Tobacco Taxes

'Big Tobacco, Big Tax Avoidance: An analysis of the main tax avoidance structures used by British American Tobacco, Imperial Brands, Japan Tobacco International and Philip Morris International, based on annual reports of parent companies and major subsidiaries in 2010-2019' comments 

The COVID-19 pandemic has put significant pressure on public finances. The amount of money many governments have committed to address the pandemic thus far is staggering. Just months into the pandemic, the United States of America (U.S.) Congress approved $2.4 trillion to combat the crisis, and the United Kingdom (U.K.) government had already spent an additional £210 billion by August 2020. Recently, the EU approved a €670 billion COVID-19 recovery fund. 

This money has to come from somewhere, and many governments face a brutal choice: cut public spending (which, in many cases, has already been cut to the bone), or raise taxes, either on companies or on the wider population. 

An alternative option that would boost governments’ abilities to fund their pandemic recovery plans is for companies to pay their fair share of taxes (which, in theory, they should already be doing) and to tax excessive profits. A good place to start is with the tobacco industry. It has few equals when it comes to making excessive profits—profits that have been made selling deadly products that kill up to two-thirds of users. 

Further, smoking has been established as a risk factor for severe illness from COVID-19. STOP argues, as part of its Tobacco Pay Up campaign, that: “Governments have the power to hold the tobacco industry financially accountable for the harms it’s inflicted leading up to and during the COVID-19 crisis. They should use that power.”

The authors state

There is growing pressure worldwide for companies to pay their fair share of tax. One sector that has lucrative revenue and profits is the tobacco industry (see chart). Although the sector makes billions in revenue, it pays relatively little in corporate taxes. Tobacco’s Big Four transnational companies - British American Tobacco, Imperial Brands, Japan Tobacco and Philip Morris - make extensive use of the entire range of common tax avoidance methods. 

We did not find any clear evidence of illegal practices (tax evasion), but analysis of their annual reports and those of a number of crucial subsidiaries in the period 2010-2019 shows that all four have ‘aggressive tax planning’ strategies, in spite of their own codes of conduct suggesting otherwise. 

This report details the tax avoidance methods the four companies are using and describes some of the fiscal disputes they are involved in. It is a first report. Because of the complicated and untransparent nature of tax avoidance it cannot be comprehensive. Many questions remain, particularly concerning the final destination of the money flows involved. The logical endgame is that many ultimately end up in tax havens. In further research we will try to shed more light on this final step in the avoidance chain. 

Six European countries play a key role 

Six European countries play a key role in the elaborate tax avoidance strategies of Tobacco’s Big Four: Belgium, Ireland, Luxemburg, the Netherlands, the UK and Switzerland. Of these, the Netherlands and the United Kingdom clearly have a key role in facilitating conduit subsidiaries. The role of Switzerland might be similarly important, especially in the case of Philip Morris, but is hard to confirm because of its financial secrecy. 

€7.5 billion of tobacco profits (annually) pass through the Netherlands On average, Tobacco’s Big Four shift around €7.5 billion of worldwide profits through the Netherlands annually. British American Tobacco and Imperial Brands move these profits on to holding companies in the UK, Philip Morris International to a holding company in Switzerland. Japan Tobacco International seems to send them via the Netherlands straight to the parent company in Japan. 

British American Tobacco and Imperial Brands UK subsidiaries lowered their corporation tax burden by £2.5 billion (past decade) Using the fiscal instrument of group relief, the UK subsidiaries of Imperial Brands and British American Tobacco – both based and headquartered in the UK – lowered their UK corporate tax burden by £2.5 billion between 2010 and 2019. As a result, BAT paid close to zero corporation tax. 

IB’s annual reports are so untransparent that their actual UK tax burden is virtually impossible to determine. 

The 2015 BEPS guidelines (OECD) didn’t result in higher tax payments but in less transparency The introduction of the BEPS did affect Tobacco’s Big Four, though maybe not in the way intended by the OECD. The companies didn’t start paying more corporate taxes or stop engaging in aggressive tax planning. Instead, their financial reporting seems to have become less transparent. Tobacco’s Big Four use five main avoidance methods 

Shifting dividends 

The €7.5 billion Tobacco’s Big Four shift through the Netherlands annually, mainly consist of dividends from subsidiaries. BAT shifts around €1 billion in dividends via Belgium each year. Tax paid on these profits is less than 1 percent. 

Group relief, partly based on internal loans 

The two British tobacco giants in particular use group relief (loss compensation) as a major method to reduce their corporate taxes. Imperial Brands lowered their UK corporate tax bill by an estimated £1.8 billion over the last ten years. BAT lowered theirs by an estimated £760 million. 

At both IB and BAT, the losses involved regularly stem from interest paid on internal loans, resulting in eligibility for group relief. There are clear indications that at least part of these loans don’t serve any other purpose than lowering their corporate tax bill. 

As a result, BAT paid close to zero corporate tax in the UK. 

Notional (fictitious) interest deduction 

BAT parked around €3.5 billion in assets in three holding companies in Belgium, which from 2010-2017 helped it deduct several millions in notional (fictitious) interest each year. The notional interest deduction diminished over the years and ended in 2018. 

Profit shifting via intra-firm transactions 

We found several examples of profit shifting via intra-firm transactions. One is the sale – on paper - of all BAT cigarettes produced by BAT Korea Manufacturing Ltd. (South Korea) to Rothmans Far East BV in the Netherlands. They are immediately re-sold to another South-Korean company, BAT Korea Ltd, at a much higher price. This way, on average each year €98 million in Korean profits are shifted to the Netherlands. 

Royalty payments 

There are clear indicators that PMI and JTI use royalty payments (through the Netherlands) as a tax planning tool: - Philip Morris Holland BV annually pays between €25 and 29 million in royalties to a foreign entity. For the Dutch BV these are costs, so the taxable profit is lowered considerably. - 

Between 2010 and 2013, Japan Tobacco International Group Holding BV shifted about €250 million annually through the Netherlands as royalties. After 2013 they stopped reporting the royalty payments. It is however likely that this subsidiary continued to function as a conduit for royalty payments. 

Tax disputes and investigations 

Tobacco’s Big Four are involved in tax disputes in at least eleven countries over the last ten years, leading to claims by tax authorities ranging from €45 million to €1.2 billion. So far, in the majority of cases, the courts’ decisions have been in favour of the companies.

• Philip Morris has been / is under examination by foreign tax authorities in Germany, Indonesia, Russia, South Korea, Thailand, Switzerland and Turkey . 

• BAT has been / is involved in disputes in the Netherlands (a record claim of €1.2 billion), Brazil, South Korea and Egypt. 

• Imperial Brands is involved in three large tax ongoing tax-related legal procedures in France, Russia and the EU, involving tax claims totalling £672 million. 

• For Japan Tobacco International, we found three specifications of tax disputes, in Turkey, Russia and the UK. 

• In September 2019, the European Commission announced an in-depth investigation into tax avoidance by multinationals. BAT is one of the 39 companies under investigation.

Covert Recordings

In Rathswohl v Court [2020] NSWSC 1490 [9]-[35] Rees J offers a useful discussion of covert private recording

  Use of listening devices 

It is an offence to use a listening device to record a private conversation: section 7(1)(b), Surveillance Devices Act 2007 (NSW). It is not an offence if the elements described in section 7(3)(b)(i) are established, which provides:

Subsection (1)(b) does not apply to the use of a listening device by a party to a private conversation if— 

… (b) a principal party to the conversation consents to the listening device being so used and the recording of the conversation— (i) is reasonably necessary for the protection of the lawful interests of that principal party, … 

“Principal party” is a person by or to whom words are spoken in the course of the conversation: section 4, Surveillance Devices Act. ... 

The mischief intended to be addressed by the earlier and relevantly identical Listening Devices Act 1984 (NSW) is described in the second reading speech of the Listening Devices Bill 1984 by the then Attorney-General of New South Wales (extracted by Branson J in, Violi v Berrivale Orchards Ltd (2000) 99 FCR 580; (2000) 173 ALR 518; [2000] FCA 797 at [21]):

The bill will establish safeguards against the unjustified invasion of privacy that can be occasioned by the use of electronic surveillance. In so doing, it seeks to protect one of the most important aspects of individual freedom - the right of people to enjoy their private lives free from interference by the State or by others ... People should not be expected to live in the fear that every word that they speak may be transmitted or recorded and later repeated to the entire world. 

The second reading speech for the Surveillance Devices Bill 2007 does not advance matters. 

The words and phrases in section 7(3)(b)(i) are not defined by the Surveillance Devices Act but have been considered in a number of cases. It is useful to analyse the authorities in the context of criminal law, family law (generally concerning domestic and family violence) and civil claims. My research has not revealed any specific case concerning the use of a listening device in a family provision claim. The closest case, factually, is Thomas v Nash (2010) 107 SASR 309; [2010] SASC 153, considered at [25], where a son recorded conversations with his mother said to bear upon whether she had capacity to make a will. Otherwise, the situation at hand fits most comfortably within the civil claims case law considered at [23]-[35]. 

Criminal cases 

In the criminal arena, the first appellate decision of note is R v Le (2004) 60 NSWLR 108; [2004] NSWCCA 82. Ms Le was a friend of Phuong Ngo, who was convicted of the murder of John Newman. Ms Le claimed that Albert Ranse told her that he had shot Mr Newman but said that she could never use what he had told her as it would be her word against his. In cooperation with a friend who worked for Channel Nine, video cameras and microphones were installed in Ms Le’s car and conversations were thereby recorded with Mr Ranse. Adams J concluded that Ms Le had established that it was reasonably necessary to make the recording. The likelihood that Mr Ranse would deny the conversation was obvious and Ms Le had a lawful interest in protecting herself from the risk of the accusation that she had fabricated the conversation. “The avoidance of being labelled a liar is, to my mind, an important lawful interest, especially in the context of a criminal investigation, and it is clear that recording the conversation was the only practicable mode of preventing or refuting such an allegation”: at [83]. Further, at [84]: 

… I do not accept that a purpose of the Act, let alone its whole object, is to prevent an irrefutable record to be made and communicated in a context where communication of the conversation is otherwise lawful. Of course, this is not to say that the mere intention of making an irrefutable record of a conversation to which one is a party will, without more, satisfy the defence: the circumstances in which the recording occurs will always be relevant to the determination of whether there is, indeed, a “reasonable necessity” for doing so. 

Hulme J agreed, but expressed grave doubts whether, as a general proposition, the recording of the conversation in order to ensure there was an irrefutable record of it could be regarded as protected by the defence: at [79]. In dissent on this issue, Giles JA considered obiter that it was open to the trial judge to conclude that the elements of section 7(3)(b)(i) had not been established. At [47]: …

Different minds could give different answers in the application of reasonable necessity. I am quite unable to conclude, however, that only an affirmative answer was possible. Protection of credibility generally or in the event of giving evidence plainly did not dictate an affirmative answer. Concern to have a supporting record before making allegations is of more significance, but in my opinion it was open to the judge to regard it as insufficient. 

In Sepulveda v R (2006) 167 A Crim R 108; [2006] NSWCCA 379, the identical provisions in the Listening Devices Act 1984 (NSW) were considered by Johnson J, with whom McClellan CJ at CL and Hislop J agreed. A complainant in respect of historical sex abuse made a clandestine recording of a conversation with the accused for the purpose of bringing the accused to justice for criminal acts committed against him and his brothers. At the time of the recording, the complainant was 29 years old and the abuse had occurred when he was between 9 and 14 years old. The complainant sought to obtain money from the accused in exchange for the recording. Johnson J held that the recording should not have been admitted into evidence at trial as it was not “reasonably necessary” to make the recording as the victim could have approached police with his complaints; the police could have applied for a warrant under the legislation with the consequence that any conversation recorded pursuant to the warrant would have been lawfully obtained: at [138]-[139]. 

Johnson J observed that the mischief which the legislation addressed was the protection of privacy by establishing safeguards against unjustified invasions of privacy that could be occasioned by the use of electronic surveillance: at [105]. The legislation created an elaborate structure whereby an application could be made to this Court for the issue of a warrant to record conversations. The steps prescribed by the legislation for obtaining a warrant provided an integrated scheme for controlling infringements of privacy: at [108]-[111]. The words of section 5(3)(b)(i), which is in identical terms to section 7(3)(b)(i), whilst broad, must be viewed against this context. At [115]:

… There is a strong argument that the words of s 5(3)(b)(i) ought be closely confined to avoid undermining the primary purpose of the [Listening Devices] Act. An undue willingness to include a multitude of differing circumstances within this statutory exception may serve to encourage persons to make a covert recording of a conversation rather than (in the present context), comply with the primary object of the Act by bringing the matter to the attention of relevant law enforcement authorities so that application may be made for a warrant to lawfully record a conversation. 

In respect of “reasonably necessary”, his Honour proceeded on the basis that “necessary” meant appropriate but not essential and “reasonably” imported an objective test, to be assessed upon the grounds that existed at the time of the recording: at [116]-[118]. “Protection” meant ‘defence from harm, danger and evil’: at [120]. Whilst the term “lawful interest” was capable of broad construction, Johnson J considered obiter that the statutory context in which the words appeared suggested that the meaning was not open-ended, noting that the provision constituted a statutory exemption to the prohibition upon recording conversations and where the Act operated to protect privacy: at [141]. At [142]:

… The “lawful interests” identified by the learned trial Judge in the present case are of a somewhat nebulous kind. They do not appear to satisfy the requirement that the recording be undertaken for the protection of then existing lawful interests. It is important that a construction not be attached to this statutory exception which would serve to undermine, in a significant respect, a primary purpose of the [Listening Devices] Act. 

In DW v R (2014) 239 A Crim R 192; [2014] NSWCCA 28, a different result pertained on the facts. A 14 year old girl made a secret recording of a conversation with her father, who was later convicted of indecent assault and child pornography offences. The girl’s friend suggested that she make the recording in circumstances where the police had yet to become involved in events at the family home and the girl thought that her stepmother would not believe her allegations. The girl was frightened of her father, who had convinced his wife that the girl was lying. She did not immediately take the recording to the police, or any authority figure, but hid the recording by renaming it in a different file so that her father could not access it. She did not seek to obtain money in exchange for the recording. 

Ward JA, with whom Harrison and Hulme JJ agreed, found no error in the trial judge’s finding that the child’s interest not to be a victim of serious criminal offences was a “lawful interest” for the purposes of section 7(3) of the Surveillance Devices Act. Her Honour found that the facts were different to those in Sepulveda as the complainant was 14 years old and, although she had her own mobile phone, this did not mean she should be expected to have understood the legal avenues that she could take in order to have her complaints investigated: at [47]. It was open for the trial judge to infer that the recording was made for the purpose of protecting the complainant’s lawful interest in protecting herself from continuing abuse and exploitation: at [49]. It was not practicable in the circumstances of the case for the complainant to contact police in order to seek to arrange a warrant to record conversations with her father: at [51]. 

Similarly, in R v EP [2019] ACTSC 89, a woman made a complaint to the police that the accused had threatened to disseminate sexually explicit images of her. The woman later found – on the driveway to her home – an intimate image of herself, and took it to the police. She then made a covert recording of a conversation with the accused, in which the accused told her that she had to have sex with him for three months, else he would disseminate intimate images of her. The recordings were admitted into evidence as, on objectively reasonable grounds, the complainant considered it necessary to make the recordings to protect her lawful interests: at [42]. 

Family law cases 

In Latham v Latham [2008] FamCA 877, a father made secret recordings of his wife and children, including abusive comments which suggested that the wife was a child abuser. Trench J accepted that the recordings were reasonably necessary to protect the father’s lawful interests, including the likelihood that the wife would deny the conversations; that the husband needed to protect himself from risk of the accusation that he had fabricated the conversations; and, to avoid being labelled a liar. The husband was entitled to be present where the recordings were made, was entitled to participate in the conversations and repeat the conversations. Further, Trench J was otherwise prepared to admit the evidence under section 138 of the Evidence Act. At [28]:

… the probative value of the evidence is potentially high. The evidence is potentially important. … The impropriety demonstrated by the husband in the obtaining of the evidence is, in my view, not gross. The recordings were made in the confines of a family. Whatever is evidenced by the recordings is not said to have been contrived or manufactured by the husband. It seems to be accepted that the recordings were made in the process of the ordinary function of this family. … it is highly unlikely that the husband would have been able to obtain the recordings with the knowledge or permission of the wife. 

In Groom v Police (2015) 252 A Crim R 332; [2015] SASC 101, Mr Groom was recorded by his former partner during handover of access to their child. The former partner had made many allegations that Mr Groom was breaching an intervention order but had encountered problems proving the allegations and none proceeded to a conviction. The former partner said she held genuine concerns for her wellbeing. Nicholson J concluded, on appeal, that the recording was admissible. Nicholson J considered that, whilst breach of an intervention order was a relatively minor crime and there was no suggestion of physical violence, breach of such an order was still serious. A court should more readily accept that a recording was carried out in pursuance of a person’s lawful interest in circumstances where that person had a genuine concern for their own safety: at [40]. 

In Gawley & Bass (2016) 313 FLR 346; (2016) 55 Fam LR 396; [2016] FCCA 1955, a father installed a listening device in the mother’s home for some three weeks. The father recorded the mother with their children in an attempt to corroborate his assertions about the violence and parenting capacity of the mother, should this ever be questioned by an authority. The father made a report to Child Protection Services about the mother’s violent temper and mistreatment of the children, expressing a concern that the mother had assaulted one of the children. He arranged a meeting to discuss these concerns. Judge Baker concluded that the lawful interest of the father, as a parent of the children, was to protect the children from the risk of harm and concluded that it was reasonably appropriate for the father to record the conversation: at [52]-[55]. 

Civil claims 

In the civil context, in Violi v Berrivale Orchards, Mr Violi sought damages for misleading and deceptive conduct, based largely on conversations between Mr Violi and an employee of Berrivale Orchards, Mr Pumpa. Mr Violi recorded the conversations with the purpose of publishing the conversations if Mr Pumpa later did “not tell the truth about what was happening” or if Berrivale Orchards later denied the existence of a contract between the parties: at [3]. Branson J considered that “lawful interest” did not equate with “legal interests” in the sense of a legal right, title, duty or liability but rather encaptured interests which were not unlawful: at [28]. Having regard to the statutory context, however, her Honour considered that the Parliament did not intend to exclude from the operation of the section the recording of private conversations for the purpose of using the recording as evidence in proposed or pending legal proceedings, notwithstanding that obtaining reliable and probative evidence was ordinarily a lawful and proper thing to do: at [30]. Thus, her Honour concluded that Mr Violi’s recording of conversations was not reasonably necessary for the protection of his lawful interests within the meaning of the Act: at [33]. 

See likewise Alliance Craton Explorer Pty Ltd v Quasar Resources Ltd [2010] SASC 266, where a joint venture partner sought declarations that it was entitled to record meetings of the joint venturers. The declarations were refused. Simply obtaining an accurate record of a meeting is not sufficient to constitute a “lawful interest”, nor is making a recording in contemplation that it might be used if there is some form of litigation in the future: at [48]-[49] per Sulan J. Similarly, in Georgiou Building Pty Ltd v Perrinepod Pty Ltd (2012) 86 ACSR 713; [2012] WASC 72, recording a meeting in accordance with one’s usual practice, at a time where no dispute was present or anticipated, does not demonstrate that recording the meeting was reasonably necessary to protect one’s interests: at [17] per Allanson J. More recently, in RRG Nominees Pty Ltd v Visible Temporary Fencing Australia Pty Ltd (No 3) [2018] FCA 404, White J held that recording a meeting “so I will be able to make notes and recall all the detail” did not constitute protection of the lawful interests of the person: at [30]-[31]. 

Probably the most detailed judgment on recordings made ‘just in case’ there is a dispute is Thomas v Nash, which concerned whether the deceased mother of Mr Nash had capacity to make a Will. Mr Nash had recorded conversations with his mother said to bear upon this issue. Mr Nash said that he made the recordings in case his mother forgot things but Doyle CJ did not accept this explanation. “If it played a part in his thinking, it played a minor part only. He said that he made the recordings so that he could prove things … I find that he made the recordings in case it might later prove to his advantage to have them”: at [25]. His Honour rejected the tender of the recordings. At [45]:

Mr Nash made the recordings in case it might later turn out that in some way he could use them to his advantage. There was no litigation in contemplation at the time. Even if there was, my conclusion would be the same. I do not consider that a person makes a recording to protect his lawful interests simply because he has a hope that in contemplated litigation the recording might be used to his advantage. … 

Doyle CJ reviewed the authorities in respect of “lawful interests” and concluded at [47] to [48]:

[47] In none of those decisions is there an attempt to identify comprehensively the scope of the expression “lawful interests”. That is not surprising. It is an expression which is best left to be applied case by case, subject to some general guidelines. 

[48] Each decision is an application of the expression to its particular facts. In most of those decisions it was accepted that a mere desire to have a reliable record of a conversation is not enough. I agree. Most of the decisions proceed on the basis that a desire to gain an advantage in civil proceedings would not ordinarily amount to a relevant lawful interest, although of course each case has to be considered on its facts. Several of the cases proceed on the basis that where the conversation relates to a serious crime, or an allegation of a serious crime, or to resisting such an allegation, a court is more likely to find that the recording of a conversation relating to the crime can be made in the protection of the person’s “lawful interests”. 

If asked to exercise his discretion to exclude the evidence, Doyle CJ considered that he would have done so as Mr Nash’s actions amounted to a substantial intrusion of privacy where no public interest called for the admission of the evidence. To admit the evidence in the circumstances would amount to the Court condoning what Mr Nash had done. His Honour doubted whether the excluded recordings would provide any information not already available about the capacity of his mother: at [56]-[57]. Further, to the extent that Mr Nash had also recorded conversations with the executors which might be used to contradict something which they said in evidence, Doyle CJ considered that there was no reason to think from anything that Mr Nash had put to those witnesses that a finding that their evidence was wrong in the matter of detail would lead anywhere: at [57]. An important factor in his Honour’s judgment was that Mr Nash appeared for himself in the trial and appears to have done so in a most unsatisfactory manner. 

The result may be different where the parties are already in dispute. In Chao v Chao [2008] NSWSC 584, Brereton J held that a recording by the plaintiff of a telephone conversation with the defendant was reasonably necessary where, at the time of the conversation, “a serious dispute had erupted” between them and it was obvious that who was going to be believed as to the different versions of the arrangements originally made between them in respect of a property were highly contentious where, on the plaintiff’s case, the defendant was threatening to eject her from the property and litigation had already commenced: at [8]. Likewise in Metz Holdings Pty Ltd v Simmac Pty Ltd (No 1) (2011) 193 FCR 195; [2011] FCA 263, the applicant sought to rely on recordings of conversations with the respondent in support of a trade practices claim. Barker J accepted that the recordings were made to protect the lawful interests of the applicant as, at the time that the recordings were made, the parties were in dispute: at [24]. The applicant had become quite concerned with the respondent’s behaviour and was unable to have a rational discussion with him, which led to the recordings: Metz Holdings Pty Ltd v Simmac Pty Ltd (No 2) [2011] FCA 981 at [160]. 

Perhaps the most comprehensive judgment on a recording made where the parties were in serious dispute is Dong v Song (2018) 331 FLR 326; [2018] ACTSC 82. Ms Dong bought a restaurant with Mr Song but had difficulty extracting a copy of the contract for sale from Mr Song and became suspicious about her business partner. Ms Dong recorded a meeting with Mr Song and, a month later, commenced proceedings against him for misleading and deceptive conduct. McWilliam AsJ considered that, in a civil context, the ability for a party to obtain a warrant, as described in Sepulveda v R, was less significant. At [35]-[36]:

[35] It is difficult to see how the above reasoning as to the proper construction of the exception is applicable in a civil context. Respectfully, I do not accept the Act ought be construed so that the obtaining of a warrant is seen as the ‘primary exception’, by which other exceptions that directly follow it (in this case, s 4(3)(b)(i) of the Act) ‘ought be closely confined’. The context of the section does not require such a construction, and it does not sit well with the fact that the particular exception provided for by the Act is equally apt to the use of listening devices to protect a person’s interests in a civil context. A person who seeks to protect their private interests in a civil context cannot entreat the relevant law enforcement authorities to use their resources to apply for a warrant: see Crimes (Surveillance Devices) Act 2010 (ACT) s 11. The exception in s4(3)(b)(i) of the Act is necessarily unrelated to the exception covering warrants in s4(2)(a) of the Act. 

[36] In my view, neither a broad nor a confined construction attaches to the exception created by s 4(3)(b)(i) of the Act. Rather, in line with Doyle CJ’s comment in [Thomas v Nash] … it is preferable to simply consider the expression ‘lawful interests’ in the context of the circumstances of each case, focussing on the words not in isolation, but in the context of the section being an exception to a criminal offence, and with the purpose of the Act in mind. It may be that the more tenuous the lawful interest, the less likely that it will be objectively necessary to protect it through the means of a listening device. 

At the time of the recording, Ms Dong felt cheated by Mr Song, and mistrustful of him. Her Honour found that the purpose of the recording was consistent with seeking to obtain admissions from Mr Song: at [47]. Her Honour concluded that section 7(3)(b)(i) was established. At [48]: 

As at [the date of the recording], the plaintiff had then existing legal rights in relation to the past conduct of the defendants. She was not in the position of a victim of crime who might invoke the assistance of police. She was in the position of a person who had an interest in confirming the previous representations that had actually been made to her and in having a reliable record of what the defendants said to corroborate her position, not in the abstract or in the hope that it might be used to her advantage (c.f. [Thomas v Nash] at [45], [48]), but in circumstances where the plaintiff now had real doubts about the honesty of the defendants and where legal proceedings were not only in contemplation but imminent, and would turn on oral conversations between those parties. 

The recording may not be admitted where it was made for improper purposes. For example, in Levy v Bablis [2013] NSWCA 28, “The conversation was not recorded for the purpose of obtaining admissions as to the transactions which had been undertaken and in respect of which [the principal party] may have had legal rights. It was recorded to trap [those being recorded] into engaging in further conduct, the threat of disclosure of which [the principal party] could then use to “persuade” them to meet their asserted obligations under the earlier transactions”: at [109] per Meagher JA (with whom Beazley and Macfarlan JJA agreed). 

The fact that the person being recorded is engaging in a dishonest act may suggest the recording was necessary. In Arcaba v K & K Real Estate Pty Limited [2016] NSWSC 1793, Hall J admitted into evidence a recording of a conversation where the plaintiff, who was suing the defendant for damages for breach of an oral contract, was asking for a piece of paper that falsely represented that the defendant owed him $550,000, in order to mislead creditors. Whilst his Honour’s ex tempore judgment is not available, it appears that it was relevant to Hall J that the conversation consisted largely of the plaintiff speaking without interruption and calmly, thus, presumably not entrapped by the principal party. Further, the subject matter recorded was of a serious nature, indicating a preparedness by the plaintiff to resort to unprincipled and dishonest measures: at [167]. 

Lastly, in Nanosecond Corporation Pty Ltd v Glen Carron Pty Ltd (2018) 132 SASR 63; [2018] SASC 116, a truck driver brought proceedings in respect of the withdrawal of trucking work by the defendants, due to allegations that he was a bad driver. The truck driver made a series of recordings of conversations with the defendants and other persons “just to keep a record of who said what” and because, where someone abused the truck driver, he had a record so that nobody could later say that there was no abuse. As he was often driving at the time, it was not practical to take notes. He denied that he was gathering evidence for trial. After a masterful review of the case law, Doyle J observed at [101]:

Drawing all of the above threads together, it remains the case that the concept of “lawful interests” is of uncertain content. While some general propositions hold true, and some guidance may be gained from a consideration of the authorities, the issue of whether a recording was made for the protection of a person’s lawful interests remains one very much anchored in the facts of the particular case. 

In the civil context, his Honour observed that not every commercial or legal interest, or dispute in relation to such an interest, would suffice to establish a lawful interest for the purposes of the legislation. At [105]: However, it would seem that where a dispute has arisen, and has crystallised into a real and identifiable concern about the imminent potential for significant harm to the commercial or legal interests of a person, this may suffice to give rise to lawful interests warranting protection through the use of a listening device… 

Thus, in that case his Honour considered the plaintiffs had a lawful interest in attempting to maintain, and avoid losing, their flow of work from the defendants and understanding and attempting to refute allegations about bad driving which represented a threat to that work. Recordings of such conversations were admissible whilst other recordings were not. 

Summary 

The following considerations may indicate whether recording a private conversation without consent may be “reasonably necessary for the protection of the lawful interests” of the person making the recording. 

Whether the purpose of the conversation was to obtain admissions in support of a legitimate purpose. The contentious subject matter of the conversation, or the characteristics of the person being recorded, may indicate that it was necessary to make the recording in order to secure the admission. Recording a conversation for the purpose of extracting money, inducing further improper conduct or to blackmail the recorded party will indicate to the contrary. 

Whether it was important to protect oneself from being accused of fabricating a conversation and recording the conversation was the only practical means of refuting such an allegation. This is more likely to be the case where the conversation concerns a serious criminal matter or the principal party has a genuine concern for their safety or that of their children. 

Whether there were other practical means of recording the conversation, for example, reporting the matter to police or making a contemporaneous file note. 

Whether there was a serious dispute on foot between the parties, including where determination of the dispute would vitally depend upon oral evidence and thus, one person’s word against another. Recordings of conversations ‘just in case’ there is a dispute, or for the sake of making an accurate record of what was said, is not enough.

Canute

In Atkinson v State Bank of NSW & Anor [2003] NSWSC 675 Master Harrison states

17 As noted, the plaintiff has also pleaded that the Australian Taxation Office is not a validly appointed body. The plaintiff submitted that as the Constitution never received royal assent, Parliament did not have the power to enact the Income Tax Assessment Act 1936 (Cth) or levy any taxes under s 51(ii). 

18 Submissions very similar to this have been made in a number cases recently: see Dooney v Henry (2000) 174 ALR 41; Levick v Law Society of New South Wales [2002] NSWSC 481; Miller v Chapman (2001) 46 ATR 317; Matchett v Deputy Commissioner of Taxation (2000) 158 FLR 171; Joose v Australian Securities and Investment Commission (1988) 73 ALJR 232. These submissions have failed in the above cases. They were viewed as being frivolous and as disclosing no cause of action. 

19 In Joose, for example, Hayne J was called upon to consider the validity and operative effect of the Income Tax Assessment Act and a number of related taxation statutes including the Income Tax Assessment Act 1997. The argument advanced there was that there had been a break in sovereignty in Australia with the consequence that much of the legislation purportedly passed by the Australian Parliament was invalid. This argument depended primarily upon the invalidity or inoperativeness of the Australian Constitution. However, it was also argued that the Royal Assent had not been validly given to the Acts in question. Furthermore, it was submitted that when Australia signed the Treaty of Versailles as a recognised and independent sovereign entity, the Australian Constitution ceased to have effect. His Honour found, at 235, that the points it sought to “agitate” were “not arguable” and also that none of the applicants identified a point having sufficient merit to warrant removal of the cause concerned into the High Court. 

20 Justice Hayne’s comments were cited with approval by O’Keefe J in Matchett. In Matchett it was submitted before Justice O’Keefe, amongst other things, that the Income Tax Assessment Act was invalid as the Australian Constitution, which was the purported source of power, was not valid or operative in 1936 and hence all legislation purportedly passed under it was of no effect. After reviewing the authorities, His Honour said at para 24: “If there is any substance whatsoever in the arguments advanced by Mr Levick, it is inconceivable that the High Court would have overlooked the dramatic consequence that would flow from them being correct.” 

21 The same situation as Joose applies here. There is no utility in removing this matter to the High Court. 

22 Generally speaking, it is long received wisdom in this country that the Commonwealth of Australia Constitution Act (UK) came into force on July 9, 1900: see Booker K, Glass A & Watt R Federal Constitutional Law, Butterworths 1998. The colonies of Australia became federated from the first day in January 1901, the date set by a proclamation issued in accordance with covering clause 3 of the Constitution Act. The Statute of Westminster 1931 (UK) and the subsequent Australia Act 1986 (Cth) removed any fetters that remained upon the Commonwealth to legislate in its own right. Further, under section 2 of the Australia Act the legislative powers of each state include full power to make laws for the peace, order and good government of that State”. 

23 It is interesting to note from the list of authorities handed up by the plaintiff that as long ago as the reign of the Viking King Canute, son of Svein Forkbeard, grandson of Harold Bluetooth and great grandson of Gorm that similar sentiments were being espoused. History records Canute as the unifier of England after his defeat of Edmund Ironside at the battle of Ashingdon and legend has it that, to rebuff the constant flattery of his courtiers, who claimed that nothing in this world would disobey him, he commanded the sea to stop rolling. This of course did not happen and Canute’s courtiers were suitably chastened. This ancient tale, however, while enthralling, is of no relevance in these proceedings, except to say that the plaintiff’s claim in some ways also represents a similar attempt to command the sea to stop rolling.

Passports

In Commonwealth DPP v Riddell [2006] NSWDC 180 the District Court considered questions about statutory interpretation and passports. The judgment states 

 1 Stephen John Riddell (“the appellant”) appeals to the District Court against a finding of guilt made against him in respect of an offence alleged pursuant to s. 9A(1)(f)(ii) Passports Act 1938 (the “Act”). 

2 The offence for which he was convicted alleged that he: “ between 9 November 2001 and 16 November 2001 , at Sydney, did have in his possession or under his control within Australia a document (not being a passport issued by or on behalf of the government of a foreign country) that purported to be a passport issued by or on behalf of the government of a foreign country, in that he did have in his possession or under his control a document titled ‘New Hebrides Passport-Passeport’ …. in the name Stewart James Riddell, date of birth 20 January 1964”. 

3 The proceedings in the Local Court continued between November 2004 and March 2005, however when the matter was concluded in March 2005 the appellant failed to appear and the finding of guilt was made in his absence. He was apparently found guilty of a number of offences. On appeal to the District Court against those convictions, leave was granted to appeal against his conviction on only one of the charges dealt with at the Local Court. The Commonwealth Director of Public Prosecutions (“the respondent”) opposes the appeal and seeks that it be dismissed. 

The Issues 

4 At the hearing of the appeal the appellant did not contest that the evidence established beyond reasonable doubt that the relevant document the subject of the charge (“the passport” issued by “the government of the New Hebrides”) was “in (his) possession or under (his) control”, that the document was in the name of “Stewart James Riddell” and that it described itself as a “Passport” and declared itself to be the “property of New Hebrides” issued by “the competent authorities in New Hebrides …. “. There is no dispute that the photograph contained within the “passport” was that of the appellant and the document had affixed within it various “visa” stamps, which may be evidence that the document had been used as a “Passport”. 

5 It was established from the evidence, that “the government of New Hebrides”, did not exist on the date of issue of the passport (6 September 1997). In fact, as at that date, the former British/French “colony” or “condominium” of “New Hebrides” had already become the Republic of Vanuatu, that the document in the possession of the accused had not been issued by the Republic of Vanuatu and that the document did not belong either to the Republic of Vanuatu or the formerly constituted “condominium” or colony of “New Hebrides”. New Hebrides had been jointly administered by France and Great Britain between 1906 and 1980. 

6 As the appeal was conducted the two critical issues for decision are: i. Properly construed did s.9A(1)(f) (ii) of the Act, extend to prohibit possession of “passports” issued by fictitious governments: ie could such a document “purport” to be issued by the government of a foreign country that did not exist (emphasis added), and if so, ii. if so, was such a provision within the constitutional power of the Commonwealth of Australia to legislate? 

7 The appellant essentially contended that, properly construed, the document must be issued by a real political entity not a fictitious one and that the Commonwealth of Australia had no constitutional power to prohibit possession of documents that on their face could not have been issued by the existing government of a foreign country or one that had never existed. The parties have sent out s.78B Judiciary Act notices but no other parties have intervened. 

The Relevant Legislative Provision. 

8 S.9A(1) Passports Act 1938 provided, as at November 2001; 1) A person who: (a) in connection with travel or identification, uses an Australia passport that has been cancelled; (b) in connection with travel or indemnification, uses an Australia passport that was issued to another person; (c) being a person to whom an Australia passport has been issued, permits another person to use that passport in connection with travel or identification; (d) has in his or her possession or under his or her control an Australia passport that was not issued to him or her; (e) has in his or her possession or under his or her control: (i) an Australian passport that has been falsified; or (ii) a document (not being an Australian passport) that purports to be an Australian passport; (f) has in his or her possession or under his or her control within Australia : (i) a passport issued by or on behalf of the government of a foreign country, being a passport that has been falsified; or (ii) a document (not being a passport issued by or on behalf of the government of a foreign country) that purports to be a passport issued by or on behalf of the government of a foreign country; or (g) intentionally does an act that causes the defacing or destruction of an Australian passport; is guilty of an offence and is punishable, on conviction, by a fine not exceeding $5,000 or imprisonment for a period not exceeding 2 years. ...

10 No issue of “reasonable excuse” as set out in s.9A(2) arose for consideration in this matter. S.9A(1)(f)(ii) is hereafter referred to as “the relevant provision”. 

11 The Act is described in its title as “an Act relating to Passports”. It has extra territorial operation, relating “to acts, matters and things outside Australia” and “to all persons irrespective of their nationality or citizenship”, unless the contrary appears (s.4A). 

12 S.5(4) states that a reference in ss.9A(1)(f) and 9B(b) “to a passport issued by or on behalf of the government of a foreign country shall be read as including a reference to a document of identity issued on behalf of the government of a foreign country for travel purposes …”. 

13 The Act has provisions relating to the issue of “Passports” in Australia and regulation of possession of such “Passports” ss.5, 7, 7A etc, 8, 8A, 9 of the Act. S.9A is entitled: “Offences relating to improper use or possession of passports etc”. S.9A(1)(a) – (e) and (g) create offences relating to the use and abuse of Australian passports. S.9(f) creates offences involving possession of relevant “documents” within Australia issued or purportedly issued by the government of a foreign country. 

14 S.9B of the Act creates offences relating to “Falsifying foreign passports etc”, within Australia. S.9B(a) creates the offence of “falsify(ing) a passport issued by and on behalf of the government of a foreign country”. S.9B(b) creates the offence of, “mak(ing) a document that is fake with intent that the false document may be used, acted on or accepted as if it were a passport issued by or on behalf of the government of a foreign country” (emphasis added). 

15 Ss.9C,10 create further unrelated offences and s.11 is concerned with “Prosecution of Offences”. The remaining provisions in the Act need not be referred to as they appear to have no relevance. The Act was substantially amended by the “Anti-Terrorism Act (No 3) 2004” including a definition for a “foreign passport” as “a passport issued by or on behalf of the government of a foreign country” and a definition for “foreign travel document”. The Act was effectively “split” by repealing ss.9A(1)(f) and 9B, to create offences as to “Australian Passports” (Part 1) and as to “Foreign travel documents” (Part 3 ss.18-22). 

16 In 2005 the Parliament enacted the Australian Passports Act. Reference will be made below to relevant provisions of the Commonwealth Acts Interpretation Act 1901. 

17 Bearing in mind that the document in the possession of the appellant was not issued by the government of a foreign country that existed at the time of issue and was thus a false document, the question that arose was whether it could relevantly “purport to be a passport issued by or on behalf of the government of a foreign country”. The supposed issuing “government” did not exist at the time of the offence and had not existed in the manner represented by the document since 1980, but the document had all the characteristics of a “Passport” with standard “representations” as to identity, purpose and visa stamps, some of which, at least, had hallmarks of fabrication. Evidence was given that the document did not look like one that would have been issued by New Hebrides or Vanuatu. 

The Submissions 

18 The appellant submitted that he should not have been convicted of an offence “as there is no government and no foreign country of New Hebrides” that could have issued the document to him and that therefore there could be no document “purporting” to have be issued by the government of a foreign country, being New Hebrides. The appellant traced the legislative history of the Passports Act, stating that the definition of “passport” under the Act was “a document of identity issued from official sources whether within or outside of Australia and having the characteristics of a passport”. S.9A was inserted by a 1979 amendment, introduced with s.4A, which provided that the Act applied to “acts, matters and things outside of Australia” as well as “all persons irrespective of their nationality or their citizenship”. It was submitted that from it’s enactment the focus of an offence under s.9A(f)(ii) was to find a country that was a country “other than Australia” (emphasis added). 

19 The appellant noted that in 1984, s.5 of the Act was amended to introduce ss(4) which provided that: “a passport issued by or on behalf of the government of a foreign country shall be read as including a reference to a document of identity issued by or on behalf of the government of a foreign country for travel purposes (whether or not also issued for any other purpose)”. 

20 Reference was made to amendments in 2004 and 2005 which repealed s.9A of the 1938 Act, and instituted the Australian Passports Act 2005, particularly s.20 of the new Act as earlier outlined. 

21 The appellant submits principally, and repeatedly, that the literal construction of s.9A(1)(f)(ii) involves construing the provision to include a document not actually issued by a foreign country but that purports or represents to have been issued by the government of a foreign country (emphasis added), that is “an identifiable foreign country from which the document purports to have been issued”. Relying upon the Macquarie Dictionary definition of the word “purport” it is submitted that the document must “profess, claim or convey” the meaning of being a document issued by the government of a foreign country that is an identifiable country, that is a “real”, not “a fictitious”, country. 

22 The appellant seeks to draw comfort from the wording of s.20(4) of the subsequently enacted Australian Passports Act 2005, with its specific reference to an identifiable country. Each provision it is submitted has “the intent” that there is “a possibility of a government having issued the document”, because “an element of the offence is that the particular government has not issued the document”. It is submitted that the relevant provision, like the provision in the 2005 Act, made it clear that the intention was to make it improper to possess a document that could be taken to have been issued by a foreign government (emphasis added). 

23 The appellant argues that as the document has no origin from, or connection to, a particular (ie. a real) government of a foreign country, it did not fall within the ambit of s.9A of the 1938 Act. It is submitted that the “definite articles” used twice in the relevant provision require that there be as a matter of objective fact an existing government of an existing foreign country capable of having issued the document. Construction of the provision in the context of the legislative history does not lend its support to the contention that the legislative intent was not to preclude possession of documents issued by fictitious countries but to prohibit possession of documents that appeared as if they were issued by a particular foreign country. 

24 The respondent to the appeal in summary submits on this issue that the evidence establishes that the document found in the appellant’s possession “was not a passport issued by or on behalf of the government of a foreign country”. It is submitted that the “first limb” of the relevant provision is thus satisfied. The respondent states that, the “second limb” is also satisfied in that the document “purports to be a passport issued by or on behalf of the government of a foreign country”, primarily because of the characteristics of the document. 

25 The issue of fact clearly established from the evidence, it is submitted by the respondent, was that the document “purported to be” a document issued by or on behalf of the “government of New Hebrides”. The issue of whether the document was “fake” and “noticeably so” is not to point. Further, it is submitted by the respondent that the appellant seeks to read further words into the relevant provision ie that the document has to “look like” or could “possibly” have been issued by the government of a foreign country”. This construction is not in accordance with the words of the section. The relevant provision is concerned with two alternatives, a document that is issued by the government of a foreign country and one that is not, but is purportedly so. It is not a matter concluded by expert opinion. It is sufficient for the tribunal of fact to be satisfied that the document “purports to be” issued by a foreign government. 

26 In construing the provision in its legislative context it is noted by the respondent that s.9A(1)(f) is the only provision, within the section, that deals with passports (or documents) in connection with “foreign countries”. A reference to “foreign country” it is submitted should be taken to mean any country (whether or not an independent sovereign state) outside Australia and the external territories” (s.22(1) Acts Interpretation Act 1901 (Cth)). Further, in the legislative context s.9A(1)(f)(i), it is submitted “essentially”, deals with the subject of falsified or official passports that have been tampered with or forged. This separate sub provision is significant given the way the appellant puts his case. 

27 It is submitted by the respondent that the Court is required to give a “purposive approach” to the construction of the relevant provision (see s.15AA Acts Interpretation Act 1901 (Cth)). To ascertain the mischief that the provision was intended to cured it is submitted “it is legitimate to have recourse to extrinsic materials” and that it is submitted that rather than prefer the “literal meaning” of the words, giving rise to “inconvenience or improbability of result”, the Court should prefer an “alternative” construction that more closely conforms to legislative intent (Cooper Brookes (Wollongong) Pty Ltd v Federal Commission of Taxation (1981) 147 CLR 297 at 320-321). It is submitted that this is the “golden rule” of statutory construction which makes no distinction between penal and non penal statutes. As I understood the submissions of the respondent it was conceded that the supposed “literal”, or as the respondent calls it, the “narrow”, interpretation may accord the provision the meaning the appellant contends. 

28 It is submitted that the relevant provision applies to documents that are “fabricated”, relying upon the second reading speech of the Minister who introduced the provision (Mr Peacock in the House of Representatives) and his representative in the Senate (Senator Carrick). The provision was described when the Bill was introduced as being one “ushering in” offences relating to “the improper use or possession of an Australian passport, forgery and fabrication of passports and the wrongful use of passports” (eg. Senator Carrick – Hansard p1219 – 3 April 1979). 

29 The respondent submits that a fabrication is established when the item is “made” and “it purports to be that which it is not”. It is submitted that a document issued officially by a foreign government, but which is in some way altered or tampered with, so as to make it look like an official document, would be a forgery that may fall within the ambit of the relevant provision but more naturally would fall within s.9A(f)(i). It is submitted that the making of a document that simply “purports to be a passport” officially issued by a foreign government, enlivens the provision and no legislative purpose is served by a “narrow” or “literal” construction. 

30 Further, it is submitted that the relevant provision is “a possession offence” and does not require proof of intent. The respondent referred repeatedly to s.9B(1)(f) (sic - I take this to be a reference to s.9B(b)), which is concerned with the “making of a document with intent to use it”, as relevant to the construction of the relevant provision (Project Blue Sky v Australian Broadcasting Authority (1998) 194 CLR 355 (at 381-382)). 

31 S.9B(b) as earlier noted relevantly provides: “A person who within Australia makes a document that is false with intent that the false document may be used, acted on or accepted as if it were a passport issued by or on behalf of the government of a foreign country other than Australia is guilty of an office” (emphasis added) . 

32 It is submitted that it is a provision that “naturally complements” the relevant provision, that it more “explicitly embraces the concept of fabrication”. It is submitted that it would be odd if s.9B(b) extended to proscribe fabrications, yet the relevant provision did not also so extend to fabrications. It is submitted that the words “false” and “as it were”, really mean the same thing as “purports to be”, importing a comparison between a document that has, as a matter of fact, been properly and officially issued by a foreign government and a document that has been made (ie a fabrication) which conveys or represents that fact, but which has not been officially issued by a foreign government. Further, the operation of s.9B(b), requires no necessity by the person who makes the document, to have knowledge as to whether the document might represent a “true document” properly issued by the government of a foreign country. The person’s purpose is simply to create a document that will carry with it the false representation that the document carries the imprimatur of the government of a foreign country. It does not matter if the country exists or not. 

33 It is submitted by the respondent that there is “no justification to construe the relevant section in an inconsistent manner”. Neither the relevant provision nor s.9B(b) depends upon a requirement that the foreign country actually exists at the relevant time. It is submitted that the literal construction advanced by the appellant requires a “temporal requirement”, which would produce “an inconvenient or improbable result” ie the offence would not be committed before the creation of Vanuatu, but not so afterwards. It is submitted by the respondent that the literal construction requires the existence of a government of a foreign country, at the time of the possession of the document, whereas there is no time requirement in the provision. 

34 Further, it is submitted that the defence of reasonable excuse, prevented an injustice arising out of a construction other than a “literal” construction ie a person who has a hobby of possessing or making “replicas” of passports or “fictional” passports. 

35 Finally, the respondent submits there is no ambiguity in the provision, however, even if there was, that it should be resolved in favour of the appellant represents “an outdated view of statutory construction”. The Court should give primacy to s.15AA Acts Interpretation Act 1901 so as to construe penal legislation purposefully (Beckwith v The Queen (1976) 135 CLR 569, at 576, R v Lavender (2005) 79 ALJR 1337, at 1354, Stevens v Kabushiki Kaisha Sony (2005) 79 ALJR 1850, at 188). Only in “true ambiguity or doubt” should the provision be construed favourably. R v Bailey [2003] NSWCCA 361, should not be taken as holding to the contrary. 

36 The appellant in response to the Crown’s submission, reiterates previous submissions regarding the obvious fabrication the document represents and the need for the relevant passport under the relevant provision to be a document to be issued by a real government. It is submitted that the Crown’s reliance on s.22(1) Acts Interpretation Act 1901 is “misplaced” as the relevant provision speaks for itself, needs no assistance from the Interpretation Act. It is submitted that the Australian Passports Act (2005), demonstrates the regulation of foreign passports is an express use of the external affairs power and that s.20 of the new Act illuminates and informs a construction of the relevant provision as contended by the appellant. He contends also there is a legislative policy served by a “narrow construction”, that is to prevent potential liability to criminal sanctions upon possession of a “commercial gimmick which takes the form of a fabricated passport”. The true legislative policy should be identified as, “a concern” that a document that is “dressed up” in the colours of a presently constituted and identifiable “government of a foreign country” represents a threat that should be regulated. However there must be exceptions, including, for example, a traveller outside a nation who became that victim of “regime change”. A previously issued passport may no longer be valid but it would not be relevantly a “fabrication”. Further, if it is found that the relevant provision requires the Crown to establish not only that the document purport to be a passport, but also that the passport has a connection with the government of a foreign country, the “purposive” interpretation intended for by the Crown should be rejected. It is submitted that there is “no temporal” requirement in the section, the requirement is rather that the Crown identify which foreign country has purportedly issued the passport. 

Constitutional Implications 

37 In addition to the central proposition that the relevant provision was concerned with the alteration to passports issued by a particular foreign country, the appellant submits that constitutional considerations make it clear that the legislative intent was to prevent the possession of a document having a connection to, or origin from, an existing (at some time) foreign government. 

38 The appellant cites observations in R v Sharkey (1949) 79 CLR 121 as authority for the proposition that the Commonwealth Parliament had no power to “preserve peace, order and good government by the enactment of criminal law”. Citing Bank of New South Wales v Commonwealth Bank (1948) 76 CLR 1, it is submitted that the determination of the validity of the law, requires construing the law and determining it’s operation and effect and then to determine the relationship that the Act has to a subject matter in respect of which it is contended that the Commonwealth had power to make laws (at 186, per Latham CJ). 

39 The appellant argues that the “literal” construction it contends applies makes it clear that s.9A(1)(f)(ii) of the Act is concerned with documents that “look like or impersonate” those issued by a “particular foreign government”. Insofar as the provision regulates “documents that are not referrable to Australia”, particularly “documents that “look like” they had been issued by “the government of a foreign country” then the intended source of “power” is the “external affairs power”. 

40 It is submitted that this being so, bearing in mind that the ‘external affairs’ power can only be utilised to make laws with respect to; i. matters of international law, ii. matters external to Australia and iii. Australia’s relations to and with other countries, (citing Blackshield & Williams “Australian Constitutional Law and Theory (2nd Ed)” Federation Press (1998) at 676-681). 

41 None of these aspects of “external affairs power” arise if the provision is one that arises from the construction contended by the respondent. 

42 It is also submitted that the “law of passports” is a matter of “municipal” regulation, that the issue of a document that has not been issued by the government of a foreign country raises no matter “physically external” to Australia. Nor are there any characteristics of the appellant or the document itself that suggest that in a “geographical” sense the document has a connection to a place external to Australia and, as the document does not relevantly “look like” a document issued by a “particular foreign government” (contending that New Hebrides has never had the status of a “foreign country”, nor did it relevantly exist at the time of the issue of the passport), there was no issue that arose in relation to the regulation of Australia’s relationships with other nations. 

43 The appellant submits that as it is for Crown to demonstrate there is a sufficient application of Federal law to the Defendant, the Federal law may not apply in a particular circumstance if the essential factual or other criteria necessary for the law to operate under the Constitution is unfulfilled (citing Street v Queensland Bar Association (1989) 168 CLR 461: Bond v The Queen (2000) 74 ALJR 597). 

44 Thus, if the law appears unconstitutional, the operation of s.15A Acts Interpretation Act 1901 (Cth) will be relevant to ascertain if the legislation can be read down so that the potential invalidity does not arise. In this matter there is “no external affair” to establish a connection between the alleged offence and the external affairs power. So far as s.15A Acts Interpretation Act 1901 (Cth), is concerned it is submitted this would operate to construe the validity of the legislation only if the “passport” came from a presently existing foreign country from which the document purported to have been issued. 

45 With regard to any incidental power to legislate, the appellant submits that it arises in two situations, either attached to the grant of power itself to make it “effective” and that expressly granted in s.51(xxxix) Constitution Act (which grants power to make laws for the peace, order and good government of the Commonwealth with respect to matters incidental to any power vested by the Commonwealth in the Parliament). 

46 It is submitted that the latter provision is of no assistance to the Crown because the legislative power incidental to the execution of executive power does not extend to the creation of the offences except where it is needed to protect the efficacy of the execution by the Executive Government of it’s powers and capacity (Davis v Commonwealth (1988) 166 CLR 79 (at 113 per Brennan J). 

47 Neither is there an incidental power, to make the grant of power effective, because of the “careful drafting” of the relevant provision, where the focus is “clearly upon recognition of documents that look like those issued by the government of a foreign country” (emphasis added). It is submitted that the purpose of the provision is to “harmonise” relations between Australia and “foreign countries” and that it serves no part of this purpose, even incidentally, for this provision to extend to prohibition against documents that look like those issued by non existent countries. 

48 The respondent, in response submits that at the time of the enactment of the legislation there was a “country” called New Hebrides, that is “(a) territory of …. a nation or state”, (Black’s Law Dictionary (8th Ed)), and was to be regarded as a “foreign country”, for the purposes of the interpretation of the relevant provision, applying s.22 Acts Interpretation Act 1901. In that provision “foreign country” is defined as “any country (whether or not an independent sovereign state) outside Australia and the external territories”. 

49 The Commonwealth submits that adopting the categories of circumstances relevant to the external power, the relevant provision “is a law with respect to matter external to Australia and Australia’s relations with foreign countries”. The external affairs power extends to “a place, person, matter or thing” outside the geographical limits of Australia then it is external to it and falls within the meaning of the phrase “external affairs” (Polyukovich v The Commonwealth (1991) 172 CLR 501- at 632, per Dawson J). The circumstances in which Australia or “foreign governments” authorise citizens to leave and re-enter respective territories was a matter concerning Australia’s relationships with foreign countries and the efficacy of the system of regulating passports is integral to Australia’s relations to other countries, “since the presence in this country of fabricated foreign passports will tend to undermine Australia’s ability to rely in, or place trust upon, foreign passports generally.” 

50 The second reading speeches, cited by the respondent, reinforced the notion that the general subject of passport regulation at the time the relevant provision was enacted, was not motivated by domestic concerns but rather with Australia’s relationships with and obligations to foreign countries.   

51 The respondent submits that if the relevant provision was concerned with persons, arriving in Australia with forged or tampered official government passports, then in 1979 when the provision was passed, Australia would have been concerned to ensure that citizens of the “country” known as “New Hebrides” did not enter or cross Australia’s aerial space without the official sanction of “the government of New Hebrides” and that that foreign country would be interested or concerned in an Australian resident having a document in his possession that would enable him to pass himself off as a resident of that foreign country or at least having the authority to leave and re enter that foreign country. 

52 The Crown contends that the provision is not merely limited to forgeries of officially issued passports, but “ fabrications”, where a document is created to represent that it has the sanction of a foreign country to leave and re enter that country. That the territory known as “New Hebrides” had changed it’s name and it’s political structure did not detract from the fact that this territory, with altered name and political structure, remains external to Australia. Alternatively, even if the relationship between Australia and New Hebrides was really concerned with Australia’s relationship with United Kingdom and/or France, the joint administrators of “New Hebrides”, that did not detract from, but rendered, a fortiori, the notion that there is an external affair. 

53 Further, it is also to be inferred that the current Vanuatuan government, should have an interest in, and concern with, documents purportedly issued by “the government” in its former name. The governing body of a foreign country, however that is named and whatever political structure may prevail from time to time, has an actual or potential interest or concern in Australian residents having documents that purportedly (but contrary to the fact) represent the holder of the document has the licence or the authority to travel out of that country when that licence or authority has not been given. It is submitted that the right to travel, leave and re-enter a country, is commonly considered as an incident of sovereignty and the Vanuatuan Government’s, actual or potential interest or concern in an Australian resident having in his possession a document purporting to be a New Hebrides passport is not likely to have ceased from the onset of independence. It makes no difference whether the passport was in the appellant’s possession in November 2001 (as was the case here) rather than the day after independence occurred, and the political system and name of the relevant territory changed. 

54 Additionally, the respondent submits that the provision was a valid exercise of the Parliament’s power in that the Parliament had legislative authority to pass laws in relation to “acts, matters and things the control of which was necessary to effectuate it’s main purpose” (Grannall v Marrickville Margarine Pty Ltd (1955) 93 CLR 55 at 77). At the very least the provision should be construed as incidental to the external affairs power. There is at least an incidental power in regulating Australia’s relations with foreign countries to prohibit persons fabricating documents that purport to be passports issued by countries that previously went by another name. Further and alternatively, prohibiting persons from having in their possession “fake” foreign passports is said to be incident to the “immigration and/or aliens powers regulating the movement of non citizens into Australia and citizens out of Australia (Cuncliffe v The Commonwealth (1994) 182 CLR 272 - at 294-5, 315-26, 373-4 and 394-5). 

55 In response it is submitted by the appellant that in effect the concern of the Commonwealth government with foreign passports is limited to their recognition. However, the issue of who should be eligible for passports and the type of passport that should be issued was a “municipal concern”, and thus fell outside the ambit of any “external affair”. It is submitted “there is no external affair (and no offence) where there is no foreign nation to be recognised”. Further, it is not an expression of “nationhood” for Australia to recognise foreign documents. ...

Statutory Construction 

56 The provision to be construed is a penal provision. In R v Adams (1935) 53 CLR 563 at 567-8, the High Court said: “No doubt, in determining whether an offence has been created or enlarged, the Court must be guided, as in other questions of interpretation, by the fair meaning of the language of the enactment, but when that language is capable of more than one meaning, or is vague or cloudy so that it’s denotation is uncertain and no more conclusion can be reached by consideration of the provisions and the subject matter of the legislation, then it ought no to be construed as extending any penal category”. 

57 This view was recently approved in R v Bailey [2003] NSWCCA 361 at [24]. Although the relevant legislation to be construed in Bailey was not a penal statute, the ‘criminal’ law was required to enforce the legislation and thus considerations such as those in Adams were “unavoidable” [27]. 

58 In Beckwith v The Queen (1976) 12 ALR 333, Justice Gibbs (at 339) observed: “The rule formerly accepted, that statutes creating offences are to be strictly construed, has lost much of its importance in modern times. In determining the meaning of the penal statute the ordinary rules of construction must be applied, but if the language of the statute remains ambiguous or doubtful the ambiguity or doubt may be resolved in favour of the subject by refusing to extend the category of criminal offences.” 

59 In Murphy v Farmer (1988) 165 CLR 19, at 28-29, the majority favoured the strict interpretation of the provision considered, “in favour of the subject”. In that judgment the majority approved the view, “that those who contend that [a] penalty may be inflicted must shew (sic) that the words of the Act distinctly enact that it should be incurred under the present circumstances. They must fail, if the words are merely equally capable of a construction that would, and one that would not, inflict the penalty” (at 29). 

60 These observations are however subject to more fundamental principles of statutory interpretation. 61 S.15AA of the Acts Interpretation Act 1901, provides: “In the interpretation of a provision of an Act, a construction that would promote the purpose or object underlying the Act (whether that purpose or object is expressly stated in the Act or not) shall be preferable to a construction that would not promote that purpose or object.” 

62 S.15AB of this Act provides that in the interpretation of a provision of an Act, regard may be had to extrinsic material, either to confirm that the meaning of the provision is the ordinary meaning, taking into account it’s context and the Act and the purpose or object underlying the Act or to determine the meaning of the provision when the provision is ambiguous or obscure or the ordinary meaning may lead to a result which is “manifestly absurd or is unreasonable”. In determining whether consideration should be given to such material, regard is to be had to the desirability to persons being able to rely upon the ordinary meaning conveyed by the test to the provision, taking into account it’s context and the Act and its purpose or object and the need to avoid prolonging legal or other proceedings without compensating advantage. 

63 In Lavender v The Queen (2005) 79 ALJR 1337, Kirby J (at 1355) observed that ‘strict’ interpretation was a rule of ‘last resort’, coming into operation when normal rules had ‘runout’, after firstly giving effect to the purpose of the legislation as expressed in the language of the legislation (at [93][94]). The authors of Pearce observe courts should not “depart from a strict application of the words of a penal provision” and courts should not extend a statute to cover a particular situation merely because it appears that the legislature has acted inadvertently (Pearce and Geddes “Statutory Interpretation in Australia” (5th Ed 2001)). 

64 Justice McHugh in Krakouer v The Queen (1998) 155 ALR 586 (at 600) further said: “Still less should a Court ignore the clear words of a provision so as to give it a meaning that would or might make it easier to convict an accused person if the intention of the legislature is at best a matter of contestable opinion”. 

65 These views, if they differ, are still subject to the “cardinal rule” of statutory interpretation that requires that the words of a statute be read in their proper context (Cooper Brooks (Wollongong) Pty Ltd v Federal Commission of Taxation (1981) 147 CLR 297 at 302,319-320: K & S Lake City Freighters Pty Ltd v Gordon and Gotch Limited (1985) 157 CLR 309 at 315) and “to construe the relevant provision so that it is consistent with the language and purpose of ... the provisions of the statute” (Project Blue Sky v Australian Broadcasting Authority at 381) which are applicable here. 

66 Where the words or phrases in an Act are clear in their meaning they must be interpreted literally, unless “it would lead to some absurdity, or some repugnance or inconstancy with the rest (of the legislation), (Australian Boot Trade Employees Federation v Whybrow & Co (1910) 11 CLR 311 at 341). Courts may also take into account the consequences of competing interpretations so as to choose a reasonable rather than an “absurd” construction of the legislation (Bistricic v Rokov (1976) 11 ALR 129 – at 136 per Jacobs J.) 67 In Saraswati v The Queen (1991) 172 CLR 1, McHugh J (at 21) observed “In many cases, the grammatical or literal meaning of a statutory meaning will give effect to the purpose of the legislation. Consequently, it will constitute the “ordinary meaning” to be applied. If, the however, the literal or grammatical meaning of a provision does not give effect to that purpose, that meaning cannot be regarded as “the ordinary meaning” and cannot prevail. It must give way to a construction which will promote the underlying purpose of object of the Act. … More over once a Court concludes that the literal or grammatical meaning of the provision does not conform to the legislative purposes ascertained from the statute as a whole including the policy which might be discerned from its provisions, it is entitled to give effect to that purpose by addition to, omission from or clarification of the particular provision …. “ “But where the text of a legislative provision is grammatically capable of only one meaning and neither the context nor any purpose of the Act throws any real doubt on that meaning, the grammatical meaning is “the ordinary meaning” to be applied. A Court cannot depart from the “ordinary meaning” of a legislative provision simply because that meaning produces anomalies” (at 22-23) . 

68 It is open to construe the relevant provision on one view as establishing that the document in the possession of the appellant, or under his control, was relevantly a document which was not a passport issued by or on behalf of the government of a foreign country (because that “country” did not relevantly exist at the time of the offence or on the purported date of issue of the document), but was a document “that purports to be a passport issued by the government of a foreign country”. “Purports” I take to mean “professes, conveys or claims”, in other words, represents or holds itself out to be “a passport issued by the government of a foreign country”. 

69 Here the document held itself out to be a passport from the “country” known as “New Hebrides” with the identity of a real person in it (the appellant) and with various features consistent with a passport. I agree with the Crown’s submission that it was beside the point that an expert readily identified the document as a “fake”, not representing an official document of either “Vanuatu” or “New Hebrides”. That it was readily identifiable by that “expert” as such a document did not as such prevent the document “purporting” to be “a passport issued by or on behalf of the government of a foreign country”. The quality of the fabrication per se is also beside the point. The issue was what the document professed or claimed itself to be. 

70 “New Hebrides” had been up until 1980, subsequent to the creation of s.9A of the Act, a real place. It was relevantly a real “foreign country”, being a recognised discreet “territorial entity” (Oxford Dictionary) although not an “independent sovereign state” (s.22 Acts Interpretation Act 1901) I understood the evidence of Mr Longwah to be that the condominium had a “government”, ie. a form of system of rule, or an administering body that issued passports. That it did not exist as at 1997, the supposed date of issue, or in November 2001, the date of possession, may however not be determinative as to whether the document conveyed or claimed to be a passport of the government of a foreign country. 

71 The document had all the extrinsic features of an official government document and particularly a passport. It described itself to be a “Passport”. It stated “The President of New Hebrides requests and requires in the Name of the government of New Hebrides ….etc” (sic). The “Notes” of the ‘Passport’ state (at 2.) “New Hebrides passports are issued by the competent Authorities in New Hebrides”. 

72 That an expert from the Government of Vanuatu could identify it as a “fabrication”, did not mean that a person exercising official government functions relating to the use of passports in Australia or elsewhere would do so. As it was the document tendered at the hearing had other indicia of use as a travel document or a document of identity. For example there was a departure stamp from “British Guiana (sic) 18 October 1998”, and stamps for other locations including Noumea and elsewhere. Interestingly, there were arrival and departure stamps at “Port Villa” …. “New Hebrides (sic)” on dates when “New Hebrides” did not exist. Even assuming these latter entry and exit stamps were “fabrications”, they lend support for the proposition that the relevant document had the character of a “Passport”, relevantly issued by “the government of New Hebrides”. The issue is, whether this is the government of a foreign country for the purposes of the Section. 

73 One legislative context of the relevant provision is said to support the construction contended by the respondent. 9A(1)(f)(i) is a provision concerned with a real “passport” issued by or on behalf of the government of a foreign country that is “falsified”. The appellant’s ‘literal’ interpretation of the relevant provision may leave no “work (for the relevant provision) to do” for it given the terms of s.9A(1)(f)(i) depending upon the meaning of falsified. However, the ‘relevant provision’ is concerned in its terms with a different situation, that is a “document” (not a “passport”) that “purports (claims, conveys, professes) to be “a passport” issued on behalf of “the government of a foreign country”. That, in its normal meaning, without ambiguity, suggests “fabrications” of passports and their source as opposed to “real” passports that are falsified. Whether as to the appearance of the document or the authenticity of its issue. 

74 The Crown’s contention essentially is that it does not matter that the purported “government of a country” exists or not, it is the “purport” of the document that is the critical feature of the offence not whether the purport of the document is based on the existence of the particular government at the time of possession or even on the date of issue. The problem with this contention is that the provision would only have this meaning unambiguously if the word “passport” appearing for the second time in the provision was considered in isolation, without regard to the qualifying words or, if the qualifying words were not present in the provision, which cannot be done and which they are not. 

75 It should be pointed out that notwithstanding use of the definite article in the last phrase it does not necessarily mean literally that the relevant “government” actually exists. It may mean that it “purports” to be issued by a government, real or not. The two situations, ie “purported” issue by a real, or a fictitious, government of a foreign country may be covered by the provision. Thus can be seen some ambiguity giving the words “the government of a foreign country” their ordinary or literal meaning in isolation. 

76 Although the respondent’s construction is said to be supported by the legislative context of its relationship to s.9B Passports Act, as discussed in the Crown’s submissions, this example begs the ultimate question. There is no anomaly if the relevant phrase, “the government of a foreign country”, in ss.9A(1)(f)(ii) and 9B(b) are given the same meaning. Although nothing in s.5(4) of the Act, in my view, contradicts the construction contended by the respondent, in reality that definition or interpretation is a neutral matter in the debate. It is concerned with the definition of “passport” not the issue of whether is the relevant “government etc” is real of fictional. The explanatory note to the Bill and the terms of the Second reading speech at the time of the introduction of the provision support either construction contended. They certainly do not resolve any ambiguity. The reference to Clause 12 (now s.9A) in the speech is itself ambiguous in meaning. The reference to “fabrications” in context may be either a reference to the fabrication of “passports” supposedly issued by real countries or to ‘fabrications’ of documents merely to look like “Passports”. In Brear v James Hardie (2000) 50 NSWLR 388 (at 397) Mason P. noted the ‘restraint’ required in construing on enactment as regards the intended effect of it in light of a Minister’s speech. Subsequent legislation does not in my view inform the construction of the provision. 

77 As to any purposive construction, clearly the provisions are designed to prevent access to the possession of forged, altered or fabricated documents being passed off as ‘real’ passports. The fact that a “country” is identified in a relevant document by a name, formerly used for a real “country”, nation or territory, may lend aid to the assertion that the “document” in question ”purports” to be a passport issued by the government of a foreign country, but that matter is an issue of fact to be resolved on the evidence. ... 

 84 Thus the provision seen in context, endeavouring to give relevant words their literal or normal meaning, with no patently absurd consequence, may have two competing meanings creating doubt or ambiguity. This brings the matter back to the observations in Beckwith, Murphy v Farmer and elsewhere, that when the meaning of the penal statute, when subjected to the ordinary rules of construction, remains doubtful or ambiguous, the ambiguity or doubt may be resolved in favour of the subject, by refusing to extend the category of criminal offences. This is such a situation given the competing issues raised. On balance, considering the normal meaning of the words in context the position is either evenly balanced (as discussed in Murphy) or slightly in favour of the appellant’s contention as to the meaning of the provision particularly when seen in context. Notwithstanding the hallmarks of a “passport” represented in the document, the document did not relevantly purport to be a passport issued by the government of a foreign country. 

Constitutional Implications 

85 Having regard to the above conclusions there is no need to fully consider the constitutional issue, except to point out that on the appellants contention, neither construction submitted had constitutional authority for the Parliament to legislate. I will shortly deal with the issue as it is clear that neither contention was within the authority of the Commonwealth Parliament to legislate.... 

 101 As to the issue of whether the regulation of passports is a matter of “municipal concern”, or of “municipal law”, I am not satisfied on the basis of the Melbourne University Law Review article to which I was referred, “The Evolution of Australian Passport Law”, that the circumstances attaching to the prohibition upon the possession of fabricated passports, or documents purporting to be passports, is outside the scope of “external affairs power” simply because the author “suggests” that the prescribing of the kind of identity documents, which the Commonwealth requires the traveller to have in his possession, is solely a matter of “municipal law” and thus falls outside the scope of the external affairs power. 

102 This proposition is based upon the statement that a passport “is a document of identity, which a state may require alien travellers within its territories to have in their possession”. This is not the sole purpose of a passport and in any event the Commonwealth’s interest in purported passports issued outside the Commonwealth of Australia is not limited to matters of identity per se, but includes an interest preventing the use of fabricated documents to aid the commission of transnational crime or risks to the security of the Commonwealth of Australia and foreign countries by assisting movement between countries. 

103 There is no suggestion in the appellant’s submissions that the Commonwealth does not have power to make laws as to the regulation of passports in the various ways contemplated in other provisions of the Passports Act 1938 or particularly passports not issued in Australia. The terms of s.4A are not claimed to be “ultra vires”. The scope of the legislation is made clear by the operation of s.4A of the Act. There can be no doubt in my view that the Commonwealth has power to regulate and prohibit the use and possession of documents which “purport” to be passports, whether the government on the document exists or not as a fact. It is the “purport” of the document as “a passport” which the law regulates and prohibits. The origins of the document, its actual appearance and the particulars of the document (so long as the document holds itself out to be a passport) are irrelevant to the issue as to whether the relevant legislative provision has been passed without power. 

104 In any event, there is an express incidental power (s51 (xxxix) of the Constitution Act) and an implied incidental power arising under each head of power in s.51 of the Constitution Act. ... The power to make laws relating to the prohibition of the possession, or use, of documents purporting to be passports, however fabricated for that purpose, can be clearly seen, at least, as, incidental to the external affairs power. Here any incidental power that arises is that needed to protect the efficacy of the execution by the Executive Government of its powers and capacities, including the exercise of the external affairs power to regulate and protect Australia’s borders and security.