On Tuesday 12.7.2016, the Full Federal Court unanimously allowed a taxpayer’s appeal and held that the orders of the primary judge (which provided for the issue of a draft letter of request to a foreign bank) should be set aside.
The letter of request had been sought by the Commissioner to 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. The order was sought pursuant to s7 of the Foreign Evidence Act 1994.
These proceedings arose out of the decision by the AAT in Re Areffco and FCT [2011] AATA 628 setting aside the Commissioner’s decision to disallow deductions for just over $2m in interest paid on loans from MDB to Rawson Finances Pty Ltd (Rawson). The effect of the orders, sought by 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 submitted are likely to be held by MDB.
At first instance, in FCT v Rawson Finances Pty Ltd (No 2) [2016] FCA 402, Perry J ordered that the letter of request be issued.
- A draft of the letter of request was annexed to the orders.
- It included a request that, in aid of and ancillary to the examination, a subpoena, summons or equivalent order be issued or made requiring the chairwoman, as the proper officer of MDB, to produce documents falling within certain categories of documents set out in a schedule.
- The schedule set out 4 categories of documents relating to the banking relationship between MDB and Rawson over many years.
- The draft letter of request included a general question about the nature of all the arrangements between MDB and Rawson relating to the transmission of funds in the period 1997 to 2009.
- The Full Federal Court noted there was no evidence to suggest that the chairwoman had any personal knowledge of those arrangements. The only evidence about the proposed witness was her name and position as chairwoman.
- The draft letter of request also included a series of questions about each document produced in response to the subpoena, summons or equivalent order.
Rawson sought leave to appeal from the orders of the primary judge and the leave application and the appeal application were heard together.
Rawson contended that:
- the request was in substance a request for discovery and production of documents from a third party and thus outside the scope of s7 of the Foreign Evidence Act (see copy of s7 below); and
- that there was no evidence as to whether the chairwoman would be able to give evidence material to any issue to be tried in the proceeding (this being a matter to be taken into account under s 7); and
- that there was no evidence as to whether the chairwoman was willing or able to come to Australia to give evidence in the proceeding (another matter to be taken into account under the section).
After review of the matter, the Full Federal Court allowed the taxpayer leave to appeal and allowed the appeal. The Court found that the primary judge erred in concluding that the documents sought to be produced were in aid of, or ancillary to, the request to examine the chairwoman about the nature of the arrangements between MDB and Rawson.
The primary judge also erred, the Full Court said, in concluding that the chairwoman would be able to give evidence material to the issues to be tried in the proceeding.
(Rawson Finances Pty Ltd v FCT [2016] FCAFC 95, Full Federal Court, Robertson, Moshinsky and Bromwich JJ, 12 July 2016.)
[LTN 132, 12/7/16]
Section 7 of the Foreign Evidence Act 1994
Orders for taking evidence abroad
(1) In any proceeding before a superior court, the court may, if it appears in the interests of justice to do so, on the application of a party to the proceeding, make an order, relating to a person outside Australia:
(a) for examination of the person on oath or affirmation at any place outside Australia before a judge of the court, an officer of the court or such other person as the court may appoint; or
(b) for issue of a commission for examination of the person on oath or affirmation at any place outside Australia; or
(c) for issue of a letter of request to the judicial authorities of a foreign country to take the evidence of the person or cause it to be taken.
(2) In deciding whether it is in the interests of justice to make such an order, the matters to which the court is to have regard include the following:
(a) whether the person is willing or able to come to Australia to give evidence in the proceeding;
(b) whether the person will be able to give evidence material to any issue to be tried in the proceeding;
(c) whether, having regard to the interests of the parties to the proceeding, justice will be better served by granting or refusing the order.