Hua Wang Bank Berhad v Commissioner of Taxation [2013] FCA 1021 | Case summary | Zoe

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Hua Wang Bank Berhad v Commissioner of Taxation [2013] FCA 1021 | Case summary | Zoe

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1 The Commissioner seeks to use in these proceedings affidavits of Mr Vanda Gould and Mr John Leaver served on the Commissioner in other proceedings in this Court entitled Leagou Pty Ltd v Commissioner of Taxation being proceedings NSD 101 of 2007 ('the Leagou proceedings'). Those proceedings were ultimately settled but before that occurred Leagou Pty Ltd ('Leagou') was ordered to file, and did file, its affidavit evidence in chief. That evidence included the following affidavits: (a) Vanda Russell Gould sworn and filed on 21 November 2007; (b) Vanda Russell Gould sworn and filed on 15 August 2008; and (c) John Scott Leaver sworn on 5 August 2008 and filed on 11 August 2008. 2 It was not in dispute that the Commissioner requires the leave of the Court to permit him now to use those affidavits in these proceedings: see Hearne v Street (2008) 235 CLR 125. The only question is whether that leave should be granted. 3 A grant of leave will be appropriate where there are special circumstances, although, special circumstances do not connote the need for there to be extraordinary circumstances. Rather, it means only that some good reason be shown why documents produced in, or information obtained in the course of, an earlier proceeding should be used in a later one: see Liberty Funding Australia v Phoenix Capital Ltd (2005) 218 ALR 283; [2005] FCAFC 3 at [31]. A non-exhaustive list of considerations which may be relevant includes: the nature of the document; the circumstances under which it came into existence; the attitude of its author and any prejudice he or she may sustain through its use; whether the document existed before the litigation was commenced or whether it was created for the litigation with the expectation that it would enter the public domain; the nature of the information (i.e., whether it is personal or commercially confidential); how the party seeking leave came into possession of the document; and the likely contribution of the document to achieving justice in the proceeding. 4 I deal with the position of each of the three affidavits separately.

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Mr Gould's affidavit sworn 21 November 2007 5 One of the issues in this case is whether a Samoan bank, the Hua Wang Bank Berhad ('the Hua Wang Bank'), is controlled by Mr Gould. On the taxpayers' behalf it will be contended, as I understand it, that the Hua Wang Bank has its place of central management and control in Samoa where its affairs are conducted by a 'fiduciary' entity known as Asiciti Trust ('Asiaciti'). The Commissioner submits that the Hua Wang Bank has its place of central management and control in Sydney and not in Samoa. This is because, according to the Commissioner, the Hua Wang Bank is a cipher for Mr Gould and that the activities of Asiciti are part of an elaborate faÇade erected by him to disguise that fact. 6 For some time until quite recently the evidence of the taxpayers seemed likely to establish that the Hua Wang Bank was owned and controlled by Mr Peter Borgas, a resident of Switzerland, through a Cayman Islands entity known as JA Investments ('JAI'). In the course of the trial, however, evidence has emerged that JAI may be ultimately owned and controlled by Mr Gould and not by Mr Borgas. 7 This evidence consists of the memorandum and articles of association of JAI together with a nominee agreement. That material shows that Mr Gould is the 'Appointor' for JAI under its articles of association and as such is entitled to identify and nominate the company's members. JAI's member is Offshore Nominees Ltd ('Offshore Nominees') which, in turn, is an entity owned by Mr Borgas. The nominee agreement suggests that Offshore Nominee holds its interest on trust for Mr Gould and that it must comply with his directions. This material forms part of the basis for the Commissioner's submission that it is Mr Gould who ultimately controls the Hua Wang Bank. 8 The taxpayers have foreshadowed answers to this material. One answer is that Mr Gould's ability to control the membership of JAI is to be seen as a tool of convenience to deal with estate planning issues for Mr Borgas. This will mean, as I apprehend the point, that should Mr Borgas die Mr Gould will be able to secure the orderly transfer of the ownership of JAI to those Mr Borgas genuinely desires. Another is that the trust contemplated by the nominee agreement is said to be incapable of arising because under the articles of association Mr Gould is prevented from himself becoming a member. A third argument will be that the nominee agreement is said to be in the nature of a boilerplate agreement and, presumably, that the trust does not therefore arise. 9 Amongst these defences, it is not submitted that Mr Gould is not the Appointor under the articles of association or that the nominee agreement was not validly executed. 10 In his affidavit of 21 November 2007 in the Leagou proceeding Mr Gould has given a sworn version of his relationship with the Hua Wang Bank which may be at odds with the articles of association of JAI and the nominee agreement. 11 Paragraphs 87-109 of that affidavit give an extensive account of negotiations between Mr Gould and Mr Leaver on behalf of Leagou, on the one hand, and the Hua Wang Bank, on the other. In paragraphs 88 and 89 Mr Gould affirmed relevantly that: 88. … I understood from my discussions with Mr Briggs that the HWBB was a bank incorporated, managed and controlled in Western Samoa, and was regulated under the Offshore Banking Act 1987 (Western Samoa). I also understood that Mr Briggs was the managing Director of HWBB. 89. Over the years, I have had numerous dealings with HWBB, including arranging finance for some of my clients. I do not hold, and have never held, any interest in HWBB. (emphasis added) 12 The Commissioner submits that, in light of articles of JAI and the nominee agreement, this evidence must be false. This is relevant in this case, he argues, because when the Court comes to assess Mr Gould's evidence that he did not control the affairs of the Hua Wang Bank it will be useful to know that he has lied on his oath on that topic once before. 13 Generally, evidence which goes only to the credit of a witness - which is the situation here - is inadmissible. This is the effect of s 102 of the Evidence Act 1995 (Cth) ('the Evidence Act') which states 'credibility evidence about a witness is not admissible'. But the prohibition in s 102 is not absolute and is qualified by s 103: 103 Exception: cross‑examination as to credibility (1) The credibility rule does not apply to evidence adduced in cross‑examination of a witness if the evidence could substantially affect the assessment of the credibility of the witness. (2) Without limiting the matters to which the court may have regard for the purposes of subsection (1), it is to have regard to: (a) whether the evidence tends to prove that the witness knowingly or recklessly made a false representation when the witness was under an obligation to tell the truth; and (b) the period that has elapsed since the acts or events to which the evidence relates were done or occurred. 14 The Commissioner submits that Mr Gould's evidence in the Leagou proceeding shows, in the language of s 103(2), that Mr Gould has 'knowingly or recklessly made a false representation when the witness was under an obligation to tell the truth'. If so, the argument then runs, s 103(1) is satisfied and the Commissioner is very likely, therefore, to satisfy the requirements of s 103. 15 On the present application, both Mr Gould and Mr Leaver, as the authors of the affidavits, were represented by Mr Dubler SC. The taxpayers also sought to make brief submissions on this issue. Their submission, advanced by Mr Hyde Page, was that this sort of thing, that is, false representations made under oath or affirmation, was not uncommon and that the requirements of s 103 would not be met. I do not need to decide whether that disheartening submission is correct. It will suffice to say that I am satisfied that Mr Gould's affidavit is likely to have considerable relevance to these proceedings. 16 It is relevant also, I think, that the affidavit was produced by Mr Gould voluntarily in the course of the Leagou proceeding. There are a number of aspects to this. First, it is true that Leagou had been required by the Court to file, in the form of affidavits, its evidence in chief and that the evidence it served included Mr Gould's affidavit. But this Court's orders placed no legal compulsion on Mr Gould to swear the affidavit. Secondly, there is nothing to suggest that Leagou had it in its power to compel Mr Gould to swear the affidavit nor any evidence that the affidavit was prepared by him in consequence of such an exercise in compulsion. All that was compulsory as a result of the Court's orders was that if Leagou had any affidavits upon which it was going to rely then it had to serve them. That order did not require Mr Gould to do anything. 17 Thirdly, it is true that Leagou found itself in the position of being an applicant in a Pt IVC appeal under the Taxation Administration Act 1953 (Cth) ('the TAA') and hence bearing the forensic burden of showing that the notices of assessment which had been issued to it were excessive. I am prepared to accept also, at least for the sake of argument, that the effluxion of time had reduced the extent of the records in existence which might be called up in the effort to discharge that burden. I do not accept, however, that this means that Mr Gould was relevantly compelled to give his evidence. No doubt as one of the ultimate owners of Leagou he had a significant commercial interest in assisting Leagou in its Pt IVC appeal. But to act out of such a motive is to be compelled by circumstance and not by law, this Court or the acts of the Commissioner. Hence I do not accept, as Mr Dubler SC submitted that I should, that the affidavit of Mr Gould was obtained other than voluntarily. 18 Further, the fact that the affidavit was prepared voluntarily for that proceeding suggests that there was an anticipation that it would eventually be read in open court and made public if the case proceeded to trial. The same observation substantially undermines Mr Gould's argument that the Commissioner is subject to a privacy obligation in respect of the affidavit. In any event, as was conceded during the application, the provisions to which reference was made (s 14ZZE of the TAA and the rÈgime in the Tax Laws Amendment (Confidentiality of Taxation Information) Act 2010 (Cth)) have no present application. 19 It was next submitted that a grant of leave would be prejudicial to Mr Gould. The prejudice was said to consist of the damage that might be done to his reputation. As a professional person this was said to be particularly important. I accept that the material in Mr Gould's case has the potential to harm his reputation depending on what his response to it is. If the earlier affidavit ultimately gets into evidence under s 103 of the Evidence Act, however, this will be because it has the potential to have a substantial impact on his credit. Were Mr Gould's credit a marginal issue in this litigation I would be disposed to see force in the view that reputational damage should not be inflicted for only minor forensic advantage. That, however, is not this case. Mr Gould's credit is, and has been highlighted from a relatively early stage in this litigation to be, a significant issue in the case. 20 Nor do I find persuasive the proposition that the Commissioner has not sufficiently identified the material upon which he proposes to rely. In the case of Mr Gould's first affidavit he has identified that it contains material inconsistent with the articles of association of JAI and the nominee agreement between Offshore Nominees and Mr Gould. I do not see that it would be practical to grant leave in respect of individual paragraphs. Nor, in this case, does the sensitivity of Mr Gould about billing details also revealed in the affidavit provide a sufficient reason to hold the material back. 21 Taking all of these matters into account it seems to me that I should grant the leave the Commissioner seeks in relation to Mr Gould's affidavit of 21 November 2007.

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Mr Leaver's affidavit sworn 5 August 2008 24 In the Leagou proceeding Mr Leaver swore an affidavit on 5 August 2008. In that affidavit he explained that Leagou's role had been to provide investment management services to Continental Venture Capital Ltd. 25 Another part of his evidence dealt with a loan received by Leagou from the Hua Wang Bank. At [32]-[34] in that affidavit he deposed to the following conversation with Mr Gould: 32. In or around April 1994, I had a conversation with Mr Gould in which we discussed the future operations of Leagou. In that conversation, words to the following effect were spoken: He said: "I'm concerned that Leagou is going to need more funds if it is to make future investments and also to retain its level of solvency. It is going to need to borrow more money." I said: "I agree with you, the company needs to raise funds. How much do you think it will need?" He said: "At least $1,000,000 I would have thought." I said: "Yes, that's probably a sensible amount." He said: "I don't want you and I to provide those funds. They should be sourced from an external source. I could get these funds from the Hua Wang Bank. Are you happy if I look into that?" He said: "Yes, I'll leave it to you to see if you can get it to happen." 33. All negotiations between HWBB and Leagou were conducted by Mr Gould. 34. In about late May 1994, Mr Gould and I had a conversation in which words to the following effect were spoken: He said: "I have almost completed the negotiations with Hua Wang Bank for the $1,000,000 loan to Leagou. As security, the bank requires that Leagou grant a fixed and floating charge over all of its assets. The bank also requires that you and I, as directors of Leagou, guarantee and indemnify the bank in relation to the loan. Are you OK with that?" I said: "Yes, that's fine with me. Go ahead and finalise the loan." (emphasis in original) 26 This material rather tends to suggest that Mr Gould gave Mr Leaver the impression that he was at arm's length from the Hua Wang Bank. As in the case of Mr Gould's own affidavits Mr Leaver's own affidavit may bear directly on Mr Gould's credibility. It is possible, since Mr Leaver is to give evidence, that [32]-[34] will be in evidence, in which case, Mr Gould may be cross-examined under s 44(2) of the Evidence Act. Even if it is not so admitted, however, Mr Gould may still be asked about it under s 44(3). Mr Leaver's affidavit also contains statements about his and Mr Gould's ultimate ownership of Leagou which are relevant to these proceedings. 27 I am satisfied that Mr Leaver's evidence has a similar probative effect to that of Mr Gould's two affidavits. I would, however, rate its significance as being less than Mr Gould's largely because its effect is derivative and less controversial. In all other regards, I consider the discretionary considerations governing its admission are the same as above. Taking all of that into account I am satisfied nevertheless that leave should be granted. 28 It was for those reasons that I granted leave to the Commissioner on Tuesday 1 October 2013 to use the three affidavits in these proceedings. I certify that the preceding twenty-eight (28) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Perram.