FEDERAL COURT OF AUSTRALIA McFarlane v Thompson [2000] FCA 796 PRACTICE AND PROCEDURE – application for interlocutory relief in relation to documents purportedly seized pursuant to warrants – whether serious questions to be tried: that decision to issue warrants made on insufficient material; that documents seized were outside the scope of warrants; or that documents were seized outside the terms authorised by the warrants – whether balance of convenience in favour of grant of interlocutory relief. The Crimes Act 1914 (Cth) BRIAN WILLIAM McFARLANE AND CRAYVIEW PTY LTD AS TRUSTEE FOR McFARLANE FAMILY UNIT TRUST v NEIL MARTIN THOMPSON, SALLY ANNE McDONALD and KEVIN EDWARDS Q 32 OF 2000 SPENDER J BRISBANE 2 JUNE 2000 IN THE FEDERAL COURT OF AUSTRALIA QUEENSLAND DISTRICT REGISTRY Q 32 OF 2000 BETWEEN: BRIAN WILLIAM McFARLANE FIRST APPLICANT CRAYVIEW PTY LTD AS TRUSTEE FOR McFARLANE FANNING UNIT TRUST SECOND APPLICANT AND: NEIL MARTIN THOMPSON FIRST RESPONDENT SALLY ANNE McDONALD SECOND RESPONDENT KEVIN EDWARDS THIRD RESPONDENT JUDGE: SPENDER J DATE OF ORDER: 2 JUNE 2000 WHERE MADE: BRISBANE THE COURT ORDERS THAT: 1. The Metway Bank deposit book, currently in the possession of the Australian Federal Police, be lodged with the Registrar of the Court; and that it and the "Kangarucci" A4 notebook, currently included in "MFI A" in the custody of the Court, be lodged with the Registrar of the Court and marked "Not to be released to any person without the prior order of a judge of this Court". 2. Within 7 days of today the solicitors for the applicants and for the respondents together inspect the documents which are the subject of a claim for legal professional privilege and in the custody of the Court (MFI "A"), with the exception of the "Kangarucci" A4 notebook referred to in Order 2 (above), and divide them into 3 bundles: (a) documents in respect of which the applicants abandon their claim for legal professional privilege; (b) documents which the applicants and respondents agree are properly the subject of legal professional privilege; and (c) documents in respect of which the applicants maintain their claim for legal professional privilege, which claim is not accepted by solicitors for the respondents. 3. The three bundles of documents referred to in Order 3 (above) be dealt with respectively as follows: (a) they be returned to Federal Agent N.M. Thompson of the Australian Federal Police, and be dealt with as documents seized pursuant to the warrants; (b) they be placed in a sealed envelope and returned to the registry of this Court marked "Privileged Documents (Agreed)"; (c) they be placed in an envelope and returned to the registry of this Court marked "Disputed Documents (Privilege)", and be the subject of further argument before this Court at a time and place to be notified to the parties by the Registrar, after consulting with the parties as to an appropriate time for that argument to be heard. 4. Costs of today be reserved. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA QUEENSLAND DISTRICT REGISTRY Q 32 OF 2000 BETWEEN: BRIAN WILLIAM McFARLANE FIRST APPLICANT CRAYVIEW PTY LTD AS TRUSTEE FOR McFARLANE FANNING UNIT TRUST SECOND APPLICANT AND: NEIL MARTIN THOMPSON FIRST RESPONDENT SALLY ANNE McDONALD SECOND RESPONDENT KEVIN EDWARDS THIRD RESPONDENT JUDGE: SPENDER J DATE: 2 JUNE 2000 PLACE: BRISBANE REASONS FOR JUDGMENT 1 This is an application for orders by way of interlocutory relief relating to the custody of documents, or the detention of them, which were seized from the first and second applicants in these proceedings by Federal Police officers. The seizure was purported to be effected pursuant to warrants issued by Mr Kevin Edwards, a Justice of the Peace who is the third respondent in the proceedings. Mr Edwards issued the warrants following an application by the first respondent, Federal Agent N.M. Thompson of the Australian Federal Police, in respect of four premises: (1) a Strathpine Newsagency; (2) another newsagency at Peninsula Fair Shopping Centre, Kippa-Ring; (3) the office of the accountants of the applicants; and (4) Mr McFarlane's home at 49 Priestley Road, Bridgeman Downs. 2 The warrants were executed on 14 March 2000. The applicants originally commenced proceedings in the Supreme Court of Queensland for declaratory relief, but a dispute ensued as to the jurisdiction of the Supreme Court to deal with matters involving Commonwealth jurisdiction. The parties agreed, therefore, that proceedings in the Supreme Court not be pursued, that the matter instead would be pursued in the Federal Court, and that the applicant's application for an extension of time to commence proceedings in this Court would be supported by the respondents. 3 There have been discussions between the parties concerning the preservation of the property seized at three of the four locations that I have earlier referred to. No documents were received from the Strathpine newsagency. During the search of Mr McFarlane's home there were some documents seized which an accountant, on behalf of Mr McFarlane, asserted were the subject of legal professional privilege. These documents were presented by Federal Agent Thompson to the Registrar at the Sandgate Magistrates Court and were later transferred to the Office of the Queensland Crown Solicitor, who produced them to the Court this morning. 4 I will deal later with the question of what should happen to the documents which are the subject of the claim for legal professional privilege. So far as the documents seized which are not the subject of such a claim, it is contended by senior counsel for the applicants, Mr Griffin QC, that documents were seized which were not authorised by the terms of the warrant. It was further submitted that there is an arguable case on the material that the warrants were obtained on material insufficient to properly permit their issue; and that the documents taken from Mr McFarlane's home were seized outside the hours authorised by the warrant. 5 As to the sufficiency of the material for the grant of the warrant it seems to me that, even if there is a serious question to be tried, that consideration is subsidiary to the question of the balance of convenience. 6 The warrants recite that the issuing officer was satisfied by information that there were reasonable grounds for suspecting that there was evidential material at the relevant premises which satisfied all of three conditions set out in the warrant. 7 The three conditions were as follows: "FIRST CONDITION: Things which are: accountants working papers, cheque book butts, deposit books, pass books cash books, ledgers, journals any other document relating to the income and expenses of Crayview Pty Ltd and the McFarlane Fanning Unit Trust for the years ended 30 June 1993 and 1994 SECOND CONDITION: Things which relate to any one or more of the following: Crayview Pty Ltd The McFarlane Fanning Unit Trust THIRD CONDITION: Things as to which there are reasonable grounds for suspecting that they will afford evidence as to the commission of the following offence(s) against the laws of the Commonwealth: an offence against section 29B of the Crimes Act 1914, namely that Brian William McFARLANE attempted to impose on the commonwealth when he signed the income tax returns of the McFARLANE FANNING UNIT TRUST for the year ended 30 June 1993 and failed to declare significant taxable income of the unit trust an offence against section 29B of the Crimes Act 1914, namely that Brian William McFARLANE attempted to impose on the Commonwealth when he signed the income tax returns of the McFARLANE FANNING UNIT TRUST for the year ended 30 June 1994 and failed to declare significant taxable income of the unit trust" 8 The warrant also stated: "THIS WARRANT MAY BE EXECUTED BETWEEN THE HOURS OF 8.00 AM AND 7.00 PM." 9 As to whether there is a serious question to be tried that matters were seized outside the terms of the warrant, the contention on behalf of the applicants is reflected in paragraph 18 of an affidavit by Mr McFarlane sworn 1 June 2000, which provides: "From my observations, none of the officers involved in the searches to which I have referred examined the relevance of any documents they seized. They simply requested documents relating to the 1993 and 1994 taxation years, and took them. I say the only officers who conducted any form of search at any of the premises where I was in attendance were Australian Taxation Officers, not Federal Police Officers." 10 I do not think there is too much dispute as to the basis on which the search was conducted. That seems to me to be apparent from the affidavit of Ms Noelle Joan Page (filed 1 June 2000), who is an investigator with the Prosecutions Unit of the Australian Taxation Office who collaborated with Federal Agent Thompson in the preparation of the application for a search warrant, and who supplied him with information associated with aspects of the affidavit in support of the application for a warrant. Ms Page also attended briefing meetings of the team to be involved in the execution of the warrants. Ms Page deposes in paragraph 24: "I say that I have had an intimate involvement in the investigation of McFarlane and his group of companies. I am well aware of the sort of document that I was searching for and the three conditions contained within the warrant. If documents seen by me related to income for the years 1993 and 1994 and were in relation to Crayview and/or The McFarlane Fanning Unit trust, then I believed that that document satisfied the three criteria set out in the warrants." 11 I incline to the view that in relation to the alleged offences against section 29B of the Crimes Act 1914 (Cth) (the Act), constituted by Mr McFarlane attempting to impose on the Commonwealth by signing income tax returns of the McFarlane Fanning Unit Trust for the tax years ending 30 June 1993 and 30 June 1994 and failing to declare significant taxable income of the unit trust in that return, documents which relate to the income or expenses of that entity during each of those financial years are relevant and within the purview of documents that could properly be seized pursuant to the warrant. 12 If I am wrong in that preference, however, it seems to me that the balance of convenience tells strongly against the grant of interlocutory relief with the effect of quarantining from inspection by investigating officers documents which fall within the description of "document[s] relating to the income and expenses" of the unit trust in the relevant years. If it be that documents have been seized outside the terms of the search warrant, permitting inspection of documents of the kind that I have just discussed would not work an irremediable injustice to the applicants, and damages would, in any event, be an adequate remedy. 13 The position, however, is different in relation to documents which are said to have been seized at the McFarlane's Bridgeman Downs home after the time specified in the warrants. It seems to me that it is seriously arguable on the material that two documents fall within that category: a Metway Bank deposit book and a "Kangarucci" A4 exercise book. There are strong policy reasons why the Court ought not to permit inspection of those documents pending the resolution of the claim to illegality in relation to their seizure. 14 Section 3F(3) of the Act provides: "If the warrant states that it may be executed only during particular hours, the warrant must not be executed outside those hours." 15 It seems to me that to permit the inspection of documents which it is seriously arguable are caught by that statutory prohibition would be to set the prohibition at an impermissibly low level. The Court ought not to encourage unlawful conduct by failing to quarantine those documents pending the resolution of the question of whether their seizure was unlawful. 16 It was also contended by the applicants that the other documents taken from Bridgeman Downs were also seized outside the period specified in the warrant, in that they were removed from the premises after the end of that period. Apart from the documents in respect of which legal professional privilege is claimed, there are only two such documents: a white manila folder marked "Westfield", containing two turnover sheets; and a Commonwealth Bank Security Plus Investment account book in the name of Crayview Pty Ltd. In respect of those documents, and having regard to the material before me relating to their location, inspection and seizure, I am not satisfied that it is seriously arguable that they were seized outside the period of the warrant. Be that as it may, it seems to me that the considerations in relation to those two documents are different from the considerations in relation to the two which it is very strongly arguable were seized outside the period of the warrants. 17 In light of the above considerations, I make the following orders. First, in relation to the documents subject of a claim for legal professional privilege, I direct that within seven days the solicitors for both the applicants and respondents inspect those documents which are in the custody of the Court and divide them into three bundles. The first bundle should be those documents in respect of which the claim of legal professional privilege is no longer pressed, and documents in respect of that bundle may be returned to Federal Agent Thompson to be dealt with as documents seized pursuant to the warrants. 18 The second bundle should be those documents which it is agreed are the subject of legal professional privilege, having regard to the test as most recently articulated by the High Court in Esso Australia Resources Ltd v The Commissioner of Taxation [1999] HCA 67. Those documents should be placed in a sealed envelope marked "Privileged Documents (Agreed)", and be returned to the registry of this Court. 19 The third bundle of documents should be those in respect of which the claim for legal professional privilege is maintained, but not accepted by the solicitors for the respondent. Those documents should be placed in an envelope marked "Disputed Documents (Privilege)" and be returned to the registry of this Court. They will be the subject of further argument and adjudication by the Court, at a time and place to be notified by the Registrar after consulting with the parties in that regard. 20 In relation to the documents which are not part of "MFI A" before me now, which are the Metway Bank deposit book and the "Kangarucci" A4 exercise book, I direct that they be lodged with the Registrar of this Court and placed in an envelope marked: "Not to be released to any person without the prior order of a judge of this Court". They will be the subject of determination in the principal proceedings. In relation to the remaining documents, I am not satisfied that this is an appropriate case to make any interlocutory order quarantining them from inspection. I decline, in respect of those documents, to make any of the orders sought by the applicants in the present application. 21 As to the costs of the present application there has been, it seems to me, mixed success by both sides. I therefore simply reserve the costs of this application, so that they will either fall with the principal application or be the subject of express submissions and applications after the principal proceedings have been determined. I certify that the preceding twenty-one (21) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Spender. Associate: Dated: 14 June 2000 Counsel for the Applicants: Mr Griffin QC, and with him, Mr Clutterbuck Solicitor for the Applicants: Cranston McEachern, Solicitors Counsel for the First & Second Respondents: Mr Applegarth Solicitor for the First & Second Respondents: Australian Government Solicitor Counsel for the Third Respondent: Mr Boustead Solicitor for the Third Respondent: Crown Solicitor Date of Hearing: 2 June 2000 Date of Judgment: 2 June 2000