FEDERAL COURT OF AUSTRALIA Commissioner of Taxation v Ludekens (No 2) [2016] FCA 755 File number: VID 692 of 2011 Judge: PAGONE J Date of judgment: 28 June 2016 Catchwords: TAXATION – civil penalty regime – promotion of tax exploitation scheme – contravention of civil penalty provision found by Full Court – appropriate penalty for contravention – principles relevant to implementation of penalty Legislation: A New Tax System (Goods and Services Tax) Act 1994 (Cth) Bankruptcy Act 1966 (Cth) Corporations Act 2001 (Cth) Taxation Administration Act 1953 (Cth) Explanatory Memorandum, Tax Laws Amendment (2006 Measures No. 1) Bill 2006 Income Tax: Gunns Plantations Limited Woodlot Project 2006 '2007 Growers' (PR2006/8) Cases cited: Australian Communications and Media Authority v Clarity1 Pty Ltd & Anor (No 2) (2006) 155 FCR 377 Australian Competition and Consumer Commission v ABB Transmission and Distribution Ltd (No 2) & Ors (2002) 190 ALR 169 Australian Competition and Consumer Commission v Coles Supermarkets Australia Pty Ltd (2015) 327 ALR 540 Australian Competition and Consumer Commission v Leahy Petroleum Pty Ltd (No 2) & Ors (2005) 215 ALR 281 Australian Competition and Consumer Commission v Telstra Corporation Ltd (2010) 188 FCR 238 Australian Competition and Consumer Commission v TPG Internet Pty Ltd (2013) 250 CLR 640 Australian Securities and Investments Commission v GE Capital Finance Australia, in the matter of GE Capital Finance Australia [2014] FCA 701 Australian Securities and Investments Commission v Loiterton (2004) 50 ACSR 693 Blair v Curran (1939) 62 CLR 464 Construction, Forestry, Mining and Energy Union v Cahill (2010) 269 ALR 1 Commissioner of Taxation (Cth) v Arnold (No 2) & Ors (2015) 324 ALR 59 Commissioner of Taxation of the Commonwealth of Australia v Ludekens & Anor (2013) 92 ATR 301 Commonwealth of Australia v Director, Fair Work Building Industry Inspectorate (2015) 326 ALR 476 Clean Energy Regulator v MT Solar Pty Ltd [2013] FCA 205 Director of Consumer Affairs Victoria v Alpha Flight Services Pty Ltd & Anor [2015] FCAFC 118 Federal Commissioner of Taxation v Ludekens & Anor (2013) 214 FCR 149 Gillfillan v Australian Securities and Investments Commission (2012) 92 ACSR 460 Mill v The Queen (1988) 166 CLR 59 NW Frozen Foods Pty Ltd v Australian Competition & Consumer Commission (1996) 71 FCR 285 Singtel Optus Pty Ltd (ACN 052 823 208) v Australian Competition and Consumer Commission (2012) 287 ALR 249 Spautz v Butterworth (1996) 41 NSWLR 1 Tax Practitioners Board v Dedic [2014] FCA 511 TPG Internet Pty Ltd v Australian Competition and Consumer Commission (2012) 210 FCR 277 Trade Practices Commission v CSR Limited (1991) ATPR 41-076 Date of hearing: 1, 2, 3 and 4 February 2016 Registry: Victoria Division: General Division National Practice Area: Taxation Category: Catchwords Number of paragraphs: 76 Counsel for the Applicant: Mr P Sest QC with Mr S Ure Solicitor for the Applicant: Australian Government Solicitor Counsel for the First Respondent: Mr D Williams QC with Mr A de Wijn and Ms A Wilson Solicitor for the First Respondent: Holding Redlich Counsel for the Second Respondent: Mr M Bearman with Mr H Kirimof Solicitor for the Second Respondent: HDL Legal Table of Corrections 29 June 2016 In paragraph 70, "defences" has been replaced with "offences". REASONS FOR JUDGMENT VID 692 of 2011 BETWEEN: COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA Applicant AND: ANDREW LUDEKENS First Respondent PETER VAN DE STEEG Second Respondent JUDGE: PAGONE J 1 What remains to be determined in this proceeding is the amount of the penalties to be imposed upon Dr Andrew Ludekens and Mr Peter Van de Steeg for contraventions of s 290-50(1) of Schedule 1 to the Taxation Administration Act 1953 (Cth) ("the Administration Act"). The proceeding was conducted on the basis that the Court would first determine whether there had been contravention of the promoter penalty provisions ("the contravention stage") before considering what penalty, if any, to impose ("the penalty stage"). Middleton J found in the contravention stage of the proceeding that neither Dr Ludekens nor Mr Van de Steeg had contravened ss 290-50(1) or (2); however the Full Court held on appeal that each had contravened s 290-50(1) but that they had not contravened s 290-50(2), and remitted the penalty stage of the proceeding for hearing by a Judge of the Court. 2 Dr Ludekens and Mr Van de Steeg were essentially unrepresented in the contravention stage of the proceeding before Middleton J, although Dr Ludekens was represented pro bono by junior counsel to make submissions after his Honour received evidence, and had been represented by a solicitor at some of the interlocutory hearings. Neither Dr Ludekens nor Mr Van de Steeg gave evidence at the contravention stage of the proceeding before Middleton J which was conducted on the basis that an inquiry into whether or not there had been a contravention of Division 290 did not require evidence about the subjective reasons or intentions of those against whom contraventions had been alleged, but that evidence of the subjective reasons and intentions of Dr Ludekens and Mr Van de Steeg would be relevant at the penalty stage of the proceeding. The penalty stage of the proceeding before me, therefore, was conducted upon the basis that the subjective reasons and intentions of Dr Ludekens and Mr Van de Steeg, which had not been relevant at the contravention stage of the proceeding, were relevant to the penalties to be imposed. Both Dr Ludekens and Mr Van de Steeg gave evidence and were represented pro bono at the hearing of the penalty stage of the proceeding. 3 Section 290-50(3) empowers the Court to impose a civil penalty upon an "entity" (an expression defined to include natural persons such as Dr Ludekens and Mr Van de Steeg) if the Court is satisfied that the entity has contravened ss 290-50(1) or (2). The Commissioner had alleged in the proceeding that Dr Ludekens and Mr Van de Steeg had contravened both ss 290-50(1) and (2) but they were ultimately found by the Full Court to have contravened only s 290-50(1). The sections provide: 290-50 Civil penalties Promoter of tax exploitation scheme (1) An entity must not engage in conduct that results in that or another entity being a *promoter of a *tax exploitation scheme. Implementing scheme otherwise than in accordance with ruling (2) An entity must not engage in conduct that results in a *scheme that has been promoted on the basis of conformity with a *product ruling being implemented in a way that is materially different from that described in the product ruling. Note: A scheme will not have been implemented in a way that is materially different from that described in a product ruling if the tax outcome for participants in the scheme is the same as that described in the ruling. The first provision proscribes conduct resulting in an entity being a promoter of a tax exploitation scheme. The second provision proscribes conduct resulting in the implementation of a scheme in a way that is materially different from the way described in a product ruling. Middleton J found that neither Dr Ludekens nor Mr Van de Steeg had contravened ss 290-50(1) or (2) and dismissed the Commissioner's application: see Commissioner of Taxation of the Commonwealth of Australia v Ludekens & Anor (2013) 92 ATR 301. The Full Court, on appeal from his Honour's decisions and orders, found that Dr Ludekens and Mr Van de Steeg had each contravened s 290-50(1) but not s 290-50(2): see Federal Commissioner of Taxation v Ludekens & Anor (2013) 214 FCR 149 at [332]. 4 The Commissioner's case on appeal had not been exactly the same as it had been before Middleton J. The Commissioner's case was narrowed on appeal during the Commissioner's oral submissions by limiting the factual basis of the contraventions: see (2013) 214 FCR 149 at [24]. The Full Court remarked at [20] that the Commissioner's case against the respondents had "lacked a degree of conciseness and precision" in a number of respects and at [24] noted that the Commissioner's case on appeal "limited the factual basis of the alleged contravention to the Plan" which was subsequently set out in an attachment to the orders of the Full Court. At [21] the Court said: The difficulties in the present case may be demonstrated by the manner in which the Commissioner sought to identify one element of the cause of action – the "scheme". At trial, the Commissioner relied upon the "Plan", a truncated version of the Plan called the "Conduct" and a number of permutations of the Plan and the Conduct. In addition, the Commissioner contended that the Conduct might be viewed as a series of individual schemes in relation to each of the Secondary Investors, each founding a separate contravention of Div 290. In allowing the appeal, the Full Court substituted the orders which his Honour had made with declarations of contravention limited to contraventions of s 290-50(1) in relation to a tax exploitation scheme described as "the Plan" in Attachment A to the orders. 5 The Full Court made three declarations that each of Dr Ludekens and Mr Van de Steeg had engaged in conduct in relation to seven people that resulted in Dr Ludekens and Mr Van de Steeg being promoters "of the Plan in contravention of s 290-50(1)". The relevant orders by the Full Court were: (a) The Court declares that each respondent engaged in conduct in relation to: (i) Mr Andrew Smithson and Mrs Jodie Smithson; (ii) Mr Domenico Velardi and Mrs Elizabeth Velardi; and (iii) Mrs Daniella Ruffato, that resulted in each respondent being a promoter of a tax exploitation scheme, namely the Plan described in Attachment A to these Orders (the Plan), in contravention of s 290-50(1) of Sch 1 to the Taxation Administration Act 1953 (Cth) (the TAA). (b) The Court declares that the first respondent engaged in conduct in relation to: (i) Mr David Tregambe; (ii) Dr Robert Love; (iii) Ms Hayben Richards; and (iv) Mr Eric Poon, that resulted in him being a promoter of the Plan in contravention of s 290-50(1) of Sch 1 to the TAA. (c) The Court declares that the second respondent engaged in conduct in relation to: (i) Mr Michael Martino; (ii) Ms Jan Gibson; (iii) Mr Glenn Crowe; and (iv) Mr Peter Berlowitz, that resulted in him being a promoter of the Plan in contravention of s 290-50(1) of Sch 1 to the TAA. (d) The applicant's application for a civil penalty in relation to the conduct of each respondent the subject of paragraphs (a), (b) and (c) above otherwise be remitted for hearing by a judge of this Court. The Full Court also found, as mentioned, that neither Dr Ludekens nor Mr Van de Steeg had contravened s 290-50(2); that is, that they had not engaged in conduct resulting in a product ruling being implemented in a way that was materially different from that described in the product ruling. 6 The Plan which the Full Court found to be a tax exploitation scheme in contravention of s 290-50(1) of Schedule 1 to the Administration Act was: (a) To acquire fully financed woodlots in the Gunns Plantations Limited Woodlot Project 2006; (b) To meet loan obligations in respect of the acquisition of these woodlots from profits obtained by investing (into a foreign exchange trading business) a fund comprised of the following: (i) commission received in respect of the acquisition of the woodlots; (ii) GST refunds to be obtained in respect of the acquisition of the woodlots; and (iii) funds obtained from offering the woodlots to subsequent investors; and (c) To otherwise retain profits from investing the fund in the foreign exchange trading business. The promotion of the Plan, however, would not have been in contravention of Division 290 if it were not for the fact that the Plan was based upon the impermissible premise that the taxpayers purporting to acquire woodlots could be substituted after 30 June 2007 as if they had acquired the woodlots on or before that day. The people who had formally applied as partners to acquire the woodlots were intended only to be signatories for others whose names were to be substituted for them after 30 June 2007 and were found never to have intended to acquire the woodlots in carrying on a business and, therefore, that they lacked the intention necessary to obtain GST refunds or to claim deductions in accordance with the relevant product ruling. The Full Court found at (2013) 214 FCR 149 at [331]: Here, it cannot be said that any of the so-called "partnerships" acquired the woodlots in carrying on a business or an adventure or concern in the nature of trade. The Smithsons and the Velardis, although named as partners, had no intention of the "partnership" of which they were a "member" carrying on a business or an adventure or concern in the nature of trade. They merely permitted their names to be put on the documentation to allow the respondents and Mr Ezzy to acquire the woodlots from Gunns: see [47] and [62] above. Put another way, they did not have a reasonable expectation of profit or gain: s 9-20(2)(c). In those circumstances, it is difficult to conceive of the existence of a partnership, let alone a partnership that is in the form of a business or an adventure or concern in the nature of trade. Whatever was the legal status of these so-called "partnerships", none of them satisfied the essential elements of s 11-15 read with s 9-20. Accordingly, it is not reasonably arguable that the scheme benefit (the input tax credits and consequently the GST refunds) was available at law. The factually incorrect foundation of the Plan caused it to be ineffective in law and, therefore, meant that it was not reasonably arguable, for the purposes of s 290-65(1)(b), that the scheme benefits were available at law if the scheme had been implemented. 7 The tax exploitation scheme involved participation in the 2006 Gunns Woodlot Project which had been the subject of a favourable product ruling issued by the Commissioner entitled "Income Tax: Gunns Plantations Limited Woodlot Project 2006 '2007 Growers'" ("PR2006/8"). A person wishing to participate in carrying on a commercial business of afforestation through the 2006 Gunns Woodlot Project needed to complete an application form and a power of attorney, and to pay an application fee. The 2006 Gunns Woodlot Project was registered as a Managed Investment Scheme under the Corporations Act 2001 (Cth) ("the Corporations Act") in respect of which Gunns Plantations Limited ("Gunns") was the responsible entity and had been issued with an Australian Financial Service Licence. Each grower was to enter into a management agreement with Gunns as manager and to pay an establishment fee of $6,820 (inclusive of GST) for each woodlot acquired by the grower. The establishment fee could be borrowed from Gunns Finance Pty Ltd ("Gunns Finance") upon terms that would incur interest upon the moneys borrowed and would require the eventual repayment of the moneys borrowed. 8 Participation by investors in the 2006 Gunns Woodlot Project would have provided favourable taxation consequences in the form of GST refunds and income tax deductions for establishment fees and interest. Gunns also offered a commission of 15% to Dr Ludekens for procuring investments in the 2006 Gunns Woodlot Project. Dr Ludekens and Mr Van de Steeg therefore expected to have access to three sources of funds which they believed they could invest in a foreign exchange trading business to make sufficient returns to meet the future obligations and debts arising in and from participation in the 2006 Gunns Woodlot Project. The three sources of funds were to be (a) the expected commissions from Gunns, (b) the expected GST refunds from the Commissioner and (c) the expected tax refunds from tax deductions to be claimed by those participating in partnership as growers in the 2006 Gunns Woodlot Project. At [244] the Full Court said: The Plan required all three streams of funds – the Gunns commission, the GST refunds and the Secondary Investors' tax refunds. The commission could have been obtained without the need for the scheme. However, the scheme was quite elaborate in nature. The getting of the GST refunds and tax refunds – in addition to the commission – was vital in order to reduce the level of indebtedness to Gunns and enable the respondents to retain a significant investment in the 2006 Gunns Woodlot Project thereby, it was hoped, to secure commercial gains from participation in the Project and from support of the foreign exchange business. The Plan was centrally driven by the level of the scheme benefits obtained, paid and on-lent to Meloka. The general idea behind the Plan was that the debt and interest payments arising from investing in the 2006 Gunns Woodlot Project could be met by Dr Ludekens and Mr Van de Steeg through the proceeds generated by using the funds from the three sources in what Dr Ludekens and Mr Van de Steeg believed to be a highly profitable foreign exchange trading business called Australian Forex Trading Agency ("AFTA") that was owned and operated by Mr Peter Berlowitz. An example of the use of the financial tax advantages which flowed from participation in schemes with a favourable product ruling to reduce or eliminate long-term debt from structures similar to the 2006 Gunns Woodlot Project had been suggested in prior years in publications by Great Southern Securities Pty Ltd ("Great Southern"). Dr Ludekens had previously had dealings with Great Southern and had obtained flyers headed "Wealth Creation Strategies" which, amongst other things, explained how the tax benefits from participation in an investment in Great Southern could be used as the means by which to reduce debt. Dr Ludekens and Mr Van de Steeg believed, and the commercial objective of the Plan depended upon the commercial viability of the belief, that the expected commissions, GST rebates and tax refunds could be applied profitably in the foreign exchange trading business of AFTA to meet the commitments arising from participation in the 2006 Gunns Woodlot Project. 9 The problem for Dr Ludekens and Mr Van de Steeg with the Plan, however, was not in the use of the commissions and the tax rebates and refunds to invest at a profit to fund the obligations which were to arise from participation in a tax effective product, but that they set about their expectations upon a factual basis that was not permissible. The facts revealed, both in the contravention stage of the proceeding and in the penalty stage of the proceeding, that Dr Ludekens and Mr Van de Steeg sought to rely upon Product Ruling PR2006/8 on the basis that the secondary investors had entered into the project before 30 June 2007 as partners when that was not the fact. Indeed, as senior counsel for Dr Ludekens submitted at the penalty stage of the proceeding, what made the transactions a tax exploitation scheme was "simply limited to the substitution of names after the commencement of the investment. Every other element, from a tax perspective, seem[ed] to work". 10 Ten applications were made on 30 June 2007 by named applicants to acquire 3,250 woodlots for a total of $22,165,000 (inclusive of GST) in the 2006 Gunns Woodlot Project. The applications were made in the names of people who, however, were intended to be only "signatories" for the purpose of making the application and who were intended subsequently to be substituted by others: (2013) 214 FCR 149, [37]-[70], [331]. The evidence of Dr Ludekens at the penalty stage of the proceeding was that this intention was based upon his mistaken belief that the Commissioner allowed a period of time after the end of a financial year to bring about circumstances which could be taken to have occurred before the end of the financial year. There was no evidence that such a practice was acceptable to the ATO or that such a practice existed, or that it would have been lawful (although reference was made from the bar table to what was said to be the Commissioner's practice, until relatively recently, of accepting trust resolutions distributing the net income of a trust estate after the year in which they were to have been made as if the resolutions had been made during the year in which they needed to have been made for a beneficiary to derive income in that year). The conduct of Dr Ludekens and Mr Van de Steeg is, however, consistent with the existence of the belief, however unfounded, that they were permitted to claim that investors had entered into the 2006 Gunns Woodlot Project by 30 June 2007 when they had not been the formal applicants by that date. 11 It is necessary to say something about the Plan and its context before considering the amount of penalties appropriate to be imposed. Dr Ludekens is a medical practitioner who came to have an interest in providing investment and financial services professionally. His father had been in financial services for most of his career, selling insurance when he first came to Australia, and subsequently as a financial planner at the ANZ bank. Dr Ludekens graduated as a medical doctor in 1993 and in the 10 years which followed his graduation he had managed to purchase approximately 10 residential investment properties. On 11 June 2003 Dr Ludekens incorporated Lotus Capital Group Pty. Ltd. ("Lotus") with a view to conducting a business which involved identifying, securing and managing investments for his clients. On 15 December 2003 he became a member of the Securities Institute of Australia (now known as the Financial Services Institute of Australia), and in 2004 he undertook a qualification with that Institute. He became an Australian Financial Services Authorised Representative on 1 January 2006 and was the authorised representative of Romad Financial Services Pty Ltd ("Romad") from 2 June 2006 to 16 January 2008. Dr Ludekens was the sole director of Lotus and each company held an Australian Financial Services Licence pursuant to Division 4 of Part 7.6 of the Corporations Act. The reasons of the Full Court also said at [26] that Dr Ludekens was the sole director of Romad but that appears not to have been the case. Nothing turns upon that fact but the evidence in the penalty stage of the proceeding was that he was neither a director nor shareholder of Romad but that he was an authorised representative of Romad between 2 June 2006 and 16 January 2008. 12 Some time around 2003 Dr Ludekens met Ms Nancy Keep who was an accountant employed by Mr Desmond Deckker, a chartered accountant. Dr Ludekens learned through Ms Keep that she organised investments for her clients with Great Southern and other such businesses with the benefit of product rulings from the ATO. Dr Ludekens was introduced to the general manager of Great Southern in 2005 and was impressed by the operations and by how the investments in woodlots worked. He came to understand that seedlings were grown in nurseries and were planted on land acquired and prepared by a manager on behalf of the investors for harvest and subsequent sale. Dr Ludekens, through Lotus, referred clients to Ms Keep to participate in the Great Southern woodlot project in the year ended 30 June 2005 and understood that the investors were entitled to substantial tax deductions in accordance with product rulings applicable to the Great Southern schemes. Dr Ludekens later decided to arrange investment for his clients for the 30 June 2006 financial year directly through Lotus rather than by referring his clients to Ms Keep. In doing so he obtained legal assistance to have partnership agreements and loan documents prepared by Mr Keith Harvey who practised as a solicitor at Ambry Legal. Neither Dr Ludekens nor Mr Van de Steeg seem to have sought any advice upon their legal and taxation duties and obligations in participating or facilitating such investments. Dr Ludekens gave an account of his involvement in the 2005 investments through Ms Keep which, however, reveals a low appreciation of the importance of legal form and of the consequence of signing documents. He referred, for example, to his role as a "signatory" for one of the investments put together by Ms Keep in 2005 as if being a "signatory" were an unimportant formality that did not carry the legal consequences, duties and responsibilities which the documents purported to have upon signing. 13 Dr Ludekens became a participant in a Great Southern investment in the financial year preceding that in which he was found to have contravened Division 290 but some of the facts concerning the 2006 Great Southern transaction are relevant to the events in the subsequent financial year which bear upon the contraventions. On 27 June 2006 a partnership agreement was signed by Dr Ludekens and others to invest $1.65 million in woodlots from Great Southern Plantations Limited. The woodlots were acquired on 28 June 2006 on an agreement which was signed on 27 June 2006 but which was dated 1 January 2006. The reason that the agreement was dated some six months before its signing was explained by Dr Ludekens to be because he considered "that all the investors had committed to the investment and agreed to form a partnership by that [earlier] day". It was not until 28 June 2006, however, that Dr Ludekens attended the offices of Great Southern to explain the structure which had been adopted for the partnership and to identify the partners. At that meeting he completed an application for the woodlots and for finance. He subsequently made an online application for an ABN, with effect from 1 January 2006, and for GST registration, with effect from 1 June 2006, on behalf of the partnership which subsequently received GST refunds and tax deductions. There is no reason to doubt the evidence of Dr Ludekens in this respect or to question his belief that a document dated 28 June 2006 reflected, and could reflect, what had been agreed six months previously. 14 Dr Ludekens decided to organise a similar partnership for the 2007 year with people he described as his close friends and colleagues. The 2007 partnership was also to involve Mr Van de Steeg who Dr Ludekens had met in April 2007. Mr Van de Steeg introduced Dr Ludekens to Mr Jonathan Ezzy, Mr Van de Steeg's business partner, in April or May 2007. Mr Van de Steeg had initially studied electronic engineering and had been an electronic technician for some 7 to 8 years. By 2001 he was working for the HLP Group of Companies which operated several businesses including mortgage lending, financial planning, property sales and a foreign exchange business in Victoria. His work with the HLP Group began as a mortgage broker in which he received job training for that role. In 2004 he completed a distance course as a real estate representative and worked in the real estate sales arm of the HLP Group. Around 2006 or 2007 Mr Van de Steeg was required to complete a course to obtain a licence as a financial representative, and between 2007 and 2009 he was in charge of purchasing mortgage brokerage trail commission books for the HLP Group. The foreign currency trading business of AFTA was part of the HLP Group and Mr Van de Steeg came to know about foreign exchange trading through his work in the HLP Group. 15 Dr Ludekens informed Mr Van de Steeg about investing in tree plantations and Dr Ludekens learned from Mr Van de Steeg about the "very impressive returns" generated by AFTA in foreign exchange trading of about 8% to 10% per month. At some point Mr Van de Steeg and his business partner, Mr Ezzy, had acquired some equity in AFTA through their company Meloka Pty Ltd ("Meloka"). The precise terms of the dealings between Meloka and AFTA are not directly relevant for present purposes, but they initially involved Meloka obtaining shares in AFTA from which dividends could be received. AFTA, however, charged its clients, including Meloka, 30% of the profits from trading. Meloka was initially set up for Mr Van de Steeg and Mr Ezzy to invest their client's funds in trading through AFTA and did not have sufficient equity in AFTA to trade directly through AFTA in foreign exchange dealings. Meloka would, however, be able to trade directly in foreign currency exchange, through AFTA, if Meloka became an equity owner and in that event it would not be charged the 30% and could expect higher returns. An element of the arrangements Dr Ludekens and Mr Van de Steeg sought to put in place to facilitate the Plan involved Meloka acquiring sufficient equity in AFTA to trade directly and not to be charged on its profits. 16 The expected tax benefits from participation in the 2006 Gunns Woodlot Project was to be the source of the funds which Dr Ludekens, Mr Van de Steeg and Mr Ezzy were to invest in AFTA. What they needed was sufficient funds from the three anticipated sources to acquire equity in AFTA and to invest in foreign exchange trading at a sufficient leverage of the amount invested to yield enough to discharge the obligations arising from participation in the 2006 Gunns Woodlot Project. The broad economics of the arrangement was described by Mr Van de Steeg in his affidavit as follows: 29. I take responsibility for the ultimate size of the investment. It was my idea to invest as much as possible. 30. As I saw it, if Gunns financed the purchase of $22 million (including the GST) of trees, we would have $11 million to invest. That amount was to be comprised of three [a]mounts: Andrew's commission of $3 million, GST refunds of $2 million, and $6 million of 'tax rebates' from the secondary investors. $11 million was more than adequate to enable us to pay the interest and principal on $22 million. 31. When the trees matured in 13 years, the secondary investors would take the profit on the trees representing $12 million of the initial investment. Andrew would be entitled to whatever fee he had agreed with the investors from that amount. As I have said, he told me that he would be entitled to 25%. However, that did not affect Jonathan [Ezzy] or me. 32. That would leave the profit on $8 million worth of invest [sic] for Andrew, Jonathan [Ezzy] and me to share between us. That $8 million was supposed to be worth $96 million upon maturity. 33. In addition, as I understood what Andrew, Jonathan [Ezzy] and I had agreed in our meetings, the principal of $11 million was also to be shared between us because all of the debts would have been paid. That is, the following amounts were to be shared: (a) the amount representing his $3 million commission three ways; (b) the secondary investors were not going to seek the return of any amount representing their $6 million tax rebates; and (c) the amount representing the GST refund of $2 million. 34. I saw Jonathon [Ezzy] and myself as partnering with Andrew. We would do the investing, and he would deal with the paperwork and the secondary investors. 35. I now understand that, in any event, there could not have been $11 million, even if everything else worked as proposed. That is because we should have allowed for whatever tax Andrew or his companies were required to pay on the $3 million commission. Mr Van de Steeg's description is sufficient both to understand the general way in which he and Dr Ludekens conceived of what they sought to do and also to see how carelessly the arrangements were thought through and planned. The $22 million required to purchase the trees was financed by a loan from Gunns Finance which wold eventually need to be repaid and the borrowers would also need to pay the interest and other amounts which would, or might, fall due for payment over time. Neither Dr Ludekens nor Mr Van de Steeg, however, undertook the necessary calculations to determine how much was needed to achieve the desired outcome taking into account all liabilities (including GST and tax) and time delays. 17 A letter on Meloka letterhead dated 30 June 2007 signed by Mr Van de Steeg, Mr Ezzy and Dr Ludekens referred to the need to meet on 2 July 2007 to work out the process for Meloka paying off the $20 million but the subsequent meetings and calculations were vague and flawed. Fundamental to the success of the overall arrangements was to be the investment in foreign exchange trading of the commissions, GST refunds and what Mr Van de Steeg referred to as "tax rebates" (being the refunds or reduction in tax from the expected deductions to those who were to participate as partners in the 2006 Gunns Woodlot Project). However, the success of the arrangement necessarily required sufficient funds to invest at an expected rate of return that would yield enough money to meet the obligations arising from the 2006 Gunns Woodlot Project. Mr Van de Steeg's affidavit confidently asserted that $11 million was more than adequate to pay the principal and interest obligations, but there was never going to be $11 million available to them to invest, if only because they had not allowed for the tax payable upon the commissions. Nor did they make any calculations to take account of the impact of any delay in receiving the GST refunds or in receiving the tax refunds to the proposed investors (that is, to the secondary investors). The amount available for investment through AFTA was also reduced by the need to apply some of the money available to them to acquire sufficient equity in AFTA to permit Meloka to trade directly. Mr Van de Steeg said that he had managed to negotiate with Mr Berlowitz for the equity contribution to be reduced to $1.4 million from the $2.5 million initially required to be added to Meloka's existing equity, but, in any event, the need to increase Meloka's equity in AFTA meant that the amount available for trading was at least a further $1.4 million less than the broad figures they had discussed. 18 The rate of return on the funds to be invested in foreign exchange trading through AFTA also depended upon the amount of risk to be taken in trading. Foreign exchange trading through AFTA was thought by Mr Van de Steeg to be capable of producing returns of the magnitude he claimed. His oral testimony was to the same effect as that in his affidavit and, however implausible it may objectively be, Mr Van de Steeg believed at the time, and continued to believe when giving oral testimony, that investing in foreign exchange trading was able to yield monthly returns of 10%. An important element in obtaining such returns was the number of times the amount available was "leveraged" in the foreign exchange trading. Mr Van de Steeg gave evidence about the mechanics of the trading and explained how it was possible to leverage foreign exchange trading up to 50 times. An investment of $1 million leveraged 10 times would result in trading in $10 million. Mr Van de Steeg explained this in evidence as follows: And can you explain how the leveraging worked in this instance?---Yes. So shall I just pick a point in here or just - - - Well, assume that a client comes in and says, "I've got $1 million"?---Yes, your Honour. What happens next?---So we actually ask the client what kind of leverage they actually would want to use. And how would you - - -?----Or AFTA. How would you explain that to the client?---Well, that's the – AFTA would explain that the higher – AFTA would show them on a piece of paper that the higher leverage you use, the higher risk you take. So if you actually had $1 million and you leveraged 10 times, it means that at any given time you will be – if you used all the million dollars, your Honour, you would be trading $10 million at any given time. So if the market moved by 1 per cent on the whole $10 million, your Honour, it actually means that you made 10 per cent on your $1 million. But also the negative effect, your Honour, is that if it goes the other way you could actually lose that money. But what AFTA did is actually put criteria's in there that if they move the other way, that the trade would actually get out. So that's how they actually explained the leverage component and that's how they got the higher returns. It wasn't the higher returns on the dollar. It was actually – it was a return on the leveraged amount, which give a higher effect on the money that the person put in. Dr Ludekens tendered graphs, about which Mr Van de Steeg gave oral evidence, showing the returns able to be achieved by leveraging foreign exchange trading, but there had been no calculations or projections at the time of embarking upon the Plan of what Dr Ludekens and Mr Van de Steeg needed in 2007 (net of tax and other obligations) to obtain sufficient equity in AFTA and to invest in foreign exchange trading to obtain the returns needed to meet the expected future obligations arising from participation in the 2006 Gunns Woodlot Project. 19 Dr Ludekens and Mr Van de Steeg could expect to receive $3.3 million in commissions and some $2 million in GST rebates but the third source of funds depended upon tax refunds from tax deductions which might not arise for many months. The AFTA platform permitted a leverage of about 20 times but, as Mr Van de Steeg explained in oral evidence, the amount of $5 million available to them from the commissions and GST rebates would need to have been leveraged about 40 times to pay the obligations arising from investing in the 2006 Gunns Woodlot Project: I'm sorry, Mr Van de Steeg, just changing topics ever so slightly, the $22 million was borrowed from Gunns Finance?---That's correct. And what was the monthly interest in principal repayment on that amount?---It was approximately $200,000 to $220,000 per partnership. Per month?---Per months. And what was the total – make that an annual, what's the total annual obligation of all the partnerships?---About two and a half million dollars, your Honour. And if you started with a $5 million in cash, would you have sufficient funds, by investing on this foreign exchange platform, to repay that interest in principal from the investment?---It would have been a stretch, your Honour. Why do you say it would have been a stretch?---Because if you looked at what we just explained, your Honour, with leverage, we – if you traded a smaller amount of money you would actually have to get a higher return on your dollar, which actually would put a strain on the investment and also trading. So that's why we needed the larger amount of dollars to trade so - - - Well, what – sorry. What leverage would you need to get a sufficient return on $5 million to pay back 2.5 million a year?---It's about 40 to 50 per cent. Per annum?---Per annum. […] Per cent? --- Sorry, 40 or 50 times. Sorry, your Honour, leverage. It may seem implausible that Dr Ludekens and Mr Van de Steeg could have believed that the foreign exchange trading business would yield the amounts they claimed to have expected, but their actions make no sense without them actually having that, albeit unfounded, belief. It is clear from Mr Van de Steeg's evidence that their expectations were not thought through in any but the vaguest way and could never have succeeded. It is also clear that what they could not reasonably expect to achieve was precisely what they set out to do. 20 The details of the attempted participation in the 2006 Gunns Woodlot Project are set out in the respective reasons for judgment of Middleton J in (2013) 92 ATR 301 and of the Full Court in (2013) 214 FCR 149. On 30 June 2007 the Smithsons and the Velardis signed application forms on the basis that they would subsequently be substituted by others. At [47] to [49] the Full Court said in relation to Mr and Mrs Smithson: 47 The respondents and Mr Ezzy met with the Smithsons at their house on 30 June 2007. Mr Smithson expressed his concern that the Smithsons' assets would not be at risk and that they would not be liable for any finance. Dr Ludekens said that Gunns would not allow each of Dr Ludekens, Mr Van de Steeg and Mr Ezzy to have their names on more than two partnerships. Dr Ludekens explained that the Smithsons' names would only be used as a point of reference so that all the woodlots acquired could be broken down into different partnerships in accordance with Gunns' requirements. Dr Ludekens said that he had discussed the Smithsons' involvement with Gunns (including with Mr Blanden), who knew that the Smithsons would only appear on the paperwork as a point of reference. He confirmed that the Smithsons did not need to provide details of their assets as finance had been pre-approved by Gunns for Messrs Van de Steeg and Ezzy. Dr Ludekens assured the Smithsons that their names would be taken off the paperwork in six to eight weeks once he had on-sold the trees to his surgeon friends. 48 In response to a direct query from Mr Smithson, Dr Ludekens confirmed that the $3 million commission would be paid to Meloka via Lotus. Dr Ludekens explained that the offer was only available until 6 pm on that day and that he needed to get the contracts through that day. Mr Smithson told Messrs Van de Steeg and Ezzy that, to proceed with the arrangement, the Smithsons required a written indemnity against any liability. The Smithsons were promised that they would receive one. 49 On the basis of the assurances and promises given to them, the Smithsons signed the forms presented to them by the respondents and Mr Ezzy. The Smithsons were not given copies of the documents they signed on that day. After the forms were signed, the respondents and Mr Ezzy left saying they were going to the Velardis' house as they had also asked them to be points of contact on the woodlot applications. Mr Smithson recalled that, before leaving, Dr Ludekens gave the Smithsons "some colour brochures about Gunns". In relation to the Velardis the Full Court said at [60] to [64]: 60 On 30 June 2007, Mr Van de Steeg rang Mrs Velardi and said that he, Mr Ezzy and Dr Ludekens wanted to meet the Velardis at their house and talk to them about the trees they were acquiring. Mrs Velardi told Mr Van de Steeg that she was not buying any trees. Mr Van de Steeg said that the Velardis did not have to get involved, they just needed to sign some documents because two signatories were needed. 61 The respondents and Mr Ezzy came to the Velardis' house later that day. The respondents did most of the talking. They told the Velardis that they were acquiring some trees and it was going to help their business. Mrs Velardi asked Mr Van de Steeg why the Velardis needed to sign the paperwork. Dr Ludekens said it was just a formality; this was how Gunns wanted the applications to be completed. 62 One of the respondents told the Velardis that their names would only be on the documents for six weeks. Either Mr Van de Steeg or Dr Ludekens said that they were buying $20 million of trees that day and that they were later going to on-sell $7 million of trees to individuals known to Dr Ludekens and investors identified by Messrs Van de Steeg and Ezzy. The respondents told the Velardis that once the trees were on-sold, the new purchasers would replace the Velardis as the point of reference on the Gunns' contracts. Mr Velardi asked why there were multiple applications each with more than one name. Dr Ludekens said it was a Gunns' requirement. 63 Mr Velardi told the respondents that he wanted to make sure that the Velardis would bear no liability if they signed the documents. One of the respondents assured the Velardis that they would not be liable. Dr Ludekens also said that the Velardis would not be applying for finance because their limited assets and income meant they could not apply for millions of dollars worth of trees. Dr Ludekens said that the finance had been pre-approved based on the combined asset base of the respondents and Mr Ezzy. The Velardis were also told by either Dr Ludekens or Mr Van de Steeg that they would be indemnified for any liability on the woodlots. 64 Having received assurance as to their personal liability, the Velardis signed the single page application forms handed to them by the respondents. Mrs Velardi signed four forms, which were not otherwise filled in when she signed them. After the Velardis had signed, the respondents and Mr Ezzy filled in the forms and then faxed them to Gunns (using the Velardis' fax machine) at approximately 5.30 pm. Dr Ludekens told the Velardis that he had to get the documents done by a certain time and that someone was waiting by the fax machine at Gunns for the documents. The Velardis were not given copies of the completed application forms on that day. The evidence of Dr Ludekens and Mr Van de Steeg in the penalty stage of the proceeding is consistent with those findings, although Dr Ludekens believed that the names on the application forms and on the ABN and GST registrations were there in a "representative capacity only" for the partnerships. Dr Ludekens described the Smithsons and Velardis as being "simply signatories" on the application forms whose names he intended to put on the ABN and GST registrations "in a representative capacity" on behalf of others. Mr Van de Steeg referred to the role of the Smithsons and Velardis as nothing "other than a formality" as "nominees of the secondary investors" who could be replaced when Dr Ludekens organised the replacements. 21 Attempts were made after 30 June 2007 for the secondary investors to replace the Smithsons and the Velardis as the Full Court found on the evidence in the contravention stage of the proceeding: see 214 FCR 149 at [86]-[166]. The evidence of Dr Ludekens and Mr Van de Steeg in the penalty stage of the proceeding is not inconsistent with those findings but, as with the evidence concerning the Smithsons and the Velardis, Dr Ludekens believed it permissible, and acceptable to the Commissioner, to substitute investors after 30 June. Dr Ludekens believed that three of the "4 friends who had been part of the 2006 partnership", namely Dr Simon Braham, Dr Eric Poon and Dr Heyben Richards, "also wanted to be part of a 2007 partnership". The fourth person Dr Ludekens believed had wanted to participate in the 2007 partnership was Dr Robert Love. Dr Poon gave evidence in the penalty stage of the proceeding consistent with that of Dr Ludekens; that is, that in the 2007 financial year he had invested in the 2006 Gunns Woodlot Project although he had not claimed a tax deduction because Dr Ludekens had advised him not to do so until the situation was clarified with the ATO. Dr Ludekens said that he "did not in fact approach any new potential investors after 30 June 2007" with the exception of the Ruffatos but he did know that Mr Van de Steeg was doing so, and Dr Ludekens assisted Mr Van de Steeg to do so by providing him with an email for use with potential investors. Dr Ludekens also attended a meeting with Mr and Mrs Ruffato after 30 June 2007, although Dr Ludekens maintained that he did so in the belief that Mrs Ruffato had committed to the investment before 30 June 2007 and that he was attending the meeting to answer technical questions that she had. Mr Glenn Crowe was the only secondary investor who obtained a tax refund as a participant in the 2006 Gunns Woodlot Project to which he was not entitled and which he was ultimately required to repay. 22 Lotus received $3,324,750 in commissions from Gunns on 12 July 2007. $3 million of that amount was paid to Meloka to undertake foreign exchange trading through AFTA. $302,250 of the commissions was paid to the Commissioner for GST and $22,500 was paid in accounting and legal fees. Lotus also received $2,015,000 as GST refunds on 24 January 2008 which was mostly paid to Ty-Tia Pty Ltd ("Ty-Tia") (apart from $12,000 which was paid towards accounting and legal fees). Ty-Tia was a company of which Mr Van de Steeg and his wife were directors: see also (2013) 214 FCR 149 at [27]. Mr Van de Steeg could not recall why the GST refund was paid to Ty-Tia rather than Meloka but understood that the money was to be invested in the foreign exchange business. Meloka used the money available to it, together with funds borrowed from unrelated investors, to invest in shares in AFTA and to discharge debts. The arrangement between Meloka and AFTA required the former to make monthly interest payments on its loans to AFTA. AFTA, for its part, promised to pay Meloka a minimum dividend on its shares annually to meet its obligations. It seems, however, that Meloka was not able to meet its obligations. Mr Van de Steeg could otherwise not shed much light on what had ultimately happened to the funds received as commissions and GST refunds although it is clear that none remains with either Dr Ludekens or Mr Van de Steeg. 23 Section 290-50(5) of the Administration Act provides that the Court may have regard to all matters that it considers relevant in deciding what penalty is appropriate for a contravention, but the provision identifies nine specific matters. Section 290-50(5) provides: Principles relating to penalties (5) In deciding what penalty is appropriate for a contravention of subsection (1) or (2) by an entity, the Federal Court of Australia may have regard to all matters it considers relevant, including: (a) the amount of the consideration received or receivable (directly or indirectly) by the entity and *associates of the entity in respect of the *scheme; and (b) the deterrent effect that any penalty may have; and (c) the amount of loss or damage incurred by scheme participants; and (d) the nature and extent of the contravention; and (e) the circumstances in which the contravention took place, including the deliberateness of the entity's conduct and whether there was an honest and reasonable mistake of law; and (f) the period over which the conduct extended; and (g) whether the entity took any steps to avoid the contravention; and (h) whether the entity has previously been found by the Court to have engaged in the same or similar conduct; and (i) the degree of the entity's cooperation with the Commissioner. The nine matters specified in the provision overlap to some extent and do not exhaust all of the matters which the Court may consider to determine what penalty is appropriate. 24 The first of the matters in s 290-50(5)(a) is the amount of the consideration received or receivable (directly or indirectly) by Dr Ludekens and Mr Van de Steeg. The consideration received or receivable by a promoter is an important factor in determining the penalty to impose for contraventions of Division 290 because any penalty should ordinarily deprive the promoter of the benefit or gain arising from the contravening conduct. The importance of the consideration received or receivable to the penalty to be imposed is reflected in s 290-50(4) which provides that the maximum amount of the penalty is the greater of (a) 5,000 penalty units (for an individual) and (b) "twice the consideration received or receivable". That is consistent with the importance of the consideration in determining the appropriate penalty as stated at [3.25] in the Explanatory Memorandum, Tax Laws Amendment (2006 Measures No. 1) Bill 2006, accompanying the provisions at the time of their enactment: To deter the promotion of schemes, it is important that the potential penalty for the promoter is greater than the expected benefit from illegal activity. Therefore, the maximum amount of penalty the Federal Court can impose is the greater of: • 5,000 penalty units (currently equal to $550,000) for an individual or 25,000 penalty units (currently equal to $2.75 million) for a body corporate; and • twice the consideration received, directly or indirectly, by the entity and associates of the entity from the promotion or implementation of the scheme. [Schedule 3, item 1, subsection 290-50(4)] The penalty imposed can be expected in the usual case to exceed the benefit received or receivable, directly or indirectly, in respect of the scheme. 25 It was accepted by the parties that the consideration received or receivable by each of Dr Ludekens and Mr Van de Steeg was in excess of $5 million comprising the commissions, GST refunds and personal income tax refunds. The amount in respect of Dr Ludekens was calculated at $5,339,750, and in respect of Mr Van de Steeg was calculated at $5,050,934, based upon the amounts found by the Full Court: see 214 FCR 149 at [76], [152], [195] and [196]. Ten Woodlot applications were made on 30 June 2007 for which Lotus received commissions from Gunns on 12 July 2007 of $3,324,750. $3 million of the commissions received by Lotus was paid to Meloka on 16 July 2007. Dr Ludekens was the sole director of Lotus and Lotus was found by the Full Court at [26] to be an associate of Dr Ludekens. The balance of the commissions received by Lotus was disbursed by payment of $302,250 to the Commissioner for GST and by payment of $22,500 for legal fees. On 24 January 2008 Lotus also received GST refunds of $2,015,000 from the ATO in relation to the GST partnerships. Lotus dealt with the GST refunds by transferring an aggregate amount of $2,003,000 to Ty-Tia ($1,768,000 on 24 January 2008 and $235,000 on 29 January 2009). Meloka also obtained $47,934.67 representing the income tax refund received by Mr Crowe. 26 The policy reflected in Division 290 would ordinarily require the imposition of a penalty upon each of the promoters which, at least in aggregate, was no less than the actual consideration that was received or receivable by them directly or indirectly, namely $5,339,750. However, although the consideration for each of Dr Ludekens and Mr Van de Steeg is computed to exceed $5 million, it is relevant to bear in mind that the two amounts substantially overlapped and that the amount calculated for each is predominantly the same money passing from one to the other. The total of the Commissions and GST received or receivable, in other words, was $5,339,750 and not the aggregate of the two amounts as calculated separately for each of Dr Ludekens and Mr Van de Steeg. It is also relevant to the appropriate amount of the penalties to be imposed that none of the consideration had been intended to be retained by Dr Ludekens or Mr Van de Steeg as a separate fee or reward for their personal benefit but was to be applied to benefit those who were to be the participants in the Plan which was found to be the tax exploitation scheme. The amounts received or receivable as commissions, GST refunds and income tax refunds were, in other words, not a separate reward for Dr Ludekens and Mr Van de Steeg as promoters to secure the participation of others to a tax exploitation scheme. However, "consideration" within the meaning of ss 290-50(4) and 290-50(5)(a) is not confined to separate fees or rewards for the marketing and encouraging of a scheme (see (2013) 214 FCR 149 at [286]) and extends to each of the commissions, GST refunds and income tax refunds in respect of the scheme notwithstanding that they were to be used in the Plan and were essential to the commercial viability of the Plan as articulated by the Commissioner, and were always intended to be the source, both directly and indirectly, of the funds to be used to discharge the obligations which arose from participating in the 2006 Gunns Woodlot Project: see 214 FCR 149 at [244]. Accordingly, the maximum penalty that may be imposed by reference to s 290-50(4) is $10,679,500 for Dr Ludekens and $10,101,869 for Mr Van de Steeg. 27 The second matter in s 290-50(5)(b) is "the deterrent effect that any penalty may have". The principal, if not the only, object of civil penalties imposed under provisions like Division 290 has been said to be "to put a price on contravention that is sufficiently high to deter repetition by the contravenor and by others who might be tempted to contravene…": Trade Practices Commission v CSR Limited (1991) ATPR 41-076, [52152], [67]; Commonwealth of Australia v Director, Fair Work Building Industry Inspectorate (2015) 326 ALR 476, [55]. The deterrence and compliance to consider in this context is both that specific to the contravenor and that general to others. The penalty to be imposed must act as a deterrence and must not be seen, for instance, as an acceptable cost of doing business: Singtel Optus Pty Ltd (ACN 052 823 208) v Australian Competition and Consumer Commission (2012) 287 ALR 249, 265 [62]; Australian Competition and Consumer Commission v TPG Internet Pty Ltd (2013) 250 CLR 640, 659 [65]-[66]; see also Clean Energy Regulator v MT Solar Pty Ltd [2013] FCA 205, [156]. The penalty must not, however, be so great as to be oppressive. In Australian Competition and Consumer Commission v Leahy Petroleum Pty Ltd (No 2) & Ors (2005) 215 ALR 281 it was said at [9] that "…a penalty that is no greater than is necessary to achieve the object of general deterrence […] will not be oppressive": see also TPG Internet Pty Ltd v Australian Competition and Consumer Commission (2012) 210 FCR 277, 293 at [143]. 28 In Commissioner of Taxation (Cth) v Arnold (No 2) & Ors (2015) 324 ALR 59 Edmonds J imposed penalties ranging from between $100,000 to $1,000,000 on three respondents found to have contravened s 290-50(1). At [164] to [170] his Honour identified six reasons relevant to the deterrent effect of a penalty to be imposed under Division 290, saying: The deterrent effect that any penalty may have: s 290-50(5)(b) General deterrence 164 There are a number of reasons why contraventions such as those committed by the respondents should attract penalties which will act as a strong deterrent to others. 165 First, the facility in s 290-50(4) for the maximum penalties to be increased commensurate with consideration received or receivable is intended to enable the Court to fix penalties at levels that create a genuine commercial disincentive to engaging in conduct which results in either the contravenor or another entity being a promoter of a tax exploitation scheme. 166 Secondly, putting promoters of ineffective tax schemes substantially at risk financially overcomes what would otherwise be an asymmetry in the risks faced by the promoters of the schemes and by the participants in the schemes. The Explanatory Memorandum to the Tax Laws Amendment (2006 Measures No. 1) Bill 2006 (Cth) (the EM), which when enacted inserted Div 290, explained this (at para 3.3) as follows: [P]romoters can obtain substantial profits while investors may be subject to penalties under the TAA 1953. This represents a significant asymmetry in risk exposure. 167 Thirdly, ineffective tax schemes, particularly those which are mass marketed and which purport to provide participants with deductions which are "inflated" by the provision of finance or credit on uncommercial terms, pose potentially significant risks to the revenue. The EM included estimates of the financial impact of the introduction of Div 290, which was expected to take the form of gains to the revenue, and stated (at para 3.135) that "[t]hese estimates are based solely on the anticipated deterrent effect of the regime". The potentially adverse impact on the revenue underscores the need for a robust message to those promoting tax-exploitation schemes. In the present matter the total deductions which would be expected to have been claimed by participants was $6,036,000 in the 2010 year and $840,000 in the 2011 year, making a total of $6,876,000. 168 Fourthly, it can be difficult for the Commissioner to detect ineffective tax schemes. It is well recognised that difficulties in detecting contraventions are a significant factor in the need for general deterrence: Clean Energy Regulator v MT Solar Pty Ltd [2013] FCA 205 at [102] (Clean Energy Regulator) per Foster J. The difficulties in detecting ineffective tax schemes are inherent in the self-assessment regime, under which "taxpayers are now effectively required to determine their own taxable income": Explanatory Memorandum to the Bill enacted as the Taxation Law Amendment (Self Assessment) Act 1992 (Cth). For example, participants in the present scheme simply returned deductions for donations to charities, which on their face would not indicate involvement in a scheme. The Commissioner first became aware of the scheme by chance as a result of an ATO officer reading an advertisement in the mX afternoon newspaper for a seminar to be presented by Leaf Capital. 169 Fifthly, ineffective tax schemes impose compliance costs on the ATO and therefore on the whole community. Compliance costs arise in relation to action required to be taken by the Commissioner in relation to investigating ineffective tax schemes, communicating with the promoters and participants in the schemes, disallowing deductions or cancelling tax benefits associated with the schemes, amending the participants' assessments, determining the participants' objections to their amended assessments, and conducting review and appeal proceedings under Part IVC of the TAA. The compliance activities in relation to the scheme are apparent from the following: (1) There were a total of 96 participants who purchased Treatment Kits; and (2) investigation in relation to the scheme included ATO officers issuing information and evidence gathering notices under s 264 of the 1936 Act and s 353-10 of Sch 1 to the TAA to banks, and to persons and entities involved in the scheme, together with obtaining access to a number of premises occupied by the respondents, pursuant to s 263 of the 1936 Act. 170 Sixthly, participation in ineffective tax schemes imposes costs on the community by reason of the misallocation of scarce financial resources. The EM observed (at para 3.136) that: By putting promoters at risk financially for the promotion of ineffective tax schemes, rather than allowing all risks to be passed on to investors, the market for investment schemes is likely to operate more efficiently, with the potential for investment capital to be redirected to legitimate and productive investments. (Emphasis in original) His Honour went on to consider specific deterrence to the respondents in the case before him and noted at [171] that specific deterrence is a significant factor where, as were the facts before him, "the contraventions involved deliberate wrongdoing, sustained denials of contraventions and lack of remorse". 29 The Commissioner submitted that the reasons identified by Edmonds J in Arnold in relation to general deterrence applied also to the circumstances of the tax exploitation scheme which Dr Ludekens and Mr Van de Steeg were found to have promoted. The Commissioner also identified a number of matters which were submitted to be relevant to the specific deterrence of Dr Ludekens and Mr Van de Steeg individually (although many of the matters relied upon by the Commissioner in relation to this matter may overlap with, and may also be relevant under, a number of the other matters identified in s 290-50(5)). The Commissioner contended in relation to Dr Ludekens that the following matters were relevant to the specific deterrence of Dr Ludekens namely that: (a) his conduct involved misrepresentation and serious dishonesty; (b) he actively misled the Commissioner during his investigation into the tax exploitation scheme and fully contested liability in the litigation (in that regard the Commissioner submitted that Dr Ludekens' evidence in the penalty stage of the proceeding in respect of his post 30 June 2007 on-selling was questionable and that Dr Ludekens had shown by his evidence to have little insight into his misconduct which, the Commissioner submitted, raised doubt about the sincerity of Dr Ludekens' expressions of contrition); (c) he was a director of Lotus which held an Australian Financial Services Licence under Part 7.6 of the Corporations Act; and (d) he became bankrupt on 20 November 2013 with debts including substantial debts to the Commissioner including those connected with the tax exploitation scheme. The matters submitted by the Commissioner as relevant to specific deterrence of Mr Van de Steeg were that: (a) his conduct involved misrepresentation and serious dishonesty; (b) he was active in financial services through his promotion with Mr Ezzy of Meloka as a vehicle for investment by private clients; (c) he became a bankrupt on 1 March 2011 but had not produced a statement of affairs; (d) his conduct involved selling financial products largely to people with limited expertise and understanding of tax aspects of financial products; (e) he actively misled the Commissioner during his investigation into the tax exploitation scheme and had fully contested his liability in the litigation and, the Commissioner submitted, that Mr Van de Steeg had conducted himself during the contravention stage of the proceeding in a way that did not demonstrate an understanding of the wrongdoing involved in his conduct or which demonstrated any remorse; and (f) he was still involved in offering financial products as recently as July 2015 to Robert Magdziarz. 30 It is not necessary to consider in detail each of the matters raised by the Commissioner because of the view I take about the amount of the penalty which is appropriate to be imposed upon each of Dr Ludekens and Mr Van de Steeg in view of their specific circumstances. However, it should be mentioned that the Commissioner's submission about the matters to be considered for the specific deterrence of Dr Ludekens and Mr Van de Steeg cannot be accepted without qualification and without substantial caution. It is important, in particular, to ensure that what is considered under the heading of specific deterrence is directed to deterrence and not to the punishment for wrongful conduct for offences which had not been brought in, and were not directly part of, this proceeding. Many of the Commissioner's submissions in relation to the conduct of Dr Ludekens and Mr Van de Steeg were expressed in the language of findings of other contraventions that were not part of the proceeding and were not formally established. The submission, for example, that Dr Ludekens "actively misled the Commissioner" could have been, but was not, the subject of prosecution for breach of s 8K(1)(b) of the Administration Act which, in that context, might raise potentially different factual and legal questions, burdens and defences. Some of the Commissioner's submissions about specific deterrence also required caution because they related to conduct which seemed not to require deterrence. The submission, for example, that Mr Van de Steeg was still offering financial products as recently as July 2015 to Mr Magdziarz was not shown to be wrongful or requiring direct or indirect sanction. Section 290-50(5) is directed to the mischief of promoting tax exploitation schemes and is not a substitute for the punishment for offences found in other provisions or for conduct which is not established as wrongful. In considering what penalty is appropriate, as required by s 290-50(5), it is important to bear in mind that the vice of the conduct found in this case to contravene Division 290 lay in the erroneous belief that investors could be substituted after 30 June 2007 for those who had been used on 30 June 2007 as "mere signatories". The matters relevant to specific deterrence should, therefore, keep separate the need to punish other conduct, although that conduct may inform such questions as whether the amount of the penalty imposed will act as a deterrent for them. An additional need for caution in this case arises from the way in which the proceeding was conducted; namely, that evidence of subjective reasons and intentions was excluded from the contravention stage of the hearing. There are, therefore difficulties in making the findings of dishonesty in relation to the contravening conduct which the Commissioner submits should be made in the penalty stage. There would be less difficulty in making findings about dishonesty in relation to the contraventions if the contravention stage had been conducted at the same time as the penalty stage leaving, perhaps, only matters in plea of mitigation of penalty for separate submission: cf Australian Securities and Investments Commission v Loiterton (2004) 50 ACSR 693, [55]; and Arnold. 31 It may be more convenient to consider the Commissioner's other submissions concerning the conduct of Dr Ludekens and Mr Van de Steeg in the context of s 290-50(5)(e) below, and for present purposes to focus upon identifying what the penalty needs to deter both specifically and generally. However, it might be desirable to say something about the Commissioner's submission that the conduct of Dr Ludekens and Mr Van de Steeg in fully contesting the proceeding should count against them in the context of considering specific deterrence. In that context it is relevant to note that although the conduct of respondents in defending themselves may be relevant to what penalty may need to be imposed as a deterrent, the fact of contesting liability should not automatically be seen as a circumstance to increase the penalty upon someone found to have contravened Division 290, especially in a case like the present. This was the first proceeding under Division 290 and it is useful to recall that both Dr Ludekens and Mr Van de Steeg had been wholly successful at first instance and were also found by the Full Court not have to contravened s 290-50(2). Furthermore, the Full Court expressed criticism about the Commissioner's formulation of the tax exploitation scheme which was reformulated by the Commissioner during oral submissions in the appeal: see 214 FCR 149 at [19]-[24]. The provisions were complex and had not previously been tested. The application of the provisions to Dr Ludekens and Mr Van de Steeg was also complicated and not found to be clear. It cannot be assumed, therefore, that the conduct of Dr Ludekens and Mr Van de Steeg in contesting liability in this case should bear adversely upon them in determining the appropriate penalty. Much will turn not upon the general fact of having contested liability but in the detail of their specific conduct in that context. In Arnold Edmonds J took into account sustained denials of contraventions, but sustained denials of facts and evidence is not the same as maintaining that the facts and evidence does not establish contravention of a statutory provision. Dr Ludekens and Mr Van de Steeg succeeded in establishing before Middleton J that they had not contravened the statutory provisions and also succeeded before the Full Court that they had not contravened s 290-50(2). They were unrepresented during most of the proceeding at first instance and there is nothing to suggest that their conduct before Middleton J, or on appeal, should find expression in the penalty by way of deterrence. It would not be appropriate in such circumstances to regard their conduct in contesting liability as a matter weighing against them on the question of penalty in considering specific deterrence. 32 Penalties are imposed in part to deter contravening conduct and to promote compliance and, although the factors a court may consider when imposing a penalty are broad, sight should not be lost of the link between the penalty to be imposed and the specific conduct to be deterred and the specific compliance to be promoted. In Commonwealth of Australia v Director, Fair Work Building Industry Inspectorate & Ors (2015) 326 ALR 476 the majority said at [55]: No less importantly, whereas criminal penalties import notions of retribution and rehabilitation, the purpose of a civil penalty, as French J explained in Trade Practices Commission v CSR Ltd, is primarily if not wholly protective in promoting the public interest in compliance: "Punishment for breaches of the criminal law traditionally involves three elements: deterrence, both general and individual, retribution and rehabilitation. Neither retribution nor rehabilitation, within the sense of the Old and New Testament moralities that imbue much of our criminal law, have any part to play in economic regulation of the kind contemplated by Pt IV [of the Trade Practices Act]. … The principal, and I think probably the only, object of the penalties imposed by s 76 is to attempt to put a price on contravention that is sufficiently high to deter repetition by the contravenor and by others who might be tempted to contravene the Act." (footnotes omitted) In this case the contravening conduct lay in the Plan found to be a tax exploitation scheme which, however, would not have been contrary to s 290 had it not been for the fact that those who were used as applicants for woodlots were never intended to be participants but were always intended to be substituted by the secondary investors. It was that fact that made promoting the 2006 Gunns Woodlot Project fall within Division 290 and which requires the Court's sanction by the imposition of a penalty that "must leave no doubt in the minds of other would be contravenors that such conduct will not pay": Clean Energy Regulator at [156]; Arnold at [206]. There would otherwise have been nothing inherently offensive about promoting a product sanctioned by the Commissioner and to use the commissions, GST refunds and other tax savings for profitable use in an investment to discharge the obligations which had been undertaken by committing to, and participating in, the project. In other words, that which is to be deterred is, fundamentally, the attempt to rely upon the incorrect factual basis of the Plan rather than to deter other conduct by Dr Ludekens and Mr Van de Steeg or other features of the Plan (such as the use of the tax benefits flowing from participation in the 2006 Gunns Woodlot Project by investing in a venture intended to yield sufficient funds to pay the interest and to repay the loans which had been, or were to be, incurred). Similarly, the contravening conduct to be deterred was not the failed investment in the foreign exchange trading through AFTA, however commercially unrealistic that may have been. 33 I accept the submissions by counsel for each of Dr Ludekens and Mr Van de Steeg that specific deterrence in this case does not warrant an unduly heavy penalty. The consequence to each of Dr Ludekens and Mr Van de Steeg from what was found to be the tax exploitation scheme contrary to s 290-50(1) has resulted in financial and personal loss and hardship to each of them and has left them with no financial or other benefits from their contravening conduct. Each has expressed considerable contrition, remorse and regret which I accept as genuine. Each has been involved in lengthy, difficult and costly ATO investigations and court proceedings. Dr Ludekens has lost his life savings and his family home and has been made bankrupt. Mr Van de Steeg has also lost his house and other assets and is also bankrupt. The events have had a deep impact upon the health of each of them and both have experienced irreparable harm to friendly relations which they had previously enjoyed with others for many years. That harm to each of them was a direct consequence of the Plan constituting the tax exploitation scheme. Specific deterrence would in the usual case require a penalty in excess of the consideration received or receivable by the promoters but in this case (a) neither Dr Ludekens nor Mr Van de Steeg have the benefit of any of those amounts, (b) each of them have lost their savings and have become bankrupt, and (c) the imposition of a penalty in the amounts of the consideration would be oppressive in the specific circumstances and conditions in which they each find themselves for the reasons that will be set out below. 34 It is difficult to evaluate what general deterrence may require in the circumstances of this particular case because a proper evaluation of the economics of the Plan would itself deter a reasonable person from undertaking the contravening conduct. The economics of the Plan was never sound even if the foreign exchange trading business was able to return the 10% per month which Mr Van de Steeg believed could be achieved. The commercial success of the Plan always needed more money than the combination of the commissions, GST refunds and tax deductions would make available to put to use in the foreign exchange trading business to discharge the debts and obligations arising from the 2006 Gunns Woodlot Project. The financial viability of the Plan was not thought through and what was embarked upon was so inherently unsound as to be an effective deterrent to all but the cavalier, foolhardy or indifferent. The Court should impose a penalty to leave no doubt in the minds of others that promotion of a scheme upon false facts will not pay, but in doing so it is important to bear in mind that the mischief requiring deterrence in this case is, fundamentally, the reliance upon erroneous facts. The penalty should leave no doubt in the minds of others that promoting a tax exploitation scheme based upon an incorrect basis will not pay. It is unacceptable for transactions to be put to the Commissioner as having been entered into at a time when they had not been entered into and thereby to seek to obtain tax advantages to which those involved were not entitled. In the usual case the penalty should, to act as a general deterrent, substantially exceed the consideration received or receivable by the promoters. It must, however, also reflect the specific circumstances of each case, which in this case includes the impact the Plan has had upon Dr Ludekens and Mr Van de Steeg, the losses they have suffered and the oppression to them, in their specific circumstances, of a large penalty as will be considered below. A higher penalty would be appropriate for general deterrence were it not for the specific circumstances applicable in this case to the impact of a higher penalty upon Dr Ludekens and Mr Van de Steeg. 35 The third matter in s 290-50(5)(c) is "the amount of loss or damage incurred by scheme participants". The loss or damage that may be taken into account is not limited to that arising from the contravening scheme, but it must be loss or damage "incurred by [the] scheme participants". The loss or damage to be considered must, in other words, bear a relationship to the contravening conduct and it must have been suffered by the participants as scheme participants. Some of the loss and damage submitted by the Commissioner to have been incurred by the scheme participants in this case may, however, arise from circumstances other than from participation in the Plan found by the Full Court to be the tax exploitation scheme. 36 The Smithsons and the Velardis, as well as the secondary investors, each suffered some loss and damage from their participation in the tax exploitation scheme. The evidence of Mr and Mrs Smithson in the contravention stage of the proceeding is set out in the reasons for judgment of the Full Court at [38] to [55] and that of Mr and Mrs Velardi at [56] to [68]. Ms McGregor (formerly Mrs Smithson) gave additional evidence by affidavit in the penalty stage of the proceeding, as did Mrs Velardi. Each had been approached and signed documents purporting to participate as partners in the 2006 Gunns Woodlot Project. Dr Ludekens explained in his evidence that the Smithsons and Velardis had been asked to sign the Gunns application form in what he thought to have been a representative capacity without intending that they be exposed to any liability. The Smithsons and the Velardis were not intended to remain as participants in the 2006 Gunns Woodlot Project but were intended to be the individuals who signed the application to enable the claims to be made on the basis that the names of the others, the secondary investors, would be substituted for the Smithsons and the Velardis. The substitutions did not occur, however, and as at 31 January 2009 the account statements prepared by Gunns Finance for the loans showed the following amounts owing by the Velardis and the Smithsons: Borrowers Balance Interest Accruing per day at 31 January 2009 Jonathan Ezzy, Elizabeth Velardi $2,358,794.26 $807.81 Peter Van de Steeg, Andrew Smithson $2,359.298.33 $807.98 Peter Van de Steeg, Elizabeth Velardi $2,664,078.31 $912.36 Jonathan Ezzy, Andrew Smithson $2,359,328.78 $807.99 Jonathan Ezzy, Jodie Smithson $2,359,640.34 $808.10 Peter Van de Steeg, Dominic Velardi $2,725,561.45 $933.41 Peter Van de Steeg, Jodie Smithson $2,359,025.46 $807.89 The Smithsons received letters in February 2008 from Gunns Finance, as is set out in the reasons for judgment of the Full Court at [199], stating that the loans were in arrears. In January 2009 the Smithsons and Velardis received letters of demand and were thereafter served with writs issued in the Supreme Court of Tasmania. Eventually the proceedings were settled on a confidential basis and, ultimately, the financial losses to the Smithsons and the Velardis were not large. Ms McGregor gave evidence at the contravention stage of the proceedings that the Smithsons had been released by Gunns Finance from any financial obligations connected to the woodlot loans as part of the settlement with Gunns. Ms McGregor produced invoices for legal fees totalling $8,309.50 whilst Mrs Velardi said that she was assisted in legal work by Macpherson Kelley for no charge on the basis that she did most of the work herself, but did no paid work for some 11 months. Mrs Velardi had been the main income earner in her household and had been earning about $130,000 per annum pre-tax and did not earn an income for about a year during the time she focused on meeting the claims by Gunns. 37 The ultimate financial loss to the Smithsons and Velardis was not large in monetary terms but their involvement in the tax exploitation scheme caused them to incur legal fees and loss of time, effort and concern arising from the demands by Gunns. The precise amounts that their losses which are fairly attributable to them as scheme participants was not established on the evidence, but it may be taken to be significant. Their losses also included non-financial harm. Both Ms McGregor and Mrs Velardi also deposed to having suffered severe anxiety and hardship under the threat of the litigation by Gunns which the Commissioner submitted should be taken into account in determining penalty. The Commissioner submitted, for example: The proceedings took a heavy toll on their wellbeing as well as their marriages and other members of their families and their relationships with them. Dr Ludekens and Mr Van de Steeg did not subject the Smithsons and the Velardis (or the secondary investors) to the additional burdens that might be expected from challenging their evidence, however, care must be taken when considering the loss and damage in the nature of personal hardship and anxiety. The "loss or damage" to be taken into account under s 290-50(5)(c) is not restricted to financial or economic loss, and there were no submissions in the current proceedings to the contrary, but care must be taken not to attribute too readily to the tax exploitation scheme the hardship and stress in relationships that may be affected by other unrelated circumstances and events. Indeed, the Velardis and the Smithsons had had other dealings with Dr Ludekens or Mr Van de Steeg which were unrelated to the tax exploitation scheme that may also have been a cause of some of their economic and other loss and damage. The evidence led by the Commissioner of the non-financial harm to the Smithsons and the Velardis was in the final analysis not sufficiently linked to the contravening conduct by Dr Ludekens and Mr Van de Steeg for it to justify a heavy penalty. However, although the causes of the personal hardship and anxiety of the Velardis and the Smithsons were not fully explored or tested, it can be assumed to have included some loss and damage arising from participation in the scheme. It was not suggested that their loss or damage was to be attributed to any potentially culpable conduct of their own by agreeing to participate in the Plan contravening s 290-50(1). 38 The losses to the secondary investors were also not large in money terms, with the possible exception of the loss by Mr Crowe of the amount he had to repay to the Commissioner which he had received as his income tax refund. The Commissioner submitted that the limitation of the losses to the secondary investors was attributable to the intervention of the ATO following investigation of the claims for GST refunds and input tax credits and was not a factor to be taken into account in favour of Dr Ludekens and Mr Van de Steeg. Counsel for Dr Ludekens, however, took issue with the implication that the Commissioner was to be credited with limiting the loss or damage to the secondary investors and submitted that the loss or damage to the secondary investors was inevitably limited by the very thing which caused the Plan to be an ineffective tax exploitation scheme. It was, in other words, the fact that none of the secondary investors could claim the tax deductions which meant that they could never be exposed to the losses which they would have faced had they participated in the 2006 Gunns Woodlot Project. Indeed, that fact may well have saved the secondary investors from the much greater losses they might, conceivably, have incurred from the combined effect of insufficient returns through investments through AFTA and the debt to Gunns Finance, had the Plan not been a tax exploitation scheme. Nonetheless, each of Dr Love, Mr Tregambe, Mr Martino, Mr Crowe, Ms Gibson (formerly Ms Taylor) and Mrs Ruffato incurred lost time and inconvenience including being required to attend for investigation by the Commissioner and in the proceedings. That is loss and damage which should be reflected in the penalties to some extent. 39 Mr Crowe's position needs also to take into account the fact that he did claim and received an income tax refund of $47,934.67 which was paid to Meloka on 26 February 2008. Dr Ludekens contended that he had urged Mr Van de Steeg not to accept the money from Mr Crowe and in late 2008 Mr Van de Steeg advised Mr Crowe to amend his income tax return to 'get out of' the investment. In August 2008 Mr Crowe's income tax return was amended but the amount he had received as a tax refund had been paid to Meloka and in January 2009 Mr Crowe became obliged to pay $50,747.70 to the Commissioner. Mr Van de Steeg undertook to repay the amount for Mr Crowe but was financially unable to do so. The loss and damage to Mr Crowe in money terms included the borrowing costs in respect of loan funds used to pay the balance of $29,310.91 to the Commissioner on 2 April 2010 and accounting fees of $462. A further debt of $1,760 due to his accountant, Mr Trew, was written off by the accountant. 40 The fourth matter in s 290-50(5)(d) is the nature and the extent of the contravention. In this regard the Commissioner contended that the contraventions involved the promotion of a tax avoidance scheme which: (a) involved very substantial sums of money; (b) depended upon falsely-premised scheme benefits; (c) was inherently risky to participants; and (d) involved significant elements of misrepresentation and dishonesty. 41 The nature of the contravention lay in the making of applications with the names of people who "had no intention of the 'partnership' of which they were a 'member' carrying on a business or an adventure or concern in the nature of trade": see 214 FCR 149 at [331]. The Plan was a tax exploitation scheme within the meaning of s 290-65 because none of the partnerships had acquired the woodlots in carrying on a business or an adventure or concern in the nature of trade to satisfy the essential elements of s 11-15 read with s 9-20 of the A New Tax System (Goods and Services Tax) Act 1999 (Cth). That meant that it was "not reasonably arguable that the scheme benefit (the input tax credits and consequently the GST refunds) was available at law": see 214 FCR 149 at [331]. The Plan would otherwise have been to implement the Commissioner's Product Ruling and to use the tax benefits flowing from its application for profitable use to discharge the obligations owed to Gunns from acquisition of interests in the partnerships. The Plan would have entitled the partnerships to the income tax deductions and GST refunds had it not been for the applications being made by people who lacked the partnership intention necessary to secure the scheme benefits which would otherwise have been available. The investment may otherwise have failed because the commercial underpinnings of the Plan were flawed, or because the investment itself might fail, but the nature of the contravention lay in putting forward people as participants in a project who were intended to be substituted by others. Its nature was not like that in the use of false names or identities to make false claims; the claims in question by the secondary investors could have been made by them had they acquired interests on or before 30 June 2007. The evidence of Dr Ludekens and Mr Van de Steeg that they intended to substitute the Velardis and the Smithsons with real taxpayers can confidently be accepted because the Plan, and its success, found by the Full Court to be a contravention depended upon secondary investors having sufficient taxable income to claim, and to obtain, tax deductions which would result in refunds. Those refunds were to be an essential source of the funds to be applied in the foreign exchange trading business. The secondary investors, as Mr Van de Steeg said, were "a critical part of the entire project" because without them "there would have been insufficient money to invest". Mr Van de Steeg believed that Dr Ludekens had sufficient investors who wanted to participate as investors, and Dr Ludekens believed that at least some of his four investors had committed to do so before 30 June 2007. The nature of the contravention, therefore, which needs to be reflected in the penalty, was the use of the Velardis and Smithsons to claim participation in the project when they did not intend to do so beyond their initial role as applicants to be substituted by others. 42 The extent of the contravention, in distinction from its nature, was relatively confined but should be reflected in the penalty. The contravention did not involve public or wide marketing of the Plan but was focused upon a relatively small number of individuals known to Dr Ludekens and Mr Van de Steeg. The Smithsons and the Velardis were friends or clients of Mr Van de Steeg and the secondary investors were intended to benefit from the Plan by participation in the 2006 Gunns Woodlot Project through investment in the foreign exchange trading business. The Commissioner submitted that the inherent risks in the tax exploitation scheme was relevant to the nature and extent of the contravention. However, what s 290-50(5)(d) calls to be considered is the nature and extent of the contravention rather than an evaluation of the commercial viability of the Plan. It was, for example, clearly correct that there were inherent risks as at 30 June 2007 in the capacity of the proposed foreign exchange trading business to generate sufficient returns to meet the debt obligations to Gunns but that risk flowed from the unsound commercial underpinning of how the funds were to be used rather than being a feature of the extent or nature of the contravention. 43 The fifth matter in s 290-50(5)(e) is the circumstances in which the contravention took place, including the deliberateness of the entity's conduct and whether there was an honest and reasonable mistake of law. In this regard the Commissioner contended that the contraventions were deliberate and that each respondent could have been under no reasonable mistake of law. Dr Ludekens, in contrast, sought to rely upon this matter as "a major mitigating factor in his favour", submitting that his contraventions were neither deliberate nor dishonest but that he was "in fact, operating under an honest and reasonable mistake of law in relation to the operation of the Plan which had been built up over a number of years as a result of his discussions with, and reliance on, various others including his legal and accounting advisers and Gunns as well as his previous experience of similar schemes and resulting interactions with the ATO". Mr Van de Steeg's submission was to the same effect and was based in part upon reliance on Dr Ludekens and the belief that Dr Ludekens had in place before 30 June 2007 wealthy doctors as participants in the investment. 44 The matters to be considered under s 290-50(5)(e) overlap other matters in s 290-50 and also overlap to some extent with those arising under s 290-55 and, perhaps, with those arising under s 290-65. The matters to be considered under s 290-50(e) and s 290-55 are different in critical respects but both require some consideration of the actual reasons and intentions of an entity which is said to be engaged in conduct contrary to s 290-50(1). Section 290-55(1)(a) exempts from the penalty provisions conduct due to a reasonable mistake of fact and in certain cases s 290-55(1)(b) calls for an inquiry into whether reasonable precautions were taken or due diligence was exercised to avoid the otherwise contravening conduct. Section 290-50(5)(c) directs that consideration be given to whether there had been a mistake of law (rather than of fact) but consideration under s 290-50(5)(e) of the "deliberateness" of the conduct or the honesty and reasonableness of any mistake of law, like the inquiries called for by s 290-55, may depend upon the reasons and intentions of those whose conduct is in question. The heading to s 290-55 is "Exceptions" which suggests that the section was intended to be relevant to findings of a contravention and that its operation was not confined to the amount of a penalty once contravention was found. The relationship between the two provisions, however, was not the subject of any submission by any of the parties except that (a) Dr Ludekens and Mr Van de Steeg had both attempted to rely upon their reasons and intentions as a defence in the contravention stage (but their reasons and intentions were said at that stage not to be relevant until the penalty stage), and (b) junior counsel who had appeared before Middleton J to make submissions for Dr Ludekens also sought to rely upon his reasons and intentions as a defence to a finding of contravention (but was not able to do so on the basis that the reasons and intentions were relevant only to the penalty stage of the proceeding: see Transcript (11.9.12) P-116:30-P-117:34). There were also no submissions by the parties about the relationship between ss 290-50(5) and 290-55, on the one hand, and s 290-65, on the other hand, particularly in relation to the extent, if at all, that s 290-65 permitted consideration of the actual reasons and intentions of those whose conduct is in question. 45 What Dr Ludekens and Mr Van de Steeg thought they were doing, and why they were doing it, is, however, relevant to what penalty to impose for their contraventions, although the evidence given by them in the penalty stage of the proceeding about these matters must take into account the findings made against them in the contravention stage of the proceeding. The facts found to be relevant to the contravention are in the reasons for judgment of the Full Court which observed at (2013) 214 FCR 149 at [25] that the findings of the primary judge at (2013) 92 ATR 301 at [73]-[177] had not been challenged. Dr Ludekens and Mr Van de Steeg are, of course, bound by the orders of the Full Court and by the findings embodied in the declarations of contravention: Gillfillan v Australian Securities and Investments Commission (2012) 92 ACSR 460, 475, [68], Spautz v Butterworth (1996) 41 NSWLR 1, 20. However they are not bound by issue estoppel beyond "those ultimate facts which form the ingredients" of what has been established against them: see Blair v Curran (1939) 62 CLR 464 at 532. In Blair v Curran Dixon J explained the need to distinguish between facts fundamental to the decision arrived at from those which are subsidiary or collateral to the decision and said at 532-3: In the phraseology of Lord Shaw, "a fact fundamental to the decision arrived at" in the former proceedings and "the legal quality of the fact" must be taken as finally and conclusively established (Hoystead v. Commissioner of Taxation (2)). But matters of law or fact which are subsidiary or collateral are not covered by the estoppel. Findings, however deliberate and formal, which concern only evidentiary facts and not ultimate facts forming the very title to rights give rise to no preclusion. Decisions upon matters of law which amount to no more than steps in a process of reasoning tending to establish or support the proposition upon which the rights depend do not estop the parties if the same matters of law arise in subsequent litigation. The difficulty in the application of these conceptions, however, as his Honour went on to observe, is "to distinguish the matters fundamental, or cardinal to the prior decision or judgment, decree or order or necessarily involved in the prior decision from those which though actually raised and decided on being in the circumstances of the case the determining consideration" are "not in point of law essential to the prior judgment, decree or order". 46 In this case the need to distinguish between the facts which are fundamental to the decision (and therefore binding in subsequent proceedings) and those which are subsidiary or collateral (and therefore not binding even if actually decided in the earlier proceeding) arises in the context of findings of contravention by the Full Court in what is in fact the same proceeding as the penalty stage but which were found in an earlier stage of the in proceedings which did not have evidence of the reasons and intentions of those whose conduct was in issue. That was because the contravention stage of the proceeding had been conducted on the basis that the subjective reasons or intentions of Dr Ludekens and Mr Van de Steeg would only be relevant at the penalty stage of the proceeding. Whether or not that was an appropriate course to take in the specific context of Division 290 was not challenged or tested but it was the basis upon which the proceeding was conducted. Senior counsel appearing for the Commissioner at the first scheduling conference had given an estimate of the proceeding "based on a separate hearing as to penalty", although what that meant for the evidence to be adduced was not explored. It was thereafter accepted that evidence about the subjective reasons and intentions of Dr Ludekens and Mr Van de Steeg were not relevant to any aspect of the findings on contravention, although both Dr Ludekens and Mr Van de Steeg attempted to establish why they acted as they did by way of defence during the contravention stage. They were not able to give, or to explore, evidence of those matters because evidence about those matters was treated as not relevant in the contravention stage: see Transcript, (7.9.11) (Gordon J) P-7: 8-10, 35-38; (14.3.12) (Middleton J) P-14: 5-10, P-18: 35-38, 47-47, P-19, 1-2; (3.8.12), P-11: 37-43; P-16: 24-26, P-27: 8-14; P-37: 32-39; (16.8.12) P-349:21-P-350:24; (20.8.12) P-432:36-41; (27.8.12) P-540:25-33, P-541:39-46, P-550:22-47, P-557:29- P-558:2, P-584:43, (10.9.12) P-12:10-22. Amongst the issues which were deferred for consideration to the penalty stage, which had been sought to be raised by junior counsel for Dr Ludekens in submissions before Middleton J at the contravention stage of the hearing, was whether Dr Ludekens was able to rely upon the exemptions of "reasonable mistake" in s 290-55 as a defence to the allegation of contravention: see Transcript (11.9.12) P-116:30 – P-117:34. 47 I accept the evidence of Dr Ludekens that he actually thought that the Commissioner might accept the substitution of names after 30 June 2007 for those appearing in the application before then. The evidence on this is not entirely consistent but there is enough to make it more probable than not that Dr Ludekens had the belief which he ought not to have held. The affidavit evidence of Dr Poon was that he had invested in the 2006 Gunns Woodlot Project "[i]n the 2007 financial year" (that is, before 30 June 2007) but that he did not ultimately claim a deduction because he was advised by Dr Ludekens not to do so "until the situation was clarified with the ATO". Dr Braham similarly maintained a position consistent with Dr Ludekens' evidence of Dr Braham having committed to the 2006 Gunns Woodlot Project before 30 June 2007 and particularised, in proceedings in the Supreme Court of Victoria against Ambry Legal, losses flowing from his inability to claim deductions of $595,535 for the 2007 year. In each case the claims by Dr Poon and Dr Braham are consistent with Dr Ludekens' belief that at least some of the proposed participants as secondary investors had committed to investment before 30 June 2007 and, therefore, that the Velardis and the Smithsons were thought in Dr Ludekens' mind to be representatives as at 30 June 2007 for a partnership which was to be formalised subsequently (in a broadly similar way that Dr Ludekens had in previous financial years signed a partnership agreement on 27 June 2006 with effect from 1 January 2006). The findings by the Full Court at [38] to [68] concerning the limited role that the Smithsons and the Velardis were to play by signing the application is also consistent with Mr Van de Steeg's evidence of a belief that before 30 June 2007 Dr Ludekens "had already lined up twelve doctors and surgeons whose 'tax rebates' would contribute $500,000 each" but that they were not in place by 30 June 2007. 48 Dr Ludekens' exposure to agricultural investment schemes had occurred through his association with Ms Keep. Dr Ludekens believed that he had acted "as a signatory" for a number of the partnerships that she had put in place where he had "signed the application forms on behalf of the partnerships". Dr Ludekens' evidence was that he had understood at the time that he "was not taking on any liability by doing so" and that he had not been asked to meet any liabilities (although, of course, there was no occasion for him to be asked to meet any liability for that partnership before 30 June 2007). Dr Ludekens went on to elaborate in his affidavit by saying: Nancy told me after 30 June 2006 that she had spare trees left over for 2006 and asked me if I knew anyone who might want to take them. Nancy told me it was not too late to get people into those partnerships. On some level it struck me as odd that you could claim deductions for 2006 when investing after 30 June 2006. But I thought that as long as two people weren't trying to claim the same deductions for the same year then it wasn't a problem. Nancy had told me it was OK and that she had done it 'hundreds of times' and the tax returns could be amended and the tax deduction claimed. I thought that Nancy, being an accountant, knew better than I did about the tax implications and I trusted her. There is other evidence which, like that just quoted, suggests, as was submitted by the Commissioner, that Dr Ludekens "was well aware of what the correct tax treatment was in relation" to the investments, but, like the passage quoted, the other evidence is also consistent with him having a belief that there could be put in place after 30 June 2007 the details of what had been intended before that date by, amongst other steps, the substitution of names of the secondary investors for those who had been the initial signatories. The evidence, in other words, is consistent with treating the 30 June signatories as a formality that carried less importance in the minds of Dr Ludekens and Mr Van de Steeg than it should. Accepting the evidence of Dr Ludekens that he believed that participants to the scheme could be substituted after 30 June 2007 in that way does not involve acceptance that all of the secondary investors had been committed, or had indicated a willingness, to participate after 30 June 2007. Plainly they had not, as Dr Ludekens admitted in his affidavit in the penalty stage of the proceeding. Indeed, Dr Ludekens volunteered the admission that he had incorrectly indicated to the ATO that the Van de Steeg investors had been committed to the partnerships on 1 June 2007 when that was not so. Furthermore, it was not justifiable for Dr Ludekens, or for Mr Van de Steeg, not to have become fully informed of their obligations and duties when they embarked upon organising the arrangements with effect from 30 June 2007. Their role in securing investors in the 2006 Gunns Woodlot Project made it incumbent upon them to ensure that they adopted a plan that was factually correct and fully lawful. 49 The circumstances in which the contraventions took place included the making of representations to the Smithsons and the Velardis which were factually wrong: see 214 FCR 149 at [47]-[48] in relation to the Smithsons and at [61] to [63] in relation to the Velardis. It was wrong of Dr Ludekens and Mr Van de Steeg to put forward the names of the Smithsons and the Velardis as partners when Dr Ludekens and Mr Van de Steeg knew and intended that the Smithsons and the Velardis were not as they were being represented in the applications. That Dr Ludekens and Mr Van de Steeg had an erroneous basis for their belief that the Smithsons and Velardis could be representatives for others did not make it either correct or justifiable to act as they did. The contravening conduct of Dr Ludekens was deliberate and such mistake as Dr Ludekens may have made was neither reasonable nor one of law. He deliberately sought to implement the Plan by which the Velardis and Smithsons would apply for woodlots in circumstances in which they were intended not to be the investors. Mr Van de Steeg may have believed that Dr Ludekens had enough wealthy doctors by 30 June 2007 willing to invest in the 2006 Gunns Woodlot Project but he also deliberately sought to implement the Plan on the basis of the Velardis and the Smithsons making applications they did not intend to make for their own behalf. Whatever mistake he may have made was similarly neither reasonable nor one of law. 50 The Commissioner made a number of other submissions about the matters to be taken into account under s 290-50(5)(e) which may not require specific consideration in light of the basis upon which the penalty is determined as appropriate in the specific circumstances) but should perhaps be dealt with generally. The Commissioner's submissions placed considerable emphasis upon the conduct of Dr Ludekens and Mr Van de Steeg during the ATO's audit of the claims for GST refunds. In that context the Commissioner submitted, as relevant to the matters to consider in determining appropriate penalties under s 290-50, such matters described as "unauthorised lodgement of documents", "misleading the ATO" and "misapplication of funds". Some of these matters, as previously mentioned, require some caution to ensure that the facts upon which they are based are not taken as proof of other offences which were not proven as offences and which are not formally part of the proceeding under Division 290. Section 290-50(5)(e) requires that primary attention be given to "the circumstances in which the contravention took place" (emphasis added) and does not call for a broader investigation into other culpable conduct. The specific reference in the provision of "the deliberateness" of the conduct and of "whether there was an honest and reasonable mistake of law" emphasises that the focus of the inquiry is into the circumstances of the contravention and not of some other contravention. The relevant contravention for present purposes was of s 290-50(1), namely of engaging in conduct resulting in "being a promoter of a tax exploitation scheme" (as defined, respectively, in ss 290-60 and 290-65). Making false or misleading statements to an ATO officer in an audit subsequent to the contravening conduct may be another offence, and may reveal something about the contravention of s 290-50(5)(e), but should not be taken as the inquiry required by s 290-50(1)(e) (if only to avoid the possibility of double jeopardy). 51 Amongst the matters submitted by the Commissioner to be relevant to be considered under s 290-50(5)(e) was the "Unauthorised lodgement of documents" seeking registration for Australian Business Numbers and refund of GST. However, for present purposes, it is sufficient to note that, unsurprisingly, the subsequent conduct of Dr Ludekens and Mr Van de Steeg in lodging the documents was consistent with the conduct found to be a contravention of s 290-50(1); that is, that their subsequent conduct gave effect to their belief that claims could be made in the names of people who were not intended to be investors but who were intended to be substituted by others. The same may be said for the Commissioner's reliance upon the "On-selling" of the investments to the secondary investors which, ultimately, established no more than, unsurprising, subsequent conduct consistent with, and giving effect to, the contravention as found. The contravening conduct extended for a period of time beyond 30 June 2007 but it was essentially complete on that day when applications for woodlots were made in the names of people who lacked the intentions necessary to give rise to the fiscal consequences contemplated by Product Ruling PR2006/8. 52 The Commissioner's written submissions also dealt at some length with why the Court should reject the claims by Dr Ludekens and Mr Van de Steeg of an honest and reasonable mistake of law. The Commissioner's written submissions in this respect, perhaps due to their responsive nature to insufficiently defined submissions for the respondents, were not confined to the relevant "mistake" about which an inquiry of honesty and reasonableness was contemplated by the provision, but dealt with other potential mistakes that Dr Ludekens and Mr Van de Steeg might have relied upon. Amongst the "mistakes" which the Commissioner submitted were not honest or reasonable was the belief that the Smithsons and Velardis "could act as signatories without incurring liability to Gunns", but the relevant mistake found to establish s 290-65 had less to do with "liability to Gunns" but rather with whether the Smithsons and Velardis had acquired the relevant woodlots "in carrying on a business or an adventure in the nature of trade": see (2013) 214 FCR 149 at [330]-[331]. Another submission by the Commissioner in relation to Mr Van de Steeg was that any belief he held about the availability of deductions was not reasonable and "became less and less reasonable thereafter", but that belief (although a belief about the intended consequence of the conduct found to be in contravention of s 290-50(1)) was not a mistake of law apt to fall within the contemplation of s 290-50(5)(e) on the facts in this case which Mr Van de Steeg was able to rely upon. 53 The sixth matter in s 290-50(5)(f) is the period over which "the conduct extended". The "conduct" for this purpose is that which resulted in Dr Ludekens and Mr Van de Steeg being promoters of the tax exploitation scheme. That conduct in this case for Dr Ludekens was found by the Full Court to have taken place between June 2007 and 14 November 2007. The Full Court found this conduct in relation to Mrs Ruffato to have taken place after 27 June 2007 and to have continued until August 2007: 214 FCR 149 at [86]; [264]-[265]. In relation to the Ludekens investors it occurred from mid-June 2007 and was held to have continued until 14 November 2007: see 214 FCR 149 at [93], [177], [268]-[271]. In relation to the Smithsons and the Velardis the conduct was held to have occurred before and after 27 June 2007, including around 30 June 2007: 214 FCR 149 at [40]-[54], [58]-[67], [284]. The contravening conduct of Mr Van de Steeg was found to have taken place over a similar period of between June 2007 (in relation to the involvement of the Smithsons and the Velardis) and 5 December 2007 (in relation to Mr Crowe): 214 FCR 149 at [40]-[54], [58]-[67], [151], [276] and [284]. 54 Dr Ludekens and Mr Van de Steeg submitted in relation to s 290-50(5)(f) that the period over which the conduct extended was a "once off". It may be described, as was also submitted for Dr Ludekens and Mr Van de Steeg, to be "a relatively short period", but it was not a "once off". It was conduct, however, that was all directed to the one transaction based upon the wrong premise that participants could be substituted after 30 June 2007 as if they had been participants on or before that date and that those who had been identified as participants at that date could be treated as if they were not participants in their own right but as representatives for others. It was that erroneous premise that led to the applications being made on 30 June 2007 in the names of individuals who lacked the intention needed to claim the fiscal consequences contemplated by Product Ruling PR2006/8. What followed after 30 June 2007 during the relevant period was "relatively" short in the sense that it covered, at most, less than six months and involved only one year of income. It was a "once off" only in the sense that the conduct in question was not repeated in subsequent income years. 55 The seventh matter in s 290-50(5)(g) is whether steps were taken by either Dr Ludekens or Mr Van de Steeg to avoid the contravention. The submissions for Dr Ludekens (and also for Mr Van de Steeg to the extent adopted by him) was that Dr Ludekens went to considerable effort to obtain tax and legal advice regarding the scheme and to ensure that the income tax deductions and the input tax credits would be available. Dr Ludekens also submitted in this regard that he told Ms Richards and Dr Poon not to claim the tax deductions as soon as he became aware that the income tax deductions may not properly be available. Mr Van de Steeg's position was that he had relied upon Dr Ludekens, had misunderstood how the tax system worked, but had otherwise told all of the other investors, except Mr Crowe, not to proceed to claim deductions to which they were not entitled. 56 In my view there were no meaningful steps taken to avoid that which amounted to the contravention, although steps may subsequently have been taken by Dr Ludekens and Mr Van de Steeg to mitigate the losses flowing from the contravention to themselves and to others. There were no steps taken to avoid the erroneous basis upon which the claims of participation in the 2006 Gunns Woodlot Projects were made. Both Dr Ludekens and Mr Van de Steeg embarked upon, and did not seek to avoid, the conduct of promoting a tax minimisation scheme based upon the incorrect basis that it was made. Such advice as Dr Ludekens had taken was inadequate and it did not justify the conduct undertaken. The advice obtained by Dr Ludekens concerned, at best, the documents to be prepared but it was not about the basis upon which they were to be completed or to be submitted to the ATO as correct. 57 The eighth matter in s 290-50(5)(h) is whether Dr Ludekens and Mr Van de Steeg had previously been found by the Court to have engaged in the same or similar conduct. The consideration of this matter is favourable to Dr Ludekens and Mr Van de Steeg. Each submitted that there were no previous adverse findings by a court against them and the Commissioner did not contend otherwise. 58 The last matter in s 290-50(5)(i) is the degree of the entity's cooperation with the Commissioner. The Commissioner submitted in relation to this matter that neither Dr Ludekens nor Mr Van de Steeg were entitled to rely upon cooperation with the Commissioner in mitigation of penalty. He submitted, in particular, that each had actively misled the Commissioner in respect of the scheme and had relied upon their conduct at trial in support of the proposition that they had not been cooperative with the Commissioner. Dr Ludekens and Mr Van de Steeg, in contrast, submitted that they had cooperated with the Commissioner and that they were entitled to rely upon their cooperation in mitigation of penalty. 59 The Commissioner's submissions about a lack of cooperation cannot be accepted without qualifications and the contrary submissions of Dr Ludekens and Mr Van de Steeg also require substantial qualification. The Commissioner submitted, for instance, that the respondents' conduct of the proceedings before Middleton J was a factor counting against them in the amount of penalty to be imposed. In that regard the Commissioner submitted: Dr Ludekens' defence, filed 9 November 2011, denied or did not admit almost every substantive allegation. The trial judge repeatedly invited the parties to narrow the issues in dispute. Dr Ludekens put the Commissioner to proof and cross-examined extensively. Only when it came to making closing submissions, when he retained counsel, did he confine to a small handful the factual issues in dispute. This is far from the circumstance contemplated by Edmonds J in Arnold. In evaluating this submission by the Commissioner as relevant to the degree of cooperation with the Commissioner, however, it is useful to recall: (a) that at first instance Dr Ludekens and Mr Van de Steeg were wholly successful; (b) that on appeal they succeeded in meeting the Commissioner's contention that they should also be found to have contravened s 290-50(2) of implementing a tax scheme other than in accordance with the Commissioner's ruling; (c) that the contraventions found against them were on the basis of a case that the Commissioner narrowed on appeal during oral submissions; (d) that the invitation by the trial judge to narrow the issues was an invitation also to the Commissioner; (e) that Dr Ludekens and Mr Van de Steeg were not legally qualified and were mostly unrepresented at the hearing before Middleton J; and (f) that the Commissioner's conduct in the proceeding was the subject of some criticism. Similarly, however, the submissions by Dr Ludekens and Mr Van de Steeg of cooperation need to be treated cautiously because much of their "cooperation" was upon the incorrect basis that they could substitute the secondary investors for the Smithsons and the Velardis as if the secondary investors had acquired the woodlots on 30 June 2007. In considering the degree of cooperation by Dr Ludekens and Mr Van de Steeg with the Commissioner care must also be taken to distinguish between the contravening conduct and cooperation in respect of the contravening conduct. 60 The facts relevant to cooperation with the Commissioner begin with the involvement of Mr Michael Hawa in investigating the claims which had been made for the GST refunds. Mr Hawa was employed in the ATO and was the senior auditor in the GST Complex Audit Branch in 2007. In August 2007 he was asked by Ms Helen Konstantinidis, a senior case assessment officer in that branch, to look into some claimed refunds for GST input tax credits. On 13 August 2007 an officer in the GST Compliance Verification Centre had contacted Ms Konstantinidis alerting her to a group of activity statements which resulted in stopping refunds that had been claimed. All of those claims had been lodged by entities connected with Dr Ludekens. On 14 September 2007 Mr Hawa phoned Dr Ludekens and arranged a meeting on 18 September 2007. The account by Mr Hawa of what Dr Ludekens said to him is consistent with the incorrect belief Dr Ludekens had about the substitution of participants. 61 Amongst the documents provided by Dr Ludekens and Mr Van de Steeg were backdated partnership application forms: 214 FCR 149 at [185]-[186]. Mrs Velardi's evidence was that she prepared applications for the woodlot partnerships on instructions from Mr Van de Steeg in late 2007. The forms were sent to Dr Ludekens for approval and were subsequently sent to clients for signature with instructions that they were not to be dated when signed. Dr Ludekens and Mr Van de Steeg therefore misled the Commissioner by their claim about the participants in the 2006 Gunns Woodlot Project and continued to mislead the Commissioner in that regard subsequently, but the conduct after 30 June 2007 was in part based upon the belief which Dr Ludekens appeared still to have that it was permissible for individuals to be substituted as if they had been participants in the previous financial year. Dr Ludekens' account of events was that he only became aware that there might be a problem with what he referred to as "the Silent Partners obtaining their tax deductions" some time after November 2007 when his accountants, Coghlan Partners Pty Ltd ("Coghlans"), advised him of that. 62 Dr Ludekens' account of events was that he became concerned by the delay in the GST refunds and, after his meeting with Mr Hawa, engaged Coghlans in October 2007 to assist with the GST refunds. He had previously relied upon Ms Keep for accounting services and had freely given her name and her telephone number to Mr Hawa in the meeting on 18 September 2007. Dr Ludekens subsequently engaged Coghlans when he began to realise that there might be a problem and, on his account of events, when he "started to gain an appreciation that what [Ms Keep] had been doing and telling [him] about investors joining partnerships after 30 June may not be right". There was no corroborating evidence from Ms Keep but that does not mean that Dr Ludekens did not have the incorrect belief he claims to have had based upon his experience in prior transactions in which she had some role. Amongst the many objective factors that make it probable that Dr Ludekens had the belief he claimed to have was that it explains his conduct. There was from the outset a need for genuine investors who were able to claim a tax deduction because the refunds expected to flow from the tax deductions were necessary for the investment in AFTA to yield sufficient returns to discharge the debts to Gunns Finance. In other words, the actual involvement of investors whose income tax profile would give them tax deductions and refunds for Dr Ludekens to use in the AFTA trading was a matter of timing for Dr Ludekens and not a dispensable condition. It was essential that such investors participate in the 2006 Gunns Woodlot Project to secure the refunds that they would be expected to receive and, therefore, on any view of the facts, real taxpayers with actual taxable incomes were essential to participate as partners in the 2006 Gunns Woodlot Project for the economics of the Plan to have any hope of success. The flaw was that Dr Ludekens thought that the secondary investors could be identified after 30 June as if the applications which had been made on or before 30 June had been made by or for them but not that they were not to participate as investors. 63 Mr Hawa contacted Ms Keep to request, and was provided with, information in relation to his investigations. Dr Ludekens continued to "cooperate" with the Commissioner but did so upon a basis which continued to mislead. Dr Ludekens explained that even after he became aware that there "may be a problem with the silent partners obtaining their tax deductions", he nonetheless believed that there was an entitlement to the GST refunds "provided the ABN and GST registrations matched the names on the Gunns application forms". In oral evidence he sought to explain this, in part, as him seeking the Commissioner's assistance in overcoming the problem of the incorrect basis upon which the claims had been made. By this stage Coghlans had been retained and a Mr Graeme Lederman, a solicitor, had become involved in assisting Dr Ludekens and Mr Van de Steeg. 64 The GST review and audit was subsequently completed on the basis that incorrectly accepted that there was an entitlement to GST refunds. The affidavit by Mr Hawa said: 49 By 7 December 2007, the ATO had reached a preliminary position in relation the GST input tax credits claimed by the partnerships associated with Ludekens and Van de Steeg. I faxed a copy of a letter summarising the position to Lederman and Ludekens […]. 50 I was involved in a conversation with Mr Lederman about the decision summary letter on 17 December 2007, but thereafter the correspondence came from Coghlan Partners Pty Ltd (Coghlans), Ludekens' accountants. In our conversation, Lederman told me that he agreed that the partnerships as registered were not entitled to claim the GST input tax credits. As a solution, Lederman proposed that the current partnership entities be de-registered and the registration be re-done to reflect the correct partners. Lederman told me that this work was to be done by Coghlans. 51 On 17 December 2007, Adrian Dilger (Dilger) of Coghlans faxed me a letter (dated 17 December 2007) advising that they had resolved with their client Ludekens, that the stated Tax Office position was correct, and asking the Tax Office to amend the ABN and GST registrations to remove Lotus as a partner in the partnership involving Simon Braham and Andrew Ludekens […]. 52 By 18 December 2007, the GST review and audits were finalised and the first of a series of finalisation letters was sent to Coghlans. The finalisation letters notified the partnerships of the completion of our review of the activity statements and enclosed: 52.1 a decision summary indicating that the input tax credits had not been allowed, and 52.2 a document setting out the reasons for our decision. Coghlans then applied for new ABNs for the partnerships and lodged activity statements on 15 January 2008 which resulted in GST refunds on the basis that had been discussed with Mr Hawa. It can be assumed that this would not have occurred if the ATO auditors had been aware that the claims for GST refunds had been made on a factually incorrect basis although it may seem curious that neither the ATO auditors, nor Coghlans, nor Mr Lederman seem to have checked the critical fact upon which the contravention ultimately depended. 65 There were many individual facts and events which occurred between the commencement of the ATO audit and the GST refunds being received on 15 February 2008 which bear upon the question, and extent, of Dr Ludekens' and Mr Van de Steeg's co-operation with the Commissioner. Many individual facts and events do not reflect well upon them, including the fact, admitted by Dr Ludekens, that he misled the ATO into thinking that all of the secondary investors, relevantly those of Mr Van de Steeg, "were committed to the partnership on 1 June 2007" when that was not the case. Mr Van de Steeg, for his part, may have believed from his discussions with Dr Ludekens in the relatively short time between when they first met and 30 June 2007, that Dr Ludekens had a sufficient supply of wealthy doctors committed by 30 June 2007 to participate in the 2006 Gunns Woodlot Project, but nonetheless went on to secure participants after 30 June 2007 as if they had been participants before then. Whether or not the conduct of Dr Ludekens and Mr Van de Steeg amounts to misleading in the sense made an offence by some other provision, I accept that their conduct in their period of dealings with the ATO was not sufficiently open or accurate. In particular their conduct maintained the belief that there were entitlements to GST refunds, and potentially tax deductions, on the basis of acquisitions of woodlots on 30 June 2007 by the Smithsons and the Velardis for others. That conduct included the back dating of documents and encouraging others to participate in creating that wrongful belief. The findings of the Full Court refers to some of this conduct at [172] to [191]: 172 Mr Hawa requested further information from Dr Ludekens including details of the investors in all partnerships related to him (including names, ACNs or ABNs, and contact details), and any changes to interests held in these partnerships since 1 June 2007. Later that evening, Mrs Velardi emailed the home addresses and tax file numbers for Ms Gibson, Mr Martino and Mr Crowe to Dr Ludekens. 173 Also at or around this time, Dr Ludekens instructed Coghlans to prepare draft financial statements and draft tax returns for the purported partnerships. For this purpose, Dr Ludekens provided Coghlans with a spreadsheet setting out the allocation of partnership interests to investors in the Secondary Investment. 174 On 2 November 2007, Mr Martin Cash, an accountant then employed by Coghlans, sent a number of emails to Dr Ludekens via Mrs Velardi, attaching draft partnership financial statements and tax returns for the purported partnerships. On 7 November 2007, the documents were re-sent following a number of minor amendments by Coghlans. 175 Also at or around this time, Mr Hawa continued to correspond with Dr Ludekens, seeking further details regarding the purported partnerships. 176 On 9 November 2007, Dr Ludekens instructed Mrs Velardi to obtain the signatures of Ms Gibson and Messrs Crowe, Martino and Berlowitz on a page taken from the partnership financial statements prepared by Coghlans entitled "Partners' Declaration". Mr Van de Steeg arranged for Mr Martino to sign the document (see [119] above) and also signed the relevant document on behalf of his company, Ty-Tia. Mrs Velardi then sent the document to Ms Gibson (see [133] above) and Mr Crowe (see [146] above) for signature. At this time, these investors were also provided with a copy of a document entitled "Woodlots info" (which provided instructions on how to respond if contacted by the ATO about the Secondary Investment): see [133] and [146] above. Dr Ludekens provided Mrs Velardi with this document for distribution to investors. 177 On 13 November 2007, Dr Ludekens emailed Dr Love (see [104] above), Mr Tregambe (see [93] above), Ms Richards and Mr Poon a copy of the relevant partnership financial statements and tax returns, and requested that they forward these documents to their respective tax agents for the preparation of their 2007 income tax returns. Dr Ludekens also asked that they print, sign and return the Partners' Declaration page as soon as possible. 178 Mr Tregambe forwarded these documents to his accountant and later authorised his accountant to lodge his 2007 income tax return, which claimed a deduction for the partnership loss for the woodlot investment: see [93] above. Dr Love did the same: see [104]-[105] above. 179 On 14 and 15 November 2007, Mr Hawa received a set of signed partnership financial statements and special purpose financial reports for the purported partnerships. 180 On 19 November 2007, a Business Activity Statement for Lotus was lodged with the ATO. This statement reported the commission received from Gunns for the period ending 30 September 2007. 181 On 26 November 2007, Mrs Velardi collected a number of "welcome kits" from Dr Ludekens for distribution to the Van de Steeg Investors. These kits included: 1. A copy of the partnership financial statements; 2. A copy of the partnership tax return; 3. A copy of the partnership Certificate of Investment from Gunns and a Gunns Finance approval letter (both in the name of Mr P Van de Steeg and Mrs E Velardi); and 4. A covering letter, instructing investors to provide the partnership tax return and financial accounts to their accountants to include in their 2007 tax returns and requesting that investors "forward [their] tax refund (if any) to the partnership within 2 days". Dr Ludekens was actively involved in the drafting of this letter. 182 Mrs Velardi provided the welcome kits to Mr Van de Steeg to distribute to investors. Ms Gibson and Mr Crowe received a welcome kit in about November 2007: see [135] and [149] above. 183 On 29 November 2007, Mr Van de Steeg met with Mr Martino and Mr Jasper to discuss the Secondary Investment: see [115] above. 184 Also on 29 November 2007, a number of meetings were conducted by ATO officers at the offices of Mr Lederman with Ms Richards and Messrs Van de Steeg, Crowe, Berlowitz, Martino and Tregambe: see, by way of example, [114] and [147] above. These meetings formed part of the ATO audit of the purported partnerships' claims for GST refunds. Mr Lederman was authorised in writing by a number of the investors to be present at this meeting as their tax advisor in relation to the Secondary Investment: see for example [137] above. 185 On 5 December 2007, Mrs Velardi emailed both Ms Gibson and Mr Crowe a partnership application that had been prepared by her on instructions from Mr Van de Steeg, and approved by Dr Ludekens. Ms Gibson and Mr Crowe were asked to sign (but not date) that application: see [139] and [151] above. At or around this time, Mrs Velardi also separately printed a copy of the partnership application for Mr Van de Steeg to take to Mr Martino in person, and filled out a copy of the partnership application with Mr Van de Steeg's details for him to sign. On 12 December 2007, Mrs Velardi sent a further copy of the partnership application to Mr Crowe by email: see [151] above. Messrs Crowe and Martino and Ms Gibson all signed the document, leaving the date blank as instructed: see [118], [139] and [151] above. 186 At or around this time: 1. Mr Crowe delivered the partnership financial statements and tax return to his accountant, and requested that his 2007 tax return be amended to claim a deduction for the woodlots: see [149]-[150] above; 2. Mr Berlowitz signed partnership application forms: see [166] above; 3. Dr Ludekens procured the signatures of Ms Richards and Mr Poon on partnership application forms: see [107] above; and 4. Dr Ludekens engaged Coghlans to act in relation to the GST audit being carried out by the ATO. 187 By 7 December 2007, the ATO had reached a preliminary position in relation to the input tax credits and GST refunds claimed by the purported partnerships. On this date, Mr Hawa faxed an ATO Decision Summary Report to Dr Ludekens. The cover sheet from Mr Hawa states that the decision summary is in respect of "11 partnerships associated with Dr Andrew Ludekens through Lotus Capital", but the decision summary itself purports to relate to the GST registered partnership "S Braham & Lotus Capital Group Pty Ltd & A Ludekens" (which is not the subject of this proceeding). In summary, the ATO's preliminary view was that the purported partnership – registered as it was, in the name of an entity that was not a signatory to the Gunns grower and finance agreements (namely, Lotus) – was not entitled to the input tax credits or GST refunds claimed. 188 On 17 December 2007, Mr Hawa spoke with Mr Lederman about the Decision Summary Report. Mr Lederman agreed that the partnerships as registered were not entitled to claim the input tax credits. As a solution, Mr Lederman proposed that the purported partnerships be re-registered in a manner that reflected the correct partners (such work to be done by Coghlans). That same day, Mr Hawa received a fax from Coghlans, stating that they had advised Dr Ludekens that the ATO's position was correct, and asking the ATO to amend the ABN and GST registrations for the purported partnerships to ensure that "the entities which entered into the Gunns Plantations Ltd Woodlot Project be the only partners named on the GST / ABN Registration". Coghlans also undertook to amend the 2007 tax returns submitted for these entities to ensure consistency between the partners involved in the Gunns woodlot investment and the partners reported on the tax returns. 189 On 18 December 2007, the ATO sent a number of finalisation letters to Coghlans in respect of the GST audit. These letters confirmed that the input tax credits sought by the purported partnerships had not been allowed. As previously foreshadowed in the Decision Summary Report, the reason for the ATO's decision in this regard was principally that the partnerships that were registered for GST (and which claimed the input tax credits) were not the same entities that entered into the agreements with Gunns. For example, in the case of the partnership registered in the name of Lotus and the respondents, only Dr Ludekens and Mr Van de Steeg had signed any documentation with Gunns. From the ATO's perspective, the situation was further complicated by the fact that the income tax return for this partnership purported to distribute the initial losses made on the investment to entities other than the named partners, including Messrs Poon and Tregambe, Dr Love, Ms Richards and the Ludekens Family Trust. At this time, the ATO indicated its preparedness to accept new registrations for partnerships that did not suffer from these defects (as had been proposed by the letter sent by Coghlans to the ATO on 17 December 2007). 190 Shortly after receipt of this correspondence, Dr Ludekens instructed Coghlans to cancel the registrations for the purported partnerships and register 'fresh' partnerships that did not include Lotus. The partners for these new entities would comprise the signatories to the ten woodlot applications as set out in the table at [69] above. 191 On 19 December 2007, Dr Ludekens emailed Mrs Velardi to tell her that most of the partnership Business Activity Statements had been re-lodged (with the rest shortly to follow). He requested that she print out the attached forms authorising release of GST refunds from the Coghlans trust account to Lotus, and obtain the signatures of Messrs Van de Steeg and Ezzy on behalf of the partnerships. The "cooperation" exhibited by this conduct is, therefore, heavily compromised because it continued to convey incorrect information to the Commissioner. It included admittedly incorrect statements and the creation of information which was incorrect on its face however much those creating the information may have thought they were permitted to act as they were doing. 66 The matters identified in s 290-50(5)(a)-(i) are not the only matters that may be considered in determining what penalty is appropriate for a contravention. Other matters include lack of remorse or contrition, the financial circumstances of the respondents, the Commissioner's submissions on penalty and questions about double counting: see Arnold at [194]-[214]; Commonwealth of Australia v Director, Fair Work Building Industry Inspectorate (2015) 326 ALR 476 at [64]). To these considerations may be added some of those which the Commissioner had sought to rely upon in the specified matters in s 290-50(5), and under s 290-50(5)(e) in particular, but which may not fall within their express terms. 67 The maximum penalties which may be imposed in this case is twice the total consideration received or receivable: s 290-50(4)(b). The parties in this case agree that the maximum penalty that can be imposed on Dr Ludekens is $10,679,500 and that which can be imposed on Mr Van de Steeg is $10,101,869. The process of determining the appropriate penalty, however, is not to commence with the maximum penalty and to make reductions or discounts from the maximum amount that could be imposed. The Full Court said in Director of Consumer Affairs Victoria v Alpha Flight Services Pty Ltd & Anor [2015] FCAFC 118 at [43]: It is incorrect to commence with the maximum penalty and engage in a ratcheting down exercise. The process to be applied in arriving at a particular penalty figure was considered in the context of criminal sentencing by the High Court in Markarian. This process provides, by analogy and with adjustment, guidance as to how the Court should approach the assessment of pecuniary penalties in the present context. In Markarian, Gleeson CJ, Gummow, Hayne and Callinan JJ held the following: (a) Assessment of the appropriate penalty is a discretionary judgment based on all relevant factors (at [27]); (b) It will rarely be appropriate to start with the maximum penalty and to proceed by making a proportional deduction from that maximum (at [31]); (c) The Court should not adopt a mathematical approach of increments or decrements from a predetermined range, or assign specific numerical or proportionate value to the various relevant factors (at [37] citing Wong v The Queen at 611 and 612 per Gaudron, Gummow and Hayne JJ); (d) It is not appropriate to determine an "objective" penalty and then adjust it by some mathematical value given to one or more factors such as a plea of guilty or assistance to authorities; and (e) The Court "may not add and subtract item by item from some apparently subliminally derived figure" to determine the penalty to be imposed (at [39]). The Commissioner did not submit that the maximum penalty was appropriate to be imposed upon each of Dr Ludekens and Mr Van de Steeg either for each of the seven contraventions or for the seven in aggregate. The Commissioner submitted, rather, that penalties of $850,000 should be imposed upon each of Dr Ludekens and Mr Van de Steeg by the application of the totality principle to the aggregate of "head penalties" of $1,750,000 for each of the seven contraventions. 68 The Full Court made three declarations that seven contraventions of s 290-50(1) had been established. The Commissioner submitted that "head penalties" should be imposed upon each of Dr Ludekens and Mr Van de Steeg for each of the seven contraventions. The "head penalties" submitted by the Commissioner as appropriate to be imposed upon Dr Ludekens in respect of the seven contraventions of s 290-50(1) was: Contravention Marketing or Encouraging Scheme Penalty 1 Mr and Mrs Smithson $300,000 2 Mr and Mrs Velardi $300,000 3 Mrs Ruffato $150,000 4 Mr Tregambe $250,000 5 Dr Love $250,000 6 Ms Richards $250,000 7 Mr Poon $250,000 The "head penalties" submitted by the Commissioner as appropriate to be imposed on Mr Van de Steeg in respect of his seven contraventions of s 290-50(1) was: Contravention Marketing or Encouraging Scheme Penalty 1 Mr and Mrs Smithson $300,000 2 Mr and Mrs Velardi $300,000 3 Mrs Ruffato $150,000 4 Mr Martino $250,000 5 Ms Gibson $250,000 6 Mr Crowe $250,000 7 Mr Berlowitz $250,000 The Commissioner made no specific submissions directed to any of the specific amounts or to the differences in the amounts in the table, although it can be seen from the amounts, and from the differences, that the conduct in relation to the secondary investors (other than Mrs Ruffato) were submitted to warrant penalties of $250,000 for the contraventions in respect of each individual secondary investor whilst the conduct in relation to the Smithsons and Velardis (and Mrs Ruffato) were submitted to warrant penalties of $150,000 for each individual. 69 A penalty in the amounts submitted by the Commissioner as "head penalties" for each of the offences might not be sufficient if each were the only contravention and if the amount might not otherwise be oppressive. The total penalty imposed in relation to a number of separate contraventions must, however, in aggregate be just and appropriate: Mill v The Queen (1988) 166 CLR 59, 63; Australian Competition and Consumer Commission v ABB Transmission and Distribution Limited (No 2) (2002) 190 ALR 169, [39]. The penalty must also ensure that an offender is not punished twice for what is essentially the same conduct where there is an inter-relationship between the legal and factual elements of the contravening conduct: Construction, Forestry, Mining and Energy Union v Cahill (2010) 269 ALR 1, [39]. In Mill v The Queen (1988) 166 CLR 59 the High Court said in a joint judgment at 62-63 (omitting footnotes): The totality principle is a recognized principle of sentencing formulated to assist a court when sentencing an offender for a number of offences. It is described succinctly in Thomas, Principles of Sentencing, 2nd ed. (1979), pp. 56-57, as follows (omitting references): "The effect of the totality principle is to require a sentencer who has passed a series of sentences, each properly calculated in relation to the offence for which it is imposed and each properly made consecutive in accordance with the principles governing consecutive sentences, to review the aggregate sentence and consider whether the aggregate is 'just and appropriate'. The principle has been stated many times in various forms: 'when a number of offences are being dealt with and specific punishments in respect of them are being totted up to make a total, it is always necessary for the court to take a last look at the total just to see whether it looks wrong[']; 'when ... cases of multiplicity of offences come before the court, the court must not content itself by doing the arithmetic and passing the sentence which the arithmetic produces. It must look at the totality of the criminal behaviour and ask itself what is the appropriate sentence for all the offences'." See also Ruby, Sentencing, 3rd ed. (1987), pp. 38-41. Where the principle falls to be applied in relation to sentences of imprisonment imposed by a single sentencing court, an appropriate result may be achieved either by making sentences wholly or partially concurrent or by lowering the individual sentences below what would otherwise be appropriate in order to reflect the fact that a number of sentences are being imposed. Where practicable, the former is to be preferred. The totality principle has been recognized in Australia. In Reg. v. Knight [(1981) 26 SASR 573 at 576], the Full Court of the Supreme Court of South Australia (Walters, Zelling and Williams JJ.) said, in a joint judgment: "it seems to us that when regard is had to the totality of the sentences which the applicant is required to undergo, it cannot be said that in all the circumstances of the case, the imposition of a cumulative sentence was incommensurate with the gravity of the whole of his proven criminal conduct or with his due deserts. To use the language of Lord Parker L.C.J. in Reg. v. Faulkner [(1972) 56 Cr App R 594 at 596], 'at the end of the day, as one always must, one looks at the totality and asks whether it was too much'." See also Reg. v. Smith [(1983) 32 SASR 219]; Ryan v. The Queen [(1982) 149 CLR 1 at 21, 22-23); see also ACCC v ABB [2002] FCA 559 at [39]]. In some cases it may be appropriate to consider separate conduct as separate contraventions requiring distinct penalties to be imposed upon each: see Singtel Optus Pty Ltd (ACN 052 823 208) v Australian Competition and Consumer Commission (2012) 287 ALR 249, [53]-[55]; see also Australian Competition and Consumer Commission v TPG Internet Pty Ltd (2013) 250 CLR 640, [61]; Australian Competition and Consumer Commission v ABB Transmission and Distribution Ltd (No 2) & Ors (2002) 190 ALR 169, [38]. However, each case must be considered on its facts and judgments need to be formed about how penalties are to be imposed and what the amount of the penalty should be. In Australian Securities and Investments Commission v GE Capital Finance Australia, in the matter of GE Capital Finance Australia [2014] FCA 701 Jacobson J said at [71] to [78]: 71 The factors identified by French J in TPC v CSR are to similar effect to those stated by Santow J in Re HIH Insurance Ltd (in prov liq); Australian Securities and Investments Commission v Adler (2002) 42 ACSR 80 at [125]-[126] as providing guidance in the exercise of the discretion to impose a pecuniary penalty. 72 The overriding principle is that the Court must weigh all the relevant circumstances. The guiding principles stated by French J in TPC v CSR and by Santow J in ASIC v Adler may be applied to inform the exercise of the discretion but they should not be treated as a rigid catalogue of matters to be applied in every case. 73 The principal purpose of the imposition of a pecuniary penalty is to act as a specific deterrent and as a general deterrent to others who might be tempted to contravene the law: TPC v CSR at 52,152; ASIC v Adler at [125]; see also the authorities cited in Registrar of Aboriginal and Torres Strait Islander Corporations v Matcham (No 2) (2014) 97 ACSR 412 at [225]-[228]. 74 Nevertheless, the role of deterrence in determining the amount of a pecuniary penalty is subject to the qualification that the amount should not be greater than is necessary to achieve the objective of deterrence. An appropriate balance must be struck to avoid oppression: NW Frozen Foods at 293; ASIC v Adler at [125]. 75 The process of fixing the quantum of a penalty is not an exact science. The approach which should be adopted is one of "instinctive synthesis": Markarian v The Queen (2005) 228 CLR 357. All of the circumstances must be weighed so as to mark the Court's view of the seriousness of the offence. Attention must be paid to the maximum penalty fixed by the statute so as to compare the worst possible case with the one before the Court. The exercise is not a mathematical one, and there is no single correct penalty: see ATSIC v Matcham at [126]-[128]. 76 In determining the appropriate penalty the Court should not leave room for any impression of weakness. Nor should there be any suggestion that the quantum of the penalty may be treated as an acceptable risk of doing business: Australian Competition and Consumer Commission v TPG Internet Pty Ltd (2013) 304 ALR 186 at [65]-[66]. 77 Separate contraventions arising from separate acts should ordinarily attract the imposition of a separate penalty appropriate for each contravention. The course of conduct principle is to be applied according to the facts of each case. The general objective of the course of conduct principle is to ensure that the penalty reflects the substance of the offending conduct, rather than a mathematical total for each separate offence: see the authorities cited in ATSIC v Matcham at [195]-[201]. 78 The totality principle is to be applied as a final check to ensure that the penalty is appropriate for all of the offences: see Mill v The Queen (1988) 166 CLR 59 at 62-63; Mornington Inn Pty Ltd v Jordan (2008) 168 FCR 383 at [5] ff. The penalty to be imposed is one which reflects the substance of the offending conduct. 70 The contraventions in this case are to be seen as part of the same, or very similar, conduct that may otherwise give rise to a number of technically distinct offences. In Clean Energy Regulator v MT Solar Pty Ltd [2013] FCA 205 Foster J said at [75]: Counsel for the regulator submitted that, in the context of sentencing offenders for criminal offences, it is well recognised that the same, or very similar, conduct may give rise to a number of technically distinct offences. He submitted that the law recognises that an offender who is to be sentenced in such circumstances should be given a sentence which fairly reflects the substance of the offending conduct, rather than a purely mathematical accumulation of sentences for each separate offence which may be able to be technically identified. He said that, in cases where multiple offences truly represent only one multi-faceted course of conduct, the course of conduct principle is a "tool of analysis" which can be used to avoid any double punishment for those parts of the legally distinct offences which involve overlap in wrongdoing (Pearce v The Queen (1998) 194 CLR 610 (Pearce) at 623 [40]–[42]; Johnson v The Queen (2004) 205 ALR 346 (Johnson) at 348 [4]–[5] and 356 [27]; and Attorney-General (SA) v Tichy (1982) 30 SASR 84 (Tichy) at 92–93). In Australian Competition and Consumer Commission v Telstra Corporation Ltd (2010) 188 FCR 238 Middleton J said at [250] to [251]: 250 A number of different approaches in this proceeding could be taken to imposing a penalty. The Court could look to each contravention, consider the appropriate penalty taking into account the totality principle, and then apply any appropriate discount. This was the approach submitted by the ACCC. The Court could group together each exchange or each State, or focus on each period of inability to gain access, and view the contraventions included within those groups as appropriately to be treated together for the purpose of assessing the appropriate penalty. Alternatively, the Court could treat the admitted contraventions as all following from the same cause, and with the maximum penalty being $10 million, and then consider the appropriate discount. This is the approach submitted by Telstra. Another approach would be to look at the capped sites and uncapped sites, and treat that as a basis for grouping the contraventions. 251 There is no scientific approach or arithmetic formula to be applied in determining the appropriate penalty. The circumstances of each contravention need to be looked at, taking into account all the circumstances pertaining to the contravention. I have already indicated what I regard as important and significant considerations, but the other matters I have raised are taken into account. In Construction, Forestry, Mining and Energy Union v Cahill (2010) 269 ALR 1 Middleton and Gordon JJ said at [39] and [41]: 39 As the passages in Williams explain, a "course of conduct" or the "one transaction principle" is not a concept peculiar to the industrial context. It is a concept which arises in the criminal context generally and one which may be relevant to the proper exercise of the sentencing discretion. The principle recognises that where there is an interrelationship between the legal and factual elements of two or more offences for which an offender has been charged, care must be taken to ensure that the offender is not punished twice for what is essentially the same criminality. That requires careful identification of what is "the same criminality" and that is necessarily a factually specific enquiry. Bare identity of motive for commission of separate offences will seldom suffice to establish the same criminality in separate and distinct offending acts or omissions. […] 41 As noted above (see [41]), the principle recognises that where there is an interrelationship between the legal and factual elements of two or more offences for which an offender has been charged, the court must ensure that the offender is not punished twice for the same conduct. In other words, where two offences arise as a result of the same or related conduct that is not a disentitling factor to the application of the single course of conduct principle but a reason why a court may have regard to that principle, as one of the applicable sentencing principles, to guide it in the exercise of the sentencing discretion: Johnson v R (2004) 205 ALR 346 ; [2004] HCA 15 at [3]–[4] and [34] and Attorney-General v Tichy (1982) 30 SASR 84 at 92–3 (Tichy). It is a tool of analysis (Tichy at 93) which a court is not compelled to utilise: Royer v Western Australia [2009] WASCA 139 at [21]–[34] and [153]–[156] (Royer). The substance of the offending conduct in this case was that constituting the Plan at Attachment A to the orders of the Full Court. It gave rise to seven separate breaches but each flowed from the same course of conduct constituting the incorrect basis upon which participation in the 2006 Gunns Woodlot Project was claimed. The contravening conduct was substantially effected upon the signing by the Smithsons and the Velardis of applications for the woodlots without the requisite intention to attract to them, or to the secondary investors, any of the fiscal consequences contemplated by Product Ruling PR2006/8. The subsequent conduct was part of the contravention as found by the Full Court but it flowed from the conduct which may properly be seen as a single course of conduct. 71 It is also relevant to take into account the impact that any penalty would have upon the bankruptcy of Dr Ludekens and Mr Van de Steeg. The amounts available to Dr Ludekens and Mr Van de Steeg in their bankruptcies is governed by the provisions of the Bankruptcy Act 1966 (Cth). Each has limited financial resources and neither appears to be in a position to pay readily any amount that might be imposed. The Commissioner conceded that a penalty would not be provable in the bankruptcies either of Dr Ludekens or of Mr Van de Steeg and "acknowledged that this circumstance may prolong the pendency of the debt created by the penalty order, so that the penalty is more burdensome than it might otherwise be". 72 Dr Ludekens was declared bankrupt on 20 November 2013 and the consequence of his involvement in the tax exploitation scheme has been to lose his life savings and family home and has left him with no remaining assets or wealth. He works 25 to 30 hours per week as a surgical assistant earning approximately $120,000 gross per annum netting about $80,000 before tax after allowable expenses. He has a wife, who has returned to work, and two young dependent children. Dr Ludekens is permitted to retain earnings in his bankruptcy up to $65,481.96 per annum after tax, but he earned less than that amount in his first year of bankruptcy and his income is expected to be less than that amount in the second year of bankruptcy. Mr Van de Steeg is largely unemployed and since January 2015 has earned $22,000. He is also married but his wife is unemployed and she, and their two teenage children, are dependent upon him for financial support. He has been relying on family and friends for financial assistance and loans. He does not own a car and has no longer any equity in the properties in which he previously had equity. He also is subject to a claim by the Bendigo Bank of some $900,000. 73 The penalty for contravention of Division 290 may ordinarily exceed the consideration received or receivable by the promoters which, in this case, would, in total for the two contravenors, be at least an amount of $5,339,750 (if not the aggregate of that plus $5,050,934). A penalty in an amount that leaves "no doubt in the minds of other would be contravenors that such conduct will not pay" will usually need to ensure that those who have contravened the provisions are not left with any of the consideration received or receivable from the contravening conduct. In some cases that objective may require separate penalties being imposed upon each contravenor and each contravention; in other cases it may require apportioning the total penalty between the contravenors and the contraventions. The penalty must also, however, appropriately reflect the contravention. It may not always be appropriate to the contravening conduct for the penalty to reflect the consideration received or receivable from the contravening conduct. 74 The benefit of the consideration received or receivable from the contravening conduct in this case has not been retained by either Dr Ludekens or Mr Van de Steeg. That circumstance does not ordinarily mitigate the penalty to be imposed upon a contravenor, but it may be relevant in assessing whether a penalty will, in the particular circumstances, be oppressive. It may not be oppressive to impose a penalty of an amount equal to or exceeding the consideration upon a contravenor who no longer has the benefit of the consideration received or receivable in respect of the scheme where the contravenor has other funds from which to pay the penalty, but it may be oppressive where the financial and personal circumstances of a contravenor make it impossible to pay the penalty. The capacity to pay a penalty is less important than the objective of general deterrence to the imposition of a penalty but it is a relevant factor: Australian Communications and Media Authority v Clarity1 Pty Ltd & Anor (No 2) (2006) 155 FCR 377, [43]; Australian Competition and Consumer Commission v Leahy Petroleum Pty Ltd (No 2) & Ors (2005) 215 ALR 281, [9] and [11]; Tax Practitioners Board v Dedic [2014] FCA 511, [8]. The observation made by Burchett and Kiefel JJ (Carr J agreeing with the reasons), in a different context, in NW Frozen Foods Pty Ltd v Australian Competition & Consumer Commission (1996) 71 FCR 285 at 293 is generally applicable to penalties imposed under Division 290, namely that severity beyond the penalty necessary to achieve the object of deterrence would be oppression: see also TPG Internet Pty Ltd v Australian Competition and Consumer Commission (2012) 210 FCR 277 at [143] and Australian Competition and Consumer Commission v Leahy Petroleum Pty Ltd (No 2) & Ors (2005) 215 ALR 281 at [9]. A penalty will also be oppressive if its imposition upon a person or entity had a greatly disproportionate effect upon the contravenor than the amount might ordinarily be thought to have. A penalty may be oppressive if it can never be discharged or if it is not able to be discharged over a reasonable period of time even if the amount imposed might not otherwise appear to be excessive. A realistic prospect of a contravenor being able to pay the amount imposed as a penalty may inform the question of whether the amount imposed will operate as a burden and, therefore, of what penalty is appropriate. The financial resources of a contravenor are relevant to questions of deterrence and of oppression in that context. In Australian Competition and Consumer Commission v Coles Supermarkets Australia Pty Ltd (2015) 327 ALR 540, Allsop CJ said at [92] after considering the relevant authorities: These authorities make it clear that Coles' financial resources do not alone justify a higher penalty than might otherwise be imposed. However, they are clearly relevant to considering the size of the penalty required to achieve the end of specific deterrence and can be weighed against the need to impose a sum which will be recognised by the public as significant and proportionate to the seriousness of the contravention for the purposes of achieving general deterrence. Further, the resources of Coles are relevant to understanding whether it can pay (and not be crushed by) an appropriate penalty, especially when one takes account of revenue earned by products sold using the impugned phrases. (emphasis added) The imposition upon Dr Ludekens and Mr Van de Steeg of a penalty in the amount of the consideration received or receivable would, given their circumstances, be to impose a penalty beyond the need to deter them from further contravention and would be oppressive. So too would be penalties in the amounts submitted by the Commissioner either as the "head penalties" aggregating to $1,750,000 for each contravenor or the $850,000 for each contravenor submitted by the Commissioner to be appropriate by application of the totality principle. 75 The financial and personal circumstances in which Dr Ludekens and Mr Van de Steeg now find themselves is, as they admit, a result of their own conduct which has been found to have contravened s 290-50(1). Their personal and economic loss through their participation in the Plan is undoubtedly a burden which they have felt. Neither the consideration nor any of the anticipated subsequent profits have been realised or are enjoyed by Dr Ludekens or Mr Van de Steeg. It is, however, appropriate that there be a penalty imposed upon them for their contravening conduct which leaves no doubt in their minds, or in the minds of any would be contravenor, that conduct of the kind found to be a contravention is not an acceptable cost of such transactions. The conduct found to be in contravention was based fundamentally upon the impermissible basis of claiming participation in the 2006 Gunns Woodlot project by using the Velardis and the Smithsons as partners when they were intended to be substituted later by others. That conduct is unacceptable but it would not be appropriate to impose total penalties of $850,000 upon each of the contravenors for the contraventions in this case. A penalty of the amounts sought by the Commissioner would be oppressive and do not appropriately reflect the contravening conduct. The Commissioner conceded that the penalties would not be provable in the bankruptcies of either Dr Ludekens or Mr Van de Steeg, that a consequence would be to prolong the pendency of the debt and that the penalty in those circumstances would be more burdensome that it otherwise might be. A total penalty of $180,000 for each of Dr Ludekens and Mr Van de Steeg is in my view an appropriate amount to express the Court's disapproval of their conduct in their particular circumstances and would be felt by Dr Ludekens and Mr Van de Steeg as a penalty. It is also an amount which has a prospect of being paid by them over time by reference their expected incomes. $180,000 is a significant amount of money by general community standards and is an appropriate amount to express the Court's disapproval of the conduct found to be in contravention. The amount is appropriate in circumstances in which the community can be confident that neither Dr Ludekens nor Mr Van de Steeg enjoy any part of the amount they received for their conduct which has been found to contravene s 290-50(1) of the Administration Act. An amount which has a prospect of being paid over the time likely to earn enough to pay it is also apt to be felt by the contravenors, and therefore to serve, as a penalty and as a deterrent in the specific circumstances of Dr Ludekens and Mr Van de Steeg. 76 Accordingly there will be an order that each pay a total amount of $180,000 by way of penalty for the conduct found to be in breach of s 290-50(1) of the Administration Act. I certify that the preceding seventy-six (76) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Pagone. Associate: Dated: 28 June 2016