REASONS FOR JUDGMENT
1 A question has arisen as to whether I should disqualify myself from hearing the Commissioner's application that Mr Gould should pay the costs of the proceedings on a solicitor-client basis. On 2 February 2015 I concluded that I should recuse myself from the hearing of that application. My reasons for taking that course are set out below. There remains, I am told, an issue between the Commissioner and the taxpayers on the issue of trading stock which all parties accept I should hear. After the present hearing, I was notified by the parties that the taxpayers thought I should not hear the Commissioner's application for costs against them although there was no application that I should recuse myself from that application. The argument was based on case management principles. I deal with this separate issue at the end of these reasons.
2 The notion that I should recuse myself emerged from two quarters:
(a) the strength of the criticisms I made of Mr Gould in the reasons for judgment in the primary case, which included deep suspicions on my part that Mr Gould had engaged in serious criminal misconduct; and
(b) a concern on my part that the hearing of the costs issue might involve persons being cross-examined before me with whom I am personally acquainted.
3 For reasons which follow I regard (b) as sufficient reason to disqualify myself from proceeding to determine the costs issue. In that circumstance, I do not need to resolve (a).
4 The question arises in the following context. One of the issues at trial was whether, as the taxpayers contended, they were managed, inter alia, by Mr Borgas (from Switzerland) or Mr Gould (from Sydney). I concluded that they were run entirely from Sydney by Mr Gould and that Mr Borgas' evidence that he managed them was deliberately false and part of an elaborate charade orchestrated by Mr Gould. On this part of the case a side issue arose as to where the taxpayers' solicitors were getting their instructions, i.e., from Mr Borgas or Mr Gould. This issue came into view several times during the trial. For example, at T1377-1379 there was this exchange:
MS SEIDEN: Well, your Honour, I will have to find the email from Ms Dormer where your Honour will have the evidence that he was no longer willing.
HIS HONOUR: Does it follow from the fact that Mr Gould is the source of your instructions that the decision not to call on the subpoena was Mr Gould's?
MS SEIDEN: No, your Honour, for the reason that - - -
HIS HONOUR: So where did the instructions for that come from?
MS SEIDEN: Well, your Honour doesn't have evidence of that.
HIS HONOUR: The only thing I know is that Mr Gould is the source of the instructions.
MS SEIDEN: Yes.
HIS HONOUR: How could I avoid inferring that it was Mr Gould who decided not to call upon the subpoena?
MS SEIDEN: Your Honour has - I will have to collate the evidence that your Honour has about the nature of the instructions, because it has not been put that Mr Gould is the sole source of the instructions. It has not been put that he's not - - -
HIS HONOUR: You were very careful. Your submission was that Mr Borgas is the source of the legal authority for the instructions, that the person who is acting as the prime minister, as it were, to Mr Borgas as the governor-general, is Mr Gould. That's how I understood the situation - - -
MS SEIDEN: And that - - -
HIS HONOUR: - - - so that Mr Borgas is not actually making decisions other than that he formally endorses what Mr Gould is doing and has left it to Mr Gould to run the case.
MS SEIDEN: Well, your Honour, I'm in a difficulty, because - - -
HIS HONOUR: I know.
MS SEIDEN: - - - I don't have the evidence for your Honour other than - and I think what I will have to do over the adjournment is collate for your Honour what evidence there is about this. Because I can make submissions, but I don't want to give your Honour evidence from the bar table, and I want to just ensure that we have - that your Honour has - - -
HIS HONOUR: Well, I can only work on the material which is before me.
MS SEIDEN: Indeed.
HIS HONOUR: At the moment, I think that consists of your remark after the adjournment application.
MS SEIDEN: Yes.
HIS HONOUR: A couple of times I have raised the topic of what's going on with your instructions, and you've had the advantage of getting Mr Fagan to agree that he's - - -
MS SEIDEN: Yes.
HIS HONOUR: - - - not going to take a Jones v Dunkel point against you - - -
MS SEIDEN: Yes.
HIS HONOUR: - - - for failing to call Mr Herman.
MS SEIDEN: Yes.
HIS HONOUR: I must say, my inquisitiveness about the topic remains unquenched.
MS SEIDEN: Yes, well, what I shall do - I'm sorry, I've just been reminded of the transcript. If I could just read from page 1302.
HIS HONOUR: 1302. One second.
MS SEIDEN: At about line 27.
HIS HONOUR: Yes.
MS SEIDEN: The applicants' contention is that the controllers of Chemical, Derrin and Bywater is Peter Borgas and that he's the ultimate source of instructions, but the applicants have not made a submission as to how those instructions are communicated, and in fact, since at least February 2012, the respondents have been on notice that Mr Gould is the litigation agent, and I wanted to clarify any misapprehension.
And then your Honour said:
…but that the vessel through which those instructions has been coming is Mr Gould.
It's just about line 47. And then:
Yes, certainly at least in part, your Honour.
HIS HONOUR: At least in part.
MS SEIDEN: And then I've said at line on 1303:
And I don't - there's no evidence as to how much - and I don't want to give evidence from the bar table, your Honour.
So your Honour has - - -
HIS HONOUR: So the material before me is incomplete - - -
MS SEIDEN: Indeed.
HIS HONOUR: - - - would be the best way to describe it.
MS SEIDEN: At its highest. But the - - -
HIS HONOUR: And it has been made expressly clear that no suggestion is going to be made that an inference should be drawn against your side for not completing that picture.
MS SEIDEN: Yes. Yes, yes, your Honour, and - - -
HIS HONOUR: And it would be unfair of me to draw an inference - - -
MS SEIDEN: We would - - -
HIS HONOUR: - - - notwithstanding that the Commissioner doesn't seek that.
MS SEIDEN: So we would submit, your Honour, yes. Your Honour, I think I was about to deal with the authorities. Is it convenient if - - -
And then later at T1706-1707:
HIS HONOUR: I know Mr Fagan has made no point about this, but I - as I've said on a number of times during the trial, I remain deeply confused about what I'm to do about the state of your instructions, which are - stand out as plain as a pikestaff as an issue in the litigation. Looking at it - - -
MS SEIDEN: Your Honour, without - - -
HIS HONOUR: - - - it's the same question which is in the case, and yet I'm to decide the case without knowing anything about it.
MS SEIDEN: Well, the difficulty that the applicants are in, in order to make anything of that, we would have to waive legal professional privilege, and we - - -
HIS HONOUR: And the Commissioner makes no point about it, but it just - - -
MS SEIDEN: Indeed.
HIS HONOUR: It's just not obvious to me that you would waive privilege or identify who your client is or who's giving the instructions.
MS SEIDEN: And, your Honour, that's the submission, and my learned friend has indicated that he's making no point about it.
HIS HONOUR: Is the identity of a client the subject of legal professional privilege?
MS SEIDEN: Well, the identity of a client, your Honour - I mean, that wouldn't be, but simply - - -
HIS HONOUR: So who's your client?
MS SEIDEN: Well, the applicants, Chemical, Derrin, Bywater. The companies are our clients, your Honour.
HIS HONOUR: And is the identity of the person giving instructions the subject of legal professional privilege?
MS SEIDEN: Well, it might be, your Honour, because - - -
HIS HONOUR: It is a confidential communication, the identity of a person?
MS SEIDEN: Your Honour, I'm not instructed to go into that in any detail, and if - - -
HIS HONOUR: So if I ask you who's giving you instructions - - -
MS SEIDEN: I would have to get - - -
HIS HONOUR: - - - your position will be not to answer the question.
MS SEIDEN: I will have to get instructions from my instructing solicitor to answer the question, your Honour. And my learned friend has said he's not making an issue of it.
HIS HONOUR: But I have to decide the case, and it's a great big flapping piece of irrationality in this litigation, if I can put it in that rather unrestrained way.
MS SEIDEN: And, your Honour, it's submitted that it really would be a question for evidence in any event, not a question for me to simply answer - not for me to answer a question from your Honour, and your Honour doesn't have that evidence. That's the submission, your Honour. In relation to Esquire and the extra layer of fiduciary responsibility that arose because there was a trust, it's submitted, well, that's simply an extra layer of fiduciary duty and it doesn't override an individual director's fiduciary responsibilities to the company.
And then at T1715-1716:
HIS HONOUR: Yes, Ms Seiden.
MS SEIDEN: Your Honour, if I could deal with the instructions point. I'm instructed not to waive any privilege.
HIS HONOUR: I was not asking you any question about the position.
MS SEIDEN: No, no. I understand that.
HIS HONOUR: I was quite careful not to do that.
MS SEIDEN: I understand that. In terms of what your Honour could infer, your Honour has the evidence that he was the litigation agent, and we don't step back from that. In relation to whether that is inconsistent with a submission that Mr Gould is no longer in our camp, it's submitted that it is not. For the reason that, whether a witness wants to give evidence, he has his own peculiar interests, and they may be different to the interests of the company, and irrespective of his status as a litigation agent, his status as a witness, in light of the particular circumstances, is a very peculiar and different interest. And in any event, there's a principle that one wouldn't make a Jones v Dunkel, for the reason alone that somebody is refusing to waive a privilege.
HIS HONOUR: I understand that question, that's a different topic.
MS SEIDEN: So in terms of the interest, it's submitted that they are different interests. His interest as a witness is a very peculiar interest, and we have referred to that in the - - -
HIS HONOUR: I understand that debate, that's a separate sort of topic. Can I ask you this question - and you may not want to answer it - do you submit to me that Mr Borgas gave instructions that the subpoena on Mr Gould should not be called upon?
MS SEIDEN: Your Honour, I can't make a submission on that, because your Honour doesn't have evidence. So - - -
HIS HONOUR: Well, I do have evidence. I have got the evidence I know about Mr Gould being the tax agent, and I think I have got Mr Borgas' fairly non-descript evidence.
MS SEIDEN: Yes, but to know - to make that submission, your Honour would have to have evidence about who was instructing on that particular matter. Now, I could get your Honour evidence of that.
HIS HONOUR: I'm not trying to ask you to get any evidence, I'm just trying to work out what I should do with the evidence, which I have, and the first step of that is to find out what your submission to me about it is.
MS SEIDEN: Well, your Honour, I think, without evidence about that particular point, which I perhaps might need another adjournment - - -
HIS HONOUR: No, no, no. Can I summarise your position this way, which is, you don't wish to make a submission to me.
MS SEIDEN: Well, it's not that I - - -
HIS HONOUR: Or you say that you can't make a - - -
MS SEIDEN: I can't. It's not that I don't wish to, your Honour. It's just that, without evidence of that, it would be me giving your Honour evidence.
HIS HONOUR: So there's no evidence that Mr Borgas gave the instructions not to call Mr Gould. Could we - - -
MS SEIDEN: I think that's - - -
HIS HONOUR: Could we go that far?
MS SEIDEN: I think that is the position, and once I have - - -
HIS HONOUR: But there is evidence that Mr Gould has given instructions.
MS SEIDEN: Indeed.
HIS HONOUR: So the universe of evidence is, there's no evidence that Mr Borgas did it, and there's some evidence that Mr Gould did it.
MS SEIDEN: Sorry, there's some evidence that Mr Gould gave instructions - has given instructions during this case. There's no evidence he gave instructions on this issue.
HIS HONOUR: But there's no evidence that Mr Borgas did.
MS SEIDEN: Indeed, indeed.
HIS HONOUR: So doesn't that mean - - -
MS SEIDEN: It means - - -
HIS HONOUR: - - - that the only material in front of me suggests that Mr Gould did it?
MS SEIDEN: Well, no, because your Honour has the evidence of Mr Borgas that he has given instructions, which is at - - -
HIS HONOUR: I understand that. I know you won't make a submission that Mr Borgas gave instructions. Do you make the submission that Mr Gould gave the instructions - - -
MS SEIDEN: No.
HIS HONOUR: - - - that he not be called.
MS SEIDEN: Certainly not.
HIS HONOUR: Do you make the submission that he did not give the instruction that he not be called?
MS SEIDEN: Well, once again, your Honour. I think, to put any sort of positive submission, I would need evidence, and I just don't - your Honour doesn't have it. Now, that's not to say that - - -
HIS HONOUR: All right.
MS SEIDEN: - - - on cold reflection - - -
HIS HONOUR: Well, is this the case then. That you make no submission as to whether either Mr Borgas or Mr Gould gave the instructions that the subpoena not be called upon?
MS SEIDEN: Indeed. And that your Honour - - -
HIS HONOUR: But you do say that I should infer that Mr Gould left the camp.
MS SEIDEN: Indeed, and we say that your Honour cannot infer that - cannot make an adverse inference against us on the basis that we haven't given your Honour that evidence, because - - -
HIS HONOUR: You say it's privileged.
MS SEIDEN: Indeed.
HIS HONOUR: Well, Mr Fagan doesn't seek to make that against you.
MS SEIDEN: Indeed.
HIS HONOUR: And I don't propose to do so, either.
MS SEIDEN: And that's the cold, hard position, in light of the evidence that your Honour has, and I don't wish to make a submission outside the evidence.
MR FAGAN: We wish to make a submission that an inference can be drawn from another matter, though, your Honour, if I may.
HIS HONOUR: Yes, Mr Fagan.
5 In my reasons for judgment (Hua Wang Bank Berhad v Commissioner of Taxation [2014] FCA 1392) I concluded that the evidence of the taxpayers solicitors would not have assisted in the resolution of that issue in these terms:
'116 It is more than passing strange that Mr Gould should be looking after Mr Borgas' travel arrangements. The inference I draw is that the litigation was being conducted by Mr Gould for Mr Gould and Mr Borgas' role was to turn up when requested. Although Mr Borgas claimed that he was the ultimate source of instructions for the taxpayer there is no prospect that this could be true. An attempt by me to elicit from the taxpayers' representatives during closing submissions where their instructions were coming from was politely declined. I infer that evidence from the taxpayers' solicitors about the source of their instructions would not have assisted their case on the role of Mr Borgas.'
6 Mr Gould has now put on evidence from his solicitors that on the issue of whether he should pay the costs of the trial on a solicitor-client basis he proposes to lead evidence from the solicitors for the taxpayers as to the source of their instructions. That is to say, evidence will be elicited to fill the evidentiary vacuum left on the last occasion.
7 The issue which will arise, if that course is followed, is my acquaintance with these solicitors. One of them is Mr Stephen Gorry, a senior partner at Henry Davis York, and a longstanding personal acquaintance of mine. For some time (but not at the trial) the taxpayers were represented by another partner of Henry Davis York, Mr Tom Hollo (now of the New South Wales Bar). Mr Hollo is a longstanding personal friend of mine.
8 If Mr Gould calls Mr Gorry and Mr Hollo I do not think I would feel able to assess their evidence objectively nor would I feel comfortable in being critical of them if that were necessary. I do not mean to suggest thereby that this was likely to occur; only that I could not perform my role properly if they were to give evidence before me. Consequently, I do not think that I should hear the application. Dr Jaques, counsel for the Commissioner, submitted that I should defer making that decision until it became obvious that Mr Gorry and Mr Hollo were really going to be called and cross-examined. Although not without force, I do not think it would be wise to embrace this submission. The preparation and hearing of the costs application against Mr Gould is likely to be a protracted affair. Including the substantive judgment in the present proceedings there have been 34 separate judgments given in these proceedings by various individual judges of this Court, including 25 by me. There have also been four Full Court appeals and one application to the High Court for special leave. The full list of this litigation festival is as follows:
1. Deputy Commissioner of Taxation v Hua Wang Bank Berhad [2010] FCA 1014
2. Deputy Commissioner of Taxation v Hua Wang Bank Berhad (No 2) [2010] FCA 1296
3. Deputy Commissioner of Taxation v Chemical Trustee Limited [2010] FCA 1297
4. Deputy Commissioner of Taxation v Southgate Investments Funds Limited [2010] FCA 1298
5. Hua Wang Bank Berhad v Deputy Commissioner of Taxation [2010] FCAFC 140
6. Deputy Commissioner of Taxation v Hua Wang Bank Berhad (No 3) [2012] FCA 594
7. Deputy Commissioner of Taxation v Chemical Trustee Limited (No 2) [2012] FCA 1031
8. Deputy Commissioner of Taxation v Chemical Trustee Limited (No 3) [2012] FCA 1069
9. Deputy Commissioner of Taxation v Chemical Trustee Limited (No 4) [2012] FCA 1064
10. Deputy Commissioner of Taxation v Chemical Trustee Limited (No 5) [2012] FCA 1066
11. Deputy Commissioner of Taxation v Hua Wang Bank Berhad (No 4) [2012] FCA 1482
12. Deputy Commissioner of Taxation v Chemical Trustee Limited (No 6) [2012] FCA 1269
13. Deputy Commissioner of Taxation v Chemical Trustee Limited (No 7) [2012] FCA 1280
14. Southgate Investment Funds Limited v Deputy Commissioner of Taxation [2013] FCAFC 10
15. Deputy Commissioner of Taxation v Chemical Trustee Limited (No 8) [2013] FCA 494
16. Hua Wang Bank Berhad v Deputy Commissioner of Taxation [2013] FCA 532
17. Derrin Brothers Properties Limited v Deputy Commissioner of Taxation [2013] FCA 571
18. Hua Wang Bank Berhad v Commissioner of Taxation (No 1) [2012] FCA 589
19. Hua Wang Bank Berhad v Commissioner of Taxation (No 2) [2012] FCA 938
20. Hua Wang Bank Berhad v Commissioner of Taxation [2012] FCA 1070
21. Hua Wang Bank Berhad v Commissioner of Taxation [2013] FCAFC 28
22. Hua Wang Bank Berhad v Commissioner of Taxation (No 3) [2013] FCA 262
23. Hua Wang Bank Berhad v Commissioner of Taxation (No 4) [2013] FCA 495
24. Hua Wang Bank Berhad v Commissioner of Taxation (No 5) [2013] FCA 793
25. Hua Wang Bank Berhad v Deputy Commissioner of Taxation [2013] FCA 532
26. Hua Wang Bank Berhad v Commissioner of Taxation (No 6) [2013] FCA 992
27. Hua Wang Bank Berhad v Commissioner of Taxation (No 7) [2013] FCA 1020
28. Hua Wang Bank Berhad v Commissioner of Taxation (No 8) [2013] FCA 1021
29. Hua Wang Bank Berhad v Commissioner of Taxation (No 9) [2013] FCA 1022
30. Hua Wang Bank Berhad v Commissioner of Taxation (No 10) [2013] FCA 1024
31. Hua Wang Bank Berhad v Commissioner of Taxation (No 11) [2013] FCA 1055
32. Hua Wang Bank Berhad v Commissioner of Taxation (No 12) [2013] FCA 1091
33. Hua Wang Bank Berhad v Commissioner of Taxation (No 13) [2013] FCA 1095
34. Hua Wang Bank Berhad v Commissioner of Taxation (No 14) [2013] FCA 1096
35. Hua Wang Bank Berhad v Commissioner of Taxation (No 15) [2013] FCA 1124
36. Chemical Trustee Limited v Deputy Commissioner of Taxation [2014] FCAFC 27
37. Chemical Trustee Limited v Deputy Commissioner of Taxation [2014] HCATrans 169
38. Hua Wang Bank Berhad v Commissioner of Taxation [2014] FCA 1392
39. Hua Wang Bank Berhad v Commissioner of Taxation (No 16) [2014] FCA 1407
9 These interlocutory stoushes have themselves occupied over three weeks of Court time. The taxpayers have lost most of those encounters, with four minor exceptions:
a. I excised an amount for the general interest charge on some of their liabilities for complex reasons explained in Deputy Commissioner of Taxation v Hua Wang Bank (No.3) (2012) 88 ATR 859;
b. my refusal to grant a stay of the summary judgments entered by Kenny J against the taxpayers was set aside on appeal in Southgate Investments Funds v Limited Deputy Commissioner of Taxation [2013] FCAFC 10, although when I reached the same conclusion on the second hearing (Deputy Commissioner of Taxation v Chemical Trustee Limited (No 8) [2013] FCA 494) an application for leave to appeal was refused (Derrin Brothers Properties Limited v Deputy Commissioner of Taxation [2013] FCA 571);
c. I found in favour of the taxpayers on the trading stock issue at trial; and
d. I declined to permit the Commissioner to enforce his judgments in the case of two of the taxpayers before trial (Deputy Commissioner of Taxation v Hua Wang Bank Berhad (No 3) [2012] FCA 594), although I have since permitted him to do so.
10 My conclusion that the taxpayers are a façade for Mr Gould leads me to believe that the costs application against him is likely to engender the same kind of spirited interlocutory skirmishing. If that be so - only time will tell - it would be highly inconvenient if I case managed the application against Mr Gould towards a hearing and then, at the heel of the hunt, had to recuse myself when either of Mr Gorry or Mr Hollo was called to testify. This risk is significantly augmented because counsel for Mr Gould on the present application, Mr Lee SC, signalled his intention to characterise the issues involved on the costs application as criminal and hence involving his client's right to silence. If that contention is ultimately made good, it will most likely mean that Mr Gould's defensive manoeuvres - such as whether to call Mr Gorry or Mr Hollo - will not be known in advance. In that circumstance, it is appropriate that the judge hearing the application not be exposed to the risk of recusal depending on how Mr Gould's advisors ultimately play their cards. For that reason I disqualified myself at the conclusion of the application for recusal.
11 Turning then to the issue of the Commissioner's application for costs orders against the taxpayers, I found for the Commissioner on most issues but in the taxpayers' favour on the trading stock issue. There is to be a further hearing on the trading stock issue (now that the taxpayers have, after the primary judgment, made trading stock elections). The taxpayers submit that:
(i) costs against the taxpayers should be dealt with in the same application as the issue of costs against Mr Gould; and
(ii) in any event should be postponed until after the trading stock issue has been determined.
12 I do not think there is any substance in (i). No-one suggests that I am disqualified from resolving the issue and whilst Mr Gould may be (I do not say is) permitted to step outside the evidentiary metes and bounds of the debate before me at trial on the basis that he is a third party, the taxpayers have no such luxury. They are bound by the findings which I have made. To allow them to rerun the trial on the costs issues would be an affront to the administration of justice.
13 I do, however, accept (ii). It may be that the taxpayers will succeed on the second phase of the trading stock issue in such a way as substantially to reduce their overall liability to tax. If that occurs an obvious argument which will be available to them is that the quantum of costs should be correspondingly reduced. In those circumstances, I propose to postpone dealing with the costs issues involving the taxpayers until after I have determined the trading stock issue.
14 The taxpayers also submitted that the evidence on the application for costs against Mr Gould and on the application against them was likely to include the attempted tender by the Commissioner of a problematic document which appears to have been taken from Mr Borgas following his arrest. The ability of the Commissioner to utilise this document is to be challenged both by Mr Gould and the taxpayers. The argument was that this threshold issue should be resolved by a single judge. Obviously it would be desirable for it to be heard by a single judge but this does not outweigh the inutility of allowing the taxpayers to recontest the facts on a costs argument. In that circumstance, I will hear the Commissioner's claims against the taxpayers for costs.
15 These reasons result in no orders. I recused myself from the costs application against Mr Gould at the time of the hearing on 2 February 2015. I will proceed to deal with the second set of trading stock questions when the Court's calendar permits and I will deal with the costs of the proceedings after that time.
I certify that the preceding fifteen (15) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Perram.