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Winter v. Federal Commissioner of Taxation.

Judges:
Lee J

Court:
Supreme Court of New South Wales

Judgment date: Judgment handed down 18 October 1985.

Lee J.

In this matter the plaintiff is seeking an order that the departure prohibition order against him issued by the Deputy Commissioner of Taxation in Sydney and made pursuant to sec. 14S(1) of the Taxation Administration Act 1953 (as amended), be set aside. Section 14R of the Act provides that a person who knowing that a departure prohibition order has been made against him, departs from Australia without the authorisation of a departure authorisation certificate, is subject to a penalty. It is to be observed that sec. 14Q(2) defines ``Departure'' as follows:

``A reference in this Part to the departure of a person from Australia for a foreign country is a reference to the departure of the person from Australia for a foreign country, whether or not the person intends to return to Australia.''

Sections 14S(1) and (2) are in the following terms:

``14S(1) [Commissioner may prohibit departure] Where -

  • (a) a person is subject to a tax liability; and
  • (b) the Commissioner believes on reasonable grounds that it is desirable to do so for the purpose of ensuring that the person does not depart from Australia for a foreign country without -
    • (i) wholly discharging the tax liability; or
    • (ii) making arrangements satisfactory to the Commissioner for the tax liability to be wholly discharged,

the Commissioner may, by order in accordance with the prescribed form, prohibit the departure of the person from Australia for a foreign country.

14S(2) [Duration of departure prohibition order] Subject to sub-section (3), a departure prohibition order remains in force unless and until revoked under section 14T or set aside by a court.''

  • (Subsections (2), (3), (4) and (5) are not reproduced.)

The proceedings in this Court are brought pursuant to sec. 14V(1) of that Act which gives to a person aggrieved by the making of a departure prohibition order an appeal to the Federal Court of Australia or the Supreme Court of a State and/or Territory and sec. 14X provides:

``A court hearing an appeal under section 14V against the making of a departure prohibition order may, in its discretion -

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  • (a) make an order setting aside the departure prohibition order; or
  • (b) dismiss the appeal.''

The plaintiff is a man thirty-six years of age and divorced. He was born in Poland but has lived in Australia since he was eighteen months old and is an Australian citizen. He wishes to proceed, at the end of this month, on a business trip to Switzerland.

The evidence shows that on 23 September 1985 he received the departure prohibition order which is dated 17 September 1985. The schedule to the order specifies a tax liability of $1,362,347.38. This liability, according to the schedule, is in respect of the period 1 July 1980 to 30 June 1981. The liability arose on an amended assessment issued by the Taxation Office on 2 August 1985 for the year ended 30 June 1981. The plaintiff had earlier lodged a return for the year 30 June 1981 and an original assessment for that year was issued to him on 18 August 1982 claiming tax in the sum of $4,020.99 on a taxable income of $14,397. He subsequently paid $3,645 tax but objected to the balance of $375.99 and on 22 May 1984 an amended assessment was issued advising him that he was entitled to a credit of $115.20. The assessment requiring payment of $1,362,347.38 had attached to it an adjustment sheet which made plain that the Commissioner was treating as personal exertion income earned by the plaintiff in the year under consideration, income which had already been returned by two companies, Vimair Pty. Limited, as trustee for Henry Winter and Associates unit trust No. 1, and Ilerace Pty. Limited, as trustee for Ilerace No. 1 trust, in their respective returns for the same year lodged by them in September 1981. (I note here that an amended return asserting a reduced assessable income has been lodged by Ilerace Pty. Limited recently.) The adjustment sheet attached to the amended assessment issued to the plaintiff showed that those two companies had respectively returned amounts of $631,560 and $1,023,559 as income. After allowing for adjustments in favour of the plaintiff, the taxable income attributed to him in the adjustment sheet was $1,156,401. The difference between that figure and the figure claimed in the amended assessment was made up of penalties. The plaintiff has lodged an objection to the amended assessment but the objection has not yet been dealt with by the Commissioner. Assessments have been made against Vimair and Ilerace, each of which has lodged an objection against the assessment which it received. On the same day that the amended assessment was issued to the plaintiff, the Australian Taxation Office issued notices under sec. 218 of the Income Tax Assessment Act calling upon certain persons - Commercial Continental Pty. Limited, D.M. Allen and Company, Westpac Banking Corporation, Edgecliff, to pay to it moneys owing by them to the plaintiff. Westpac Banking Corporation paid the sum of $1,354.17. The plaintiff a few days later, on 7 August, received a cheque from Commercial Continental Pty. Limited in the sum of $137,000 to which I shall refer a little later on. I merely record that none of that amount has been paid to the Commissioner. The plaintiff has contended in the present proceedings that he has always been an employee and never self-employed, and that the income upon which he has been assessed is trust income received by the two companies above-mentioned for the purposes of the respective trusts. At the present time the plaintiff carries on as a consultant to a company, Hyndbridge Pty. Limited, without salary but ``on a success basis'' (p. 34 of the transcript). He is presently concerned in promoting a project in the Northern Territory involving the breeding of rabbits imported from Norway and his purpose is to attract persons interested who will invest in that project.

Before dealing further with the facts disclosed in the evidence, it is convenient to make some reference to sec. 14S in the context in which it appears in the Act and to the nature of the proceedings with which the Court is now concerned. The section, it would seem, has been considered judicially in only one case, namely
Briggs v. D.F.C. of T. 85 ATC 4569. Section 14S appears in Div. 2 of Pt IVA of the Taxation Administration Act 1953 (as amended) and was inserted by Act No. 123 of 1984. It is followed by sec. 14T which sets out the circumstances in which a departure prohibition order shall or may be revoked or varied by the Commissioner. Sections 14T(1) and (2) are as follows:

``14T(1) [Revocation in certain circumstances] Where a departure prohibition order is in force in respect of a person and -

  • (a) the tax liabilities to which the person is subject have been wholly discharged

    ATC 4657

    and the Commissioner is satisfied that it is likely that the tax liabilities to which the person may become subject in respect of, or arising out of, matters that have occurred will be -
    • (i) wholly discharged; or
    • (ii) completely irrecoverable; or
  • (b) the Commissioner is satisfied that the tax liabilities to which the person is subject are completely irrecoverable,

the Commissioner shall, on application being made to the Commissioner by the person to do so or on the Commissioner's own motion, revoke the departure prohibition order.

14T(2) [Revocation or variation of order] Where a departure prohibition order is in force in respect of a person, the Commissioner may, in the Commissioner's discretion and on application being made to the Commissioner to do so or on the Commissioner's own motion, revoke or vary the departure prohibition order.''

  • (Subsections (3), (4) and (5) are not reproduced.)

Section 14U(1) authorises the Commissioner to issue a departure authorisation certificate and is in the following terms:

``14U(1) [Issue of authorization] Where, on application made by a person in respect of whom a departure prohibition order is in force -

  • (a) the Commissioner is satisfied -
    • (i) that, if a departure authorization certificate is issued in respect of the person, it is likely that -
      • (A) the person will depart from Australia and will return to Australia within such period as the Commissioner considers to be appropriate in relation to the person; and
      • (B) circumstances of the kind referred to in paragraph 14T(1)(a) will come into existence within such period as the Commissioner considers to be appropriate in relation to the person; and
    • (ii) that it is not necessary or desirable for the person to give security under sub-section (2) for the person's return to Australia; or
  • (b) in a case where the Commissioner is not satisfied with respect to the matters referred to in paragraph (a) -
    • (i) the person has given security under sub-section (2) to the satisfaction of the Commissioner for the person's return to Australia; or
    • (ii) if the person is unable to give such security, the Commissioner is satisfied that -
      • (A) a departure authorization certificate should be issued in respect of the person on humanitarian grounds; or
      • (B) a refusal to issue a departure authorization certificate in respect of the person would be detrimental to the interests of Australia,

the Commissioner shall issue a certificate authorizing the person to depart from Australia for a foreign country on or before the seventh day after a day (being a day later than, but not more than 7 days later than, the day on which the certificate is issued) specified in the certificate.''

  • (Subsections (2), (3) and (4) are not reproduced.)

Section 14Z gives powers to authorised officers to take steps to prevent a person against whom a departure prohibition order has been made from leaving Australia. Section 14Y gives a right to make application to the Administrative Appeals Tribunal for review of decisions of the Commissioner made under sec. 14T and 14U.

It is apparent from the terms of sec. 14S, 14T and 14U that they constitute machinery to facilitate the collection and recovery of tax assessed, giving to the Commissioner both wide powers to make a departure prohibition order and a wide discretion to revoke or vary the same (where revocation is not compulsory under sec. 14T(1)), and wide discretion to ameliorate the hardship occasioned by a departure prohibition order, by issuing a departure authorisation certificate under sec. 14U. It is to be observed that the heading to Pt IVA is ``Departure From Australia Of Certain Debtors'' and that before a departure prohibition order can be made the person

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against whom it is to be made must be ``subject to a tax liability''. Tax liability is defined in sec. 2 of the Act as a ``liability to the Commonwealth arising under, or by virtue of, a taxation law'', and this means, in the case of income tax under the Income Tax Assessment Act that an assessment under the Act has been issued against the taxpayer giving rise to such a liability. A notice of assessment stating that tax is due and payable has the effect of bringing into existence a liability to tax under the Income Tax Assessment Act, sec. 204, 208. It is that liability which concerns the Commissioner when he comes to consider whether he entertains a belief on reasonable grounds that it is desirable to make a departure prohibition order for the purpose of ensuring that the person does not depart from Australia without wholly discharging that liability or making arrangements satisfactory to him for it to be wholly discharged. Likewise, when the matter is brought on appeal, the court entertaining the appeal has regard to that liability as appearing in the assessment and no question can be raised as to the existence of that liability where it is shown to be the liability expressed in the notice of assessment: Income Tax Assessment Act sec. 177, 201 (
F.J. Bloemen Pty. Ltd. v. F.C. of T. 81 ATC 4280; (1981) 35 A.L.R. 104). Although no suggestion has been made in this case of mala fides on the part of the Commissioner in the making of the assessment or the departure prohibition order, it is apt to quote the remarks of Mason and Wilson JJ. in the case just cited at ATC p. 4288; A.L.R. p. 113:

``It is true that Pt. VI contains large powers to enable the recovery of tax; powers the exercise of which may make life uncomfortable both for the taxpayer and perhaps others who owe money to the taxpayer. So much may be conceded, but the Act does not proceed upon the hypothesis that the Commissioner will be motivated in the exercise of his powers by improper or collateral purposes. As Isaacs A.C.J. observed in
F.C. of T. v. Clarke (1927) 40 C.L.R. 246, at p. 276, after stating that sec. 39 of the Income Tax Assessment Act 1922-1925 (a provision analogous to sec. 177 of the Act) made the assessment unchallengeable:

  • `The Act so far trusts the Commissioner and does not contemplate, in my opinion, a curial diving into the many official and confidential channels of information to which the Commissioner may have recourse to protect the Treasury.'''

Counsel for the plaintiff Mr Conti Q.C. contended that the Court could take into account, in the exercise of its discretion, that the plaintiff was alleging that the income component of the liability referred to in the amended assessment was trust income earned by Vimair and Ilerace and could consider evidence furnished by the plaintiff thereon in support of a claim that the assessment was erroneous or invalid. It was said that the reasonableness or otherwise of the plaintiff's objection to the assessment was a matter for the Court to take into account under sec. 14X. In my view, the Court in an appeal under sec. 14X must accept the existence of the liability and it cannot in the exercise of its discretion take into account matters which bear upon the correctness or otherwise of the assessment. The Court in an appeal under sec. 14X cannot usurp directly or indirectly the function of the Board of Review or the Supreme Court under sec. 187 of the Act.

The assessment in the present case is an assessment upon the basis that the income to which it relates is personal income earned by the plaintiff and it is not open for the Court to go behind the assessment in that regard.

The Court however on an appeal under sec. 14X is given the power ``in its discretion to set aside the departure prohibition order or dismiss the appeal'', and this plainly leaves it finally to the Court, both to have regard not only to the material taken into account by the Commissioner but to any other material put before it which is relevant, to the belief in the Commissioner, that it is desirable to make a departure prohibition order pursuant to sec. 14S and relevant to the consequences to the plaintiff of being denied his freedom to leave the country as and when he wishes. Notwithstanding that the section would entitle the Court to set aside a departure prohibition order even though the Court found that the Commissioner held a belief on reasonable grounds as required by the section, it is to be borne in mind that the responsibility for the collection and recovery of tax is placed upon the Commissioner and a decision by him on reasonable grounds, that the departure

ATC 4659

prohibition order ought to be made, should not, in my view, lightly be set aside. On the other hand the fact that a departure prohibition order operates as a significant fetter upon a citizen's freedom to go where he wishes, it requires the Court to conclude affirmatively that there are reasonable grounds for the belief of the Commissioner and that conclusion can only be drawn after an examination of the material which the Commissioner had before him and upon which formed his belief and any evidence brought by the plaintiff which qualifies or throws doubts upon the effect which might otherwise be given to that material. If the Court is satisfied of the existence of reasonable grounds for the Commissioner's belief, it then must finally decide from the whole of the evidence before it whether, in its discretion, the order is to be set aside or to remain in force. In the present case the Deputy Commissioner, after receiving the plaintiff's summons and affidavit, filed an affidavit which annexed a specification of the grounds upon which he relied and also the contents of the departmental file to which he had regard in coming to his conclusion. Both the plaintiff and the Deputy Commissioner gave oral evidence before me.

On the footing then that in the present proceedings the reasonableness of the Commissioner's belief may be inquired into and then consideration given to any other relevant matters with a view to coming to a final conclusion, I turn to a reference to the facts in the case. There has been placed before the Court in written form the considerations which prompted the Deputy Commissioner to make the departure prohibition order and the evidence shows that that decision was arrived at after he had considered reports from certain of his officers. The substantial matters upon which he formed the belief that it was desirable that the departure prohibition order should be made appear in the report of Mr Roseland dated 31 July 1985. It will be convenient, I think, to set out in full Mr Roseland's report for it can then be considered in the light of the factors put forward by the Deputy Commissioner as the factors upon which he acted and also in the light of the evidence given by the plaintiff. I would pause at this point to point out that apart from the report of Mr Roseland, there is no actual evidence before the Court supporting the assertions of fact in regard to transactions, events, properties and the like, to which the report refers. That of course is not intended to be a criticism. Just the reverse. The Commissioner is not required to call witnesses to prove the transactions etc., referred to in the material upon which he acted. The substantial matter for the Court is, whether on the information which was before him - and bearing in mind of course the nature of that information - he had reasonable grounds for taking the course which he did. It is appropriate to point out that it is apparent from the evidence given by the plaintiff that he the plaintiff has a detailed, intimate knowledge of all the transactions, events and circumstances which are referred to in the report. Mr Roseland's report is as follows:

``HENRY VICTOR WINTER

Departure Prohibition Order

The purpose of this submission is to present an outline of the abovename taxpayer's activities and actions which when considered, not singularly, but overall support the making of a Departure Prohibition Order.

The personal details of Winter are as follows: -

  • Full Name: Henry Victor Winter
  • Date of Birth: 27 December 1948
  • Marital Status: Divorced, no children
  • Passport Details: Winter holds an Australian passport, No N903624, which was issued in Sydney on 8 June 1983 and expires on 8 June 1988
  • Returns Lodged: Up to and including the return of income for the year ended 30 June 1984.

2. Information held in this office indicates that Winter's promotion of tax avoidance arrangements commenced in November/December 1979 through a trust trading as Henry Winter and Associates. The trust's return of income for the year ended 30 June 1980 shows a small net loss. The following year, that trust and another, also trading as Henry Winter and Associates returned substantial amounts of income. At present, Winter is not indebted to the Taxation Office and all his returns of income have been assessed.

3. An investigation into Winter's personal affairs has commenced only recently.

ATC 4660

Notwithstanding this fact, his assessment for the year ended 30 June 1981 is to be amended to include the income purportedly derived by the two trusts which traded as Henry Winter and Associates during the year ended 30 June 1981. This action will be taken on the basis that the income shown in the trust's returns of income represents the product of Winter's personal exertion and it is correctly assessable in his hands. This amendment will result in an increase in primary tax assessed of $682,108.38. Additional tax in respect of omitted income will be approximately one hundred per cent of the tax avoided, thereby raising a debt of approximately $1.36 million. It is this liability which will be referred to in the Departure Prohibition Order. Issue of this assessment is being deferred pending consideration of the request for the making of a Departure Prohibition Order. As regards the basis of Winter's amended assessment for the year ended 30 June 1981 it should be noted that an assessment raised against an individual in respect of income purportedly derived by another entity or entities is consistent with the approach adopted in relation to other promoters. It would be submitted by the Commissioner that the income of the trusts is deemed to have been derived by Winter by section 19 and is assessable in his hands in terms of sub-section 25(1). When further inquiries are completed it may well be the case that the amended assessment could be defended on the alternative basis that section 260 applies to strike down the trust arrangements. The taxpayer's return of income for the year ended 30 June 1980 shows that Winter's employment with Bongiorno Co Pty Ltd ceased on 28 November 1979. Thereafter, Winter worked through the Henry Winter and Associates unit trust No. 1 which traded as Henry Winter and Associates. The trust's profit and loss account for the 1980 (first) year is stated to be for the seven month period under 30 June 1980. Accordingly it is apparent that the activities commenced immediately or shortly after Winter's cessation of employment. The trust deed, however, is dated 19 January 1980, which is 6/7 weeks after trading began. In these circumstances it may be open to relate the activity of this and subsequent trusts to that 6/7 weeks period prior to 19 January 1980 when the business, purportedly conducted by the trust, was in fact transacted before the first trust came into existence.

4. Whereas the investigation into Winter's personal affairs was commenced only recently, investigation inquiries into schemes promoted by Winter have been under way for some time. One of these schemes, termed the Jet Aircraft scheme was an arrangement which offered participants claims in respect of the Investment Allowance and interest charges to be followed by a sale of the aircraft some four years after purchase, for a capital profit, it being anticipated that the aircraft would appreciate. This scheme has been the subject of lengthy investigation. Some months ago, one of the participants, comprised mostly of doctors and dentists, remarked to an officer of the Sydney Taxation Office that he was worried that Winter might leave the country. This was followed on 22 March 1985 by a conversation between a tax agent representing a number of participants, and the investigation officer inquiring into the scheme, during which the tax agent also expressed concern that Winter was preparing to leave the country.

5. The investigation into the Jet Aircraft scheme, although not complete, has uncovered what is apparently an attempt on the part of the promoters to defraud the participants. In broad terms, aircraft were purchased (one aircraft per partnership) by partnerships seeking a taxation advantage but at prices substantially in excess of the prices paid to the overseas manufacturers. Legal proceedings whereby three such partnerships are seeking damages have begun in the Supreme Court of N.S.W. In a related action, reported briefly in `The Financial Review' of 22 May 1985, the Judge referred to an apparent fraud by Winter in gathering from syndicate (partnership) members very large commissions. There are ten partnerships in the scheme promoted by Winter. One of the partnerships was Wingway Jet Charter which borrowed through a nominee company, Johnica Pty Ltd. For the purpose of acquiring the aircraft the sum of $3,600,000 was borrowed. This sum was

ATC 4661

borrowed from three parties, Banque de Paris et des Pays-Bas, the Australian Bank and Oustport Ltd. A letter dated 2 April 1982 from the Australian Bank to the Reserve Bank states that `... payment of the advance will be made from Singapore direct to the vendor of the aircraft Oustport Ltd of London, United Kingdom'. A copy of the Reserve Bank's reply is not held but the purchase was effected on 13 April 1982. A letter dated 24 March 1982 to the Reserve Bank in respect of the loan of $675,000 by Oustport Ltd to Johnica Pty Ltd sought approval for the remission of the purchase price to Oustport Ltd. The Reserve Bank replied by letter dated 6 April 1982 and it gave authority for the retention of the funds overseas for disbursement direct to Oustport Ltd. In this case the actual purchase price paid (as per Customs records) was $2,216,387. Thus with the total purchase price going or remaining overseas the mark up profit to the promoters of approximately $1,380,000 was realised offshore. Whilst nine of the ten partnerships purchased aircraft from overseas manufacturers there is no documentation presently to hand which indicates that the other settlements were completed in the same manner as that of Wingway Jet Charter i.e. where the total purchase price including the mark-up was paid overseas. There is another partnership however, Westwind II Jet Charter, where information shows that at least part of the purchase price paid by the partnership was remitted overseas. The aircraft, a Westwind, passed through more than one `pair of hands' before going to the partnership. The immediate vendor to the partnership was Oustport Ltd which had acquired the aircraft for $4.1 million and when sold it for $4.65 million, whereby deriving a profit of $550,000. A telex from Oustport Ltd directs that $550,000 be remitted to it at the Banque de Paris et des Pays-Bas in Singapore. Refer to paragraph 9 below regarding the beneficial ownership of Oustport Ltd.

Whereas there is no other evidence held to show that funds were sent offshore there is another partnership, Kingair Aviation where a letter from the financier, Inter-Alpha Asia (Singapore) Limited, states that the funds were remitted to two bank accounts in Sydney. A Schedule in respect of seven of the ten partnerships was provided by Mr George Mailath (see next paragraph). The figures on the schedule show that Winter's share of the mark-up profits in respect of those seven partnerships was $1,564,903.

6. Further light was shed on Winter's recent actions and action taken in relation to Winter during interviews with a Mr George Mailath and Messrs Steve Rickard and Les Einstein. Mailath is an accountant with Mailath Thomas and Co. of Fyshwick, A.C.T., Rickard and Einstein are solicitors with the Sydney firm Ferrier and Associates. Mailath confirmed that in September 1984 he was engaged to investigate the aircraft purchasing arrangement. Ferrier and Associates have been acting for partnership members in a series of related court actions pertaining to the partners participation in the scheme.

...

8. Advice was also received that Winter has been attempting to sell his practice through a practice broker. Rickard and Einstein divulged the broker's name and address. Consequently Mr Rodney Troian of Accountancy Aids confirmed that between March and May 1985 he had a verbal agreement with Winter to act as his agent in selling his accountancy and taxation practice. Troian advised that Winter was to retain the trading name `Henry Winter and Associates', as well as the consulting and insurance aspects of the practice. Troian placed an advertisement in The Financial Review but without reference to Winter's name. The asking price was $180,000. Winter was prepared to accept payment over an extended period. During the hearing of the application for the Mareva Injunction, Troian was required to attend and give evidence that Winter was attempting to sell his practice. Troian stated that during the hearing he became aware of the allegations against Winter and formed the opinion that Winter had been dishonest in his dealings with the partners participating in the Jet Aircraft scheme. As he did not wish to jeopardise his professional reputation he ceased acting for Winter. Troian stated his belief that Winter had the offices at 6 and 7, 199 Pacific Highway, North Sydney on the market. Finally Troian gave the names of

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two other parties to refer to in connection with Winter's continuing attempt to sell the practice. These parties are Accountancy Placements and Mr Rob Knight. Discussions with Mr Nick Burton-Taylor of Accountancy Placements were held on 24 June 1985. Burton-Taylor confirmed that Winter had approached Accountancy Placements `about a month ago' with a view to selling his practice. However, upon being advised by Burton-Taylor of our inquiries, Winter had arranged for the return of his file from Accountancy Placements. This was done on 21 June 1985. Burton-Taylor claims to have no recollection of any details of the proposed sale.

9. Mailath further advised of the recent sale of a property at Jindabyne. A recent search of the property at the Land Titles Office revealed that it was still in the name of Inhuse Pty Ltd, a company owned by Winter, his sister (Rita) and mother (Olga). An affidavit, dated 6 May 1985, affirmed by Mr Theodore T.M. Agnew of Town and Country Commercial Investigations states that he was advised per telephone on 6 May 1985, by Raine and Horne, Estate Agents of Jindabyne that unit 8/21 Clyde Street, Jindabyne had been sold in that contracts had been exchanged. The fact that Inhuse Pty Ltd was still shown as the registered proprietor is probably due to the normal delay in registering transfers. Mailath said that they have had Winter under surveillance and that he (Winter) `... has been literally climbing out of the back windows...'. When asked whether he had any evidence to show that funds had gone overseas, he stated that he had no firm evidence but utter conviction that that is the case. He went on to say that Oustport Ltd and Pynwise Pty Ltd were beneficially owned as to one half by Winter. Oustport Ltd is a U.K. company presently with a Hong Kong address and two Chinese accountants as directors. These two companies were part financiers of at least three of the partnerships.

10. A recent real property search shows that Winter holds no real estate in New South Wales in his own name. However, a real property search carried out in Queensland shows that Winter is the registered proprietor of one property in Noosa Heads. This property is currently shown as being under mortgage to Barclays Australia (Finance) Limited. The property cost $70,000 and the mortgage was for $63,000. It is important to note that at this point in time, there is no information to hand, except that relating to the Noosa property, and private company shares in respect of assets including bank accounts in Winter's own name. This lack of knowledge rules out consideration of applying for a Mareva Injunction. Winter's modus operandi, however, does not provide for his holding assets in his own name and it is apparent that he makes extensive use of credit cards. In these circumstances it may well be that apart from the Noosa property and private company shares there are no such assets.

11. Companies associated or believed to be associated with Winter do hold or have recently held real estate. There is Inhuse Pty Ltd already mentioned in connection with the Jindabyne property. There is another company, Arrenba Pty Ltd which, according to a recent real property search, holds six properties in New South Wales. Arrenba Pty Ltd is a company incorporated in South Australia and the latest return giving details of directors and shareholders lodged with the N.S.W. Corporate Affairs Commission lodged 9 October 1981 shows Winter's mother and sister as directors and shareholders. However, under cross-examination in the Mareva Injunction case, Winter stated that his shares in Arrenba Pty Ltd were transferred to either his sister or mother some 2-3 months ago. Details of the six properties are as follows:

  • (a) 23 Prospect Street, Waverley.
  • This property was acquired by Arrenba Pty Ltd on 1 July 1977 and was Winter's former matrimonial home. There is no mortgage but the property is subject to a caveat by his former spouse pursuant to a claim under the Family Law Act 1975.
  • (b)-(d) Three strata titles in the one strata plan at North Entrance, Wyong NSW.
  • The properties were acquired in July and August 1981 for an aggregate purchase price of $128,500. Originally, the properties were mortgaged to Westpac for $153,000. This mortgage was discharged on 6 February 1984 and

    ATC 4663

    replaced by another whose terms were not recorded.
  • (e)-(f) Two strata titles in the one strata plan at North Sydney which are office suites.
  • The properties were acquired on 29 October 1981 for an aggregate purchase consideration of $620,000. The properties are subject to a mortgage to National Mutual in the sum of $415,000.

13. A third company of which Winter is currently a director and shareholder is Inhara Pty Ltd. This company is the registered proprietor of property in Raymond Street, Bankstown. It has also been noted that a number of units in a Strata Plan at Terrigal Kincumber which were originally owned by Inhuse Pty Ltd were at various times during the 1982 calendar year sold to Klepike Pty Ltd. The shareholders of the latter mentioned company are Rita and Olga Winter, Winter's sister and mother respectively.

14. Further inquiries in respect of Inhuse Pty Ltd, Arrenba Pty Ltd, Inhara Pty Ltd and other companies are continuing.

Recommendation

15. Whilst there is not any definite evidence that Winter intends to leave Australia permanently or indefinitely inferences to be drawn from the facts justify the making of a Departure Prohibition Order, see below: -

  • (a) Winter will have a taxation liability to the order of $1.36 million.
  • (b) Substantial profits in relation to the Jet Aircraft scheme were apparently realised offshore.
  • (c) Winter is prepared to flout the revenue laws and, in view of the public comments by Justice Young recently in the NSW Supreme Court, he may well be facing criminal charges in the future. He was present in court, so there is no question of him being unaware of the Judge's remarks.
  • (d) Winter holds a current Australian passport.
  • (e) Winter is believed to have purchased overseas airline tickets recently.
  • (f) Winter, trading through trusts, has derived substantial profits.
  • (g) Winter appears to have adopted the practice of holding few assets in his own name.
  • (h) A company, associated with Winter, has sold a property at Jindabyne very recently and it has been confirmed that Winter is attempting to sell his practice.
  • (i) Winter has, according to his own testimony, recently disposed of his shares in Arrenba Pty Ltd.
  • (P. Roseland)

SUPVR. SECTION 12.''

The reasons of the Deputy Commissioner for making the departure prohibition order appear in a minute dated 17 September 1985 signed by him, the contents of which are as follows:

``HENRY VICTOR WINTER

DEPARTURE PROHIBITION ORDER

Consideration has been given to the attached submissions recommending the issue of a Departure Prohibition Order on Henry Victor Winter. I have concluded in the absence of any definite information that the taxpayer has in fact left Australia (refer telex ex Immigration 4.9.1985) that reasonable grounds exist to prevent the taxpayer's departure from Australia until his tax liability is discharged or satisfactory arrangements are made for the tax liability to be wholly discharged.

In reaching this conclusion I have relied on the reasons set out in the attached submissions and in particular -

  • (a) the distinct possibility of collecting the debt or at least part thereof if the taxpayer remains in Australia;
  • (b) the recent sale of his practice and of other assets by Companies in which he and his mother and sister are the only shareholders;
  • (c) the disposal for an unknown consideration of his shareholding in Arrenba Pty Ltd in relatively recent times;
  • (d) the absence of a record of any assets other than private company shares owned by Mr Winter;

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  • (e) the known realisation of substantial profits offshore on aircraft deals by Oustport Pty Ltd of which Mr Winter is said to be a beneficial owner as to one half;
  • (f) a claim under the Family Law Act for a property settlement by his former wife - caveat on property owned by Arrenba Pty Ltd;
  • (g) the absence of knowledge of other remaining business connections in Australia;
  • (h) legal action taken against Mr Winter in the Supreme Court of New South Wales by former clients together with the possibility of criminal proceedings being instituted;
  • (i) a substantial taxation debt which is outstanding; and
  • (j) The capacity, because of overseas connections, to maintain himself out of Australia.

The Departure Prohibition Order has been signed. Please arrange for service and advice to appropriate authorities.

(D J Cortese)

DEPUTY COMMISSIONER

17.9.1985''

  • (The minute refers to short submissions by other officers but it is not necessary to include these.)

The attempted sale of the accountancy practice referred to in para. 8 of Mr Roseland's report had become an actual sale by the time the Deputy Commissioner made his order, as para. (b) of his reasons indicates. The evidence shows that the purchase price agreed was $300,000. The agreement for the sale of the practice, Ex. D, shows that an amount of $1,000 was paid on the execution of the agreement, $12,000 was to be paid before 5 July 1985, $137,000 before 22 July 1985, $50,000 on 22 January 1986, $50,000 on 22 July 1986, and the balance on 22 March 1987. According to the plaintiff, moneys received up to the present time have been paid as to $40,000 for legal expenses, a portion defraying expenses of Owfash Pty. Limited (the company which is acting as trustee for Henry Winter and Associates and which in fact owned the accountancy practice, according to the plaintiff), and the balance was put on deposit. The plaintiff was required under cross-examination to state where those moneys were and on my direction he did so. Shortly afterwards, during the lunch hour on the second day of the hearing, the plaintiff withdrew from the Advance Bank at North Sydney the sum of $39,000 which was deposited there. On an earlier occasion when the moneys for the practice were first received from the purchaser, the plaintiff deposited same in a company called Commercial Continental Limited. The following reads from the cross-examination:

``Q. You subsequently took it out of that company and deposited it in the Edgecliff branch of the Westpac Banking Corporation? - A. That is correct.

Q. You removed it from there in cash in a suitcase? - A. That is correct.

...

Q. Why did you remove it in cash? - A. I was concerned that the department's attempt was trying to bring me and the company to its knees, (This appears to be a reference to the trustee company Owfash.) and stop any funds flowing for the survival of the company and the people who are in the company.''

(p. 33)

The evidence discloses further that the property at Jindabyne referred to in the report (para. (9)), was sold for $75,000 but the plaintiff claims that most of this money was spent in discharging a bank mortgage over the property. There was also evidence before the Court that a home unit at Noosa in Queensland is registered in the name of the plaintiff. He claims that that is subject to mortgage. He claims that a company, Arrenba Pty. Limited, is however trustee of that property. The same company holds six other properties, as set out in para. (11), and the plaintiff claims again that those are held on trust for members of his family by the company. It is contended on behalf of the plaintiff, that the plaintiff's evidence discloses that the information upon which the Deputy Commissioner relied did not give a proper picture of the plaintiff's activities and that the circumstances are such that the departure prohibition order should not remain.

In considering the plaintiff's evidence it is important to observe that the essential facts

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stated by Mr Roseland are not shown to be in any way unfounded. The plaintiff was involved in a jet aircraft scheme (para. (5)). He was trying to sell the accountancy practice (para. (8)), and did succeed in selling it. He was connected with the properties at Jindabyne (para. (9)), and Noosa Heads (para. (10)), with the companies, Arrenba Pty. Limited (para. (11)), Inhara Pty. Limited (para. (13)), and Inhuse Pty. Limited (para. (14)). It was the fact that Young J. of this Court in the proceedings
Williams & Ors v. Marac & Ors on 21 May 1985, did, in proceedings in which the plaintiff here was the fifth defendant, hold that Williams & Ors (the plaintiffs in that case) had made out:

``a prima facie case on the facts that the first defendant was what might be called an insider in what appeared to be fraud of the fifth defendant'' - and the plaintiff here - ``in extracting from these investors very large commissions on the sale of this aircraft.''

What the plaintiff has sought to do in his evidence is to assert that his involvement in the jet aircraft syndicate, the accountancy practice, the properties at Jindabyne, Noosa and elsewhere, to which reference is made, has at all times been in a capacity which gave him no beneficial interest whatsoever in any of the proceeds of the transactions or in the properties. The jet aircraft transaction has been to some extent inquired into and there can be no question that it is the subject of proceedings presently before Hodgson J. Persons involved in that scheme have brought an action against, inter alia, the plaintiff here. The statement of claim in that case is before the Court and it claims damages for fraud or alternatively, for breach of fiduciary duty. The plaintiff has denied that there was any fraud by him or that he received for himself any commissions, secret or otherwise, in respect of the aircraft transaction. Whatever he did, he claims that he was merely acting in pursuance of the trust under which Vimair, Ilerace (or Owfash) were trustees. He admitted (p. 7) that the amount of $1,564,903, referred to in Mr Roseland's report, para. (5), fol. 78, was received in due course by either Vimair or Ilerace in respect of the aircraft deal. He acknowledged his signature, as director of a company Neabul Pty. Limited, to a direction dated 30 June 1982 given to Elders Finance and Investments Company Limited, directing it to pay, inter alia, the sum of $550,000 to Oustport Limited. That is the sum which Oustport directed by telex should be remitted to a bank in Singapore. No satisfactory explanation has been given by Mr Winter in regard to that particular transaction, and further he showed a somewhat extraordinary lack of interest in the real market value of the aircraft, and an inability to account for the fact, in relation to the first aircraft mentioned in para. 5 that $3.6 million was borrowed but the sale went through customs at $2,216,387. It may be that there are features stated in para. (5) in regard to that transaction which did not make the position from the Commissioner's point of view entirely clear, but the basic facts are there, that the plaintiff was directly involved - his evidence makes that perfectly clear - in this very large transaction which did involve the transmission of funds ``offshore'', as it has been put. The plaintiff explained the fact that he did not himself have any assets in his own name by reference to what appears to have been an abiding concern for the impact of death duties and gift duties and other taxes and also on the ground that he had been divorced from his wife and that he did not wish to enable her to be a threat to his assets. The plaintiff's counsel before me has stressed that the plaintiff at the present time has a bona fide business interest in what appears to be a flotation of a company, Integrated Medical Technology, and also a genuine business interest in a project concerning the importation of Norwegian rabbits, and it is put that those facts themselves are strong evidence of an absence of any intention to leave this jurisdiction permanently.

I do not propose to go into the detail of the evidence here, as it is unnecessary to do so. In my opinion, the evidence given by the plaintiff, far from showing that the Commissioner's opinion was not properly grounded in reason, confirms the reasonableness of the belief of the Commissioner that a departure prohibition order should be made. What the evidence disclosed was the participation by the plaintiff in all the alleged trusts' activities and the ability on his part to transact substantial business and deal with substantial assets and, notwithstanding the existence of company registers showing no substantial measure of control, if any control, by him in companies referred to in the evidence, one would be naive indeed if one did not recognise that he was, in a

ATC 4666

practical sense, the guiding hand and in control whenever he saw fit to take control. He claims his sister Rita played a real part administratively in the trusts' affairs, and that can be accepted. But his dominance of the ``trusts''' activities cannot be hidden. It is also to be noted that two of the trusts deeds - those relating to Vimair and Owfash - enabled him to appoint property under the trust for his own benefit. There is a complete lack of any material put before this Court as to what the assets of those trusts are at the present time but quite plainly the plaintiff is fully in possession of knowledge on that point. I referred to his engagement in two ventures, one of which would take him overseas next week, and again it has to be said that the Court has nothing before it upon which to determine whether those activities will turn out to be activities on behalf of some trust company from which he receives but a salary of no real size, or whether they are in fact projects which will return to him personally income upon which he will be taxable. Those matters are within his knowledge and they are not before the Court.

On the material which the Commissioner had before him, it was in my view, plainly open to him to take the view that the plaintiff might well be disposing of assets, whether trust assets or not, and arranging his affairs to the disadvantage of the Commissioner. In regard to the tax liability, he was entitled to consider that, in view of the size of the liability and the pressure of the legal proceedings involving substantial claims for damages, the plaintiff at least could see a need to avoid the tax liability, as well of course as the liabilities involved in the litigation in which he was a party. The Deputy Commissioner was entitled to have regard to the fact that the plaintiff in the aircraft enterprise had dealt with persons outside the jurisdiction, had arranged for the disposal of moneys outside the jurisdiction and the possibility of the plaintiff having assets abroad was not just a fanciful one. He was further entitled to take into account that, notwithstanding the existence of the trustee companies, Vimair, Ilerace and Owfash, there is a total absence of any satisfactory explanation as to why the trust was ``shifted'' from one company to the other, as has happened. The evidence plainly justified the conclusion that the plaintiff was, from a practical point of view, in substantial control of the assets of the trust or trusts and could make and carry out his own decisions as to the best course for transactions involving the trust to follow and was directly and immediately involved in the income producing transactions relating to the aircraft, the accountancy practice, and the development projects which have been referred to in the evidence. There can be no doubt at all that the plaintiff has great capacity to generate income either for the benefit of himself or the benefit of others. He has put nothing before the Court which even remotely permits a resolution of the question as to what are the assets in those trusts and how those trusts have been dealt with or where the moneys have gone to. For all one knows he could have been the ``real'' as distinct from the nominal beneficiary. In short, the Commissioner was entitled to take the view that, trust or no trust, the plaintiff could be in a position where he could, if he so desired, dispose of the assets of the trust, if there was a trust, and if the trust was real, and maintain himself either in Australia or outside Australia. It could be said, in my view, that the Deputy Commissioner could quite reasonably have the gravest doubt as to the correctness of the plaintiff's claim that he had no, or did not acquire, any beneficial interest in the trust assets and procedures from the various transactions which are the subject of the report. Who did benefit is not made clear on the evidence that is before the Court. The trust documents are before the Court but the reality of the situation is not.

Finally the Commissioner, in my view, was entitled to have due regard to the fact that the plaintiff had no dependants and was free to move about as he wished, subject of course to the normal human influences, arising from his mother and his sister being resident in Australia.

I have made no mention as to the caveat placed on the property, Arrenba Pty. Limited, by his wife, as the dearth of evidence in the case on that matter does not enable me to attach any special significance to that. I would add at this point that to the extent that Mr Roseland's report referred in part 5(c) to the possibility of criminal charges, that can only be taken to be Mr Roseland's opinion for there are no facts suggesting that criminal charges will be laid or are being considered. The above considerations to which I have referred summarise the matters

ATC 4667

set out by the Deputy Commissioner in the document signed by him, and which is set out earlier in this judgment. In my view, they plainly constitute a reasonable ground for a belief that a departure prohibition order was desirable:

``for the purpose of ensuring that the person does not depart from Australia for a foreign country without wholly discharging the tax liability; or making arrangements satisfactory to the Commissioner for the tax liability to be wholly discharged,''

and the more so when it has, in my view, become crystal clear from the plaintiff's own evidence during the course of this hearing that he will not recognise that tax liability, in whole or in part, and in fact disowns it. There are strong grounds, from all the evidence, and the facts in this case, for believing that the plaintiff will do all in his power to frustrate the Commissioner in the recovery of any part of that liability. It is a case, in my view, in which it is appropriate to say that the machinations of the plaintiff in the establishment of trusts and the use of companies could well be regarded as the laying of a trail by the plaintiff to make it impossible for the Commissioner or his creditors to know his true financial position. His explanation of his dealings in the shares of the company, Arrenba Pty. Limited, in my view lacks total credibility. The continued presence of the plaintiff in the country for the forthcoming year is, in the light of the evidence given in this case, a matter directly related to the tax liability and in my view, to the likelihood of the Commissioner being able to recover that liability, in whole or in part. The plaintiff will have his chance to assail the validity of assessment in the Board of Review or the Court if the Commissioner disallows his objection. He can apply for a departure authorisation certificate under the Taxation Administration Act 1953 (as amended), sec. 14U, if he wishes. I am satisfied that nothing has been put before me by the plaintiff which should require me to take a view that the Commissioner was in any way unreasonable in forming the belief which he did, or that for any other reason the departure prohibition order should not stand. The case is one, in my view, in which it can fairly be said that had the Commissioner not taken the action which he did, he could have been open to serious criticism.

For the sake of completeness, I would mention that counsel for the plaintiff did seek to found some contention upon the guidelines laid down in the Australian Taxation Office for dealing with the making of departure prohibition orders. Mr Cortese, the Deputy Commissioner, in setting out the factors which led him to make the order, made no reference to the guidelines nor was it suggested to him in evidence here that they had played any part in his conclusion and in the circumstances, I make no further reference to that aspect.

In the result, then, the order of the Court is that the summons is to be dismissed and the plaintiff is to pay the defendant's costs. These orders may be entered.


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