The meeting of 30 June 2014 and the Bernguard Resolution
15 In order to understand the reasons for the Tribunal's lack of persuasion that the Bernguard Resolution was made, it is necessary to understand the context. On 27 October 2015, assessments were issued for the income year ended 30 June 2014 to Christina, Natalie, Alisha and Nicole. On 20 December 2015, they each lodged objections to their respective assessments. The objections were in a substantively similar form. The principal ground of objection was that "the Taxpayer [had] disclaimed her interest in the Trust for the Relevant Period". There was no suggestion that the Trust income had been distributed pursuant to an exercise of the Trustee's discretion such that the children could not take in default. The Bernguard Resolution was not mentioned.
16 The first mention of a purported decision of the Trustee to appoint the Trust income in the 2014 year appeared in the children's joint SFIC dated 6 April 2017. In that document, the applicants asserted:
37 On 30 June 2014, the Trustee held a meeting, in its capacity as trustee for the Trust, and distributed any and all net income of the Trust for the year ended 30 June 2014 to Bernguard Developments Pty Ltd as trustee for the Bernguard Trust ("Bernguard").
…
39 On or about 31 October 2016, the Trustee certified the distributions referred to at paragraphs 34 to 37 above pursuant to the power contained at clause 3.4 of the Trust Deed.
17 The reference in paragraph 39 of the SFIC to the Trustee certifying the distribution is a reference to cl 3.4 of the Trust Deed which provided that "a certificate by the Trustee as to any determination [made under cl 3.4] shall be prima facie evidence that the determination was made as and when set out in the certificate".
18 In his SFIC, the Commissioner stated:
2 The respondent relies on s 14ZZK of the Taxation Administration Act 1953 (TAA 1953) and save for any facts expressly agreed or admitted in writing, puts the applicants to proof of all facts upon which they seek to rely to establish that the assessments the subject of this proceeding are excessive.
…
5 Unless expressly admitted, the respondent puts the applicants to proof of all facts set out in the applicants' Statement of Facts, Issues and Contentions (SFIC) dated 6 April 2017.
…
29 Pursuant to s 14ZZK of the TAA the burden of proving that each of the assessments is excessive and what the correct assessment should have been rests with the applicant.
30 The respondent contends that each of the assessments issued to the applicants for the 2014 income year is not excessive.
…
34 Each applicant is limited in her application to the grounds stated in her taxation objection unless the Tribunal otherwise orders under s 14ZZK(a) of the TAA 1953. As no applicant has made an application to extend her grounds of objection, the contentions made by paragraphs 37, 38, 39 and 42 of the applicants' SFIC, not being matters raised in each applicant's objection, cannot now be raised.
19 The significance of paragraph 34 of the Commissioner's SFIC is as follows. The Commissioner did not contend in his SFIC that the Bernguard Resolution had not been made. This was because the applicants were not entitled to raise, without leave, the contention that such a resolution had been made and the Commissioner's position was that such leave should not be granted. Leave was required because the existence of the Bernguard Resolution had not been a ground of objection - see: s 14ZZK(a) of the TAA 1953
20 At the hearing before the Tribunal, the Commissioner withdrew his objection to the applicants raising the contention. However, the Commissioner did not thereby accept that the Bernguard Resolution had in fact been made. As explained in more detail below, the context was such that it was obvious that the Commissioner's position was that there had been no meeting on 30 June 2014 and that the resolution had not in fact been made.
21 Mr Caratti's evidence as to the 30 June 2014 meeting and the Bernguard Resolution was limited. His evidence was filed in the reviews concerning the children and took the form of a witness statement attaching an affidavit which he had sworn on 31 October 2016 in proceedings commenced that day in the Supreme Court of Western Australia. In that affidavit he stated at [21]:
On 30 June 2014, the Trustee held a meeting, in its capacity as trustee for the Whitby Trust, and distributed any and all net income of the Whitby Trust for the year ended 30 June 2011 to the seventh defendant Bernguard Developments Pty Ltd as trustee for the Bernguard Trust …
22 Whilst this paragraph states a conclusion that a meeting was held by the Trustee on 30 June 2014 at which the Bernguard Resolution was made, Mr Caratti did not give evidence as to who was present at the asserted meeting or what was said at the meeting. Annexed to his affidavit were different versions of the "minutes of meeting". One version recorded that the meeting was held at 12 pm and lasted 10 minutes. Another version recorded that the meeting was held at 2 pm and lasted 15 minutes. The minutes did not indicate whether they were minutes of a meeting of a directors' or general meeting. The minutes did not record who was present at the meeting. Mr Caratti's signature appears on both minutes, as Chairperson. The constitution of the Trustee, Whitby Land Company Pty Ltd, provided that directors' meetings required a quorum of two: r 66. So too did general meetings of members: r 39(4).
23 Christina was also a director of Whitby Land. She did not give evidence that she, or anyone, attended the asserted meeting. Although Mr Caratti was not directly cross-examined about the meeting or directly challenged about it occurring, he gave evidence in cross-examination that the meeting did not take place on 30 June 2014 but would have taken place before that day.
24 Another document annexed to Mr Caratti's affidavit was a certificate of the Trustee purportedly issued pursuant to cl 3.4 of the Trust Deed. It was dated 31 October 2016. As mentioned, this was the day that the Whitby Trust commenced proceedings in the Supreme Court of Western Australia and very shortly before the Whitby Trust, Christina, Alisha, Natalie and Nicole lodged their applications for review in the Tribunal (11 November 2016). The certificate stated:
Pursuant to clause 3.4 of the Whitby Trust Deed dated 27 July 2005, the Trustee certifies that on 30 June 2014 100% of the net income of the Trust for the year ended 30 June 2014 was paid, applied or otherwise dealt with irrevocably for the benefit of the following Beneficiary:
• The trustee of the Bernguard Trust.
25 The applicants' attack on the Tribunal's lack of satisfaction as to the occurrence of the meeting and the making of the Bernguard Resolution involved two principal components. First, it was contended that Mr Caratti ought to have been cross-examined about the meeting on 30 June 2014 if it was to be put that the meeting did not occur. This was asserted to have been required by the rule in Browne v Dunn (1893) 6 R 67. Secondly, it was contended that the Tribunal failed to apply s 1305 of the Corporations Act 2001 (Cth) (Corporations Act) so as to accept the minutes of the meeting as prima facie evidence of the matters stated in them.
26 The rule in Browne v Dunn can be seen as a rule of procedural fairness to a party: Raben Footwear Pty Ltd v Polygram Records Inc (1997) 75 FCR 88 at 101 (Tamberlin J). It may be inappropriate, for example, to submit that a witness's version of events should not be accepted if the witness has not been challenged on his or her version of events in cross-examination and there has been no earlier notice that the version of events is disputed. Where, however, it is clear from the course of proceedings that the version of events is challenged, and recognising that each case turns on its facts, strict compliance with the rule is not always necessary.
27 In the circumstances of this case, procedural fairness to the applicants did not require Mr Caratti to be cross-examined about the asserted meeting on 30 June 2014. The Commissioner had put the applicants to proof of all of the matters asserted in their joint SFIC. The applicants had first asserted the existence of the resolution in their joint SFIC rather than during the course of objections. It must have been obvious to the applicants that the Commissioner did not accept that the 30 June 2014 meeting occurred or that the Bernguard Resolution had been made. The Commissioner challenged equivalent meetings and resolutions in the context of the 2011 to 2013 years. Whilst these meetings and resolutions related to the Trustee's proceedings rather than the applicants' proceedings, all of the proceedings were heard together with evidence in once being evidence in the other, and the Trustee and the applicants were represented by the same solicitors. The applicants put on evidence from Mr Caratti in their case.
28 The rule in Browne v Dunn can also be seen as one of fairness to a witness. Fairness to Mr Caratti (as opposed to procedural fairness to the applicants) did not require that Mr Caratti be specifically challenged about the asserted meeting before submitting that the meeting had not occurred. Mr Caratti was a director of Whitby Land and must have known, for the reasons given above, that the Commissioner did not accept that the meeting had occurred. To the extent that a finding that the meeting did not occur reflected on Mr Caratti's credibility, Mr Caratti was on notice that his credibility was in issue. As the Tribunal acknowledged at [37], the Commissioner directly challenged Mr Caratti's credibility, having submitted that Mr Caratti was "a person who [was] willing to fabricate documents if it suits his purposes … forge signatures … instruct solicitors to make false assertions … give false names … [and] give false addresses to the police". It was repeatedly put to Mr Caratti that he had engaged in dishonest conduct, including that he had altered company documents and forged other peoples' signatures and committed criminal offences involving dishonesty. Mr Caratti admitted some of these matters.
29 In any event, notwithstanding the evidence which had been given, the Tribunal did not make an adverse credibility finding. It was submitted for the applicants that there was a tension between, on the one hand, the Tribunal's statement that it could resolve the issues without resort to credit findings and, on the other, its conclusion that the meeting of 30 June 2014 did not occur. There is, however, no real tension. The Tribunal stated at [37], [38] and [103]:
[37] The Commissioner sought to discredit Mr Caratti by reference to other occasions when he had either been found to have acted or admitted he had acted dishonestly and pressed the Tribunal not to accept Mr Caratti's evidence.
[38] Noting that just because a person may have been less than honest on past occasions does not mean that they are always less than honest, in the present matter it is not necessary to make a finding as to whether Mr Caratti is to be believed or not. This matter can be resolved without recourse to those sorts of conclusions on the basis of the evidence led and the absence of evidence led that is called for in the circumstances of the present applications.
[103] … In light of the evidence led, in the setting in which it was led, the Tribunal cannot conclude that there were meetings purporting to distribute the income of the Whitby Trust for any of the 2001 through 2014 Years.
30 The Tribunal's observation at [38], read with its conclusion at [103], indicates that the Tribunal did not have an actual persuasion that the meeting occurred because the evidence which was led was insufficient when assessed together with the absence of evidence which was in the capacity of the applicants to lead but which was not led. The Tribunal was left without an actual persuasion that the meeting had occurred and its lack of persuasion existed without the necessity to make a positive adverse credibility finding.
31 As mentioned, the applicants' second line of attack was that the Tribunal failed to apply s 1305 of the Corporations Act to the minutes of meeting of 30 June 2014. Before the Tribunal, the applicants had relied upon s 251A of the Corporations Act. Reliance on s 251A was abandoned in oral submissions on this appeal. Although it does not appear that s 1305 of the Corporations Act was relied upon by the applicants before the Tribunal, the Tribunal stated that it took into account "presumptions afforded to documents signed by chairs of meetings", which was probably a reference to s 251A and may also have been a reference to s 1305: T[103].
32 Section 1305 of the Corporations Act provides:
Admissibility of books in evidence
(1) A book kept by a body corporate under a requirement of this Act is admissible in evidence in any proceeding and is prima facie evidence of any matter stated or recorded in the book.
(2) A document purporting to be a book kept by a body corporate is, unless the contrary is proved, taken to be a book kept as mentioned in subsection (1).
33 The word "books" is defined by s 9 of the Corporations Act to include "financial records", which in turn is defined by s 9 in the following way:
financial records includes:
(a) invoices, receipts, orders for the payment of money, bills of exchange, cheques, promissory notes and vouchers; and
(b) documents of prime entry; and
(c) working papers and other documents needed to explain:
(i) the methods by which financial statements are made up; and
(ii) adjustments to be made in preparing financial statements.
34 Section 286 of the Corporations Act sets out what financial records a company must keep (note excluded):
(1) A company, registered scheme or disclosing entity must keep written financial records that:
(a) correctly record and explain its transactions and financial position and performance; and
(b) would enable true and fair financial statements to be prepared and audited.
The obligation to keep financial records of transactions extends to transactions undertaken as trustee.
35 Assuming that the minutes of meeting fell within the scope of s 1305 of the Corporations Act, the minutes constitute "prima facie evidence" of any matter stated in them. To state the obvious, the minutes are not evidence of matters not stated in them. For example, the minutes of meeting are not prima facie evidence that a quorum was present or that the resolution was validly passed. (Other provisions, such as s 1322(2) of the Corporations Act, might cure irregularities, but that is a different point.)
36 Section 1305 was addressed in some detail by Austin J in Australian Securities and Investments Commission v Rich [2009] NSWSC 1229; 236 FLR 1 at [395] to [398]:
[395] The defendants referred to the definition of the words "prima facie" in the Macquarie Dictionary (2nd revised ed), as meaning "at first appearance; at first view, before investigation". They compared that with the definition of "prima facie evidence" as "evidence sufficient to establish a fact, or to raise a presumption of fact, unless rebutted". They submitted that the former meaning is the one intended in s 1305, and that the words "prima facie" are not used in the sense that, absent some satisfactory contrary evidence on the part of the defendants, the matters said to be recorded in the books have been conclusively proved.
[396] In my view the true meaning of the words "prima facie" lies between the alternatives identified in the defendants' submission. The statement in s 1305(1) that the company's books are prima facie evidence of a matter stated or recorded in them does more than merely to convey that they are the starting point to proof or a "first view". All other things being equal, the fact that a matter is stated in a book kept by a company is sufficient to prove that matter in civil proceedings. That does not reverse the onus of proof in the proceedings in any general way, but it means that the tendering of the book is evidence of the matter recorded in it, and that matter will be thereby proven unless other evidence convinces the tribunal of fact to the contrary, on the balance of probabilities.
[397] Section 1305(1) does not make the company's books conclusive evidence of the matters they contain, in the sense of requiring the tribunal of fact to make a finding in terms of the content of the books in the absence of proof to the contrary by the opposing party. The books are prima facie evidence of the matters stated in them, but the weight of that evidence is to be measured in accordance with the common sense of the tribunal of fact (Malek HM, Auburn J, Bagshaw R, Phipson on Evidence (16th ed, Sweet and Maxwell, 2005), at [7-17]).
[398] In my view it would be open to the tribunal of fact to find that the prima facie evidence constituted by the company's books is outweighed by other evidence (including evidence adduced by the proponent of the books, even if the opponent does not give evidence about them); or by some quality or characteristic of the books themselves, even if there is no other evidence. In particular, if a book has the appearance of a draft or (being electronic) has a file title indicating that it is a draft, that alone may be sufficient (all other things being equal) for the tribunal of fact to reject the book as evidence of the matter stated in it, notwithstanding that the book is prima facie evidence of that matter; a fortiori if, in addition to having the appearance of a draft, the book contains inconsistencies or ambiguities or the matter otherwise demands explanation.
37 Justice Austin referred to the explanatory memorandum to the Companies Bill 1981 (Cth), which introduced the provision, and said:
[400] Therefore s 1305(1) allows a company's books to be introduced into evidence as they are, without any "authenticating" evidence by any witness, and allows the books to be relied upon to prove transactions recorded in them. But it does not elevate the matters contained in the books to a plane of probative value that requires the court to disregard the context in which the matters relied on appear in the tendered document. If, for example, there is some doubt as to whether a particular transaction is "recorded" in a book because of some uncertainty about the status of the document or ambiguity about what it contains, s 1305(1) does not overcome the problem.
38 The Tribunal referred to Mr Caratti's failure to give evidence of who attended the purported meetings and the absence of any evidence from Christina (a director of Whitby Land) as to meetings of the Trustee: [98] and [99]. The Tribunal stated at [101] and [102]:
[101] Against a backdrop of the Commissioner not being satisfied that meetings had occurred as alleged, this absence of evidence is telling. The objection decision [concerning the Whitby Trust] plainly put the Applicant on notice that the Commissioner did not accept that the documents bearing the date of 30 June in each year had the effect they purported to have, and one of the reasons the Commissioner had formed the view that he had was that the documents did not detail who was in attendance at the meetings. In his objection decision, the Commissioner said:
The Minutes dated 30 June 2011, 30 June 2012, 30 June 2013, and 5 August 2014 do not record the names of the attendees or proxies present. Therefore we are unable to confirm whether a quorum was present. As such we were unable to verily the validity of the resolutions provided solely on the basis of the recorded Minutes.
[102] In his SFIC, the Commissioner said, among other things:
The applicant contends in its SFIC that the assessments are excessive as the applicant "validly distributed the net distributable income of the Trust for each of the relevant income years". The respondent puts the applicant to proof of the facts supporting those contentions. In particular, to the extent that the applicant contends that the purported distributions constituted a valid determination to pay, apply or set aside all or part of the net income of the Trust within the meaning of clause 3.1 of the Trust Deed, the applicant is put to proof on that issue.
39 As noted earlier, the reason the Commissioner had not made the equivalent statements in his objection decision concerning the applicants and the 30 June 2014 minutes was that the existence of those minutes had not been asserted at the time of the applicants' objections. The existence of the 30 June 2014 minutes was only first asserted, in relation to the assessments which were the subject of these proceedings, after the proceedings had been commenced in the Tribunal. That fact was a circumstance capable of affecting the prima facie position established by s 1305, assuming s 1305 applied.
40 Having referred to the matters it referred to from [98] to [102], the Tribunal stated at [103]:
In these circumstances, any presumptions afforded to documents signed by chairs of meetings do not assist. In light of the evidence led, in the setting in which it was led, the Tribunal cannot conclude that there were meetings purporting to distribute the income of the Whitby Trust for any of the 2001 through 2014 Years.
41 The circumstances referred to by the Tribunal amply justified its lack of persuasion that a meeting had in fact occurred. It is doubtful that the Tribunal was bound to apply s 1305 of the Corporations Act particularly in circumstances where the issue was not directly raised - cf: s 33(1)(c) of the AAT Act. That question does not need to be decided because, if the Tribunal did not apply s 1305, it applied reasoning which was not shown to have any different effect.
42 It might also be observed that, although the Tribunal did not refer to it, the fact that there were two different versions of the 30 June 2014 minutes also gives rise to significant doubt of a kind mentioned in Rich at [398]. Both sets of minutes could not have been correct, prima facie or otherwise.
43 The applicants have not established that the Tribunal erred in not being satisfied that the 30 June 2014 meeting occurred or that the Bernguard Resolution was in fact made.