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Court order for $3.5m in indemnity costs

A financial services company has been ordered to pay $3.5 million in court costs after it knowingly gave false and misleading evidence in a tax dispute lasting more than a decade.

Rawson Finances (Rawson) had been embroiled in court proceedings with the Commissioner of Taxation, involving the Federal Court and the Administrative Appeals Tribunal, as a result of its dealings with Israeli banks.

Last year a judgment of the Full Federal Court made in 2013, favourable to Rawson, was set aside on the ground that it was obtained by fraud after a raft of new evidence established “highly egregious and fraudulent conduct” by the company in the proceedings.

On Friday, Federal Court Justice Perry granted an application by the Commissioner seeking costs of the Full Federal Court proceeding on an indemnity basis, fixed in the sum of $3,557,400.

“This case raises an important and apparently novel question concerning the award of indemnity costs in circumstances where an applicant has been successful in setting aside a judgment on the ground it was procured by a fraud on the court,” Justice Perry said.

The Commissioner applied for indemnity costs on two grounds:

  • that he was acting in the public interest in taking steps to have the decision set aside on the basis it was obtained by fraud; and
  • in the alternative, Rawson’s conduct in the proceedings warranted an indemnity costs order. 

Justice Perry ruled the first ground should be upheld.

“I accept that the Commissioner should bear no part of its expenses in setting that judgment aside in circumstances where the public interest is heightened by the seriousness of the fraud perpetrated upon the Commissioner and the Full Court,”  she said.

She found no criticism of Rawson’s legal representatives, who she said were no doubt acting on instructions.

She outlined the history of the case, which began when irregularities in Rawson’s accounting were detected by Project Wickenby, an investigation by the Australian Tax Office into whether taxpayers were returning profits earned abroad to Australia disguised as “loans” from overseas banks.

In 2006, the Commissioner issued notices of assessment and amended assessment of the amount of taxable income of Rawson for the financial years ending 30 June 1997 to 30 June 2008; and penalty assessments for the years ended 30 June 2001 to 30 June 2008 inclusive.

Rawson lodged objections to the assessments in 2009. These were disallowed in 2010, and Rawson began merit review proceedings that year.

During the AAT proceedings, Rawson adduced evidence of loans from Israeli banks, and the tribunal accepted that Rawson had established that the taxation assessments were excessive, setting aside the decisions.

The Commissioner successfully appealed the AAT’s decision to the Federal Court, on the ground that the AAT’s conclusion, that the Tribunal’s characterisation of Rawson’s funds received as “loans”, was not open on the evidence, and Rawson had not therefore discharged its onus of proof.

Rawson successfully appealed from that decision to the Full Federal Court, which in 2013 set aside the orders of the primary judge.

The Commissioner then received a substantial body of new evidence that overwhelmingly established that the decisions of the AAT and the Full Federal Court were obtained by fraud.

“It is therefore no overstatement to say that the evidence establishes highly egregious and fraudulent conduct by Rawson…in the case run before the Tribunal and in the Federal Court,” Justice Perry said in her June 2023 decision.

“The new evidence reveals that this is a case of extraordinary deceit and subterfuge involving a multitude of overseas accounts and highly suspicious and unexplained transactions of labyrinthal complexity.”

In her 2024 decision published on Friday, Justice Perry said a judgment obtained by fraud undermined the integrity of the judicial process and rule of law, and public confidence in the judiciary.

“Litigation to set aside a judgment obtained by fraud thus serves a vital public interest,” she said.

“As with contempt of court cases, nothing should be done to deter a person from bringing that fraudulently obtained judgment to the attention of the court.”

Justice Perry also considered the Commissioner’s alternative ground, stating that had she not allowed indemnity costs on the public interest ground, she would have ordered that Rawson pay indemnity costs from the date on which it positively defended its fraudulent conduct.

She said the costs award was considerable but she had considered factors including that the matter was long and complex; that the taxation process would take about 12 to 18 months to complete and cost $350,000 to $450,000; that Rawson was likely to be impecunious; and that it was desirable to finalise the proceeding as soon as practicable.

She also ordered Rawson pay the Commissioner’s costs of the indemnity application, fixed at $38,000.

Read the decision here.

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