FEDERAL COURT OF AUSTRALIA

Hua Wang Bank Berhad v Commissioner of Taxation [2014] FCA 1392

FEDERAL COURT OF AUSTRALIA

Hua Wang Bank Berhad v Commissioner of Taxation [2014] FCA 1392

CORRIGENDUM

1    The last two sentences in paragraph [116] should be removed and the paragraph read as follows:

‘116    It is more than passing strange that Mr Gould should be looking after Mr Borgas' travel arrangements. The inference I draw is that the litigation was being conducted by Mr Gould for Mr Gould and Mr Borgas' role was to turn up when requested. Although Mr Borgas claimed that he was the ultimate source of instructions for the taxpayer there is no prospect that this could be true.’

Associate:

Dated:    10 March 2015

THE COURT ORDERS THAT:

1.    The parties provide, by way of email to chambers, proposed short minutes of order to give effect to these reasons on or before 7 January 2015.

2.    The matter be listed for directions on 2 February 2015 at 9:30 am.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

THE COURT ORDERS THAT:

1.    The parties provide, by way of email to chambers, proposed short minutes of order to give effect to these reasons on or before 7 January 2015.

2.    The matter be listed for directions on 2 February 2015 at 9:30 am.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

THE COURT ORDERS THAT:

1.    The parties provide, by way of email to chambers, proposed short minutes of order to give effect to these reasons on or before 7 January 2015.

2.    The matter be listed for directions on 2 February 2015 at 9:30 am.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

THE COURT ORDERS THAT:

1.    The parties provide, by way of email to chambers, proposed short minutes of order to give effect to these reasons on or before 7 January 2015.

2.    The matter be listed for directions on 2 February 2015 at 9:30 am.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

THE COURT ORDERS THAT:

1.    The parties provide, by way of email to chambers, proposed short minutes of order to give effect to these reasons on or before 7 January 2015.

2.    The matter be listed for directions on 2 February 2015 at 9:30 am.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

THE COURT ORDERS THAT:

1.    The parties provide, by way of email to chambers, proposed short minutes of order to give effect to these reasons on or before 7 January 2015.

2.    The matter be listed for directions on 2 February 2015 at 9:30 am.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

THE COURT ORDERS THAT:

1.    The parties provide, by way of email to chambers, proposed short minutes of order to give effect to these reasons on or before 7 January 2015.

2.    The matter be listed for directions on 2 February 2015 at 9:30 am.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

1. Introduction

1    This case concerns taxation appeals from decisions of the Commissioner of Taxation disallowing five taxpayers’ objections to a number of assessments issued by him. The taxpayers, the relevant income years in dispute and the combined amount of tax in dispute in this Court are as follows:

2    In addition to these primary tax liabilities each of the taxpayers has been levied a substantial amount in penalties and the general interest charge. Part of the case in this Court concerns a penalty of $21,794.30 imposed on Chemical Trustee. All of the penalties imposed on the other taxpayers are not in dispute in this Court although appeals from them are pending in the Administrative Appeals Tribunal (‘the Tribunal’).

3    Each of the taxpayers made profits on the acquisition and sale of securities in entities listed on the Australian Stock Exchange (‘the ASX’) which the Commissioner has treated as income and exigible to income tax. There are eight sets of issues between the parties:

(a)    The central management and control issue. The Commissioner contends that each of the taxpayers had its place of central management and control in Australia from where he alleges that they were completely controlled by Mr Vanda Gould, an accountant. If this contention be made good, the Commissioner submits that this will entail that each of the taxpayers was an Australian resident: Income Tax Assessment Act 1936 (Cth) (‘ITAA 1936’), s 6(1). In turn, this will render each of the taxpayers liable to income tax on all sources of income whether inside Australia or outside it: Income Tax Assessment Act 1997 (Cth) (‘ITAA 1997’), ss 6-5(2), 995-1(1). Each of the taxpayers says that its place of central management and control was in various overseas locations (Apia in Samoa, London or Neuchâtel in Switzerland) because, summarising it somewhat loosely, this is where their directors met or where the actual decisions about the share transactions in question were made. The Commissioner, by contrast, submits these structures are entirely formal and that, in truth, it was Mr Gould who was pulling all of the strings from Sydney. The taxpayers deny this but say, in any event, that it does not matter because the issue is to be decided by reference to where the decisions of the taxpayers, as a matter of formality, were made. They deny nevertheless Mr Gould’s role as a decision-maker, instead characterising him as an advisor to the taxpayers.

(b)    The double taxation issue. In the event that the taxpayers were found to be Australian residents for the purposes of Australian law then each taxpayer, apart from Hua Wang Bank, submitted that they were also resident in the United Kingdom or Switzerland. If this were accepted this then raised an issue as to whether they were entitled to invoke any of three double taxation treaties between Australia and those nations. Under the terms of those treaties they will be entitled to relief from Australian taxation if, in the case of two of the treaties, they had their ‘place of effective management’ in either jurisdiction. In the case of the third, the test is where they are ‘managed and controlled’. In effect, a similar, although not identical, debate would then ensue as had occurred under the rubric of the central management and control issue.

(c)    The capital/revenue issue. The Commissioner submitted that the share trading which had taken place was on the taxpayers’ revenue accounts. The taxpayers submitted that the shares in question were purchased as ‘growth’ stocks, that is to say, with the view to making profits from growth in the value of the underlying company rather than through gains from cyclical fluctuations in the price of the shares. This then formed the foundation for an argument that the profits had been made on capital account. Ordinarily, this issue might have been academic given the existence of a capital gains tax. The taxpayers involved, however, claimed that they were foreign residents and entitled to an exemption unless the shares in question had a connexion with Australia. The Commissioner denied the former and asserted the latter.

(d)    The trading stock issue. If the previous issue were decided against them and it was held that the gains made on the sale of the shares were on revenue account, the taxpayers then submitted that the shares should be treated as trading stock, being assets held for purposes of ‘manufacture, sale or exchange in the ordinary course of a business’: ITAA 1997, s 70-10(a). If so they were entitled to make trading stock elections.

(e)    The penalties issue. The Commissioner imposed a 75% penalty on Chemical Trustee on the basis that it had failed to lodge a return by the due date and that the return had been necessary for the accurate determination of its tax position: Taxation Administration Act 1953 (Cth) (‘TAA 1953’) Sch 1 s 284-75(3). Chemical Trustee denied that this provision applied where it had taken the position of not filing its return on the basis of a reasonable belief that it was not an Australian resident for tax purposes. It also submitted that the Commissioner could have assessed its income from other sources apart from its returns and that this also made the provision inapplicable. Although the Commissioner applied other penalties to each of the taxpayers these penalties are not the subject of the current proceedings (although, as already noted, appeals are pending in relation to them before the Tribunal).

(f)    The nominee issues. Hua Wang Bank and Bywater denied that they were beneficially entitled to the shares the subject of the trading activity in question and submitted that any profits which had been made were not theirs and hence not exigible to income tax in their hands.

(g)    The charging orders. Early in the proceedings, the Deputy Commissioner obtained summary judgment against the taxpayers on the basis of the uncontestable nature of the notices of assessment he had issued. He then sought to enforce these judgments against Hua Wang Bank and Bywater, and, in particular, certain of their shareholdings. These two taxpayers then contended that they did not beneficially own these shares and that the Court should not make charging orders against the shares. This raised essentially the same as question (f).

(h)    Miscellaneous issues. There were a number of miscellaneous matters about which the parties made no submissions but which seem to be open on the parties’ statements of issues.

4    I deal with these issues in turn.

2. Central Provisions and the Facts about the Location of the Taxpayers’ Businesses

(a) The relevant provisions

5    The basic statutory issues are generated by ITAA 1997, s 6-5(2) which provides:

‘6‑5 Income according to ordinary concepts (ordinary income)

…

(2)    If you are an Australian resident, your assessable income includes the *ordinary income you *derived directly or indirectly from all sources, whether in or out of Australia, during the income year.

…’

6    An ‘Australian resident’ is defined in ITAA 1997 s 995-1(1) to have the same meaning it bears in the ITAA 1936. Section 6(1) of the ITAA 1936 provides relevantly:

‘6 Interpretation

…

(1) In this Act, unless the contrary intention appears:

resident or resident of Australia means:

…

(b)    a company which is incorporated in Australia, or which, not being incorporated in Australia, carries on business in Australia, and has either its central management and control in Australia, or its voting power controlled by shareholders who are residents of Australia.’

(emphasis added)

7    Before turning to what this requires it is necessary to find some facts. The facts in this case are, unfortunately, quite complex. In a global sense there are two levels. The first consists of the facts which the taxpayers allege represent the true position. The second consists of additional matters which the Commissioner submits justify the conclusion that the structures are an elaborate façade to conceal the nature of Mr Gould’s dominion over them. Largely, it is easier to approach the second level only once the first has been mastered. I therefore propose to examine, in the first instance, the taxpayers’ version of events. In doing so, I will leave out of account – in the main – the Commissioner’s criticisms of this material. In short, I give first an account of the outer surface of what the Commissioner alleges is a façade, postponing for now an assessment of whether that is its true nature.

8    The positions of the taxpayers are not identical and they each require separate treatment.

(b) Basic facts about each taxpayer

Chemical Trustee Limited

9    Chemical Trustee was incorporated in the United Kingdom originally under the name Raybell Properties Limited. It was renamed Susally Properties Limited in 1962. It acquired its present name in 1996. As at 28 March 1996, Chemical Trustee had on issue 4,152 shares which were held in the name of Guardheath Securities Ltd (‘Guardheath’). Guardheath is a company owned by the partners of a London firm of accountants, Lubbock Fine. There is no evidence of any subsequent change in this capital structure and I find that in the relevant income years (being 2001-2007) Guardheath was the owner of the whole of the share capital of Chemical Trustee.

10    Guardheath holds the shares in Chemical Trustee as nominee for JA Investments Ltd (‘JA Investments’). JA Investments is incorporated in the Cayman Islands. Chemical Trustee’s abbreviated accounts for the income years 1999 to 2005 record that its ultimate parent is JA Investments. I return to the topic of JA Investments in more detail below. It will suffice for present purposes to say that the records for JA Investments show that it has only one shareholder, Mr Peter Martin Borgas.

11    Consistently with Mr Borgas’ shareholding, the directors of Chemical Trustee have at all times relevant to this litigation been Mr Borgas, his wife Mrs Winny Borgas and their son, Mr Timothy Borgas. The minutes of the meetings of the board of Chemical Trustee record that all of its meetings during the relevant years were held in Neuchâtel, a town in Switzerland in the French speaking canton of the same name, and were attended by Mr Borgas and his wife.

12    In the income years 2001-2007 Chemical Trustee bought and sold a large number of shares on the ASX. In all but the 2005 year it made substantial profits by doing so. The details of the share transactions involved appear at Appendix A to the Commissioner’s appeal statement. The detail of the particular transactions is of little moment for present purposes. All that matters is that substantial profits were made. At issue is the tax treatment of those profits.

13    Mr Borgas gave evidence before me. He testified that he made all the commercial judgments on behalf of Chemical Trustee and that he exercised his powers as an appointed director to decide upon all of its transactions and that he did this in Neuchâtel. This evidence forms the mainspring for Chemical Trustee’s primary argument that its place of central management and control was Neuchâtel.

14    The Commissioner’s submission is that this evidence was false and that Mr Borgas did nothing but act as Mr Gould’s cipher making no decisions about any of the taxpayer’s affairs and taking his instructions entirely from Mr Gould. Chemical Trustee’s somewhat convoluted ownership structure (involving as it did apparently unnecessary layers of complexity in London and the Cayman Islands) was, on this view, to be seen as material designed to obscure Mr Gould’s role.

15    The assessment of that submission requires the traversing of a large amount of material mostly of a documentary nature but also involving corroborative testimony called by the taxpayers from a number of witnesses.

16    Chemical Trustee’s position has always been that it was not an Australian resident for tax purposes and on that basis it did not file any income tax returns for the financial years 2001-2007. On 12 August 2010, the Commissioner issued assessments (and in one case, subsequently, an amended assessment) in which he assessed Chemical Trustee as having taxable income over those years of $6,186,526 on which was due $1,859,376.52 in income tax. On top of this he levied in each year a 75% administrative penalty pursuant to s 284-75(3) of Schedule 1 to the TAA 1953 for failing to lodge a return and thus requiring the Commissioner to assess its income himself. In every year except the first, i.e., 2001, he levied a further administrative penalty of 20% on the basis that it had been liable to pay a penalty in the preceding year.

17    The assessments were as follows:

18    Chemical Trustee has paid all of these assessments. It objected to them on 13 September 2010 and the Commissioner disallowed those objections on 30 March 2011. It is from those objection decisions that Chemical Trustee now appeals to this Court, apart from the decisions relating to the primary tax liability for the year ended 2002, and the penalties for all years apart from 2001, which are all subject to review in the Tribunal.

Derrin Brothers Properties Limited

19    I turn then to the position of Derrin Brothers. It was incorporated in the United Kingdom on 19 May 1959 under the name Garrett Properties Limited. It changed its name to Derrin Brothers Properties Limited on 27 October 1992.

20    The shareholders of Derrin are two United Kingdom companies Guardheath (mentioned above as the shareholder in Chemical Trustee) and another Lubbock Fine entity, Lordhall Securities Limited (‘Lordhall’). At all times, Guardheath has held its shares as nominee for JA Investments, the same Cayman Islands company which holds all of the shares in Chemical Trustee and which, according to the taxpayers, is controlled by Mr Borgas.

21    Lordhall holds 50 of its 1,050 shares in Derrin as nominee for JA Investments. It holds the remaining 1,000 for another Cayman Islands entity, MH Investments Limited (‘MH Investments’). MH Investments was incorporated in the Cayman Islands on 5 January 1994. The sole shareholder in MH Investments was previously Offshore Nominees Limited, another company incorporated in the Cayman Islands. Since 2012 the sole shareholder of MH Investments has also been Mr Borgas. The present structure of Derrin Brothers is, therefore, as follows:

22    This is an example of what will be many exotic shareholding arrangements in this litigation.

23    The directors of Derrin were, once again, Mr Borgas and his wife although, on this occasion, not their son. The secretary was a company called M & N Secretaries Limited. United Kingdom law permitted, until 2008, a company to have directors who were other companies. From 1 October 2008, that law was changed to require there to be at least one natural person as a director. The minutes of the meetings of directors for Derrin show that, as with Chemical Trustee, all of its meetings took place in Neuchâtel, Switzerland and were attended by Mr and Mrs Borgas.

24    As in the case of Chemical Trustee, Derrin made profits on the purchase and sale of shares listed on the ASX in the 2003, 2004 and 2005 years. The share trades relied upon by the Commissioner appear in Appendix A to his appeal statement. It was not substantially in dispute that the trades had occurred.

25    Derrin, like Chemical Trustee, took the view that it was not an Australian resident for tax purposes and did not, in consequence, file any returns for the years 2003-2005. On the same day that he issued notices of assessment to Chemical Trustee, 12 August 2010, the Commissioner also served notices of assessment on Derrin.

26    These Derrin objected to on 13 September 2010. The Commissioner disallowed these objections on 30 March 2011. Subsequently, he issued amended notices of assessment on 15 June 2011. It is these amended assessments which are in issue in the appeal. They are as follows:

Bywater Investments Limited

27    Bywater was incorporated in the Bahamas on 20 June 1994. It has two shares on issue both of which are held by a company called Anglore S.A.R.L. (‘Anglore’) (‘société à responsibilité limitée’). It is not clear to me where Anglore was incorporated, however, this does not matter. Anglore is an important actor in this case and more will need to be said of it in due course. For present purposes the following will suffice: Anglore is said to be a ‘corporate services business’ based in Neuchâtel. It is the principal vehicle through which Mr Borgas provides, so the parties agree, ‘corporate services’. What are these corporate services? It markets itself as a ‘discrete, low profile fiduciary and administration company’. It offers to provide the service of ‘the incorporation of companies located in many jurisdictions throughout the western world’ and, additionally, the service of ‘the provision of directors and other corporate officers for such companies’. The office holders of Anglore are Mr and Mrs Borgas and a Mr Lonsdale.

28    For reasons which will be presently unclear, but will begin to make sense later in these reasons, Anglore does not hold its shares in Bywater for itself but instead for MH Investments (the same Cayman Islands company referred to above).

29    Returning then to Bywater, it appears to have had three directors, Mr Borgas and his wife and a company known as NTW Directors Inc which has an address in Nassau in the Bahamas. The corporate records for Bywater appear to include only a cashbook which records payments from and receipts into its bank account. Under the law of the Bahamas it was not required to have directors’ meetings or annual general meetings and it has not done so. The cashbook is maintained at the offices of Lubbock Fine in London.

30    In the years 2002-2007, Bywater made profits on the acquisition and sale of shares listed on the ASX. The details of the trading activity alleged by the Commissioner appear at Appendix A to his appeal statement in Bywater’s appeal. As a result of that trading activity the Commissioner came to the view that Bywater had made assessable income in the years 2002-2007. On 12 August 2010 (as in the case of the other taxpayers) the Commissioner issued assessments to Bywater to which it objected on 13 September 2010. The Commissioner upheld Bywater’s objection in part in relation to the 2005 year but otherwise dismissed the objection. As a result Bywater has been assessed to income tax as follows:

31    It is from the objection decisions resulting in these determinations that Bywater now appeals.

32    For completeness, it should be noted that Bywater has also had imposed upon it administrative penalties. It has sought a separate review of those before the Tribunal. They are not relevant to the present case.

33    For the three taxpayers considered above it is clear that the taxpayers’ case is that they were located for tax purposes (to use a neutral expression intended to encompass all of the relevant tests) either where Mr Borgas and his wife conducted board meetings or Mr Borgas otherwise made decisions or at the offices of Lubbock Fine in London where employees of that firm gave effect to instructions apparently given by Mr Borgas. In all events, it is relatively easy to follow that the basic debate between the parties is as to the respective roles of Mr Borgas and Mr Gould with some additional consideration of the role of Lubbock Fine.

34    In the case of the remaining two taxpayers – Hua Wang Bank Berhad and Southgate Investment Funds Limited – the facts are more complex. Both taxpayers had identifiable directors who were situated outside Australia but their ultimate ownership was not something the taxpayers sought very much to explore. The Commissioner contended in the case of these two taxpayers that the ultimate control was vested in Mr Gould. Another difference between these two taxpayers and the initial three is that these seem to have had a connexion with the South Pacific lacking in the case of Mr Borgas’ companies which, in general, have a Euro-Caribbean flavour. Yet, as events will show, Mr Borgas is not without involvement either. With those introductory words I move then to the position of Southgate Investment Funds Ltd (‘Southgate’).

Southgate Investment Funds Limited

35    Southgate was incorporated under the law of the United Kingdom on 4 August 1998. In the period 2000-2007 it filed tax returns in the United Kingdom reflecting income of a modest nature (i.e. £396.00 in 2007) earned as a nominee company.

36    The shareholders in Southgate are Guardheath and Lordhall which are United Kingdom entities through which the London accountants Lubbock Fine control companies on behalf of their clients and in respect of which mention has already been made. The directors and shareholders of these two entities have at all times been either partners or staff of Lubbock Fine.

37    For whom did the Lubbock Fine entities hold their shares in Southgate? The immediate answer is that they were held on trust for IRSS Nominees (4) Limited. IRSS Nominees (4) Ltd was a Samoan company incorporated as an ‘international company’ under the provisions of the International Companies Act 1987 (Samoa) on 7 April 1994. IRSS Nominees (4) Ltd appears, in turn, to have held its beneficial interest in the shares in Southgate as the trustee of the LJK Nominees Superannuation Fund (Samoa). This fund is an ‘international trust’ registered under the provisions of the International Trusts Act 1987 (Samoa). The members of this fund are the Sydney anaesthetist and investor, Dr Joseph David Ross, and his wife Lucille June Ross.

38    There is no doubt that Southgate’s directors (who were Lubbock Fine entities or personnel) had a written instruction from IRSS Nominees (4) Limited to do as Mr Gould told them. It also instructed them to open an account in Southgate’s name upon which Mr Gould was to be an authorized signatory.

39    Some confusion arose about who the ultimate owners were. For reasons I later give, the situation was this: Mr Gould was providing to some of his clients an arrangement designed to minimise tax using international superannuation funds. Dr Ross was one of the clients who took part. The day-to-day administration of these structures was under the control of Mr Gould.

40    The debate between the parties was not really concerned with the issues of ownership but rather with where Southgate had its place of central management and control. Its directors’ meetings appear to have been held in London at the office of Lubbock Fine. It was not suggested that Mr Borgas had a role in that process. The Commissioner’s contention is that the share trading decisions were made by Mr Gould in Sydney and that Lubbock Fine’s role was ornamental.

41    Under the terms of the trust deed for the LJK Nominees Superannuation Fund, the ‘principal employer’ was said to be LJK Nominees Pty Ltd. The shareholders in LJK Nominees Pty Ltd are Dr Ross and his wife Lucille. The company is also the trustee of the JD Ross Family Trust.

42    During the period 2000-2007 Southgate derived substantial gains and losses by the purchase and sale of shares listed on the ASX. The details of those transactions are set out in Appendix A to the Commissioner’s appeal statement. There is presently no debate about the fact of these trades.

43    On 12 August 2010 the Commissioner issued assessments to Southgate for the years 2000-2002 and 2006-2007 on the basis that the gains made on the share transactions were assessable income. Southgate objected to these on 13 September 2010. The Commissioner disallowed the objections on 30 March 2011 and made adjustments to a number of the assessments by issuing amended assessments on 15 and 16 June 2011. The tax now in dispute is as follows.

44    Penalties were also imposed and an appeal in respect of them is pending in the Tribunal.

Hua Wang Bank Berhad

45    I turn then to the Hua Wang Bank Berhad.

46    In the interests of brevity I will call this taxpayer ‘the Bank’. However, as will appear in due course, it is neither a bank in any ordinary sense of the word nor, despite the name ‘Hua Wang’ does it have the slightest connexion to China or Hong Kong. In fact, it is Samoan. It was incorporated on 17 January 1994 in that nation under the terms of its International Companies Act 1987.

47    Since 20 June 1994 there have been 250,000 shares in the Bank on issue. These have been held by Pacific Securities Inc, another international company incorporated in Samoa under the provisions of the International Companies Act 1987. Prior to Pacific Securities becoming the shareholder in the Bank it issued a bearer debenture. The terms of this debenture provided that whilst it was unredeemed the rights of the members of the company to vote or demand a poll were suspended. The ability of the debenture so to provide was sustained by the terms of its articles and by ss 15 and 57 of the International Companies Act 1987. The effect of those rules and such a debenture structure is to place control of a company in the hands of persons other than its members.

48    On 4 March 1998 Pacific Securities resolved to convert the original secured debenture to a registered secured debenture in the following name:

‘J.A. Investments Ltd

c/- Moore Stephens’

“Cayside”

Shedden Road, George Town

PO box 1782, GT

GRAND CAYMAN, CAYMAN ISLANDS’

49    This, of course, was one of Mr Borgas’ companies in the Cayman Islands.

50    Although no direct issue about this arises, it appears that at an earlier time the debenture holder had been a Malaysian company, Perkasa Normandy Holdings which was based in Kuala Lumpur. It was the holding company for the Normandy Malaysia Group whose managing director was Mr Daud Bin Yunus. Mr Yunus testified before me.

51    The register of directors and secretaries for the Bank reveals several individuals over the period 2000 to 2007 and two companies, Westco Directors Ltd and Westco Secretaries Ltd. All the individuals, save one, were persons employed by another entity, Asiaciti Trust Samoa Ltd in Samoa. Asiaciti Trust Samoa Ltd in turn is based in Apia and one of its beneficial owners is Mr Graeme Briggs. Mr Briggs is the group managing director of Asiaciti and, apparently its ‘founder’ as well. Asiaciti is an international trustee and service provider and its services apparently include the provision of international companies, trusts, trustee services and international tax planning. Mr Briggs was the other person named as a director of the Bank. Westco Directors Ltd was a member of the Asiaciti Group. All of the persons authorized to act on its behalf were or had been employees of Asiaciti Trust’s Samoan office.

52    By and large the directors of the Bank met in Apia in Samoa. As I have said, the Bank was not a bank in usual parlance. Instead it was an ‘offshore bank’ under the terms of the Off-Shore Banking Act 1987 (Samoa). It was granted a ‘B’ class licence as such on 20 June 1994 by the then Finance Minister of Western Samoa. At all relevant times it has maintained that licence. Although I will return to this in more detail later, the basic feature of an offshore bank under Samoan law is that none of its customers may be resident in Samoa. As will appear, in due course, the ‘customers’ of the Bank were all clients of Mr Gould.

53    During the income years 2004 and 2006-2007 the Bank made profits on the purchase and sale of shares listed on the ASX. The fact of these transactions is not in dispute. What is in dispute is the issue of whose transactions they actually were and the issue of where the Bank had its place of central management and control. The Bank contends that some of the profits on which the Commissioner sought to impose tax were generated on the sale of shares which it was holding on trust for others. Consequently, those profits were not liable to income tax in its hand. For his part the Commissioner submitted that the Bank had failed to prove this. On the question of central management and control a number of the Bank’s directors were called. I will not attempt to summarise their evidence at this stage other than to observe, neutrally, that none purported to suggest that it was they who were the original authors of the Bank’s management decisions, which it was accepted came from Mr Gould. The Bank submitted that they nevertheless each discharged the office of director in Apia. The Commissioner submitted that they were window dressing.

54    On 12 August 2010 the Commissioner issued assessments to the Bank. Following objections these assessments were varied as follows:

55    It is from these determinations that the Bank now appeals. The Commissioner has also imposed administrative penalties and an appeal from those is pending before the Tribunal.

3. The Boundaries of the Location Debate

56    It was the Commissioner’s contention that all five taxpayers were conducted by Mr Gould. Whilst considerable effort had been expended in trying to make Chemical Trustee, Derrin and Bywater look as if they were conducted from Neuchâtel or London this was a deception serving only to mask the true role of Mr Gould as the owner and controller of these entities. Evidence given by Mr Borgas and members or employees of Lubbock Fine that it was Mr Borgas who was the owner and who made the relevant decisions was to be rejected.

57    A similar situation obtained in relation to the affairs of the Bank and Southgate. The Commissioner contended that regardless of who owned Southgate, it was Mr Gould who was running it. The interposition of the Lubbock Fine entities was, once again, window dressing to conceal the control of Mr Gould. Insofar as the Bank was concerned the same result applied. The directors provided by Asiaciti in Asia were puppets who did as Mr Gould told them.

58    The Commissioner submitted that the question of central management and control was a factual one and the facts would show overwhelmingly that it was Mr Gould who was running these taxpayers and doing so from Sydney.

59    The taxpayers, for their part, whilst not admitting Mr Gould was the ultimate owner and in control of the taxpayers, did not address any submissions as to why the Commissioner’s submissions on this issue ought not to be accepted. Their principal focus was instead on the idea that the directors of all of the taxpayers, whilst perhaps heavily influenced by Mr Gould, nevertheless still applied their minds to the discharge of their respective offices. This fact, together with a number of other factors such as the place of each taxpayers’ incorporation, meant that the Court should not conclude that they had their place of central management and control in Australia. Support for this view was said to be discernible in, inter alia, the reasons of Gibbs J in Esquire Nominees Limited v Commissioner of Taxation (1973) 129 CLR 177.

60    The question of central management and control is a factual one. For the reasons which follow I am satisfied that the directors of the taxpayers exercised no independent judgment in the discharge of their offices but instead merely carried into effect Mr Gould’s wishes in a mechanical fashion. The taxpayers’ places of central management and control were in Sydney. I turn first to the common issues arising with Chemical Trustee, Bywater and Derrin.

(a) Chemical Trustee, Derrin and Bywater – common issues

61    These taxpayers submitted that no disposition of money or other assets of theirs ever took place without the express authorization of Mr Borgas or some act by him that purported to be on their behalf. They gestured, by way of example, to three sets of activities to make good this general point. These were:

(a)    the placing of orders with the stockbroker Bell Potter;

(b)    the transmission of signed letters on their letterheads; and

(c)    oral instructions given to staff at Lubbock Fine.

62    The testimony of Mr Borgas given in chief provided support for this view. At T1009 he gave this evidence about his role:

‘MS SEIDEN: And where did the idea come for the beneficiary? The idea came from discussions that I have had with – or that I had with Mr Vanda Gould.

Now, you’ve mentioned that Chemical also has some stock market activities? Yes.

All right. Could you explain to the court what your investment criteria is? Yes. Very simply, it is capital growth through long-term investment in the stock in a particular company.

And who makes the decisions for Chemical Trustee about buying and selling shares? I do.

How do you go about making the decision? The – the decision is based on advice that I receive from people such as Mr John Leaver, Mr Vanda Gould, stockbrokers, for example, the late – one – one person in particular who was always very helpful is the late Jamie Saba of Wilson HTM, Ted Cod [sic] of Bell Potter. So I have a – and – and even sometimes suggestions are passed to me by Hasmukh Vara of Lubbock Fine in London, I mean, because they are quite close to the goings on in the stock market, and – but, having – having assembled the basic information – all right, so John Leaver has made a suggestion to Vanda – a recommendation to Vanda which is passed on to me, then I might – I might go back and check, for example, with Jamie Saba, “Have you got any input on this possible investment?” So it’s – the – all right. The recommendations come from those people – people such as those, but the final decision about making the investment is mine.

All right. Once you’ve made a decision about a particular stock, what are the mechanics for executing the transaction? I send a – just imagine – all right. We’re talking about a buy order. I send a fax or email to the broker confirming that we wish to purchase x number of stocks in that company, and – or at your discretion, or – anyway, if prices are mentioned, that will be mentioned. So I send a complete set of instructions to the broker. The broker – and I also send a copy of those instructions to Hasmukh Vara at Lubbock Fine in London. Once the order is completed, and it may not necessarily be completed in one fell swoop, it may be done in different stages, because the price that we’ve indicated may be fluctuating a little bit. Anyway. Once the order has been completed, the broker then sends a contract note to both Hasmukh Vara in London and to me in Neuchâtel. Hasmukh Vara is then responsible for ensuring that the funds that are due for settlement on that particular contract note are paid within the time stipulated on the contract note.

And how does he effect the payment? What’s the mechanics for that? Well, let’s take a company like Chemical Trustee as an example. All right. Chemical Trustee has his bank account, and the authorised signatories on the bank account are myself, plus any two of the equity partners in Lubbock Fine in London. That’s just a purely practical measure. So when the time comes for him to settle, or to – to pay for the shares that have been purchased, he will then prepare the bank account – the bank pages, and, in normal circumstances, will have those signed by two of the equity partners within Lubbock Fine, rather than the papers being transmitted to me in Neuchâtel.

All right? But I – I do stress that I – I do have the power to sign on the account.’

63    Further, the taxpayers submitted that Mr Borgas' testimony was corroborated by the testimony of the following individuals:

(a)    Mr Codd, a stockbroker with Bell Potter;

(b)    Mr Yunus, an investment portfolio advisor, who also had dealings with Mr Borgas;

(c)    Mr Vara, an accountant at Lubbock Fine;

(d)    Mr Gibbs, a client advisor at Bell Potter;

(e)    Mr Paul Watson, the regional director of a Christian group called Ellel Ministries; and

(f)    Mr Lee Facey, the auditor of Chemical Trustee.

64    They also submitted that Mr Borgas’ testimony was corroborated by statements which were made by a deceased man, Mr Jamie Saba, who had been a stockbroker at Wilson HTM. I assess this evidence below at [118] and following. As will be seen, I either do not accept the evidence given by these witnesses or I find that they were deceived by Mr Borgas.

65    The taxpayers also submitted that Mr Borgas’ version was corroborated by a large volume of documentation. There are literally hundreds of these documents but a letter of 23 July 2003 from Chemical Trustee to Lubbock Fine will serve well enough as a general example:

‘Mr. Hasmukh Vara

Messrs. Lubbock Fine

Russel Bedford House

City Forum

250 City Road

London EC1V 2QQ

England

By fax

(original by post)

23rd July 2003

PB/Angl.

Dear Hasmukh,

Re: Chemical Trustee Limited

[instruction already given from fax [initialled] 28/7/03]

Please accept this letter as your authority to advance AUD 1,000,000. – to Lloyds & Casanove Investment Partners Limited for the purposes of acquiring a further AUD 1,000,000. – worth of convertible notes in Vita Life Sciences Limited.

I look forward to hearing from you in the usual way.

Kind Regards

Yours sincerely

[signed]

Peter Borgas, Director

Lubbock doc.5 Word’

66    In general, almost every transaction in which these three taxpayers appear to have engaged is supported by a letter signed by Mr Borgas. Viewed in isolation this material certainly makes it appear that Mr Borgas was making the decisions for them.

67    I am satisfied that Mr Borgas’ evidence about this was false and that the document trail generated by Mr Borgas is false too. All of these taxpayers’ decisions were made by Mr Gould and Mr Borgas’ role was to make it appear that he had transacted the business on their behalf. The documents which have been generated to corroborate Mr Borgas’ evidence are designed to give the impression that Mr Borgas was the decision-maker and that impression is false.

68    But if that be so, why it might be asked would Mr Borgas obey Mr Gould’s instructions when it was Mr Borgas who owned these taxpayers through JA Investments and MH Investments in the Cayman Islands? The answer to this question came early in the trial when documents were tendered which showed that it was Mr Gould who owned JA Investments and MH Investments and that Mr Borgas’ ownership of them was a front.

69    This point, therefore, provides a convenient juncture at which to consider the role of JA Investments more closely. It was incorporated on 28 January 1994 in the Cayman Islands. Initially, it had two members, a Mr Douglas and a Mr Bowring. In May 1997 they ceased to be members and were replaced by Mr Parker. On 11 April 2003 Mr Parker, as the sole member, resolved to replace the existing memorandum and articles of association with a new set.

70    Article 3 then provided:

‘3.    The subscribers to the Memorandum of Association and such other persons as are admitted to membership in accordance with these Regulations shall be the members of the Company. No person shall be admitted as a member of the Company unless he is nominated in writing by the Appointor or after the death of the Appointor, his legal personal representatives (and the survivors and survivor of them) at the date of his death but the Appointor shall not be entitled to nominate himself. Every person who wishes to become a member of the company shall deliver to the Company an application for membership in such form as the Directors may require signed by the applicant and accompanied by the requisite nomination, and on receipt of same by the Company the applicant shall be admitted to membership.’

71    And Article 1(b) defined ‘the Appointor’ to be:

‘the person or persons nominated as such by instrument in writing signed by the members and deposited at the Registered Office of the Company’

72    There is no evidence that such a document was ever lodged and there is some evidence that it was not. I will return to this topic below. Three days later on 14 April 2003 Offshore Nominees applied to become a member of JA Investments. Article 3, of course, required a written nomination by ‘the Appointor’. On 14 April 2003, Mr Gould executed a nomination document in these terms:

‘J.A. INVESTMENTS LTD.

(the “Company”)

NOMINATION OF MEMBER

I, MR, VANDA RUSSELL GOULD OF 2 DARLING STREET, CHATSWOOD, NSW, AUSTRALIA being the Appointor under the amended and restated Articles of Association of J.A. INVESTMENTS LTD., HEREBY NOMINATE the undermentioned as a Member of J.A. Investments Ltd. pursuant to Article 3 of the amended and restated Articles of Association of J.A. Investments Ltd.:

Offshore Nominees Ltd.

P.O. Box 1982GT

Grand Cayman

Cayman Islands

Dated this 14th day of April, 2003

[Signed]

Vanda Russell Gould’

73    This suggested that Mr Gould regarded himself as the appointor. Mr Borgas appears to have had the same view. On 21 April 2003 he executed the following document:

‘J. A. INVESTMENTS LTD.

(the “Company”)

Written Resolutions of the Sole Director of the Company adopted

in accordance with the Articles of Association of the Company

APPOINTMENT OF NEW MEMBER

IT WAS RESOLVED that the application for membership duly signed by the authorised signatory of Offshore Nominees Ltd. accompanied by the requisite nomination by the Appointor, pursuant to Article 3 of the Company’s Articles of Association, be accepted and that Offshore Nominees Ltd. be and is hereby appointed as a Member of the Company with immediate effect until such time as he may resign or be removed or otherwise disqualified in accordance with the Articles of Association.

RESIGNATION OF MEMBER

IT WAS RESOLVED that a Letter of Resignation from Jeffrey M. Parker as a Member of the Company dated 14 April 2003 be accepted, such resignation to take immediate effect.

[signed]

Peter Martin Borgas

Dated: 21st April 2003’

74    Mr Borgas signed this as ‘director’. It appears he became the sole director of JA Investments in May 1997. Mr Borgas gave evidence that Mr Gould had been the appointor since 1997. This exchange occurred during his cross-examination by Mr Fagan SC for the Commissioner:

‘MR FAGAN: Well, now going back to article 3 then, which was page 118. Certainly from when you became a director on 22 May 1997, Mr Gould was the appointer for the company, wasn’t he? Yes.

And as long as you have known anything about the company, which is up until to date from whenever you started to have any connection with it, he has always been the appointer, you’ve never known of any other? No.’

75    The Commissioner submitted that I should conclude that Mr Gould had been the appointor since 1997 and that it should be inferred that the articles had earlier contained some provision similar to the version which was put in place in April 2003. The taxpayers submission about this so far as it concerned JA Investments was in these terms:

‘50.    It is a matter for this court how many discrete factual findings the court proposes to make about the numerous collateral matters that the Respondent has raised, such as: the ownership of JA Investments and MH Investments, the significance (if any) that Peter Borgas was in the habit of describing inter-company payments as ‘management fees’, and Peter Borgas’s level of knowledge of the internal operations of the Hua Wang Bank. The court may wish to refrain from making findings on these collateral points given that:

    (a)    Many of the matters canvassed by the Respondent in cross-examination were not particularized by the Respondent prior to the hearing and related to other entities that were connected to the Applicants only tangentially;

    (b)    Many of these matters have only scant relevance to Central Management and Control, which has always been assessed on an entity-by-entity basis rather than globally; and

    (c)    Each of Vanda Gould, John Leaver and Peter Borgas are facing criminal charges.’

76    I regret that I must reject the proposition that the question of Mr Borgas’ ownership of JA Investments is a collateral matter. It is central. Turning to the points raised by paragraph 50(a)-(c) as to why the Court ought not to consider these issues, I confess some confusion. I can well understand that a want of particularization, for example, could provide a basis for submitting that a case was not open to be pursued but I did not apprehend that this was what was contemplated in (a). If it was, however, it was clear from the moment the Commissioner sought to tender this material where the case was going. The most extensive objections were advanced as to why the material should not be received. Thereafter, the taxpayer did not contend – nor could they have contended – that it was not open to the Commissioner to seek to prove that Mr Borgas was a puppet. Accordingly, if (a) is an argument that the case is not open, I reject it.

77    As to (b), I do not accept that Mr Borgas’ ownership of JA Investments is of ‘scant’ relevance to the question of central management and control. If Mr Borgas was lying about his ownership of JA Investments this must cast doubt upon the veracity of his evidence that he was making the decisions for Chemical Trustee. Why would he be making decisions in respect of a company which was not his? And why, if he was making these decisions, did he lie about the ownership structure? Observations of that kind well-show that the proposition that this material was of ‘scant relevance’ is, with respect, misconceived and symptomatic of a total divorce from reality which suffused much of the taxpayers’ case.

78    As to (c), the charges have since been dropped. No application was made to me to stay these proceedings whilst the criminal proceedings were on foot. I am not prepared to read (c) as a subtle suggestion that I should do so now. Even if that were wrong, the dropping of the charges would mean that there remained no reason not to proceed.

79    In those circumstances, I conclude that there was a position of Appointor under the articles of JA Investments from 1997 onwards and that person was Mr Gould. Further, I conclude that there was a provision in the form of Article 3 before the new articles were adopted since the existence of the position would make no sense without such an article.

80    The effect of Article 3 was that it was Mr Gould who could control the affairs of JA Investments by appointing additional members. Further, Article 43 provided that the members could remove any director and Article 24 made clear that the members could appoint directors. This structure delivered complete control of JA Investments to Mr Gould, at least as a matter of legal theory.

81    That theoretical capacity was reflected in indisputable reality in the terms of a deed executed by Mr Gould dated 31 August 2005 with Offshore Nominees. Recital A provided that:

‘The Appointer [Mr Gould] has a Company with the name of J.A. Investments Ltd. (hereinafter called “the Company”) to be registered in the name of one or more of the Nominees [Offshore Nominees].’

82    And Recital B provided:

‘[Offshore Nominees] are acting solely as Nominee for [Mr Gould] with respect to the said shares.’

83    These recitals suggested a complete subordination of Offshore Nominees to the will of Mr Gould. Clause 2 conveyed the situation with respect to ownership:

‘[Offshore Nominees] hereby declare[s] that [it] hold[s] the said shares in the Company together with all dividends, bonuses and interests therein of behalf of [Mr Gould] and will deal with the said shares as [Mr Gould] may from time to time direct.’

84    It could not be plainer what the effect of these clauses was. In truth, they merely reflected the inevitable working through of what the powers of Mr Gould were, and always had been since 1997, under the articles.

85    Mr Borgas gave evidence that he was the beneficial owner of JA Investments at T1013:

‘Q:    … Just taking JA Investments Ltd for the moment, who is the beneficial owner of JA Investments?

A:    I am.’

86    This testimony left Mr Borgas with the challenge of explaining the role of Mr Gould as ‘appointor’ under the articles and, of course, the terms of the deed, which appeared to recognize Mr Gould’s beneficial ownership. His first attempt to do so involved an assertion that it was all to be explained as a question of estate planning. At T1013-1014 he gave this evidence in chief when questioned by Ms Seiden SC, appearing for the taxpayers:

‘Could you explain to the court why there is an appointer? Yes. Because there are companies within – I – I will continue to call them the group companies unless you – you consider that inappropriate – but there are group companies such as Chemical Trustee which hold money for third parties. Now, the appointer: his role is to step in in the event of my death so as to ensure that the parties who are owed money, or have other assets that are held on a nominee basis, receive those assets back in the administration of my estate, and the appointer is responsible for ensuring that nominee assets don’t go with my estate but go back to the party for whom they’re held on a nominee basis.

All right. And who is the appointer? Mr Gould. Vanda Gould.’

87    As the Commissioner pointed out in his written submissions there are at least four reasons why this cannot be correct.

88    First, Article 3 cannot operate this way. It does not deal with the situation of Mr Borgas’ death. If Mr Borgas were to die nothing in the articles of JA Investments imposes any obligation on Mr Gould to ensure that assets held by Mr Borgas on a nominee basis do not pass to his estate.

89    Secondly, Article 3 achieves a dominion over Mr Borgas’ position during his life which is unnecessary for the suggested purpose.

90    Thirdly, if the stated purpose were to be achieved by Mr Borgas under the articles it would make more sense for him to have been the appointor himself under Article 3.

91    Fourthly, Mr Borgas’ version of events is inconsistent with the terms of the deed of 31 August 2005. That deed makes Mr Gould the beneficial owner which is inconsistent with Mr Borgas’ contention that he was the owner.

92    After Mr Borgas gave his evidence on 10 October 2013 he returned the following day to continue his cross-examination. At that time he gave an entirely different account of why he was the beneficial owner. This time he contended that Article 1(b) required the appointor to be appointed in writing and that there was no written instrument appointing Mr Gould as such. Consequently, so Mr Borgas testified, Mr Gould was not the appointor. The cross-examination proceeded this way:

‘MR FAGAN: Well, what is it that you want to say, Sir, about 1[b]? I want to say that I – I know that you have received a whole series of documents from the Cayman Islands. In those documents, was there a document nominating an appointor pursuant to 1[b] for both JA Investments and MH Investments?

Well, I’m not going to answer your question, Sir. I’m just asking you questions and getting answers from you. Now, if all you have to say with respect to 1[b] is to ask me a question, well, that’s the end of it. But you have – you agree that you told us yesterday that from – throughout your involvement with JA and MH, Mr Gould has been the appointor, didn’t you? No. No.

Well, you did tell us that yesterday, didn’t you? In the sense – in one sense that we were talking about within a certain interpretation. There – to the best of my knowledge, recollection, there is no document in existence that complies with the provision of 1[b].

Well, whether there’s a document or not, you did tell the court yesterday on your oath that Mr Gould had been the appointor in respect of both companies throughout the period of your involvement with the knowledge of them, didn’t you? For the purpose of dealing with the reimbursement of people to whom group companies owed moneys in the event of my death. But I did not – and if I did imply – say I withdraw what I said about Mr Gould being the appointor having read clause 1[b].

You would like to escape from those answers that you gave yesterday now, would you, on the basis that you would resort to the requirement in the articles that there would be an instrument of appointment and that you think the Commissioner doesn’t have one? Yes.

Is that what you would like to do? Well, that’s – that’s right.

Yes. And the problem with that, Sir, is that what you said yesterday was that Mr Gould was chosen as the appointor because of years and years of trust that you had with him? In relation, Sir, to acting as a form of protector, if I can use that expression, in relation to the repayment of parties to whom assets or moneys were owed from the group companies.

Well, you introduced there the word “protector” but the questions you–? Yes, because I think – I think to describe the role that I was trying to get – the role of Mr Gould that I was trying to get across to you yesterday is better described as a protector than as an appointor having regard to the very specific provision of clause 1[b] of the articles of association.’

93    This evidence followed from an invitation of the cross-examiner, Mr Fagan SC, at the end of the previous day to Mr Borgas to have a look overnight at the articles of, inter alia, JA Investments.

94    This explanation required Mr Borgas to say that his evidence that Mr Gould was the appointor given the previous day was wrong. His evidence then became that Mr Gould was a ‘protector’; a position having no existence under the articles and to which I can ascribe no rational content.

95    This new evidence was again directly contradicted by the terms of the deed of 31 August 2005 which was signed by Mr Gould and which recited in terms permitting of no uncertainty that Mr Gould was the appointor. It was also contradicted by Offshore Nominees’ application for membership of JA Investments which attached a form signed by Mr Gould ‘as Appointor’ consenting to Offshore Nominees becoming a member and which application said ‘Attachment to this application is the requisite nomination form signed by the Appointor’. Mr Borgas signed the resolution approving Offshore Nominees’application, as extracted above at [73].

96    Mr Borgas was taxed by the cross-examiner about three of these four documents. All that Mr Borgas could say was that Mr Gould had not been appointed in writing.

97    I am unable to accept Mr Borgas’ evidence about his beneficial ownership of JA Investments. It was directly contradicted by the documents and was incoherent. Mr Borgas was not the beneficial owner of JA Investments and did not control it.

98    Mr Borgas’ evidence about this persuaded me that he was a witness who was willing to lie on oath in a most discreditable way.

99    The dishonesty of Mr Borgas is borne out by another matter. On 29 January 2009 and 3 February 2009 the ATO began the process of information gathering in relation to entities connected to Mr Gould and Mr Borgas. On 6 February 2009 Mr Gould executed an extraordinary document in these terms:

‘WRITTEN RESOLUTION of the sole Member/Appointer/Beneficiary of the Company passed as at the 6th day of February 2009 and made pursuant to the Articles of Association of the Company, which resolution shall be as valid and effective as if the same had been passed at a meeting of the sole Director of the Company duly convened and held at Neuchatel, Switzerland on the 6th February 2009 THAT, I, Mr Vanda Russell Gould hereby acknowledge being the sole appointer of the Nominee Agreement held between the Company and Offshore Nominees Ltd, sole Member of the Company dated the 31st August 2005 THAT it is hereby authorized to cancel such Nominee Agreement with immediate effect, AND THAT Mr Peter Borgas be accepted and appointed as the Sole Member of the Company with immediate effect as in the herein attached Director resolution, hereby being made part of the corporate minutes of the Company.’

100    On the same day Mr Borgas resolved on behalf of JA Investments to transfer Offshore Nominee’s share to himself. Before doing so he wrote to the firm who handled the paperwork for JA Investments in these terms:

‘I have your fax of yesterday about outstanding fees for JA. I shall deal with this in the very near future.

In the meantime, I need your urgent assistance in relation to the transfer of the issued share in JA. I attach a copy of the share register and would be grateful if you would arrange for the share now held by Offshore Nominees Ltd. to be transferred to me. Mr. Gould knows about this and has agreed to the transfer.

As I say, the share should be transferred to me i.e. Peter Martin Borgas, Port Roulant 30, 2000 Neuchatel, Switzerland.

The matter is important and I hope that you will be able to deal with this before the end of the week. Once the transfer has taken place, please let me have (by fax or email) a certified copy of the share certificate in my name together with a certified copy of the up-dated share register.

…’

(emphasis in original)

101    The broker who conducted trading on behalf of the taxpayers was Bell Potter and it received one of the notices sent on 29 January 2009. I infer that this was reported by Bell Potter to Mr Borgas. This flurry of activity by Mr Borgas and Mr Gould was an attempt to hide the truth.

102    My rejection of Mr Borgas’ evidence that he was the beneficial owner of JA Investments is supported by some matters showing its use by Mr Gould as his own vehicle. These related to donations made to religious organizations apparently organized by Mr Gould. On 19 January 2007 Austrac records show that JA Investments transferred $150,000 to the ‘Church Army in Australia’. On 24 January 2007 the Church Army issued a receipt to Mr Gould and his wife for that amount. The receipt formed part of a letter from the Church Army’s national director. It read:

‘Dear Vanda & Debbie,

Thank you for your gift to Church Army Australia. Your ongoing support is vital to ensure we can continue and grow our ministries in 2007, reaching the least, the last and the lost.

We truly appreciate your support of our mission to reach the darkest places in Australia for Christ – a dream we cannot even begin to realise without the generosity of donors such as you.

I hope you feel part of this mission, as you certainly are, and will continue to pray with us on this journey.

Gods richest blessings.’

103    Mr Borgas gave some evidence trying to explain other donations apparently made by companies alleged to be controlled by Mr Borgas to religious bodies associated with Mr Gould. This he did on the basis of what he said was their shared common faith and as a token of appreciation for all of the ‘help and assistance’ he had received from Mr Gould. I have no doubt Mr Borgas was making this up.

104    Nor was this the first time that Mr Gould had made such a donation. A receipt was in evidence issued by the Church Army for $106,000 on 1 January 2006 to Mr and Mrs Gould. In May 2006 Mr Gould subsequently corresponded with the Church Army in these terms:

‘Dear Tim

I confirm that the substantial donation arranged by me in December 2005 of $106,000 was for the purpose of funding projects in 2006 as set out in your funding request letter. You will no doubt recall the concerns I expressed about some of the proposed applications of those funds in 2006.

May God bless you in all you are seeking to do.’

105    This shows that Mr Gould was certainly expressing sentiments consistent with control in respect of the donation of $106,000. There is no evidence that that donation came from JA Investments so this letter does not show, directly in any event, that the donation of $150,000 which was made by JA Investments was as a result of Mr Gould’s control. But it does show that Mr Gould was a donor to the Church Army. The receipt for the $150,000 donated on 19 January 2007 is evidence of a fairly direct kind that Mr Gould caused that donation. His history of donating to the Church Army, the receipt, the fact that Mr Gould was the true owner of JA Investments and my conclusion that Mr Borgas was lying about his role in relation to it lead me to conclude that it was Mr Gould who arranged that the donation of $150,000. This merely reflected the fact that JA Investments and its assets belonged to him.

106    There is further evidence of Mr Gould’s use of JA Investments as his own. On 22 January 2007 JA Investments transferred to the Mary Andrews College $100,000. It issued a receipt dated 22 January 2007 to ‘Vanda & Debbie Gould’.

107    On the 16th day of the trial the Commissioner read the affidavit of Archdeacon Arline Jarrett. Between 1985 and 2008 Archdeacon Jarrett was the principal of Mary Andrews College which is an evangelical training college for women. She gave evidence that Mrs Debbie Gould had been a student at the college and had become a member of the college’s committee. She said that whilst a student of the college she had discussed with Mrs Gould the college’s financial needs. Mrs Gould had offered to ask her husband, Mr Gould, to assist the college with funding. Following these discussions, Mr Gould started to donate money to the College and the amounts involved were significantly higher than those to which the College was accustomed. In Archdeacon Jarrett’s view, Mr Gould was the College’s most significant financial supporter and his efforts made a substantial difference to it. She was able to recall that the largest donation he made was $100,000 which I infer was the payment made on 22 January 2007 by JA Investments.

108    No objection was taken to the affidavit of Ms Jarrett being read and she was not cross-examined. I emphasise that this occurred on the 16th day of the trial (11 October 2013). Although Mr Gould was subsequently arrested during the course of the trial this had not occurred by this stage.

109    What can one make of this evidence? Only this: it shows on the balance of probabilities that Mr Gould used JA Investments to donate $100,000 to the College as his own money. In turn, this provides powerful corroboration that what the corporate records of JA Investment show – viz Mr Gould’s actual total control – accords with the reality.

110    The finding I make is that the true owner of JA Investments and the person in actual control of it was Mr Gould. I further find that Mr Borgas did nothing in relation to the affairs of JA Investments other than give effect to Mr Gould’s will.

111    So much for JA Investments. As already noted, JA Investments owned Chemical Trustee through the nominee structure involving Guardheath. One puzzling aspect of the case is why this double layered, multinational structure existed at all. At T1035-1036 Mr Borgas was asked this precise question. He gave the following evidence:

‘Why did you want the shares in Chemical Trustee to be held beneficially for, or in [sic] trust for, JA, rather than just on trust for you or for Anglore, or for some other entity in Switzerland that you could control? Why did you want them held for a company in the Cayman Islands? Because that company in the Cayman Islands is a company which I owned beneficially.

Yes. Well, you own other companies beneficially? Indeed.

So why did you want it – why did you want that one? Why? Without wanting to be facetious, it sounded – it seemed like a good idea at the time, and a sensible way of putting the position, or dealing with the position, as it should – it should have been dealt with.

A good idea for what purpose, to have – ? Well –

shares, ultimately, held by a company in the Cayman Islands, administered by FCM? For what purpose? I really, really don’t recall. We’re going back to ’98. And I cannot give you any explanation of the thinking that occurred at the time that this ’98 nominee deed was put into place.

And the answer would be the same in relation to Bywater, would it, in relation to which we’re going back to 1994, that you just can’t recall why it was a good idea? No.

Well, although it does go back to those dates, it’s not as if nothing has happened in the meantime, Mr Borgas. These entities have been there ever since. And you say that ever since, over a period of about 15 years, you’ve owned them and controlled them, and they’ve been yours. Now, having regard to that 15 year history, can’t you tell me why you ever set it up in the first place? No, I cannot recall.’

112    If Mr Borgas truly beneficially owned JA Investments he would have the answer to this. In my opinion, the reason he could not remember is because he never knew the purpose of the structure since it was Mr Gould’s.

113    Mr Borgas’ evidence about his control of JA Investments is also quite inconsistent with the manner in which the trial before me was conducted. At stake in the case of these three taxpayers was around $14 million in tax and the general interest charge. Mr Borgas did not arrive from Switzerland until the end of the applicants’ cases. Three hearing days had to be vacated whilst the Court anxiously awaited his arrival from Switzerland. Up until his arrival, he was not present to give instructions during the applicants’ case. Of course, there is the telephone. But if Mr Borgas had been giving instructions for the running of these appeals by such or other equivalent means, he displayed a remarkable ignorance of what had been going on in the case prior to his arrival. I return below to deal with the position of the Bank. As something of a prelude it may be noted that whilst Mr Borgas claimed to own that bank through JA Investments’ ownership of the bearer debenture he was completely unaware of who its directors were. The director of the Bank was Westco Directors Ltd and its directors were Mr Carran, Ms Nicolson and Mr Hanning. Each was called by the applicants in the case. This remarkable exchange occurred at T1057.1 – 1057.17:

‘MR FAGAN: Those individuals whose names I mentioned earlier, who I said had been resident directors of Hua Wang Bank, Mr Carran, Ms Nicholson and Mr Hanning, they were, I correct myself, in fact directors of a company called Westco Directors, and it in turn was a director of Hua Wang Bank. Did you know of that arrangement? Look, I – I can’t remember, but may I ask you a question? Where they were resident, where they were located, in Samoa?

That’s what I’m putting to you? Well, I don’t know.

Okay. Did you know that those people, Bede Carran, Ms Nicholson and Mr Ross Hanning, were called as witnesses in this case? No.

You weren’t told by your legal representatives? No.

– that they would be called in support – ? No.

– of the case for your entity, Hua Wang Bank? No, I was not told that.’

114    I do not think it is plausible that if Mr Borgas were truly in control of JA Investments he would not have had some idea of who the witnesses in his own case were.

115    In truth, Mr Borgas did not know what was happening in the case because it was not his case but Mr Gould’s. So much became apparent towards the end of his cross-examination. At the close of the second last day of that cross-examination this exchange occurred:

‘MS SEIDEN: Your Honour, I understand there were some travel plans. So I’m not sure how long my learned friend intends to be, and I know it’s obviously the convenience of the court, but –

HIS HONOUR: Yes. Were you off somewhere tomorrow, Mr Borgas?

THE WITNESS: Well, I was hoping to catch a plane out back to Europe tonight.

HIS HONOUR: Tonight?

THE WITNESS: But – I mean, looking at the time, I think I have probably missed that, anyway.

HIS HONOUR: All right. Well, in that case, will you be inconvenienced if we regroup here in the morning for a brief period?

THE WITNESS: I’m sorry, your Honour, I

HIS HONOUR: In that case, will you be inconvenienced if we regroup here in the morning for a brief period?

THE WITNESS: Well, yes. I would be inconvenienced, but I don’t have much of a choice, I think, your Honour.

HIS HONOUR: Is Mr Herman taking care of your travel arrangements?

THE WITNESS: No, that is being dealt with through the office of Mr Gould.

HIS HONOUR: I see. All right. Well, we will adjourn here until 10 tomorrow.’

(emphasis added)

116    It is more than passing strange that Mr Gould should be looking after Mr Borgas’ travel arrangements. The inference I draw is that the litigation was being conducted by Mr Gould for Mr Gould and Mr Borgas’ role was to turn up when requested. Although Mr Borgas claimed that he was the ultimate source of instructions for the taxpayer there is no prospect that this could be true. An attempt by me to elicit from the taxpayers’ representatives during closing submissions where their instructions were coming from was politely declined. I infer that evidence from the taxpayers’ solicitors about the source of their instructions would not have assisted their case on the role of Mr Borgas.

117    Essentially the same conclusion follows in the case of MH Investments. Under its articles from 2002 Mr Gould was the appointer and I find that he had been the appointor before that time too. There is the additional problem of an agreement dated 31 August 2005 entitled ‘MH Nominee Agreement’ in which Offshore Nominees agreed that it held its shares in MH Investments for Mr Gould. Mr Borgas was forced to describe the document as ‘wrong’ and that it should not have been produced. This evidence was unpersuasive.

The corroborative witnesses

118    As noted above at [63], the taxpayers submitted that Mr Borgas’ account that he was the decision-maker for the taxpayers was corroborated by the evidence given by the Bell Potter brokers Messrs Codd and Gibbs; the evidence of the late Mr Saba; the evidence of the investment portfolio advisor Mr Yunus; the evidence of a missionary, Mr Watson; the evidence of the accountant Mr Vara; and that of Mr Facey, the auditor of Chemical Trustee. I deal with these in turn and then cumulatively.

Mr Codd

119    Mr Codd performed stockmarket transactions for Chemical Trustee, Derrin and Bywater throughout the period 2001-2005. He said that he would speak on the phone with Mr Borgas 3-4 times per week and that Mr Borgas would give oral instructions to him over the phone often in response to advice which Mr Codd had proffered. Mr Codd thought that Mr Borgas was an astute investor and that he was the person making decisions on behalf of Chemical Trustee, Derrin and Bywater.

120    The Commissioner submitted, and I accept, that this evidence is not inconsistent with the Commissioner’s case that Mr Borgas was a frontman. He posits that if Mr Borgas had spoken with Mr Gould on each occasion before speaking to Mr Codd then he would appear to be the person giving instructions; equally, Mr Gould could have provided him with the information that made him appear astute to Mr Codd. Then there is the fact that Mr Borgas’ instructions were always confirmed in writing by fax usually the next day, sometimes by email. Again this is a matter which is consistent with Mr Borgas dealing with Mr Gould after the event. In the same vein, Mr Codd thought that Mr Borgas was dealing with other brokers because he was dealing in stocks that Mr Codd had not sold to him. This is consistent, however, with that person being not a broker but being Mr Gould.

121    Mr Codd also gave evidence that sometimes Mr Borgas would give him instructions on the spot (although sometime it would take a week or so). To determine whether this was an example of genuine spontaneous decision-making one would need to know whether Mr Borgas mentioned a stock for advice (which would be consistent with Mr Gould having prompted Mr Borgas to inquire about the matter) or whether the idea for the stock advice originated with Mr Codd and was then accepted by Mr Borgas. This is a critical matter and without it one cannot know the significance of Mr Borgas’ instructions. The taxpayers did not seek to prove this. Mr Borgas was called as a witness and his evidence simply did not go into this kind of detail. It was evidence he could have been expected to give, however, if it had actually occurred.

122    The taxpayers criticised the Commissioner for not suggesting to Mr Codd that his evidence was incorrect. However, the nature of the above submissions proceeded on the assumption, upon which I also proceed, that Mr Codd’s evidence was correct and that he was the victim of Mr Borgas’ deceit. That being so, there is nothing which could have been asked of Mr Codd by Mr Fagan which would have been useful.

123    My impression to this point has been that Mr Borgas’ evidence was almost entirely untrue. Mr Codd’s evidence does not persuade me to the contrary.

Mr Yunus

124    It was Mr Yunus’ evidence that he managed a portfolio of investments for Derrin and Chemical Trustee and had done so since 2003. He said in his affidavit that he had spoken with Mr Borgas who had sought advice and then given instructions or orders to him in the course of the same discussion. He gave particular evidence about a transaction in 2006 involving an investment in an entity called Silverbird. Mr Yunus had recommended an investment in Silverbird and this had been supported by Mr Gould. But Mr Borgas had called Mr Yunus himself to discuss the investment. Under cross-examination he said that he had spoken with Mr Borgas less than 10 times on the phone but was in regular email contact. The thrust of his affidavit evidence was as follows:

(a)    Mr Yunus’ company Normandy Malaysia provides investment management and corporate advisory services;

(b)    the parent company is Perkasa Normandy Holding Sdn Bhd;

(c)    his relationship with Mr Borgas commenced in 2003 when Chemical Trustee retained one of the group members to manage Chemical Trustee’s assets in the Asia Pacific region;

(d)    he has never met Mr Borgas in person but has spoken to him a number of times on the phone and has exchanged faxes and emails;

(e)    in the course of their relationship he has given advice and also received requests for advice from Mr Borgas in conversations which have culminated in Mr Borgas giving an immediate instruction or order;

(f)    he does not recall Mr Borgas needing to get the permission of any other person;

(g)    Mr Borgas is provided with regular written reports;

(h)    he has known Mr Gould for a long time and speaks with him on a semi-frequent basis;

(i)    he and Mr Gould have business dealings in common;

(j)    Mr Gould sometimes contacts Mr Yunus on behalf of other people who are clients of Normandy Malaysia and when he does so it is Mr Yunus’ usual practice to require confirmation of Mr Gould’s authority to speak on their behalf; and

(k)    Mr Borgas has made clear to Mr Yunus that Mr Gould ‘has particular responsibility for Chemical Trustee and Derrin Brothers’ investment in the Asia-Pacific’. For this reason, Normandy Managers has no hesitation about providing Mr Gould with any information he requests about Derrin Brothers and Chemical Trustee, and Mr Gould is frequently copied in on communications with Mr Borgas that relate to these two companies.

125    The Commissioner collected 17 communications between Mr Gould and Mr Yunus involving instructions from Chemical Trustee and Mr Borgas was party to these only three times. Although there are some letters in which Mr Borgas seems to have had his hand on the tiller (such as his letter to Mr Yunus of 5 December 2007) most of the correspondence consists of a dialogue between Mr Yunus and Mr Gould. Typical of that kind of correspondence is their exchange of 24 and 25 September 2007. On 24 September 2007 Mr Yunus sent Mr Gould a fax about the affairs of AsiaTrust Development Bank in these terms:

‘Dear Vanda,

As at today, Chemical Trustee Ltd holds 653,900 shares in AsiaTrust Development Bank and registered under the following custodian/trustee:-

1.    553,900        Amanah Raya (Labuan) Ltd

2.    100,000        Universal Trustee (Malaysia) Bhd

Chemical Trustee Limited may arrange to remit the additional funds by telegraphic transfer to the following account:-’

[details omitted]’

126    On 25 September 2007 Mr Gould replied in these terms:

‘Dear Daud

Thank you for your fax of 24 September 2007.

Unless there is a good reason for keeping the two holdings, would it not be better to consolidated [sic] the 100,000 shares in the name of Universal Trustee (Malaysia) Bhd into the holding in the name of Amanah Raya (Labuan) Ltd?

We have arranged for the additional A$50,000 to be remitted to the account set out in your fax and confirm our mutual client’s instructions for you to purchase further shares in AsiaTrust Development Bank at a limit of PHP9.00.

Your assistance is appreciated.’

127    These exchanges naturally tend to suggest that it was Mr Gould who was in charge of Chemical Trustee notwithstanding the disingenuous reference to the ‘mutual client’. The ‘mutual client’ is a theme in much of the correspondence and not just with Mr Yunus. As will be later seen Mr Borgas struggled to explain who he was and the taxpayers themselves did not really seek to identify this man of mystery at the trial. It was, of course, Mr Gould.

128    There are therefore a number of apparently contradictory aspects to Mr Yunus’ evidence. There is the fact that the companies in question are truly Mr Gould’s and the money at stake economically his and not Mr Borgas’. There is the fact that Mr Gould appears to be the substantive decision-maker in his dealings with Mr Yunus. It is difficult to accommodate into this view any actual role for Mr Borgas as a decision-maker. Yet, on the other hand, there is Mr Yunus’ evidence that he spoke with Mr Borgas who gave him instructions and appeared to take advice. If that evidence is accepted at face value, I would need to conclude that Mr Borgas was the decision-maker. But to do that I would need to have a rational explanation for why Mr Gould was permitting his money to be invested on Mr Borgas’ instructions and a further explanation as to why he was then acting as Mr Borgas’ advisor in respect of investments which were, in reality, his. On any view, that would be a bizarre situation.

129    There is no tidy way to fit this together. The Commissioner submitted that it could be the case that whilst Mr Yunus understood that the shots were being called by Mr Gould, Mr Borgas was the director of the relevant taxpayers and he needed to make the actual decisions as a matter of formality. Thus Mr Yunus needed to get his approval. On this view, Mr Borgas’ role is entirely formal and he is reduced essentially to a vice-regal position. But I have difficulty squaring this theory with Mr Yunus’ evidence that he did in fact proffer advice and receive instructions from Mr Borgas.

130    On balance, I have come to the view that the situation with Mr Yunus is likely to have been similar to that which obtained with respect to Mr Codd. That is to say, Mr Gould was orchestrating with Mr Borgas the appearance of the latter giving instructions to Mr Yunus. The fit, I admit, is not perfect; especially, as Mr Gould appeared to have a much more direct role with Mr Yunus than he did with Mr Codd. However, this is in my opinion the most likely reconciliation of the evidence. No doubt, it is not perfect. The reason I embrace it however is that the alternate view gives rise to impossible inconsistencies about the role of Mr Borgas. In particular, it simply cannot cohere with the fact that he had no economic interest in these companies. It would also require me to accept much of his evidence about ownership and control when that testimony is overwhelmingly contradicted by contemporaneous documentary evidence.

Mr Vara

131    It was Mr Vara who attended to the paperwork side of transactions from the offices of Lubbock Fine. He gave this evidence at T386.30-387.4:

‘MS SEIDEN: I see. And what is your impression of the level of knowledge that Mr Borgas had of the assets and the transactions of Chemical Trustee?---Over the – over the years that I’ve known Mr Borgas, I think he’s a well-versed and knowledgeable businessman as well and demonstrated by the growth in the value of those companies.

I see. And I asked you that question specifically in relation to Chemical but I think you’ve answered that it’s the same, if I’m correct, in relation to Derrin and Bywater? ---I would say so.

Yes and what gives you the impression that he’s – how did you describe him? I don’t want to - - -?---Knowledgeable businessman.

Knowledgeable, yes?---Yes.

What gives you that impression?---Well, when we speak, we often – he often discusses that he’s making investments, generally talk about the general markets in UK and elsewhere, and we generally have a chitchat, then, regarding the companies, he would inquire about the bank balances, banking transactions and what deposits are ..... if there were large balances available so that he can authorise if he had to put funds on deposit.’

132    In addition to this answer Mr Vara also denied that he knew that Mr Gould was in charge of Chemical Trustee and stated that he was fully confident that Bywater (and I infer the other taxpayers) were controlled by Mr Borgas: T419.29-T425.45.

133    I regret I must conclude that Mr Vara’s evidence was not reliable. The Commissioner did not directly submit that I should reject his evidence although at T1447 Mr Fagan rhetorically asked whether his evidence could be correct. I reject his evidence as unreliable because in respect of two matters I can only conclude he was lying. These were:

•    at T447 he was cross-examined on a fax from Mr Borgas dated 19 October 2004 to Mr Gould which contained this statement:

‘The attached letter of 24th August is clear but my letter to Wilson HTM of the same date (copy attached) is, unfortunately, incorrect in that it was sent on Derrin Bros. note paper. A copy of the contract note is attached.

My error, for which I sincerely apologise, was pointed out to me by Hasmukh.

Kindly let me have your comments as how you feel we should best deal with this matter given the circumstances set out above.’

134    ‘Hasmukh’ is Mr Vara’s first name. It is obvious that this is not the kind of letter a client writes to an advisor. The cross-examination then proceeded as follows:

‘MR FAGAN: Without drawing too heavily on your recollection, it’s apparent from the documents, particularly from the one at page 251, that the intention had been Chemical Trustee and that it had miscarried by them going to the name of Derrin Brothers and that that was being reversed?---Well, if that’s the case, yes.

And can you tell me why was Mr Borgas apologising to Vanda Gould for this?---I don't know. Mr Borgas’ nature. But you would have to ask him.

I would have to ask him?---Yes.

But you’re saying that, to you [sic] understanding, these – the determination to purchase these shares was in Mr Borgas’ hands?---That’s right.

And the entity that they went into was Mr Borgas’ choice?---That’s right.

And both of the entities which constituted the choice, Derrin and Chemical Trustee, were ultimately his?---That’s right.

So, to your understanding of relationships, you would find his apology to Mr Gould and his request for comments as to how Mr Gould felt this matter should best be dealt with quite inexplicable, wouldn’t you?---No. I can’t comment on somebody else’s comments.

That means it’s inexplicable, doesn’t it - - -?---Sorry?

- - - to you?---No, I can’t – I honestly cannot comment why – you would have to ask Mr Borgas.

You can’t comment upon why there would be an apology in these circumstances?---I don’t even recall fully reading the letter, so it’s very difficult for me to say anything.

All right. Well, certainly in due course Mr Borgas and Mr Gould will be asked, but I just - - -?---Sure.

Since you’re here giving evidence first, Mr Vara, I just want to be clear. You can’t

offer any explanation?---I cannot.’

135    This is simply not plausible. Mr Vara could not offer any explanation because to do so he would have had to have admitted that the letter showed that Mr Gould was in charge.

136    He was also asked about the references to ‘our mutual client’ in much of the documentation at T477.5-477.26:

‘MR FAGAN: When Mr Borgas speaks of a transaction which Chemical Trustee is entering into, when he speaks of “our mutual client”, the only way that would make any sense would be on the basis that Mr Gould is the client, wouldn’t it?---I don’t know.

It’s just a code, isn’t it, the expression “our mutual client” - - -?---No, it’s not.

- - - that was used between Mr Gould, Mr Borgas and your firm? Isn’t it just a code? ---No, it’s not.

Isn’t it just an expression that was used as a way of avoiding stating the true relationships?---No, it’s not.

And in the next paragraph [of the letter from Mr Borgas to Mr Vara dated 6 March 2001], Mr Borgas said:

I have to admit that I have rather lost the plot in relation to this matter, and at the moment I’m following instructions received from our mutual client.

That makes it clear that the mutual client was Mr Gould, doesn’t it?---Not to me, no.

The other correspondence I’ve showed you clarifies that the person to whom he was referring for an understanding of what was going on in this transaction was Vanda Gould?---You would need to ask Mr Borgas.’

137    Again I cannot accept this. It was quite clear who the mutual client was. Mr Vara’s evidence is simply implausible

138    I conclude therefore that in critical aspects Mr Vara’s evidence was false. Not all of his evidence was false. When it was not inconsistent with the taxpayers’ case Mr Vara did give true evidence but only because it was not inconvenient to him. In those circumstances, however, I do not feel I can give any weight to it in areas which are controversial. It follows that I do not accept Mr Vara’s evidence insofar as it corroborates Mr Borgas’ evidence. Neither was reliable.

Mr Gibbs

139    Mr Gibbs was employed by Bell Potter. His evidence at paragraph 15 of his affidavit was that he would receive faxes from Mr Borgas making orders and sometimes Mr Gibbs would send return faxes giving investment advice. Mr Borgas would then sometimes revise his order by way of a further fax after he had received the advice. This is not inconsistent with the Commissioner’s case.

Mr Watson

140    Mr Watson was part of a Christian organisation called Ellel Ministries. He needed $500,000 to complete the purchase of a property known as Gilbulla. He knew Mr Gould and Mr Gould told him that he might be able to secure the funds for him. Mr Gould arranged the loan through Chemical Trustee. Subsequently, Mr Watson decided that Ellel Ministries needed to raise further funds. Although in his affidavit evidence he said that he contacted Mr Borgas who refused him and, in fact, asked for the earlier loan to be repaid, his cross-examination revealed that he had spoken with Mr Gould first who had told him it was unlikely that Chemical Trustee would further assist. In light of that there is really no inconsistency between the Commissioner’s case and the evidence of Mr Watson. In effect, he was another person deceived by Mr Gould and Mr Borgas.

Mr Facey

141    Mr Facey is a partner at Lubbock Fine and was the auditor of Chemical Trustee. His evidence was that he had a lot of dealings with Mr Borgas in the course of his audit duties. However, his evidence also showed that these enquiries were in writing. This is consistent with the Commissioner’s case.

Mr Saba

142    The late Mr Saba, a stockbroker, did not give evidence in the proceedings. There is documentary evidence of his having dealt with Mr Borgas. However, apart from Mr Borgas’ evidence (which I do not accept) there is no evidence of Mr Saba’s oral dealings with Mr Borgas. The position of Mr Saba as explicated in the evidence is therefore consistent with the Commissioner’s case.

Global effect of the corroborative evidence

143    I have rejected each part of the taxpayers’ case on corroboration either because I do not accept the evidence (in the case of Mr Vara) or because it is consistent with the Commissioner’s case. It is useful to pause and to consider whether this material viewed globally is more than the sum of its parts. I do not think it is.

(b) Chemical Trustee Limited

144    Having dealt globally with the common features of Chemical Trustee, Bywater and Derrin I turn then to the individual circumstances of Chemical Trustee. Again the taxpayers did not really seek to cavil with the Commissioner’s contention that Chemical Trustee was operated for the benefit of Mr Gould although neither did they entirely concede it. In the interests of completeness, I will deal with the Commissioner’s contentions. He made 18 points. They were all directed to the same end, namely, that Chemical Trustee was owned and operated by Mr Gould for his own benefit.

The Commissioner’s 18 matters

(i) Mr Gould’s beneficial ownership of Chemical Trustee

145    Because Mr Gould owned and controlled JA Investments it is an inevitable consequence that he owned and controlled Chemical Trustee through the Lubbock Fine entity Guardheath.

146    The Commissioner submitted that the transactions which Chemical Trustee engaged in were very substantial and that it was unlikely that Mr Borgas who had no such economic interest, would have been making the decisions about those matters rather than Mr Gould, who did. Mr Borgas described four activities in which Chemical Trustee engaged. These were:

(a)    acting as a nominee;

(b)    acting as a lender;

(c)    acting as a charitable donor to religious organisations; and

(d)    investing in shares.

147    Mr Borgas explained his role in relation to each of these in his evidence in chief as follows:

As to (a) (nominee activities):

‘MS SEIDEN: Well, could you describe the nature of the transactions that Chemical undertake as nominee? Yes. One example is when – where third parties will place their funds in the account of Chemical Trustee so that money – a larger amount of money is built up. And the reason for building up a larger amount of money is so that when that money is deposited, a better rate of interest can be obtained.

And who makes the decisions about investing for the entities? For the entities that Chemical is acting as a nominee for? I do. We – I’m sorry.

Where do the commercial ideas come from in relation to investing for entities that Chemical is acting as a nominee for? They can – they can come from a number of different sources. For example, when it’s a question of the investment of money that Chemical Trustee is holding as nominee, my main point of consultation is Mr Hasmukh Vara who – for – I – he and I will talk. I say, “All right, Hasmukh. We need to put this money on deposit. Please, will you do the necessary, phone around the banks, just see what is the best rate of interest that you can obtain on a three month deposit or a four month deposit, six month deposit,” whichever is appropriate in the circumstances. And he will come back with three or four options. And then I decide, having regard to the bank and the rate and so on and so forth just which of the options that he has given me I will – I will exercise.

All right. And what way does acting as a nominee – in what way is that beneficial to Chemical Trustee? Well, in the case, for example, of the deposit of funds, Chemical will take a margin on the interest that is earned on such deposits.’

As to (b) (acting as a lender):

‘MS SEIDEN: All right. You mentioned that Chemical also lends money. Can you describe to the court an example of a transaction where Chemical has lent money? Yes. Chemical has lent money to, for example, a company called Normandy Finance and Investment Limited, and that company is – is managed by – it is part of a – it is a group company, but it is managed from Monaco. And it is then lent, for example, for – to mortgage borrowers and so on and so forth.’

As to (c) (acting as a charitable donor):

‘MS SEIDEN: Have you, in relation to Chemical Trustee, have you heard of Moore College? Yes, I have.

Would you explain to the court the connection? Yes. I should perhaps have said earlier that one of the activities of Chemical Trustee is – or one of the activities in

which it has become involved is charitable giving. Moore College is a – the largest seminary bible college in this part of the world, and yes, I have heard of Moore College.

And has Chemical Trustee entered into some form of transaction with that? It has made a charitable donation to – of A$1 million to Moore College.

And who made the decision to make the donation? I did.

And where did the idea come for the beneficiary? The idea came from discussions that I have had with – or that I had with Mr Vanda Gould.’

As to (d) (acting as a share investor):

‘MS SEIDEN: Now, you’ve mentioned that Chemical also has some stock market activities? Yes.

All right. Could you explain to the court what your investment criteria is? Yes. Very simply, it is capital growth through long-term investment in the stock in a particular company.

And who makes the decisions for Chemical Trustee about buying and selling shares? I do.

How do you go about making the decision? The – the decision is based on advice that I receive from people such as Mr John Leaver, Mr Vanda Gould, stockbrokers, for example, the late – one – one person in particular who was always very helpful is the late Jamie Saba of Wilson HTM, Ted Cod[d] of Bell Potter. So I have a – and – and even sometimes suggestions are passed to me by Hasmukh Vara of Lubbock Fine in London, I mean, because they are quite close to the goings on in the stock market, and – but, having – having assembled the basic information – all right, so John Leaver has made a suggestion to Vanda – a recommendation to Vanda which is passed on to me, then I might – I might go back and check, for example, with Jamie Saba, “Have you got any input on this possible investment?” So it’s – the – all right. The recommendations come from those people – people such as those, but the final decision about making the investment is mine.’

148    The Commissioner submitted that this evidence was contradicted by 18 matters. I have already concluded that Mr Borgas was quite willing to lie to the Court about his ownership of JA Investments. My view is that in areas of any controversy his testimony is unreliable. On that basis I would not be inclined to accept Mr Borgas’ evidence of the manner in which he controlled Chemical Trustee. The Commissioner’s 18 matters provide additional reasons for concluding that Mr Borgas was lying about the affairs of Chemical Trustee.

149    The first point was the disparity between the idea that Mr Borgas was making decisions about Chemical Trustee’s activities when regard was had to the size of the transactions and the fact that the actual owner of it was Mr Gould. I accept this submission. I have already accepted Mr Gould’s ownership of Chemical Trustee.

150    As to the transactions, the evidence before me showed that Chemical Trustee had extended loans to entities associated with Mr Gould in the sums of $750,000, $500,000, $2,075,000, $2,540,000, $1,000,000 and $15,000,000. These totalled $21,865,000. Further, it had transferred sums of $30,000,000, $250,000, $4,202,000, $900,000, $3,000,000, $2,002,000 and $150,000. These totalled $40,504,000. These sums were advanced to an entity called Normandy UK. The shares in Normandy UK were held by Guardheath and Lordhall, pursuant to nominee agreements in favour of JA Investments and MH Investments.

151    I return to its role below. For present purposes, it will suffice to observe that it was ultimately owned by JA Investments and MH Investments and hence by Mr Gould. Chemical Trustee also extended to another entity, Lloyds & Casanove, sums totalling $6,065,000 which were used to purchase shares in an entity called Vita Life Sciences Ltd. I am satisfied that Lloyds & Casanove was at all times controlled by Mr Gould. Vita Life Sciences was, between 2003-2007, a delisted company of which Mr Gould was the Chairman from 2004. Mr Gould’s role in the actual transactions is of no immediate concern for the purposes of the Commissioner’s first argument. His point is that the transactions were in excess of $60 million and that it was implausible that Mr Borgas, who had no stake in Chemical Trustee, would be making decisions for it when it was Mr Gould’s money. I accept that submission.

152    This is another reason to reject Mr Borgas’ evidence about the affairs of Chemical Trustee.

(ii) The loans were all to entities associated with Mr Gould

153    The Commissioner’s second contention was that the lending transactions just referred to were all to entities associated with Mr Gould. I accept this submission.

154    There were six loans. The first of $750,000 was made on 20 March 1988 and was extended to Mr Gould’s wife, Mrs Debbie Gould. Security was provided over two lots in a deposited plan in Chatswood.

155    The second loan was for $500,000 and was made on 13 August 1999 to Regatta Point Developments Pty Ltd. That company had ten shares on issue. Three of these were held by Chemical Trustee and three by Normandy UK which were both ultimately owned by Mr Gould. One share was held by Formrace Pty Ltd about which I know little. Three were held by a company called 14 Portland St Pty Ltd which was owned by Dr Ross. I am satisfied that Regatta Point was controlled by Mr Gould.

156    The third loan of $2,075,000 was made on 30 June 2000 to Fennelltown Pty Ltd which was the trustee of the VR Gould Family Settlement.

157    The fourth loan of $2,540,000 was made on 30 June 2000 to Malackey Holdings Pty Ltd. It was the trustee of the Malackey Trust the beneficiaries which were Mr Gould (and his family) and another family called the Nichols family.

158    The fifth loan was of $1,000,000 and was to the Education Gold Trust. It was extended on 15 May 2002. The eligible beneficiaries of that trust are Mr Gould and his family and the Raptis family. The trustee of the trust is, however, Education Corporation of Australia Pty Ltd. Its directors were Mr Gould and his secretary, Ms Shean. The ultimate holding company for it was Morning Star Fiduciaries Pty Ltd. It has one share on issue which is held by Mr Gould.

159    The sixth loan for $15,000,000 was to Education Corporation of Australia Pty Ltd. For the reasons just given it was controlled by Mr Gould. The money was advanced to purchase property at Surfers Paradise, although that purchase did not proceed and the money was returned.

160    These matters permit of no conclusion other than Chemical Trustee lent very substantial funds to persons or entities close to, owned by, or under the control of Mr Gould. There is no reason for Mr Borgas to have engaged in these transactions. There is every reason for Mr Gould to have done so.

161    These six loans, therefore, present, a second reason for concluding that Mr Borgas was lying about his involvement in Chemical Trustee.

(iii) Loans to Gould/Leaver related entities via Normandy UK

162    The Commissioner’s third reason for why Mr Borgas’ account was false was related to transfers of money by Chemical Trustee to Normandy UK which were then on-lent to entities controlled or owned by Mr Gould and/or Mr Leaver, his business associate. I return in more detail to the role of Mr Leaver below.

163    As outlined above, Normandy Finance and Investments Ltd was a company incorporated in the UK. Its two issued shares were held by Guardheath and Lordhall. They held them pursuant to nominee agreements in favour of JA Investments and/or MH Investments. This was the testimony of Mr Vara, of Lubbock Fine. Consequently, it was ultimately owned by Mr Gould. Normandy UK owned 499 of the 1000 shares on issue in Normandy Finance and Investments Asia Ltd (‘Normandy Asia’). The other 501 shares were held by another nominee company Glen Nominees Ltd. On 30 October 2009 Glen Nominees transferred that parcel of 501 shares to Normandy UK. It is likely, I think, that those shares were always held for Normandy UK. However, I do not need to make a finding about this. It is sufficient to observe that Mr Gould had a 49.9% interest in it through Normandy UK.

164    There were seven indirect loans of this kind relied upon by the Commissioner.

165    The first was for $30 million and was advanced on 17 December 1998 to Normandy UK. This was then advanced by Normandy UK to CVC Investment Nominees Pty Ltd. Its shareholders were Southsea Nominees Pty Ltd and Wenola Services Pty Ltd. Southsea Nominees has one share on issue, held by Morning Star, which has been owned by Mr Gould since 2003. Between 1997-2003 Morning Star was owned by Phillips River Pty Ltd, which was in turn owned by Mr Gould and his family during the relevant period. Wenola Services Pty Ltd has always been owned by interests associated with Mr Gould and/or Mr Leaver. Consequently, this elaborate structure reveals the ownership of CVC Investment Nominees by Mr Gould and Mr Leaver at the time of the transaction.

166    I therefore conclude that Chemical Trustee transferred $30 million effectively to Mr Gould and Mr Leaver through Normandy UK.

167    The second indirect loan was for $250,000 and was made on 2 April 2004. It was advanced by Chemical Trustee to Normandy Asia which was almost half owned by Normandy UK and hence by Mr Gould.

168    The third indirect loan was for $4,202,000 and was made on 3 November 2004 to CVC Investment Nominees which was controlled by Mr Gould and Mr Leaver. Twenty-one days later a sum slightly less than this amount was returned to Chemical Trustee. The taxpayers made no effort to explain this curious transaction.

169    The fourth indirect loan was for $900,000 and was made on 8 December 2004. It was extended to Melbourne Insurance Co Ltd. Melbourne Insurance has, at relevant times, had 2 shares on issue which were held by Southsea Nominees (which for reasons I have already given was controlled by Mr Gould through Morning Star). Elsewhere in the records of Chemical Trustee a loan of $2.5 million to Melbourne Insurance was treated as a loan to JA Investments, i.e. Mr Gould. For reasons that neither Chemical Trustee nor Mr Borgas sought to explain, this $900,000 was returned to Chemical Trustee 22 days later on 30 December 2004 by the circuitous route of Hua Wang Finance Ltd, a subsidiary of the Hua Wang Bank.

170    The fifth indirect loan was of $3 million to Melbourne Insurance Company Pty Ltd (controlled by Mr Gould). Of this $1.225 million was advanced to CVC Investment Nominees (controlled by Mr Gould and Mr Leaver) and the balance returned to Chemical Trustee via, once again, Hua Wang Finance. Again, neither Mr Borgas nor Chemical Trustees proffered any explanation for this circular transaction.

171    The sixth loan was of $2,002,000 and was made on 31 May 2006. It passed through Melbourne Insurance Co apparently to another entity, Sunleisure Group Ltd. I know nothing of this entity but it suffices for present purposes that Melbourne Insurance was controlled by Mr Gould.

172    The seventh indirect loan was of $150,000 and through Normandy UK to Normandy Asia. The first of these was controlled by Mr Gould; the second as to 49% Mr Gould (and possibly as to 100%).

173    These seven uses of Normandy UK as a funnel for loans made by Chemical Trustee to Gould-related entities (with the exception possibly of Sunleisure) are not, however, isolated examples of these kinds of intercompany transactions. Because some of these touch upon the credit of Mr Leaver I will deal with them in detail.

174    There are three aspects to this. The first concerns 11 transfers totalling $3,966,900 which were described in Mr Borgas’ written instructions as ‘management fees’. These were paid to Normandy UK. Mr Borgas testified that these were inter-company transfers in this way:

‘MS SEIDEN: And you see that – the reference there to the expression “management fee”? Yes.

What does this mean? When – well, I have explained that Chemical Trustee lent funds, or would – would move funds down to its sister company, Normandy Finance and Investments Limited, and that when funds were moved, for example, from Chemical Trustee to a company within the same group, it was described as a – a “management fee” because there was never any obligation, really, to – for – in this particular case, Normandy Finance to repay the money to Chemical Trustee, nor to pay interest on the loan. Chemical Trustee was a company that needed to be audited and file audited accounts, and this was a way that the auditors of Chemical Trustee would know – and you will see that this was addressed to Mr Vara at Lubbock Fine – this was a way of them being able to determine exactly the nature of the movement of those funds and for them to know that when they came to the – organising the audit of Chemical Trustee Limited they did not need to take it into account as an asset of – a loan – a repayable loan of Chemical Trustee.’

175    It is hard to understand what Mr Borgas meant by this. I conclude that the obvious is the case and that what was going on was the channelling of money from one Gould related entity to another.

176    The second aspect is this. There were two transfers of, respectively $2,002,000 (on 22 May 2001) and $1,251,000 (on 28 May 2002) from Chemical Trustee to Normandy UK where the purpose of the transfer was not recorded with any specificity. Again, the appropriate conclusion is that this was the funnelling of money from one Gould-controlled entity to another.

177    The third aspect is, perhaps, a little more involved. There were seven transfers from Normandy UK to Gainsborough Stud Ltd which were then on-lent to Planette Thoroughbred Trading Pty Ltd as follows:

178    Gainsborough Stud Ltd is an Irish company with a registered office in Dublin. About its ultimate ownership the evidence is not clear. With Planette things are more straightforward: it has two shares one of which is owned by Mr Leaver and the other by Phillips River Pty Ltd which, as I have explained, was controlled by Mr Gould. The complexity about this third aspect of the transfers through Normandy UK concerns three further transfers all of which went to relatives of Mr Leaver.

179    The first of these was to Mr Leaver’s daughter, Ms Kate Leaver, and was in the amount of $1,250,000. It occurred on 4 December 2009. The funds passed first to Normandy UK and thence to Curwoods Lawyers. That firm then used the money to settle the purchase of a property by Ms Leaver of a residential dwelling in a fashionable street in Paddington, Sydney. The ‘loan’ from Normandy UK was documented by a letter from it to those solicitors dated 16 November 2009 inexplicably sent from Monaco. It was on the letterhead of Normandy UK and was in these terms:

‘Dear M. Manookian,

We have agreed to lend Ms. Kate Leaver the sum of A$1,250,000 to purchase a property at [address supplied] Paddington NSW 2021 ([Folio Identifier supplied]). The security which we require you to prepare as part of advancing the funds, which we will transfer to your trust account, is a registered first mortgage over the above mentioned property, together with the unlimited guarantee of Mr. John Scott Leaver (Kate’s father) of [address supplied] Point Piper NSW 2027.

The loan will bear interest at the rate of 6% p.a. for a period of five years at which time the interest rate will be reviewed and adjusted to market. Interest is payable in annual instalments on 30 June each year. However, by agreement between the parties, interest may be capitalised. Interest may be paid by Australian dollar cheque to our registered office (46 Bedford Square, London WC 1B 3DP, United Kingdom) or by telegraphic transfer to our Australian dollar bank account in London, which details will be provided on our annual debit notes.

We understand from Mr. Leaver that he is anxious for this purchase to settle as soon as possible and we will aim to place you in funds by the end of November. Please provide us with your trust account details. Mr. Leaver will pay your costs in relation to this matter and will provide the additional funds that are needed to complete the purchase.

Please do not hesitate to contact us if you have any queries.

Yours sincerely,

[signed]

Egmont International Associates Inc.

Director

Represented by: J. Walfenzao/ S.E. Beach’

180    I have no idea what Egmont was or who Messrs Walfenzao or Beach were. However, since Normandy UK was Mr Gould’s company I am not in the slightest persuaded that this transaction was at arm’s length.

181    My sense that there was nothing arm’s length about this loan is heightened by a consideration of the terms of the loan. The terms of the offer letter made this appear to be a generous loan. The formal terms were, however, even more generous. They gave a further option of five years and forbade the payment of interest without the lender’s consent.

182    Mr Leaver is a close business associate of Mr Gould’s. Between them they run a venture capital company in Sydney known as CVC Limited. They work from the same office and, as will already have been seen, have many common shareholdings. Mr Leaver gave evidence before me about this loan. It was as follows:

‘MS SEIDEN: All right. And could you tell the court about the circumstances of this transaction? That is a loan for the payment of a house in my daughter’s name.

And Normandy Finance & Investments Limited; how did –? It’s a financier.

Yes. And how did you come to find them? Mr Gould – well, I came to find them because I asked the bank for a loan and they refused me, and they said the only situation they would give me a loan for my daughter was if I actually put half the money up in cash as guarantor and put the house in her – in my name. The reasons that I had bought the house were firstly medical and personal. The personal element being I was just about to turn 70 and I decided that my daughter – or daughters and my stepson should begin to have their inheritance.

And what role did Mr Gould play in this transaction? He organised – well, he was the one that spoke to the bank for me and I spoke to the bank also, Westpac, and when they knocked me back, he said “I will try and get the money from Peter Borgas”.

And did you speak to Peter Borgas about the loan? No, I did not.

And do you know anything else about the company, Normandy Finance & Investments Limited? I’ve seen the name but I know nothing else about it. As far as I’m concerned, they’re a financier.’

183    I reject this evidence. The idea that an arm’s length loan to his daughter to buy a house would assist in her inheritance makes no sense. If it were arm’s length it would remain owing even if Mr Leaver died. Providing for her inheritance, on the other hand, makes sense if the money was in truth his.

184    Nor do I accept that Mr Gould asked Mr Borgas for the money. This is impossible since the money was Mr Gould’s and not Mr Borgas’. Mr Leaver also lied about his intention to make repayments of $100,000 manually under this loan. Its terms expressly forbade that. My conclusion: Mr Leaver’s evidence was false. He knew this was not a financing transaction. I am unable to determine whether Mr Gould was transferring his own money to Mr Leaver or whether this money was Mr Leaver’s arising from some antecedent and concealed transaction requiring the use of offshore vehicles to conceal the identity of the true actors. The result is the same: the money flowed to persons closely associated with Mr Gould.

185    The second ‘loan’ was to another of Mr Leaver’s daughters, Ms Sophie Leaver. It was for $1.9 million. This does not appear to have come from Chemical Trustee but rather from Russell Associates Limited a company incorporated in the British Virgin Islands and having one bearer share issued to MH Investments. It was, therefore, controlled by Mr Gould.

186    It is an example, therefore, of Mr Gould providing a large amount of his, perhaps Mr Leaver’s, money to one of Mr Leaver’s daughters. Contrary to Mr Leaver’s evidence it is not an example of an arm’s length loan transaction. In this again, I regret, Mr Leaver was lying to me.

187    However, I do not think this transaction assists the Commissioner in his immediate forensic aim of showing that Mr Borgas was lying when he claimed to control Chemical Trustee. So far as I can see this loan did not pass through Normandy UK. On this occasion at least, Mr Borgas is left unscathed.

188    Not so, I fear, in the case of Mr Leaver’s step-son, Mr Alexander Nickolls. In this transaction, $1.6 million passed from Normandy UK this time to buy premises in Woollahra. Only half the pages of the loan agreement were available to be placed in evidence but it is apparent that the terms of this loan were largely the same as those which existed in the case of Mr Leaver’s daughter. I draw the same conclusion: money was being funnelled from Chemical Trustee through Normandy UK. Mr Leaver’s evidence that this was an arm’s length transaction was false.

189    It follows from these observations that all of the money which came out of Normandy UK went to Mr Gould or to people close to him. The only evidence of any money going into Normandy UK was from Chemical Trustee. I infer that Normandy UK was a device to disguise further the flow of funds from Mr Gould’s offshore interests to himself or persons or entities close to him.

190    The immediate question is whether this long digression assists the Commissioner in his contention that Mr Borgas’ evidence that it was he who was making the decisions for Chemical Trustee was false. The answer is that it does. It is another reason, sufficient in itself, to conclude that Mr Borgas was lying.

(iv) Loans via Indo-Suez/JA Investments

191    I turn then to the Commissioner’s fourth reason that Mr Borgas’ evidence about controlling Chemical Trustee was false. He submitted that Chemical Trustee engaged in lending via an entity known as Indo-Suez but that analysis would show that all of these funds ended up with Mr Gould or his associates.

192    He also contended that a similar process took place through JA Investments.

193    Dealing first then with Indo-Suez Investments Ltd, Mr Vara from Lubbock Fine gave evidence at T420 that this company was ultimately owned by JA Investments or MH Investments. I accept this evidence and it follows that Indo-Suez was owned and controlled by Mr Gould.

194    The first transaction is a transfer of A$1.96 million from Chemical Trustee to Indo-Suez. This was caused by a letter sent by Mr Shah of Lubbock Fine to the HSBC Bank on 5 July 2000. No reason was advanced in the letter for it. Since Indo-Suez was controlled by Mr Gould I infer that the transfer was for his benefit.

195    The second transaction was a transfer of A$2.5 million from Chemical Trustee to Indo-Suez. This resulted from a direction given by Mr Borgas on Chemical Trustee letterhead to Lubbock Fine on 2 March 2001. The letter said that the transfer was for the purpose of enabling ‘a loan to be made by Indo-Suez Investments Limited to Continental Venture Capital Limited’. This is the former name of CVC Limited, the Australian listed company introduced above at [182]. Its founding Chair was Mr Gould and the other major participant in its founding was Mr Leaver. Both are presently directors. It is a venture capital firm which invests in the private equity market in Australia.

196    I conclude that this transfer of $2.5 million was from entities controlled by Mr Gould to an entity very closely associated with him.

197    The third transaction concerned a transfer of $362,500 to Indo-Suez on or around 25 June 2001. Mr Borgas signed a letter on Chemical Trustee’s letterhead that day addressed to Mr Vara at Lubbock Fine instructing him to make this transfer. The letter recorded the purpose of the transfer as being ‘to enable Indo-Suez Investments Limited to acquire a 25% interest in the syndicate which has been put together by Rosecorp Management Services Limited’. Mr Robert Rose AM is a director of that company along with other members of his family. The taxpayers read an affidavit of Mr Rose who explained having known Mr Leaver for 25 years and having done business with him ‘on a number of occasions, almost invariably on the basis of oral agreement’. He described one such venture in the late 1990s to which this transfer by reason of timing cannot refer. He does, however, refer to another development he engaged in with Mr Leaver for some apartments in Cabarita which may be the project to which this refers. The resolution of this piece of ancient history is, however, unnecessary. What is clear is that Rosecorp’s intrusion into the affairs of Indo-Suez (and Chemical Trustee) is explicable on the basis of Mr Leaver. I therefore conclude that this advance by Chemical Trustee through Indo-Suez was most likely for Mr Leaver’s benefit to assist his venture with Mr Rose AM.

198    JA Investments was used for the same purpose as Indo-Suez, that is to say, as a funnel to pass money from Mr Gould’s offshore interest in Chemical Trustee to his onshore interests in Australia. There were two transactions. The first was 25 June 2007 and involved a transfer of $1.4 million from Chemical Trustee via JA Investments to Morning Star Fiduciaries which then passed it on to Melbourne Insurance Company Pty Ltd. As I have already noted above, both of these companies were under the control of Mr Gould. A later transfer of $1 million on 28 July 2000 to JA Investments was then passed on to Melbourne Insurance and the same conclusion applies.

199    What does this show? The use of Indo-Suez and JA Investments as conduits shows that these transfers were from an entity controlled by Mr Gould to entities or persons associated with Mr Gould and/or Mr Leaver. Why does this matter? It demonstrates, for present purposes, that Mr Borgas’ contention that he was the owner and controller of Chemical Trustee cannot be correct. It is another reason to reject his evidence.

(v) Outright Transfers to Indo-Suez

200    In fact, Mr Gould’s use of Indo-Suez was more extensive than first appears. In truth, Indo-Suez was a vehicle by which Mr Gould and his wife operated offshore debit cards. Mr Vara gave evidence that Lubbock Fine maintained an account with Lloyds TSB Bank PLC in the name of Indo-Suez on which were maintained debit cards for Mr and Mrs Gould. A letter from Mr Vara to a branch of that bank in London put this issue beyond any doubt.

201    Nor is there any doubt that the following sums were transferred by Chemical Trustee into that Indo-Suez account to fund the debit transactions which Mr and Mrs Gould were performing using their debit cards: