Beazley v Steinhardt

Federal Court of Australia|1999-04-14|Before: Deane J, Brennan CJ, Dowsett J

The Application 1 This is an application by Barry Albert Beazley and Doreen Beazley to review the decision of Wayne Michael Steinhardt, a police officer, to seize, pursuant to a search warrant, certain documents in respect of which they claim legal professional privilege. The respondent alleges that the documents were made in furtherance of a criminal or illegal purpose, namely to defraud the Commonwealth of Australia and that privilege does not attach thereto. Alternatively, the appellants seek appropriate declarations as to their claim, relying on s 39B(1A)(c) of the Judiciary Act 1903 (Cth). Numerous observations made by the majority of the High Court in Commissioner of Australian Federal Police v Propend Finance Pty Ltd (1997) 188 CLR 501 suggest that proceedings for declaratory relief are more appropriate than are proceedings for judicial review. As I understand it, the parties agree that I should dispose of the matter pursuant to s 39B(1A)(c).

Legal Professional Privilege 2 Legal professional privilege protects from disclosure confidential communications made solely for the purpose of contemplated or pending litigation or for obtaining or giving legal advice. See Grant v Downs (1976) 135 CLR 674. However, in Carter v Northmore Hale Davy and Leake (1995) 183 CLR 121, Deane J said at 134-135:- "… the privilege does not extend to communications or documents made or brought into existence for the purpose of, or as part of the process of, crime, fraud, abuse of statutory powers or, in some circumstances, defeating or frustrating the administration of justice by the Court. For present purposes, a critical characteristic of those 'exceptions' is that they are exclusions from the reach of legal professional privilege rather than exceptions to the scope of the protection which it affords. They are directed to circumstances in which the privilege does not attach with the result that the particular communication or document is not protected by legal professional privilege at all. They are not directed to circumstances in which, notwithstanding that legal professional privilege does attach, the Courts will override the privilege and order that the privilege document be produced for inspection or that the privilege communication be disclosed." 3 In Propend, the High Court considered the onus assumed by a party who disputes a claim of privilege upon the basis of ulterior purpose and the admissibility of hearsay evidence in discharge of that onus. The facts of the case were relevantly similar to those of the present matter. At 514, Brennan CJ said (referring to Attorney-General (NT) v Kearney (1985) 158 CLR 500 at 514-5, where his Honour held that it was necessary to show reasonable grounds for believing that the relevant communication was made for some illegal or improper purpose):- "I state the criterion as 'reasonable grounds for believing' because (a) the test is objective and (b) it is not necessary to prove the ulterior purpose but there has to be something 'to give colour to the charge', a 'prima facie case' that the communication is made for an ulterior purpose." Brennan CJ concluded (at 513-4) that this question was to be resolved upon the basis of admissible evidence, excluding hearsay, because his Honour considered that the issue for determination was the substantive claim of privilege. 4 Dawson J said at 521-2:- "The cases make it plain that those seeking to exclude legal professional privilege do not have to prove that the communication in question was in furtherance of a crime or fraud … . In requiring less than proof of an allegation of crime or fraud to displace legal professional privilege, the law has made a compromise in the public interest between the competing principles which require, on the one hand, the availability of all relevant evidence and, on the other, the protection of professional confidence. It has done so in favour of the availability of all relevant evidence by placing the threshold for the displacement of the privilege a considerable distance short of proof of the allegation of crime or fraud. No doubt this is so because it is in the public interest that the law should not countenance even the possibility of legal professional privilege being raised as a cloak to hide criminal or fraudulent activity. Proof - that is to say, admissible evidence of the existence of the crime or fraud - is not required … ." 5 At 523-4 his Honour characterized the proceedings at first instance as a review of the decision of the police officer's decision to seize documents. It followed that they should be determined upon the material on which the officer acted. This might properly include matters not admissible in evidence. Toohey J (at 532-4) appears to have taken a similar, if not the same, view. This approach differed from that taken by Brennan CJ who, as I have said, considered that the issue for determination was the claim of privilege. Gaudron, McHugh and Gummow JJ took approaches similar to that of Brennan CJ. Kirby J considered that hearsay evidence was admissible, a conclusion based upon his Honour's characterization of the proceedings as interlocutory. The present question is the same as that considered in Propend, and it arises in the same way. The view of the majority in Propend dictates that I determine it upon admissible evidence, excluding hearsay. However, for reasons which appear hereafter, that is not a significant issue for present purposes.

The Test 6 To justify this attack upon the claim of privilege, the respondent must show:- (a) An ulterior purpose or process; and (b) That each document was created in the course of, or for that purpose or process.

Ulterior Purpose 7 It is helpful firstly to identify the alleged ulterior purpose or purposes. Section 29D of the Crimes Act 1914 (Cth) states:- "A person who defrauds the Commonwealth or a public authority under the Commonwealth is guilty of an indictable offence." 8 The respondent asserts that there is sufficient evidence to infer that the documents in question may have been brought into existence for a purpose which involved a breach or contemplated breach of that section in connection with the applicants' liability for income tax and that of a company, Force 10 Holdings Pty Ltd, which company is associated with the applicants.

The Evidence 9 In support of his allegations, the respondent relies primarily upon those documents obtained during the execution of the warrant in respect of which legal professional privilege has not been claimed. Resolution of this matter will depend largely upon the inferences available from such documents and from the fact that they were found in the applicants' possession. It is reasonable to assume that the applicants, or one of them, had knowledge of the contents of such documents and that they relate, in a meaningful way, to the applicants' affairs. By "a meaningful way", I mean that it is reasonable to infer that they are substantially accurate rather than fictitious. Alternatively, one might infer that they reflect views which the applicants or their advisers hold, or have held as to their business affairs or which they have promulgated. This matter is discussed in "Phipson on Evidence" (14th ed.) at paras 26-10 and 26-11 and in "Cross on Evidence" (Australian ed.) at para 33510 et seq. I am presently determining whether there is a basis for the allegation of improper purpose. I consider that documents relating to the affairs of the applicants and found in their possession are admissible for that purpose even if their admissibility in other proceedings may be doubtful. It is for this reason that I have concluded that the question of the admissibility of hearsay is not relevant in connection with these documents. There is other hearsay evidence concerning the absence of tax returns and as to payment of withholding tax, but I do not understand the applicants to object to that evidence. 10 The respondent's affidavit exhibits numerous documents, all but one of which were seized at the applicants' home. The first document, Ex "WMS 1" is a copy of a facsimile message from David Outhred, of a company called Pacific International Trust Company Ltd ("PITCO"), to Doreen Beazley, dated 7 November 1996. It includes a table which shows interest received by several "entities" identified as "MHI", "SEA", "MKC" and "WRI". In hand-writing above those headings are written the words "Dad", "Mum", "Mark" and "Linda" respectively. Mark and Linda Beazley are the applicants' children. It is argued that this document implies that there are four "entities" acting on behalf of the applicants and their two children. 11 Exhibit, "WMS 2" is a letter from Barry Beazley to a lawyer, Tony Lines in New Zealand, stating that the former has lived continuously in Australia for the past twenty years, that neither he nor his wife has generated any income in Australia and that they have not lodged income tax returns in either New Zealand or Australia since 1975. The respondent swears that the Australian Taxation Office confirms that no such income tax returns have been lodged in this country. This fact is not in dispute. 12 Exhibit "WMS 3" is a copy of a fax transmission to Tony Lines from Thomas M Bayer of PITCO, dated 15 January 1998. In par (e) it is said that Seven Seas Incorporated "represents" the interests of Doreen Beazley and "Magnetic Inc" (probably Magnetic Holdings Inc) "represents" the interests of Barry Beazley. It is submitted that Magnetic is the "entity" described as MHI in Ex "WMS 1" and Seven Seas is that described as SEA. 13 Exhibit "WMS 4" is a letter dated 25 August 1989 addressed to the Manager of PITCO. It is a consent by the applicants and their children to interest aggregated on deposits belonging to four "entities" including the companies, Magnetic and Seven Seas, being divided equally amongst those entities, notwithstanding that the beneficial interests in the deposits are held in different proportions. The other two "entities" are Worldwide Relations Inc and Marksland Inc . It is suggested that they, with Magnetic and Seven Seas, are the four "entities" referred to in Ex "WMS 1" and that Worldwide and Marksland represent Linda and Mark in the way that Magnetic is said to represent Mr Beazley and Seven Seas, Mrs Beazley. 14 Exhibit "WMS 5" is dated 28 October 1996 and appears to be a further consent by the applicants and their children in relation to interest earned on deposits held by the same four "entities". Its effect is to reverse the earlier direction as to distribution of interest. 15 Exhibit "WMS 6" is a letter dated 1 November 1996, addressed to the manager of PITCO, signed by all four members of the Beazley family. It is a direction regarding borrowings. 16 Exhibit "WMS 7" is a letter from Thomas Bayer to the female applicant, apparently relating to Ex "WMS 5". 17 Exhibits "WMS 8" and "WMS 9" are letters from PITCO to the female applicant and Tony Lines respectively. They disclose that the former is a beneficiary of the Blue Water Trust, which owns Seven Seas Incorporated and detail how assets are held in the Blue Water Trust. 18 Exhibit "WMS 10" is a letter from Fidelity Life Insurance Company Ltd to Mrs Beazley, enclosing a statement as to the financial position of the Blue Water Trust as at 31 December 1990. 19 Exhibit "WMS 11" seems to be a statement of the financial position of the Rover Trust as at 31 December 1990. Exhibit "WMS 3", at paragraph (e), shows that the Rover Trust owns Magnetic (Holdings?) Inc. 20 Exhibit "WMS 12" contains a number of documents concerning the disbursement of funds. There are also credit card statements from the Bank of Hawaii addressed to the female applicant and to the male applicant and Linda Beazley jointly, all at the same address in Port Vila, Vanuatu. In particular, there is what appears to be a list of expenses incurred in March (presumably 1997, as the document is dated 19 April 1997). It also requests the release of funds from Magnetic and Seven Seas. 21 Exhibit "WMS 13" is an unsigned letter addressed to Barry Beazley and dated 25 September 1997. The last two paragraphs state:- "Questions about how your livelihood is paid for may be difficult to answer and how your travelling expenses are met. Even relatively small infringements could result in a major disruption to one's life and financial situation if challenged. "If you wish to respond I suggest you do so by mail (to a named person) at (an address in Hong Kong). I don't think a telephone conversation from Australia would be appropriate." 22 Exhibit "WMS 14" is a spreadsheet in connection with Force 10 Holdings Pty Ltd, prepared by Mr Ian Spence, a financial investigator employed by the Australian Taxation Office. It is based on data obtained from taxation returns seized from the offices of Mattners Accountants pursuant to a different search warrant. It relates to the period from 1987 to 1997 and shows that in the tax years 1987 to 1993, Force 10 claimed as "expenses" amounts described as "Interest - Overseas". The sums are very large, ranging from $77,311 in 1992 to $1,535,862 in 1993. Mr Spence has made inquiries of the Australian Taxation Office and has determined that Force 10 has not paid interest withholding tax since August 1990. As I understand it, there is no dispute that Force 10 is associated in some way with either or both of the applicants. 23 Exhibit "WMS 15" is a memorandum dated 8 August 1994 from Burmeister & Co, Chartered Accountants, to the male applicant. It refers to loans to Force 10 and suggests that withholding tax should have been deducted from interest paid by Force 10 on overseas loans in Australian dollars. The second paragraph states, in respect of a loan in New Zealand dollars:- "This may mean that technically Force 10 may have been obliged to pay 10 per cent withholding tax thereon each year. Presumably it has not done so. It would be preferable for the interest portion of the loan to be repaid (and withholding tax paid) as soon as possible so as to minimize Force 10's exposure to penalties on unpaid withholding tax." The final paragraph contains the following sentence:- "Hopefully then no one will have cause to investigate the history of these loans. From memory I think Tony Lines may have provided PITCO with an opinion on withholding tax some four years or so ago. You would need to liaise with TMB on that." It would seem that "TMB" refers to Thomas Montgomery Bayer, the director of PITCO. 24 The final exhibit, "WMS 16", contains copies of a loan facility agreement and a "nominee agreement". The loan facility agreement is undated, save for the year "1991". The nominee agreement is also undated. An attached appendix is dated 1 August 1996.

Allegedly Available Inferences - Applicants' Tax 25 It is common ground that both applicants have been resident in Australia for in excess of twenty years but have never filed income tax returns in this country. The respondent says that the applicants sold a successful business in New Zealand in the 1970s and placed the proceeds in companies registered in Vanuatu. I do not understand the applicants to dispute these allegations. There is some evidence that whilst they have been resident in Australia, they have derived substantial sums of money from overseas sources and/or that they are able to control such sums. There is also some evidence from which it might be inferred that overseas companies have met outgoings on behalf of the applicants and their children. See in particular Ex "WMS 12" to the respondent's affidavit. 26 The respondent suggests that the documents annexed to his affidavit reveal a structure designed to defraud the Commonwealth by concealing income. One feature of the structure is that the applicants incur expenses using credit cards. Companies in Vanuatu then repay the resulting debts. It is alleged that in so doing, the companies use funds which otherwise would have been available to the applicants as income. As the applicants are resident in Australia, such income would be "assessable income" pursuant to s 25 of the Income Tax Assessment Act 1936 (Cth). The respondent submits that a further available inference is that each of the four "entities" pays the individual expenses of one of the applicants or one of their children. As I understand it, the applicants concede that the material demonstrates that outgoings incurred by the female applicant have been met by payments from an overseas entity. It seems that Mr Beazley concedes that a similar position may apply in his case. It is said that he "slowly recalls" a loan owed to him by an overseas entity. The applicants submit that the documents reveal only part of a scheme involving a series of loans made to corporations not resident in Australia, secured by debentures. The companies meet outgoings incurred by the applicants by way of repayment of principal, not accrued interest. Thus, it is said, the applicants receive no income for tax purposes.

Allegedly Available Inferences - Force 10's Tax 27 Subsection 221YL(2A) of the Income Tax Assessment Act requires that a debtor who is obliged to pay interest to a person outside of Australia deduct therefrom an amount calculated in accordance with the regulations, which deduction is payable to the Commonwealth. It is said that Force 10 has failed to comply with this obligation. 28 Exhibit "WMS 14" shows that Force 10 has either paid or become liable to pay substantial amounts of interest to an overseas recipient in each of the years 1987, 1988, 1989, 1990, 1991, 1992 and 1993. Exhibit "WMS 15", dated 8 August 1994, refers to an Australian dollar loan said to have been made through "FCBT as nominee". As I have said, the letter discusses the possible liability of Force 10 to withholding tax in Australia. There is also reference to another loan in New Zealand dollars made "direct by FCBT to Force 10". It is said that FCBT has always charged interest and that "this may mean that technically Force 10 may have been obliged to pay 10 per cent withholding tax thereon each year.". 29 Exhibit "WMS 16" is a loan facility agreement between Harrison Gordon Waterhouse, Graham Hugh Pierce, Mark Daniel Beazley and Linda Jane Beazley as lenders and El Barridor Holdings Pty Ltd as borrower. An appendix to the agreement strongly suggests that the said lenders are trustees of the F C Beazley Trust. It was assumed in argument that El Barridor Holdings and Force 10 are the same companies. 30 The applicants concede that there is evidence of liability for interest in the years 1987 to 1993, but point out that Ex "WMS 16" (which bears the year "1991") cannot relate to interest incurred in earlier years. It is further said that a resident company need only deduct and account for withholding tax if it pays interest to a non-resident, not if it merely incurs an obligation to do so. Finally, it is pointed out that the loan in New Zealand dollars referred to in Ex "WMS 15" cannot be the loan referred to in Ex "WMS 16", which is in Australian dollars.

Meaning of s 29D 31 The meaning of the word "defrauds" is not necessarily as clear as one would wish. It appears to have been accepted, however, that dishonest attempts to avoid income tax by understating income or to avoid duty chargeable on goods constitute such misconduct. See R v Nguyen & Phan [1997] 1 VR 386 at 389; R v Tu Van Tran (1997) 96 A CrimR 53 at p 55 and Taylor v the Queen (1997) 6 TasR 310 at 315. The intention must be dishonest according to the standards of reasonable and honest people. Further, the offender must know, at the time, that what he or she is doing would be considered dishonest by those standards. See R v Ghosh [1982] 1 QB 1053 at 1064. It is not necessary to show that any person has suffered loss in order to demonstrate that the accused has defrauded the Commonwealth. Even a threat of financial prejudice is sufficient. See Barker v R (1994) 127ALR 280 at 307. An act done with a dishonest intention to deprive the Commonwealth of any right or to prejudice same would constitute an offence. 32 For present purposes, the respondent alleges that the material demonstrates that the applicants had a dishonest intention to avoid paying tax and that they took steps to achieve this result. It is not so easy to identify those steps or to identify the precise rights in question. This is because the relevant conduct appears to have occurred over many years and the relevant rights of the Commonwealth are numerous, namely to receive tax from each of the applicants for each relevant tax year and to receive appropriate payments from Force 10 in respect of the years 1987 to 1993. The respondent has made no attempt to identify individual actions by either applicant, allegedly performed with the relevant intention, or to relate any such act to avoided tax liability in a particular year. He has rather alleged that a structure was set up many years ago with the intent of avoiding the payment of tax and has been utilized and maintained for that purpose ever since. The relevant acts may be the establishment of the structure and its maintenance and the concealment of income which has been facilitated by that structure. In the case of Force 10, a further difficulty is that it seems that the company disclosed overseas payments of interest. I infer this from the fact that Ex "WMS 14" was prepared from tax returns. It may therefore be difficult to show that any step was taken to deprive the Commonwealth of withholding tax. In those circumstances, it may be better to concentrate upon the tax position of the applicants. 33 I consider that the evidence discloses the following available inferences:- (a) That the applicants, while resident in Australia, are, or have been, owed large amounts by companies resident outside of Australia; (b) That they have dealt with those funds in a way which suggests that they retain some interest in them; (c) That in the usual course, such substantial loans would yield some return to the lenders; (d) That such return, in the hands of Australian residents, would be assessable income; (e) That expenses incurred by both applicants have been met by overseas companies to which such loans were made;. (f) That the applicants have not filed tax returns while resident in Australia over a period of about twenty years. (g) That the applicants and those advising them have demonstrated an unusually high level of concern about concealing details of their financial affairs; 34 These inferences are, in my view, sufficient to ground a conclusion that the applicants may have concealed income for the purpose of avoiding the payment of tax. Other explanations are possible, including that they have been living off their capital. However the mere availability of other explanations does not exclude the suggested conclusion. It is also possible to infer that the applicants established a structure outside of Australia designed to assist them to conceal the true character of funds available to them, in order to avoid tax. It may be that the structure achieves that purpose in an entirely lawful way, but the concern for secrecy disclosed in some documents arguably suggests a guilty mind, or at least an awareness that the structure may be a mere facade, capable of successful attack by the revenue authorities. I am satisfied that there is a prima facie case of ulterior purpose.

Inspection of the Subject Documents 35 The parties were somewhat equivocal about whether I might refer to the documents in dispute for the purpose of determining the claim of ulterior purpose. Gaudron J apparently considered such reference to be appropriate. See Propend at 547. In Sankey v Whitlam (1978) 142 CLR 1, the High Court inspected the relevant documents in determining a claim of public interest immunity, and it is difficult to see why a different approach ought be taken in a case such as this. However a court would probably not take that step unless the party asserting an ulterior purpose had gone some way towards establishing that assertion. In most cases, that would probably mean that the onus of establishing such purpose had been discharged. Nevertheless, it would still be necessary to look at the documents to determine whether they were produced in the course of pursuing the relevant ulterior purpose. My perusal of the documents has indicated to me that at least some probably were not. As this aspect was not addressed at the hearing, it is appropriate to allow the applicants to make further submissions and to hear the respondent in reply. I certify that the preceding thirty-five (35) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Dowsett.

Solicitor for the Applicant: Primrose Couper Cronin Rudkin

Solicitor for the Respondent: National Crime Authority

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