FEDERAL COURT OF AUSTRALIA Denlay v Commissioner of Taxation [2011] FCA 1092 Citation: Denlay v Commissioner of Taxation [2011] FCA 1092 Parties: KEVIN VINCENT DENLAY v COMMISSIONER OF TAXATION MIRJA HELENA DENLAY v COMMISSIONER OF TAXATION File number(s): QUD 151 of 2009 QUD 152 of 2009 Judge: LOGAN J Date of judgment: 9 June 2011 Catchwords: EVIDENCE – voir dire – illegal or improperly obtained evidence – where witness sought to be cross-examined on material that was derived from information obtained by an allegedly unlawful act – whether this derived evidence was admissible – where respondent not involved in impropriety – where taxation officers able refer to broad information base when making assessments or where assessments deemed lawful in Full Court proceeding – application of Pearce v Button discretion to admit evidence – cross-examination allowed to continue Legislation: Customs Act 1901 (Cth) s 214 Evidence Act 1995 (Cth) ss 26, 43, 138 Income Tax Assessment Act 1936 (Cth) ss 166, 263, 264 Cases cited: Cooke v Maxwell (1816) 171 ER 614; 2 Stark 183 considered Denlay v Commissioner of Taxation [2011] FCAFC 63 considered Denlay v Commissioner of Taxation (2010) 276 ALR 675 considered Pearce v Button (1985) 8 FCR 388 applied DPP Reference under s 693A of the Criminal Code; Re Y & Ors (1998) 100 A Crim R 166 considered Date of hearing: 9 June 2011 Place: Brisbane Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 21 Counsel for the Applicant: Mr G Ng Solicitor for the Applicant: Nyst Lawyers Counsel for the Respondent: Mr M Wigney SC with Mr P Looney Solicitor for the Respondent: Australian Government Solicitor IN THE FEDERAL COURT OF AUSTRALIA QUEENSLAND DISTRICT REGISTRY GENERAL DIVISION QUD 151 of 2009 BETWEEN: KEVIN VINCENT DENLAY Applicant AND: COMMISSIONER OF TAXATION Respondent JUDGE: LOGAN J DATE OF ORDER: 9 JUNE 2011 WHERE MADE: BRISBANE THE COURT ORDERS THAT: 1. The objection as to the use of the s 264 interview transcript for the purpose of cross-examining Mr Kieber is overruled. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011 IN THE FEDERAL COURT OF AUSTRALIA QUEENSLAND DISTRICT REGISTRY GENERAL DIVISION QUD 152 of 2009 BETWEEN: MIRJA HELENA DENLAY Applicant AND: COMMISSIONER OF TAXATION Respondent JUDGE: LOGAN J DATE OF ORDER: 9 JUNE 2011 WHERE MADE: BRISBANE THE COURT ORDERS THAT: 1. The objection as to the use of the s 264 interview transcript for the purpose of cross-examining Mr Kieber is overruled. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011 IN THE FEDERAL COURT OF AUSTRALIA QUEENSLAND DISTRICT REGISTRY GENERAL DIVISION QUD 151 of 2009 BETWEEN: KEVIN VINCENT DENLAY Applicant AND: COMMISSIONER OF TAXATION Respondent IN THE FEDERAL COURT OF AUSTRALIA QUEENSLAND DISTRICT REGISTRY GENERAL DIVISION QUD 152 of 2009 BETWEEN: MIRJA HELENA DENLAY Applicant AND: COMMISSIONER OF TAXATION Respondent JUDGE: LOGAN J DATE: 9 JUNE 2011 PLACE: BRISBANE REASONS FOR JUDGMENT 1 At a point during the cross examination of Mr Denlay by senior counsel for the Commissioner, when it might be apprehended that a question was asked which was a precursor, depending on answers given, to a tender of a document after observance of s 43 of the Evidence Act 1995 (Cth) (Evidence Act), objection was taken to that question or further questions grounded upon the use as any prior inconsistent statement of answers given in an interview of Mr Denlay conducted pursuant to s 264 of the Income Tax Assessment Act 1936 (Cth) (Income Tax Assessment Act) prior to the commencement of the taxation appeals. 2 For the purpose of determining that objection, it was necessary to embark upon a voir dire. In the course of that, evidence was given either by admission or otherwise which allows me to find, for the purposes of determining the objection, that Mr Kieber took copies of data upon which was information relating to the banking records of what may be conveniently called the LGT Group Foundation. That same evidence admits of the conclusion that Mr Kieber took that data without the permission of the LGT Group Foundation. At the time when he took the data, he was an employee of a company within the LGT Group Foundation, namely, LGT Treuhand. He had worked for that company within that group between April 2001 and November 2002. Further, he had before then worked for a company which provided information technology services to, it seems, the LGT Group Foundation. 3 The evidence further discloses that Mr Kieber was, in 2006, introduced to officers of the Australian Taxation Office, in particular, a senior officer in that office, Mr O'Neill, via a third party authority. That introduction having occurred, Mr O'Neill and others interviewed Mr Kieber at length in October 2006. The interview extended over a number of days and ranged over a number of topics, including a particular foundation which held an account at a bank within the LGT Group. In the course of the interview, Mr Kieber offered to provide to the Australian Taxation Office disks containing information which had been derived by his removal of data without authority. 4 Early in 2007, the Australian Taxation Office took up that offer. Later in 2007, Mr Kieber came to Australia. He did so using air travel for which the Commonwealth of Australia, via the Australian Taxation Office, paid. He was accommodated here at Commonwealth expense. In the course of what was termed by Mr O'Neill, in his evidence on the voir dire, as a "workshop", Mr Kieber provided to the Australian Taxation Office insights into the data that he had provided in October 2006. 5 On the strength of that data, and inferentially, the other inquiries it inspired, the Commissioner came, via his officers, first to conduct a search of Mr and Mrs Denlay's Australian premises, using the power conferred by s 263 of the Income Tax Assessment Act. Later, and also inferentially referable both to that which was obtained upon the access pursuant to s 263 and that originally derived from Mr Kieber's information, an officer of the Australian Taxation Office came to issue to Mr Denlay a notice requiring him to give evidence pursuant to s 264 of the Income Tax Assessment Act. 6 These actions preceded the issuing by the LGT Group Foundation of a media communiqué in which particular allegations are made by that group in respect of Mr Kieber's conduct. The interview of Mr Denlay pursuant to the s 264 notice occurred after that communiqué was issued. The contents of that interview were recorded and reduced to writing. 7 The entirety of the interview transcript was marked for identification. Within that interview transcript, a particular part was highlighted and tendered as providing the background to the question, indeed to the line of questioning upon which counsel for the Commissioner had embarked at the time when objection was taken. 8 It must be said at once that there is no evidence that the manner in which Mr Denlay was questioned by the Commissioner's officers pursuant to the s 264 notice was in any way unfair in the sense of being overbearing or hectoring or in some other way inappropriate. 9 Neither is there a direct challenge to the lawfulness of the decision to issue the notice. Rather, what is put is that the decision to issue the notice is but part of a continuum which commenced with either an unlawful taking of information or at least an improper taking of information from the LGT Group Foundation by Mr Kieber. It is conceded on behalf of the Commissioner for the purposes of the voir dire that the unauthorised taking by Mr Kieber was improper. It is controversial as to whether it was unlawful according to the law of Liechtenstein. I have evidence before me by admission that Mr Kieber was convicted of particular offences in Liechtenstein. 10 There is an assertion in the LGT communiqué that Mr Kieber used the information he took to make particular requests of the Sovereign Prince of Liechtenstein. Even if I were to assume for the purposes of the voir dire that this is proved, one fact permeates Mr Kieber's conduct in Liechtenstein and any dealing which he may have had as alleged in the communiqué with the Sovereign Prince of that principality. That is, that the Commissioner of Taxation and, for that matter, any other officer of the Commonwealth had no association whatsoever with either the taking or, for that matter, the alleged use of the information in relation to the Sovereign Prince. 11 The evidence on the voir dire does, though, admit of a finding that, as at October 2006, Mr O'Neill and the other officers of the Australian Taxation Office present at the interview of Mr Kieber either knew, or at least must necessarily have suspected as a result of what Mr Kieber told them, that he had not come by the information with his employer's permission. The admission for the purposes of the voir dire of impropriety against this background was, therefore, only to be expected of a person such as the Commissioner of Taxation to whom model litigant obligations adhere. It is also open on the evidence to find, and I do find for the purposes of the voir dire, that a view was formed within the Department of Immigration and Ethnic Affairs that Mr Kieber had assisted and was assisting the Australian Taxation Office with inquiries. 12 Against this background, the submission that is made is that to permit questioning which would be directed to the end of introducing the contents of the s 264 interview into evidence or deriving any particular forensic advantage in the course of the Commissioner's case should not be permitted. In support of that, s 138 of the Evidence Act was called in aid. That section confers on a court a discretion to exclude improperly or illegally obtained evidence. As developed, the submission was that if one were disposed as a matter of discretion to exclude particular evidence pursuant to s 138 then there ought to be no subversion of such an exclusion by permitting questions which might admit of a secondary proof of that which was otherwise excluded. 13 There is a principle under our law that where primary evidence is excluded for one reason or another, for example by virtue of the existence of a privilege, it is not permissible via cross-examination to subvert that exclusion: see DPP Reference under s 693A of the Criminal Code; Re Y & Ors (1998) 100 A Crim R 166 at 175 where the authorities are collected. As to that collection, and as Mr Ng highlighted in his helpful submissions, the quote from the early 19th century English case, Cooke v Maxwell (1816) 171 ER 614; 2 Stark 183, appears not to have been accurately taken up in the report of the judgment at least. In that case at page 186 of the original report, Bayley J held that: The law will not work injustice, and if the document cannot, on principles of public policy be read in evidence, the effect will be the same as if it was not in existence, and you may prove, not the contents of the instrument, but that what was done was done by order of the defendant. 14 That particular principle, as I understand it, is then sought to be invoked such that the cross-examination cannot seek to elicit evidence of that which would otherwise not be admissible. That though, as was highlighted in also helpful submissions on behalf of the Commissioner by Mr Wigney SC, would necessarily require a conclusion that the s 264 interview itself would be inadmissible if tendered and could not even be the subject of inspiration for cross-examination which might, by secondary means, seek to elicit reference to or evidence of its contents. 15 Quite apart from s 138, s 26 of the Evidence Act confirms the court's power of control over the questioning of witnesses. 16 It is not impossible to conceive of circumstances where a derivative use of material obtained in circumstances which affront, as a matter of public policy, the Australian justice system, eg a document obtained via the use of horrific torture, might become the subject of an exclusion from a use by an officer of the Commonwealth of that document for the purposes of cross-examination, if it were shown to have such a provenance. That is not this case. 17 In Pearce v Button (1985) 8 FCR 388, Pincus J was confronted in a civil proceeding with an evidentiary controversy concerning the use in evidence by The Customs of material which, as it transpired, had been obtained pursuant to a warrant under s 214 of the Customs Act 1901 (Cth) which was defective. By reference to cases which had arisen under the criminal law, his Honour found that there was a discretion as to whether or not to permit the use of that evidence in the civil proceeding. The considerations to which his Honour looked overlap with those which are set out in s 138(3) of the Evidence Act. 18 The end result of my regard to those considerations, be they those which arise under s 138(3) or, for that matter, under some more broad question of the fair conduct of a proceeding, lead to this conclusion, in my opinion. The end to which a taxation appeal is directed is the proof of whether or not an assessment is excessive. In that regard, the onus of proof lies upon the appellant taxpayer, in this case Mr and Mrs Denlay. As is any other litigant, the Commissioner is entitled to test an opponent's evidentiary case, including, if advised, by cross examination. Here, the s 264 interview provides a basis for that testing. In making that observation, I am in no way decide whether or not circumstances exist for the tender of any part thereof in the course of cross examination. Rather, all I do, by reference to the part of the s 264 interview which has been tendered, is to recognise that it provides a legitimate forensic foundation. Given that that is so, I then ask whether, having regard to that, there is some other consideration which I ought in the interests of justice weigh up, and weigh up in a way that would lead me to prevent the Commissioner from using that for the purpose of cross examination? 19 What is telling in terms of that balancing exercise, in my opinion, is that Mr Kieber's acknowledged impropriety was not that of the Commissioner of Taxation. Further, when one has regard to ss 263, 264 and 166 of the Income Tax Assessment Act, what is revealed is a system whereby the Australian Parliament has charged the Commissioner with making an assessment of a person's taxable income and the tax payable thereon from as wide an information base as possible. Especially in circumstances where there is no association of the Commissioner or his officers with any impropriety, it seems to me that it is permissible for the Commissioner to use in any consequential tax appeal for forensic purposes the information which grounded the assessment. That includes here the s 264 interview. 20 In forming that view, I also take into account the conclusion already reached by the Full Court (Denlay v Commissioner of Taxation [2011] FCAFC 63) on appeal from an earlier judgment of mine (Denlay v Commissioner of Taxation (2010) 276 ALR 675) in relation to the permissible use of Mr Kieber's information, which I termed in the earlier judgment the LGT documents, in the making of the assessment. The assessment itself has been found to be lawful. That being so and whilst I accept that in administrative practice the rules of evidence do not apply in a way in which, absent statutory authority for dispensation, they do in a court of law, there is nonetheless something of an inherent tension between an acknowledgement that, under our system of law, Mr Kieber's information may be used to raise an assessment, but then may not be used to defend it. 21 For these reasons, then, I overrule the objection. I shall permit Mr Denlay to be questioned in the manner upon which senior counsel for the Commissioner had embarked when the objection was taken. I certify that the preceding twenty-one (21) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Logan. Associate: Dated: 21 September 2011