Hua Wang Bank Berhad v Commissioner of Taxation - [2012] FCA 938 - FCA 2012 case summary — Zoe

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Hua Wang Bank Berhad v Commissioner of Taxation

[2012] FCA 938

Federal Court of Australia|2012-08-31|Before: Perram J

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Court

Federal Court of Australia

Decision date

2012-08-31

Before

Perram J

Source

Original judgment source is linked above.

Judgment (59 paragraphs)

[1]

Australian Securities Commission v Bank Leumi Le-Israel (Switzerland) (1996) 69 FCR 531 cited Bank of Valetta PLC v National Crime Authority (1999) 164 ALR 45; [1999] FCA 791 followed Bank of Valetta PLC v National Crime Authority (1999) 90 FCR 565 followed Brannigan v Davison [1997] AC 238 distinguished Cassaniti v Tax Agents Board (NSW) (2009) 179 FCR 1 cited Commissioner of Taxation v De Vonk (1995) 61 FCR 564 applied Deputy Commissioner of Taxation v Hua Wang Bank Berhad (2010) 273 ALR 194; [2010] FCA 1014 cited Deputy Commissioner of Taxation v Hua Wang Bank Berhad (No 2) (2010) 81 ATR 40; [2010] FCA 1296 cited Deputy Commissioner of Taxation v Hua Wang Bank Berhad (No 3) [2012] FCA 594 cited Ebox Group Pty Ltd v Team Medical Supplies Pty Ltd [2011] FCA 862 applied Esquire Nominees v Commissioner of Taxation (1972) 129 CLR 177 cited Hearne v Street (2008) 235 CLR 125 cited Higgins v Hancock (2011) 199 FCR 393 cited Hua Wang Bank Berhad v Deputy Commissioner of Taxation (2010) 81 ATR 66; [2010] FCAFC 140 cited Hua Wang Bank Berhad v Commissioner of Taxation (No 1) [2012] FCA 589 cited Jones v Dunkel (1959) 101 CLR 298 distinguished NSW Food Authority v Nutricia Australia Pty Ltd (2008) 72 NSWLR 456 followed Re Little Olympian Each Ways Ltd [1994] 4 All ER 561 cited Richardson v Landecker (1950) 50 SR (NSW) 250 cited St George Bank Ltd v Rabo Australia Ltd (2004) 211 ALR 147; [2004] FCA 1360 applied Suzlon Ltd v Bangad (No. 2) (2011) 198 FCR 1 distinguished Watson v Commissioner of Taxation (1999) 96 FCR 48 cited Wood v Holden (Inspector of Taxes) [2006] 1 WLR 1393; [2006] EWCA Civ 26 cited

[2]

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REASONS FOR JUDGMENT I. Introduction [1] II. Background [4] III. Judicial Review Application [13] IV. Preliminary Discovery Application [44] V. Applications to Set Aside [53] Notice to Produce to Hua Wang Bank dated 11 May 2012 [59] Paragraph 1 [60] Paragraph 3 [63] Paragraph 4 [82] Paragraph 5 [84] Paragraph 6.11 [86] Paragraph 7 [88] Paragraph 10 [90] Paragraph 11 [92] Paragraph 13 [94] Notices to Produce addressed to Chemical Trustee Ltd, Derrin Brothers Properties Ltd and Bywater Investments Ltd [96] The Subpoena to Vanda Gould [102] The Notice to Produce to Southgate Investment Funds Ltd [106] The subpoenas to Leagou Pty Ltd, Warwick Davies, Morning Star Fiduciaries Pty Ltd, Melbourne Insurance Corporation Pty Ltd and CVC Fund Managers Pty Ltd [108] The subpoenas to Westpac Banking Corporation [112] VI. Conclusion [113]

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II. Background 4 The present litigation - which includes enforcement proceedings, appeals under Part IVC of the Taxation Administration Act 1953 (Cth) and the Judicial Review and Preliminary Discovery Applications - arises from the issue by the Commissioner of notices of assessment to the various taxpayers on 12 August 2010. Each of the taxpayers is a foreign corporation. For the relevant income years the Commissioner has assessed the taxpayers for income tax on profits made on the purchase and sale of shares listed on the Australian Stock Exchange. The taxpayers contest this, submitting, inter alia, that they were not residents for Australian tax purposes. Additionally two of the taxpayers - Hua Wang Bank and Bywater Investments - argue that they had no beneficial interest in the shares in question, which they held merely as trustees. There are other issues too but they be put to one side for the present purposes. 5 At the same time as the Commissioner issued the notices of assessment he also sought from this Court, and obtained, freezing orders against the taxpayers restraining them from dealing with certain parcels of shares: Deputy Commissioner of Taxation v Hua Wang Bank Berhad (2010) 273 ALR 194; [2010] FCA 1014; leave to appeal refused in Hua Wang Bank Berhad v Deputy Commissioner of Taxation (2010) 81 ATR 66; [2010] FCAFC 140. 6 These orders remain in place although they have been subject, over time, to some variations. 7 The taxpayers then lodged with the Commissioner, as they were entitled to do, objections to the assessments. I should say that the assessments included amounts reflecting the imposition of administrative penalties as well as for the general interest charge. 8 Before the Commissioner had concluded his deliberations on the objections he applied for, and obtained, summary judgment against each of the taxpayers on the basis of the non-contestable nature of a notice of assessment: Deputy Commissioner of Taxation v Hua Wang Bank Berhad (No 2) (2010) 81 ATR 40; [2010] FCA 1296. 9 Having obtained those judgments he then sought to enforce the judgments against certain assets held by the taxpayers in Australia. These proceedings took the form of charging summonses against shares held by the taxpayers in ASX-traded shares. 10 In the meantime the Commissioner had rejected the taxpayers' objections on 30 March 2011 and thereafter the taxpayers commenced appeal proceedings in this Court under Part IVC of the Taxation Administration Act. Since 21 February 2012 the Commissioner's enforcement proceedings and the taxpayers' Part IVC appeals have travelled together in my docket. 11 After that time there has been significant interlocutory disputation: a claim - rejected - by the taxpayers for a stay of the enforcement proceedings; a claim - successful - to excise from the original judgment debts the amount of the general interest charge; a claim - partially successful - for the enforcement proceedings to be heard concurrently with the Part IVC proceedings: see in relation to each of those matters Deputy Commissioner of Taxation v Hua Wang Bank Berhad (No 3) [2012] FCA 594. Also in the mix has been the taxpayers' unsuccessful attempt to set aside a notice to produce: Hua Wang Bank Berhad v Commissioner of Taxation (No 1) [2012] FCA 589. 12 It is against that background that the claims for judicial review, preliminary discovery and relief from subpoenas and notices to produce arise. It is useful to deal with each in turn.

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III. Judicial Review Application 13 Each of the taxpayers is incorporated overseas, some in the United Kingdom, others in the Bahamas or Samoa. Lubbock Fine is a firm of chartered accountants in the United Kingdom. On 16 May 2012 Lubbock Fine received a letter from the UK Revenue Service. It informed Lubbock Fine that '[i]n response to a formal request that has been made by the Australian Taxation Office for an exchange of information I need some information from you'. The letter attached a detailed schedule of what was requested and sought any submission which Lubbock Fine might wish to make as to why the materials should not be produced. 14 The legal basis on which this letter rested under English law is not relevant. What is relevant is the undoubted fact that it was provoked by a request from the ATO. The parties were in agreement that the request which had been made by the ATO had been made under the auspices of a double-taxation treaty between the United Kingdom and Australia. That treaty is formally known as the Convention between the Government of Australia and the Government of the United Kingdom of Great Britain and Northern Ireland for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income and Capital Gains [2003] ATS 22 ('the Treaty') and was signed in Canberra on 21 August 2003. The relevant article is Article 27 which is as follows: ARTICLE 27 Exchange of information 1 The competent authorities of the Contracting States shall exchange such information as is foreseeably relevant to the administration or enforcement of the provisions of this Convention or of the domestic laws of the Contracting States concerning taxes to which this Convention applies insofar as the taxation under those laws is not contrary to this Convention. The exchange of information is not restricted by Article 1 of this Convention. Any information received by a Contracting State shall be treated as secret in the same manner as information obtained under the domestic law of that State and shall be disclosed only to persons or authorities (including courts and administrative bodies) concerned with the assessment or collection of, the enforcement or prosecution in respect of, or the determination of appeals in relation to, the taxes to which this Convention applies. Such persons or authorities shall use the information only for such purposes. They may disclose the information in public court proceedings or in judicial decisions. 2 If information is requested by a Contracting State in accordance with this Article, the other Contracting State shall obtain that information in the same manner and to the same extent as if the tax of the first-mentioned State were the tax of that other State and were being imposed by that other State, notwithstanding that the other State may not, at that time, need such information for the purposes of its own tax. 3 In no case shall the provisions of paragraphs 1 or 2 of this Article be construed so as to impose on a Contracting State the obligation: (a) to carry out administrative measures at variance with the laws or the administrative practice of that or of the other Contracting State; (b) to supply information which is not obtainable under the laws or in the normal course of the administration of that or of the other Contracting State; or (c) to supply information which would disclose any trade, business, industrial, commercial or professional secret or trade process, or to supply information the disclosure of which would be contrary to public policy. 15 Article 3 defines a 'Contracting State' to mean the United Kingdom or Australia. The same article defines a 'competent Authority' to mean, in the case of Australia, the Commissioner of Taxation or his authorised representative. It will be seen that, at least as a matter of first impression, the effect of Article 27(2) is to require the United Kingdom to respond to a request from Australia if the information sought in it is 'foreseeably relevant' to the administration or enforcement of the taxes to which the Treaty applies. By Article 2 the Treaty is concerned with a number of taxes including, relevantly, income tax. 16 The taxpayers point to the letter to Lubbock Fine and submit that from it may be inferred the fact that the ATO had made a request to the United Kingdom under Article 27. As I understand the way the case was run, it was not really disputed by the Commissioner that a request had been made. It was the decision by the ATO which preceded the request - that is, the decision to issue the request - that the taxpayers sought judicially to review. 17 A curiosity about the way in which the taxpayers pursued their case is that they did not seek to prove the nature of the request which had been made by the ATO. Instead they rested on the letter received by Lubbock Fine. At the conclusion of the trial of this action the consequence was that the evidentiary record did not disclose: the terms of the request which had been made; or the date upon which it was sent. 18 This might be thought something of an oddity in a judicial review proceeding directed at the decision to issue the request. For reasons which are not obvious the taxpayers appear to have eschewed making any determined attempt to extract the request from the Commissioner. During the course of the hearing the taxpayers did make some efforts, limited perhaps, to remedy this. On the first day of the trial, for example, after the evidence had closed and having been pressed on why the request was not in evidence, the taxpayers' counsel called on a notice to produce issued one clear working day before the hearing which sought a number of documents in a short date range but which did not, in terms, seek the request itself. The Commissioner's response was that he had not had sufficient time to respond to the notice and that nothing was produced. After the conclusion of the trial, and whilst the Court was dealing with a series of related but subsequent interlocutory applications (to which I will turn shortly), an application to issue a subpoena to the Commissioner was foreshadowed together with the suggestion that a reopening of the taxpayers' case would be sought at the same time. I do not know what the subpoena would have sought because, as events transpired, neither it nor the reopening application was ever pursued. 19 One has, therefore, the situation where the taxpayers seek judicial review of a decision to make a request whose nature the evidence does not disclose. I do not apprehend that there were any particular difficulties in obtaining the request. It is true that the steps which appear to have been taken at trial encountered resistance from the Commissioner's representatives but this, so it seems to me, was entirely foreseeable if garnering the evidence was left to the trial. 20 Turning to the substance of the matter, the taxpayers' basic submission was that the making of the request had the capacity to interfere with the Part IVC proceedings and was, therefore, a contempt of this Court. The statutory power which authorised the request did not, on its proper construction, authorise such conduct by the Commissioner and, in those circumstances, the issue of the request was said to be ultra vires. 21 An assessment of the correctness of the taxpayers' submissions begins with the identification of the statutory power under which the Commissioner was acting when he made the request. Article 27, of course, is part of a treaty and by itself did not authorise the Commissioner to do anything insofar as Australian domestic law was concerned. That is not to say that, as a matter of public international law, he could not make the kind of request envisaged by Article 27. It is instead simply to underscore the irrelevance of that source in circumstances where the taxpayers needed to identify a domestic statutory basis. This was because they put their claim for relief either under the provisions of the Administrative Decisions (Judicial Review) Act 1977 (Cth) ('the ADJR Act') (which requires a decision 'under an enactment': s 3) or under s 39B of the Judiciary Act 1903 (Cth) (which requires, at least in this context, an excess of domestic legal authority). 22 The Treaty was given 'the force of law according to its tenor' by s 5 of the International Tax Agreements Act 1953 (Cth). The taxpayers contended that this was the statutory source of the power to make the request. I do not think, however, that that submission should be accepted. This is not because Article 27 did not take effect as a Commonwealth law (as the Commissioner submitted) but because, even so, Article 27 does not, as a matter of its text, authorise the making of a request. Article 27 requires a response to any request which is made, that is, it requires under sub-clause (c) co-operation but it does not, in terms, authorise the Commissioner to make the initial request engaging the obligation of co-operation. 23 The taxpayers also submitted that the power to issue the request was conferred by s 23 of the International Tax Agreements Act. Section 23(1) provides that '[t]he Commissioner or an officer authorised by the Commissioner may use the information gathering provisions for the purpose of gathering information to be exchanged in accordance with the Commissioner's obligations under an international agreement' (emphasis added). An 'information gathering provision' is a provision of a 'taxation law' (as defined in the Income Tax Assessment Act 1997 (Cth) ('the 1997 Act')) that, inter alia, 'allows the Commissioner…to require or direct a person to provide information': s 23(4). Section 995.1 of the 1997 Act defines 'taxation law' to include any 'Act of which the Commissioner has the general administration (including part of an Act to the extent to which the Commissioner has the general administration of that Act)'. The International Tax Agreements Act does not explicitly confer a power of general administration on the Commissioner (cf. s 43, Superannuation Guarantee (Administration) Act 1992 (Cth); s 3, Fringe Benefits Tax Assessment Act 1986 (Cth)) and it was not submitted to me that such a power should be implied. I do not, in any event, need to decide any such question because of what follows. 24 The making of a request by the Commissioner is intimately bound up in his administration of the Income Tax Assessment Act 1936 (Cth) ('the 1936 Act'), the 1997 Act and the Taxation Administration Act. It was after all only his administration of those Acts which had occasioned the possibility of making a request. Those three statutes each confer upon the Commissioner a statutory power of general administration: see, respectively, ss 8, 1.7 and 3A. It was, in my opinion, those provisions which authorised the Commissioner to make a request, the response to which would be governed by Article 27. 25 As the taxpayers' argument was developed it was submitted that the Commissioner had no power to make the request. I shall treat this submission, in light of that conclusion, as one where it is submitted that the general power of administration does not authorise the request. 26 The taxpayers submitted that the Commissioner's authority to make a request did not run to doing so where his sole or dominant purpose was to use the proceeds of the request for the purpose of the Part IVC proceedings. 27 A variant of the argument was that the power would not arise where the making of the request had the effect of securing an advantage in the Part IVC proceedings even if the power was not being exercised for a purpose which conferred an advantage not able to be obtained by the procedures of the Court. 28 I accept the primary submission but not its variant. One would not read any of the three taxation statutes to which I have referred as authorising a contempt of Court in the absence of a clear statement that that was what Parliament intended: Commissioner of Taxation v De Vonk (1995) 61 FCR 564 at 585-586, 588 per Hill and Lindgren JJ. A power couched in terms of general administration (such as ss 8, 1.7 and 3A) does not reveal the clarity necessary to infer that a power to commit a contempt was contemplated. It follows that the Commissioner has no power to make the kind of request contemplated by Article 27 if to do so would constitute a contempt of Part IVC proceedings. I return below to the question of whether a contempt is, in fact, involved. 29 I reject the taxpayers' variant argument that the power of general administration would not authorise the making of a request that, although done without the purpose of securing an advantage, nevertheless had that effect. I do so for the reasons given by Spigelman CJ in NSW Food Authority v Nutricia Australia Pty Ltd (2008) 72 NSWLR 456 at 488-489 [140]-[145]. Mere effect will not suffice; there must be a contempt which constitutes a real risk of interference with the administration of justice: [143]. 30 Does the evidence establish such a contempt? I think not. The taxpayer's case that it did had, in effect, two steps. 31 The first was the fact that the letter written by the UK Revenue Service to Lubbock Fine was dated 16 May 2012. This apparently innocuous matter was significant because it was very close to the time at which the Commissioner had issued, in the Part IVC proceedings, a subpoena to Mr Vanda Gould. That subpoena was issued on 28 May 2012. The closeness of the two dates was said to support an inference that the step of making the request under Article 27 was the result of the same episode of forensic industry that had given rise to the subpoena to Mr Gould. 32 The second step was allied to the first and directed attention to the terms of the subpoena and the letter to Lubbock Fine. There was some overlap between the two. The combined result of these matters was, so it was submitted, that an inference should be drawn that the predominant purpose for which the request had been issued was to assist the Commissioner in his defence of the taxpayers' Part IVC proceedings. 33 I do not accept this argument for a number of reasons. First, as I have already pointed out, perhaps exceptionally, there was no direct evidence of the request before me. The taxpayers' submissions proceeded on the assumption that there was an identity between that which the Commissioner had requested from the United Kingdom under Article 27 and that which the UK Revenue Service had requested from Lubbock Fine. In circumstances where there is nothing before me to explain (on a reasonable basis) why the step of placing the request before the Court has not been taken I am not minded to draw such an inference. Secondly, for similar reasons, I do not accept that the fact that the letter to Lubbock Fine is dated 16 May 2012 allows one to draw the inference that the request was made at around the same time. To the contrary, experience with bureaucracy means that it would not be surprising, particularly with matters involving two nations, if the request antedated the letter by many months. Thirdly, the overlap is partial and by no means complete. To the extent that one can deduce much from the letter to Lubbock Fine about the underlying request I would infer that the non-overlapping portions (which in my view predominate) show that the ends to which it was directed were substantially different to those which the subpoena to Mr Gould was directed. To make good the point it is necessary to refer to the text of the schedule annexed to the letter to Lubbock Fine and the subpoena to Mr Gould. The former is as follows: Documents or information that we need to see In this context 'document' means anything in which information of any description is recorded. This includes any records you hold on computer, magnetic tape, optical disk (CD-ROM/DVD), hard disk, memory stick, flash drive, floppy disk or other recording media. [1] All documents relating to services provided by Lubbock Fine LLP to or in respect of the entities described in the schedule at 5 below. The services referred to include accounting, managerial, tax advice, company formation, invoicing and expense recording and banking and financial services. For the avoidance of doubt the term documents includes all correspondence including letters, memoranda, emails, faxes and other written media, notes of meetings and or telephone calls, contracts, accounts, agreements, financial and other projections, presentations that are in the power and/or possession of Lubbock Fine LLP and the parties to whom this request relates include the entities described in the schedule at [5] below, any agents, accountants, lawyers, advisers, banks or other financial institutions and any other person that has acted for the parties in either a direct or a fiduciary capacity in relation to the affairs of the described entities (but see paragraph 6 below). Without prejudice to the general description of the information required the term documents includes: General legers Financial statements Cash books and other books of account [2] For all purposes the documents required are those which were created at any time within the periods stated in section [5] below. [3] Nothing within the proposed notice should be read as being a requirement for you to; (a) provide information held in connection with the performance of functions as an auditor of any of the entities or to; (b) produce documents which are the property of Lubbock Fine LLP and which were created for or in connection with the performance of those functions. [4] Nothing within the proposed notice, should be read as being a requirement for you where acting in the capacity as a tax adviser; (a) to provide information about relevant communications, or (b) to produce documents which are the property of Lubbock Fine LLP and consist of relevant communications. In this paragraph - "relevant communications" means communications between the tax adviser and - (a) a person in relation to whose tax affairs he has been appointed, or (b) any other tax adviser of such a person, the purpose of which is the giving or obtaining of advice about any of those tax affairs, and "tax adviser" means a person appointed to give advice about the tax affairs of another person (whether appointed directly by that person or by another tax adviser of that person). [5] Schedule of entities to which this proposed notice relates; NAME OF ENTITY PERIOD DOCUMENTS REQUIRED UK ENTITIES ABASUS INVESTMENTS LTD 01/01/2003 to 31/10/2010 ANGLO AUSTRALIAN CHRISTIAN AND CHARITABLE TRUST BARINGS ACCEPTANCE LTD 01/01/2002 to 31/10/2010 BARLEIGH WELLS LTD 01/01/2003 to 31/10/2010 CHEMICAL TRUSTEE LTD 01/03/1996 to 31/12/2010 CITY & WESTMINSTER LTD 01/01/2001 to 31/12/2010 DERRIN BROTHERS PROPERTIES LTD 01/01/2002 to 31/12/2010 FINE INDUSTRIAL TECHNOLOGY LTD 01/01/2002 to 31/12/2010 HOUSE OF MAISTER FINANCIAL SERVICES LTD 01/01/2004 to 31/12/2010 INDO-SUEZ INVESTMENTS LTD 01/01/2002 to 31/12/2010 INTAPULSE INTERNATIONAL LTD 01/01/2001 to 31/12/2009 LLOYDS & CASANOVE INVESTMENTS LTD 01/02/2002 to 31/12/2011 NEWRIDGE ENGINEERS LTD 01/01/2005 to 31/12/2010 NORMANDY FINANCE & INVESTMENTS LTD 01/01/1998 to 31/12/2010 PENALTON LTD 01/01/2006 to 31/12/2010 POWER INVESTMENTS (UK) LTD 01/01/2005 to 31/12/2010 SEVINHAND COMPANY LTD 01/01/2002 to 31/12/2010 SOUTHGATE INVESTMENT FUNDS LTD 01/01/2000 to 31/12/2010 SOUTH SEA (AUSTRALIA) LTD 01/01/2006 to 31/12/2010 VYCROWN INVESTMENTS LTD 01/01/2002 10 31/12/2011

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[6] For the avoidance of doubt and without prejudice to the broader definition of the parties contained at paragraph 1 above the persons to whom the request for documents relates to includes Vanda Russell Gould and john Scott Leaver. 34 The schedule to the subpoena is in these terms: SCHEDULE The documents and things you must produce are as follows: 1. All invoices issued by you to the following companies for the provision of consulting services or other services however described: 1.1. Bywater Investments Limited; 1.2. Chemical Trustee Limited; 1.3. Derrin Brothers Properties Limited; 1.4. Hua Wang Bank Barhad; 1.5. Southgate Investment Funds Limited; 1.6. J.A. Investments Limited; 1.7. M.H. Investments Limited; and 1.8. Offshore Nominees Limited. 2. All documents or records evidencing payment for such invoices as produced under item 1 of this schedule; inclusive of, but not exclusive to bank statements and telegraphic transfers. 3. All documents, records or information evidencing any power of appointment or similar power or relationship, however described, you hold, or have held for any entities listed in item 1 of this schedule and the following entities; 3.1. Normandy Finance & Investments Limited; 3.2. Normandy Finance & Investments Asia Limited 3.3. Russell Associates Limited; 3.4. Lloyds & Casanove Investment Partners Limited; 3.5. Abasus Investments Limited; 3.6. Indo-Suez Investments Limited; 3.7. Pacific Securities Inc; 3.8. Apollo Solutions Limited; 3.9. Southsea (Aust) Limited; 3.10. IRSS Nominees (4) Limited as trustee for LJK Nominees Superannuation Fund; 3.11. IRSS Nominees (4) Limited as trustee for Phillips River Superannuation Fund; 3.12. Professional Group Services Limited; 3.13. Gainsborough Stud Limited; 3.14. Hesley Consultants Limited; 3.15. Hua Wang Finance Limited; 3.16. Southfields Investments Limited; 3.17. any other entity outside of Australia which has common ultimate beneficial ownership (whether 100% or less) or control, with any of the entities in item 1 or listed in 3.1 to 3.16 above. 4. All documents or records evidencing nominee agreements or fiduciary agreements relating to shareholdings or other membership rights including rights obtained by way of creditor control in the companies described at 1.1 to 1.8 and at 3.1 to 3.17 of this schedule and/or their parent companies. 5. All documents or records evidencing or relating to the exercise of any power described in item 3 above. 6. All documents or records of conversations, including telephone conversations, evidencing or relating to an agreement to exercise or hold the power described in item 3 of this schedule on behalf of another person or entity. 35 There are significant differences between these. The subpoena to Mr Gould is evidently intended to catch documents which might reveal some capacity on his part to control the entities referred to in paragraph 1, the majority of which are parties to these proceedings. By contrast the Lubbock Fine letter is addressed to a much broader group of entities and seeks much more than the subpoena to Mr Gould does. Moreover, the letter to Lubbock Fine seeks all documents relating to the services of Lubbock Fine whereas the subpoena to Mr Gould is focussed on the issues relating to his ability to control the companies in question. 36 In those circumstances, I conclude that it is not shown that the Commissioner's request is predominantly for the purpose of the Part IVC proceedings. I am satisfied neither as to the taxpayers' argument based on timing nor their submissions about the overlap. 37 The taxpayers next submitted that I should draw an adverse inference from the failure of the Commissioner to elicit evidence about the circumstances in which the request was made. I do not agree. The materials upon which the taxpayers rely do not suffice to draw the inference which they seek. All that is established is a series of highly speculative jumps. In circumstances where the taxpayers have not proved the contents of the request I see little scope for the drawing of such inferences. If the taxpayers' case is pure speculation, as I believe it is, I do not see that the principle in Jones v Dunkel (1959) 101 CLR 298 has any application and I reject the taxpayers' suggestion that it does. There was, to put the matter another way, no case for the Commissioner to meet. How could there be without the request the subject of the proceedings being in evidence? In any event, even if Jones v Dunkel were applicable I would not be minded to draw the suggested inference. 38 For completeness, I do not accept that either Watson v Commissioner of Taxation (1999) 96 FCR 48 or Cassaniti v Tax Agents' Board (NSW) (2009) 179 FCR 1 assist the taxpayers. Contrary to the taxpayers' submission, neither authority establishes that mere prejudice will suffice. 39 For those reasons I do not accept that it was beyond the power of the Commissioner to make a request of the United Kingdom. 40 The taxpayers also pursued a case under s 64 of the Judiciary Act 1903 (Cth). Section 64 provides: 64 Rights of parties In any suit to which the Commonwealth or a State is a party, the rights of parties shall as nearly as possible be the same, and judgment may be given and costs awarded on either side, as in a suit between subject and subject. 41 The taxpayers submit that the operation of s 64 is: that the Commissioner is reduced to the position of an ordinary litigant; that an ordinary litigant has no right to make a request under Article 27; and that it follows that the Commissioner cannot make one now. This submission should be rejected. Section 64 operates in 'suits' and affects the procedural and perhaps substantive rights of the parties in that suit. The Commissioner's entitlements under Article 27 are not a 'right of a party' and, on the findings I have made, his purpose under Article 27 is not related to the pursuit of these proceedings. It follows that s 64 has nothing to say. 42 In those circumstances, the taxpayers have demonstrated no excess of power by the Commissioner in making the request. The application must fail. It is not necessary to resolve, in those circumstances, the Commissioner's notice of objection to competency in relation to the ADJR Act. 43 The application must be dismissed with costs as taxed or agreed.

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IV. Preliminary Discovery Application 44 The taxpayers' essential contention here is that the ATO's approach to the UK Revenue Service suggests that there may be reason to believe that it may have approached other foreign revenue authorities with similar requests. In particular, given the domicile of the taxpayers, they submit that it is reasonable to infer that approaches are likely to have been made at least to Samoa (where the Hua Wang Bank is based), Switzerland (where Mr Borgas is resident) and New Zealand (where a subsidiary of the Hua Wang Bank is resident). The taxpayers say that the probability that the ATO has transmitted requests to these countries is clear. 45 The taxpayers have sought to clarify this matter with the Commissioner. On 4 June 2012, the taxpayers' solicitors wrote to the Commissioner's solicitors, stating that they 'cannot be sure whether similar information requests [i.e. similar to those issued to the UK Revenue Service] have been issued to other revenue authorities in connection with [the taxpayers] or related entities in these proceedings'. The letter requested that the Commissioner's solicitors 'confirm that no such information requests [had] been sent since the commencement of these proceedings in July 2011'. The Commissioner's solicitors responded briefly, stating: 'We do not intend to respond to your request for confirmation about any other action that may or may not have been taken by the Commissioner'. 46 Preliminary discovery is dealt with by r 7.23, Federal Court Rules 2011. A prospective applicant may apply under that rule if it satisfies the requirements of sub-r (1). One of those requirements is that the prospective applicant 'reasonably believes' that, to paraphrase, the prospective respondent has documents which are directly relevant to the question of whether it is entitled to relief and access to the documents would assist in making the decision of whether to commence proceedings. It is only if these requirements are met that the Court may order preliminary discovery: sub-r (2). 47 The text of r 7.23(1)(c)(i) suggests that there must be a reasonable belief on an applicant's part as to the likelihood of the prospective respondent having documents which would assist in deciding whether it has a right to obtain relief. In this regard the rule differs from its predecessor, O 15A r 6(c), which required in distinction only that there be 'reasonable cause to believe that the applicant…may have the right to obtain relief'. The difference then is the difference between reasonable belief and reasonable cause to believe; between the holding of a view and the basis upon which a view might be held. 48 This difference led the Commissioner to submit that the taxpayers were bound to fail because there was no evidence that they held the requisite belief. It is true that there is no direct evidence about the taxpayers' beliefs but I would prefer for now to abstain from answering whether such direct evidence is an unavoidable requirement and, as events transpire, it is not necessary that I do so. 49 Regardless of whether there must be direct evidence that the belief is actually held, it is clear that the belief (or the cause to believe) must be objectively reasonable. As Hely J explained of the former rule, 'belief requires more than mere assertion and more than suspicion or conjecture. Belief is an inclination of the mind towards assenting to, rather than rejecting a proposition. Thus it is not sufficient to point to a mere possibility. The evidence must incline the mind towards the matter or fact in question': St George Bank Ltd v Rabo Australia Ltd (2004) 211 ALR 147 at 154 [26]; [2004] FCA 1360 at [26]. This approach applies to the new rule just as much as the former one: see, for e.g., Ebox Group Pty Ltd v Team Medical Supplies Pty Ltd [2011] FCA 862 at [19] per Flick J; Higgins v Hancock (2011) 199 FCR 393 at [55] per Jacobson J. I do not regard those authorities as resolving the question posed at [48]. 50 These observations are fatal to the taxpayers' claim. I do not discern from the Lubbock Fine letter any reasonable basis for believing that the ATO is seeking to make requests of foreign states for the purpose of aiding its conduct of the Part IVC proceedings. Indeed my rejection of the Judicial Review Application means I can see no reasonable basis for an argument that the Commissioner had engaged in a contempt by making the request of the UK. The problem is not that one might not be able to infer that other requests of different foreign states had not been made - in my view the Lubbock Fine letter makes such a view reasonable - but rather that there is simply no basis for believing that any such request might constitute a contempt. 'In my opinion', according to Jacobson J, 'the seriousness of the underlying allegation, namely that the statutory powers have been deliberately misused, must be borne in mind when determining whether [the applicant for preliminary discovery] has established that he holds the necessary objectively reasonable belief': see Higgins v Hancock at [69]. So too here. In this case I can see no reason to infer that any request made by the ATO to a foreign state is being done for the improper purpose of seeking to assist in the conduct of this litigation. The material I have seen does not, to use the formulation of Hely J, incline my mind in that direction at all. Doing the best that one can to discern the terms of the request to the UK Revenue Service from the terms of the Lubbock Fine letter, I have already concluded that such a purpose is not disclosed. In those circumstances, the suggested imputed motive in respect of requests to other foreign states is simply speculative. 51 I do not accept, therefore, that there is an objectively reasonable basis to think that the taxpayers may have judicial review rights against the ATO in respect of any request which has been made. 52 The application for preliminary discovery should be dismissed with costs as taxed or agreed.

[43]

V. Applications to Set Aside 53 The taxpayers challenged a number of subpoenas and notices to produce. I turn to the precise challenges to each below but it is convenient to begin by rejecting a global argument pursued by the taxpayers. Each of the taxpayers is, as has already been observed, incorporated overseas. The Commissioner has proceeded on the basis that each is nevertheless a resident Australian taxpayer and hence liable to tax under the 1997 Act. The taxpayers contest this. They say that the matter is governed by s 6(1) of the 1936 Act, which defines a resident taxpayer so as to include 'a company which is incorporated in Australia, or which, not being incorporated in Australia, carries on business in Australia, and has either its central management and control in Australia, or its voting power controlled by shareholders who are residents of Australia'. Consequently there will be an issue at the trial as to the place in which each taxpayer's 'central management and control' is situated. The evidence filed on behalf of the taxpayers, if acceded to, suggests that all of the directors of the taxpayers were domiciled outside Australia and exercised their offices as directors outside Australia. 54 The taxpayers will, in due course, submit that the course of authority about the concept of 'central management and control' establishes that a foreign company will be located where its directors meet: see, for e.g., Esquire Nominees Limited v Commissioner of Taxation (1972) 129 CLR 177 at 189 per Gibbs J; Wood v Holden (Inspector of Taxes) [2006] 1 WLR 1393; [2006] EWCA Civ 26 at [35]; In re Little Olympian Each Ways Ltd [1994] 4 All ER 561 at 567. 55 It follows, so the taxpayers submit, that there can be no issue in the proceedings as to whether the directors of the taxpayers were under the direction of persons who were resident in Australia. Even if this were established to be so it would not prevent the 'central management and control' of the taxpayer being overseas for the test is concerned only with the issue of where the boards of the taxpayers actually meet. 56 If this proposition is correct it means that the taxpayers are entitled to summary judgment. Rather than take that course, a challenge is now brought on the grounds of relevance to the right of the Commissioner to have issued subpoenas and notices to produce examining the relationship between the taxpayers and certain Australian residents. If I were to accede to that proposition I would have determined a central legal question in the case by a sidewind. 57 I am not going to decide this case in that manner. The failure of the taxpayers to articulate this point in the form of a summary judgment application has the consequence, so it seems to me, that I should proceed on the basis that there is a triable issue as to whether the taxpayer's argument about central management and control is correct. I do not see how I could determine that the subpoenas seek irrelevant material (because of the residency argument) if it be accepted that the residency issue of central control is a triable one. I will not conclude, in those circumstances, that the issue is not triable without that suggestion being articulated as a properly formulated summary judgment application. I therefore reject this global complaint. 58 I turn then to the individual challenges.

[46]

Paragraph 3 63 This is as follows: 3. Bank statements for Hua Wang Bank Berhad for the period 1 July 2003 to 30 June 2007. 64 The taxpayers seek to be permitted to redact transactions conducted on behalf of customers. There are two reasons why this would not be appropriate in this case. The first is that one of the issues between the Bank and the Commissioner is whether the share transactions were done on its own or its customers' behalves. The second, related to the first, concerns the nature of the Bank. I return to this in a little more detail later but the law of Samoa, under which the Bank operates, does not permit it to have any local customers and confines its customers to a specified class of individuals. For example, the Bank's Samoan banking licence dated 20 June 1994 permited it 'to accept deposits and other valuable things from the professional services company owned and controlled by the beneficial owner of the licence holder and from clients of that company'. It emerged during argument that the beneficial owner was Mr Vanda Gould. What appears, therefore, is no ordinary kind of bank, at least not in the year 1994, but instead a bank whose depositors and clients are closely related to the clientele of Mr Gould. Given that somewhat unusual context it seems to me that it would be inappropriate to require masking. Leaving aside the issue of the effect of Samoan law, I am aware of the confidentiality concerns which arise. I am satisfied, however, that they are sufficiently addressed by the implied undertaking that the Commissioner will not, without leave, use the material other than for the purposes of these proceedings: see Hearne v Street (2008) 235 CLR 125. 65 The taxpayers then put the matter a second way. They say that it would be an offence for them under Samoan law to be required to disclose client confidential materials. They point to ss 38 and 39 of the International Banking Act 2005 (Samoa), a copy of which was placed in evidence before me. Sections 38(1), and (4) and (5) provide: 38.(1) Except as required by or provided for under the laws of Samoa, every person commits an offence who - (a) divulges information, in Samoa or elsewhere, which the person has become aware of in the person's capacity as an officer, employee, or authorised agent of a licensee, or as an officer or employee of an approved auditor, in relation to - (i) any international banking business transacted in or from within Samoa; (ii) the transfer of money and property into or out of Samoa in the course of any international banking business; or (iii) the account of any person with a licensee or any item of such an account or the fact of any person having, or having had such an account; or (b) attempts to induce any other person to breach professional confidentiality in relation to any such matters. … (4) Nothing in this section shall prevent the Court from requiring any person to give evidence or produce documents in any proceedings in the Court of any facts relevant in those proceedings that the person could otherwise be required to give or produce. (5) Every person who commits an offence under this section shall be liable upon conviction to imprisonment for a term not exceeding 5 years, or to a fine not exceeding 50,000 dollars or both. 66 Section 39(1) provides: 39.(1) For the purpose of section 38, an offence by an officer or employee of a licensee or of an auditing company, as the case may be, or by a person after termination of the person's employment as an officer or employee of a licensee or of an auditing company, as the case may be, whether such offence occurs in Samoa or elsewhere, shall be deemed also to be an offence by that licensee or by that auditing company, as the case may be. 67 The Bank's submission was that if it were to answer the notice to produce in a way which disclosed details of its customers then both it and those of its employees who performed the work of responding to the notice would commit serious offences under Samoan law. 68 I reject the Commissioner's first argument as to why this does not justify setting aside the notice. This was that a close reading of ss 38 and 39 showed that only the employees of the Bank were caught by the criminal provisions and that the Bank itself committed no offence if it disclosed the information. This is contrary to the terms of s 39(1). If an employee or agent commits the offence under s 38(1) then the Bank is taken to have committed an offence under s 39(1). 69 Mr Wigney SC, for the Commissioner, then submitted that the answering of a notice to produce by the Bank was an occurrence which ought to be understood as the Bank's own act independent of the agents through whom it acted. If that were so no offence would be committed by any individual under s 38 and therefore no deeming could occur under s 39(1). 70 It is true, of course, that there can be acts of a corporation which, due to the level at which the action occurs, are taken to be the acts of the corporation itself: see, e.g., Richardson v Landecker (1950) 50 SR (NSW) 250. I am not inclined to accept, however, that the activity of answering a notice to produce falls into that category. Accordingly, in this case I conclude that a response by the Bank to the notice which does not involve redaction of the customer details will involve both the Bank and its staff in the commission of criminal offences under the law of Samoa. 71 Is this, however, a sufficient reason to set aside the notice? The requirement that a party before this Court should be required, on pain of being held in contempt, to do an act which would constitute a criminal offence under the laws of another country necessarily requires one to pause. 72 Although there are distinctions, at the level of principle, between the situation in which a regulatory notice seeks the production of documents on pain of punishment for an offence and the requirement of production of documents under a curial order the two do raise, in many cases, similar if not identical issues. The circumstance that obeying the regulatory notice or court order would constitute an offence under foreign law is one such area. In the case of a regulatory notice, the question of what makes out the statutory defence of a reasonable excuse for non-compliance has largely been held to require a balancing exercise between often competing values, e.g., comity, on one hand, as against the needs of a particular investigation, on the other: see Bank of Valetta PLC v National Crime Authority (1999) 164 ALR 45; [1999] FCA 791 at [57] per Hely J; affirmed by Bank of Valetta PLC v National Crime Authority (1999) 90 FCR 565 at [10] per Wilcox, Whitlam and Lehane JJ. And no different result obtains where the question is whether a Court should compel production of documents in aid of domestic proceedings which production will involve the commission of crimes under foreign law: see, e.g., the authorities collected by Hely J in Bank of Valetta at [48]-[57]. 73 The Commissioner denied that a balancing exercise might be involved. He submitted, on the basis of the Privy Council's decision in Brannigan v Davison [1997] AC 238 at 251C, that it remained an open question whether a court could relieve a witness from giving evidence which would incriminate him or her under foreign law. The actual question left unanswered by the Privy Council in that case was whether a domestic court 'under its inherent powers to conduct its process in a fair and reasonable manner, nevertheless [has] a discretion to excuse a witness from giving self-incriminating evidence'. 74 This is a different question to the one with which I am confronted. I am not concerned with the adduction of evidence or the giving of testimony which might incriminate. The issue here is production under compulsory process. The Full Court's decision in Bank of Valetta is binding authority for the proposition that a balancing exercise is required with administrative notices which call for compulsory production. As a matter of commonsense it would be very surprising if a balancing exercise were called for in that situation but that, when it came to the Court's own powers, a non-discretionary approach was to be taken. Further, the North American authorities referred to by Hely J in Bank of Valetta conclude that a balancing exercise is warranted. The fact that a discretion was involved was also accepted by Rares J in Suzlon Ltd v Bangad (No. 2) (2011) 198 FCR 1 at 13 [42]. I proceed on the same basis. 75 What matters are relevant? First, there is the matter of comity: 'It is no light matter to enforce Australian laws in circumstances which infringe the legislative policies of other countries' (Australian Securities Commission v Bank Leumi Le-Israel (Switzerland) (1996) 69 FCR 531 at 552 per Lehane J (Lockhart and Foster JJ agreeing)); secondly, there is the nature and significance of the proceedings which are before this Court. Are the documents located in Australia or the country whose criminal laws prevent production? Do the proceedings have an element of public interest about them? How serious are they? (cf. Bank of Valetta at [49] per Hely J). Thirdly, what is the nature of the foreign law in question? Does it have any application in the country in question or does it, in terms, only apply to foreigners? (See Australia and New Zealand Banking Group Ltd v Konza (2012) 289 ALR 286; [2012] FCA 196 at [80]-[100] per Lander J.) Fourthly, it is relevant to consider whether production of the material would carry with it a risk of undermining significant interests of the State involved. 76 In this case those matters generally point to a negative conclusion for the Bank. These are proceedings brought in Australia by the Bank which directly raise as an issue the relationship between it and its customers. On the one hand it seeks to prove that the profits which were made in its name were not made by it but by its customers; on the other it contends that any testing of that proposition by the person who it has sued would involve an infringement of Samoan law. Perhaps in an ordinary bank this might involve no unfairness but in a bank which is not permitted to have resident Samoan depositors and whose only customers, at least so far as some of the evidence tends to suggest, are necessarily clients in some way of Mr Gould, this does not appear to be fair. 77 I accept the importance of comity but it must be informed too, so it seems to me, by the fact that by definition none of the customers of the Bank can be resident in Samoa. That is not to say that respect to these laws is not to be afforded; merely that it makes it impossible either to identify much by way of a compelling sovereign interest for Samoa itself in the matter. 78 It is also relevant that there is no material before this Court which indicates whether the Samoan law in question is, as a matter of practice, enforced. This, in turn, suggests that the risk to which compliance with the notice may expose the Bank is theoretical rather than actual. 79 All of these matters are then to be weighed in the balance together with the fact that the proceedings involve a significant interest for the Commonwealth in the recovery of allegedly evaded revenue and the fact that these are proceedings not foist upon the Bank as a respondent but commenced by it before an Australian Court seeking the Court's protection by way of appeal. 80 On balance I regard the interests favouring production as outweighing those protecting the Bank from Samoan law. 81 In those circumstances, I decline to order the masking of the customer details. As a final volley the taxpayers submitted that the course for which the contended was required by the decision of Rares J in Suzlon. Suzlon is distinguishable: the recipients of the notice to produce were respondent parties who were contesting the jurisdiction of the Court; here the recipient is the applicant taxpayer.

[54]

Notices to Produce addressed to Chemical Trustee Ltd, Derrin Brothers Properties Ltd and Bywater Investments Ltd 96 The challenged paragraphs of the notice to produce to Chemical Trustee are 1, 3, 4, 5, 6.11 and 7. They are as follows: 1. All records of company meetings, including meetings of directors, shareholders and/or members, including minutes of, and resolutions made, at any such meetings for Chemical Trustee Limited from the date of incorporation to 30 June 2007. … 3. Bank statements for Chemical Trustee Limited for the period 1 July 1999 to 30 June 2007. 4. General ledgers for Chemical Trustee Limited for the priod 1 July 1999 to 30 June 2007. 5. Cash book for Chemical Trustee Limited for the period 1 July 1999 to 30 June 2007. … 6.11 bank statements of accounts held in the name of J.A. Investments Limited or utilised to facilitate financial transactions of J.A. Investments Limited for the period 1 July 2000 to 30 June 2007. 7. All correspondence and written records of conversations, including telephone conversations, between Peter Borgas and Vanda Gould in relation to Chemical Trustee Limited and/or J.A. Investments Limited. 97 In relation to paragraphs 1 and 7 in the Chemical Trustee notice, the taxpayers seek to limit the breadth to the period 1 July 2000 to 30 June 2007, i.e., 7 years. This would have the effect of limiting examination of the question of central control largely to the income years in dispute. For the reasons given at [61]-[62], I do not accept that it should be so narrow. 98 On the other hand Chemical Trustee points out that it was incorporated in 1961 and that 51 years of corporate records is too much to expect. The Commissioner did not accept that this was so. Without evidence of a change in ownership there was no reason to think, so he submitted, that these early records would not throw light on the issue of management. The events of 1961 may throw some light on the issues in this in this century, but not much. I will limit paragraphs 1 and 7 to the period between to 1994 and 2007. 99 As to paragraphs 3, 4 and 5: I reject the taxpayers' argument that these seek matters which are not relevant. I reject their contention that the time period to which they are expressed to apply should be limited. 100 For reasons already given at [87], I do, however, accept that the words 'utilised to facilitate financial transactions for J.A. Investments' in 6.11 is too vague. I do not accept that the date range is broad. 101 I take the same position on the Derrin Brothers notice to produce, the challenged paragraphs of which were, for present purposes, essentially the same as those challenged in the notice to Chemical Trustee. I dismiss each challenge to the notice except those to paragraphs 6.11 and 6.12, which also included the words 'utilised to facilitate financial transactions'. The same applies to the Bywater notice to produce to the (somewhat lesser) extent that it was challenged. I will only set aside the words 'utilised to facilitate financial transactions' in paragraph 3.11.

[57]

The subpoenas to Leagou Pty Ltd, Warwick Davies, Morning Star Fiduciaries Pty Ltd, Melbourne Insurance Corporation Pty Ltd and CVC Fund Managers Pty Ltd 108 The Commissioner submitted that the taxpayers had no standing to set aside these subpoenas, but this is not consistent with r 24.15 which explicitly gives standing to a party. 109 In total, there are 30 subpoenas involved. I will not set them out. Instead, I will set out the parts of the various subpoenas which the taxpayers seek to have struck out. These are: (a) The general ledgers and bank statements for a company called Leagou Pty Ltd for the 2009 income year; (b) The general ledgers and bank statements for a company called CVC Investment Nominees Pty Ltd (latterly: 'Sub Prime Nominees Pty Ltd') for the 2005-2008 income years; (c) The general ledgers and bank statements for a company called CVC Fund Managers Pty Ltd for the 2007-2011 income years; (d) The general ledgers and bank statements for a company called Morning Star Fiduciaries for the 2007-2008 income years; and (e) The general ledgers and bank statements for a company called Melbourne Insurance Company Pty Ltd for the 2005 and 2009 - 2011 income years. 110 The taxpayers submitted that the Commissioner had scant reason to think those documents would assist his case. None of Leagou Pty Ltd, CVC Investment Nominees Pty Ltd or CVC Fund Managers Pty Ltd was mentioned in the Commissioner's revised appeal statement (although Morning Star Fiduciaries Pty Ltd and Melbourne Insurance Corporation Pty Ltd both were). Their only relevance, so the taxpayers submitted, was to the issue of central management and control. Such relevance could arise only if the Commissioner was seeking to establish common dealings between Mr Borgas' companies and Hua Wang Bank, and local entities controlled by Mr Gould and Mr Leaver. 111 The Commissioner, on the other hand, submitted that the evidence established that the entities referred to in the subpoenas were all involved in flows of funds between the taxpayers and Mr Gould and/or Mr Leaver. I accept this submission. Hence I also accept they are sufficiently relevant. They are likely to throw light on the issue of central control and of management.