Commissioner of Taxation v Rowntree

15 The reality, however, was that this was a chimerical "investment" for the investors, and that they had been led to invest in a scheme involving, as I found, tax evasion. Each of the four schemes generated substantial profits for, and was calculated to enrich, the promoters and their associated entities. The total of the 15 per cent deposits that the investors paid over the four years was about $8.6 million. The investors were left with nothing to show for their "investments" except the responsibility of paying the tax due after the reversal of the deductions that they were led by the promoters, falsely, to believe they could claim. 16 The investors were induced by the schemes and the promoter with whom they dealt to believe that they could claim deductions for their investment in order to reduce the amount of tax for which they would otherwise have been liable up to, in the case of individuals, such as Dr Robson, the maximum marginal rate, and in the case of companies, the 30 per cent rate of tax. And, in the case of a corporate investor, the net return for investing the deposit was worth about twice the value of that first instalment for the ERPA. Once the schemes unravelled, the investors had no value at all for the deposit payments they had made and encountered the difficulty of having to rearrange their affairs to pay the amounts due on their amended assessments in circumstances involving, among other consequences, considerable frustration. 17 For example, in Dr Robson's case, he was justifiably upset that he had been subjected to a tax audit because of his being led to believe that it was legitimate to invest in the 2009 ERPAs. After consulting with David Bonnell, Michelle Dodd told Dr Robson on 1 July 2010, in answer to his request for information about his 2009 ERPA investment in light of the ATO's queries concerning it, that "the investment vendors are considering their ato defence strategy and have requested both our patience" (see [103] of the principal reasons). Thereafter, Dr Rowntree and Mr Bonnell continued to convey messages to reassure Dr Robson that the deduction he had claimed for his investment was appropriate until he appreciated that was not so. Then, Dr Rowntree and Mr Bonnell promised to refund him his $40,000 investment for the 2009 ERPAs, and eventually did so after some disingenuous posturing by Dr Rowntree that the 2009 scheme had "not been at all marketed from us on the basis of tax - not a little - nil". Dr Rowntree repaid Dr Robson from his own bank account, albeit only after giving Dr Robson, through Mr Bonnell, a further apparent explanation that was hardly frank or open (see [98]-[104], [124]-[133] of the principal reasons). 18 Similarly, in October 2014, after the ATO issued the three Cargo and Logistics Management (CALM) companies, controlled by Peter Haralambidis and John Ceh, with amended assessments, both Mr Donkin and Mr Manietta effectively left Mr Haralambidis and Mr Ceh to their own devices in dealing with the unwelcome need for their companies to pay the amounts due on those amended assessments for the 2011 and 2012 tax years. Mr Donkin told Mr Haralambidis that there was a test case to challenge the ATO's view (namely Academy 106 ATR 184), but neither promoter gave his clients any notice of the decision, or subsequent assistance or advice after the unfavourable outcome of that case (see [219]-[228] of the principal reasons). 19 Neither Mr Donkin nor Mr Manietta led any evidence about his personal circumstances.

Dr Rowntree's evidence 20 Dr Rowntree gave affidavit evidence and was cross-examined. That was the only evidence that he has given in this proceeding. In re-examination, Dr Rowntree gave a "broad brush estimate" of how the approximate total of $6 million that Voluntary Credits received from the four schemes was distributed, saying (T38): So the way the project was set up ... a third was paid to the referrers and a third was paid in option fees to acquire access to credits, so … there would be around about two [million] left, which we would pay expenses out of, …maybe, it would have been in the tune of maybe half a million, even. So I would imagine it's a number between a million and a million and a half, and David [Bonnell] and I would have taken, or David's entities, or whoever, would have taken about half of that. 21 I do not accept that Dr Rowntree or the promoters paid any money "in option fees to acquire access to credits" because no other or independent evidence of any such payments or acquisitions, beyond Dr Rowntree's assertion in the above answers, was tendered during the liability or penalty hearing (see [56] in the principal reasons). And, of course, Voluntary Credits never acquired one carbon credit or issued one delivery notice to an investor (see [306] of the principal reasons). 22 Dr Rowntree said that he now works approximately 20 hours a week as a solicitor and self-managed superannuation fund auditor for the firm Rubicon Lawyers Pty Limited. Dr Rowntree said that he had become bankrupt, he thought, in about 2019. He currently needs to make contributions totalling about $55,000 for child support and to his trustee in bankruptcy from his gross annual remuneration of about $180,000, or about $125,000 after tax, leaving him a net amount in his hand of about $70,000. He also has use of a 2012 car provided by his employer. Dr Rowntree said that he thought that Rubicon was ultimately controlled by one of his brothers, as the director of a trustee company holding the beneficial interest in the firm. 23 He said "I only have insignificant assets". His evidence was vague as to his current means, and what happened with the proceeds of the schemes, particularly the $4.1 million that he actually received. 24 He did not explain his full financial circumstances candidly, as emerged in cross-examination. The copy of Rubicon's financial statements that he annexed to his affidavit revealed that it paid $50,000 for superannuation in each of the years ended 30 June 2019 and 2020. In cross-examination, he revealed that "about half", or $25,000, was paid into a superannuation fund for his benefit and that that was the only superannuation fund in which he had an interest. He gave this evidence: MS DEARDS: And what's the balance of the account? - - Don't know. A couple of hundred - about a quarter - 250, 200, 250. Around about that. HIS HONOUR: That's the one that's maintained for you into which you paid the $25,000 in both of those years? - - Yes. Yes. It could - could be more. I mean, it's - I don't think it's any more than the 300s. It's in that - that ballpark. (emphasis added) 25 He claimed not to know when he would become entitled to his superannuation, and that the reason he had not mentioned it in his affidavit was that it was not a current asset of his because he had not lost it in his bankruptcy. 26 Dr Rowntree asserted that, from amounts that he had received after the sales of the ERPAs: significant sums were reinvested into carbon emissions projects and paid to entities that had incurred expenses in relation to the projects. 27 However, he gave no more detail than that on what he claimed to have "reinvested" or paid towards those projects. He said that 50 per cent of the net benefit of what he received was transferred "as directed by my business partner", namely, Mr Bonnell. By at least 8 October 2010, Mr Bonnell was an undischarged bankrupt. On that day, Mr Bonnell wrote an email to Mr Rowntree headed "Our Arrangement" that stated: Hi Bruce Just following on from Jim's conference I wanted to make it clear what our arrangement is with regards to payment of rent to Service Ave Investments and the use of the Black Card. Under this arrangement you are making loans to me that we have agreed with be repaid when my bankruptcy is over. You will keep track of these loans once I am out of bankruptcy will calculate how much I owe you together with interest at the rate at which your bank is charging you interest. Obviously you are comfortable with this because you are in control of the Bonnell Family Trust which will have more than sufficient funds to repay you. (emphasis added) 28 Dr Rowntree said that his payments to Mr Bonnell had been made primarily by the latter's use of a supplementary American Express card, linked to Dr Rowntree's card, and also by payments to a company associated with Mr Bonnell and to Mr Bonnell's solicitors, as Mr Bonnell had directed. 29 When confronted during cross-examination with the email from Mr Bonnell of 8 October 2010, Dr Rowntree denied that it reflected any arrangement that he had made with Mr Bonnell to repay him at any stage. He said that he had not retained any of the repatriated money and that "I was a director of the trustee company of… his family trust… I would have thought anything I was doing with the funds would have been… in that capacity". Dr Rowntree said that Mr Bonnell had no legal entitlement to receive or use that money but "everything we did was half each". Dr Rowntree said that he did not know if Mr Bonnell made known the payments to the latter's trustee in bankruptcy. 30 It is difficult to know what to make of Mr Bonnell's email of 8 October 2010 to Dr Rowntree. Dr Rowntree said that the email "certainly wasn't my understanding". He denied that Mr Bonnell would repay him as the email suggested. He said: "My understanding of the arrangement was I was putting money where directed as trustee of [Mr Bonnell's] family trust". 31 Dr Rowntree did not give any intelligible reason why an undischarged bankrupt, as Dr Rowntree said Mr Bonnell was at the time, would be writing an email of that nature if it did not reflect their arrangements. This is particularly so where Mr Bonnell was using a supplementary credit card on Dr Rowntree's account to extract what Dr Rowntree accepted was about half of the amount of $4.1 million that Voluntary Credits had repatriated directly to Dr Rowntree in Australia. Whatever alternate arrangement there was between Mr Bonnell and Dr Rowntree when these payments occurred is missing from the evidence. 32 Dr Rowntree claimed that, ultimately, he had not retained any of the proceeds from any source associated with the sale of the ERPAs. He said that, following an audit of his affairs by the Commissioner in 2013, and a subsequent appeal, he was assessed to income tax in each of the years of income ended 30 June 2009, 2010, 2011 and 2012, on undeclared sums received through the repatriation of funds from Voluntary Credits to him, being the $4.1 million. The net amount of tax under his amended assessments for the four years, before penalties, amounted to about $2.04 million. Following an appeal to the Administrative Appeals Tribunal, the penalties were reduced to 50 per cent of the tax assessed in respect of each of those years of income. 33 Dr Rowntree also said that because the Commissioner had obtained virtually all his documents under the statutory notices in 2013, he was now not able to access them. However, he did not seek access to assist the preparation of his evidence, by asking the Commissioner to make any of his, or his associates', documents available to him. Other than what had already been produced in preparation for the liability hearing or this hearing, he did not ask the Commissioner for any documents that might be relevant. I infer that was because he knew that such documents would not assist his case: Jones v Dunkel (1959) 101 CLR 298. 34 He said that he had contacted Mr Bonnell to ask him if he had any records from that period, but he had replied that he did not. Dr Rowntree said that he was not aware of how he could gain access to relevant records held by any person "other than the Commissioner". 35 I do not feel confident to draw any inferences based on Dr Rowntree's evidence unless it is corroborated by independent evidence: Jones v Dunkel 101 CLR 298. It is not necessary to draw a more adverse inference such as that which might, in other circumstances, have been available in accordance with what Heydon, Crennan, and Bell JJ said in Kuhl v Zurich Financial Services Pty Ltd (2011) 243 CLR 361 at 384-385 [62]-[64].

The Commissioner's submissions 36 The Commissioner argued that the principal purpose of a civil penalty is to achieve both specific and general deterrence, and that this is a case requiring a significant penalty for each of the promoters. He contended that penalties totalling about of $8,894,000, or 73 per cent of the maximum, ought be ordered against Dr Rowntree in respect of the four years, about $201,000, or 18 per cent of the maximum, ought be ordered against Mr Donkin in respect of the two years and about $1,384,000, or 60 per cent of the maximum, ought be ordered against Mr Manietta in respect of the four years, having regard to their respective the degrees of culpability as proved and the need for deterrence. 37 He contended, and Dr Rowntree accepted, that Edmonds J had identified principles relevant to the fixing penalties under s 290-50 in Commissioner of Taxation (Cth) v Arnold (No 2) (2015) 324 ALR 59 for general deterrence at 98-99 [164]-[170] and specific deterrence at 99-100 [171]-[176], 104-105 [200]-[204], in addition to Thawley J's consideration of general deterrence in Commissioner of Taxation v Bogiatto (No 2) [2021] FCA 98 at [16]-[22]. The Commissioner relied on what Pagone J had identified in Commissioner of Taxation v Ludekens (No 2) (2016) 103 ATR 532 at 547 [26] and 575 [75], as the legislative policy requiring the imposition, at least, in the ordinary case, of a penalty of no less than the actual consideration that each promoter received. 38 The Commissioner submitted that Dr Rowntree had received a very large amount (over $4.1 million) of the total money paid by investors into each of the schemes that, ultimately, had come directly back to him from Malaysia. He contended that each of the investors had been exposed to a significant detriment through having initially arranged their affairs, in good faith, based on what their professional advisers had told them was a worthwhile investment offering a very attractive tax deduction and the subsequent loss of their "investment", coupled with the need to pay the resulting outstanding tax liabilities in the relevant scheme year or years. 39 The Commissioner argued that Dr Rowntree's conduct in failing to make any expression of remorse in his evidence, or give any other recognition of the significant adverse impact his conduct had caused the investors in the ERPAs to whom he had marketed or had caused them to be marketed, could be taken into account as an aggravating factor that warranted an increased penalty. 40 The Commissioner contended that, had the schemes not been uncovered by the ATO's investigations, deductions exceeding $58 million would have been allowed in respect of over 200 investors. 41 The Commissioner submitted, and Dr Rowntree accepted, that each of the four schemes was a mass marketed tax scheme and was distinguishable from the more bespoke schemes which Thawley J dealt with in Bogiatto (No 2) [2021] FCA 98 and those in Ludekens (No 2) (2016) 103 ATR 532, where Pagone J found significant the fact that the promoters there had received no financial or other benefit from the schemes. 42 The Commissioner also contended that Dr Rowntree had promoted investment in the schemes by informing investors that they could deduct the whole of the purchase price of the ERPAs from their assessable income in the relevant years, while at the same time denying that the schemes had been marketed on that basis. Dr Rowntree made that claim despite the objective reality of his use of marketing, such as his self-described "marketing letter" that he sent Stephen Elias on 26 May 2019, and his engagement of advertising agencies to create campaigns (see [24], [77]-[79], [88], [118]-[123] of the principal reasons). The Commissioner argued, in this respect, that Dr Rowntree knew that his self-serving assertion to Ms Dodd, in the email that I set out at [128] of the principal reasons concerning Dr Robson's complaint, was false to his knowledge. 43 The Commissioner submitted that Dr Rowntree's disingenuous use of the opinion of Ian Young of counsel, dated 26 May 2009, was a feature of his marketing of the scheme to the classes of investors that he and his associates had targeted. The Commissioner argued that, by using that opinion in marketing letters that Dr Rowntree and Mr Manietta sent to clients, they asserted that it was in the interests of those clients that they represent their businesses to their customers and the public generally as "clean and green". Moreover, the Commissioner noted that Dr Rowntree was aware that this was a misuse of the opinion for the class of clients to whom he and Mr Manietta marketed the schemes based on the 29 January 2010 email that Dr Rowntree sent to Mr Bonnell, that said (see [85] of the principal reasons): Never ever let Ian young [sic] near a client. These clients/ friends are teeing me up meetings with a number of people and Ian points out all the risks and tells them that the commisioner [sic] would probably disallow the deductions and he wouldn't care about the politics in the same way as he did for psi. Clients are now wondering what the f[…] they have signed up for - and they haven't paid yet. (emphasis added) 44 The Commissioner argued that Dr Rowntree's behaviour in respect of Dr Robson was significant. That was because, once the ATO began investigating his investment, Dr Robson negotiated with it to withdraw his claimed deduction for the full price of the 2009 ERPAs he had claimed and paid the tax due under the consequent amended assessment. Dr Rowntree begrudgingly refunded the full price that Dr Robson had paid for the 2009 ERPAs. However, Dr Robson did not claim the further expenditure on the 2010 ERPAs of $42,000 that he had made in that scheme year, which Dr Rowntree did not refund. 45 The Commissioner relied on my findings that Dr Rowntree and his associates had acted in that dealing with Dr Robson to keep the ATO in the dark because they feared that the 2009 scheme would be exposed for what it was, and each of the three later ones were, namely a scheme involving tax evasion (see [365] of the principal reasons). 46 The Commissioner also submitted that Dr Rowntree's impropriety increased over time, particularly having regard to his continuing use of Mr Young's opinion in circumstances where clients, to whom the schemes were being marketed, were highly unlikely to be able to get a benefit from acquiring ERPAs for the very reasons that Dr Rowntree recorded Mr Young as saying to clients in his 29 January 2010 email to Mr Bonnell. The Commissioner argued that this knowledge compounded Dr Rowntree's impropriety. The Commissioner relied on my findings that, by October 2010, Dr Rowntree knew that the ATO was investigating deductions, at least, under the 2009 scheme, and that while he and Mr Bonnell began developing an "ATO defence strategy", they continued to market the schemes in the 2011 and 2012 years. As the Commissioner said, the marketing only came to an end after the issue of the ATO taxpayer alert on 25 September 2012, to which I referred at [211] of the principal reasons. The Commissioner relied on Dr Rowntree's cavalier attitude to the legal efficacy of the documents used to establish the schemes for the sale of the ERPAs to taxpayers (see [72]-[75] of the principal reasons). 47 Mr Manietta caused his substantial commissions to be deducted from the investors' payments to Ti Amo before he remitted the net deposits paid under ERPAs to Voluntary Credits or other associates of Dr Rowntree. The Commissioner argued that Mr Manietta progressively made consistent and increasing contributions to the marketing and encouragement of the schemes in each of the tax years and, as I observed, his marketing activities were prodigious (at [276] of my principal reasons).

Dr Rowntree's submissions 48 The Commissioner and Dr Rowntree both pointed out that, in NW Frozen Foods Pty Ltd v Austraian Consumer and Competition Commission (1996) 71 FCR 285 at 293, Burchett and Kiefel JJ, with whom Carr J agreed, made clear that any penalty imposed should not be so high as to be oppressive, and that it is necessary to arrive at a proper balance between deterrence and severity. 49 Dr Rowntree argued that I should fix a penalty commensurate with his ability to pay it, having regard to his present circumstances and earning capacity. When pressed, his solicitor suggested that the penalty should be no more than a maximum of $500,000 so that it would be one which, over time, it would be possible for Dr Rowntree to pay, and thereby not be put in the position where the penalty was crushing or of a penal nature. Dr Rowntree argued that the level of penalties which the Commissioner sought against him, totalling almost $8.9 million in respect of the four years, would be crushing. He contended that, because such a penalty would burden him after his administration in bankruptcy came to an end, and would have the effect that, in the future, he would never be able to pay any meaningful amount of that penalty, he would not be able to acquire any substantial assets. He submitted that a balance needed to be set between deterrence and his personal circumstances. 50 He argued he would be doubly penalised unless I took into account the fact that he had been assessed to income tax on the over $4 million that he repatriated from Malaysia, which resulted in his taxable income being increased by about $2 million, and that the Commissioner had made him bankrupt over his taxation debts. 51 Dr Rowntree conceded that, based on my findings on liability, a professional person in his position would have understood that neither the full purchase price of, nor the deposit for, the ERPAs was deductible, based on a settled course of binding authority (see [318]-[351] of the principal reasons).

Calculation of the maximum penalties for each promoter 52 The Commissioner identified in his written submissions the basis of his calculations of the maximum amounts that could be imposed on each promoter as penalties in accordance with s 290-50(4). The maximum penalty for an individual promoter under s 290-50(4) is the greater of either 5,000 penalty units (being $110 per unit at all relevant times) or twice the consideration received or receivable (directly or indirectly) by the promoter and associated entities in respect of the scheme. Therefore, if penalty units were relevant, the maximum penalty in each scheme year under s 290-50(4)(a) was $550,000. 53 The Commissioner submitted that I should follow the approach that Thawley J had taken in Bogiatto (No 2) [2021] FCA 98 at [58]-[59] in selecting the appropriate characterisation of the maximum penalty under s 290-50(4) where one promoter paid some of the consideration to another. There, his Honour said at [59]: In a case where the distribution of the consideration as between multiple respondents is established, it would be relevant to take that distribution into account in setting an appropriate penalty for the respective respondents. Take, for example, the following: (a) two persons (A and B) who are associates of each other are found to have contravened s 290-50(1); (b) the consideration was $10 million, paid by the taxpayer to A; (c) A gave $5 million to B as part of the arrangements between A and B. The maximum penalty for A under s 290-50(4)(b) is $20 million and the maximum penalty for B is also $20 million. It would be relevant to take into account for the purposes of determining an appropriate penalty that the consideration was shared between the contravenors. The objects of the statutory regime, at least in a case where there is no suggestion of avoidance of recovery or some other relevant matter, might be achieved by treating, as a practical matter, the maximum penalty as $10 million for each of A and B, reflecting twice the amount of the benefit each obtained from the arrangements giving rise to the contravention. (emphasis added) 54 Here, the Commissioner noted that, based on my earlier findings, Mr Donkin and his associates had received commissions from Dr Rowntree or his associates of a relatively modest amount (as compared to those received by Dr Rowntree and his associates) in each of the 2011 and 2012 years. He submitted that, applying the practical approach that Thawley J suggested in Bogiatto (No 2) [2021] FCA 98 at [59], the consideration that Dr Rowntree received should be treated as reduced by the commissions paid to both Mr Donkin and Mr Manietta and their associates. I consider that to be an appropriate and practical approach here. 55 Dr Rowntree accepted the Commissioner's calculations, so far as they concerned him, that I have summarised at [56] below. In Mr Donkin's case, the maximum applicable penalty is $550,000 for each of the two tax years. That is because even twice his total receipts in each of those years is significantly less than that, as the table below demonstrates. 56 The table below sets out the total consideration received in each scheme year by each promoter and his entity (relevantly, Voluntary Credits and Bonnell Rowntree Pty Ltd (BRPL) for Dr Rowntree, Strategic Accounting Advisers Pty Ltd for Mr Donkin and Ti Amo Strategies Partnership LP for Mr Manietta) based on the findings that I made in the principal reasons, and the practical adjustments to that sum for Dr Rowntree in the 2011 and 2012 scheme years that I discussed at [54] above, together with the maximum penalties based on those amounts fixed by reference to s 290-50(4)(b): Dr Rowntree Tax year Rowntree entity Gross consideration Consideration less sum paid to Strategic Maximum penalty on gross consideration Maximum penalty on adjusted consideration Reference in principal reasons 2009 Voluntary Credits $720,414.92 $720,414.92 $1,440,829.84 $1,440,829.84 [38] 2010 Voluntary Credits $1,402,500 $1,402,500 $2,805,000 $2,805,000 [106] 2011 Voluntary Credits $1,981,200 $1,917,803 $3,962,400 $3,835,606 [166] 2012 Voluntary Credits $1,947,700 $2,029,463 $4,268,000 $4,058,926 [204] BRPL $186,300 [205] Total $6,238,114.92 $6,070,180.92 $12,476,229.84 $12,140,361.84

Mr Donkin Tax year Donkin entity Gross consideration Maximum penalty on adjusted consideration Reference in principal reasons 2011 Strategic $63,397 $126,794 [166] 2012 Strategic $104,537 $209,074 [204], [209] Total $167,934 $335,868

Mr Manietta Tax year Manietta entity Gross consideration Maximum penalty on adjusted consideration Reference in principal reasons 2009 Ti Amo $280,243.25 $560,486.50 [38] 2010 Ti Amo $238,000 $476,000.00 [106] 2011 Ti Amo $330,000 $660,000.00 [166] 2012 Ti Amo $304,650 $609,300.00 [204], [210] Total $1,152,893.25 $2,305,786.50

The amount of consideration that the promoters and their entities received - s 290-50(5)(a) 57 I have summarised in the table at [56] above the amount of consideration received by each promoter and the consequent maximum amount of penalty that can be ordered against him.

Deterrence - s 290-50(5)(b) 58 The objects of Div 290 in Sch 1 of the TAA include deterring the promotion of tax avoidance and tax evasion schemes (s 290-5(a)). Such schemes are calculated to cause the general community significant detriment by assisting persons to avoid or evade their lawful obligations to pay taxation on their actual income in each financial year at the rate fixed by the Parliament. There is an obligation of all persons in a society to pay taxation on their assessable income to meet the common need to finance the activities that are necessary for the government to operate and provide the services that the community's elected representatives have voted to support in the Parliament. Avoidance or evasion of taxation throws the burden of financing the government meeting the common needs of society onto only those who are willing to obey the taxation laws. No society can conduct its affairs effectively if persons perceive that there will not be substantial penalties applied by the courts to deter conduct that is intended to facilitate the avoidance or evasion of taxation or other imposts that the Parliament has imposed. Division 290 is intended to achieve its objects, namely the deterrence of tax avoidance and tax evasion, by conferring power on the Court to impose appropriately severe penalties, within the range provided in s 290-50(4), on promoters of schemes. 59 The customs prosecution provisions of the Customs Act 1901 (Cth) had a similar legislative purpose. In L Vogel and Son Pty Ltd v Anderson (1967-1968) 120 CLR 157, Kitto J identified the applicable principles when he imposed penalties for smuggling in a customs prosecution under the Customs Act. Taylor, Menzies and Owen JJ dismissed the appeal, saying (120 CLR at 168) that there was no suggestion that Kitto J had erred in any matter of principle in fixing the penalties and there was no reason to interfere with his approach. Kitto J explained why deterrence, ordinarily, has such a significant importance in penalising those who seek to avoid or evade taxation or to assist in that endeavour. He held that (at 164): The duty evaded has now been paid, and I understand that when the evasions were discovered the defendants gave the Customs every assistance in their investigations. But when all the considerations relied upon by the defendants have been given due attention the case still cannot be regarded as other than a serious one. Not only are the defendants guilty of a sustained course of conscious wrongdoing, but the offences are in a field in which punishments for deliberate offences must be severe. The Customs laws represent the judgment of Parliament upon an important aspect of the economic organization of the community, and the object of the penal provisions is to make that judgment as effective as possible. It is important to remember that Customs officers have of practical necessity to rely extensively upon the information supplied to them by importers, for the flow of commerce could not be maintained if every importation had to be fully investigated. Moreover, detection of frauds is not always easy. No doubt ordinary conceptions of honesty and of civic responsibility suffice to ensure a great deal of fair dealing with the Customs, but for some people little seems to matter but fear of the consequences of discovery. The Customs Act makes those consequences potentially drastic. It is for the courts to make them, in suitable cases, drastic in fact, for otherwise traders who are not saved by qualms of conscience from willingness to defraud their fellow citizens may weigh the profits they hope for against the penalties they have cause to fear and find the gamble worthwhile. (emphasis added) 60 There, the maximum penalty appeared to have been six times the value of the goods (in that case, nearly $500,000). But, unlike here, the defendants subsequently had paid the duty, cooperated fully in the investigation of their contravening conduct and had made only a modest profit of $18,000 from their contraventions. Kitto J imposed penalties totalling nearly $158,000, or about four times the amount of duty actually, or intended to be, evaded. That was a very significant sum in 1968. Here, there is no evidence that the promoters paid the tax due under their amended assessments or co-operated in the investigation of the schemes (beyond Dr Rowntree's compliance with his statutory obligations). Dr Rowntree and Mr Manietta made very large profits from the schemes, while Mr Donkin's profit was more modest. 61 In NW Frozen Foods 71 FCR at 293, Burchett and Kiefel JJ went further than Dr Rowntree's submissions asserted. They said: … insistence upon the deterrent quality of a penalty should be balanced by insistence that it "not be so high as to be oppressive". Plainly, if deterrence is the object, the penalty should not be greater than is necessary to achieve this object; severity beyond that would be oppression. (emphasis added) 62 The primary purpose of imposing a civil penalty is to deter the contravener and others from repeating conduct of the kind complained of. As French CJ, Kiefel, Bell, Nettle and Gordon JJ explained in Commonwealth v Director, Fair Work Building Industry Inspectorate (2015) 258 CLR 482 at 504-505 [54]-[55]: … a criminal prosecution is aimed at securing, and may result in, a criminal conviction. By contrast, a civil penalty proceeding is precisely calculated to avoid the notion of criminality as such. No less importantly, whereas criminal penalties import notions of retribution and rehabilitation, the purpose of a civil penalty, as French J explained in Trade Practices Commission v CSR Ltd [(1991) ATPR ¶41-076 at 52,152], is primarily if not wholly protective in promoting the public interest in compliance: "Punishment for breaches of the criminal law traditionally involves three elements: deterrence, both general and individual, retribution and rehabilitation. Neither retribution nor rehabilitation, within the sense of the Old and New Testament moralities that imbue much of our criminal law, have any part to play in economic regulation of the kind contemplated by Pt IV [of the Trade Practices Act]. … The principal, and I think probably the only, object of the penalties imposed by s 76 is to attempt to put a price on contravention that is sufficiently high to deter repetition by the contravenor and by others who might be tempted to contravene the Act." (footnotes omitted, emphasis added) 63 The promoters' conduct was inherently difficult to trace and was calculated to be so because it involved tax evasion, as I found at [353]-[367] of the principal reasons, As Edmonds J said in Arnold (No 2) 324 ALR at 98-99 [167]: ineffective tax schemes, particularly those which are mass marketed and which purport to provide participants with deductions which are "inflated" by the provision of finance or credit on uncommercial terms, pose potentially significant risks to the revenue. The EM [Explanatory Memorandum to the Tax Laws Amendment (2006 Measures No. 1) Bill 2006 (Cth)] included estimates of the financial impact of the introduction of Div 290, which was expected to take the form of gains to the revenue, and stated (at para 3.135) that "[t]hese estimates are based solely on the anticipated deterrent effect of the regime". The potentially adverse impact on the revenue underscores the need for a robust message to those promoting tax-exploitation schemes. (emphasis added) 64 In my opinion, it is important that the message be sent loudly and clearly that engaging in the promotion and marketing of tax schemes involving tax avoidance and tax evasion, such as occurred in each of the 2009, 2010, 2011 and 2012 schemes, cannot be tolerated by the community. Such conduct requires the imposition of a penalty that will achieve both general and specific deterrence, in order to ensure that other persons, and particularly professional lawyers, accountants and financial planners, will not engage in similar activities. Those considerations are equally applicable to the conduct of each of Dr Rowntree, Mr Donkin and Mr Manietta. 65 The promoters' conduct here requires the imposition of a drastic penalty to emphasise the importance of both general and specific deterrence: Vogel 120 CLR at 164, 168; see too Arnold (No 2) 324 ALR at 98-99 [164]-[170], 104-105 [200]-[204] per Edmonds J; Bogiatto (No 2) [2021] FCA 98 at [52]-[59]; cf Ludekens (No 2) 103 ATR at 546 [24], 575 [75] per Pagone J. 66 Dr Rowntree and Mr Manietta are undischarged bankrupts. Despite that, the scale of their contravening conduct in each tax year and their profits from the schemes requires both general and specific deterrence. It would reduce to meaninglessness the effect of general deterrence if I were to moderate the appropriate penalty for Dr Rowntree and Mr Manietta by giving weight to the unlikelihood that either of them will ever be able to pay the penalty. 67 Indeed, if a civil penalty were fixed under s 290-50 by having regard unduly to the financial position of the contravener, then a promoter who had spent, or put beyond reach of recovery, the fruits of a contravening scheme would be able to rely on his, her or its own impecuniosity to reduce the penalty that should otherwise be applied to conduct that is serious (as here), greed-driven and substantial. It would place such a person in a different position in relation to an appropriate penalty in comparison to the penalty that would be imposed against a person who engaged in the same conduct but had retained sufficient assets to pay any penalty. That is not to say that the financial circumstances of an individual contravener in assessing a penalty are not relevant in considering specific deterrence. Even if the person is impoverished, his, her or its circumstances are still relevant in consideration of the penalty that will signify general deterrence. 68 I am of opinion that, ordinarily, a penalty imposed under s 290-50(3) must operate as a powerful and drastic deterrent to others who may consider promoting tax schemes in disregard of the law: Vogel 120 CLR at 164, 168; Arnold 324 ALR at 104 [201]. Mere impecuniosity cannot be a factor that, ordinarily, will operate to mitigate, to any significant degree, the real effect of a penalty imposed. When viewed in its totality, the penalty must achieve the particular aims of general and specific deterrence that s 290-5(a) identifies as the object of Div 290 of the TAA: Director, Fair Work 258 CLR at 504-505 [54]-[55].

The loss and damage suffered by the investors - s 290-50(5)(c) 69 The investors were subjected to inconvenience and anxiety, with the possibility of a significant disruption of their affairs, because of the need to pay a significant amount of extra tax that they thought, based on their professional adviser's recommendation to enter into the relevant scheme, they had no need to pay. And, of course, they lost the whole of the value of their "investment" in the ERPAs.

The nature and extent of the contraventions - s 290-50(5)(d) 70 The Commissioner has reassessed each investor to recoup the amount of tax avoided or evaded as a result of the 2009, 2010, 2011 and 2012 schemes. That tax has been levied on, or paid by, the relevant investor, not by the promoters. Dr Rowntree did not suggest that he or his bankrupt estate had paid any substantial sum in tax or penalties in respect of the amended assessments based on his repatriated receipts of over $4.1 million from Voluntary Credits. 71 Dr Rowntree knew that the Commissioner was investigating the schemes from October 2010 in light of Dr Robson's circumstances, yet he continued marketing the schemes in the 2011 and 2012 tax years. In each of the four tax years, Dr Rowntree and Mr Manietta promoted the schemes that Dr Rowntree had designed to recoup a very significant profit for them and others. Mr Donkin promoted the 2011 and 2012 schemes, but his profit from doing so was of a more modest nature. 72 Here, the scale of the impact on the revenue was substantial in each of the 2009, 2010, 2011 and 2012 tax years, as set out in the table in [14] above. The investigation of the promoters' contraventions required considerable resources in time and money of the ATO. This is illustrated by the large team of about 36 ATO officers and the very great volume of documentary material that, had to be assembled and analysed in order to be able to trace through what had happened. The evidence demonstrated that had the schemes gone undetected, the revenue would have been depleted significantly by reason of the investors being able to claim tax deductions totalling over $58 million. 73 The promoters marketed the scheme aggressively, through professional advisers (including each of Dr Rowntree, Mr Donkin and Mr Manietta and his associated entities) to persons who had no knowledge of, or familiarity with, the market for carbon credits, as the expert evidence of Robert Fowler, to which I referred in my principal reasons, demonstrated (see [57]-[74] of the principal reasons). 74 The various ERPAs were unsuitable, badly drafted investments for the investors and were priced well above any market price. They were structured so that there was little to no likelihood that an investor would ever be served with a delivery notice and become liable to pay the balance of 85 per cent of the purchase price of the relevant ERPA (see [7]-[74], [238], [306] of the principal reasons). Each of the four schemes in the relevant years was a calculated and deliberate attempt to gain profit for the promoters at the expense of both the investors and the public purse. 75 As both Dr Rowntree and Mr Manietta are bankrupt, any penalty that I impose will not be a provable debt in their current administrations: see s 82(3) of the Bankruptcy Act 1966 (Cth). There is no evidence that they or Mr Donkin have paid any amount due under any amended assessments or that either bankrupt estate has paid any dividend to the Commissioner. I infer that the amounts due under the amended assessments were provable debts in each bankrupt estate.

The circumstances and duration of the contravention - s 290-50(5)(e) and (f) 76 Dr Rowntree accepted that, based on my findings, he was central to the creation, operation and marketing of the schemes in each year for the purposes of having the penalty assessed. As I noted at [214] of the principal reasons in evaluating Mr Donkin's conduct, once the ATO issued the taxpayer alert on 25 September 2012, Mr Donkin appreciated its significance to his involvement in the 2011 and 2012 schemes. In his email to Dr Rowntree of 27 September 2012, he wrote "Bloody ATO", reflecting his consciousness that the true nature of the scheme were now known to the Commissioner as involving tax avoidance and tax evasion. 77 Yet, as late as 1 March 2013, Mr Donkin was telling investors, as I found at [216] of the principal reasons, that they: invested into a arrangement whereby the entity receives a deduction in the first year for $138K, payable with an upfront instalment of 15% with the balance being due in three years if the balance payable is equal to the potential sale price of the carbon credit entitlement. If at the end of the three years the carbon credits are not tradable or cannot be sold for an amount equal to the debt, then the debt is forgiven and no further money is payable. (emphasis added) 78 That email did not suggest that the balance of 85 per cent of the price would ever be paid or payable. And, as I explained in the principal reasons, subsequently, Mr Donkin and Mr Manietta failed to react to Mr Haralambidis' concerns from October 2014. Neither of them provided their former clients with any advice, assistance or recognition of his conduct in creating the clients' new concerns after 2014. Obviously, Mr Donkin's culpability is less than Dr Rowntree's or Mr Manietta's, but that is not to diminish his overall importance in the promotion of the 2011 and 2012 schemes.

Steps to avoid contravening - s 290-50(5)(g) 79 Dr Rowntree accepted that there was no evidence that any of the promoters had taken any steps to avoid the contraventions. Indeed, his case and Mr Donkin's on liability was that each had not contravened s 290-50(1) at all. I found in the principal reasons that it was reasonable to conclude that each promoter and investor acted in each relevant scheme year with the dominant purpose of the relevant investor getting a scheme benefit from the scheme (see [310]-[335] of the principal reasons)

Similar conduct - s 290-50(5)(h) 80 I reject the Commissioner's argument that Dr Rowntree should have his penalty assessed on the basis that he had engaged in different, colourable conduct in respect of which he gave a voluntary undertaking. Dr Rowntree gave that undertaking without admissions and, in those circumstances, in my opinion, it cannot be used as any acknowledgement of conduct to which s 290-50(5)(h) refers as a matter relevant to be taken into account on penalty.

Co-operation - s 290-50(5)(i) 81 There was a limited degree of cooperation by Dr Rowntree and Mr Donkin in the conduct of the liability phase of this proceeding. Dr Rowntree conceded in oral submissions that, while he complied as best he could with his legal obligations in answering statutory notices, it was only after the Commissioner had assembled substantive evidence, and made opening submissions on liability, that he and Mr Donkin made some appropriate concessions about matters that could not seriously have been in dispute. However, he and Mr Donkin continued to put the Commissioner to proof and to challenge their liability on all other issues, as they were entitled to do.

Other relevant matters - s 290-50(5) 82 I reject the Commissioner's argument that, because each of the promoters' lack of contrition is a matter that can be taken into account in aggravation of the penalties to be imposed. A person facing a hearing for the imposition of a penalty for a contravention of the criminal or civil law cannot be put into a position where he or she is said to have aggravated any penalty or offending conduct by failing to apologise or express remorse for that conduct. It is a commonplace that findings of criminal guilt or civil liability made at a trial are found, on appeal, to have been erroneous. That is the reason that legislatures provide for appeals. 83 Thus, for example, Mr Donkin's grounds of appeal, as filed on 9 March 2021, allege that I made numerous factual errors, including in my evaluation of the substantiality of his role so as to meet the definition of "promoter" for the 2011 and 2012 years. The Commissioner accepts that, as I found, Mr Donkin's role was not as central as that of Dr Rowntree and that Mr Donkin's associate entity, Strategic, received a much lower amount of commission than either Mr Manietta or his associate entity, Ti Amo. However, I must assess penalty based on my findings that it was reasonable to conclude that Mr Donkin and or Strategic had a substantial role in respect of the marketing and encouragement of the 2011 and 2012 schemes for which he or it received consideration sufficient to warrant a finding under s 290-65(1) that he was a promoter in the 2011 and 2012 years. 84 A person, when facing the imposition of a penalty, may well be found subsequently on appeal not culpable. If any of Dr Rowntree, Mr Donkin or Mr Manietta believe that my findings about him can be reversed on appeal, they have every right to refrain from expressing remorse for conduct that, as events later might show, was lawful based on that belief, whether or not it turns out to be well founded. 85 In my opinion, it is wrong in principle to suggest that, by not expressing contrition or remorse, a person facing the imposition of a penalty can be found to have engaged in conduct that can be taken into account as an aggravating factor in assessing penalty: see Thawley J's discussion of the cases in Bogiatto (No 2) [2021] FCA 98 at [74]-[79]. 86 The relevance of a contravener of the law, facing the imposition of a penalty, making an expression of contrition or remorse to the Court is that it is a public acknowledgment by the person that he or she recognises that the relevant conduct was wrong. In such circumstances, the Court, when imposing a penalty, can take that recognition of wrongdoing and remorse into account as a mitigating factor and give it such weight as is appropriate. 87 For the above reasons, the fact that none of the promoters has expressed contrition or remorse is a matter to which I have had no regard as affecting the quantum of penalty.

Penalties 88 Having regard to all of the matters that I have set out above and in the principal reasons, I am satisfied that it is necessary to impose substantial penalties on each of Dr Rowntree and Mr Manietta in respect of his contraventions in each of the four scheme years to ensure both general and specific deterrence. 89 Mr Donkin's participation was of a lesser scale. Indeed, I rejected the Commissioner's case that he had been a promoter in the 2010 year (see [257] of the principal reasons). In Mr Donkin's case, his conduct is, as I found, of a significantly lesser scale but, nonetheless, sufficiently substantial so as to constitute him a promoter within the meaning of s 290-60. His conduct in the 2011 year reflected that he had a substantial role in respect of the marketing and encouragement of the growth of the scheme, having regard to his or and Strategic's involvement in the sale of about 34 contracts lots that I found in [248] and [272] of the principal reasons. In the 2012 scheme year, his and Strategic's involvement in sales of 17 contract lots generated a significantly larger commission for it than in the previous year. 90 Mr Manietta's conduct during the 2009 year was not the subject of any significant evidence, but must have been significant because he sold 39, or over 50 per cent, of all contract lots in that year, for which he received a large commission. In those circumstances, as I found in the principal reasons, the inference is irresistible that he was a promoter of the 2009 scheme and that his efforts were considerable. He continued to be a prodigious and highly effective promoter of the schemes in the subsequent three years. 91 I have considered the Commissioner's and Dr Rowntree's suggested penalties. I reject Dr Rowntree's suggestion of an aggregate penalty of about $500,000 for the reasons I have given above. He was central to the creation, operation, marketing and derivation of profit from the four schemes. 92 In my opinion, there is an element of overlap in each promoter's separate contraventions since they were committed in a course of conduct that spanned more than one scheme year. That is because the underlying operation and conduct each of the schemes was in substance the same. 93 The totality principle requires that the Court evaluate the appropriate penalty for each individual contravention and then consider questions of cumulation or concurrence as well as the effect of the totality of the penalties overall: cf Mill v The Queen (1988) 166 CLR 59 at 62-63 per Wilson, Deane, Dawson, Toohey and Gaudron JJ; Pearce v The Queen (1998) 194 CLR 610 at 623-624 [45] per McHugh, Hayne and Callinan JJ. The final selection of a sum is, of course, arrived at as an instinctive synthesis, as explained in Markarian v The Queen (2005) 228 CLR 357 at 373-375 [36]-[39] per Gleeson CJ, Gummow, Hayne and Callinan JJ.

Conclusion 94 I am of opinion that, having regard to all relevant matters, the appropriate penalties that each promoter should be ordered to pay under s 290-50(5) are as follows: In Dr Rowntree's case: Year Penalty 2009 year: $750,000 2010 year: $1,750,000 2011 year: $2,500,000 2012 year: $2,750,000 Total: $7,750,000

In Mr Donkin's case: Year Penalty 2011 year: $70,000 2012 year: $140,000 Total: $210,000 and

In Mr Manietta's case: Year Penalty 2009 year: $325,000 2010 year: $350,000 2011 year: $400,000 2012 year: $380,000 Total: $1,455,000

95 The promoters must pay the Commissioner's costs, other than the costs of the preparation of the courtbook for the liability hearing. I certify that the preceding ninety-five (95) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Rares.