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[2018] VCC 2103
General information, not legal advice.
County Court of Victoria
2018-12-17
O'Bryan AM, Mr O'Bryan AM
Original judgment source is linked above.
1 On 19 December 2017 the court made orders restraining property in accordance with sections 18 and 19 of the Proceeds of Crime Act 2002 (Cth) ("the Act"). The restrained property subject to that order is a residential property in Narre Warren North and an Audi motor vehicle.
2 The application before the court seeks revocation of the restraining orders in accordance with the provisions of s 42(5) of the Act.
3 In accordance with the legislation the restraining order may be revoked if the court is satisfied that:
"(a) there are no grounds on which to make the order at the time of considering the application to revoke the restraining order; or
(b) it is otherwise in the interests of justice to do so."[1]
4 The application, which was filed on 6 February 2018 set out the following grounds for revocation:
(a) there are no reasonable grounds to suspect that a person has committed a serious or indictable offence;
(b) there are on reasonable grounds to suspect that the 'Restrained Property' is:
(i) proceeds of a terrorism offence or any other indictable offence, a foreign indictable offence or an indictable offence of Commonwealth concern; or
(ii) an instrument of a serious offence."[2]
5 The application before me involved a preliminary issue as to the evidentiary carriage of the application. On this issue I ruled that the applicant, Titchiang Hoth Mai, should proceed with evidence in support of the application before the Commissioner was required to respond.[3]
6 Mr Gyorffy QC, who appeared on behalf of the applicant, indicated in opening that oral evidence would only be called from Mr John Kelly, an accountant, who had previously sworn an affidavit on 11 September 2018. Given that no other factual evidence was led on behalf of the applicant, Mr Kelly's evidence before me, and his affidavit and attachments which were tendered in evidence, were substantially modified to exclude reference to matters that were not given in evidence or agreed between the parties.[4]
7 Mr O'Bryan AM SC, who appeared with Mr Yuile for the Commissioner of the Australian Federal Police, called evidence from Mr Graham White, a federal agent and investigator with the Australian Federal Police. Further evidence was called from Mr Anthony Bach and Mr Rick Fisher, who were both employees of the Australian Taxation Office ("ATO").
8 Finally the respondent tendered into evidence affidavits from the applicant's solicitor, Mr Andrew Tsirikis sworn 17 April 2018,[5] and an affidavit from Ms Christina Edgar, a public servant with the Immigration and Citizenship Services Group at the Department of Home Affairs. Ms Edgar's affidavit was affirmed on 23 July 2018.[6]
9 The applicant called Mr John Kelly, an accountant employed by BDO Chartered Accountants. His opinion as an expert witness on taxation matters had initially been sought by the applicant's solicitors in August 2018.
10 Prior to giving evidence in this application Mr Kelly had an opportunity to confer with Mr Gyorffy QC so that his opinion could be modified, if necessary, following the deletion of certain factual material from that initial letter of instruction. Those deletions were principally concerned with the removal of material contained in affidavits from James Hoth Mai, the applicant's father, and Samson Demissie, a friend of Mr Mai, and one of the directors of Sportscars Dealers Pty Ltd ("Sportscars"). It should be noted that the suspect referred to in this application is the applicant's brother, Nguoth Oth Mai, who was also a director and the major shareholder of Sportscars.
11 The evidence given by Mr Kelly before me concerned the applicability of Division 7A of the Income Tax Assessment Act 1936 ("ITAA") to payments made from the company account of Sportscars in August 2014 and August 2015. The first of these amounts was agreed to total $1,360,661, which was paid as three separate amounts to enable settlement of the purchase of the Narre Warren North property. There was no challenge to Mr Kelly's expertise.
12 Mr Kelly's opinion was that Division 7A of the ITAA was not applicable to the sums transferred from Sportscars' account:
13 Mr Kelly briefly explained the rationale for his opinion, stressing that the company (Sportscars) had never traded, had no income and there could be no distributable surplus, which he stated in lay terms was profits. His opinion was that the purpose of Division 7A was to tax profits of the company and therefore it had no application.[8]
14 When cross-examined Mr Kelly was challenged in considerable detail concerning his interpretation of the applicability of Division 7A to the payments in question. He was also asked to comment on a document from the Australian Taxation Office website titled "Private Company Benefits, Division 7A Dividends."[9]
15 There was further cross-examination regarding the changes which Mr Kelly had noted in relation to the original instructions received from the applicant's solicitors. In particular he agreed that he was no longer basing his opinion on an assumption that the funds transferred from Sportscars involved a loan.[10]
16 There was further detailed cross-examination concerning the interpretation of Division 7A. Mr Kelly agreed that Mr Nguoth Mai had taken from the company's bank account approximately $1.5 million, which was spent buying a house of which he became the registered proprietor.[11]
17 Ultimately Mr Kelly maintained his opinion on the limited facts provided.
"If the money just came and it moved through the company, as an accountant I would be asking, 'What is it?' ... 'Cause it has to be something. It has to be a loan or an addition to share capital or something. It can't be nothing. But if it's just moving through the company, then - then, one of the questions I would be asking is, 'Is the company just a conduit? Is it just holding the funds for somebody else?'"[12]
18 Mr Kelly did not accept the proposition that was then put to him, that such a transaction would be subject to the provisions of Division 7A. Mr Kelly specifically did not agree with the following proposition concerning the operation of that division.
"It's intended to capture the use of a company as a conduit to transfer wealth from anywhere, through to the shareholders or their associates of that company."[13]
19 There was further cross-examination concerning the payment by Sportscars for the Audi motor vehicle owned by the applicant. Mr Kelly accepted that his original opinion had assumed that the payment from Sportscars was recorded as a "repayment of loan to the defendant". He corrected this statement to reflect a loan repayable to the applicant's father, James.[14]
20 Mr Kelly further agreed that the assumption of a loan could no longer be made where it had appeared in subsequent paragraphs of his original opinion.[15]
21 When re-examined Mr Kelly was again taken to Exhibit 1 and commented that:
"... Division 7A is supposed to work ... if a company has profits that it distributes to its shareholders or transfers to its shareholders by way of transfer of assets. If it has profits that it distributes to its shareholders, otherwise, than, as a taxable dividend, then, Division 7A will apply ... to deem that to be a dividend, but that is capped at the amount of the distributable surplus. So the profits that are deemed to be a dividend in the hand of a shareholder or an associate are capped at the amount of the distributable surplus of the company."[16]
22 Mr Kelly was taken through a number of hypothetical examples such as a company purchasing a boat for a director who was a keen fisherman. Mr Kelly's evidence confirmed the necessity of providing further information in order to assess the applicability of Division 7A.
"... so money coming in and going out is nothing more for Division 7A than somebody giving me $10 and me passing on $10. It's just passed through, it's not a distribution of anything."[17]
23 The respondent called evidence from Mr Graham White, who had initially affirmed an affidavit on 14 December 2017.[18] This affidavit had been relied upon in the initial ex parte application. In the present proceeding a further affidavit from Mr White, affirmed on 28 June 2018, was also tendered in evidence.[19]
24 Mr White's June affidavit dealt with earlier affidavits sworn by another director of Sportscars, Samson Demissie, and the applicant's father, James Hoth Mai, on 17 April 2018. As there is no evidence in the present application from either of these witnesses, it is unnecessary to consider much of the material set out in Mr White's most recent affidavit.
25 Significantly for the present application Mr White makes reference to $28,600 in cash being deposited into Sportscars' business cheque account by Nguoth Mai on 17 August 2015. On the same day an amount of $28,595 was withdrawn by way of cheque.
"... this cheque was used to purchase an Audi for Titchiang on 18 August 2015."[20]
26 Mr White's affidavit goes on to state, in relation to these transactions:
"... I believe the cash was deposited into the Sportscars bank account for the purpose of having a cheque drawn to buy the Audi. I am unable to find any amount from the cash deposit being used for the alleged business of Sportscars."[21]
27 Mr White's most recent affidavit made reference to extensive enquiries in relation to other transactions involving Sportscars, these are not relevant to the present application. He nevertheless confirms the grounds upon which his suspicions were based, as set out in his first affidavit.[22]
28 When cross-examined Mr White confirmed the following:
"... the avoidance of paying tax on the money that was pushed through the, um, company accounts."[27]
"So if the money comes out of the company and its controlled by Noff (sic), and then it would be deemed to be that he purchased the vehicle and he gives it to his sister. So she has obtained an asset but the offending, um, is against Noff (sic) and she has obtained an advantage by receiving the vehicle from that offending. She doesn't control the company or the money going in and out."[29]
29 There was further cross-examination concerning Mr White's enquiries relating to family members other than Nguoth, who was the suspect relevant for the ex parte restraining order application. It is unnecessary to refer to that evidence in the present application.
30 Mr White was referred to his first affidavit, noting that Sportscars did not carry on any business whilst it was registered, and had lodged tax returns for the 2015 and 2016 financial years declaring no income. He stated he was unaware of any re-assessment by the ATO. He further agreed that Sportscars had opened two bank accounts, but was unaware of any office accommodation, stock held or transactions involving the sale of vehicles. He was unaware if the company was registered as a licensed motor car trader.[32]
31 Mr White was cross-examined about his investigations concerning tracing of payments made into Sportscars' bank accounts. He agreed that there was nothing discovered in relation to the incoming payments to Sportscars that related to the purchase of a house.
32 In relation to the purchase of the car, Mr White confirmed the matters set out in paragraph 38 and following in his first affidavit. In short this involved an initial credit card deposit paid by the applicant's father, and subsequently a cash deposit for $28,600 being received by Sportscars. On the same day a cheque for an almost identical amount was written to the car dealer to enable the car to be purchased on behalf of the applicant.[33]
33 Mr White was further cross-examined in relation to matters in his final affidavit, largely concerned with transactions occurring after the purchase of the car. Much of this cross-examination also concerned Mr Demissie, whose evidence on affidavit was not tendered in this application.
34 Mr White was again questioned about his beliefs as to the use of the company which he had described as "a conduit to move those funds."[34]
35 Mr White was specifically cross-examined in relation to the basis of his suspicion as to the commission by Nguoth Mai of each of the three suggested offences. In relation to the Corporations Act offence, he stated:
"... if you're the director of a company you have to behave in a manner which is to the benefit of that company, and not to the benefit of yourself or - or another person; ... In this particular instance a company was established, money was moved through that company and, then, that money was used for the personal benefit of Nguoth Mai, not for the benefit of the company."[35]
36 When asked about the suspected offence of causing a loss to the Commonwealth Mr White stated:
"... my suspicion came about there because the company was established at the same time as they were trying to purchase, ah, property. And, ah, money was moved into the company accounts and then that funds was then moved out to purchase the property which was in the individual's name.
So, therefore, in my mind that money is either a payment to the individual as a dividend or a salary. Um, and therefore that would be taxable and under Division 7A that would apply and that would be an offence against Div 7A and they should have paid tax on that amount of money."[36]
37 Mr White explained the suggested charge relating to obtaining a benefit from the Commonwealth as follows:
"I started looked (sic) at the whole family and what benefits they were receiving, um, and when I started looking at each family member they'd all been receiving benefit to a greater or lesser extent. Um, so the question then in my mind was well why would they be using the company account rather than their own personal accounts.
And - and when you're, um, making an application to DHS you have to list your assets. ... If you put 1.5 million, um, plus the 28,000, as an asset of Nguoth - ah, as a potential income from the company, then that would potentially stop any benefits that he is receiving, and he has received, um, following the receipt of those funds, over $10,000 of benefits from DHS."[37]
38 When further cross-examined regarding the third suggested charge, Mr White stated that he believed DHS were:
"... looking into the matter. I cannot speak for what decisions they may have made in relation to any of these offences."[38]
39 He agreed he did not know whether any re-assessment had been made in relation to benefits paid or payable to the applicant or to Nguoth Mai.
40 Finally, in cross-examination Mr White agreed that he had liaised with employees of the ATO including Mr Anthony Bach and Mr Rick Fisher, who also gave evidence in this application.
"I essentially liaised with Rick Fisher, who then spoke to Anthony Bach. So I just provided background on the job and what my suspicions were. But the actual liaison between the ATLs was between them."[39]
41 The respondent called evidence from Anthony Bach, an officer of the ATO, who had sworn an affidavit on 19 July 2018. Mr Bach's affidavit exhibited a statement made by him, expressing a detailed opinion as to the applicability of Division 7A of the ITAA to the transfers of funds from Sportscars between 12 August 2014 and 17 August 2015 which related to both the purchases of the property and the motor vehicle.
42 This statement had been prepared by Mr Bach on 6 March 2018. The affidavit also exhibited a further letter of instruction sent to Mr Bach from the Australian Federal Police. This letter was dated 13 July 2018 and enclosed a copy of this court's rules relevant to expert evidence, together with the Expert Witness Code of Conduct. This material had not previously been provided to Mr Bach.[40]
43 Mr Bach was extensively cross-examined by Mr Gyorffy QC, but did not resile from the essential opinion expressed in his original statement.[41]
44 The essence of Mr Bach's opinion relevant to this application can be shortly stated:
45 Mr Bach conceded during cross-examination that the characterisation of the payments made from Sportscars may have been treated differently if those payments were characterised as loans, but otherwise maintained the opinion set out in his initial statement.[42]
46 Finally, during cross-examination Mr Bach stated that he was unaware of any taxation re-assessment:
"... there would be auditors, investigators on this matter that would be - that would be their responsibility. My requirement in this matter was to provide an opinion based on the statement."[43]
47 When re-examined Mr Bach confirmed that his statement made in March 2018 was based upon assumed facts that had been provided to him. He also agreed that the description of the operation of Division 7A set out in Exhibit 1 was shortly stated as:
"Division 7A are part of the ITAA36, Intending to Prevent Profits or Assets being provided to shareholders or associates tax free."[44]
48 The final witness called was Mr Rick Fisher, another employee of the ATO. Mr Fisher had affirmed an affidavit on 19 July 2018 exhibiting a statement dated 11 May 2018 and further letter of instruction dated 19 July 2018. As with Mr Bach, the further letter of instruction included the relevant extracts from the County Court Civil Procedure Rules relating to expert evidence and a copy of the Expert Witness Code of Conduct. Mr Fisher's affidavit was tendered into evidence.[45]
49 Mr Fisher had been employed by the ATO since February 2005. He is presently engaged as a senior auditor and states in his affidavit:
"My main duties have been to conduct and manage reviews and audits of income tax returns ('ITR's') and business activity statements lodged by taxpayers to determine their accuracy and to determine tax assessments where no returns have been lodged."[46]
50 Mr Fisher had included annexures to his original statement which set out tax payable by Nguoth Mai in the 2015 tax year at $587,180.89 together with a further amount of $1891.95 for the 2016 tax year.[47]
51 For completeness I should note a further annexure headed "Summary Case Report" setting out the total amount payable at $589,072.84.[48]
52 In cross-examination the following matters emerged:
"... essentially ... to assist that task force on tax related matters, including such things as information disclosure, obtaining ATO information, providing general ATO advice and supporting the task force with financial analysis, search warrants, things like that."[49]
"I'm not a criminal investigator, essentially it's a role where I provide the auditor skills and advice and tax advice."[50]
"Obviously the AFP don't necessarily have the same tax background as ATO staff members. So part of my role would be, um, to ensure that when something actually goes over to the ATO, um, for an opinion or advice or whatever that may be, it's done sort of more in a manner that you would receive if you were actually in the ATO."[51]
"It was essentially just to determine what the ... taxable income and yes, to do that you need such things as the assessable income, the allowable deductions and the taxable income and yes, just run it through our systems."[52]
53 Mr Fisher was not challenged as to the calculations of tax payable. There was no re-examination.
55 Mr Tsirikis is employed by the applicant's present solicitors. In March 2018 he obtained documents which had been produced following a subpoena served on Mr Graham White. The schedule of documents produced and extracts from the documents themselves are exhibited to his affidavit.[55]
56 Ms Edgar is a public servant with the Department of Home Affairs. She works with the Immigration and Citizenship Services Group. Her affidavit exhibited a statutory declaration which had been made by her on 29 June 2018 relating to immigration documents relating to the applicant and other members of her family, including the suspect Nguoth Mai and her father, General James Hoth Mai. Part of that documentation included a statutory declaration from James Hoth Mai made on 27 June 2014 in relation to an application for a partner visa.[56]
57 The present application made pursuant to s 42 of the Act places a statutory onus on the applicant, Titchiang Mai, to persuade the court to revoke a restraining order made on 19 December 2017 either on the basis that:
"(a) there are no grounds on which to make the order at the time of considering the application to revoke the order; or
(b) it is otherwise in the interests of justice to do so."[57]
58 Ms Mai has not sworn an affidavit or led any factual evidence in her application before me. The only evidence led by the applicant was that given by Mr Kelly.
59 By way of contrast the respondent tendered two affidavits from Mr Graham White, whose first affidavit had formed the basis upon which the restraining order was granted ex parte. Mr White was extensively cross-examined, although much of this was directed to his interpretation of elements which were said to constitute the serious offences underpinning his submissions.
60 The onus facing Ms Mai in the present application is a significant one. In order to succeed she must affirmatively satisfy the court that there are "literally no grounds for the foundation of the order."[58]
61 The restraining order made on 19 December 2017 was based upon the statutory tests contained in sections 18 and 19 of the Act. The court is mandated to make such orders where it is satisfied that the authorised officer "who made the affidavit holds the suspicion or suspicions stated in the affidavit on reasonable grounds."[59]
62 The meaning of the word "suspicion" was also considered in Tjongosutiono at 107 to 108:
"The meaning of 'suspicion' in this context is well established. In George v Rockett (1990) 170 CLR 104; [1990] HCA 26, the High Court approved the description of 'suspicion' given by Lord Devine in Hussien v Chong Fook Kam [1969] UKPC 26; [1970] AC 942 at 948 to 949 as follows:
'Suspicion in its ordinary meaning is a state of conjecture or surmise where proof is lacking: "I suspect but I cannot prove." Suspicion arises at or near the starting point of an investigation of which the obtaining of prima facie proof is the end. When such proof has been obtained, the police case is complete; it is ready for trial and passes on to its next stage. It is indeed desirable as a general rule that an arrest should not be made until the case is complete. But if arrest before that were forbidden, it would seriously hamper the police ...
Their Lordships have not found any English authority in which reasonable suspicion has been equated with prima facie proof.
Suspicion can take into account matters that could not be put in evidence at all ... Suspicion can take into account also matters which, though admissible, could not form part of the prima facie case.'
Thus in order to establish that there are 'no grounds' to base the orders, the applicant must establish that there are no grounds at all for the relevant suspicion in s 19 of the Act."
63 In each of Mr White's affidavits, and in his evidence given before me, he confirmed his suspicions that the circumstances of the transactions emanating from the Sportscars' bank accounts and principally relating to the purchase of the Narre Warren North property and the motor vehicle, formed the basis that the suspect Nguoth Mai, a director and majority shareholder of Sportscars, had committed the relevant offences of causing a loss to the Commonwealth, obtaining a gain from the Commonwealth and/or breaching the duties of a company director.
64 The case advanced on behalf of the applicant by Mr Gyorffy QC in my view lacks a significant factual basis upon which it could succeed.
65 The evidence of Mr Kelly, taken at its high point, would create some doubt as to the applicability of Division 7A of the ITAA. This ultimately can only have relevance to the second of three charges referred to by Mr White in his initial affidavit.
66 It is unnecessary and undesirable in an application such as this type to attempt to make findings on matters which are the subject of disputed expert opinions. Although the legislation requires a suspect be identified and the nature of the serious offences be described in affidavit form, it must be borne in mind that there is no evidence before me in this application of the commencement of any criminal charges against the suspect, or indeed any other person.
67 Much of the argument advanced by Mr Gyorffy QC on behalf of the applicant depends upon an acceptance of the proposition that sums of money "passing through" a company would not create a reasonable suspicion of the suggested criminality directed by Mr White at the suspect Nguoth Mai.
68 In Mr Gyorffy QC's final address he submitted that much of the material, especially that contained in Mr White's most recent affidavit, was irrelevant in forming the basis for a reasonable suspicion. The relevant suspicions must be confined to those relating to the offences relating to Nguoth Mai, the suspect in the present application. Mr Gyorffy QC submitted that s 42 required the court to look again at whether the conditions relating to the operation of sections 18 and 19 had continued to be met.
69 I am unable to accept such a proposition as an accurate statement of the test to be applied. In my view s 42 prescribes a statutory pathway for an applicant seeking to revoke an ex parte restraining order. There may be cases where evidence taken in such an application reveals a significantly different factual basis underpinning a submission than that relied upon in the original ex parte application.
70 Conversely the second limb of s 42(5)(b) may provide a basis upon which a court could revoke a restraining order, even if it was not satisfied that the applicant had discharged the heavy onus set out in s 42(5)(a).
71 In the present case it is clear that Mr White maintains the suspicions which underpinned the original ex parte application. I accept that the material in his most recent affidavit may well broaden those suspicions, but I cannot accept that they significantly dilute the suspicions originally held by him.
72 In Mr Gyorffy QC's final address I was urged to accept that the payments received into the Sportscars' account relevant to the purchase of both the property and the Audi motor vehicle, were in effect tied payments and in effect handed over for a purpose:
"And if there is nothing more than the money comes in with a purpose attached to it, it's either just flowing through there, or the other way you could look at it would be it's held in trust. I mean, that is just a matter of law, looking at it, it is handed over for a purpose. It is like the trust account of a solicitor."[60]
73 In those circumstances the payments made by the company would not be of a type that would attract the attention of Division 7A of the ITAA.
74 Once again I can accept that such an argument may be persuasive on the factual determination as to whether or not the payments from Sportscars can be characterised as being subject to the taxation legislation or not. This is not a decision which needs to be made for the purpose of this application.
75 The onus imposed by s 42 on an applicant is significant. The introduction in evidence of an element of doubt as to the applicability of taxation legislation does not in my view even approach the high threshold established by the statute.
76 The application by Ms Titchiang Hoth Mai must be dismissed.
77 I will hear the parties in relation to formal orders sought and on the question of costs.
[2] Application for Revocation dated 6 February 2018, Court Book ("CB") 251-253
[3] Mai v AFP (Ruling No 1)(unreported 19 November 2018)
[7] Transcript ("T") 94, Line ("L") 8-12
[47] Annexures "RLF-1" and "RLF-2" to Exhibit 5, CB 556-557
[48] Annexure "RLF-3" to Exhibit 5, CB 558
[55] CB 264-345 and Exhibit "AT-1" to Exhibit 6
[58] Commissioner of The Australian Federal Police v Tjongosutiono [2018] NSWSC 48; (2018) 329 FLR 103 at [106] referring with approval to Director of Public Prosecutions (Cth) v Tan [2003] NSWSC 717 at [14]
Mai
Australian Federal Police [2018] VCC 2103
(1990) 170 CLR 104
(2018) 329 FLR 103