Federal Court of Australia

Commissioner of Taxation v White (No 3) [2025] FCA 392

ORDERS

THE COURT ORDERS THAT:

1.    Message 5 on p 155 of exhibit NB-1, message 1 on p 156 of exhibit NB-1, and message 2 on p 165 of exhibit NB-1 are admitted into evidence.

2.    The messages referred to in order 1, together with message 4 on p 156 of exhibit NB-1, and message 5 on p 167 of exhibit NB-1, may be relied on for the purpose of seeking to prove that the respondent had a tendency to ask Mr Jeff Locke for access to the carrying forward tax losses of NWOD Properties and Advisory Pty Ltd for the benefit of the respondent’s clients in exchange for payment of a fee to that company.

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

REASONS FOR JUDGMENT

KENNETT J:

Introduction

1    In this proceeding the applicant (the Commissioner) seeks civil penalties against the respondent (Mr White) for alleged contraventions of s 290-50(1) of Schedule 1 to the Taxation Administration Act 1953 (Cth) (the TAA). Section 290-50(1) provides that an entity must not engage in conduct that results in that or another entity being the promoter of a tax exploitation scheme.

2    Mr White is an accountant and solicitor who, at all relevant times, was a tax partner in the firm EY Australia. Very briefly, the Commissioner alleges that Mr White promoted a “scheme” (or alternatively three more specific schemes) to clients in which:

(a)    the beneficial interest in a property held in a trust (Trust 1) would be transferred to another trust (Trust 2), with the same trustee, for a price that did not reflect the increase in its value while it was held in Trust 1;

(b)    the beneficiaries of Trust 1 would be replaced by NWOD Properties & Advisory Pty Ltd (NWOD) as the sole beneficiary and NWOD made presently entitled to all of the income of Trust 1;

(c)    for tax purposes, Trust 1 would be deemed to have received the market value of the property and therefore to have made a substantial capital gain;

(d)    however, that gain could be offset against substantial tax losses which NWOD had accumulated so that no tax would be payable on it; and

(e)    the taxpayers would pay NWOD a fee in exchange for this use of its accumulated tax losses.

3    NWOD was controlled by Mr Jeff Locke, who was a long standing friend of Mr White.

4    The scheme is alleged to have been promoted to Mr Novce (Nick) Grujoski and his accountant, Mr Michael Leontios, in connection with two developments being undertaken by entities associated with Mr Grujoski and referred to as the “Bonar Street Development” and the “Kings Court Development”, and to Mr Goran Sasic and Mrs Sarah Sasic and their accountants Mr Ross Gullo and Ms Isabel Leon in respect of land that the Sasics were purchasing at Menangle Park (the Menangle Park Property). These three instances of promotion correspond with the smaller schemes that the Commissioner pleads in the alternative.

5    The matter has proceeded on the basis that, in accordance with the principle against self-exposure to a penalty (penalty privilege), Mr White was not required to file a defence that complied with the ordinary rules relating to pleadings but may elect to do so (and to go into evidence) following the closing of the Commissioner’s case.

6    The trial commenced on 31 March 2025 and the Commissioner’s case was presented over the course of ten hearing days (with a short further hearing to deal with an objection to some evidence on 16 April 2025). Affidavits of 9 witnesses were read in the Commissioner’s substantive case and six of these witnesses were cross-examined.

7    On 11 April 2025, the Commissioner tendered five WhatsApp messages from Mr White to Mr Locke in which Mr White appeared to be proposing that his clients be permitted to use NWOD’s accumulated tax losses in exchange for a payment of a certain number of cents in the dollar. These formed part of an exhibit to the affidavit of Nikolai Babamovski, a digital forensics officer employed by the Australian Taxation Office.

(a)    Two of these messages appear to relate directly to transactions which are the subject of the Commissioner’s pleadings. These were not objected to. However, the Commissioner sought to place reliance on these messages as tendency evidence and this was resisted.

(b)    Three messages appear to concern unrelated transactions and their tender was objected to as irrelevant or pursuant to s 135 of the Evidence Act 1995 (Cth) (the Evidence Act). The Commissioner submitted that these messages were relevant as evidence of an arrangement between Mr White and Mr Locke and also sought to rely on these as tendency evidence.

8    I determined that I should admit all of the messages including for the purpose of seeking to prove that Mr White had a tendency to ask Mr Locke for access to the carried-forward tax losses of NWOD for the benefit of Mr White’s clients, in exchange for payment of a fee to that company. Reasons for this ruling were requested. What follows constitutes my reasons.

9    In the course of preparing these reasons it has come to my attention that my ruling, as recorded in the transcript, did not capture the use as tendency evidence of the two messages that were not otherwise objected to. It was intended to deal with that use and, I infer, was understood by the parties in that way. The form of orders appended to these reasons includes an amendment to deal with this point.

The WhatsApp messages

10    It is useful to set out the messages to which the argument related.

(a)    A message dated 11 April 2018 reads “Got another small one for approx $2.3m for $90K”? The timing of this message and the amount involved indicates that it relates to the arrangement being proposed to Mr and Mrs Sasic in connection with the Menangle Park Property.

(b)    A message dated 16 August 2019 reads “…You’ll remember Bonar – he’s back with his next development. $10m profit. Are we ok with 4 cents again?” The timing and the reference to “Bonar” indicate that this message relates to the King’s Court Development.

(c)    A message dated 6 March 2018 reads “…Have a client in need of $14m in tax losses. Known the client a little over 6yrs. Can I tell him 5cents?”.

(d)    A message dated 4 April 2018 reads “…Got a small one ready to go $128k for $3.2m (ie 4c), with another two to come from the same guy. Can you send me NWOD’s bank acct details again? I deleted it deliberately last time…”.

(e)    A message dated 17 May 2019 reads “…Got another one – approx 24.8m gain Would you consider $850k”.

Admissibility generally

11    Putting aside questions of tendency evidence for the moment, messages (a) and (b) in this list, which appear to relate directly to transactions that are pleaded as instances of the promotion of a scheme for the purposes of s 290-50(1) are obviously probative of the character of those transactions (in particular the purposes of persons entering into or carrying out the relevant scheme, which is an aspect of whether the scheme was a “tax exploitation scheme” as defined in s 290-65 of Schedule 1 to the TAA). The amounts offered by way of recompense to NWOD, when compared to the amounts clients were asked to pay, are also relevant to an issue relating to the receipt of consideration by Mr White.

12    Messages (c) to (e), at least if they are considered alongside the other messages, are relevant in that they are suggestive of an arrangement or understanding between Mr White and Mr Locke pursuant to which Mr White would from time to time ask for a client to be permitted to make use of NWOD’s accumulated tax losses in return for payment. If such an arrangement existed it would shed light on the purpose of the schemes and the receipt of consideration by NWOD and Mr White (including whether NWOD was being paid for the provision of some form of service or simply as a quid pro quo for access to its tax losses). The messages are relevant on this basis.

13    It is worth noting in this connection that the original statement of claim in this matter expressly pleaded the existence of an understanding between Mr White and Mr Locke whereby the former’s clients would be allowed to use NWOD’s tax losses to absorb income for a fee (at [158]) and referred to messages (a), (c), (d) and (e) in the succeeding paragraphs. On the application of Mr White, I struck out these paragraphs. I did so on the basis that they were (as the Commissioner submitted) references to parts of the evidence by which Mr White’s intention in relation to the schemes was sought to be established, but it was not appropriate for references to evidence to be included in a pleading: Commissioner of Taxation v White (No 2) [2024] FCA 1291 at [79]. My reasoning on this earlier occasion supports the view that evidence tending to show an understanding or arrangement between Mr White and Mr Locke is relevant on that basis.

14    As to s 135 of the Evidence Act, I do not consider that this evidence is unfairly prejudicial to Mr White (s 135(a)) or that it is likely to be misleading or confusing (s 135(b)). These bases for the exclusion of evidence appear to me to have little if any work to do in a trial before a judge sitting alone, since a judge normally will (and arguably must) trust their own ability to weigh evidence fairly and avoid being confused by it: see eg Smith v Aircraft Maintenance Services Australia (AMSA) Pty Ltd [2018] FCA 264 at [38]-[39] (Rangiah J); Re GHI [2005] NSWSC 466 at [8] (Campbell J).

Tendency

15    As noted earlier, the Commissioner sought to rely on all of the messages as evidence that Mr White had a tendency to ask Mr Locke for access to the carried-forward tax losses of NWOD for the benefit of Mr White’s clients, in exchange for payment of a fee to that company. Evidence of such a tendency would play a similar role in the case to evidence of an agreement or arrangement: it would tend to make it more likely that Mr White proposed arrangements of this character to his clients and that his purpose in doing so was to give effect to a scheme or schemes that would generate tax benefits in exchange for consideration.

16    Section 97 of the Evidence Act sets out the “tendency rule” as follows.

(1)    Evidence of the character, reputation or conduct of a person, or a tendency that a person has or had, is not admissible to prove that a person has or had a tendency (whether because of the person’s character or otherwise) to act in a particular way, or to have a particular state of mind unless:

(a)    the party seeking to adduce the evidence gave reasonable notice in writing to each other party of the party’s intention to adduce the evidence; and

(b)    the court thinks that the evidence will, either by itself or having regard to other evidence adduced or to be adduced by the party seeking to adduce the evidence, have significant probative value.

(2)    Paragraph (1)(a) does not apply if:

(a)    the evidence is adduced in accordance with any directions made by the court under section 100; or

(b)    the evidence is adduced to explain or contradict tendency evidence adduced by another party.

Section 97(1)(a): notice

17    In relation to the form of a notice for the purposes of s 97(1)(a), reg 7(2) of the Evidence Regulations 2018 (Cth) provides as follows.

(2)    A notice given under subsection 97(1) of the Act (relating to the tendency rule) must state:

(a)    the substance of the evidence of the kind referred to in that subsection that the party giving the notice intends to adduce; and

(b)    if that evidence consists of, or includes, evidence of the conduct of a person, particulars of:

(i)    the date, time, place and circumstances at or in which the conduct occurred; and

(ii)    the names of each person who saw, heard or otherwise perceived the conduct; and

(iii)    in a civil proceeding—the address of each person so named;

so far as they are known to the notifying party.

18    A written notice seeking to comply with s 97(1)(a) was served on the first day of the trial. It was in the following terms.

NOTICE OF INTENTION TO RELY ON TENDENCY EVIDENCE

1.    The Applicant (Commissioner) gives notice that he intends to adduce the following evidence of the conduct of the Respondent (Mr White) for the purpose of proving that Mr White had a tendency to ask Jeff Locke for access to the carried-forward tax losses of NWOD Projects & Advisory Pty Ltd (NWOD) for the benefit of Mr White’s clients, in exchange for payment of a fee to NWOD.

2.    On 6 March 2018, Mr White sent the following message to Mr Locke using the WhatsApp messaging application (WhatsApp):

Hi Jeff

Have a client in need of $14m in tax losses. Known the client a little over 6yrs. Can I tell him 5 cents?

3.    On 4 April 2018, Mr White sent the following message to Mr Locke using WhatsApp:

Hi Jeff

Got a small one ready to go $128k for $3.2m (ie 4c), with another two to come from the same guy.

Can you send me NWOD’s bank acct details again? I deleted it deliberately last time.

Rgds, Peter

4.        On 11 April 2018, Mr White sent the following message to Mr Locke using WhatsApp:

Got another small one for approx $2.3m for $90K?

5.     On 17 May 2019, Mr White sent the following message to Mr Locke using WhatsApp:

Hi Jeff

Got another one – approx 24.8m gain

Would you consider $850k

6.    On 16 August 2019, Mr White sent the following message to Mr Locke using WhatsApp:

Hi Jeff

You’ll remember Bonar – he’s back with his next development. $10m profit. Are we ok with 4 cents again?

7.    The last known address of Mr Locke provided to the Commissioner is [a specified address in Paddington, New South Wales].

(Footnotes omitted; emphasis in original.)

19    I am satisfied that the notice included the information required by s 7(2)(a) and (b)(i). As to s 7(2)(b)(ii), there is no basis on which the Commissioner could be expected to know whether anybody other than Mr White and Mr Locke saw, heard or otherwise perceived the sending and receiving of the messages. As to s 7(2)(b)(iii), the notice includes the last address of Mr Locke known to the Commissioner. In the light of the tailpiece of s 7(2)(b), I am satisfied that the requirements of the provision were complied with.

20    The timing of the notice is clearly less than ideal. However, the following points need to be borne in mind.

(a)    As noted earlier, the WhatsApp messages were expressly referred to in the statement of claim. The relevant paragraphs were struck out, but not as a result of any ruling that made the messages irrelevant. Mr White and his legal representatives have therefore been aware since the statement of claim was served that the Commissioner would be seeking to rely on the messages, although the proposed reliance on them as tendency evidence was not then articulated.

(b)    The trial was to run for (at least) two weeks and was being conducted on the basis that Mr White would not be required to make any election as to filing a defence or adducing evidence until after the Commissioner’s case had closed. No time for the making of that election had been fixed. There was therefore ample time to consider whether responsive evidence should be adduced.

(c)    The messages are private communications between Mr White and Mr Locke. There is no indication that any of the Commissioner’s witnesses saw them or was aware of them. There is no substantial prospect that the cross-examination of any of those witnesses would have been approached differently if counsel had had earlier notice of the Commissioner’s intention to rely on the messages as tendency evidence.

21    In these circumstances, the notice that was given was “reasonable”.

Section 97(1)(b): significant probative value

22    In IMM v The Queen [2016] HCA 14; 257 CLR 300 at [44] (IMM) French CJ, Kiefel, Bell and Keane JJ observed that, in assessing the extent to which evidence could rationally affect the assessment of the probability of the existence of a fact in issue, the evidence is to be taken at its highest. Their Honours continued at [46]:

Cross on Evidence suggests that a “significant” probative value is a probative value which is “important” or “of consequence”. The significance of the probative value of the tendency evidence under s 97(1)(b) must depend on the nature of the facts in issue to which the evidence is relevant and the significance or importance which that evidence may have in establishing those facts. So understood, the evidence must be influential in the context of fact-finding.

(Footnote omitted.)

23    These points were discussed further in Hughes v The Queen [2017] HCA 20; 263 CLR 338. Kiefel CJ, Bell, Keane and Edelman JJ observed at [16]:

The probative value of evidence is the extent to which the evidence could rationally affect the assessment of the probability of the existence of a fact in issue. Tendency evidence will have significant probative value if it could rationally affect the assessment of the probability of the existence of a fact in issue to a significant extent. The trier of fact reasons from satisfaction that a person has a tendency to have a particular state of mind, or to act in a particular way, to the likelihood that the person had the particular state of mind, or acted in the particular way, on the occasion in issue.

(Footnotes omitted.)

24    Their Honours made the following points in an important passage at [40]-[42].

The test posed by s 97(1)(b) is as stated in Ford: “the disputed evidence should make more likely, to a significant extent, the facts that make up the elements of the offence charged”. The only qualification to this is that it is not necessary that the disputed evidence has this effect by itself. It is sufficient if the disputed evidence together with other evidence makes significantly more likely any facts making up the elements of the offence charged …

The assessment of whether evidence has significant probative value in relation to each count involves consideration of two interrelated but separate matters. The first matter is the extent to which the evidence supports the tendency. The second matter is the extent to which the tendency makes more likely the facts making up the charged offence. Where the question is not one of the identity of a known offender but is instead a question concerning whether the offence was committed, it is important to consider both matters. By seeing that there are two matters involved it is easier to appreciate the dangers in focusing on single labels such as “underlying unity”, “pattern of conduct” or “modus operandi”. In summary, there is likely to be a high degree of probative value where (i) the evidence, by itself or together with other evidence, strongly supports proof of a tendency, and (ii) the tendency strongly supports the proof of a fact that makes up the offence charged.

Unlike the common law which preceded s 97(1)(b), the statutory words do not permit a restrictive approach to whether probative value is significant. However, the open-textured nature of an enquiry into whether “the court thinks” that the probative value of the evidence is “significant” means that it is inevitable that reasonable minds might reach different conclusions. This means that in marginal cases it might be difficult to know whether an appellate court might take a different view of the significance of the tendency evidence from a trial judge … In any event, the open-textured, evaluative task remains one for the court to undertake by application of the same well-known principles of logic and human experience as are used in an assessment of whether evidence is relevant.

(Footnotes omitted; emphasis in original.)

25    One point that emerges from their Honour’s observations is that statements concerning the admission of tendency evidence in cases preceding the commencement of the Evidence Act must be treated with caution. The words of s 97(1)(b) are to be given effect according to their terms and not read as an encapsulation of a common law principle. Speaking of a criminal case, their Honours described the probative value of tendency evidence as “high” in circumstances where the evidence “strongly” supported the existence of a tendency and the tendency “strongly” supported the proof of a relevant fact. No disagreement was expressed or suggested with the formulation in IMM at [46], set out above, of what “significant” probative value entails.

26    Taken at its highest, the evidence in the WhatsApp messages shows that asking Mr Locke for access to NWOD’s accumulated tax losses for his clients and offering him payment in return was something that Mr White did on several occasions. It is relatively cogent evidence of a tendency to engage in such behaviour. If he had such a tendency, that makes it appreciably more likely that his dominant purpose in proposing the arrangements in issue here was to minimise the clients’ tax (in return for consideration). The evidence is thus “of consequence” or “influential” (to adopt language used in IMM), and therefore has “significant” probative value.

Conclusion on tendency evidence

27    For these reasons I came to the view that the WhatsApp messages should be admitted and should be allowed to be relied upon as tendency evidence.

Associate:

Dated:    24 April 2025