When Formal Control Isn’t Real Control: Lessons from Bywater for Modern Clients
Home › Case Studies › Case Law Library › Commercial & Business Cases › Tax Law › Bywater Investments Ltd v Commissioner of Taxation; Hua Wang Bank Berhad v Commissioner of Taxation [2016] HCA 45
Published: 18 November 2025 | Reviewed: 18 November 2025
(3-minute read)
Case Summary - What Happened
In Bywater (2016) the High Court examined a simple but powerful question: who is actually making the decisions?
Four companies claimed to be managed overseas, with overseas directors, overseas minutes, and carefully staged international paperwork. But the Court found that these structures were a façade. The directors abroad merely followed instructions given by an Australian resident, Mr Vanda Gould, who made every substantive decision.
The Court held that:
The directors “never did more than mechanically carry out Gould’s directions,” so central management and control was in Sydney, not overseas.
Because real decision-making occurred in Australia, the companies were Australian tax residents regardless of where their boards met or where they were incorporated. Control, the Court said, is a question of substance, not appearance.
Why It Still Matters
The case is about tax law, but its lesson is wider: power follows the person who actually makes the choices.
Many clients unknowingly face the same dynamic with their own lawyers.
You may appear to be “in control” because you give general instructions. But once you deposit funds into a traditional trust account, the lawyer decides:
when to draw on your money,
how much is spent at each stage,
when strategy shifts from settlement to courtroom preparation,
and how long the matter continues.
Even where clients believe they are steering the case, day-to-day authority often sits invisibly with one lawyer who controls both the money and the pathway. The risk is drift, delay, or escalating work that feels difficult to question, simply because the client’s financial control and strategic visibility have been diluted.
Bywater is a reminder that formal structures don’t guarantee real agency.
How to Avoid the Same Trap -
Using Escrow to Keep Real Control
Among Clean Law’s safeguards, the one that most directly addresses the Bywater risk is escrow-based client control of funds.
Escrow ensures the client, not the lawyer, authorises each stage
In the traditional model, trust funds are drawn as the lawyer decides. Escrow reverses the flow: nothing moves until the client approves the next stage. Control is no longer inferred; it is returned, in practice, to the client.
Strategy becomes a choice, not a momentum
Because escrow is paired with role separation, clients see clearly when they are choosing settlement work and when they are choosing trial work. There is no merged pathway where both operate at once.
Two independent lawyers prevent unilateral decision-making
Escrow works because Clean Law does not share profits or referral fees with courtroom lawyers, and each lawyer stays in their lane. Structural independence, supported by Law Society trust-account audits and ACNC-governed reporting, means clients receive advice that is accountable and not shaped by hidden incentives.
Real control is visible, not just stated
Where Bywater exposed the consequences of relying on formal labels, escrow creates a system where control can be seen and exercised. Each release of funds is a documented decision, authorised only by the client.
Reflection
The High Court’s reasoning in Bywater illustrates the importance of recognising where power actually sits. For clients funding litigation, the distinction between apparent control and real control has meaningful financial consequences.
Escrow is built to prevent any single lawyer from quietly steering both the strategy and the spend. It gives clients the ability to pause, question, redirect, or escalate with full visibility, ensuring that the person with the most at stake retains the authority to make the decisions.
Clients often want to see how these safeguards work together in practice. Our home page brings them together, cost-safety, escrow oversight, and role separation, in one place.
If this case raises questions about control, timing, or your current matter, a private consultation can help you map your options safely.
Speak confidentially and without pressure
By Nicky Wang
Principal Solicitor
Legal Liaison Ltd (trading as Clean Law)
Prepared in accordance with public-interest governance,
annual Law Society trust-account audits, and ACNC-reported standards.
Disclaimer: This page is intended to provide general information only and is not legal advice. The contents may not reflect the most current legal developments and do not take into account your individual circumstances. You should not act or refrain from acting on the basis of this information without obtaining legal advice tailored to your situation.
