Hua Wang Bank Berhad v Commissioner of Taxation

JUDGE: PERRAM J DATE OF ORDER: 23 MAY 2013 WHERE MADE: The Hague (Heard in Sydney)

1. The testimony of Madeleine Simonek, Geoffrey Goodyear and Xavier Oberson be given by video-link.
2. The Applicant's application of 10 May 2013 be otherwise dismissed.
3. The Applicant pay the Respondent's costs of its application as taxed or agreed. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 652 of 2011

IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 653 of 2011

IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 654 of 2011

IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 655 of 2011

IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 656 of 2011

JUDGE: PERRAM J DATE: 23 May 2013 PLACE: THE HAGUE (Heard in Sydney)

REASONS FOR JUDGMENT 1 On Monday 16 September 2013 this Court will commerce to hear the Part IVC appeals brought by Hua Wang Bank Berhad, Bywater Investments Limited, Chemical Trustee Limited, Southgate Investment Funds Limited and Derrin Brothers Properties Limited. The taxpayers will call 21 lay witnesses and five experts. Of the lay witnesses, 10 live abroad. The appeals are listed for seven weeks. The taxpayers now seek orders that would permit the evidence of a number of their witnesses to be given by video-link. 2 In respect of two of these witnesses - Dr Simonek and Mr Goodyear - the Commissioner consents to the course pursued by the taxpayers. It is also agreed that one of the Commissioner's witnesses, Professor Oberson, may give his evidence by video-link. 3 The testimony of Dr Simonek and Professor Oberson is confined to the content and application of Swiss domestic tax law and two double taxation treaties. Mr Goodyear is a partner, formerly the managing partner, of Lubbock Fine Chartered Accountants of London. I see no insurmountable difficulties in the experts giving their evidence by video-link. Their evidence is not likely to be long and will not involve substantial documentation. Although I have doubt in the case of Mr Goodyear, I am satisfied given the stance of the Commissioner that the taking of his evidence by video-link will be feasible. Accordingly, I will make orders with respect to these three witnesses. 4 The Commissioner, however, opposes the making of orders permitting the following witnesses to give their evidence by video-link: (a) Mr Hasmukh Vara; (b) Mr Naresh Shah; (c) Mr Graeme Briggs; and (d) Mr Daud Yunus. 5 One cluster of issues in this litigation concerns whether three of the taxpayers - Chemical Trustee Limited ('Chemical Trustee'), Derrin Brothers Properties Limited ('Derrin') and Bywater Investments Limited ('Bywater') - are resident in Switzerland. The answer to this question (and the related question of whether they were resident in Australia) will turn upon where the place of 'effective management' is for the purposes of Swiss Law (Arts 50 and 52(1) Federal Income Tax Act (Switzerland) of 14 December 1990, entered into force on 1 January 1995) or, for the purposes of Australian law, where the central management and control of the taxpayers is. Because it does not add anything apart from confusion, I leave out of the present discussion the double taxation treaties which are also caught up in this debate. 6 The taxpayers will contend that under both of these standards Chemical Trustee, Derrin and Bywater were, for the purposes of taxation, resident in Switzerland. They will allege that their affairs were conducted by Mr Peter Borgas from offices in Neuchatel in Switzerland. That business was investing in listed Australian securities. Mr Borgas will give evidence to this effect as will Mr Vanda Gould and Mr John Leaver. 7 The Commissioner, on the hand, will allege that Mr Borgas was a cipher carrying out the instructions of Mr Gould and Mr Leaver who are situated in Australia. He will say the arrangement in Switzerland is a façade designed to conceal the true state of affairs. 8 The credit of Mr Borgas will, obviously enough, be a central issue. Several witnesses will be called to corroborate his version of events. Lubbock Fine are the accountants in London for Chemical Trustee, Derrin Brothers and Bywater and Mr Vara, of that firm, will give evidence of his dealings with Mr Borgas. Plainly, this evidence will be of some considerable significance in the litigation. If Mr Vara's evidence is accepted it will provide strong corroboration for Mr Borgas' version of events. 9 On the present application, Mr Vara swore an affidavit on 14 March 2013. He says that he discussed with his supervising partner, Mr Shah, whether Lubbock Fine would give him time off to give evidence in Australia and the firm's position is that it will not. Mr Vara is not prepared to give up his annual leave to come to Australia and be cross-examined for the taxpayers. 10 Mr Shah is not only Mr Vara's supervising partner, but also a witness in his own right. Like Mr Vara, it is proposed that Mr Shah will give evidence of a corroborative kind to support Mr Borgas' version of events. I accept that it is likely to be important evidence largely for similar reasons to those in the case of Mr Vara. 11 Mr Shah says that he is not willing to come to Australia for three reasons: (a) it is not general attitude of Lubbock Fine to give evidence for clients; (b) it would be disruptive for all three of Mr Shah, Mr Vara and Mr Goodyear to be simultaneously absent from Lubbock Fine in London on account of their giving evidence in Sydney; and (c) Mr Shah will be supervising renovations to his home in the second half of the year while living in a rental property. 12 It is useful to note some other matters in the case of Messrs Vara and Shah. The first is that their evidence on this application appears in Mr Vara's case to be predicated upon an assumption that the giving of testimony would be a private - and unremunerated - expedition. I can see no other reasons why Mr Vara might be required to use up his own personal leave to make the trip. Similarly, Mr Shah says nothing about the topic of whether the firm would be remunerated by the taxpayers for its time were he (and/or Mr Vara) to make the journey. On the state of the evidence I would not infer that the taxpayers have offered to remunerate Lubbock Fine for the time and expense of Mr Vara and Mr Shah giving their testimony. 13 I raised this with counsel for the taxpayers during the hearing and was told that the question of the basis upon which they would attend had been explored but without success. From the bar table I was told that the relevant discussion had occurred between Mr Gould and Lubbock Fine. That exchange with counsel does not satisfy me that the taxpayers have put before me the full picture with respect to the unwillingness of Lubbock Fine to agree to Mr Vara and Mr Shah giving evidence in Australia. 14 The second matter is the long relationship which both Mr Borgas and Mr Gould give evidence of having had with Lubbock Fine, a relationship stretching back into the 1980s. Given the longevity of the relationship and the willingness of Mr Vara and Mr Shah to swear affidavits, it is curious that there is not more willingness to assist clients of such longstanding. Whether this is so, and what the reasons for it are, are matters of speculation but the present application would be much more compelling if there were evidence of the steps taken by Mr Borgas (or Mr Gould) to persuade Mr Shah and Mr Vara to attend. 15 The third is that one of the concerns that Mr Shah has is the simultaneous absence from London of himself, Mr Goodyear and Mr Vara. That difficulty, so it seems to me, will not arise. Mr Goodyear is not required to come to Australia and I see no reason, given the length of the trial, why Mr Vara and Mr Shah need to come at the same time. 16 The fourth is that Mr Shah's other reasons for not coming - the negative attitude of his firm to giving evidence for clients and Mr Shah's upcoming renovations - do not strike me as compelling matters. No-one likes to give evidence and without knowing what measures Mr Borgas and/or Mr Gould have taken to reduce Lubbock Fine's disinclination I am not disposed to afford this much weight. Nor do I regard Mr Shah's renovations as a compelling consideration. Mr Shah does not say he is project managing the building works and, given what I assume is his full time job as an accountant, I do not infer that he is. Without knowing a good deal more about what is proposed (including perhaps the commencement date) and Mr Shah's role I am not inclined to give this much weight. 17 Should then these witnesses be permitted to give their evidence by video-link? On the present state of evidence, I think not. 18 The cross-examination of both gentlemen is likely to be reasonably protracted and to involve substantial documentation. There will be considerable administrative difficulties in managing the documents upon which they will be cross-examined. I accept that those difficulties could be, at least in part, ameliorated by having a solicitor from the AGS present in the room in London with the documents in question - or through the use of electronic documents - and I note the offer of the taxpayers to accommodate such an arrangement if necessary. But that solution is not perfect - unforeseen documents may become relevant. What is involved is risk and assessment, and so far as documents are concerned I think there is some risk that not all will go as planned. There is also the difficulty of the time difference between London and Sydney which is going to be difficult for all parties given the likely length of the cross-examination of these witnesses. It is extremely unattractive to conduct many days of hearing between 4.00 pm and 10.00 pm in terms of both costs and convenience. 19 More importantly, there are the considerable difficulties included in dealing with issues of credit via video-link. I will not repeat what was said by Buchanan J in Campaign Master (UK) Ltd v Forty Two International Pty Ltd (No 3) (2009) 181 FCR 152, 171 at [78] as to the chemistry of the courtroom other than to endorse again his Honour's approach and to note that I am not alone: see my own decision in Blackrock Asset Management Australia Services Ltd v Waked (No 2) [2011] FCA 479; Kirby v Centro Properties Ltd (2012) 288 ALR 601, 605 at [11] per Gordon J; CMA Corporation Ltd v McSorley [2011] FCA 747 at [31] per Robertson J; Stuke v ROST Capital Group Pty Ltd (2012) 207 FCR 86, 93 at [31] per Katzmann J; Traxys Europe SA v Balaji Coke Industry Pvt Ltd (No 4) [2012] FCA 1416 per Foster J. 20 In the case of Mr Vara and Mr Shah I am not presently satisfied that the inconvenience to their work cannot be overcome by appropriate listing arrangements so that Mr Vara and Mr Shah give their testimony in different weeks of the trial nor that appropriate steps have been taken to ensure that their giving of evidence is not to be at their own expense. Given their significance to the litigation, the fact their credit will be directly involved, the time zone problem and the real risk of delay or disruption in the management of documents during cross-examination, I am not presently minded to permit these witnesses to give their evidence by video-link. 21 I turn then to the position of Mr Yunus. He has sworn an affidavit in the Part IVC proceedings. He will give evidence of his relationship with Mr Borgas and Mr Gould and the taxpayers' investments in the Asia Pacific region. That evidence will corroborate Mr Borgas' evidence. He is, I accept, a significant witness. Mr Yunus is based in Kuala Lumpur in Malaysia. The taxpayers' solicitor, Mr Herman, initially sought to speak with Mr Yunus about his willingness to attend in Australia but Mr Yunus did not return his calls until very recently. Correspondence by email has been more successful. It reveals that Mr Yunus is unwilling to come to Australia to give evidence but is willing to give it by video-link. Subsequently, just before the hearing of the present application Mr Herman did succeed in speaking to Mr Yunus. A conversation to the following effect took place: Mr Herman: Mr Yunus, I am trying to better understand your position in relation to whether you will travel to Australia for these proceedings or not. I understand you will not come because of work commitments during September and October 2013. Can you tell me what those commitments are, and why you cannot break them? Isn't there a way we can compensate you for attending in person? Mr Yunus: I was going to send you an email, actually, but here is a summary: my company is not a big company. We run projects for clients - capital raising, acquisitions and listings - and operate a very lean organisation. I have two projects for clients in that period: one acquisition and one fundraising. I cannot pass that work on to my colleague, because we do different things in the organisation. If I spend time in Australia in September and October, I am concerned that I will put at risk those projects. I think I would lose those considerable opportunities, which would mean a substantial loss of income for the company. Mr Herman: What do you mean by 'substantial loss of income'? Mr Yunus: I don't think you can compensate the amount. What is my attendance worth to you? Mr Herman: Okay, to put it another way, what amount of money do you think your company is likely to lose if you do not complete those projects? Tens of thousands? Hundreds of thousands? Millions? Mr Yunus: Millions. Mr Herman: Your company will suffer millions of dollars of lost revenue or income if you don't complete the projects? Mr Yunus: Yes. Mr Herman: And in your opinion, you cannot complete the projects, or you will lose those opportunities, if you spend time in Australia in September and October of this year? Mr Yunus: Yes. I have to be here. 22 There is lacking in this account any great specificity about the difficulties which exist. I do not think it plausible that two or three days away from work may cost Mr Yunus' business millions of dollars, particularly in the age of electronic communication. Further, I am again lacking any insight into what steps Mr Borgas and/or Mr Gould have taken to persuade Mr Yunus to attend. Whilst I accept his importance as a witness, I would, at this stage, decline the application for a video-link order largely for the same reasons that I have declined them in the cases of Mr Vara and Mr Shah, although I accept that the time zone difference problem is less severe in the case of Malaysia. 23 I do not think that an order should be made in the case of Mr Briggs. He will give evidence about the circumstances in which Southgate Investments Limited ('Southgate') was incorporated and the arrangements in place for transmitting instructions from the Asiaciti Trust to the directors of Southgate. I accept that this evidence will be important. Mr Herman's evidence is that he has been unable to speak with Mr Briggs although he has received an email from him. His email informs Mr Herman that he will not be in Sydney in September 'nor early October'. The trial is fixed for the period 16 September 2013 to 25 October 2013. The evidence does not establish that Mr Briggs is unavailable during the trial period, i.e., after early October. Appropriate arrangements may be put in place to facilitate the giving of his testimony towards the latter half of the trial. 24 In those circumstances I order that the evidence of Madeleine Simonek, Geoffrey Goodyear and Xavier Oberson be taken by video-link but the taxpayers' application of 10 May 2013 be otherwise dismissed. The taxpayers are to pay the Commissioner's costs. I certify that the preceding twenty-four (24) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Perram.