (1978) 2 Crim LJ 307 at 307-308, cited with approval both by Redlich JA in Huy Vinh Quach at [22] and, as his Honour there acknowledges, by Doyle CJ in Question of Law Reserved (No 2 of 1996) (1996) 67 SASR 63 at 64, Dr P D Finn (as his Honour then was) opined of this common law offence:
By at least the middle of the 18th Century the common law had evolved a general, though ill-defined, offence variously described as “official misconduct”, “breach of official trust”, or “misbehaviour in a public office”. To this day the precise metes and bounds of this offence remain uncertain. … Its object is simply to ensure that an official does not, by any wilful act or omission, act contrary to the duties of his office, does not abuse intentionally the trust reposed in him.
In this same article (at 308), Dr Finn refers to what he describes as the “seminal formulation” of the offence by Lord Mansfield in R v Bembridge (1785) 22 State Tr 1 at 155-156:
Now, there are two principles which seem to me clearly applicable to this prosecution; the first I will venture to lay down is, that if a man accepts an office of trust and confidence, concerning the public, especially when it is attended with profit, he is answerable to the king for his execution of that office; and he can only answer to the king in a criminal prosecution, for the king cannot otherwise punish his misbehaviour, in acting contrary to the duty of his office … There is another principle, too, which I think applicable to this prosecution, and that is this; where there is a breach of trust, a fraud, or an imposition in a subject concerning the public, which, as between subject and subject, would only be actionable by a civil action, yet as that concerns the king and the public (I use them as synonimous terms), it is indictable.
80 Having regard to Bembridge, there is a long recognised affinity between misconduct in public office giving rise to a civil action and that amenable to prosecution on indictment. That there is also an affinity with when a constitutional writ may be granted in public law should be unsurprising given the heritage of the system of government established and maintained by the Constitution. The application for the constitutional writ seeks the setting aside of the manifestation of executive power exercised for ulterior or improper purposes, the indictment seeks the punishment of the public officer who has so acted and the claim in tort seeks compensation for loss and damage occasioned by such action.
81 Thus, giving content to the type of conduct which can constitute “conscious maladministration”, has that conduct been proved to have occurred here? That the standard of proof in respect of any alleged conduct must, given the nature of such an allegation, take into account the factors specified in s 140(2) of the Evidence Act is a given.
82 I am well satisfied, having regard to the record of the interview with Mr Kieber in October 2006, particularly answers 22, 23 and 31 given by him on 23 October 2006, that it was reasonable then to suspect (suspect in the sense described in Queensland Bacon Pty Ltd v Rees) that the LGT documents had been taken by him from the LGT Group not only in breach of a duty of confidence owed by him to his employer but also in breach of the criminal law of Liechtenstein. It was then not possible, just on the basis of the disclosures proved to have been made by Mr Kieber at this interview, to give greater precision to this suspicion.
83 By the time when the assessment was made in November 2008, greater precision could reasonably be given to this suspicion. Copies of the media communiqué and the Public Prosecutor’s Press Release were then in the Commissioner’s possession. Reading then in conjunction with the October 2006 record of interview and the affidavit which Mr Kieber gave in May 2007, it was by November 2008, reasonable to suspect that the LGT documents were, at least, the product of the following offences against the LCC: spying out business secrets for the benefit of a foreign party pursuant to para 1 and para 2 of § 124 and data theft pursuant to § 131a. Further, given the co-ordination within the ATO in Project Jade, evident from February 2008, it seems inherently more likely than not and I infer that each of these documents was known to the officer(s) within the ATO who made the amended assessments.
84 It does not follow from this that there was any breach of s 400.9 of the Criminal Code, much less that there was conscious maladministration.
85 I mean no disrespect to the ingenuity of counsel who advanced Mr Denlay’s submission in observing that, as a matter of first impression, there is something rather odd about the notion that, if it is reasonable to suspect that the information which grounds or led to a train of inquiry which grounds an assessment was obtained in violation of a foreign secrecy law (and a corresponding Australian criminal law):
(a) Australia’s chief revenue officer, the Commissioner or any subordinate within the ATO who so does commits a federal offence if he or she receives abroad from a third party, imports into Australia and possesses that information even if for no purpose other than assessing Australian income tax; and
(b) the resultant assessment may be quashed and recovery on the strength of it restrained by an exercise of the judicial power of the Commonwealth
Mr Denlay, of course, points to more than just a foreign secrecy law (and corresponding Australian criminal law) as the focus for the reasonable suspicion but the result remains odd at first impression even acknowledging this.
86 The centrepiece of Mr Denlay’s submission was that the conduct constituting conscious maladministration was the violation of s 400.9 of the Criminal Code which had occurred by December 2006 and the continuing possession and use for assessing of information derived from that violation. His argument was that s 400.9 of the Criminal Code applied to the Commissioner’s officers, even when they are abroad and abroad manifestly and only on official business, ie for the purposes of the ITAA36 and the ITAA97, because they are Australian residents. Because, on the information to hand, it was reasonable to suspect that the LGT documents were the proceeds of an offence against the law of Lichtenstein, his submission was that those officers could not, even for a moment, possess those documents without committing the federal offence created by s 400.9; indeed, so, the submission went, by the time the documents were in Australia and the information in them was used for the purpose of making the amended assessments, the basis for the formation of that reasonable suspicion was even stronger in light of the Commissioner’s being in possession of the media communiqué and the press release.
87 Section 400.9 must be read subject, materially to s 10.5 of the Criminal Code, which provides:
10.5 Lawful authority
A person is not criminally responsible for an offence if the conduct constituting the offence is justified or excused by or under a law.
88 Is there a justification or excuse under a law?
89 The modern approach to statutory construction, highlighted by the majority in Futuris (at [23]), requires that regard be had to the language of the relevant provisions and the scope and purpose of the statute.
90 For an Australian resident, assessable income includes the ordinary income derived by that resident directly or indirectly from all sources, whether in or out of Australia, during the income year: s 6-5(2) of the ITAA97. For person who is a foreign resident, assessable income includes:
(a) the ordinary income that person derived directly or indirectly from all Australian sources during the income year; and
(b) other ordinary income that a provision includes in that person assessable income for the income year on some basis other than having an Australian source: s 6-5(3) of the ITAA97.
91 Further, so far as liability to tax is concerned, that Act is unconcerned with whether the income has been derived by legal or illegal means. For example, a bribe or secret commission derived by an Australian resident for services rendered in or outside Australia or by a foreign resident from an Australian source is just as much ordinary income as an Australian worker’s weekly wage paid under an industrial instrument. The Commissioner’s duty is to determine what is the assessable income, ascertain, having regard to deductions, what is the taxable income and to calculate the income tax payable thereon. He is directed by Parliament so to do from “the returns, and from any other information in his possession, or from any one or more of these sources”: s 166 of the ITAA36. For that purpose, our Parliament has declared that he or any officer authorized by him in that behalf is, inter alia, to have at all times full and free access to all buildings, places, books, documents and other papers for any of the purposes of the ITAA36 and the ITAA97: s 263(1) of the ITAA36.
92 In Commissioner of Taxation v Australia and New Zealand Banking Group Ltd (1977) 143 CLR 499 at 535n (ANZ Case) Mason J observed of s 263 that it “makes lawful that which would otherwise be unlawful”, giving as examples only of this entry upon premises and the examination of a document. Earlier, in Southwestern Indemnities Ltd v Bank of New South Wales (1973) 129 CLR 512 at 519-520, Barwick CJ had remarked of the section:
[Section] 263 is not limited in its application to the affairs of a person who in fact is in receipt of assessable income. It suffices that the exercise of the power given by the section is for the purposes of the Act, which of course include an investigation into whether or not a person is or has been in receipt of assessable income. Such an investigation cannot be limited to buildings, books, etc. of a person who is liable to taxation but must extend to any person.
Section 264 authorizes the giving of a notice to any person to furnish information. It was appropriate in such a provision to make it clear that the notice could be given to persons who were not taxpayers as defined in the Act. In contrast with s. 264 in this respect s. 263, in giving to the Commissioner a right to access, gave rise to no similar need. It was quite sufficient to use universal expressions such as "at all times" and "to all buildings", etc. No further emphasis was required. No limitation could be suggested. As I have indicated, the sole limitation or qualification is that the access should be sought for "the purposes of the Act".
93 As a matter of first impression, even taking into account what was said of s 263 in the ANZ Case and the Southwestern Indemnities Case, it might be thought that the provision had to be read as subject to the limitation “in Australia”. So reading the provision would be in accordance with the limits of territorial legislative competence of the Australian Parliament in relation to places abroad. It is implicit though in what the ITAA97 includes in the assessable income of an Australian resident or a foreign resident that information as to income derived by that resident might itself come from sources outside Australia and clandestine or confidential sources at that.
94 What s 263 does is to make lawful conduct which would otherwise be unlawful under Australian law. The potential for a source of information to be abroad casts light upon what Parliament must have intended by the “universal expression” of the access (s 263) and breadth of assessing information base (s 166) stated in the ITAA36 which Parliament intended the Commissioner to enjoy for the purposes of that Act and the ITAA97. For the purposes of Australian law, the Commissioner is intended to enjoy full and free access for the purposes of the ITAA36 and the ITAA97 abroad also. That this expression of Australian parliamentary intent would afford the Commissioner no defence in a foreign court under a foreign law in respect of a trespass is no reason in an Australian court to read down the generality of language of the section in terms of its effect under Australian law. That the information which comes into the Commissioner’s possession may have its origin in a secret numbered account, perhaps protected by foreign secrecy laws or other foreign criminal sanctions is nothing to the point so far as the Commissioner is concerned in the making of an assessment. That is the purpose revealed by considering the width of income which falls for assessment and the intended access and information base Parliament intends the Commissioner to enjoy for the purposes of administering our income tax legislation.
95 It is clear to the point of demonstration that, when Senior Assistant Commissioner Farrell, Deputy Commissioner Monaghan and Assistant Commissioner O’Neill interviewed Mr Kieber abroad and, for that purpose, accessed the LGT documents they were both actually and intentionally acting for the purposes of the ITAA36 and the ITAA97 and for no other purposes. Section 400.9 of the Criminal Code in no way inhibited their access. Were s 400.9 to be applicable, it would render access unlawful from the very first moment possession was obtained for the purpose described in s 263. In the face of s 263, s 400.9 of the Criminal Code, whatever might otherwise have been its application to them as Australian residents, had no application at all. The facts of this case do not evidence conscious maladministration in the sense which I have described above. To the contrary, they evidence conscious and conscientious administration.
96 A further or alternative basis for concluding that s 400.9 of the Criminal Code had no application may exist. Of course it is axiomatic under our system of government that officers of the Crown enjoy no general immunity from our general criminal law: A v Hayden (1984) 156 CLR 532. Whether a particular statutory provision, including a criminal law provision, applies to the Crown depends upon a consideration of its subject matter and disclosed purpose and policy: Bropho. In this regard, a consideration of the fate of the proceeds of a contravention of s 400.9 gives immediate pause for thought. The proceeds of such a contravention are, on application to a court, forfeited to the Commonwealth: s 48 of the Criminal Code; and Director of Public Prosecutions (Cth) v Mylecharane (2007) 177 A Crim R 486. It seems an unlikely intended result, again when one has regard to the breadth of what constitutes assessable income for Australian income tax law, the breadth of access and assessing information base intended and what would or could be the fate of the proceeds if there were a contravention, that Parliament ever intended that s 400.9 would operate in a way that the Commissioner or any other Commonwealth officer would commit a federal offence if he or she received abroad from a foreign source information relevant to the making of an Australian income tax assessment, even in circumstances where it was reasonable to suspect that this information was the proceeds of a foreign indictable offence. Absurd results in the construction of statutes are to be avoided. Were it necessary, and, in light of the conclusion which I have reached having regard to income tax legislation alone it is not, I would on this additional basis find that there was no contravention of s 400.9 proved because that section did not, in the circumstances, have any relevant application to the Commissioner and his officers from the very moment the LGT documents were received from Mr Kieber until the making of the assessment.
97 Such conclusions are sufficient to dispose of this application (and that of Mrs Denlay). However, as will be evident from the summary of the argument of the respective parties, submissions ranged more widely then just the effect of s 263 the applicability of s 400.9. In deference to those submissions, I propose to make some further observations.
98 As I have already observed, the majority in Futuris (at [55]) directed attention to s 13 of the Public Service Act as a way of underscoring that included within a contemporary statement of “The APS Code of Conduct” was an intolerance of conduct amounting to conscious maladministration. There are other Australian parliamentary statements which are relevant when reflecting on what was intended to be excluded from the “other information” upon which the Commissioner was expected, under s 166 of the ITAA36, to make his assessment of liability to Australian income tax.
99 In the course of submissions, I raised with counsel for Mr Denlay whether the Commissioner might lawfully make an assessment where the information had been obtained as a result of deliberate espionage activity by officers or agents of the Commonwealth who passed that information to the Commissioner. That was not this case on the evidence. The response though was that if the information was reasonably suspected of being the product of a foreign indictable offence for which there was an Australian equivalent, it was not possible under our law to receive, import or possess that information.
100 I do not, as presently advised, accept this. Under s 11(1) of the Intelligence Services Act 2001 (Cth), one of the limits on the functions of the Australian Secret Intelligence Service (ASIS) is that its functions are to be performed, materially, only in the interests of Australia’s national economic well-being and only to the extent that those matters are affected by the capabilities, intentions or activities of people or organisations outside Australia. It is by no means inconceivable that the utilisation abroad by Australian resident individuals or corporations of secret accounts protected by foreign secrecy laws so as to evade liability to Australian taxation could be regarded as contrary to Australia’s national economic well-being. Subject to a specification of a government requirement and appropriate Ministerial direction under s 6 of that Act, ASIS could, in my opinion, be tasked to obtain abroad, either directly or indirectly, information such as that in the LGT documents and to communicate the same to the Commissioner. In so doing, an officer or agent of ASIS might commit all sorts of violations of a foreign banking secrecy law but that would not render that conduct unlawful under Australian law. Nor would it render an assessment made on the basis of such information unlawful. Whether, if at all, to deploy ASIS on such a task is a matter of policy for the national government. Obviously enough, one feature of international agreements for the exchange of information in relation to taxation liabilities is that they reduce, if not eliminate, occasions when such tasking might be considered necessary. Not all countries subscribe to such agreements.
101 The only point of adverting to the possibility that ASIS might be so tasked is that it is not the case that contemporary Australian parliamentary recognition of an acceptable ethos in Australian public administration necessarily includes within it the affording, in matters touching upon the revenue of the Commonwealth, of any deference in Australia whatsoever to any and all foreign banking secrecy laws, much less foreign contractual confidentiality obligations.
102 The importance for Mr Denlay’s argument of identifying the commission of an Australian offence entailed in the receipt of the LGT documents was that it side-stepped a question which has arisen abroad namely, the extent to which a revenue officer may use information which has come into his possession from a third party which was obtained as a result of that third party’s illegal activity.
103 As the Commissioner’s submission correctly highlighted, in the United States there has developed a body of authority which permits the Internal Revenue Service (IRS) to use information obtained from a third party in circumstances where that third party has illegally obtained that information: Burdeau v McDowell; United State v Janis. An Australian example analogous to these United States cases is Awad v Commissioner of Taxation (2000) 104 FCR 106. In Awad, the third party had, without the involvement of the Commissioner, failed to comply with the requirements of an Australian state law in obtaining the information which later came into the Commissioner’s possession and was used by him for the purposes of taxation legislation, including assessment. The court found that there was no basis raised upon which the assessment should be quashed. Here, such laws as Mr Kieber may have or did violate to obtain the information were not even the laws of any Australian jurisdiction. A fortiori in this case, the innocent receipt by the Commissioner of the information and its subsequent use for assessing means that the assessment should not be quashed.
104 As noted, reference was made in the course of submissions to Bunning v Cross in relation to the existence of a discretion to permit the use of unlawfully obtained evidence in criminal proceedings. To that reference might be added Pearce v Button (1985) 8 FCR 388 at 402-403 as to a like discretion as to the use of such evidence in civil cases. It is interesting to note that a like position appears to prevail in Germany, having seemingly arisen in a case in respect of information having a similar nature to that in the LGT documents the use of which grounded a search authority in relation to a suspected offence of criminal tax evasion. The Federal Constitutional Court has recently held that, “[With] regards to the constitution, there is no rule of law which says that, in the case of legally defective evidence procurement, the use of evidence obtained in this manner would always be inadmissible … [t]he evaluation of the question, what consequences a possible breach of criminal procedure has on process regulations and whether this includes, in particular, a prohibition for use of evidence is primarily a matter for the expert courts.”: Bundesverfassungsgericht [German Constitutional Court], 2 BvR 2101/09, 9 November 2010, at [43] (as translated from the German). In the lower courts in Germany objections to the use of such information had been over-ruled: LG Bochum [Bochum District Court], 2 Qs 10/08, 22 April 2008; and LG Bochum [Bochum District Court], 2 Qs 2/09, 7 August 2009.
105 It does not follow from the existence of a discretion to receive, in court, in a criminal or civil case evidence obtained illegally by a government agency that what does or does not constitute conscious maladministration is a matter of discretion. Pearce v Button is though relevant in this sense. In the exercise of the discretion which he found existed, Pincus J (at 403) regarded it as relevant to take into account that the customs officers concerned “did not consciously break the law or consciously demand more of the bank, in particular, than they thought the law entitled them to”. That, with respect, is a pithy expression of why the conduct of those officers did not constitute “conscious maladministration” of, in that case, Australian customs legislation. It might be paraphrased as a way of describing why, on the facts which I have found, there was no conscious maladministration by those officers who interviewed Mr Kieber abroad in this case. They did not consciously break any Australian law or consciously obtain from Mr Kieber more than they thought Australian law entitled them to. The same may be said in respect of those who made the amended assessments (or, more accurately, it has not been proved that they consciously used information which they knew was unlawfully obtained).
106 Such conclusions have this corollary. Mr Denlay’s submissions assumed that, if the existence of a breach of s 400.9 of the Criminal Code were demonstrated, that also demonstrated conscious maladministration. I do not accept that this follows. There was no conscious breach at any stage. If, contrary to my conclusions as to the effect of s 166 and 263 of the ITAA36 and s 400.9 itself, s 400.9 were applicable, the absence of a conscious breach would not, in the circumstances of this case, warrant a finding of conscious maladministration. That would also mean that the application should be dismissed. A like approach is evident in New Zealand in a case in which Futuris was considered: Westpac Banking Corporation v Commissioner of Inland Revenue (2009) 2 NZLR 99 (Westpac v CIR) (leave to appeal subsequently refused: Westpac Banking Corporation v Commissioner of Inland Revenue [2009] NZSC 36).
107 Westpac v CIR has another role to play in relation to litigation of the present type. The observation by the Court of Appeal (at [62]) that, “it is perfectly clear that allowing collateral challenge to assessments through judicial review can provide scope for gaming and diversionary behaviour” is no less applicable in this country than in New Zealand. Of course a jurisdiction conferred must be exercised if invoked but it by no means follows that a judicial review challenge of the present kind should generally be heard separately from a taxation appeal. Further, when the content of what is necessary under our law to constitute “conscious maladministration” is appreciated, one might expect that it would take very singular facts indeed to be raised, prima facie, by a taxpayer in relation to the making of the assessment concerned before it became appropriate for a court in which an assessment debt recovery proceeding was pending to defer giving judgment in respect of that assessment when the same had been certified by the Commissioner in accordance with s 177 of the ITAA36.
108 The Commissioner tendered certified copies of the amended assessments concerned in this proceeding. It follows from the conclusions which I have reached that the documents so tendered were indeed “assessments”, not purported assessments. Given that, the effect of s 177 of the ITAA36 in this proceeding is that their due making and that the amount and all particulars of them are correct is conclusively proved. The merits of those amended assessments are a matter to be determined in the taxation appeal. The outcome of this application says nothing as to where those merits may lie. I propose to list the taxation appeal for hearing as soon as possible.
109 For these reasons, the application will be dismissed, with costs.
I certify that the preceding one hundred and nine (109) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Logan. |
Associate:
