When should an appellate court disbelieve witnesses it never saw?

No practitioner should be surprised by the outcome of these facts. But the case raises a question that extends well beyond Mr Cheung: when the trial judge finds a witness compelling, what weight should an appellate court give that finding - and what does it mean for the onus of proof in default assessment cases?

The demeanour problem

The primary judge described Mrs Leong as “a most impressive witness” and accepted her evidence “without reservation” (at [30]). He found Mr Cheung to be “an honest witness” (at [31]). Andrew Leong's denial that Mr Cheung had any ownership interest was described as a 'dramatic moment in the trial' delivered with 'absolute and transparent honesty' (at [34]).

The Full Court found that these impressions were formed on outward demeanour alone, without confronting the documentary record that contradicted the witnesses at almost every turn (at [46]). The primary judge’s reasons contained no analysis of the prior inconsistent statements, no attempt to reconcile the visa applications, the ATO interview, the business website, the credit card application, or the unexplained corporate structure with the testimony he accepted.

This is not a novel complaint. The High Court in Fox v Percy (2003) 214 CLR 118 observed that courts have been encouraged to limit their reliance on demeanour and to reason, as far as possible, on the basis of contemporary materials and objectively established facts. The Full Court in Cheung found that the primary judge's failure to do so constituted a 'misuse of the advantage' of the trial judge within the meaning of Devries v Australian National Railways Commission (1993) 177 CLR 472, and that his conclusions were in any event 'glaringly improbable' (at [49]).

The question for practitioners is whether the law has now reached a point where demeanour evidence, standing alone, can never overcome a hostile documentary record. Cheung suggests the answer is close to yes.

One judge or three?

It is tempting to frame Cheung as part of a pattern of Logan J revenue decisions being reversed on appeal. But that framing obscures the real issue.

In Commissioner of Taxation v Hicks [2025] FCAFC 171 the Full Court upheld a Logan J decision in a complex Part IVA and section 45B matter. The same judge, a different outcome. The difference is not the judge. It is the evidence.

Where the documentary record overwhelmingly contradicts the oral testimony, the appellate court has both the obligation and the materials to intervene. Where the evidence is evenly balanced or genuinely ambiguous, the trial judge retains the advantage. Cheung fell squarely in the first category. What makes the case striking is not that the Full Court reversed - it is that the primary judge accepted the narrative at all.

The onus question

Section 14ZZO(b) of the Taxation Administration Act 1953 (Cth) places the burden of proof on the taxpayer to show that the assessment is excessive and what it should have been. In Cheung, the Full Court emphasised that the Commissioner bore no obligation to prove any fact underpinning the default assessments (at [25]). The taxpayer’s task was to present a case that was “coherent, consistent, corroborated and complete” (at [169]).

That is a demanding standard. But it is not an unfair one in the context of this case. Mr Cheung filed no tax returns for 11 years. The default assessments existed because the Commissioner had no other basis on which to assess him. The onus provisions exist precisely for this situation - they require the taxpayer to explain what happened, because no one else can.

The harder question is whether the standard is realistic for taxpayers whose affairs are less egregious than Mr Cheung’s. Cheung does not answer that question, but it sharpens it. A taxpayer who presents oral evidence that is genuinely credible and supported by some documentary material may still fail if the remaining record is hostile. In a system where the Commissioner need not prove anything, the documentary record is not just evidence - it is the battlefield.

What practitioners should take from this

First, prior representations to third parties are potent evidence. Visa applications, citizenship forms, credit card applications, and business websites were all made when no one was thinking about litigation. They speak to the taxpayer's status at the time they were made, and the Full Court treated them as reliable evidence of his circumstances.

Second, a compelling witness is not a substitute for a coherent evidentiary case. Where the documents contradict the testimony, the practitioner must confront those documents in evidence-in-chief, not leave them to be “overwhelmed” by assertion. The submission that the website evidence was “simply overwhelmed by probative evidence to the contrary” (at [89]) did not survive scrutiny.

Third, regularity of payments matters. Monthly deposits increasing over a decade look like income. As the Full Court noted, periodicity is a “hallmark” of income: Federal Commissioner of Taxation v Myer Emporium Ltd (1987) 163 CLR 199.

Conclusion

Cheung is an easy case on its facts. The proposition that the payments were gifts unconnected with Mr Cheung’s contribution to the business was, as the Full Court found, “inherently improbable” (at [165]). The more difficult question is what the decision means for the next case - one where the facts are closer to the line, the documentary record is less damning, and the trial judge’s impression of the witnesses carries greater weight.

Arda Ahmed is a specialist tax lawyer and principal of Norton & Quay Tax Law. This commentary in this opinion piece constitutes general information only, and is not legal or tax advice.