Zelino and Ors v Budai [2001] NSWSC 501 (24 July 2001) is a case of some notoriety involving fraud, deception, backsta…

Stop reading. Put the popcorn in the microwave. I’ll wait.

Is your popcorn ready? Good. I’m just going to republish verbatim the opening two paragraphs of the judgment:

1) In 1725 Mr Everet commenced proceedings in the Court of Exchequer against Mr Williams seeking an account of partnership profits. The plaintiff alleged that the partnership between himself and the defendant dealt in commodities such as plate, rings, watches and other valuables, that the plaintiff and the defendant had dealt successfully in these commodities in the course of the partnership but that the defendant had failed to come to a fair account with the plaintiff concerning the partnership profits. In the course of the trial it was revealed that the business in which the partners were engaged was actually highway robbery and that the plaintiff was aggrieved that the defendant had not handed over a fair share of the spoils. The case was thrown out of Court, both parties were hanged, the plaintiff’s solicitors were attached for contempt and the plaintiff’s counsel was made to pay the costs of the proceedings: see Everet v. Williams (1893) 9 LQR 197; cited in Burrows v. Rhodes [1899] 1 QB 816, at 826 per Grantham J.

2) Human nature does not change. These proceedings are another example of that obstinate folly which blinds people to the ruin to which their course of action must inevitably lead if they insist upon pursuing it. For at the heart of these proceedings lies a series of revenue frauds perpetrated by the plaintiffs which would never have seen the light of day had the plaintiffs not set their minds on coming to a court of law to vindicate their grievances.

HOLY MOLY. Strong words. When you’re sitting in court and the judgment opens with a story about both parties being hanged and the solicitors found in contempt you know you’re in trouble.

Human nature does not change

The heart of this case is about dodgy individuals and the professionals who assist them. It is a story that should remind every legal practitioner, and in fact all professionals, that your client’s problems are not yours. If you assist in their criminal scheme, at worst you are part of their criminal enterprise and at best you are undertaking your own unique crime.

In Zelino, a group of investors purchased a heritage property in Cremorne and hired Mr Budai, a registered tax agent to structure the group’s tax affairs. The tax scheme was fraudulent, at the knowledge of all parties, and the lodged returns significantly understated the group’s taxable income.

The ATO provided their assessments and determined that the group still owed some tax. It “rankled” the group that they had to pay any tax so they spoke to their solicitor. Their solicitor, aware of the fraudulent scheme, approached a tax specialist and provided him information about the fraud. After a lengthy and expensive period of consideration, the tax specialist provided representations to the ATO that Mr Budai had a poor knowledge of the law and was incorrect in the original assessment. The ATO accepted the submissions based on further fraudulent and misleading statements and declared that no tax was payable.

The group was still not happy and commenced proceedings to sue Mr Budai for the costs of the specialist.

In the ensuing Supreme Court action, all of the roles of the co-conspirators were revealed including that of the solicitor who was also appearing. Everyone involved was, frankly, stuffed:

238) It would be an affront to justice and to all professional people striving to maintain the ethical standards of their calling if the Court, having become aware of possible serious breaches of the law by members of a profession, turned a blind eye and failed to draw those matters to the attention of the relevant authorities and professional regulatory bodies for further investigation.

…
244) According, I make a further direction as follows: I direct that the Registrar of the Court forward a copy of this judgment to the Australian Taxation Office, the Tax Agents Board, the Law Society of New South Wales, the Australian Institute of Chartered Accountants and the Public Accountants Registration Board.

The Judge even ordered that a letter be sent with the judgment to the Law Society concerning a member of the group who was formerly a solicitor to provide evidence of his character should he attempt to apply for admission in the future.

People Can Change

Nope. These lessons seem to stay only relevant for a certain amount of time and usually only to a limited audience.

In the ever-unfolding saga that is the ATO PAYG scandal, at least two lawyers have been revealed to be intimately involved in the scheme and will now be charged along with their former clients. The profession doesn’t want or need lawyers willing to engage in this chicanery, but there’s usually someone waiting to take their place.

The line in the title of this piece is from Shakespeare’s ‘Henry VI,” and is often misquoted to posit that maybe society would be better if we killed all the lawyers. Shakespeare intended the opposite reading. The line is uttered by Dick the Butcher who believes the rebel he supports could climb the chaos ladder if they were to cause a bit of mayhem and the people who would first get in his way are the lawyers and judges charged with administering justice. I’m definitely probably biased, but I don’t think we should “kill all the lawyers”, just remind them that schemes to defraud the public purse and other such arrangements cannot succeed if lawyers and other professionals are keeping their professional duties at the forefront of their minds.