FEDERAL COURT OF AUSTRALIA

Anglo American Investments Pty Ltd (Trustee) v Commissioner of Taxation [2019] FCA 1027

ORDERS

THE COURT ORDERS THAT:

1.    The Respondent be released from the implied undertaking to the extent necessary to permit the Respondent to use in the present proceedings the following affidavit filed but not read in the proceeding NSD 101 of 2007:

1.1.    the affidavit of Vanda Russell Gould of 21 November 2007, including exhibit VRG-1 thereto.

2.    The Respondent be released from the implied undertaking to the extent necessary to permit the Respondent to use in the present proceedings the following affidavits filed but not read in proceedings NSD 652-656 of 2011:

2.1.    the affidavit of Vanda Russell Gould of 6 February 2012 (including the exhibit) in NSD653/2011; and

2.2    the affidavit of Vanda Russell Gould of 7 February 2012 (including the exhibit) in NSD652/2011, NSD654/2011 and NSD656/2011.

3.    The Respondent be released from the implied undertaking to the extent necessary to permit the Respondent to use in the present proceedings the following document produced under a notice to produce of which only part was tendered in evidence in NSD652-656 of 2011:

3.1.    “Analyze Balance Sheet June 2004” for Hua Wang Bank Berhad.

4.    A copy of this order be placed on the Court file in respect of the proceedings mentioned in the preceding orders.

5.    The Applicant pay the Respondent’s costs of the two interlocutory applications filed by the Respondent on 22 May 2019, including as amended on 30 May 2019, seeking variation of the implied undertakings referred to in orders 1, 2 and 3 above.

6.    The interlocutory application made by the Applicant in the letter dated 31 May 2019 that has been marked as Exhibit 1 be stood over for determination and hearing as the occasion requires at the trial.

7.    The costs of the interlocutory application referred to in order 6 be reserved.

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

REASONS FOR JUDGMENT

(REVISED FROM TRANSCRIPT)

LOGAN J:

1    At the request of the parties to the present taxation appeal, which is listed for trial later this month, a number of interlocutory applications have been returned today, some by the Commissioner of Taxation (Commissioner); others by not just the applicant, Anglo American Investments Pty Ltd (Anglo American), but also by a natural person associated with the applicant, namely Mr Vanda Gould.

2    In relation to one of the Commissioner’s applications, its fate is not controversial. By an amended application filed on 30 May 2019, the Commissioner seeks the following order:

2.    That the implied undertaking given to the Court by the Respondent in proceedings NSD 652-656 of 2011 be varied to the extent necessary to permit the Respondent to use in the present proceeding the following document produced under a notice to produce of which only part was tendered in evidence in NSD 652-656 of 2011:

1.2.2.1.    “Analyze Balance Sheet June 2004” for Hua Wang Bank Berhad.

3    The release of the Commissioner from his implied undertaking in respect of those documents is not opposed either by Anglo American Investments, Mr Gould personally or, for that matter, two other parties for whom Mr Hyde Page also appeared, namely Chemical Trustee Ltd and Leagou Pty Ltd. There will be an order accordingly, releasing the Commissioner from the implied undertaking in respect of that document.

4    The release of the Commissioner from implied undertakings in respect of other documents is controversial. The relevant principle is not in doubt. The root authority, at least in hindsight, is a judgment of Wilcox J in Springfield Nominees Pty Ltd v Bridgelands Securities Ltd (1992) 38 FCR 217 (Springfield Nominees). Suffice it to say, an applicant for release must demonstrate “special circumstances” which are not to be equated with “extraordinary circumstances”. Good reason must be shown why, contrary to the usual position, documents produced or information obtained in other proceedings should be permitted to be used by a party in the proceedings in respect of which it is sought to use documents produced or information obtained in the other proceedings.

5    In Springfield Nominees, Wilcox J, as later authorities bear out: see Liberty Funding Pty Ltd v Phoenix Capital Ltd (2005) 218 ALR 283 at [31], identified a number of considerations which, depending on the circumstances, are relevant to what is, when all is said and done, an exercise of a broad judicial discretion. Those were:

 •    the nature of the document;

 •    the circumstances under which the document came into existence;

•    the attitude of the author of the document and any prejudice the author may sustain;

•    whether the document pre-existed litigation or was created for that purpose and therefore expected to enter the public domain;

•     the nature of the information in the document (in particular whether it contains personal data or commercially sensitive information);

•     the circumstances in which the document came in to the hands of the applicant; and

•     most importantly of all, the likely contribution of the document to achieving justice in the other proceeding.

6    Another observation which is frequently cited in applications of this kind is that made by McMurdo P in Northbuild Construction Pty Ltd v Discovery Beach Project Pty Ltd (No 4) [2011] 1 Qd R 145 at 150, [16], wherein her Honour stated:

The important public policy consideration behind implied undertakings of this kind are about securing justice between the parties and maintaining public confidence in the judicial system. It follows then that courts will usually relieve a part from its implied undertaking where, after giving proper consideration to the public policy reasons behind it the circumstances of the case demonstrated this is plainly in the interests of justice, …

7    The documents in respect of which the Commissioner seeks release are as follows:

1.    In proceedings NSD 652-656 of 2011:

1.1    the affidavit of Vanda Russell Gould of 6 February 2012 (without the exhibit) in NSD653/2011; and

1.2    the affidavit of Vanda Russell Gould of 7 February 2012 (without the exhibit) in NSD652/2011, NSD654/2011 and NSD656/2011.

2.    In proceeding NSD 101 of 2007:

2.1    the affidavit of Vanda Russell Gould of 21 November 2007 and the following pages of exhibit VRG-1 thereto:

2.1.1    pp 144-153;

2.1.2    pp 212-269;

2.1.3    pp 283-331; and

2.1.4    pp 358-359.

8    It was candidly acknowledged in behalf of the Commissioner that neither in the text of the affidavits concerned, nor annexures in which there is particular interest in release, is there to be found a statement or a document which directly relates to or evidences a transaction which is at issue in the present taxation appeal. Instead, in one way or another, the statements and affidavits or documents in respect of which release is sought would go only to the credit of Mr Vanda Gould. In regard to the Commissioner’s appeal statement, as amended, discloses that the following of the basic elements of the Commissioners case:

15.    Many of the entities in question are controlled by Mr Vanda Gould, a Sydney accountant. The trustee of the Anglo American Trust is owned and controlled by Mr Vanda Gould. Mr Gould is the ultimate beneficial owner and controller of a number of Australian private companies, some of which act as trustees of discretionary trusts. The Commissioner contends that Mr Gould is also the ultimate beneficial owner and controller of a number of offshore entities. It is unclear to the Commissioner whether Mr Gould will be disputing that he is the ultimate beneficial owner and controller of the offshore entities. Should he seek to do so, the Commissioner reserves his right to contend that such is an abuse of process in light of the decision of Perram J in Hua Wang Bank Berhad v Commissioner of Taxation [2014] FCA 1392, which was affirmed by the Full Court of the Federal court in Bywater Investments Limited v Federal Commissioner of Taxation [2015] FCAFC 176; (2015) 236 FCR 520 and by the High Court in Bywater Investments Ltd v Federal Commissioner of Taxation [2016] HCA 45; 92016) 91 ALJR 59, and in light of the significant amount of litigation relating to the relevant offshore entities and other entities connected to them.

…

17.    The principal issue in this case is whether the Anglo American Trust has discharged its onus to prove that its actual net incomes are in truth less than the amounts assessed: s 14ZZO of the TAA; FCT v Dalco (1990) 168 CLR 614 at 623-625.

18.    Subject to this principal issue, the following issues arise in relation to the calculation of the net income of the Anglo American Trust:

    Onshore and offshore purported loans

18.1    Whether the claimed interest and facilities fees were deductible pursuant to s 8-1 of the ITAA97. This raises the following issues:

(1)    Whether there were loans, or loans in the amounts contended by the Applicant. This raises the following issues:

(a)    Whether the claimed amounts contended by the Applicant to be loans were advanced by the Applicant.

(b)    If amounts contended by the Applicant to be loans were advanced, whether there was an obligation on the Applicant to repay such amounts.

(c)    If the applicant provides evidence of a loan agreement, whether such evidence reflects the arrangement between the parties.

(2)    If there were loans, whether the claimed interest and facilities fees were incurred with respect to those loans. This raises two issues:

(a)    Whether the claimed interest and facilities fees were incurred.

(b)    If the claimed interest and facilities fees were incurred, whether they were interest and facilities fees.

(3)    If there were loans and there were interest and facilities fees incurred with respect to those loans, whether such interest and facilities fees were incurred with respect to loans that were applied in gaining or producing the assessable income of the Applicant or necessarily incurred in carrying on a business for the purpose of gaining or producing the assessable income of the Applicant, for the purposes of section 8-1 of the ITAA97.

Purported Management and Consultancy Fees

18.2    Whether the claimed purported management and consultancy fees were deductible pursuant to s 8-1 of the ITAA97. This raises the following issues:

(1)    Whether the claimed purported management and consultancy fees were incurred.

(2)    If amounts purporting to be management and consultancy fees were incurred, whether they were incurred with respect to management and consultancy services provided to the Applicant by the recipient or recipients of the fees.

(3)    If the Applicant provides evidence of a management services agreement, whether such evidence reflects the arrangement between the parties.

(4)    If amounts purporting to be management and consultancy fees were incurred with respect to management and consultancy services provided to the Applicant by the recipient or recipients of the fees, whether such services were obtained or utilised for the purpose of gaining or producing the assessable income of the Applicant or necessarily incurred in carrying on a business for the purpose of gaining or producing the assessable income of the Applicant for the purposes of s 8-1 of the ITAA97.

Purported Bad debts

18.3    Whether the purported bad debts are deductible pursuant to s 8-1 of the ITAA97. This raises the following issues:

   (1)    Whether there was a debt.

(2)    If the Applicant provides evidence of a debt, whether such evidence reflects the arrangement between the parties.

(3)    To the extent that there were debts, whether:

(a)    Those debts had arisen in gaining or producing the assessable income of the Applicant or in carrying on a business for the purpose of gaining or producing the assessable income of the Applicant and/or

(b)    Those debts were bad.

18.4    Whether the purported bad debts are deductible pursuant to s 25-25 of the ITAA97, which raises the same issues as section 8-1 and in addition:

(a)    Whether the Applicant was carrying on a business of lending money; and

(b)    Whether the debts were included in the assessable income of the Applicant in any year.

Sham

18.5    For the avoidance of doubt: to the extent that the Applicant brings evidence of agreements to support a conclusion that the interest expenses, facility fees, management or consulting fees and/or bad debts are what the Applicant purports them to be, then an issue will be whether those purported agreements are shams.

Part IVA

18.6    If the deductions are otherwise allowable, whether the Commissioner was entitled to determine pursuant to s 177F of Part IVA of the ITAA36 that those deductions were not allowable to the Applicant.

Prior year losses

18.7    If the Court finds that any deductions claimed for interest and borrowing costs and/or management and consultancy fees are not allowable, then the prior year losses claimed should be reduced accordingly. In addition, the Commissioner has disallowed losses of $1,433,418.79 carried forward from the 2000 income year, which were purportedly referable to “interest paid”.

Income reversed

18.8    If the Court finds that the deductions denied by the Commissioner should be allowable: whether amounts of management and consulting fee income and interest income reversed by the Commissioner are assessable to the Applicant pursuant to s 6-5 of the ITAA97.

Penalties

18.9    With respect to penalties:

(1)    Whether penalties were correctly imposed at a rate of 75% of the tax shortfall.

(2)    Whether penalties were correctly increased by 20% for all but the first year assessed.

(3).    Whether the Commissioner’s decision not to remit penalties can be overturned.

9    In the ordinary course, matters which go only as to credit may be relevant only as subjects for cross-examination, but there can be an exception: see s 102 and s 103 of the Evidence Act 1995 (Cth) (Evidence Act). As to that, Perram J made these observations in Hua Wang Bank Berhad v Commissioner of Taxation (No 8) (2013) 96 ATR 576:

Generally, evidence which goes only to the credit of a witness - which is the situation here - is inadmissible. This is the effect of s 102 of the Evidence Act 1995 (Cth) which states “credibility evidence about a witness is not admissible”. But the prohibition in s 102 is not absolute and is qualified by s 103:

103.    Exception: cross-examination as to credibility

(1)    The credibility rule does not apply to evidence adduced in cross-examination of a witness if the evidence could substantially affect the assessment of the credibility of the witness.

(2)    Without limiting the matters to which the court may have regard for the purposes of subsection (1), it is to have regard to:

(a)    whether the evidence tends to prove that the witness knowingly or recklessly made a false representation when the witness was under an obligation to tell the truth; and

(b)    the period that has elapsed since the acts or events to which the evidence relates were done or occurred.

10    The Commissioner’s desire is to use the documents in respect of which release is being sought in the cross-examination Mr Gould. The end to which that is proposed to be directed is in relation to the credibility of Mr Gould in relation to various transactions upon the efficacy of which Anglo American relies. The cross-examination and use of documents would also be directed to the question as to whether particular transactional documents in the taxation appeals which have, on their face, a particular evidentiary effect in relation to a transaction can truly be regarded as reliable. So another way of putting the purpose for which the release is sought is to underpin a challenge by the Commissioner to whether Anglo American has discharged its onus of proof.

11    It is certainly convenient to deal with whether to grant a release from implied understanding at this interlocutory stage rather than in the course of the trial so as to allow each party to prepare for trial accordingly. Anglo American, Mr Gould, Chemical Trustee Ltd and Leagou Pty Ltd between them are parties affected by the application for release. One submission (which was not a terribly attractive one) made on their behalf sought to explain away, from the bar table, a particular statement made in one of the affidavits by Mr Gould concerned as to an absence of control of Hua Wang Bank, but that is more a subject for Mr Gould himself to answer in cross-examination.

12    It was also put that particular affidavits were the subject of filing by court order, but that submission is one which conceals as much as it reveals. By that, I mean that none of the affidavits was the subject of compulsion; rather, they were filed voluntarily in response to a court order for the filing within a particular time of such affidavits as were proposed to be relied on by a particular party. Necessarily, that means, too, that each of the affidavits at the time of their making must have been made on the basis that the affidavits would constitute evidence-in-chief in the event that it became necessary to read and rely upon the same in the proceeding in which they were filed.

13    The making of an affidavit either under oath or by affirmation is a serious business. A person who makes an affidavit which having regard to other evidence, apparently is at odds with, or might give pause for thought about, that person’s credibility ought not, in my view, to be comforted by an assurance that the affidavit can never be used in other proceedings. It would be most unfortunate if our law went that far.

14    There was also an objection to release on the basis that it might lead to the Court being diverted by findings or being asked to make findings in respect of what were truly in the taxation appeal red herring issues. However, the witness’ answer in respect of particular issues will be final and there are only limited circumstances in which a tender under s 103 might be permitted. So I am not concerned about the “red herrings” objection as a basis for refusing release.

15    Another objection related to an asserted prejudice given that Mr Gould is presently the subject of a retrial proceeding in the District Court of New South Wales in respect of a charge of attempting to pervert the course of justice. A trial in that proceeding has been fixed to occur in October 2019. In that criminal proceeding it is alleged that Mr Gould, through his contact with one Peter Borgas, and through an alleged pattern of coaching Mr Borgas about his testimony in proceedings in this Court, attempted to pervert the course of justice by procuring testimony that Mr Borgas was the owner and controller of three particular taxpayer companies of which Mr Borgas was a director, as well as testimony that Mr Borgas was the owner of Cayman Island parent companies JA Investments and MH Investments.

16    It was put that Mr Gould, in respect of those proceedings, might be subject to the embarrassment of the derivation by the prosecution of a forensic advantage by his being required in cross-examination to answer particular questions based on the documents in respect of which release was sought by the Commissioner. These questions, and more specifically the answers, so the submission went, would lock him into a particular version of events from which he could not credibly depart at his criminal trial. So a prejudice of the kind referred to in Strickland (a pseudonym) v Commonwealth Director of Public Prosecutions (2018) 93 ALJR 1 (Strickland), and X7 v Australian Crime Commission (2013) 248 CLR 92 (X7) was set to be present.

17    The difficulty about that is that there is no element of compulsion attached to whether Mr Gould gives evidence in the present taxation appeal. Anglo American has filed evidence by affidavit from him, but he has done this voluntarily. Having so done, Anglo American’s ability to read and rely upon his affidavits is in the ordinary course dependant on notice being given – and it has – in respect of Mr Gould’s attending for the purpose of cross-examination.

18    In making those affidavits for the purposes of the present proceedings, Mr Gould must be taken to have been aware of the condition which would usually attend their use. More particularly, neither before nor after the Commissioner sought the release from the implied undertaking in respect of the subject documents has there been any application by Anglo American for the adjournment of the hearing of the taxation appeals pending the hearing and determination of the subject criminal proceedings. So the position in my view is quite different to that of compulsory examination before an examiner, pursuant to statute as considered in Strickland and X7.

19    Perhaps recognising this, application was made by Mr Gould for a certificate under s 128 of the Evidence Act, and also alternatively, for orders restricting publication of the subject documents and perhaps also other matters, pursuant to s 37F of the Federal Court of Australia Act 1976 (Cth) (Federal Court Act). I shall make reference further to that application shortly. For the present, it seems to me that given the affidavits were made by Mr Gould, voluntarily, and there being no application for an adjournment, whatever residual prejudice there may be could be addressed if cause be shown by the granting of a certificate under s 128 or the making of an appropriate order under s 37F.

20    Of course, part of the Commissioner’s cross-examination one might apprehend may also go to whether there were false statements made by Mr Gould in earlier affidavits. Further, a cross-examination may also go to whether knowingly he supervised or directed the creation of false documents. Again, though, whatever prejudice he might suffer, and for that matter whatever prejudice Anglo American might suffer in discharging its onus of proof, could be addressed by the granting of a certificate under s 128 of the Evidence Act.

21    It is not possible in my view neatly to compartmentalise this case from earlier proceedings. True it is that save for one, each of the companies directly involved in relevant transactions is Australian, but a common thread is Mr Gould. Further, one cannot ignore the involvement of Hua Wang Bank. The Commissioner, in my view, is entitled to put Anglo American to proof. Anglo American has chosen to seek to introduce evidence from Mr Gould, and Mr Gould has agreed to provide such evidence as his affidavits filed attest. The Commissioner is entitled in my view to challenge whether all is as it may seem on the face of transactional documents, and to do so by cross-examining Mr Gould. It would in my view be contrary to a public interest in relation to truthfulness in affidavits for the Commissioner to be limited by an inability to test Mr Gould’s credibility by an absence of release from the implied undertaking. I do not see that the present case is one where there is any likelihood of red herrings developing any more than in any case where a witness is tested as to credibility, by reference to other subjects which go to credibility rather than the very subject of the proceedings.

22    The same holds good in my view in relation to the Commissioner’s desire to use particular annexures to affidavits. As to these, the concern I have is that to release the Commissioner only in a limited way may work a disadvantage not just to the Commissioner but also to Anglo American in the sense that particular identified documents in the interlocutory applications may need to be understood in the overall context of the affidavit to which they are annexed. Thus, my disposition is not just to release the Commissioner in the limited way that is sought in respect of particular documents, but rather to release the Commissioner in respect of the overarching affidavit to which those documents are annexed. It seems to me that it would better serve the interests of justice that there be the unrestricted release. It is just not possible in advance to be certain that a limited release would do no injustice.

23    I turn then to the applications under s 128 and s 37F. The more argument progressed in respect of the s 37F application, the more it became apparent that the need for such an order would emerge with clarity only upon the asking of a particular question in cross-examination or upon the seeking by the Commissioner to tender a particular document in relation to which a release from implied undertaking had been granted. In these circumstances, it is, in my view, best to stand over that application for determination as occasion requires at trial.

24    As to s 128, it is settled that the section does not apply to the giving of the evidence-in-chief: Linda Song v Ming Ying (2010) 79 NSWLR 442. Section 128(3) imposes particular obligations on a Court. If the Court determines that there are reasonable grounds for an objection, those obligations involve a very particular requirement for an exchange between the judge constituting the Court and the witness concerned. I can, though, see some advantage in the giving of a ruling at this stage, having regard to what one might apprehend to be the bases of cross-examination of Mr Gould. These I have already canvassed. I do apprehend that there may be a tendency on the part of a body of cross-examination of the kind I have identified, not just to prove that Mr Gould may have committed the offence with which he is charged before the District Court in his October trial, but more generally in relation to the commission of an offence arising under an Australian law. By this, I mean that that an answer as to whether an earlier answer in an affidavit was knowingly false, may be one which tended to prove a particular offence of perjury.

25    Further, answers going to whether one has supervised the creation of knowingly false documents may tend to establish offences of forgery and uttering. I do not, by those observations, intend to limit the extent of offences which may tend to be proved in cross-examination, only to highlight that I have approached the subject of s 128 not just by reference to the pending charge in the District Court.

26    I have approached the question on the basis that it is inherently likely that Mr Gould will object to giving particular evidence on the basis of a tendency of the kind which I have identified. Because of that, it seems to me that it is best, rather than dismissing pre-emptively the application for a certificate under s 128, to regard it as one not without foundation, but to stand over the application until Mr Gould attends for cross-examination. At that time, the objection concerned can be confirmed and then, assuming it is as apprehended, I can then discharge the obligation found in s 128(3) and if need be, then, cause Mr Gould to be given a certificate under s 128.

27    I note that there was also, at one stage, an application by Anglo American to have a ruling in respect of an objection given in advance by the Commissioner to a proposed use of an affidavit filed in an earlier Family Court proceeding. I understand that the interest of Anglo American in seeking a ruling, at this stage, on the objection, is no longer pressed.

28    For these reasons, then, the Commissioner should be released, as requested, from his implied undertaking. Further, the applications in respect of orders under s 128 of the Evidence Act and s 37F of the Federal Court Act, should be stood over to the trial.

29    As to the costs, it was put on behalf of Anglo American that the application for release was one which could and ought to have been made in the course of the trial, such that the Commissioner should not have an order for costs in his favour on the basis that the Commissioner’s application had, viewed discretely as an interlocutory application, succeeded such that costs would ordinarily follow the event.

30    A difficulty about that submission, in my view, is that it was premised upon a proposition that was never put in advance to the Commissioner, namely, that his interlocutory application for release from implied undertakings was premature. The application was one which was contested and contested on the merits. There was no earlier submission made that it was premature. In these circumstances, my view is that it should be regarded as a discrete application in respect of which costs should follow the event. I also take into account that, whilst the application could have been made in the course of the trial, there are good forensic reasons not so to have done, in terms of preparation of the Commissioner’s case.

31    As to the s 128 and s 37F applications, I do no more than reserve costs.

32    Those applications are stood over for hearing and determination, as occasion requires, at trial.

Associate:    

Dated:    28 June 2019