Deputy Commissioner of Taxation v Shi [2020] HCATrans 188 (11 November 2020)

Last Updated: 12 November 2020

[2020] HCATrans 188

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
Sydney No S113 of 2020

B e t w e e n -

DEPUTY COMMISSIONER OF TAXATION

Applicant

and

ZU NENG SHI

Respondent

Application for special leave to appeal

BELL J
KEANE J

TRANSCRIPT OF PROCEEDINGS

AT CANBERRA ON WEDNESDAY, 11 NOVEMBER 2020, AT 2.58 PM

Copyright in the High Court of Australia
MR S.T. WHITE, SC: May it please the Court, I appear with MS T.R. EPSTEIN for the applicant. (instructed by Australian Government Solicitor)

MR T.A. GAME, SC: May it please the Court, I appear with MR W.R. JOHNSON for the respondent. (instructed by Uther Webster & Evans)

BELL J: Yes, Mr White.

MR WHITE: Your Honours, the applicant submits there are five reasons why a grant of special leave should be made in this appeal. First, in our respectful submission, the decision is clearly wrong, and I will spend a moment going into the detail of that shortly. Second, the decision of the majority has important consequences for the effective operation, supervision, and enforcement of freezing orders. Third, the scope of the power to issue a certificate pursuant to section 128A of the Evidence Act has not previously been considered by the High Court. Fourthly, the majority approach to derivative use introduces an irrelevant consideration when determining a claim for privilege against self‑incrimination beyond section 128A. And fifthly, the introduction of section 108 of the Civil Procedure Act (NSW), as a consideration concerning where the interests of justice lie, will, with respect, hobble access to disclosure affidavits and, in turn, hobble freezing orders.

Can I now turn to why the majority decision, we submit, with respect, is clearly wrong? The primary judge found that but for one matter, he was of the clear view the interests of justice favoured the disclosure of the privileged affidavit. The one matter was the public interest in recovery of outstanding tax, which the primary judge considered could be facilitated by the applicant using his powers to compulsorily require information, including the information in the privileged affidavit, to be provided pursuant to section 353‑10 of Schedule 1 of the Taxation Administration Act. In that regard, each member of the Full Court found the primary judge had acted on a wrong principle.

However, the majority found that because the applicant had obtained judgment there was another avenue available to the applicant to obtain the information contained in the privileged affidavit. That avenue was the one afforded by section 108 of the Civil Procedure Act which, as your Honours will recall, permits a judgment creditor to apply to the court for orders that a judgment debtor attend court for oral examination and production of documents.

The majority reasoned that given judgment had been obtained, disclosure of the privileged affidavit could only be relevant to assist in execution of the judgment and, in those circumstances, it was relevant to consider whether there was some other means available to assist with execution such as section 108.

Putting to one side whether it is relevant to consider at all other means in circumstances where freezing orders had been obtained and the disclosure affidavit had been filed with the court, the majority’s analysis, with respect, places a gloss on the purpose of disclosure affidavits which are made ancillary to freezing orders. Rule 7.32 of the Federal Court Rules, which conveniently can be seen at application book page 92, provides that a freezing order is made:

for the purpose of preventing frustration or inhibition of the Court’s process by seeking to meet a danger that a judgment or prospective judgment of the Court will be wholly or partly unsatisfied.

Freezing orders are commonly, as your Honours are aware, made ex parte and in circumstances of urgency and in circumstances where the applicant does not have full visibility over the nature and scope of the respondent’s assets. Rule 7.33, also at application book page 92, provides that ancillary orders to a freezing order can be made for the purpose of:

eliciting information relating to assets relevant to the freezing order –

Such identification, again, is normally given by way of disclosure affidavit in circumstances of urgency. The disclosure affidavit is fundamental for a number of reasons. Firstly, it enables the applicant and the court to monitor compliance with the freezing orders and, secondly, and perhaps as relevantly, it enables the applicant to put third parties on notice of the orders who may hold assets beneficially for the respondent.

In our respectful submission, the purpose of ancillary orders is unaffected by the entry of judgment. That utility remains the same, namely, to ensure integrity of the court’s orders are being maintained. Justice Yates, who was the judge that made the freezing orders and the ancillary orders, found that there was a real risk of dissipation of assets and the relevant portion of his Honour’s judgment, again, can be found in the application book at page 90, paragraph 33. The respondent did not appeal the orders of Justice Yates, nor does he challenge those findings in these proceedings.

A section 108 examination is conducted for very different purposes and in different circumstances to orders ancillary to a freezing order. A section 108 examination is undertaken to identify a property or other means to satisfy a judgment. It is not ancillary to a freezing order. It is not undertaken to meet a danger ‑ a judgment creditor will frustrate the court’s process – and it can only be made after the judgment creditor has issued an examination notice requiring the judgment debtor to answer questions and failing to do so may entitle the judgment creditor to an oral examination. But depending on the delays and availability of judicial officers to hear such an examination, it may be some time between obtaining judgment and a hearing of that examination.

Unlike section 353‑10 of the Taxation Administration Act, to which the trial judge referred, section 108 permits the judgment debtor to refuse to answer a question on the grounds of self‑incrimination. The majority in the Federal Court, however, said or reasoned that:

questions [during that examination] could be framed [in a way] to obtain information . . . in a direct way, thus avoiding, to the extent possible, questions which [might trespass] on potentially privileged information –

but whether or not that is so will depend on the facts. If one takes the present case as an example, the primary judge and each member of the Full Court found that the privileged affidavit could not be redacted to exclude privileged information, thereby highlighting the difficulty of identification of assets without descending into privileged information and there is no reason to think an oral examination would have any different outcome.

As your Honours might be aware, often times freezing orders are obtained in circumstances where there is evidence that the respondent has been engaging in some criminal behaviour and often times the court is satisfied.....grant a freezing order and disclosure orders in circumstances where there is evidence of offences that have been committed. If that be the case, then the section 108 examination is going to be met with the same problem ‑ namely, a claim for self‑incrimination and whether the operation of section 128 of the Evidence Act will be in play and, if so, likely to defeat the rationale behind having the 108 process at all.

The second error that the majority committed in its reasoning concerns the interests of justice by taking into account the risk of derivative use of the privileged affidavit. The reasoning of the presiding judge, Justice Davies, was that the respondent’s submissions on this point was purely speculative and her Honour sets that out in some detail at application book page 100, paragraph 47. In summary, her Honour found that there were:

no current charges or criminal proceedings on foot . . . and the grant of a certificate and limitation on use of the information provide some measure of protection.

BELL J: Just on the question of the speculative nature that her Honour identified, I think it is the case there was an active AFP investigation into the applicant. Is that so?

MR WHITE: The evidence rose no higher, your Honour, than the existence of a search warrant that had been issued that permitted the search of the respondent’s premises.

BELL J: I see. All right.

MR WHITE: But also, relevantly, your Honour, section 128A(8) ‑ and your Honours can see that the presiding judge sets out section 128A in her reasons at page 78 of the application book, conveniently sets out there and over on page 79 ‑ and your Honour sees that subsection (8) of that section prohibits derivative use of the information. Notwithstanding that prohibition, Justice Lee who formed the majority in the Federal Court, found it was not speculative to pay regard to the risk that the information could be used in relation to future criminal proceedings.

But the certificate procedure, with respect, has been determined by the legislature as the appropriate mechanism to guard against the risk of derivative use if the majority reasoned that the risk of derivative use was a reason for refusing the certificate, and the circularity of reasoning, with respect, we submit, underscores the error. The approach that the majority has taken risks undermining the certificate mechanism by endorsing an approach whereby speculative risk of derivative use can be taken into account in determining where the interests of justice lie, and we submit that her Honour the presiding judge was correct in her analysis as to why that was and is a wrong approach.

Your Honours, whilst the onus point is not an aspect of the applicant’s appeal, the respondent has indicated to the Court that if special leave is granted he will contend the Full Court was in error and should have found that the applicant, my client, failed to discharge the onus of satisfying the court of the matters in paragraph (b), and paragraph (c). So, paragraph (b) – such that the matter in paragraph (c) of subsection (6) did not fall for consideration.

And your Honours see at page 78 of the application book, section 128A(6)(a), (b), and (c). They are what was referred to by the court as the preconditions. The presiding judge in the Full Court found that the two preconditions in paragraphs (a) and (b) related to the “information disclosed in the privilege affidavit”, which were not matters within the knowledge of the parties seeking disclosure.

Her Honour found that it was for the party claiming the privilege that had that knowledge, and obviously had knowledge of its content, and who was in a position to establish whether the affidavit satisfied the preconditions or the onus. That logic, with great respect, is compelling and is to be preferred to that of the majority, who said that the applicant seeking disclosure bore the onus of the matters in (a) and (b) of subsection (6).

And there are three reasons why we submit, with great respect, the majority is clearly wrong. First, it is highly unlikely the legislature intended the applicant to prove a negative proposition, as can be seen in precondition paragraph (b) – that is, that the affidavit does not tend to prove a person committed an offence against foreign law in circumstances where the applicant never had access to the content of the affidavit and was unaware of what it said.

Secondly, if the majority.....is correct, it follows that the applicant has the onus to satisfy the Court of precondition (a). Your Honours can see that precondition (a) is:

any information disclosed in the privilege affidavit may tend to prove that the relevant person has committed an offence against or arising under . . . Australian law –

Now, it is not apparent why an application would be required to satisfy the Court of that fact when it is not in the applicant’s favour or interest to do so. It is not in my client’s interest to satisfy the Court of precondition (a). It is because, in the absence of that fact, there is no basis for the claim of privilege and, therefore, there would need to be disclosure. So why would my client have an onus to prove something that is contrary to his interest? In our respectful submission, the logic does not flow.

And, thirdly, the majority referred to the applicant’s argument that, absent disclosure, the party seeking access would be labouring under a forensic disadvantage, namely, the applicant does not have access to the affidavit, does not know its content, and that is a reason why the legislature would not have imposed upon it the onus of satisfying the Court of the preconditions. The majority did consider situations analogous to the present, such as the common law privilege and noted that the:

party seeking access to privileged information is generally not entitled to access [it] for the purposes of disputing the claim.

We obviously accept that, however, in those situations, unlike the present, the person asserting the privilege has the onus of proving the basis of the claim. Now, whilst it is correct – as the majority, again, point out at page 111, paragraph 85 – that the evidence in support of the privilege claim:

is liable to challenge –

and we clearly accept that ‑ the problem with that rationale, however, is that that evidence is not privileged. It is evidence relied on to establish the basis for the claim that other information is privileged. So, the fact that the person challenging the privilege may have access to the material which is filed to support the claim of privilege, does not really, with respect, take the matter anywhere.

The remaining matter referred to by the majority on this point, at paragraph 85, was the observation that:

the onus of establishing any waiver is on the party seeking to displace the existence of the privilege.

However, it is not clear how that analogy is relevant to how one properly construes subsection (6) of section 128A. In our respectful submission, the construction the majority had placed on subsection (6) places significant obstacles for the applicants seeking access to disclosure affidavits. The appeal, with great respect, raises important issues as to the proper construction of section 128A and its principal operation and, for the reasons that we have previously submitted, merits the grant of special leave. May it please the Court.

BELL J: Thank you, Mr White. Yes, Mr Game.

MR GAME: One matter before I forget it, is that there are two judgments of Justice Yates that set out the extensive – in fact, major – police investigation in relation to this case. The judgment of Justice Steward commences with a reference to the numerous warrants. There were nine warrants and a clear level of reasonable suspicion in respect of conspiracy to defraud – tax offences, and the like – and that permeated the entire case.

Now, we say that there are two fundamental reasons why special should not be granted. The first concerns what actually was decided in this case. What was decided in this case appears at pages 114 of the application book and following. What was decided in this case was a re‑exercise of a House v The King discretion involved in the question as to what the interests of – whether the interests of justice required the information be disclosed.

Justice Lee addressed the question there in the context of ground 1 and ground 3 of our notice of contention and it was against a background of an analysis by his Honour of the circumstances of the introduction of section 128A of the Evidence Act, which was not put in place for the execution of judgment, but entirely ‑ I say entirely, but specifically, in the context of the prejudgment, curial context.

And in the judgment at paragraphs 97 and following, all his Honour was saying, if one looks at paragraphs 105 and following, was that, in effect ‑ we see it at 104 ‑ all that was left, in respect of the question of the ongoing relevance, if any, of the affidavit, concerned methods of execution of judgment. There was no other purpose, it had no other context. So, to say that the freezing order had a continuing relevance is not correct, other than in the context of execution of judgment.

KEANE J: But the freezing order only ever had relevance with a view to ensuring that execution could proceed.

MR GAME: Well, not necessarily, your Honour. For example, in one of the cases that was the commencement of this ‑ that brought about a series of events, Bax, for example, the conversion case, whether or not there is efficacy in the subject matter of the appeal, or the subject matter of the trial within a case involving a fraudulent conversion. Or there may be efficacy before judgment, but the efficacy here is in respect of execution of judgment, and all that Justice Lee is saying, at paragraphs 105 and following, is that a relevant consideration ‑ and it is a relevant consideration in this case, it is not an administrative law, as it were, this is a fixed relevant consideration ‑ it is a relevant consideration in this case, which his Honour thought was very important, was that, in the context of this case, was that the only question concerning the execution of judgment ‑ and there was an available procedure, and he explains at paragraphs 106 and following why that available procedure is apposite in this case, which is the – and that procedure could have been put in place back in April 2019.

So yes, I do maintain that the only relevance of it was to execution of judgment, as it happened, because judgment was entered for something like $44 million in April 2019. So, what his Honour’s analysis is doing at 105 and following and then in conclusion at 111 is saying (a) that there is an alternative and the availability of an alternative is a relevant consideration. So, as I say, it is just a House v The King exercise of a discretion ‑ ‑ ‑

KEANE J: But why is the availability of the alternative a relevant consideration? If the circumstances of the case come within the provision which the other side invoke, it just seems to be extraordinarily officious to say, well, there is another procedure they could have invoked.

MR GAME: Your Honour, the actual procedure invoked by this is a procedure that requires the Court ‑ and his Honour Justice Lee gave considerable weight to this – to be satisfied that it is required in the interests of justice and that is a heavy onus. His Honour said it was not required in the interests of justice because there was a readily available alternative that presented no difficulties in its performance and would be supervised by a judicial registrar in which questions of privilege could be determined on a question by question basis and if a 128 certificate had to be given, then that could be done, and there is nothing unusual about that procedure.

There is nothing officious about saying that that is an alternative and that is an appropriate course and therefore it is not required in the interests of justice under the provision. His Honour also thought it relevant, and it was in our submission, that this was in the context of a massive – it is not correct to say that this was not the context of the case. It was the context of the case that this was against a massive police investigation against my client and a numerous number of corporations in which he had an involvement.

There was a massive police investigation in relation to what is called Phoenix and the companies in relation to many, many meatworkers in Australia. That is the second consideration which our opponents say is said not to be relevant but all this case is deciding, and no more, is that they are in the House v The King re‑exercise of a discretion. The court was not satisfied it was required for those two reasons. The case has no precedential value beyond that and they are determinations in the circumstances of this case.

The second point we raise is this. Our position is that we have an unassailable response in a notice of contention that was misunderstood at a particular point by the Full Court and I will explain it this way. If you go to the provision at page 9 of the application book 128A, 128A says in subsection (2).....apply under (a) either that the evidence tendered to be that we have committed an offence under Australian law or a foreign country. So, I will call Australian law (a) and foreign law (b).

If we get to that point then the court must not require the information to be disclosed subject to subsection (6). Subsection (6), on our argument and accepted by Justice Lee, the onus shifts entirely. That is to say the person who wants the order, which is the Commissioner in this case, has to satisfy (a), (b) and (c), and what that means is that they satisfy the court that it was tendered to establish offence against Australian law but not foreign law and that it was in the interests of justice and that is all that that section says. It is a straightforward piece of statutory interpretation.

Now, Justice Steward got this dead wrong at page 12 at line 30. He thought that we had to establish everything, (a) and (b), and then the Commissioner had to establish (c). That cannot be correct. And then at paragraphs 23 and following, he disposed of our argument on the basis that we could not discharge the onus but it is all about us not being able to discharge the onus under (a) and under (b).

That is what paragraphs 23 and 24 are, and all 25 is, is a recitation of the provision us not having satisfied the onus. But we never set out to do that. We never tried to establish the onus. We said the onus was on them and that they had made no attempt to do so. So, the parties were joined on this question and that was how the evidence lay. We did not attempt to meet the onus and nor did they. So, when 23 and 24 is saying we did not satisfy the onus, we did not try to. Now, if you then go to our notes at ‑ ‑ ‑

KEANE J: Can I ask how would the other side have gone about satisfying the onus, in respect of an affidavit which they, by design, by design of the Act, do not know anything about?

MR GAME: Your Honour, it happens all the time in privilege claims, in arguments about section 123, crime of fraud, and it is not that difficult when we are already looking at what (a) and (b) back when the claim was made, but there is no way that that section can be construed on the basis that we bear the onus. Now, I will come to what Justice Lee said in a moment, but if you look at our notice contention, at page 69 and 70 ‑ ‑ ‑

BELL J: What page?

MR GAME: Page 69 and 70, your Honour, of our notice of contention, we would say in ground 1 that they.....and that we were saying that b. the onus on them, they did not meet it. And then 2 was for if that was not the case, and the onus was on us or elsewhere, then irrespective of onus, we could establish – we abandoned ground 2, but we never abandoned ground 1.a. and b., which was – ground b. was specifically referred to paragraph 25 of the judgment which I have just taken you to, and ground 2, we abandoned it, because we did not seek to establish if the onus was on us. But we never for one moment, abandoned the argument that they could not establish the onus.

Now, if you go to Justice Lee’s judgment at page 113 of the application book, his Honour at paragraph 91.....that we are right with respect to the onus, and we say that that – the legislation is intractable in respect of onus on this question and we are clearly right on that. But his Honour made a mistake ‑ ‑ ‑

BELL J: Mr Game, you say that it is in intractable, and that it follows you are clearly right, but as I understood Mr White, the Deputy Commissioner seeks to put the contrary and to invite a consideration that the primary judge’s approach on questions of onus was correct.

MR GAME: Yes, but at the moment I am seeking to hold the judgment and persuade you that special leave should not be granted, so all I am doing at the moment is putting.....as to why ‑ ‑ ‑

BELL J: What I am raising with you, Mr Game, is whether in this respect, by taking us to your notice of contention, you are not fluffing up points of construction about the provision that ‑ ‑ ‑

MR GAME: I could be, your Honour, but I just have to – there are two parts to my argument, and the first part is such that this is a House v The King exercise of discretion and one should not overstate what this case decides.

BELL J: I understand that.

MR GAME: That is the central proposition, but I am also trying to explain that at paragraph 93 there is a mix‑up in the judgment, because his Honour said, well, you abandoned ground 2 and therefore the point went away. But we never abandoned ground 1, it being 1.a. and b., and if we had, we would have been throwing away the whole of our argument. So, there is a misunderstanding about what has been decided.

So, all I am saying is we have two responses to this. One is what I just said to your Honours before, this is a fact‑specific re‑exercise of discretion with very little precedential value. Two, that we have got an ironclad answer to the question by way of our notice of contention. And that is the only sense I am putting it forward at this stage, at this moment, I am not meaning to fluff it up, your Honour, I am just explaining to you what the actual argument is. But those are our submissions in response, if the Court pleases.

BELL J: Mr White, anything in reply?

MR WHITE: Not unless your Honours wish me to answer any questions or anything that can assist.

BELL J: Thank you.

Yes, there will be a grant of special leave in this application. What is the estimated length? Mr White, you are having difficulty hearing the Court?

MR WHITE: I cannot hear Mr Game.

BELL J: I see.

MR GAME: Less than a day, your Honour.

BELL J: Less than a day.

MR GAME: But it could spill into the afternoon, I think.

MR WHITE: I agree.

BELL J: All right. Thank you. If those who instruct you would collect the directions, which I think will contain some departure in order to take account of the Christmas period, but collect those from the Registrar. Thank you, if you would then adjourn the Court to 9.30 am tomorrow for the pronouncement of orders and otherwise to 9.45 am.

AT 3.31 PM THE MATTER WAS CONCLUDED