Wharton v The Queen; Pearce v The Queen; Tieleman v The Queen [2005] HCATrans 888 (26 October 2005)

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Wharton v The Queen; Pearce v The Queen; Tieleman v The Queen [2005] HCATrans 888 (26 October 2005)

Last Updated: 4 November 2005

[2005] HCATrans 888

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
Perth No P20 of 2005

B e t w e e n -

STEPHEN LYNNE WHARTON

Applicant

and

THE QUEEN

Respondent

Office of the Registry
Perth No P26 of 2005

B e t w e e n -

SEAN PEARCE

Applicant

and

THE QUEEN

Respondent

Office of the Registry
Perth No P27 of 2005

B e t w e e n -

WALTER JOHN TIELEMAN

Applicant

and

THE QUEEN

Respondent

Applications for special leave to appeal

GUMMOW J
KIRBY J
HEYDON J

TRANSCRIPT OF PROCEEDINGS

AT PERTH ON WEDNESDAY, 26 OCTOBER 2005, AT 9.15 AM

Copyright in the High Court of Australia

MR D. GRACE, QC: If the Court pleases, I appear on behalf of the applicant Wharton. (instructed by Office of David Grace QC)

MR R.W.F SCEALES: If the Court pleases, I appear on behalf of the applicants Pearce and Tieleman. (instructed by Sceales & Company)

MR R.J.H. MAIDMENT, SC: If the Court pleases, I appear on behalf of the respondent in each application. (instructed by Commonwealth Director of Public Prosecutions)

GUMMOW J: It is convenient for you to go first, Mr Grace?

MR GRACE: Yes, it is. Your Honours, in this matter an extension of time is required within which to make the application for special leave to appeal.

GUMMOW J: We will hear the argument and deal with any extension of time question then.

MR GRACE: Your Honours, at the outset could I take you to page 114 of the application book to paragraph 53 and there, Chief Justice - - -

KIRBY J: Is not the flaw in your argument that the whole system of self-assessment works upon a premise of honesty and you say the problem only arises later in the step but the later step does not occur in, I would think, 90 or more per cent of cases, probably 95 or 98, and the flaw in your argument is that you can just be as dishonest as you like at the earlier step but it does not really matter because you have not actually been asked to say anything. But the whole system works on the honesty of taxpayers and citizens.

MR GRACE: It is that anterior stage being reached - - -

KIRBY J: I know you want to put a step into it but this was a major step in Australian taxation law and it is premised on the honesty of citizens and non-citizens returning their taxable income, and your way of arguing really makes a mockery of the system of self-assessment.

MR GRACE: I would submit not, your Honours.

GUMMOW J: What is the year of these offences?

MR GRACE: 30 June 1998 tax year.

GUMMOW J: The relevant provision was then 29D of the Crimes Act, was it, which has gone now. It is now 135.1 of the Criminal Code.

MR GRACE: Correct.

GUMMOW J: Which is much more detailed, one might say.

MR GRACE: Yes, it - - -

GUMMOW J: Anyhow, 29D said:

A person who defrauds the Commonwealth or a public authority under the Commonwealth is guilty of an indictable offence.

So the expression is “who defrauds the Commonwealth”.

MR GRACE: Yes. Now, could I take you at the outset to page 114 of the application book at paragraph 53. There Chief Justice Malcolm, on the third line, was outlining the particulars that the Crown relied upon and there his Honour said:

The conspiracy alleged was to defraud the Commonwealth by depriving the Commonwealth of moneys to be paid by the ATO as tax refunds to franchisee participants in what became the “Servcom scheme” . . . and/or by putting such moneys at risk and/or by prejudicially affecting the Commonwealth in relation to its lawful rights concerning the said moneys.

The characterisation of those particulars in that way was derived from the joint judgment of Justices Toohey and Gaudron in Peters at paragraph 30. Chief Justice Malcolm at paragraphs 160 and 163 and Justice Steytler at paragraph 307 - - -

GUMMOW J: What page in the application book?

MR GRACE: In Chief Justice Malcolm’s it is at page 136 and in Justice Steytler’s it is at 169. Their Honours there concluded that it was sufficient for the purposes of the Crown case that the claims for deductions might have been disallowed under Part IVA or might have been disallowed under section 8-1. The court below rejected submissions that the case could not be left to the jury on the basis that it was not necessary for the Crown to prove that the information that was not disclosed to prospective taxpayers, would, if disclosed to the Australian Taxation Office, have affected their liability to pay income tax. It is submitted that the Crown needed to establish to the jury beyond reasonable doubt that the consequence of the actions of the alleged conspirators was at least to deprive the ATO of an arguable case to deny the deductions and thereby cause it to lose something of value.

I want to take your Honours to the recent decision of the NSW Court of Criminal Appeal in Petroulias which examined some of these issues. It appears in volume 2 of the joint book of authorities at tab 7.

GUMMOW J: Yes, it is [2005] NSWCCA 75; 152 A Crim R 244.

MR GRACE: Yes, correct. It is a decision of the New South Wales Court of Criminal Appeal delivered on 11 March 2005 in the long running saga of Petroulias. At page 251 of the report at paragraph 27 - - -

GUMMOW J: Now, this was a case about rulings, was it not?

MR GRACE: This was a case where it was alleged that Mr Petroulias - - -

GUMMOW J: An officer of the Commissioner.

MR GRACE: An officer of the Commissioner, yes - issued rulings which were favourable to person associated with him, allegedly, and by reason of those favourable rulings which were binding upon the Commissioner, there was a defrauding of the revenue. At paragraph 27 on page 251 in a joint judgment, Chief Justice Spigelman and acting Justice of Appeal Hunt said halfway down the paragraph:

What the law was at that time is an objective matter which the Crown must prove. That objective fact has nothing to do with any state of mind on the part of the accused which may be relevant to his mens rea. There is therefore no need to restrict the admissible material to material which was in existence at that relevant time. The issue as to what the law was at the relevant time may be proved by reference to what has since been held to be the law, provided that there has been no change in the relevant statutory provisions in the meantime. It is presumed to have been the law all along.

GUMMOW J: One of the difficulties in Petroulias was how one got these issues to the jury, was it not, given the high legal content, as it were.

MR GRACE: Yes, Chief Justice Spigelman and Acting Justice of Appeal Hunt took the view that it was a jury issue, albeit with some very clear directions from the trial judge. President Mason took the view that it was a decision for the judge alone to make as to what the law is and as to factual issues that go into that matrix and he relied upon such cases as Ahern which - - -

GUMMOW J: Here there is no such complexity with the self-assessment system, is there?

MR GRACE: No, that is true, your Honour, but could I take you to paragraph 15 of the judgment in Petroulias and particularly to line 4 in paragraph 15 where their Honours say this:

But the issue of whether or not the Commissioner has an arguable case that the private rulings given were wrong is not an element of the crime of defrauding the Commonwealth. It is what the Crown puts forward as establishing that the actual risk that the revenue of the Commonwealth was imperilled amounts to the deprivation necessary for a charge of defrauding the Commonwealth. The relevant element of the crime is deprivation. Whether the Commissioner has an arguable case that the private rulings were wrong is, therefore, a fact in issue relevant to the deprivation element of the crime charged.

And then over the page at 17 their Honours go on to say:

The directions which the judge will be required to give in this case will be such as are required for the jury to determine for themselves whether the Crown has established an arguable case on either of the two issues that have been raised . . . so that the jury are satisfied beyond reasonable doubt that the risk to the revenue was such that the Commonwealth was in fact deprived of something of value. Subject to the course of the trial, the judge will probably be required to outline the relevant provisions of the statute and identify in the material admitted into evidence the arguments in favour of the liability to fringe benefits tax and those against deductibility, together with the evidence that supports or detracts from the strength of those arguments. The assessment of the evidence – whether in terms of “arguable case” or “arguably wrong” – is a matter for the jury.

I might add that Petroulias was decided after the argument had been made in the Court of Criminal Appeal.

The problem in the applicant’s trial was that the applicant’s conviction was upheld notwithstanding the failure by the Crown to allege or prove any agreement to cause taxpayers to make a false representation or to cause taxpayers not to disclose something they were obliged to disclose, nor did the Crown lead any evidence to establish beyond reasonable doubt, as it is submitted they had to, that non-disclosure of the particular arrangements with respect to the loans would have caused the ATO to have acted in a way differently to the way in which it would have acted.

So we say that in the absence of evidence from the ATO that the claims for deductions were not allowable as a matter of law or that Part IVA was attracted, the jury was left in an impossible situation to determine whether the dishonesty which was said to attach or the dishonest means that were said to attach to the actions of the applicant, or indeed all the applicants, was established. Moreover, when you relate that back to the particulars that I have read out to your Honours that the three limbs, that is, to establish as one of the limbs, for example, that there had been actual imperilment, actual loss to the revenue, there was absolutely no evidence.

KIRBY J: Do you understand there to be agreement that there is a diversity of opinion in the Court of Appeal of New South Wales in Petroulias and the decision in this case?

MR GRACE: Yes.

KIRBY J: Do you understand that to be the Crown’s position or the - - -

MR GRACE: No, I do not understand that to be the Crown’s position.

GUMMOW J: No, it is not their position.

MR GRACE: I am not sure if the Crown - - -

KIRBY J: It is not made very clear in the written submissions, if I can say so with respect to you, as to what the exact point of distinction is.

MR GRACE: The distinction seems to be the issue as to what the ATO is required to prove or what the Crown is required to prove in terms of creating the evidence necessary to establish any of the three limbs that were set out in the particulars in this case.

GUMMOW J: What do you say about page 195 in the respondent’s submission, paragraphs 3 and 4.

MR GRACE: There is no quarrel with any of that but the problem for the Crown, we say, is that if you take it back to those particulars, how could the Crown prove in the absence of evidence from the ATO that there had been a deprivation of the Commonwealth of moneys to be paid by the ATO as tax refunds? That was one of the three limbs they advanced the case upon and in the absence of that evidence, there was simply no way the jury could have established that particular fact.

GUMMOW J: How did the Court of Criminal Appeal deal with this argument?

MR GRACE: The Court of Criminal Appeal dealt with it on the basis that it was not incumbent upon the Crown to call such evidence. For instance, if I could take your Honours to the judgment of Chief Justice Malcolm at page 131 at paragraph 137, if I could commence there. There his Honour said:

In the present case, the prosecution expressly disavowed reliance upon the transaction being a sham or on notions of fiscal nullity.

138 A deduction is available whether the outgoing was productive of income in a subsequent tax year, or even if not at all –

and a number of cases are there set out. After the review of all the cases his Honour came to the conclusion at paragraph 153:

In the present case, it was clear from the material provided to prospective franchisees that it was intended to represent to them that the $39,500 would be received . . . This was intended by the appellants to enable each franchisee to fund the amount invested from the taxation refund which was obtained from the ATO.

154 It was the intention of the appellants that, if the claimed deductions were not allowed . . . the franchisees would innocently use the false information . . .

155 In this context, the element of dishonesty relied upon by the Crown was that the information provided to the prospective investors was calculated, not only to deceive them into making the investment, but also to cause them to mislead the ATO.

GUMMOW J: What is wrong with that?

MR GRACE: The point is that there was no evidence that would support at least the first limb, that is of actually imperilling the interests of the Commonwealth by depriving them of revenue.

HEYDON J: But if the first sentences in paragraph 153 are correct, if conspirators use innocent taxpayers to make what, unknown to the taxpayers, are incorrect claims in their tax returns and thereby the taxpayers get a deduction, is that not a deprivation of property from the Commonwealth which is - - -

MR GRACE: The anterior step to establish that first proposition has to be established by evidence. It cannot be established by assertion.

HEYDON J: But Chief Justice Malcolm seems to say there was evidence. He says, “it was clear from the material”, and so on.

MR GRACE: That is a jump in logic. It is a jump by encapsulating what Chief Justice Malcolm’s views might be about the applicable taxation law together with the Crown’s assertions, together with the known facts, and therefore you have the conclusion. That is exactly the way the Crown put its case, but the challenge is that the step in logic that was required to reach that conclusion simply was not there. It is perhaps encapsulated - - -

HEYDON J: Was $38,000 expended in the first 13 months?

MR GRACE: No.

HEYDON J: Well, a false representation was made by the taxpayers in claiming the deduction and they were morally and perhaps legally innocent in doing that because of the procuration of the conspirators.

MR GRACE: Yes.

HEYDON J: Does that not fit within the statutory provision in the Crimes Act?

MR GRACE: The expense does not have to be made in the 13 months. It can be made later than that. It was not restricted to the 13 months and his Honour made that clear in the redirection to the jury upon request. I accept there had not been the expenditure that had been anticipated by the franchisees at the time that they placed their income tax returns in the hands of the Commissioner.

HEYDON J: If there had been an audit of those taxpayers, would not the Commissioner have demanded a refund of the deduction and possibly begun to engage in correspondence about penalties and things like that?

MR GRACE: Well, he may have depending upon whether, in the ultimate event, there was expenditure by the franchisor of the moneys expended by the taxpayer.

HEYDON J: But under our tax law you do not get a deduction in year one because of something you might spend in year five. You get a deduction in year one for what you expend in year one, do you not?

MR GRACE: You do, but the expenditure in the hands of the recipient may not be for the purpose that the payor intended at the time of the payment. Justice Steytler at paragraph 308 said:

It is true, as counsel for the appellants pointed out, that no evidence was led to establish that the ATO was in fact deceived or that, if it knew all of the true facts, it would have disallowed the deductions or would otherwise have challenged the scheme. Also, contentions were advanced before us to the effect, inter alia, that, in assessing allowability, it does not matter whether, or how, the taxpayer has financed the outgoing, as long as it has been incurred:

and then at - - -

GUMMOW J: You have to read 309, do you not?

MR GRACE: And 309:

However, none of this detracts from the proposition that the claims might have been disallowed, or cancelled, under the provisions of Pt IVA of the Act, given, as I have said, that the existence of very limited funds –

et cetera. Again, we get back to the use of the word “might”. I do not want to repeat myself, but one of the limbs upon which the matter went to the jury was simply not made out on the evidence. Your Honours, that is all I want to say in relation to the oral submissions. I otherwise rely upon the written submissions.

GUMMOW J: Yes, thank you, Mr Grace. Yes, Mr Sceales.

MR SCEALES: Your Honours, first of all, as in the case of my learned friend, I have an application to make for an extension of time if that could be dealt with on the same basis.

GUMMOW J: Yes, we will treat that in the same way as the other one.

MR SCEALES: I am much obliged. If I could start by picking up on what your Honour said, there is no doubt that a taxpayer has to make a full and true disclosure of his assessable income and of the deductions to which he claims to be entitled, so we certainly do not contend there is no such obligation and that obligation exists at the time that the return is lodged, it does not arise at some later date. If the taxpayer fails to make a full and true disclosure, then of course it is liable to penalties and interest once the true position is established.

Now, in our submission, the learned trial judge and the learned judges in the Court of Criminal Appeal misconstrued the nature of what the franchise arrangement is. Perhaps as a lead-in to what is set out in the summary I could deal with that - - -

HEYDON J: So, this is a factual appeal that you want?

MR SCEALES: Well, it is simply to answer part of the question which your Honour raised as well. The misconception, if we could put it that way, is that the amount of the loan is the amount of the deduction and that is not the case. As a matter of law, it is our submission that the taxpayers entered into franchise arrangements. Those obliged them to pay $1,500 as an establishment fee and the balance by way of franchise fees and training fees and indemnity fees and then to fund that they entered into the loan arrangement.

GUMMOW J: Well, sums given these descriptions.

MR SCEALES: As your Honour pleases. The way in which that money is then funded is a matter which depends on the loan agreement between Allied Securities and Servcom Australia and, in our submission, it is quite clear that the first applicant today entered into round robin arrangements which were not known and, on the directions of the judge at the criminal trial, were not known to either of the second or third applicants in today’s matter. The round robins were something which he arranged entirely off his own bat with the National Australia Bank and, of course, he did not have the funds to make the money available and he did not ever make that money available because it remained in the Servcom clearing account.

Our submission is that neither of the second or third applicants were aware of the fact of the round robin. Neither of the second or third applicants were aware of the fact that these funds would not be made available. It was their understanding, certainly of the third applicant, Mr Tieleman, that the funds would be held in a so-called “securitised deposit” and made available on a progressive basis. But dealing with the question of deductibility which your Honour has raised, the deduction of the franchise fee arises in the year in which the contract is entered into and it can be said that the franchisee has entered into a business. The fact that the money may not be expended by the franchisor in that year does not affect the deductibility in the hands of the franchisee. The franchisee simply has to establish in an audit that it has entered into a contract, that it is obliged to pay a certain amount of money and that that money is then a deductible expense as long as it satisfies the test of section 8-1 of the Income Tax Assessment Act.

The fact that Servcom Australia derived the income in turn leads to the arrangements which were entered into between the first applicant and the promoters of Servcom Australia by which the assessable income of the Servcom Australia trust, because it had derived 1410 times $39,500 of income and that income was then to be distributed to a loss trust associated with the first applicant. But again, it is our submission that that is not something that could be brought home to the second and third applicants because they did not know of it and they played no part in advising on that.

So, against that background, we would say that the special leave questions are as stated in paragraphs 1 and 2 of our summary of argument in both matters. On the basis of the test set out in Peters v The Queen as summarised in paragraph 17 of our outline of submissions, we would say that the Crown has to establish that the defendants intended to prejudice the Commonwealth’s rights by and then:

making or taking advantage of representations or promises which they knew were false or would not be carried out.

In our submission, neither the second nor the third applicant were aware of the illegality, to call it that, the artificiality of the round robin arrangements, nor were aware of the position in regard to what Servcom Australia did with its assessable income in the year ended 30 June 1998. The second test:

concealing facts which they had a duty to disclose –

Well, it is our submission that no taxpayer in lodging its return of income for the year ended 30 June 1998 had misrepresented facts which would establish that he had not made a full and true disclosure of his taxable income and the deductions. The taxpayer had entered into an agreement relating to the franchise. It had entered into an agreement relating to the loan and, as far as the taxpayer’s position is concerned, there is no unlawful or false representation to the Australian Taxation Office regarding those matters.

There certainly is, and we make that concession, and there certainly are questions regarding the round robin and the questions regarding the distribution of the income from the Servcom Australia unit trust because that would have been a distribution to a loss trust and Schedule 2F had come into effect as from 1998, so as to the effectiveness of that, we make no argument but that is not part of the case which affects the second and third applicants. That is a matter which would have been established on audit by the ATO and, of course, assessments would have issued to Servcom Australia on the basis it had been a distribution to a loss trust and therefore it was ineffective. And then the third test:

engaging on conduct which they had no right to engage in.

Well, in our respectful submission, that is not the case. What the second and third applicants did was entirely permissible and they acted entirely according to the law.

GUMMOW J: Thank you. Yes, Mr Maidment. What do you say about what is put as the rather different position of the second and third applicants? Sorry, I should ask you first what is your attitude to the application for extension of time?

MR MAIDMENT: We do not oppose.

GUMMOW J: Thank you.

MR MAIDMENT: So far as the first point that your Honour raised is concerned, the fact that the second and third applicants were ignorant or apparently ignorant of the round robin nature of the arrangements that the first applicant was intending to and did put in place, was neither here nor there so far as the Crown case was concerned. The thrust of the Crown case was that the applicants all agreed that the moneys represented by the long-term loans of $29,500 were to remain, assuming that they were real funds, within the control of the lender. That control was never to pass to the franchisor, whereas the public face of the scheme presented the scheme as though upfront the franchisor would receive the full benefit under its control of the $29,500 in order to discharge its obligations during the first 13 months of the scheme.

Now, it was common ground in the end, I think, that each of the applicants well knew that on the basis of the scheme as presented, no more than $393.75 representative of the $29,500 would pass to the control of the franchisor during the first 13 months to discharge its obligations to carry out the services for which it had contracted to perform under payment of $38,000. Now, we accept of course that the $29,500 does not represent the full amount of the deduction. That was in part made up of the balance of the $38,000, but it represented at least a significant portion of that and it was integral to the working of the scheme. It was never part of the Crown case that either the second or third applicants were aware of the round robin nature of the arrangement that the first applicant put in place. That was a separate aspect of dishonesty in the case against him and obviously a point of proof that we relied upon in establishing the case against him. It was never part of our case in relation to the second and third applicants. In our submission, it is nothing to the point.

The dishonest thrust of this scheme we perceive as being common to a large number of tax schemes of its ilk and it is the fundamental lie, if you like, that is inherent of this particular scheme and perhaps other schemes of their ilk, namely that it is to be represented on the public face of the scheme that the whole of the moneys to be paid are to be paid upfront for the purposes of financing the services to be provided in the first 13 months, whereas under the loan arrangements that portion that is represented by the loan funds is never to find its way into the business, never to go into the business during that period.

The way it works, or is supposed to work on the face of the scheme, is that on the public face of the scheme it is represented that the whole of that money goes to the franchisor to go into the business. On the private face of the scheme the money trickles through as profits are derived and moneys are released supposedly from this securitised deposit arrangement in direct proportion to the repayments that are due from the profits generated by the businesses of the franchisees. So that the repayments of the loans in the first 13 months would have amounted to, shall we say, $640, which I think is the correct figure, of which the franchisor was entitled to $393.75. It was only if profits were made by each of the franchisees that they would get any of the money represented by the loans supposedly held in this securitised deposit.

Now, your Honours, there was really no challenge in the end to the fact that each of these applicants knew of those facts. There was no challenge, and it was really beyond challenge, that they concealed those facts from Mr O’Connor, QC who was asked to advise on the scheme, that they concealed them from the salespersons who were to go out there and sell the scheme to the taxpayers on a commission of $2,000 per franchise, and it was to be concealed from the franchisees themselves in order, first of all, to persuade them that the scheme was legitimate and an attractive one from their point of view and one which would give rise to a legitimate and allowable deduction and, secondly, to ensure that when the tax office, as all of the applicants anticipated would occur, started asking questions, they would be met with only the public face of the scheme and, because the taxpayers were never told it, would never see the private face of the scheme unless and until they did what occurred in this case, which was to put the matter in the hands of the National Crime Authority and have search warrants executed which ultimately revealed documentation, correspondence between the three applicants which showed not only the fact of the private face of the scheme, but their knowledge of it.

None of that would ever have been revealed and, indeed, when the tax office engaged with the second and third applicants and, through the second and third applicants, the first applicant in correspondence prior to the execution of the search warrants, there was a lengthy letter which was written, I think, under the signature of Mr Tieleman but drafted by Mr Pearce and presented to Mr Wharton for his approval in which the private face of the scheme was further concealed and, indeed, positive representations were made which were false as to the true nature of the scheme, particularly in relation to the loan arrangements. So this was not just - - -

KIRBY J: What you have just said to us appears to be the findings consistent with the jury verdict that the trial judge accepted for the purpose of sentencing the applicants, including the second and third applicants.

MR MAIDMENT: I am grateful to your Honour for pointing that out.

KIRBY J: That is at page 83 of the application book in Pearce and Tieleman.

MR MAIDMENT: Yes, thank you, your Honour. Well, that was certainly the Crown case. There was obviously dispute about that matter.

KIRBY J: That was a matter that was passed upon by the jury and the points that were urged upon us in respect of the second and third applicants appear to have been the focus of their contentions at the trial and the verdicts which the jury returned were the foundation for the sentence which followed.

MR MAIDMENT: Yes.

KIRBY J: So that I think the suggested differentiation of the position of the second and third applicants cannot stand with the verdict which followed the trial that was conducted. At least, that was the view the trial judge took on sentencing.

MR MAIDMENT: We respectfully adopt that point, your Honour.

GUMMOW J: And what is to be said as to the significance of the subsequent decision in Petroulias?

MR MAIDMENT: In our submission, that was decided on its own facts and it may well be that the reasoning is apt to the facts of that particular case. We would not concede that, with great respect, but this is not a suitable vehicle, in our respectful submission, for revisiting the reasoning of the Court of Appeal in New South Wales in Petroulias.

GUMMOW J: Anyhow, the law was changed in the year 2000, was it not?

MR MAIDMENT: Well, it was, yes, through the Criminal Code, that is right.

GUMMOW J: And there is now a very detailed provision in section 135 of the Criminal Code, which will provide the future battleground, I suppose.

MR MAIDMENT: Yes. I might point out to the Court this was, of course, a conspiracy and that does make a difference in the sense that, of course, it was not necessary for the Crown to prove that the tax office was in fact defrauded.

GUMMOW J: Yes.

MR MAIDMENT: It was only necessary to prove that there was agreement to do that. As it transpired, we were able to prove that the tax office was defrauded, at least, in our submission, we were, but that is really not to the point. Our point was that the conspiracy was well and truly made out.

KIRBY J: “Audacious and brazen” was the description which the trial judge gave of the scheme.

MR MAIDMENT: Yes. Well, I would be inclined to adopt that, although I was going to refrain from that sort of colourful language in this forum, but, in our submission, this was a blatantly dishonest scheme and a deliberate attempt to take dishonest advantage of the self-assessment system. And they came unstuck because the tax office dug a little bit deeper than they generally do and were able to enlist the assistance of the National Crime Authority in order to assist with that purpose.

KIRBY J: The only question that would be of concern would be if there were two Courts of Appeal taking a different line on this offence.

MR MAIDMENT: Yes, in our submission - - -

KIRBY J: What was the charge in Mr Petroulias’s case? Was he conspiracy?

MR MAIDMENT: It was defrauding, I think, your Honour, and the way in which that case was particularised was, of course, very different from the way in which this case was particularised. If we can, as it were, draw a parallel between this case and Petroulias, this case falls into the third category, namely loss of opportunity, which does not require on the reasoning in Petroulias proof that there was an arguable case, merely that there was a tax office position and everybody agreed that there was a tax office position that was well and truly documented by a draft ruling in - - -

GUMMOW J: The count in Petroulias is set out at page 246 of the report we were given.

MR MAIDMENT: Yes, that is right.

GUMMOW J: It was “did defraud”.

MR MAIDMENT: Yes, and in paragraph 4, as it were, the three categories of defrauding are spelt out and the proofs that the court reasoned were required in respect of each and, although the defrauding here had elements of deprivation of money and elements of risk, they were in the context of a loss of opportunity. So that the deprivation was in circumstances where the tax office were being kept in the dark so that they could not exercise their judgment as to whether to challenge the refunds in an educated and timely manner - put at risk in the sense that the funds may have been dissipated in the period when they were endeavouring to discover the true facts under audit or through the execution of search warrants or other types of investigative measures.

So that, in our submission, if one is to apply the reasoning - and we do not invite the Court to do so - in Petroulias, one would categorise this as a loss of opportunity case. As I say, in our submission, it was very plain on the evidence that what the tax office position was through a draft ruling in 1997 and through what has been called the “Magic Pudding” speech which was published in June of 1998 prior to the conclusion of the financial year and was the subject of discussion amongst each of the five conspirators, the three applicants and the co-conspirators who pleaded guilty, and they indeed determined that nothing much had changed from the Commissioner's point of view. That was the subject of discussion amongst them and documented in emails or faxes that passed between the applicants.

The resolution was discussed at a meeting where all five of the conspirators attended, I think on or about 26 June 1998, and the conclusion was that the second and third respondents advise the two promoters, Aistrope and Wahby, that they should implement an arrangement proposed by the first applicant to interpose another company between the franchisor and the owner of the intellectual property for essentially cosmetic reasons and the Crown relied upon that as an indication that they well understood what the Commissioner’s position was and they were given the opportunity of considering the real issue which was whether they should or should not reveal the private face of the scheme even at that late stage and prevent the fraud actually from being put into effect. They determined not to do so, but rather, further to disguise or introduce another element of disguise into the arrangement.

In our submission, the approach of this Court should be to treat R v Petroulias as being decided on its own facts being based upon their understanding of the law as spelt out in Peters and in Spies by this Court
just as essentially the Court of Appeal in this State did. They relied principally upon Peters and Spies, albeit also on the reasoning principally of Chief Justice Spigelman in Wills v Petroulias, and we do not take issue with that. In our respectful submission, the matters relied upon by Justices Steytler and Murray in particular from that judgment are perfectly sound under proper application of the principles as set down by this Court in Peters and Spies and applicable to the facts of this particular case as distinct from the facts in Petroulias.

GUMMOW J: Thank you.

MR MAIDMENT: If the Court pleases.

GUMMOW J: Yes, Mr Grace.

MR GRACE: Two matters only, your Honours. The first is that this was a case that was argued in the alternative by the Crown as an actual loss case. Certainly there was lost opportunity, principles and facts that were relied upon, but it was also strenuously put as an actual loss case. So, therefore, the Petroulias principles are applicable, the need for evidence to establish the loss is required.

The second point I make is that the reasoning in Petroulias, in my respectful submission, is sound and is one that ought to be followed by other Courts of Criminal Appeal throughout Australia. In this State, this Court of Criminal Appeal did not follow a similar line of reasoning and ought to have done so. If your Honours please.

GUMMOW J: Thank you.

MR SCEALES: I adopt what my learned friend has said.

GUMMOW J: Thank you. We will take a short adjournment.

AT 10.00 AM SHORT ADJOURNMENT

UPON RESUMING AT 10.06 AM:

GUMMOW J: There being no opposition, there will be extensions of time in all three applications. There are insufficient prospects of success in demonstrating error in the decision of the Court of Criminal Appeal to support the grant of special leave in any of the applications. Nor, we should add, are we satisfied, having regard to the issues of the trial and the verdicts of the jury, that the suggested differentiation between the positions on the one hand of the second and third applicants and the first applicant on the other has substance.

Nor are we satisfied that the reasoning of the Court of Criminal Appeal is inconsistent with that of the New South Wales court in R v Petroulias [2005] NSWCCA 75; (2005) 152 A Crim R 244. That case involved a different charge and different facts. Accordingly, in each application special leave is refused.

The Court will adjourn to reconstitute.

AT 10.07 AM THE MATTERS WERE CONCLUDED