FEDERAL COURT OF AUSTRALIA

Hua Wang Bank Berhad v Commissioner of Taxation (No 7) [2013] FCA 1020

REASONS FOR JUDGMENT

1    On 19 September 2013, following nearly four days of argument, I admitted Exhibits 8 and 9 into evidence. At the same time, I refused an application for a non-publication order with respect to those exhibits. These are my reason for those decisions.

1.    Introduction

2    The present proceedings include five appeals by the taxpayers against decisions made by the Commissioner of Taxation disallowing objections lodged by them against certain notices of assessment. The Commissioner sued on the irrefutable debt created by the notices and thereafter succeed in obtaining summary judgment against them. The judgments he obtained included certain penalty charges and interest. There were subsequent variations to some of these judgments but they are not material to the issues in these reasons: see Deputy Commissioner of Taxation v Hua Wang Bank Berhad (No 4) (2010) 211 FCR 42 for a complete explanation. The judgments, which were all given by Kenny J on 25 November 2010, related to several financial years. The taxpayers, the relevant judgment sum and the years to which each related are as follows:

3    Largely the taxpayers have satisfied these sums although it should be acknowledged that this statement omits a considerable degree of detail which is for present purposes, however, irrelevant. What does follow is that if the taxpayers are successful in their appeals under Pt IVC of the Taxation Administration Act 1953 (Cth) (‘the TAA’) then the Commissioner will be obliged to refund those amounts which have already been paid.

4    In their appeals the taxpayers contend that the assessments are excessive as they are required to do by s 14ZZO of the TAA. One of the issues which effects each of the taxpayers concerns the question of where each had its place of central management and control. If a corporate taxpayer has its place of central management and control in Australia then it will be an Australian resident for tax purposes and therefore subject to assessment under the provisions of the Income Tax Assessment Act 1997 (Cth) (‘the ITAA 1997’): see s 995-1(1) ITAA 1997 (definition of ‘Australian resident’) and s 6-1 Income Tax Assessment Act 1936 (Cth) (‘the ITAA 1936’) (definition of ‘resident of Australia’). If the taxpayers are not residents of Australia this will provide a reason to conclude that they are not liable to the tax for which the Commissioner has assessed them and that the notices of assessment are, therefore, excessive.

5    The tax in question relates to profits which have been made by the taxpayers on the purchase and sale of listed Australian securities. The Commissioner has taken the position that the taxpayers have their place of central management and control in Australia because, so he contends, each (apart from Southgate) was operated in Sydney by Mr Vanda Gould who gave all directions for their operation. In the case of Southgate the Commission alleges that it was controlled in Sydney by Dr Joseph Ross and makes the claim that it was controlled by Mr Gould only in the alternative.

6    Three of the taxpayers – Derrin, Bywater and Chemical Trustee – submit that they had their place of central management and control in NeuchÂtel in Switzerland where lives a Mr Peter Borgas who is said to be the controlling mind of the three entities. The fourth taxpayer, Southgate, rejects the idea that its place of central management and control was Sydney. It contends instead that its board met at the offices of Lubbock Fine, a firm of accountants, in London and that that is where its place of central management and control was. Insofar as the Hua Wang Bank was concerned, it was said to have its place of central management and control in Apia, the capital of Samoa.

7    The taxpayers do not deny some influence on the part of Mr Gould on Mr Borgas or the boards of Southgate or the Hua Wang Bank. They do, however, deny it is a relationship of direction or control. Even accepting the influence of Mr Gould on the boards of the various taxpayers, the taxpayers still submitted that their place of central management and control would be outside Australia. To make good that submission they rely upon a decision of Gibbs J in Esquire Nominees Ltd v Commissioner of Taxation (Cth) (1973) 129 CLR 177. In that case, the question was whether Esquire Nominees Ltd (‘Esquire’) had its place of central management and control in Norfolk Island. The directors of Esquire were located on and residents of Norfolk Island. There was evidence that Esquire was part of a broader arrangement conducted for the benefit of the Manolas family via the ‘Manolas Trust’ from Australia by a firm of accountants Messrs Wilson, Bishop, Bowes and Craig. One of the directors on the island was a local solicitor, Mr McIntyre. The evidence about the relationship between the directors and the accountants was set out by Gibbs J as follows (at 181):

In consequence of this decision, Mr. Sheehan, an accountant employed by Messrs. Wilson, Bishop, Bowes and Craig, visited Norfolk Island for the purpose of having discussions with Mr. McIntyre, who carried on practice there as a solicitor, with a view to the implementation of the plan which the Manolas family had decided to adopt Mr. Dowding, another agent of Messrs. Wilson, Bishop, Bowes and Craig, also visited the Island to assist in carrying out the plan. Mr. McIntyre, in giving his evidence, would not agree that the directors of the appellant, and of the other companies which I shall shortly mention, were simply told by Mr. Sheehan what to do, and objected to the suggestion that the appellant was controlled by Messrs. Wilson, Bishop, Bowes and Craig, although he agreed that the board did take considerable heed of the recommendations made by that firm. If it matters, there is however no doubt that all the events I am about to recount occurred in the course of carrying out a plan previously evolved by the advisers of the Manolas family with the object of finding a way of escape from a liability to tax which it was thought (wrongly as it happened) would one way or the other be attracted if things were allowed to remain as they were.

8    The taxpayers say that the situation of the directors of Esquire is broadly similar to that of the directors of the taxpayers although they say their situation is even stronger. This is because, unlike Esquire, it is proposed that Mr Borgas will give evidence that he owns and controls all of the taxpayers (apart from Southgate) through two vehicles in the Cayman Islands. These two vehicles are central to the present question and I return to them more fully below. They are called J.A. Investments (‘JAI’) and M.H. Investments (‘MHI’). The taxpayers then submit that the following passage in Esquire Nominees Ltd (at 191) assists them:

Although it is doubtless true that steps could have been taken to remove the appellant from its position as trustee of one or more of the trust estates, Messrs. Wilson, Bishop, Bowes and Craig could not control the appellant in the conduct of its business of a trustee company. The firm had power to exert influence, and perhaps strong influence, on the appellant, but that is all. The directors in fact complied with the wishes of Messrs. Wilson, Bishop, Bowes and Craig because they accepted that it was in the interest of the beneficiaries, having regard to the tax position, that they should give effect to the scheme. If, on the other hand, Messrs. Wilson, Bishop, Bowes and Craig had instructed the directors to do something which they considered improper or inadvisable, I do not believe that they would have acted on the instruction. It was apparent that it was intended that the appellant should carry on its business of trustee company on Norfolk Island. It was in my opinion managed and controlled there, none the less because the control was exercised in a manner which accorded with the wishes of the interests in Australia. The appellant was, in my opinion, a resident of Norfolk Island.

9    It is not to the point, on this view, that the boards of the taxpayers may have been influenced, even heavily influenced, by Mr Gould. So long as they were exercising their own judgment the place of central management and control would remain where they met.

10    The Commissioner’s attack on this case is frontal. He proposes to prove, using the tracing of money flows, that the person who has received the benefit of the taxpayers’ investment efforts is Mr Gould; that considerable efforts have been pursued to disguise the true nature of those flows; that, contrary to his evidence, the taxpayers’ business is not beneficially owned by Mr Borgas; and that the careful documentation of decisions made by Mr Borgas on behalf of the taxpayers in NeuchÂtel and at Lubbock Fine in London and by certain persons in Samoa is an elaborate faÇade whose purpose is to conceal Mr Gould’s total control over the affairs of the respective taxpayers.

11    The means by which the Commission has pursued the above propositions have, for much of this litigation, been circumstantial. The affairs of Mr Borgas, Mr Gould and the other people involved in the taxpayers’ entities involve a very large number of corporate entities in several jurisdictions and they may be described, I think not inaccurately, as Byzantine in their complexity. The Commissioner’s method of proof, until 17 February 2012, largely consisted of showing where the money was going and inviting the inference that control and economic interest might naturally be expected to coincide. The Commissioner did not, however, contend that Mr Gould was the ultimate controller of JAI or MHI and indeed the indications have been that Mr Borgas will give evidence that he is in control of and that he owns JAI and MHI for himself.

2.    Exhibits 8 & 9

12    The documents subject to the present objection became Exhibits 8 and 9 on the voir dire. These documents have a tendency to show that it is Mr Gould, and not Mr Borgas, who is the ultimate beneficial owner of JAI and MHI and that Mr Gould controls them de jure. The documents include the articles of association for each entity under which Mr Gould seems to be the holder of an office called ‘the Appointor’. Under those same articles the Appointor appears to be the person who decides who the relevant entity’s members are. Another document with respect to both entities consists of a nominee agreement which appears to provide not only that Mr Borgas or an entity controlled by him holds its interest on trust for Mr Gould but that it must act as Mr Gould directs.

13    I will return to these documents further below. It will suffice for now first to observe that the Commissioner was given these documents by the Cayman Islands Tax Information Authority (‘CITIA’) on 5 May 2011 and 20 September 2011 and that on 17 February 2012 CITIA consented to the use of the documents in these proceedings; secondly, that on the business day before this trial commenced Quin J sitting in the Grand Court of the Cayman Islands (‘the Grand Court’) set aside those decisions at the suit of JAI and MHI: MH Investments v Cayman Islands Tax Information Authority (13 September 2013), Cause No 391/2012, Grand Court of the Cayman Islands. Quin J also ordered CITIA to write to the Commissioner seeking his undertaking not to divulge the documents in Court proceedings in Australia and demanding the immediate destruction or return of the documents to CITIA. A letter to that effect has been received by the Commissioner. The Commissioner has not given the suggested undertaking, does not propose to return the documents and, to the contrary, now seeks to tender them.

3.    The Taxpayers Contentions

3.1    Overview

14    The taxpayers object to the tender of Exhibits 8 and 9 on the following bases:

15    (a) The comity argument. The taxpayers submitted that one consequence of the Grand Court’s decision to set aside CITIA’s administrative decisions to release the documents to the ATO and to consent to their use in these proceedings was that their tender by the Commissioner in these proceedings would be a criminal offence under laws of the Cayman Islands having extraterritorial effect in Australia. On this view of affairs the Court would not lightly permit conduct which infringed the law of the Cayman Islands. Judicial comity required, therefore, that this Court reject the tender of Exhibits 8 and 9.

16    (b) The illegality argument. Quite apart from whether notions of comity required the rejection of the tender of Exhibits 8 and 9, the taxpayers submitted that the documents obtained from CITIA (including those exhibits) had been improperly obtained in breach of the law of the Cayman Islands. This argument depended for its efficacy upon the decision of the Grand Court to set aside the two decisions of CITIA to give the documents to the Commissioner along with the decision to consent to use of the documents in these proceedings. Those decisions having now been set aside by the Grand Court the illegality was said to arise from s 5(1) of the Confidential Relationships (Preservation) Law (2009) Revision (Cayman Islands), Consolidated & revised 16 June 2009, Supplement No. 5 published with Gazette No. 14 of 7 July 2009 (‘the Cayman Islands Confidential Relationships Law’). That provision makes it an offence punishable by two years imprisonment or a fine of $5,000 to divulge confidential information (s 5(1)(a)(i)) or wilfully to obtain or attempt to obtain such information (s 5(1)(b)). Subsection 3(1) of that Act applies that prohibition ‘… to all persons coming into possession of such information at any time thereafter whether they be within the jurisdiction or thereout’ (my emphasis). As a matter of the law of the Cayman Islands s 5(1) of the Cayman Islands Confidential Relationships Law therefore operates in Australia.

17    It was therefore said that Exhibits 8 and 9 were evidence that was obtained ‘improperly’ within the meaning of s 138(1) of the Evidence Act 1995 (Cth) (‘the Evidence Act’). Consequently, the Court was invited to reject the tender, in the manner contemplated by that provision, on the basis that ‘the desirability of admitting the evidence outweighs the undesirability of admitting evidence that has been obtained in the way in which the evidence was obtained’ (s 138(1)). In addition, it was argued that the documents had been obtained through a breach of the Agreement between the Government of Australia and the Government of the Cayman Islands on the Exchange of Information with respect to Taxes, signed 30 March 2010, [2011] ATS 14 (entered into force 14 February 2011) (‘the Treaty’) and this would amount to their obtaining in circumstance of impropriety.

18    (c) The public interest argument. The request made by the Commissioner to CITIA was made pursuant to the Treaty. The taxpayers submitted that for the Commissioner now to use the documents obtained from CITIA when CITIA had asked for the return or destruction of them involved a breach by Australia of the Treaty. Consequently, or perhaps further, the tender of Exhibits 8 and 9 had the potential to prejudice international relations between the Commonwealth and the Cayman Islands. This mattered because s 130 of the Evidence Act confers a discretionary power to exclude evidence relating to a ‘matters of state’ when the public interest in admitting the evidence is outweighed by the public interest in preserving its confidentiality (s 130(1)). Subsection 130(4)(a) specifies that evidence will relate to ‘matters of state’ if its adduction would ‘prejudice the security, defence or international relations of Australia’. The taxpayers then submitted that the act of the Commissioner in tendering Exhibits 8 and 9 would prejudice international relations between Australia and the Cayman Islands. If it did, a balancing exercise would be called for in which the public interest in preserving the confidentiality of Exhibits 8 and 9 would be weighed against the public interest in admitting them.

19    (d) The contempt argument. There are no direct means by which the Commissioner could obtain the documents in Exhibits 8 and 9 in the sense at least that it would not be possible to issue a subpoena to JAI or MAI since they lie beyond the territorial limits of the Commonwealth. The taxpayers accepted that the Commissioner did have powers of investigation including the power to make a request to the government of the Cayman Islands for documents under the Treaty. It was submitted, however, that it would be a contempt of this Court for the Commissioner to use such extra-curial powers of collection to gather evidence for the purposes of these proceedings, as opposed to its use for investigative purposes.

Alternatively, even if the Commissioner lacked such an improper purpose the taxpayers submitted that there was a real risk of prejudice to the administration of justice if Exhibits 8 and 9 were received into evidence which would also, therefore, be a contempt. It would be a contempt to do so where this Court itself had the power to obtain the evidence but that power was subject to the Court’s control. A contempt would arise because the Commissioner would be, in effect, outflanking the Court’s own control of its processes. It not being in dispute that JAI and MHI could not have been served with a subpoena issued by this Court the taxpayers instead pointed to the provisions of the Foreign Evidence Act 1994 (Cth) (‘the Foreign Evidence Act’) which, by s 7, confers a discretionary power on the Court to request the judicial authorities of the Cayman Islands ‘to take the evidence of the person’ (s 7(1)(c)). Here ‘the person’ was said to be the proper officer for each of JAI and MHI and it was submitted that the Cayman Islands judicial authorities could also be asked to require those proper officers, as an adjunct to giving their testimony, to produce the documents in Exhibit 8 and 9. Since the Court could control that process it followed, so it was submitted, that it would be a contempt to outflank those limitations by using other forms of compulsory process (such as a request under the Treaty). It was also suggested by the Taxpayers that the provisions of the The Evidence (Proceedings in Other Jurisdictions) (Cayman Islands) Order (1978) (UK), SI 1978/1890 were tangentially relevant to whether the Foreign Evidence Act would be available to the Commissioner but no submission about this was ultimately put and I say no more about it.

20    The effect of either of these contempts, if established, was submitted to be that Exhibits 8 and 9 were inadmissible having been obtained as the fruits of an unpurged contempt of court. In the alternative, the taxpayers argued that the matter gave rise to a discretion to exclude the evidence.

21    (e) The discretion arguments. These issues would only arise if it were found that Exhibits 8 and 9 had been obtained improperly (s 138(1) of the Evidence Act); or that their tender prejudiced relations between Australia and Cayman Islands (s 130(4)(a) of the Evidence Act); or as a result of a contempt of court. In each of those cases a balancing exercise would be called for. In relation to the question of improperly obtained evidence the terms of s 138 suggested, and the taxpayers accepted, that it would be necessary to weigh the probative value of Exhibits 8 and 9 against the undesirability of obtaining evidence in the way in which Exhibits 8 and 9 were obtained. As already noted, Exhibits 8 and 9 in terms suggest that Mr Borgas holds his interests in JAI and MHI on trust for Mr Gould and that he is subject to Mr Gould’s instruction. The taxpayers submit that little weight may be given to this material for three reasons:

(a)     it did not mean that Mr Borgas did not make the decisions in NeuchÂtel;

(b)     the trust contemplated in the nominee agreements could not, as a matter of law, arise; and

(c)     the documents in Exhibits 8 and 9 were boilerplate in nature, unsuitable for use on the occasion for which they appear to have been selected, and as I understood the argument, did not reflect the true bargain between the parties.

22    The balancing exercise under s 130 of the Evidence Act was not the same but the taxpayers accepted that it should be approached in largely the same fashion. In the event that it was found that a document whose tender would be a contempt gave rise to a discretionary issue about admissibility the taxpayers also accepted that that discretion was to be approached in the same manner.

23    In addition to the specific arguments made, the taxpayers sought, in the event that Exhibits 8 and 9 were admitted into evidence, a non-publication order under s 37AG of the Federal Court of Australia Act 1976 (Cth) (‘the Federal Court Act’) on two bases. The first, under s 37AG(1)(b) (‘to prevent prejudice to the interests of the Commonwealth …in relation to national or international security’), was that if it became publicly known that the Commissioner had tendered Exhibits 8 and 9 this would imperil relations between the Cayman Islands and the Commonwealth and this, in turn, could prejudice national or international security. The second argument was based on s 37AG(1)(c) (‘necessary to protect the safety of any person’). Here the argument was that because the act of tendering Exhibits 8 and 9 would involve an offence under s 5(1)(a)(i) of the Cayman Islands Confidential Relationships Law each of the persons involved in that tender (including, I should note, the officers of the ATO giving instructions, the solicitors at the Australian Government Solicitor acting on those instructions and counsel performing the fateful act of tendering) were exposed to a risk of incarceration should they ever travel to the Cayman Islands.

24    It is useful to deal with the taxpayer’s argument in the order set out above.

3.2    Comity

25    Subsection 5(1) of the Cayman Islands Confidential Relationships Law provides:

5. (1)    Subject to section 3(2), whoever-

(a)    being in possession of confidential information however obtained-

(i)    divulges it; or

(ii)    attempts, offers or threatens to divulge it; or

(b)    wilfully obtains or attempts to obtain confidential information,

is guilty of an offence and liable on summary conviction to a fine of five thousand dollars and to imprisonment for two years.

26    Subsection 3(2) contains a series of exceptions which are not presently material. Subsection 3(1) extends the operation of s 5(1) to ‘all persons coming into possession of such information at any time thereafter whether they be within the jurisdiction or thereout’. The argument was that the act of tendering Exhibits 8 and 9 (which was accepted for the purposes of argument to be confidential information within the meaning of the Cayman Islands Confidential Relationships Law) would be an offence under s 5(1)(a)(i), that is to say, it would be an act of divulging. I am prepared to assume this is correct.

27    The taxpayers’ submission invoked the idea of comity. It is not clear to me whether the submission was that there was a common law doctrine which required the rejection of the proposed tender or that the infringement of Cayman Islands Confidential Relationships Law was a relevant matter to be taken into account in the exercise of some discretion with which the Court was already seized.

28    If it was the former, I reject it. I was taken to no authority which would support the proposition that evidence, otherwise admissible under the provisions of the Evidence Act, could nevertheless be rejected on the basis of some form of loosely defined abstention doctrine. In any event, the course of authority in this country is against any such proposition: Joyce v Sunland Waterfront (BVI) Ltd (2011) 195 FCR 213 at [57]-[59]; Habib v The Commonwealth (2010) 183 FCR 62 at [27].

29    As to the latter form of the argument, whether comity is a relevant consideration in the exercise of some discretion will depend on the terms of the conferral of the relevant power. So far as statutes are concerned there are only two candidates. The first is s 130 of the Evidence Act which relates to matters of state. By subsection 130(4)(a) it is relevant to consider under the provision the extent of prejudice to Australia’s security, defence or international relations. The question then is whether comity, in the sense discussed above, is a relevant consideration in the exercise of such a discretion having regard to the scope, purpose and ambit of the Evidence Act. The reference in s 130(4) means that this should be answered in the affirmative. That explicit reference to international relations takes this case outside the video-link power under consideration in Joyce v Sunland Waterfront (BVI) Ltd. I accept, therefore, that the breach of s 5(1)(a)(i) of the Cayman Islands Confidential Relationships Law is a relevant matter to be considered under s 130(4)(a) when assessing the taxpayers’ objections under that section. I deal with that issue below at paragraphs [94] ff.

30    The second provision is s 138 of the Evidence Act which deals with improperly or illegally obtained evidence. That section is directed to the issue of how evidence has been obtained rather than with whether its tender is unlawful under foreign law. Accordingly, the subject matter of s 138 dictates that whether the tender will be unlawful under s 5(1) of the Cayman Islands Confidential Relationships Law will be irrelevant to the exercise of that discretion. I do not accept, therefore, that comity – in the sense discussed above – is relevant to the exercise of the Court’s discretion under s 138. The situation is not relevantly different to that in Joyce v Sunland Waterfront (BVI) Ltd.

31    So much for the statutory relevance of comity. Could it also be relevant to the exercise of a discretion to exclude evidence whose tender might be a contempt? If the Commissioner’s actions in seeking to tender documents do not involve a contempt of this Court (which is the conclusion I reach below at [91]) then the fact that the tender might involve a breach of s 5(1) of the Cayman Islands Confidential Relationships Law will not alter that conclusion. On the other hand, if the tender would be contempt and a discretion arose as to whether the tender should be prevented as an aspect of the law of contempt then an issue would arise as to whether the fact that the tender would also infringe s 5(1) was relevant to how the Court might deal with the contempt. I am prepared to assume, without deciding, that it is, in fact, relevant to that question. I turn then to the substantial arguments.

3.3    Illegality

(a) The Provisions

32    The taxpayers sought to exclude the tender of Exhibits 8 and 9 relying upon s 138 of the Evidence Act. The full text is as follows:

138 Discretion to exclude improperly or illegally obtained evidence

(1)    Evidence that was obtained:

(a)    improperly or in contravention of an Australian law; or

(b)    in consequence of an impropriety or of a contravention of an Australian law;

is not to be admitted unless the desirability of admitting the evidence outweighs the undesirability of admitting evidence that has been obtained in the way in which the evidence was obtained.

(2)    Without limiting subsection (1), evidence of an admission that was made during or in consequence of questioning, and evidence obtained in consequence of the admission, is taken to have been obtained improperly if the person conducting the questioning:

(a)     did, or omitted to do, an act in the course of the questioning even though he or she knew or ought reasonably to have known that the act or omission was likely to impair substantially the ability of the person being questioned to respond rationally to the questioning; or

(b)     made a false statement in the course of the questioning even though he or she knew or ought reasonably to have known that the statement was false and that making the false statement was likely to cause the person who was being questioned to make an admission.

(3)    Without limiting the matters that the court may take into account under subsection (1), it is to take into account:

(a)    the probative value of the evidence; and

(b)    the importance of the evidence in the proceeding; and

(c)    the nature of the relevant offence, cause of action or defence and the nature of the subject‑matter of the proceeding; and

(d)    the gravity of the impropriety or contravention; and

(e)     whether the impropriety or contravention was deliberate or reckless; and

(f)    whether the impropriety or contravention was contrary to or inconsistent with a right of a person recognised by the International Covenant on Civil and Political Rights; and

(g)    whether any other proceeding (whether or not in a court) has been or is likely to be taken in relation to the impropriety or contravention; and

(h)    the difficulty (if any) of obtaining the evidence without impropriety or contravention of an Australian law.

Note: The International Covenant on Civil and Political Rights is set out in Schedule 2 to the Australian Human Rights Commission Act 1986.

(b) The Taxpayers Submissions

33    A number of the taxpayers’ arguments around Exhibits 8 and 9 tended to merge into one and other. At the conclusion of argument – and perhaps putting them a little more clearly than emerged during that argument – the propositions in play were:

(i)    no contravention of an ‘Australian law’ was alleged in the sense that expression was used in s 138(1), i.e., a contravention of a law of the Commonwealth or of a State;

(ii)    what was alleged instead was that the material comprising Exhibits 8 and 9 had been obtained improperly within the meaning of s 138(1);

(iii)    there were three alleged improprieties;

(a)    the first was that the tender of the documents would infringe s 5(1)(a) of the Cayman Islands Confidential Relationship Law (which was said by the taxpayers to have extraterritorial effect);

(b)    the second was that the Commissioner had made the requests to CITIA for the purpose of assessing the taxpayers’ liability prior to 1 July 2010. This was said to be improper because the terms of the Treaty dictated that it was not available for the purpose of assessing tax prior to that date. The Commissioner was said, therefore, to be acting contrary to the terms of the Treaty;

(c)    the third was that the Commissioner, by using machinery of the Treaty, was obtaining an improper advantage over the taxpayers which in itself amounted to a contempt. Here the argument was that the Commissioner should have sought the material in Exhibits 8 and 9 under the Foreign Evidence Act. That Act would have given the Court control over the Commissioner’s actions which, by his use of the Treaty provisions, he was undermining. One variant of this argument was that by so acting he was usurping the functions of this Court. In both cases, the impropriety consisted of what was alleged to be a contempt of Court. Another was that the Commissioner should have asked the taxpayers for the documents before asking CITIA.

34    The first argument may be disposed of shortly. Section 138 of the Evidence Act is concerned with the methods by which evidence has been obtained rather than how it is to be used, once obtained. That the tender of Exhibits 8 and 9 might infringe s 5(1)(a)(i) of the Cayman Islands Confidential Relationships Law is irrelevant to the inquiry required by s 138(1), it being a law other than that of the Commonwealth of a State. I reject it.

(c) Improper Obtaining of Exhibits 8 & 9

35    The second argument is more complex. Article 12(b) of the Treaty deals with when it comes into force in these terms:

Article 12

Entry into force

The Contracting Parties shall notify each other in writing through the appropriate channel of the completion of their constitutional and legal procedures for the entry into force of this Agreement. This Agreement shall enter into force on the date of the last notification, and shall thereupon have effect:

…

(b)     or all other matters covered in Article 1 from 1 July 2010, but only in respect of taxable periods beginning on or after that date or, when there is no taxable period, all charges to tax arising on or after that date.

36    Article 1 of the Treaty provides for exchange between the two countries of, broadly speaking, tax information. As will be apparent from the table at [2] above, the years of income in dispute in the Pt IVC appeals range between 2000 and 2007, well before the 1 July 2010 cut-off date in Art 12(b).

37    It was that fact which was the starting point for the taxpayers’ submission, expressed in various ways, but at its clearest as an argument that in requesting the documents in Exhibits 8 and 9 the Commissioner’s purpose had been to use the information for the purposes of these proceedings which all related to periods before 1 July 2010, in contravention of Art 12(b).

38    In response the Commissioner sought to put before me the affidavit of a witness, a Ms Lenore Richards, who swore as to the purpose for which the Commissioner had made the requests to the Cayman Islands. The taxpayers objected to the receipt of Ms Richards’ affidavit on the basis that the very question of whether the Commissioner had acted for the improper purpose of obtaining information for use in relation to periods prior to 1 July 2010 had been determined by the Grand Court in MH Investments The Cayman Islands Tax Information Authority on 13 September 2013 adversely to the Commissioner’s interests. On this view, it would be an abuse of process now to allow him to relitigate this issue.

39    This objection necessitated a voir dire within the voir dire. At the end of that voir dire I admitted Ms Richards’ evidence. I did so for the following reasons: the litigation in the Grand Court was between JAI and MHI, on the one hand, and CITIA, on the other. Neither of those parties is before this Court in the present proceedings. There is, therefore, no relitigation of any issue determined with respect to any of the present parties. Ms Seiden, for the taxpayers, submitted there would nevertheless still be an abuse of process even where there was no identity of parties citing Rippon v Chilcotin Pty Ltd (2001) 53 NSWLR 198. In that case it was held to be an abuse of process for a plaintiff who had sued the vendor of a business upon the inaccuracy of certain financial statements and who had failed in that suit thereafter to commence fresh proceedings against the accountants who had prepared the financial statements on the same basis that had already failed. However, this cannot assist the taxpayers in the present circumstance. There are two distinguishing features: first, unlike Rippon where one party in the second proceeding had been a party in the earlier proceeding, in this case the two sets of litigation have no common parties at all; secondly, unlike Rippon the Commissioner has not taken any positive step as a party with which step he may now be seen as acting inconsistently. The taxpayers could point to no authority in which parties in a later case were held bound to what had been found in earlier proceedings between entirely different parties. Leaving aside the position of privies, I do not accept the existence of such a principle.

40    Even if that were not so, I would not accept the existence of any abuse of process on the facts. It is true that in the proceeding before the Grand Court CITIA called two witnesses from the ATO, a Mr Cheetham and a Mr Zafiriou, although neither was cross-examined. I do not accept that the mere fact that a party’s witnesses were called is sufficient to give rise to an abuse of process. I should note that no argument was pursued before me that CITIA and the Commissioner were relevantly privies.

41    In Rippon the New South Wales Court of Appeal cited, with evident approval, the exposition of this aspect of abuse of process given by Giles CJ in Comm D in State Bank of New South Wales Ltd v Stenhouse (1997) Aust Torts Reports ¶81-423 (64,077) at 64,088 which was in these terms:

The guiding considerations are oppression and unfairness to the other party to the litigation and concern for the integrity of the system of administration of justice, and amongst the matters to which regard may be had are –

(a)    the importance of the issue in an to the earlier proceedings, including whether it is and evidentiary issue or ultimate issue;

(b)    the opportunity available and taken to fully litigate the issue;

(c)    the terms and finality of the finding as to the issue;

(d)    the identity between the relevant issues in the two proceedings;

(e)    any plea of fresh evidence, including the nature and significance of the evidence and the reason why it was not part of the earlier proceedings; …

(f)    the extent of the oppression and unfairness to the other party if the issue is relitigated and the impact of the relitigation upon the principle of finality of judicial determination and public confidence in the administration of justice; and

(g)    an overall balancing of justice to the alleged abuser against the matters supportive of abuse of process.

42    This necessarily directs attention to the course of the proceeding in the Grand Court. That proceeding, relevantly, arose out of three administrative decisions made by CITIA:

(i)    a decision made on 23 February 2011 to obtain documents in the Cayman Islands at the request of the Commissioner;

(ii)    a decision made on 16 August 2011 to obtain documents in the Cayman Islands at the request of the Commissioner; and

(iii)    a decision made on 17 February 2012 to consent to the use by the Commissioner of the documents obtained under (i) and (ii) in the present proceedings.

(d) The Decision of the Grand Court of the Cayman Islands

43    The proceedings in the Cayman Islands were commenced by a Notice of Originating Motion for leave to apply for judicial review which was filed on 18 September 2012. There were three applicants: MHI, JAI and Bywater Investments Ltd. Bywater, it will be noted, is a party before this Court. The named respondents were CITIA and the Attorney-General of the Cayman Islands. On 30 May 2013 the Grand Court ordered the removal of Bywater and the Attorney-General as parties. At that point, there remained no common parties between the two sets of proceedings.

44    According to the Amended Notice of Originating Motion (‘the Application’), JAI and MHI’s argument was that where a foreign authority (such as the ATO) sought to use documents for the purpose of proceedings in its home jurisdiction CITIA was required by Cayman Islands law to obtain an order from the Grand Court authorising their release. This was said to follow from s 8(4) of the Tax Information Authority Law (2009) Revision (Cayman Islands), Consolidated & revised 16 June 2009, Supplement No. 8 published with Gazette No. 15 of 20 July 2009 (‘the Tax Information Authority Law’). It provided:

8. Powers of Judge to compel witness for production of evidence

(4) Where, under a request, the Authority considers it necessary to obtain specified information or information of a specified description from any person the Authority shall:

(a)    in the case of information required for proceedings in the territory of the Requesting Party or related investigations, apply to a judge for an order to produce such information; or

(b)    in the case other than referred to in paragraph (a), issue a notice in writing requiring the production of such information as may be specified in the notice; and such notice may require the information –

i.    to be provided within a specific time;

ii.    to be provided in such form as the Authority may require; and

iii.    to be verified or authenticated in such manner as the Authority may require.

45    Paragraph 20 of the Application outlined the reasons why it was necessary for CITIA to go down the path of s 8(4)(a) rather than s 8(4)(b) of the Tax Information Authority Law. Before setting out the contentions it is necessary to know that the reference to Schedule 16 is, in substance, in reference to the Treaty (which was contained in that schedule). Paragraph 20 provided:

20.    By letter dated 13 July 2012 the Cayman Companies’ attorneys, Solomon Harris, notified CITIA that the Cayman Companies understood that the Request had been made to CITIA by the ATO and that it was the Cayman Companies’ view that the Request was not in accordance with Schedule 16 on the basis that:

20.1    The Australian Tax Proceedings related to the assessment of tax for periods prior to 2007 whereas article 12(b) Schedule 16 only permits the provision of information in relation to taxable periods which arise after 1 July 2010;

20.2    The ATO had failed to pursue all means available on its own territory to obtain information that it sought; and

20.3    As a matter of Australian law the ATO was not entitled to make a request under Schedule 16 for the purposes of obtaining evidence for use in the Australian Tax Proceedings.

46    Paragraph 20.3 made reasonably clear to CITIA that the applicants would contend that the purpose the ATO had in seeking the documents was to aid in these proceedings.

47    The application was tried on 29 and 30 August 2013 in the Grand Court sitting at George Town. Quin J recorded at [22] and [23] in MH Investments v Cayman Islands Tax Information Authority the evidence which was before his Honour. This included, for the applicants, affidavits of Mr Gould and Mr Leaver. It also included an affidavit of Mr Hyde Page who is junior counsel for the taxpayers before me. For the respondents, there were included affidavits of Mr Zafiriou, Mr Cheetham and Mr Nicol. Mr Nicol is the director of CITIA and Mssr Zafiriou and Cheetham are from the ATO.

48    Mr Zafiriou’s evidence was, relevantly, that the ATO had made two requests for information from CITIA. The first was made on 23 February 2011. At that time the present Pt IVC proceedings were not on foot. What was on foot, however, were the Commissioner’s recovery proceedings. These consisted only of the Commissioner’s attempts to enforce the judgment debts he had obtained as a result of summary judgment applications based on his notices of assessment. No issue arose in those proceedings to which Exhibits 8 and 9 were relevant. Indeed, at the time of the request on 23 February 2011 the Commissioner had not yet determined the taxpayers’ objections. In light of those propositions Mr Zafiriou swore:

… The purpose of the First Request was to obtain information with respect to the ongoing investigations involved in Operation Rubix. The First Request was not made for the purpose of obtaining evidence in the Recovery Proceedings in which judgment was obtained on 25 September 2010. The material sought from the First Request was irrelevant to the Recovery Proceedings and has not been relied upon by the Deputy Commissioner in aid of the Recovery Proceedings.

49    The Grand Court was not directly concerned with the position of the ATO but instead with that of CITIA. At [201] it reasoned this way:

It is my view that had the Respondent been informed of these facts by the ATO, it would have found that the investigations described as Operation Rubis [sic] either related to proceedings that had already commenced or alternatively, were going to inevitably lead to the Part IVC proceedings which were commenced by the four [sic] Taxpayers on the 18th [sic] May 2011.

50    The reference to ‘these facts’ was a reference to the existence of the judgments of Kenny J, the freezing orders of Jessup J (later varied by Dodds-Streeton J) and ‘the fact that the Taxpayers’ Objections …would lead, inexorably to Part IVC proceedings …’ at [199]. For present purposes what matters is the Grand Court’s conclusion that the investigations related to the proceedings which were on foot or which would be commenced.

51    This necessarily involved a rejection of the evidence of Mr Zafiriou set out above.

52    Mr Zafiriou was not cross-examined and it was not put to him that his evidence was false. The Grand Court did not attempt to explain why his evidence was wrong. I do not know whether the decision not to cross-examine Mr Zafiriou was the result of an inter partes agreement to dispense with cross-examination (as is common enough in judicial review proceedings) or whether it arose through other means. It does not matter, however, because the result is the same: the Commissioner’s witness never got to respond to the serious suggestion that the request had been made for purposes antedating 1 July 2010.

53    The affidavit of Ms Richards, on the other hand, explains why the request of 23 February 2011 was issued for purposes relating to events after 1 July 2010 and not for the purposes of these Pt IVC proceedings. This material was not available to the Commissioner in the Grand Court because:

(a)    he was not a party; and

(b)    he was given no notice that the sworn testimony of his officials was to be rejected it not having been put to them that they had engaged in conduct which would have been unlawful.

54    I do not think a finding in proceedings between CITIA and JAI and MHI could render the use of Ms Richard’s affidavit in these proceedings an abuse of process. This is because the Commissioner was not a party in the earlier proceeding who had adopted any kind of position. But if I were wrong in that conclusion and the reasoning of State Bank of New South Wales v Stenhouse were to be applied I am satisfied in terms of the ‘guiding considerations’ (b) and (d) (above at [41]) that the Commissioner was never given the opportunity to put his case on this issue. Accordingly, even if abuse of process were relevant for present purposes in the sense of being an available doctrine, I would not conclude that the use of Ms Richards’ affidavit was such an abuse.

55    It was for those reasons that I permitted the affidavit to be read.

(e) Breach of Treaty

56    Returning then to the question of whether the evidence in Exhibits 8 and 9 was improperly obtained for the purposes of s 138(1) of the Evidence Act the question to be considered is whether the Commissioner’s two requests for information were made in breach of Art 12(b) of the Treaty which means whether it was issued for the purposes relating to periods prior to 1 July 2010.

57    On this, Ms Richards’ evidence was clear: the purpose for which the two requests were issued related to matters after 1 July 2010. Ms Richards was cross-examined by counsel for the taxpayers but it was not put to her at any stage that this evidence was not correct and, indeed, she was not asked about it at all. Instead, the taxpayers submitted that her evidence on the issue of the purposes for which the notices were issued was of no value.

58    In order to understand why I am disinclined to accept that submission it is necessary to understand the events leading to this litigation. For a number of years there has been on foot a cross-agency task force into the affairs of several taxpayers known as Project Wickenby the common features of which is that taxpayers have received funds from, or made payments to, overseas entities. Within Project Wickenby there is another operation known as Operation Rubix which has been looking into the affairs of Mr Gould and his clients and associates.

59    Ms Richards is employed by the ATO as a Senior Tax Technical Specialist within the Serious Non Compliance (‘SNC’) business line of that office.

60    Since 2009 Ms Richards has been involved, in that capacity, in Operation Rubix and, therefore, with the tax affairs of Mr Gould. Ms Richards’ role includes work as an information gathering advisor in which capacity she assists auditors with the drafting of requests by the Commissioner for information including under the Treaty. It is her job to ensure that requests made for information by the Commissioner at the instigation of his auditors are carried out in a lawful manner and for a proper purpose.

61    It is important to observe the significance of this evidence because it shows that Ms Richard’s understanding of the purposes for which such notices are issued is not peripheral or derivative but instead is an aspect of the central focus of her work. For that reason, I am unable to accede to the taxpayers’ submission that I should regard her evidence about those purposes as being of little weight.

62    Ms Richards worked with a Mr Evans who is the primary auditor for the ongoing inquiries of Operation Rubix into the affairs of Mr Gould, Mr Leaver and the taxpayers. It is important, once again, to emphasise that this audit commenced in 2009 but is continuing to this day. Although the tax years in dispute in the present Pt IVC proceedings end in 2007 (as noted above at [2]), Operation Rubix is not so limited. Mr Evans conveyed to Ms Richards his desire to access information about JAI and MHI from the Cayman Islands. Mr Richards had regard to the terms of the Treaty and ascertained that a request could be made to CITIA for the financial year ending 30 June 2011. It is not clear to me when this occurred but I infer that it took place between 14 February 2011 (when the Treaty came into force) and 23 February 2011 (when the first request was made).

63    Thereafter, in conjunction with Mr Evans, Ms Richards formulated the request which was sent on 23 February 2011. At that time, the financial year ending 30 June 2011 had not ended. However, by 23 February 2011 the auditors had already identified a number of offshore funds movements which had occurred since 1 July 2010 and which concerned corporations owned by JAI and MHI. Specifically, the auditors and Ms Richards were aware of the following matters all of which post-dated 1 July 2010:

    CVC Funds Managers (an entity associated with Mr Gould) made an interest payment of $1.9 million to Derrin Brothers on 5 August 2010;

    Russell Associates remitted $3 million to Derrin Brothers on 21 July 2010 who then remitted the funds to Leaver Holdings on 27 July 2010;

    Russell Associates remitted $3.25 million to Derrin Brothers who remitted the funds to an entity associated with Mr Leaver on 29 October 2010;

    Education Corporation of Australia Pty Ltd (an entity associated with Mr Gould) remitted $227,575 to Chemical Trustee on 29 July 2010 and another related entity remitted a further $250,000 to it on 8 November 2010;

    Since 1 July 2010, JAI had remitted $300,000 to Phillips River Pty Ltd, an entity associated with Mr Gould; and

    On 28 July 2010 Chemical Trustee remitted $1 million to JAI.

64    It is entirely understandable that the auditors might want to obtain information about the nature of JAI and MHI to assist in understanding these transactions.

65    The request issued to CITIA on 23 February 2011 was 12 pages long and in view of that length I will abstain from setting it out. It was signed by a Mr Neil Cossins on behalf of the Commissioner but I accept – it was not suggested that I should not – that the request was prepared by Ms Richards and Mr Evans. There are two features of it what are worth emphasising. First, it indicated the transactions in respect of which the information was sought and, as I have indicated above, all that information post-dated 1 July 2010.

66    Secondly, it explicitly informed CITIA of the purpose for which the information was sought. This part of the notice was as follows:

The active investigation of Mr Gould and Mr Leaver is over a number of years to the present, including a real time review of the current Australian financial year ending 30 June 2011 for both taxpayers.

In relation to the real time review, under our legislation, the Commissioner of Taxation may at any time during any Australian financial year, or after its expiration, make an assessment of the taxable income derived in that year or any part of it by any taxpayer and of the tax payable thereon.

Further, where a foreign corporation is controlled by a resident of Australia, the income of that corporation may be attributed to the resident of Australia, and the Australian resident is assessed on the attributed income.

The Cayman Islands information requested:

•    in respect of the ultimate beneficial owners of J.A. Investments Limited and M.H. Investments Limited is required to assist the ATO to determine the Australian income tax payable by Mr Gould, Mr Leaver and/or their associated entities for the taxable period commencing 1 July 2010; and

•    will be relevant to the consideration of the behaviour of the taxpayers, and the determination of the appropriate shortfall penalty.

67    The reference to a ‘real time review’ is in reference to the Commissioner’s power under s 168 of the ITAA 1936 which is as follows:

168 Special assessment

(1)    The Commissioner may at any time during any year, or after its expiration, make an assessment of:

(a)    the taxable income derived (or that there is no taxable income) in that year or any part of it by any taxpayer; and

(b)    the tax payable thereon (or that no tax is payable); and

(c)    the total of the taxpayer’s tax offset refunds for that year or that part of it (or that the taxpayer can get no such refunds).

(2)    Where the income, in respect of which such an assessment is made, is derived in a period less than a year, the assessment shall be made as if the beginning and end of that period were the beginning and end respectively of the year of income.

68    The notice, then, was explicit that the purpose for which the information was sought related to assessment after 1 July 2010.

69    On its face the notice did not have as any of its purposes the assistance of the Commissioner in his pursuit of these proceedings.

70    Ms Richard’s evidence confirms the correctness of those statements in the notice. She explained that the pursuit of the Pt IVC proceedings is handled by a different business line of the ATO known as ‘Micro Enterprises and Individuals’ whereas she and the auditor, Mr Evans, worked in the SNC section. Notwithstanding that, Ms Richards accepted that she was aware as at 23 February 2011, when this first request was issued, of the proceedings in this Court.

71    By then the Commissioner had obtained freezing orders over the taxpayers’ assets and summary judgment against them. He had also sought, but had not yet obtained, enforcement of the judgments. Pending also, but as yet undetermined, were the taxpayers’ objections. The Part IVC appeals had not been commenced.

72    Ms Richards’ evidence was that, notwithstanding her knowledge that those matters were being pursued in other parts of the ATO, the notice she and Mr Evans procured to be issued was not issued for the purpose of those proceedings but for the purpose of investigating matters after 1 July 2010.

73    Ms Richards was not challenged about this and I can see no reason not to accept her evidence. I therefore reject the proposition that the notice was issued for the purpose of assisting with these proceedings. To contrary, I find that it was issued for the purpose of ascertaining matters arising after 1 July 2010. Consequently, the Commissioner’s act in issuing the request to CITIA was authorised by Art 5 of the Treaty and no breach of the Treaty was involved in its issue.

74    On 5 May 2011 CITIA responded to the request. That response included the memorandum and articles of association of JAI which forms part of Exhibit 8. No breach of the Treaty by the Cayman Islands was involved in this response. Having received a request (above) under Art 5 the obligation of the Cayman Islands to respond was governed by Art 6 which provided

Article 6

Tax examinations abroad

6.    The competent authority of the Requested party shall forward the requested information as promptly as possible to the Applicant Party. To ensure a prompt response, the competent authority of the Requested Party shall:

(a)    confirm receipt of a request in writing to the competent authority of the Applicant Party and shall notify the competent authority of the Applicant Party of deficiencies in the request, if any, within 60 days of the receipt of the request; and

(b)    if the competent authority of the Requested Party has been unable to obtain and provide the information within 90 days of receipt of the request, including if it encounters obstacles in furnishing the information or it refuses to furnish the information, it shall immediately inform the Applicant Party, explaining the reason for its inability, the nature of the obstacles or the reasons for its refusal.

75    This appears to be non-discretionary but Art 6 must be read against Art 7(1):

Article 7

Possibility of declining request

1.    The Requested Party shall not be required to obtain or provide information that the Applicant Party would not be able to obtain under its own laws for purposes of the administration or enforcement of its own tax laws. The competent authority of the Requested Party may decline to assist where the request is not made in conformity with this Agreement.

    (emphasis added)

76    For the reasons I have given, the ATO’s request was in accordance with the Treaty and hence an obligation on the Cayman Islands to respond to it arose. Consequently I conclude that CITIA’s response of 5 May 2011 was not only in accordance with the Treaty but required by it.

77    It is true that the decision of CITIA made on 23 February 2011 to respond was set aside by the Grand Court on 13 September 2013. However, for the purposes of deciding whether the documents were obtained improperly this is besides the point: the ATO validly requested the material under Art 5 and it validly received them under Art 6. That the Grand Court has quashed that decision is a matter of domestic law and can have no effect upon the lawfulness of the ATO’s receipt of that material.

78    Consequently, I do not accept that the receipt of the material by the ATO on 5 May 2011 involved any breach of the Treaty either by it or by CITIA. Neither the request nor the response related to events prior to 1 July 2010.

79    I turn then to the second request which was made on 27 May 2011. The material produced by the first request had included a nominee agreement which indicated an involvement of Mr Gould in the affairs of MHI. The ATO now sought to find out whether the same was true of JAI. In its request of 27 May 2011 the ATO repeated the same purpose it had in issuing the first notice which was for assessment purposes after 1 July 2010. I will not set this out again. This time it also included a brief explanation of Mr Gould’s role in MHI.

80    By the time of this request on 27 May 2011 the Commissioner had rejected the taxpayer’s objections and they had, on 16 May 2011, commenced the Pt IVC proceedings by way of appeal. Ms Richards did not say with what purpose that request was issued. For four reasons I infer that it was issued for the purpose of investigating the affairs of Mr Gould and Mr Leaver after 1 July 2010 and not for the purpose of these proceedings. First, there is the fact that Ms Richards and Mr Evans work in SNC which is not the business line of the ATO handling these proceedings; secondly, the terms of the request are expressed to be for the same purpose as the first request. There is nothing on the material before this Court to suggest any change of purpose in the intervening period. Thirdly, there is evidence that the Commissioner formed the desire to use the documents for the purpose of these proceedings much later – at some time between 8 February 2012 and 13 February 2012. At that time the ATO and its legal advisers held a conference in Brisbane about the present appeals which Ms Richards attended. Shortly after that conference the ATO sought CITIA’s permission to use the documents for the purposes of these proceedings. It was at that conference, I infer, that those responsible for these proceedings became aware that the SNC unit had come into possession of the documents from the Cayman Islands. I also infer that when that purpose was formed on or around 13 February 2012, it was formed in the Micro Enterprises and Individuals business line, not the SNC. Finally, nothing was put to Ms Richards to suggest that the terms of the letter of 27 May 2011 were false.

81    In those circumstances, I conclude that the second request of 27 May 2011 was issued for the purpose of investigating tax affairs post-dating 1 July 2010. Each of the other requirements of Art 5 was satisfied and the request was, therefore, in accordance with the Treaty.

82    On 20 September 2011 CITIA responded to the request providing the ATO a nominee agreement under which the shareholder in JAI, Offshore Nominees Ltd, agreed to act in accordance with Mr Gould’s instructions and to hold its interests for him. That document is part of Exhibit 8. For the reasons I have given in relation to the first request this response was also both authorised and required by the Treaty and, again for the same reasons, the receipt by the ATO of that material involved no breaches of the Treaty.

83    Under the terms of the Treaty the ATO did not require the permission of CITIA to use Exhibits 8 or 9. After the conference held in February 2012 the ATO in fact sought such permission but this was not required under the Treaty. Neither the fact that it received such a consent on 17 February 2012 nor the fact that that consent was set aside on 13 September 2013 is legally relevant.

84    In those circumstances I do not accept that the ATO came into possession of the documents in Exhibits 8 and 9 in any way which involved a breach of the Treaty. So far as it is said that the ATO obtained Exhibits 8 and 9 improperly within the meaning of s 138 of the Evidence Act because it did so in circumstances involving a breach of the Treaty, I reject the argument.

(f) Contempt of this Court

85    The third argument that Exhibits 8 and 9 were improperly obtained centred on the proposition that they had been obtained in contempt of this Court. There were two variants: first, it was said to be a contempt to use powers of investigation such as those afforded by the Treaty to aid in the conduct of proceedings; secondly it was said that even if that was not the purpose of the requests, they had a tendency to usurp the Court’s powers and hence to interfere with the administration of justice.

86    The first argument fails on the facts. The two requests were, as I have found, not issued for the purpose of obtaining information to be used in these proceedings.

87    The second argument is based on the principle explained in Deputy Commissioner of Taxation v De Vonk (1995) 31 ATR 481; [1995] FCA 1715 and NSW Food Authority v Nutricia Australia Pty Ltd (2008) 72 NSWLR 456 which examined the contempt which may result from the use of compulsory process in a way which interferes with the course of justice. The argument of the taxpayers, as I understood it, was:

(a)    the Commissioner obtained an advantage by making the request under the Treaty which was not available to ordinary litigants;

(b)    he could have sought the material under the Foreign Evidence Act but did not;

(c)    there was, therefore, a real risk to the administration of justice.

88    I perceive no threat to the administration of justice. This is not a case, for example, where the executive’s use of compulsory process threatens to undermine an accused person’s right to silence. The only substantial procedural entitlement to which the taxpayers could point was the Foreign Evidence Act. The argument, which was advanced with some reticence, was as follows:

(a)    the documents could have been obtained under the Foreign Evidence Act;

(b)    had an application been made to this Court under that Act it would have involved the exercise of a discretion so that the Court could be seen as being in control of the process;

(c)    the use of the Treaty procedure was apt to outflank, and therefore to undermine, that control.

89    Even assuming that it is permissible to obtain documents under the Foreign Evidence Act, I do not accept that the undermining effect referred to by the taxpayers constitutes a ‘real risk’ of interfering with the administration of justice. There is absent from the taxpayers’ submissions some compelling procedural right (such as the right to silence) which is being deleteriously effected. This is reinforced by the inability of the taxpayers to point to a problem beyond the bare fact that the Commissioner is obtaining the documents.

90    The taxpayers faintly submitted that it was a contempt to use the Treaty machinery without asking the taxpayers, who are related to JAI and MHI, to see if they could obtain the documents. I do not accept that this could have been a practical course to take given the uncooperative posture of JAI and MHI painted by their proceedings in the Grand Court.

91    In those circumstances I conclude that the Commissioner was not in contempt of Court by seeking Exhibits 8 and 9 under the Treaty.

(g) Conclusions

92    It follows from the above that I do not accept any of the taxpayers’ arguments that the evidence was improperly obtained. The fact that the tender of Exhibits 8 and 9 might be an offence under the laws of the Cayman Islands is irrelevant to whether the circumstances in which the Commissioner came into possession of them involved impropriety; the requests made by the ATO to CITIA were for purposes relating to periods after 1 July 2010 and the actions of the ATO in making those requests and of CITIA in providing documents under them were wholly in accordance with the Treaty; nor did the Commissioner act in contempt of this Court in making the requests.

93    The consequence of this is that Exhibits 8 and 9 were not improperly obtained so that the Court’s discretionary power to reject their tender under s 138 of the Evidence Act is not enlivened.

3.4    Public Interest

94    Next the taxpayers submitted that by seeking to use Exhibits 8 and 9 in these proceedings Australia was acting in contravention of the Treaty. Alternatively, having received a request from CITIA to return the documents CITIA had earlier provided to the ATO, it would now cause diplomatic tension between Australia and the Cayman Islands if the Commissioner proceeded to use the documents. In addition, the tender of the documents would be an offence under the law of the Cayman Islands and for this Court to permit such an offence to be committed under its own processes might also result in damage to the diplomatic relations between the two States. These matters were material, so the taxpayers submitted, because of s 130 of the Evidence Act which provides relevantly:

130 Exclusion of evidence of matters of state

(1)    If the public interest in admitting into evidence information or a document that relates to matters of state is outweighed by the public interest in preserving secrecy or confidentiality in relation to the information or document, the court may direct that the information or document not be adduced as evidence.

…

(4)    Without limiting the circumstances in which information or a document may be taken for the purposes of subsection (1) to relate to matters of state, the information or document is taken for the purposes of that subsection to relate to matters of state if adducing it as evidence would:

(a)    prejudice the security, defence or international relations of Australia;

…

95    The diplomatic difficulties foreshadowed above meant that the adduction of Exhibits 8 and 9 would ‘prejudice…international relations of Australia’ within the meaning of s 130(4)(a).

96    The first strand of this argument – that Australia is acting in breach of the Treaty – may be shortly disposed of: there is no breach of the Treaty for the reasons given above at [56]-[84].

3.5    Contempt

97    There is, I think, no substance in the remaining strands either. For s 130 to be enlivened the Court needs to be satisfied that the tender of Exhibits 8 and 9 would ‘prejudice … international relations of Australia’. The provision does not say ‘might prejudice’. The taxpayers’ submissions about damage to the relationship are speculative. It is possible that the tender of Exhibits 8 and 9 might cause some chilling of the relationship between the ATO and CITIA. It is equally possible that it might not. One simply does not know. Accordingly, I cannot be satisfied that the tender ‘would’ prejudice the international relations of Australia. Section 130 is not enlivened. The Commissioner submitted that this issue was non-justiciable. I have not found it is necessary to form a view about that.

98    In the course of dealing with the argument relating to s 138 of the Evidence Act I have already concluded that no contempt was involved by the Commissioner in obtaining the documents from the Cayman Islands or is now involved in using them.

3.6    Discretion

99    No basis for excluding Exhibits 8 and 9 therefore arises under any of the arguments advanced by the taxpayers. The discretions conferred by ss 130 and 138 of the Evidence Act and, if it exists, under the law of contempt do not arise. Had they arisen my view would have been:

(a)    Exhibits 8 and 9 were of substantial probative value for the purposes of s 138;

(b)    the breach of s 5(1) of the Cayman Islands Confidential Relationships Law involved in tendering Exhibits 8 and 9 was less important than the public interest in the true nature of the taxpayers’ affairs being established. I sought from the taxpayers, but did not receive assistance on whether the extraterritorial criminal operation of s 5(1) was itself in breach of public international law (cf. SS ‘Lotus’ (France v Turkey) (Judgment) [1927] PCIJ (Ser A) No 10 and Ian Brownlie, Brownlie’s Principles of Public International Law (2004, 6th ed) p 306). Had it been necessary I would have required further assistance on the significance of the extraterritorial operation of s 5(1) of the Cayman Islands Confidential Relationships Law on judicial proceedings for the purposes of s 130 of the Evidence Act;

(c)    I would have considered both (a) and (b) to be relevant to the contempt issue.

4.    Applications for Non-publication Orders

100    During the course of the hearing I received Exhibits 8 and 9 on the voir dire. At that time the taxpayers applied for a non-publication order which I granted until the determination of whether they should be admitted. Initially the interim order was expressed to be made under s 37AG of the Federal Court Act but should have been made under s 37AI which authorises interim orders without determining the underlying merits. I have corrected that order under the slip rule.

101    In any event the order expired when I admitted Exhibits 8 and 9 into evidence on 19 September 2013. At that time the taxpayers applied for a substantive suppression order to prevent any publication of Exhibits 8 and 9. I refused that application.

102    The reasons I did so were as follows: The taxpayers advanced two arguments. The first was that any publication of Exhibits 8 and 9 might prejudice relations between Australia and the Cayman Islands. This was said to engage s 37AG(1)(b) of the Federal Court Act because the non-publication order was ‘necessary to prevent prejudice to the interests of the Commonwealth … in relation to national or international security.’ The word ‘necessary’ establishes a high standard. Making the assumption in the taxpayers’ favour that good relations with the Cayman Islands is an aspect of national or international security (a proposition which I would not wish to be taken as having necessarily endorsed) the perils to that relationship are entirely speculative and that threshold cannot be passed.

103    The second basis for a non-publication order was that it was necessary, to use the language of s 37AG(1)(c), ‘to protect the safety of any person’. When I inquired whose safety was at stake I was informed that it was that of the Commissioner’s staff and those of his legal representatives involved in the tender of Exhibits 8 and 9. What was the risk to their safety? I was told that the risk was that the tender would be an offence under s 5 of the Cayman Islands Confidential Relationships Law and the Commissioner’s staff and lawyers would be exposed to risk of incarceration should any of them decide to visit the Cayman Islands. There is no evidence that any of those persons is planning to travel to the Cayman Islands so there can be no necessity for the order even assuming everything else in the taxpayers’ favour.

104    It was for these reasons that I admitted Exhibits 8 and 9 into evidence and refused the application for a non-publication order.

Associate:

Dated:    8 October 2013