“The first thing we do, let’s kill all the lawyers”

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.

if im going down

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.


Erectile Dysfunction Merchant Guilty of Contempt of Court

I don’t want to be premature but a well planned blog is a lot like erecting a tent; annoying as hell but better than having a dysfunctional tent that collapses too early leaving everyone disappointed. As such I have considered the values imposed by the Canberra Commercial Law editorial team and have agreed not to make any lewd puns when reporting this case. Disclaimer fulfilled.

Australian Competition and Consumer Commission -v- ACN 117 372 915 Pty Ltd (in liq) (formerly Advanced Medical Institute Pty Ltd) [2015] FCA 1441 dealt with an application by the ACCC asking the Federal Court to make findings of contempt against the Advanced Medical Institute over its continued advertising despite court orders.

I think deep down we all knew it was coming. Erectile dysfunction ads have always skirted that fine line between paying $8 for popped salt-air at the cinemas and literally selling snake-oil…you choose which one of those is less ethical. Preying on male insecurity seems to have paid the bills for a number of years, but the guardians of consumer justice have finally caught up AMI.

In April 2015, North J made orders restraining the Australian Medical Institute and a number of associated individuals and entities (AMI) from advertising their erectile dysfunction and premature ejaculation products as effective. At hearing the ACCC accused the AMI of unconscionable conduct in it’s marketing and that this constituted a breach of (as then) s51AB of the Trade Practices Act 1974 (Cth). As part of the orders, the AMI was still allowed to advertise but was not allowed to make claims as to the efficacy of their products to any prospective patients.

Civil Contempt

The ACCC brought proceedings seeking a finding of civil contempt following a number of advertisements from the AMI on radio, television and publications on their website despite the orders.

To satisfy the test of civil contempt ACCC was required to show that the orders were clear enough not to be ambiguous and that AMI was capable of complying with them. In terms of an injunction this test is somewhat lightened by the circumstances alone as the test now becomes essentially the question of: were the orders clear and could the AMI have stopped itself from publishing the ads? This test has developed over a number of cases and is articulated clearly in Advan Investments Pty Ltd v Dean Gleeson Motor Sales Pty Ltd [31]. The test seems simpler when put in terms of a negative and the Court barely hesitated on the point even noting that Senior Counsel did not contend the point that the advertisements were deliberate. [54]

AMI based its argument primarily on the definition of “prospective patients” contending that the term “prospective patient” is not clear and unambiguous and alternatively that a “prospective patient” is only someone that expresses an interest rather then the public at large therefore rendering the ads not in breach.

In the views of Moshinsky J, a “prospective patient” extended beyond people who contacted AMI and included those members of the general public suffering from sexual dysfunction. Therefore the advertisements being broadcast to the general public were capable of reaching “prospective patients”.

Given the Court’s findings that the previous orders were clear, unambiguous and capable of compliance, Mohinsky J accordingly made declarations of contempt and listed the matter for a hearing on costs and damages.

BONUS: schedule 1 of the judgment contains transcripts from 20 premature ejaculation ads…it’s grim stuff but still better than watching any of the Star Wars prequels…shots fired.