The Federal Court had ordered that a letter of request be issued to the judicial authorities of Israel to take or cause to be taken the evidence of the Chairwoman of the Board of Mercantile Discount Bank (MDB), a third party bank located in Israel, and for the production of documents in aid of, or ancillary to, that examination.
These proceedings arise out of the decision by the AAT in Re Areffco and FCT [2011] AATA 628 setting aside the decision of the Commissioner to disallow deductions for just over $2m in interest paid on loans from MDB to Rawson Finances Pty Ltd. The AAT decision was successfully appealed to the Federal Court by the Commissioner in FCT v Rawson Finances Pty Ltd [2012] FCA 753. However, the Full Federal Court allowed Rawson’s appeal and dismissed the appeal against the AAT decision: Rawson Finances Pty Ltd v FCT [2013] FCAFC 26. By the current proceedings, the Commissioner sought to set aside the decision of the Full Court. Further, or in the alternative, the Commissioner sought to set aside the decisions in the Federal Court and the Full Federal Court and to quash the AAT decision. Relief was sought on the ground that the decisions were obtained by fraud.
On 12 February 2016, the Commissioner sought 3 orders:
- Pursuant to s 7 of the Foreign Evidence Act 1994, that a letter of request be sent to the judicial authorities of Israel to take or cause to be taken the evidence of the Chairwoman of the Board of MDB, and to have her produce nominated documents “in aid of and ancillary to the examination” (Order 1).
- To facilitate compliance with that request, a mandatory injunction was also sought requiring Rawson to provide to the Court a document signed by or on behalf of Rawson consenting to MDB producing nominated documents and waiving unconditionally any rights of secrecy, privacy or confidentiality in respect of the documents sought in aid of the Chairwoman’s examination (Order 2).
- In the alternative, the Commissioner sought an order that Rawson provide to the Commissioner (or his duly appointed agent) any signature, document, permission or authority (including a power of attorney or other authority) required by MDB and any assistance reasonably required by the Commissioner or MDB in order for MDB to release to the Commissioner or his agent, for production to the Court, any documents that fall within nominated categories of documents (Order 3).
The effect of these orders, according to the Commissioner, would be to require the giving of evidence on the loan arrangements between Rawson and MDB and with respect to documents which the Commissioner submits are likely to be held by MDB, a third party bank located in Israel. The Commissioner submitted that this evidence and the documents sought in aid of the examination related to certain transactions which are central to the ultimate issue in the substantive proceedings, being the nature of transactions by which funds were transferred between MDB and Rawson.
Rawson opposed the interlocutory application on a number of grounds. It submitted that the application did not satisfy s 7 of the Foreign Evidence Act as it was, in substance, a request for the discovery of documents from a non-party and not the examination of a witness. Secondly, Rawson contended that the application was an abuse of process because it constituted a “fishing expedition” and/or impermissibly seeks further evidence of fraud when the case to be met is that as at the time that the originating application was filed. Finally, it was submitted that proposed Orders 2 and 3 infringe the privilege against self-incrimination of Rawson’s directors and consequently should not be made in any event.
After review of the matter, the Court considered that an order should be made in terms of Order 1 sought by the Commissioner. However, it did not consider it was appropriate for an order to be made in terms of Orders 2 or 3 as the Court considered those orders would infringe the privilege against self-incrimination of the 2 directors of Rawson.
(FCT v Rawson Finances Pty Ltd (No 2) [2016] FCA 402, Federal Court, Perry J, 22 April 2016.)
AAT – Catchwords: [2011] AATA 628
TAXATION AND REVENUE – income tax – whether amounts received by the Applicant should be characterised as a loan or income – whether claimed interest expenses are allowable as deductions – consideration of the sufficiency of documentary evidence and history of the timing and amounts of interest payments – unavailability of witnesses – onus of proof – obligation of the decision maker – decision under review set aside.
Federal Court – Catchwords: [2012] FCA 753
INCOME TAX – assessment of receipts said to be loans and disallowance of outgoings said to be interest payments – appeal from Administrative Appeals Tribunal decision setting aside objection decisions – whether taxpayer proved that receipts were loans and so discharged the onus it carried to show that the assessments were excessive: s 14ZZK(1)(b) of the Taxation Administration Act 1953 (Cth) – Tribunal erred in so concluding – appeal allowed.
Full Federal Court – Catchwords: [2013] FCAFC 26
ADMINISTRATIVE LAW – whether findings of tribunal open on the evidence – burden of proof – relationship between s 14ZZK(1)(b)(i) Taxation Administration Act 1953 (Cth) and s43(1) Administrative Appeals Tribunal Act 1975 (Cth) – procedural fairness
Federal Court (No. 2) – Catchwords: [2016] FCA 402
EVIDENCE – application for a letter of request to be sent to the judicial authorities of Israel pursuant to s 7 of the Foreign Evidence Act 1994 (Cth) – whether application is in substance a request for production of documents or discovery from a non-party – whether documents sought are ancillary to and in aid of the request to take the evidence of a witness – whether evidence directed at admissibility of documents is evidence material to an issue to be tried – whether application is an abuse of process in seeking further evidence in proceedings to set aside a Tribunal decision and related judgments on the ground of fraud – whether witness willing or able to come to Australia to give evidence.
PRIVILEGE –whether proposed orders to facilitate production of documents would infringe the privilege against self-incrimination of the two directors of the respondent.