Castagna v R; Agius v R

[This headnote is not to be read as part of the judgment] Dr Anthony Castagna and Mr Robert Agius were charged with offences arising out of payments made by Macquarie Bank Ltd and its associated companies in exchange for the supply of Dr Castagna's services as a consultant during a period of time from 1998 to 2009. It was alleged that Dr Castagna was required to declare these payments as part of his "assessable income" for income tax purposes and that he failed to do so. Thus, the charges were that Dr Castagna and Mr Agius were members of a conspiracy to defraud or cause financial loss to the Commonwealth by concealing Dr Castagna's "assessable income", and a conspiracy to deal with money which was the proceeds of crime, being the part of the payments not declared as "assessable income". The payments were made by Macquarie Bank and its associated companies pursuant to a series of agreements between itself, Dr Castagna, and Billbury Ltd, a company controlled by Mr Agius. The agreements provided that Billbury would supply Dr Castagna's services as a consultant in exchange for the payments from Macquarie Bank. The agreements did not provide for any payment to be made directly to Dr Castagna. The evidence showed that, at the relevant times, Macquarie Bank required all agreements with its consultants to be with companies rather than individuals. Thus, there was no suggestion that the agreements between Macquarie Bank, Dr Castagna and Billbury were "shams". At trial, the prosecution case was that, even though the payments were made to Billbury and the agreements between Macquarie Bank, Billbury and Dr Castagna were not "shams", the payments were "ordinary income" which had been "derived" by Dr Castagna within the meaning of s 6-5(2) of the Income Tax Assessment Act 1997 (Cth), and therefore were "assessable income" which he had not but was required to declare on his income tax returns. The prosecution case invited the jury to consider the circumstances of the case as a whole to determine whether the payments to Billbury were "ordinary income" which had been "derived" by Dr Castagna. At the conclusion of the prosecution case, Dr Castagna and Mr Agius each made an application for a directed verdict on the basis that, as a matter of law, the payments to Billbury could not be "ordinary income" which had been "derived" by Dr Castagna by reason of the terms of the agreements between Macquarie Bank, Billbury and Dr Castagna. The primary judge rejected their applications. The primary judge gave directions to the jury about how they were to approach the task of determining whether the payments to Billbury were "ordinary income" which had been "derived" by Dr Castagna which reflected the prosecution case by inviting them to consider the circumstances of the case as a whole. The jury found Dr Castagna and Mr Agius guilty of conspiracy to defraud or cause financial loss to the Commonwealth, and to deal with money which was the proceeds of crime. Dr Castagna and Mr Agius appealed from their convictions on the grounds that the primary judge had erred in directing the jury about how they were to approach the task of determining whether the payments to Billbury were "ordinary income" which had been "derived" by Dr Castagna, relying on similar arguments which they had raised on their applications for directed verdicts. At the hearing of the appeal, the prosecution sought to uphold the convictions on the basis that it was open to the jury to hold that the payments to Billbury formed part of Dr Castagna's "assessable income" because they were held by Billbury on trust for Dr Castagna. Both counsel for Dr Castagna and counsel for Mr Agius objected to the prosecution putting its case in this way on the appeal when it had formed no part of its case at trial. The main issues on the appeal were: 1 whether the primary judge had erred on the applications for directed verdicts and in directing the jury that, in order to determine whether the payments to Billbury were "ordinary income" which had been "derived" by Dr Castagna within the meaning of s 6-5(2), it was necessary to consider the circumstances surrounding the agreements; 2 whether it was open to the jury to find that the payments to Billbury formed part of Dr Castagna's "assessable income" because they were held by Billbury on trust for Dr Castagna; and 3 whether, in these circumstances, the court should order that Dr Castagna and Mr Agius be retried. Whether circumstances surrounding the agreements could be considered in determining whether the payments were "ordinary income" (i) The primary judge erred on the applications for directed verdicts and in directing the jury that, in order to determine whether the payments to Billbury were "ordinary income" which had been "derived" by Dr Castagna within the meaning of s 6-5(2), it was necessary to consider the circumstances surrounding the agreements. It would only have been relevant to do so to determine if there was some other legal relationship which affected how the agreements would be carried out. However, since no such case was put at trial, it was an error to go beyond the terms of the agreements to determine whether the payments were "ordinary income" which had been "derived" by Dr Castagna: [133]-[136] (The Court). Tupicoff v Federal Commissioner of Taxation (1984) 4 FCR 505; Baker v Federal Commissioner of Taxation (1989) 20 ATR 798; Baker v Federal Commissioner of Taxation (1989) 20 ATR 1706; Federal Commissioner of Taxation v Mochkin (2003) 127 FCR 185; [2003] FCAFC 15, considered. Whether open to the jury to find that the payments were "assessable income" because they were held on trust (ii) It was not open to the jury to find that the payments to Billbury formed part of Dr Castagna's "assessable income" because they were held by Billbury on trust for Dr Castagna. The prosecution had not put any such case to the jury at trial. If it had, it would have been necessary for the jury to be satisfied that the settlor had the relevant intention to create the trust and that the requirements for a trust to be created had been fulfilled, which was not done. Therefore, the convictions of Dr Castagna and Mr Agius could not be supported on this basis: [175]-[179] (The Court). Osborne v The Queen [2017] NSWCCA 11, referred to. Whether the Court should order a retrial (iii) The Court declined to make an order that Dr Castagna and Mr Agius be retried. On the assumption that the case which would be put at any retrial would have been based on the allegation that Billbury held the payments from Macquarie Bank on trust for Dr Castagna, this case would have been significantly different from that put at the original trial. Even assuming that such a case would have been strong, it was not appropriate to order a retrial when the time which had elapsed since the offences occurred, the likely delay before any new trial, the age of Dr Castagna and Mr Agius, the time which had already served, and the fact that the case had not been put at the original trial were taken into account: [198]-[201] (The Court). King v The Queen (1986) 161 CLR 423; [1986] HCA 59 Jiminez v The Queen (1992) 173 CLR 572; [1992] HCA 14; Parker v The Queen (1997) 186 CLR 494; [1997] HCA 15; R v Taufahema (2007) 228 CLR 232; [2007] HCA 11, considered.

Judgment

1. THE COURT: The appellants, Anthony Castagna (Dr Castagna) and Robert Agius (Mr Agius) were charged on indictment presented on 19 February 2018 with 13 offences arising out of payments made from Macquarie Bank Ltd and its associated companies (Macquarie), pursuant to letter agreements, three of which were dated 9 April 1998, 23 August 1999 and 6 September 2001. In the broadest terms, it was alleged that the payments made formed part of the assessable income of Dr Castagna and that Dr Castagna and Mr Agius conspired together to defraud the Commonwealth by taking steps to conceal the fact that such payments formed part of the income of Dr Castagna, in particular by lodging income tax returns for the financial years ended 30 June 1999 to the year ending 30 June 2008, which failed to disclose such income.
2. It was alleged that the monies received from Macquarie were paid into an account that a company Billbury Limited (Billbury) held with a New Zealand branch of the Australian & New Zealand Banking Group Ltd (ANZ) and from then paid into various bank accounts held by International Finance Trust Company Ltd (IFTCO), a Vanuatuan company.
3. It was also alleged by the Crown that certain transactions between Mr Agius and companies associated with him on the one hand and Mr Castagna on the other hand, involved a repatriation of those funds including monies which should have been paid to the Commissioner of Taxation by way of income tax. The Crown alleged that this payment involved a conspiracy between Mr Agius and Dr Castagna to deal with money that was the proceeds of crime (the avoided tax) and which, at the time of dealing, had a value of $1 million or more.
4. The relevant provisions of the indictment, Counts 1, 2 and 13 were in the following terms: "The Director of Public Prosecutions of the Commonwealth of Australia, who prosecutes in this behalf for Her Majesty, charges on 28 June 2017 that ROBERT FRANCIS AGIUS ANTHONY DANTE CASTAGNA 1. Between about 8 April 1998 and about 23 May 2001 at Sydney in the State of New South Wales and elsewhere, did conspire with each other to defraud the Commonwealth. Contrary to section 29D and s86(1) of the Crimes Act 1914 (Cth) (Law Part Code: 11102) And the said Director of Public Prosecutions further charges that ROBERT FRANCIS AGIUS ANTHONY DANTE CASTAGNA 2. Between about 24 May 2001 and about 30 July 2009 at Sydney in the State of New South Wales and elsewhere, did conspire with each other with the intention of dishonestly causing a loss to a third person, namely the Commonwealth. Contrary to section 135.4(3) of the Criminal Code (Law Part Code: 41505). … And the said Director of Public Prosecutions further charges that ROBERT FRANCIS AGIUS ANTHONY DANTE CASTAGNA 13. Between about 2 February 2004 and about 15 April 2008 at Sydney in the State of New South Wales and elsewhere, did conspire with each other to deal with money or other property which was proceeds of crime, believing the money or other property to be proceeds of crime, and at the time of dealing the value of the money and other property was $1,000,000 or more. Contrary to section 11.5(1) and 400.3(1) of the Criminal Code (Law Part Code: 41450)."
5. Counts 1 and 2 were charged separately to take into account the change in the underlying legislation which occurred on 24 May 2001. It was not contended that a separate agreement was required to establish each conspiracy alleged. It was accepted, consistent with the decision of the High Court in Agius v The Queen (2013) 248 CLR 601; [2013] HCA 27, that it was sufficient that the alleged conspirators continued to adhere to or participated in an existing agreement.
6. Following a jury trial which commenced on 19 February 2018, the jury returned verdicts of guilty for Counts 1, 2 and 13 on the indictment on 18 April 2018. Each of Dr Castagna and Mr Agius have appealed their convictions, or to the extent necessary, have sought leave to appeal against them.

A The appeals against conviction on Grounds 1 and 2

(a) The grounds of appeal

1. Dr Castagna relied upon the following grounds of appeal in respect of his conviction on Counts 1 and 2: "1. The trial judge erred in her directions as to how the jury was to approach the question of derivation of ordinary income. 2. The trial judge erred in directing the jury that they could take into account matters extraneous to the terms of the Consultancy Agreements in determining whether the appellant derived income from the consulting fees paid by Macquarie to Billbury. 3. The trial judge erred in refusing the application for a verdict by direction. … 7. The trial judge erred in declining the application to discharge the jury after the Crown prosecutor raised the appellant's bad character in closing address. 8. The verdicts on counts 1 and 2 are unreasonable and cannot be supported having regard to the evidence."
2. Mr Agius relied upon identical grounds of appeal.
3. In addition, prior to the return of the jury verdict, the appellants applied for the reservation of a question of law pursuant to s 72(1A)(a) of the Judiciary Act 1903 (Cth). The questions as ultimately agreed upon were in the following terms: "1. In circumstances where it was accepted that the three Consultancy Agreements (the Agreements) between Anthony Dante Castagna (the applicant), Macquarie Bank Limited or Macquarie Equities US Inc (Macquarie), and Billbury Limited (Billbury) were not sham agreements, were the terms of the Agreements the only relevant considerations in the determination of whether the applicant's assessable income for the years specified in the indictment for the purposes of s 6-5 of the Income Tax Assessment Act 1997 (Cth) comprised: (a) all the monies which Macquarie paid to Billbury under the Agreements (as the Crown contended); or (b) only those monies which Billbury actually paid to the applicant, being $8,800 per month, from the monies referred to in (a) which it received from Macquarie (as the applicant contended)? 2. If the answer to question 1 is yes, was the trial judge obliged to direct the jury to return verdicts of not guilty on all counts on the indictment?"

(b) The background facts

1. There was little dispute surrounding the background facts the subject of Counts 1 and 2.
2. Dr Castagna was a venture capitalist with expertise in investing in technology companies. Until late 1998, he lived and worked in the United States. However, from 1 January 1999, he was a resident of Australia for tax purposes.
3. Mr Daniel Phillips was an employee of Macquarie Technology Investments Banking, a division of Macquarie. The division focused on venture capital and worked with early stage technology companies. In 1997, Mr Phillips discussed with Dr Castagna the possibility of him taking on an advisory role with Macquarie.
4. Mr Phillips indicated to Dr Castagna that if the arrangement between Dr Castagna and Macquarie was to be a consulting arrangement, Macquarie's policy was that it would only deal through companies and it would not enter into a consultancy agreement with individuals.
5. Billbury was a company incorporated in the United Kingdom on 29 June 1983. The directors and shareholders of Billbury were companies incorporated in Vanuatu. There was no issue in the proceedings that Billbury was in some way associated with Mr Agius. Billbury held bank accounts in New Zealand and the signatories to those accounts including Mr Agius, were directors and employees of the Vanuatuan accounting firm, Moore Stephens Vanuatu.
6. Mr Agius and Dr Castagna are cousins and had a close relationship. It was not in contest that Mr Agius suggested Billbury as a potential participant in the consultancy arrangement.
7. Between 1998 and 2008, Dr Castagna provided consultancy services to Macquarie pursuant to a series of consulting agreements. Two of these agreements were in evidence. The first of those was dated 23 August 1999 and the second, 6 September 2001.
8. Although not in evidence, it was clear that there was an earlier agreement dated 9 April 1998. This was because there was a letter of that date from Macquarie addressed to Billbury, care of Dr Castagna at an address in the United States, that referred to a "Consultancy Agreement dated 9 April 1998" and set out what was described as a "schedule for monthly payments to Billbury".
9. The letter was signed on behalf of Macquarie by Mr Phillips and a Mr Charles Wheeler and was in the following terms: "STRICTLY PRIVATE AND CONFIDENTIAL 9 April 1998 Billbury Limited C/- Dr Anthony Castagna 247 Billingsgate Lane FOSTER CITY CA 94404 UNITED STATES OF AMERICA Dear Sir Pursuant to Section 3, Consultancy Fees of the Consultancy Agreement between Billbury Limited, its Representative and Macquarie Bank Limited dated 9 April 1998 please find below the schedule for monthly payments to Billbury Limited. Payments will be made monthly in arrears on the last day of each calendar month for the amount of AUD20,833.33, which is a monthly payment based upon the agreed annual consultancy fee of AUD250,000. Payments will be made to the following Bank account: Australia and New Zealand Banking Group Limited Central Branch Cnr Queen and Victoria Streets Auckland, New Zealand BSB Number: 115200 Account Number: 307652.001 Could you please sign the accompanying page to acknowledge that this schedule meets your requirements for payment under the terms of our Consultancy Agreement dated 9 April 1998. Yours sincerely MACQUARIE BANK LIMITED CHARLES WHEELER DANIEL PHILLIPS"
10. The following page contained an authorisation signed by Dr Castagna which was in the following terms: "I hereby accept the terms of the payment to be made to me as per the Consultancy Agreement between Billbury Limited, its Representative and Macquarie Bank Limited dated 9 April 1998. _________________ Signed A D CASTAGNA Name (please print)"
11. As will appear, the Crown placed some reliance on the fact that the acknowledgment signed by Dr Castagna referred to payments to be made "to me".
12. The first agreement in evidence was dated 23 August 1999. It was addressed to Billbury care of Dr Castagna at an address in Gordon, NSW. Relevantly it provided as follows: "This letter ('the agreement') sets out the terms on which Macquarie Bank Limited ('Macquarie Bank') will engage Billbury Limited ('Billbury'), and the obligations imposed on Billbury, Dr Anthony Castagna ('the Representative') of Billbury and Macquarie Bank. In particular, the agreement acknowledges that Billbury and the Representative will acquire experience, confidential information, trade secrets, know-how and particular skills in the affairs, practices, client requirements and trade connections of the Macquarie Bank ('the Group'). In light of this, an obligation is imposed on Billbury and the Representative in this agreement both during and after the termination of the engagement by Macquarie Bank not to use the knowledge, information and other matters for the benefit of others to the detriment of the Group and its businesses and in violation of its rights. … 1. ENGAGEMENT AND TERM Macquarie Bank will appoint Billbury on the terms and conditions set out in this agreement as a consultant to Macquarie Bank for a term commencing on 1 July 1999 and continuing until 30 June 2001 ('the Term'). The parties may extend the operation of the agreement, at any time during the agreement or upon the expiry of the Term, in writing with the consent of all parties. If the parties extend the Term they may in writing with the consent of all parties alter the terms and conditions of the agreement for the extended period. 2. RESPONSIBILITIES Billbury must provide services to Macquarie Bank pursuant to this agreement, including, without limitation, the services set out in Schedule 1. These services do not include the Representative's role as a Director of Macquarie Technology Funds Management Pty Limited, in respect of which the Representative is entitled to Directors' Fees in addition to any payments referred to in paragraph 3 below. Both Billbury and the Representative must perform the Contracted Services faithfully and diligently, consistent with the position of consultant to Macquarie Bank, and to a standard acceptable to Macquarie Bank. 3. CONSULTANCY FEES Macquarie Bank will pay to Billbury by way of remuneration for performing the Contracted Services: (a) on an exclusive, full time basis, a consultancy fee of AUD275,000 per annum; payable monthly in arrears on the last day of each calendar month. (b) effective from 1 April 1999 (ie. in respect of the year ending 31 March 2000), a discretionary profit share based on the overall performance of the Macquarie Technology Investment Banking group of Macquarie Bank. This profit share will be determined at Macquarie Bank's sole discretion (but in consultation with Billbury and the Representative) on an annual basis, within 3 months of the end of each 31 March financial year. The profit share will be payable to Billbury no later than 30 June. … 6. RELATIONSHIP OF THE PARTIES The legal relationship created by this agreement is not one of partnership or employer-employee but is one of principal-independent contractor. As a consequence, Billbury has the responsibility for holding and maintaining any necessary insurance in relation to performing the Contracted Services. Further, the Group shall not be responsible for any payments in respect of annual leave, sick leave, long service leave, superannuation, workers' compensation, accidents, sickness and life insurance in respect of the Representative or any other employee or agent of Billbury. However, while performing the Contracted Services, the Representative will be covered by the Group's health and travel insurance policies. In the event that the Representative or another employee of Billbury is deemed to be an employee of the Group under the general law or statute, Billbury will indemnify the Group and keep the Group indemnified in respect of any taxation or similar liability the Group may have to pay where such liability arises as a consequence of the Representative or another employee of Billbury being held or deemed to be an employee of the Group. In addition, Billbury must: (a) comply with all laws, regulations, awards and valid directions of any governmental authorities whatsoever; and (b) obtain all necessary permits or approvals to undertake all responsibilities under this agreement."
13. Schedule 1 of the agreement described the services to be provided. It was in the following terms: "SCHEDULE 1 Description of Services The services to be provided by Billbury to Macquarie Bank include but are not limited to the following: (a) Provide assistance to Macquarie Technology Funds Management ('MTFM'), and its staff in the formation, development and growth of MTFM both nationally and internationally; (b) assist in the development and growth of MTFM's investee companies; (c) assist Macquarie Technology Investment Banking ('MTIB') and its staff on their prospective and mandated transactions; (d) assist MTIB in the development of its global business in Australia, Asia, the United States and elsewhere; (e) promote the goals of MTFM and MTIB to potential clients, partners and investors; and (f) act variously as a mentor, coach, facilitator, and as a general resource, when required, for the development of investee companies, and for the staff at MTFM and MTIB."
14. At the same time a payment direction was given pursuant to schedule 3 of the agreement. Although the schedule is not in evidence, the payment direction dated 23 August 1999 was in the following terms: "STRICTLY PRIVATE AND CONFIDENTIAL 23 August 1999 Billbury Limited C/- Dr Anthony Castagna 8 Cawarra Place GORDON NSW 2072 Dear Sir Pursuant to Section 3, Consultancy Fees of the Consultancy Agreement between Billbury Limited, its Representative and Macquarie Bank Limited dated 23 August 1999 please find below the schedule for monthly payments to Billbury Limited. Payments will be made monthly in arrears on the last day of each calendar month for the amount of AUD22,916.67, which is a monthly payment based upon the agreed annual consultancy fee of AUD275,000. Payments will be made to the following Bank account: Australia and New Zealand Banking Group Limited Central Branch Cnr Queen and Victoria Streets Auckland, New Zealand BSB Number: 115200 Account Number: 307652-001 Could you please sign the accompanying page to acknowledge that this schedule meets your requirements for payment under the terms of our Consultancy Agreement dated 23 August 1999. Yours sincerely MACQUARIE BANK LIMITED CHARLES WHEELER DANIEL PHILLIPS"
15. The direction also contained an acknowledgment of the terms of payment signed by Mr Agius which was as follows: "I hereby accept the terms of the payments to be made to me as per the Consultancy Agreement between Billbury Limited, its Representative and Macquarie Bank Limited dated 23 August 1999. ______________ Signed Robert AGIUS Name (please print)"
16. The third agreement was dated 6 September 2001. It was expressed to be for a term commencing on 1 July 2001 and continuing until 30 June 2003. It was otherwise identical to the second agreement.
17. Notwithstanding the termination date of the third agreement, payments continued to be made by Macquarie to Billbury up to and including the financial year ended 30 June 2008. It was not suggested that the payments made after 30 June 2003 were made on different terms than those made during the term of the earlier agreements.
18. Macquarie paid the money due under the consultancy agreements to Billbury, the payments being made into either a United States dollar account or an Australian dollar account held by Billbury with ANZ in New Zealand. The Crown's forensic account, Mr Rositano, identified approximately $6.3 million of payments made by Macquarie to Billbury over the period the subject of the charges.
19. The bulk of the monies paid to Billbury were transferred into bank accounts standing in the name of IFTCO. The accounts included an Australian and a New Zealand dollar account held by IFTCO with ANZ in New Zealand and similar accounts with the same bank in Vanuatu. They also included two other accounts which could not be identified but were likely to be Vanuatu accounts, and two in respect of which neither the account number nor the jurisdiction in which they were established could be identified.
20. Throughout the period the subject of the charges, approximately $8,800 per month was paid by Billbury to Australian bank accounts standing in the name of Dr Castagna. Billbury, however, did not retain funds out of the monies initially received from Macquarie to make these payments. Rather, funds were transferred to it by IFTCO out of which the payments were made.
21. The amounts totalling $999,647, paid in this fashion to Australian bank accounts standing the name of Dr Castagna, were declared as income by Dr Castagna. The amounts were described in his tax returns as "other business income". Dr Castagna did not declare any of the other monies received by Billbury pursuant to the consultancy agreements.
22. Dr Castagna provided a voluntary disclosure statement to the Australian Taxation Office in 2008. Relevantly it contained the following statements: "6. I met with Dan Phillips at his Sydney office, sometime late in 1997 and he introduced me to his team at the time, following which, he offered me a part time consulting contract with Macquarie Bank. 7. I no longer have a copy of the original Contract as signed. It operated for the balance of 1997 and the early months of 1998. It was later replaced by another contract (I do not recall the exact date), starting in about March 1998, for Billbury to provide my services to Macquarie Bank Limited or Macquarie Technology Investment Banking Group on a full time basis - I no longer have a copy of this contract. 8. Dan advised me at the time that he offered me a full time contract that Macquarie Bank would only contract through a company and that Macquarie Bank would not contract with me as an individual. During my discussions with Dan, we said words to the following effect: He said: 'I will arrange for you to receive a consulting contract but it will have to be provided through a company as Macquarie will not contract with individuals' I said: 'That is fine by me'

9. I spoke about Macquarie Bank's requirements with my cousin Robert Agius sometime after I spoke to Dan Phillips. Robert is a trusted family member and advisor, who is a Chartered Accountant living in Vanuatu and a partner of Moore Stephens at the time (now called PKF). I have had a long, close, and trusting relationship with him. Robert and his sister were raised by my parents as children and they both lived with us at my parent's home in Islington, an inner suburb of Newcastle. Robert told me that Billbury could be used as the contracting party and that it would pay me consulting fees. … 11. To the best of my recollection, during my discussions with Robert Agius we said words to the following effect: He said: 'I can provide Bilbury [sic] for the contract'. I said: 'I will provide Billbury's name to Macquarie as they have advised me that they intend to prepare a contract for services.' He said: 'How much will you need for your living expenses? What you don't need can be contributed to a retirement fund.' I said: 'I'll need about $8,800.00 per month for living expenses.' He said: 'When Macquarie pays fees to Billbury, Billbury will send $8,800.00 to you and Billbury can contribute the rest in the retirement fund for you.' I said: 'I'd like the retirement fund to be left on deposit. From time to time I would like the fund to invest in start-up companies that I may recommend.' He said: 'That will be fine.' I said: 'Are there any issues about arranging my affairs in this way?' He said: 'No. There are no issues. I have an opinion from a QC that these arrangements are fine.'

… 14. Robert subsequently advised me to set aside a fund for my retirement in a company structure called a company limited by guarantee. I followed his advice. The company, named Delrick Limited ('Delrick'), was established by Moore Stephens and its activities were managed and controlled by the firm. … 16. Pursuant to my discussion with Robert Agius referred to above, I provided Macquarie Bank with the name of Billbury. A contract between Macquarie Bank Limited or Macquarie Technology Investment Banking Group (I do not recall which of these names was noted on the contract) and Billbury was prepared by Macquarie Bank and presented to me. … 26. All monies paid by Macquarie for my consulting services have since the first half of calendar 1998 been paid to Billbury on a monthly basis and in arrears. Macquarie has transmitted by telegraphic transfer the monthly equivalent consulting fees in US dollars to Billbury's bank account held at ANZ Bank, Auckland in account No. 307 652-001. … 28. The portion of the Macquarie Bank consulting fees that I receive, approximately $8,800.00 per month, is transferred to my account at Commonwealth Bank of Australia (CBA) held at the Bank's Gordon branch in Account No. XXX-XXX-XXXX-XXXX [redacted]. … 30. Under the contracts between Macquarie and Billbury, Macquarie also pays a discretionary profit share to Billbury, but only at its sole discretion, as detailed in clause 3(b) of the Agreement (Exhibit A). … 31. In each of the years in which there has been a discretionary profit share paid, Macquarie has paid it to Billbury, to the same ANZ Bank account in Auckland. Normally, the profit share payment is paid in July for the prior financial year ending 31 March of that year. 32. Since the first half of 1998, the monies retained by Billbury out of Macquarie's monthly payments and discretionary profit shares have been dealt with by Billbury, to the best of my understanding and knowledge, as additions to the retirement fund. I now understand from information more recently provided to me by Robert Agius that the retirement fund has been constituted as follows:

• The money that Billbury has received from Macquarie in excess of the $8,800 per month sent to my CBA bank account is transferred by Billbury to International Finance Trust Company (NZ) Limited ('IFTC'), a registered Trust company of PKF (previously called Moore Stephens).
• IFTC is a company managed and controlled by PKF.
• The funds are held by IFTC on behalf of Delrick, a company that I understand to be limited by guarantee and incorporated in Vanuatu.
• The retirement fund monies held on behalf of Delrick by IFTC are held in New Zealand. Further I now understand that I am not presently entitled to the retirement fund; that I do not control the fund; that upon my retirement in 2012, the fund which is structured as a company limited by guarantee, and for which Robert is the guardian and his partner at PKF is the appointor, must be liquidated in order to release the accumulated quantum of the fund for expatriation to Australia."

1. The balance of the voluntary disclosure statement although it had some relevance to Count 13, is not relevant in relation to Counts 1 and 2.

(c) The relevant legislation

1. The following provisions of the Income Tax Assessment Act 1997 (Cth) (ITAA 1997), are relevant to the determination of the appeal in respect of Grounds 1 and 2: "Section 6-5 Income according to ordinary concepts (ordinary income) (1) Your assessable income includes income according to ordinary concepts, which is called ordinary income. Note: Some of the provisions about assessable income listed in section 10‑5 may affect the treatment of ordinary income. (2) If you are an Australian resident, your assessable income includes the *ordinary income you *derived directly or indirectly from all sources, whether in or out of Australia, during the income year. (3) If you are a foreign resident, your assessable income includes: (a) the *ordinary income you *derived directly or indirectly from all *Australian sources during the income year; and (b) other *ordinary income that a provision includes in your assessable income for the income year on some basis other than having an *Australian source. (4) In working out whether you have derived an amount of *ordinary income, and (if so) when you derived it, you are taken to have received the amount as soon as it is applied or dealt with in any way on your behalf or as you direct. Section 6-10 Other assessable income (statutory income) (1) Your assessable income also includes some amounts that are not *ordinary income. Note: These are included by provisions about assessable income.For a summary list of these provisions, see section 10‑5. (2) Amounts that are not *ordinary income, but are included in your assessable income by provisions about assessable income, are called statutory income. Note 1: Although an amount is statutory income because it has been included in assessable income under a provision of this Act, it may be made exempt income or non‑assessable non‑exempt income under another provision: see sections 6‑20 and 6‑23. Note 2: Many provisions in the summary list in section 10‑5 contain rules about ordinary income. These rules do not change its character as ordinary income. (3) If an amount would be *statutory income apart from the fact that you have not received it, it becomes statutory income as soon as it is applied or dealt with in any way on your behalf or as you direct. (4) If you are an Australian resident, your assessable income includes your *statutory income from all sources, whether in or out of Australia. (5) If you are a foreign resident, your assessable income includes: (a) your *statutory income from all *Australian sources; and (b) other *statutory income that a provision includes in your assessable income on some basis other than having an *Australian source."
2. Having regard to the manner in which the argument developed, the provisions dealing with the taxation of trust income in Pt III, Div 6 of the Income Tax Assessment Act 1936 (Cth) (ITAA 1936) are also of relevance. The relevant provisions for present purposes are s 96, s 97(1)(a) and s 99(2). They are in the following terms: "Section 96 Trustees Except as provided in this Act, a trustee shall not be liable as trustee to pay income tax upon the income of the trust estate. Section 97 Beneficiary not under any legal disability (1) Subject to Division 6D, where a beneficiary of a trust estate who is not under any legal disability is presently entitled to a share of the income of the trust estate: (a) the assessable income of the beneficiary shall include: (i) so much of that share of the net income of the trust estate as is attributable to a period when the beneficiary was a resident; and (ii) so much of that share of the net income of the trust estate as is attributable to a period when the beneficiary was not a resident and is also attributable to sources in Australia; and … Section 99 Certain trust income to be taxed as income of an individual … (2) Where there is no part of the net income of a resident trust estate: (a) that is included in the assessable income of a beneficiary of the trust estate in pursuance of section 97; (b) in respect of which the trustee of the trust estate is assessed and liable to pay tax in pursuance of section 98; or (c) that represents income to which a beneficiary is presently entitled that is attributable to a period when the beneficiary was not a resident and is also attributable to sources out of Australia; the trustee shall be assessed and is liable to pay tax on the net income of the trust estate as if it were the income of an individual who was a resident and were not subject to any deduction."

The Crown case

1. There are four matters which should be noted at the outset. The first is that the Crown did not contend that the agreements between Macquarie, Dr Castagna and Billbury were shams. The Crown case was that notwithstanding that the agreements, on their face, required Macquarie to pay the consulting fees to Billbury, the income was in fact was derived by Dr Castagna.
2. The second matter is that no reliance was placed on the anti-avoidance provision in Pt IVA of ITAA 1936. The operation of those provisions are conditional on the Commissioner of Taxation making a determination under s 177F of that Act, which has not occurred in the present case.
3. The third matter is that no reliance was placed on the personal services income provisions in Pt 2-42 of ITAA 1997, which are designed to deal with arrangements concerning the alienation of personal services income of individuals.
4. The fourth matter is this. As will appear, the Crown as a fall-back position to its primary case that the receipts from Macquarie constituted income derived by Dr Castagna, sought to submit, at least on appeal, that if the income was derived by Billbury it was derived by that company as trustee of a trust in respect of which Dr Castagna was entitled to the income and which thus formed part of his assessable income. To understand the manner in which the case was put at trial and to consider the availability of the alternative position, it is necessary to consider the course of the trial in some detail.

(a) The Crown's opening address

1. The Crown opened its case over the course of three days. In relation to counts 1 and 2, the Crown stated the following early in its opening address: "In general terms count 1 and 2 allege one ongoing conspiracy to defraud the Revenue. … In essence, the Crown says, there will be evidence from which you can infer there was an agreement between Dr Castagna and Mr Agius between April 1998 and July 2009. … The Crown alleges that the agreement was to conceal Dr Castagna's full and true assessable income from the Australian Taxation Office by using foreign companies and foreign bank accounts that were controlled [by] Mr Agius to hide the relevant funds."
2. After reviewing the remaining counts, the Crown then gave an overview of its case in relation to each of the counts as a whole. While somewhat lengthy, this overview is important in understanding the way in which the Crown put its case. In relation to the facts which are relevant to counts 1 and 2, the Crown stated the following: "In relation to all of the counts on the indictment the Crown case in a nutshell … is that between 1999 and 2008 Dr Castagna was a venture capitalist. Dr Castagna was a venture capitalist who was party to a contract that he signed with Macquarie Bank. The Crown alleges that contract was specifically designed for Dr Castagna to provide his services and no other person's services so that he and nobody else would work at Macquarie Bank as a consultant. Now the contract … for Dr Castagna's services was signed not surprisingly by Macquarie Bank. It was also signed not surprisingly by Dr Castagna. It was also signed by a foreign company named Billbury Limited. We all know that companies can't sign things, it was in fact signed by Mr Agius, one of the accused, Dr Castagna's cousin, an accountant who worked in Vanuatu and he signed it as a director of Billbury. Dr Castagna's signature on the contract was signed nominating him as the representative of Billbury, who was going to be providing his consultancy services to the bank. During, I'll call it the charge period, this span of years from 1999 to 2008, during that period in total Macquarie Bank paid $6.3 million. The Crown case is that those payments related solely and specifically to Dr Castagna providing his personal services and working at Macquarie Bank, turning up to their offices, going about the work that they required him to do. That $6.3 million though was not paid to Dr Castagna it was transferred into a foreign bank account in the name of Billbury. Out of that amount, that is out of the $6.3 million, Dr Castagna received into his personal bank account in Australia only $849,000-odd. … The Crown alleges that it was only that amount, that is $849,000-odd received into Dr Castagna's personal bank account in Australia and only that amount spread over these number of years that he declared as his income in his Australian income tax returns. … I've told you about the $6.3 million Macquarie Bank paid, I have told you about a much lesser amount of $849,000-odd declared in the tax returns. You might ask yourself, well, what became of the rest? The remainder, the Crown says, and the majority of the fees that Macquarie Bank paid for Dr Castagna's personal services, about $5.7 million, were held in Vanuatu and New Zealand in bank accounts that, the Crown says, were controlled by Dr Castagna's cousin and his co-accused, Mr Agius. Those funds, the $5.7 million-odd, were not declared by Dr Castagna in his Australian income tax returns. The fact is that it is the Crown case that Dr Castagna didn't even mention the $5.7 million or his contract with Billbury and Macquarie Bank to his accountants, who prepared his income tax returns for the relevant years."
3. In this part of the address, it is apparent that the Crown was placing some emphasis on the fact that, while Billbury was a party to the consultancy agreements and received payments from Macquarie Bank, it was Dr Castagna who had "earned" those payments by providing his services to Macquarie Bank. Further, while it was not explicitly stated, it is also apparent that the Crown was suggesting that Dr Castagna should have declared the payments to Billbury in his income tax returns over the relevant period.
4. The Crown then proceeded to outline the evidence in some detail. The Crown first identified and described some of the corporate entities which were relevant to its case. When discussing Billbury, the Crown noted that the payments made to Billbury were not recorded by Billbury as its income in its United Kingdom financial statements. The Crown did not suggest any explanation for this omission.
5. In dealing with the relationship between Mr Agius and the accounting firm Moore Stephens in Vanuatu, the Crown emphasised that its case was that Dr Castagna earned income by working with Macquarie. The following remark is of relevance: "Pausing there to put this in context, the Crown does not allege that any of Dr Castagna's income was earned by a Vanuatu international company. It was earned through working at Macquarie Bank. I am taking you to this because Moore Stephens, International Finance Trust Company and the use of Vanuatu entitles and bank accounts looms very large in this case."
6. The Crown then turned to the consultancy agreements between Macquarie Bank, Billbury and Dr Castagna. Whilst reviewing their terms and the payments which they required to be made, the Crown made the following statements to the jury about, first, the rationale for the consultancy agreements and, second, what they expected to be one of the principal issues during the course of the trial: "I expect that Mr Phillips will tell you that because he was aware, perhaps not of the particular résumé, but of Dr Castagna's qualifications generally, that Dr Castagna would be a good fit for his department at Macquarie Bank and as a result he, Mr Phillips, offered Dr Castagna to work at Macquarie Bank as a consultant. Now apparently at the time somebody at Macquarie Bank, not Mr Phillips, told him that Macquarie Bank required consultants not to be directly employed under their own name, because there might be workers compensation, holiday pay requirements, et cetera; they might be considered to be employees. I understand that somebody at Macquarie Bank told Mr Phillips that if he wanted to employ Dr Castagna as a consultant that had to be done through a company. That is they would arrange the consultancy with a company for the provision of Dr Castagna's services. I understand Mr Phillips will tell you that he or somebody else at Macquarie Bank told Dr Castagna that was Macquarie Bank's requirements [sic] that a company become involved in the consultancy agreement. Now pausing there, I also expect that he will tell you that it was nothing of his requirements or Macquarie Bank's requirements that the company involved had to be a foreign company. I expect he will tell you that nobody at Macquarie Bank said that the company involved had to have bank accounts offshore or the consultancy fees had to be paid into offshore bank accounts. That was none of Macquarie Bank's dealings, but it was their requirement to engage Dr Castagna as a consultant that there had to be a company involved. … Much of this case I expect will be about whether or not this really was Dr Castagna's income and whether or not this was generated through his personal exertion, through his personal qualifications and attributes or whether or not it was really Billbury and he was working for Billbury." (T54)
7. The Crown clarified this position a little later while giving an overview of the evidence of the payments which were actually made to Billbury by Macquarie Bank. The Crown said the following in relation to bonuses which were payable under the consultancy agreements: "You may not be surprised by this, like the 22 odd thousand dollars a month, those large bonuses in fact didn't go into Dr Castagna's account. They went to Billbury. The Crown's position in relation to those bonuses, like the other figures, the monthly figures, is that they were ordinary income arising directly from Dr Castagna's personal exertion, his work at Macquarie Bank, and ought to have been declared by him in his income tax returns and they were not."
8. It is here that there is the first reference to the payments made by Macquarie Bank to Billbury being "ordinary income". Although the Crown did not highlight to the jury that this term had a particular legal meaning at this point, this was done at the conclusion of the address, where it was described as including "a gain that is a reward for services rendered". There was no reference to the payments being any form of statutory income, either explicitly or implicitly at any point in the Crown's opening address.
9. In concluding its overview of the payments which were actually made to Billbury, the Crown made a statement upon which it placed considerable reliance at the hearing of the appeal. The statement was the following: "Now the Crown allegation, just so you can understand the evidence and what the Crown says its relevance to these charges might be, the Crown allegation is that flow of funds - even ignoring the payments of bonus payments for the time being - so that flow of funds, 22,000 paid by Macquarie expressly for the work that Dr Castagna did when he went into Macquarie Bank's offices, and the return of only $8,800, the Crown alleges was designed by both accused, given that Mr Agius was involved in both Billbury and IFTCO, the Crown says you can infer there was an agreement between the accused, by virtue of this circular transaction of sending some of the money out of the country and some of it back, to conceal Dr Castagna's true and complete income. The Crown says part of that consideration is that Billbury really had no role whatsoever in this arrangement with Macquarie Bank other than to receive 22,000, to send it to IFTCO, to receive 8,800 back from IFTCO, and to return that smaller monthly payment to Dr Castagna. In other words, the Crown says that Billbury and IFTCo [sic] were corporate vehicles that were used to conceal Dr Castagna's income by hiding it overseas."
10. This statement was called in aid by the Crown to support a submission that, "even though 'bare trustee' … terminology [was] not used in substance … what was being put to the jury, was the way that the money … was treated in such a transitory fashion by Billbury and really immediately sent on to IFTCO and then from IFTCO, the living expenses to Dr Castagna, the rest to the on call deposit, reflects in substance a bare trustee relationship". Whether this statement was correct as a characterisation of the opening address or the Crown case at trial as a whole will be considered later.
11. During its opening address, the Crown also spent considerable time reviewing the evidence relating to the income tax returns filed by Dr Castagna. It is not necessary to go through these parts of the address in detail. It is sufficient to note the allegation which the Crown ultimately made about this evidence: "Now the Crown says that the information contained in the tax returns for each year was false. The Crown says it was intentionally, knowingly and dishonestly false because Dr Castagna failed to declare in his other business income section of his tax returns the full amounts of the payments from Macquarie Bank that were directly attributable to his personal exertion as a consultant at Macquarie Bank. The Crown says that in the instructions letter to his accountants, which we have seen for each year, simply advising a fairly modest amount for his advisory fees and making no mention of the $11,000 that apparently went into some retirement fund was knowingly and intentionally false. And that as a result of those false instructions his accountants were deceived, the tax returns were false and false and misleading income tax returns were lodged with the Commissioner of Taxation. … The Crown position is that the income that Dr Castagna failed to declare, so the difference between the $22,000 a month and the $8,800 that he did declare over the period of 1999 to 2008 adds up to slightly more than 5 and a half million dollars that he failed to declare, and that includes the bonuses. The Crown says attributable to his personal exertion over various years. So about five and a half odd million dollars in total over the various years should have been declared and it wasn't."
12. In this part of the address, it is apparent that the Crown was placing significant emphasis on the fact that the payments made to Billbury were "directly attributable to [Dr Castagna's] personal exertion as a consultant at Macquarie Bank". This is consistent with the Crown's earlier statement to which we have referred at [44] above that one of the principal issues in the case would be "whether or not [these payments] was generated through [Dr Castagna's] personal exertion, through his personal qualifications and attributes".
13. The Crown then turned to consider Count 13.
14. The Crown returned to counts 1 and 2 at the conclusion of its opening address, but did not say anything relevant to those issues, apart from reiterating that the agreement between Dr Castagna and Mr Agius which the Crown relied upon was one to conceal Dr Castagna's "true and complete assessable income". It was also emphasised that on the Crown case, the funds received from Macquarie were not Billbury's income. This was made clear in the following passages of the opening : "So the Crown says that directing money to go to Billbury doesn't mean it is Billbury's income. It is a question that you will have to determine in relation to whether or not the money Macquarie paid to Billbury was money that should have been declared by Dr Castagna as assessable income that he directed to another party. … Ordinary income, can I suggest to you, includes a number of things, but it in particular includes a gain that is a reward for services rendered. The Crown says that services rendered by Dr Castagna that generated these payments were income that were required to be declared by him as ordinary personal income in his tax returns. Other income that is ordinary income are gains that arise from carrying on business. So if you ultimately find that Dr Castagna was carrying on a business by providing his services to Macquarie Bank that gain derived from carrying on that business, the Crown says, is ordinary income."
15. We have dealt with the Crown opening in some detail because it was suggested during the course of the appeal that the manner in which the case was put was wide enough to encompass the allegation that the relationship between Billbury and Dr Castagna in respect of the monies received from Macquarie was that of trustee and beneficiary and, in particular, that Billbury held the funds received from Macquarie as bare trustee for Dr Castagna. However, it is difficult to see any indication in the Crown's opening address that the case was being put on the basis that the relationship between Dr Castagna and Billbury was a "bare trustee" relationship. It was correctly conceded that there was no express reference to the concept. It seems quite clear that the principal basis upon which the Crown opened its case was that Dr Castagna should have included the payments made by Macquarie Bank to Billbury as part of his assessable income in his income tax returns because those payments were "directly attributable to his personal exertion as a consultant at Macquarie Bank".
16. The statements which we have extracted at [47] above and which were relied upon by the Crown on the appeal do not lead to a different conclusion. At its highest, it could be said that the statements that "Billbury really had no role whatsoever in this arrangement" and that Billbury was a "corporate vehicle" are consistent with a case that there was a "bare trustee" relationship. However, when read in the context of the opening address as a whole, it is not possible to read them as conveying that meaning. Instead, they simply serve to emphasise the idea which was at the heart of the Crown case: that Billbury was not doing any independent work for Macquarie Bank which might have entitled it to the payments which were instead "directly attributable to [Dr Castagna's] personal exertion as a consultant at Macquarie Bank".

(b) Application for a verdict by direction

1. At the conclusion of the evidence, an application for a verdict by direction was made to the trial judge on behalf of both accused. Counsel for Dr Castagna commenced his address by stating that "if the Crown accepts, as it does, that the agreement between Billbury and Macquarie Bank is genuine then this fact permits only one conclusion, namely the income paid pursuant to that agreement was derived by Billbury not Dr Castagna". In response to a comment by the trial judge, he then explained this submission in more detail: "[T]he contract … provided Macquarie to pay Billbury, that is the legal source of the income and that is the critical determining feature in our respectful submission that determines the question as to who derived the income from Macquarie. In our respectful submission it was not at law and did not become at any time the income of Dr Castagna and just because the valuable thing which Macquarie received in consideration for the fees was the provision of services to be performed by Dr Castagna does not make it Dr Castagna's income nor does it mean that he derived the income from Macquarie. The Crown case is anchored, with respect, to the proposition that the money paid by Macquarie to Billbury was derived by Dr Castagna and in our respectful submission if the Crown fails to establish that proposition then there must be an acquittal in respect of all charges and indeed Mr Crown accepted as much the other day when your Honour will recall there was a debate about MFI 30 dealing with our proposed changes to the tax directions and your Honour will recall Mr Crown said if your Honour accepted the two paragraphs that were proposed that was tantamount to a verdict by direction. We accept that would be so and we contend that it is so because the facts of this case point in only one direction. That your Honour has raised with me the Consulting Agreement I will come to in a bit more detail in a moment, but there is no issue and never has been an issue that Macquarie Bank and Billbury intended to give effect to the terms of that contract accord to its tenet. It was a genuine bona fide contract and that is a critical factor which may separate this case from other cases but it is an important guide post that will assist your Honour in determining who derived the income that was paid by Macquarie."
2. Counsel for Mr Agius adopted the submissions made on behalf of Dr Castagna.
3. The Crown responded to the submissions made on behalf of the appellants in the following manner: "Your Honour, the Crown response in relation to the substantive submissions is that they, with respect, are misconceived but by focusing only on the issue of sham and the issue of contract and receipt that the accused, with respect, directing your Honour's attention to the incorrect test. The correct test in relation to ordinary income the Crown says is that one first has to determine … if there was income; and secondly determine if there is some direction or action by the individual taxpayer which, according to ordinary income principles, would allow a tribunal of fact to infer from the direction or action that the taxpayer has himself in this case or themselves derived that income through that direction or action."
4. The Crown placed considerable reliance on the decision of the Federal Court both at first instance and on appeal in Baker v Federal Commissioner of Taxation (1989) 20 ATR 798 (Baker); on appeal Baker v Federal Commissioner of Taxation (1989) 20 ATR 1706 (Baker FFC): "Your Honour Baker is, the Crown says, still good law. I found nothing to distinguish it or to overturn it. It is stood good law in relation to the analysis in his Honour Pinkus [sic] J's decision at first instance at paragraphs, at least lines 33 to about 42 on page 811 and a consideration by his Honour over the page at 812. And as your Honour, with respect of course correctly noted, those findings were not overturned by the full Federal Court in the appeal from Baker and the Federal Commissioner of Taxation. So those considerations have been given full Federal Court approval in the Baker decision."
5. The Crown explained the point of difference with the submissions made on behalf of the appellants in the following manner: "Mr White of course, because I think his submission depends on it, says exclude everything else but just look at the contract and look at whether or not it's a sham and look at actual receipt by company. That microanalysis of only one fact ignores the whole matrix and the Crown … submits that the relevant factual matrix which includes everything that a tribunal of fact would take into account in determining income and derivation …"
6. The Crown then referred to its written submissions on the application, which listed a wide range of circumstances which it said would be included within the "factual matrix" in the present case. It should be noted that the circumstances listed in these submissions were identical to those identified by the Crown in its closing address to the jury on this issue.
7. At this point, it is apparent that there was a slight divergence between the language used by the Crown and the appellants in the application for a verdict by direction to describe the Crown case. The submissions made on behalf of the appellants viewed the Crown case as to whether Dr Castagna could be taken to have "derived" income as depending upon the fact that "the valuable thing which Macquarie received in consideration for the fees was the provision of services to be performed by Dr Castagna". This understanding accords with the emphasis placed by the Crown on the fact that the payments made to Billbury were "directly attributable to [Dr Castagna's] personal exertion as a consultant at Macquarie Bank" in its opening address.
8. However, the submissions made by the Crown on the application for a verdict by direction used slightly broader language to describe the circumstances in which Dr Castagna would be taken to have "derived" income. In an exchange with the trial judge about the effect of one of the relevant authorities, the Crown stated that "the income was not in this case derived in any legal meaningful sense by Billbury because it was passed through and immediately to the benefit of Dr Castagna and acknowledged by him at the outset that that was always the arrangement". The Crown expanded upon this submission by stating the following: "The Crown says technically the income here was derived by Dr Castagna, in any real sense, because it was passed within days from Billbury's account directly to Dr Castagna's benefit, and that that was always the intention. … It is quite clear from the voluntary disclosure statement that the arrangement even before Billbury was proffered to Macquarie Bank was it was always the intention of Mr Agius and Dr Castagna that the commission payments were to pass promptly through Billbury and to find their way to Vanuatu for Dr Castagna's sole benefit. For those reasons the Crown says … this is technically income that was derived in a legal sense because Dr Castagna directed that the money be treated in a certain way, paid into a certain account and then applied to his benefit."
9. This submission focused on the "benefit" which Dr Castagna received from the payments in order to determine whether he had "derived" income, rather than the fact of his "personal exertion".
10. Despite this divergence, it seems clear that there was still a common understanding that the Crown had put its case on the basis that the question of whether Dr Castagna had "derived" income by reason of the payments made by Macquarie Bank to Billbury was ultimately a question of fact to be determined by the jury from the circumstances of the case as a whole, or the "factual matrix". While the Crown had started referring to whether Dr Castagna had received a "benefit" as relevant to the factual question of whether he had "derived" income, it could not be said that this amounted to an allegation that the relationship between Billbury and Dr Castagna was a "bare trustee" relationship. The focus remained on an assessment of all the circumstances as a matter of fact, not a legal analysis of the relationship.

(c) The judgment on the application for a verdict by direction

1. The trial judge noted the submission made by senior counsel for Dr Castagna that "in circumstances where the Crown did not suggest that any of the Consulting Agreements were shams, no regard could be had to anything outside the four corners of these agreements". She noted in this regard that reliance was placed on the decision of the Full Court of the Federal Court in Tupicoff v Federal Commissioner of Taxation (1984) 4 FCR 505 (Tupicoff).
2. Her Honour noted that in opposing the application, the Crown relied on the decision of Pincus J in Baker and the Full Federal Court in Baker FFC in submitting that the question of who derived the relevant income was "a question of fact which was to be determined having regard to all relevant circumstances". The trial judge also referred to the wide range of circumstances referred to by the Crown in its written submissions. She summarised these as follows: "15 The relevant factual matrix, to establish that the accused Dr Castagna derived the income by direction and action, includes the following combination of matters: (a) the consultancy agreement with MBL [Macquarie] was a tripartite contract, which Dr Castagna signed as a contracting party; (b) the services provided to MBL were Dr Castagna's personal skills and experience, as opposed to any skills provided by Billbury; (c) the initial, part-time, contract with MBL was entered into by Dr Castagna personally; (d) Dr Castagna provided the services to MBL; (e) Dr Castagna arranged and directed that payment for those services should be made to Billbury, including by directing the bank account into which the income was to be paid; (f) Dr Castagna was the only person who could provide those services and no other person was contemplated or could be substituted to provide those services under the consultancy agreement; (g) the consultancy agreement with MBL could be terminated by MBL if Dr Castagna was not available to perform the services; (h) there is no evidence to show Billbury carried on the business of providing any consultancy services during the relevant period; (i) Dr Castagna admitted in his voluntary disclosure statement that the initial draft of the contract with MBL included a non-competes [sic] clause which would prevent him personally from working in the industry, and that he personally negotiated for the removal of that clause; (j) the funds transferred by MBL to Billbury were transferred to IFTCO within a few days of receipt with the only deduction being a bank transaction fee rather than a profit derived from the provision of services; (k) Billbury earned very little or no income for financial years 1998 to 2007; (l) The turnover represented in the financial statements of Billbury is from interest and commission earned on loans and deposits made through financing operations, not from the provision of consulting services; (m) For financial years 1998 to 2000 Billbury operated at a loss. For the 2002 to 2007 financial years the company appeared to be inactive as it did not earn any income or incur any expenses and had $3 Cash at Bank; (n) Billbury's Directors and Secretary is Astrolabe Limited, a Vanuatu Nominee company utilised by PKF Vanuatu. In 2008 Mr Agius was named as a Director, additionally to Astrolabe Nominees Limited. Two shares were issued in the company. One held by Astrolabe Limited and the other by Astrolabe Nominees Limited. (o) The financial statements indicate Billbury has no employees. The statements report the directors did not receive emoluments for their services, and there was no remuneration paid to the two employees during this time. Billbury does not appear to have any other paid employees; (p) Billbury is not registered for a TFN or an ABN for Australian tax purposes and has never lodged an Australian tax return; (q) On 22 November 2007 Mr Agius sent an email to his solicitor stating he "controlled and owned Billbury". (r) On 13 February 2008 Mr Agius swore a Statutory Declaration, declaring the following: - he was a Director of Billbury; - Billbury is a foreign company for the purposes of the Australian Corporations Law; - Billbury is not a foreign company registered in Australia; and - Billbury does not carry on business in Australia. (s) Billbury has never reported its business activity as including providing consultancy services. Nor has it reported any income that could have been derived from providing such services. (t) The inference is Billbury is neither a legitimate finance company, nor a consultancy firm. Entities controlled by PKF Vanuatu employees, Astrolabe Limited and Astrolabe Nominees Limited were shareholders and office bearers of Billbury; (u) The lack of activity in Billbury's accounts coupled with the fact its Director is a Nominee Vanuatu company controlled by PKF Vanuatu indicates Billbury is nothing more than a nominee company managed by PKF Vanuatu and utilised on its client's behalf. (v) There is no evidence Billbury has made decisions concerning the manner in which the consultancy services would be carried out by Castagna for MBL; (w) Billbury was only used to receive and on-forward payments from MBL; (x) Billbury is described in the partnership agreement (Ex 1D-5) as an on-billing company; (y) No agreement setting out the terms of any arrangement between Dr Castagna and Billbury has been located, nor is any such agreement referred to in the evidence. 16. The true nature of the arrangement is further apparent from the evidence of Mr Daniel Phillips, an Executive Director at MBL, who stated that he formed the view Dr Castagna had the appropriate skills and experience to assist MBL so he offered him a consultancy. He did not seek out a consultancy firm and ask if they had a consultant available to provide the required services. Nor did he seek out Billbury. Mr Phillips stated he only ever had dealings with Dr Castagna and no other officers of Billbury. Further he gave evidence that he had no interest in anyone from Billbury providing the services in question and that the bonus payments were quantified on the basis of Dr Castagna's personal contributions."
3. The trial judge referred to Tupicoff, and to the fact that it had been followed by the Full Court of the Federal Court in Federal Commissioner of Taxation v Mochkin (2003) 127 FCR 185 (Mochkin). She also referred to Baker stating that Pincus J said that it was "a question of fact which was to be determined in light of all the circumstances" whether the monies paid to the companies controlled by the applicant were in fact the income of the applicant or that of his companies. She noted that Pincus J found that there were no contracts between the clients to whom services were provided and the companies who received the fees. She noted that "[t]his was regarded as significant … but not determinative".
4. Her Honour also noted that the Full Court in Baker FFC concluded that Pincus J was correct in stating that "the case turned on what were, essentially, questions of fact" and that the conclusions reached by Pincus J were correct.
5. The trial judge noted that the agreements in the present case were "tripartite agreements". She noted that unlike Tupicoff, there was no evidence of any enforceable legal documentation between Billbury and Dr Castagna. She stated that she did "not accept the submission that … [Dr] Castagna would not have had a right to sue for monies owing to him by Macquarie if Billbury did not".
6. Her Honour also stated that "Billbury contributed nothing of value" to the consulting agreements and that "it had no assets" to meet the various obligations imposed upon it under the agreements. She stated that on one view, Billbury was "merely the conduit through which money passed at … [Dr] Castagna's direction".
7. The trial judge stated that she regarded Tupicoff as "factually distinguishable". She stated that what was of significance in that case was the documentation which established the legal relationship between the insurance company (which was liable to pay the commissions), the trust company (which was named as the entity entitled to receive the commissions), Mr Tupicoff as an employee of the trust company and the structure of the trust company, which held assets and sold insurance. She stated that although the present case is "not similar to Baker, where there were found to be no agreements in place in to provide a legal justification for the payments by clients to [the taxpayer's] companies", the statements of principle in Baker and Baker FFC were applicable. She said that it followed that the question of whether the income was that of Dr Castagna or the company was "a question of fact for the jury as the tribunal of fact".

(d) The trial judge's tax directions

1. The trial judge gave the following directions to the jury relevant to the issues the subject of Grounds 1 and 2: "11. Australian resident taxpayers are requires to include in their returns all income derived directly or indirectly from all sources, whether inside or outside Australia, in the twelve months of the relevant financial year or other approved substituted accounting period. In other words, Australian taxpayers are required to include in their returns their worldwide income for the relevant financial year. A foreign resident is assessable only on income derived from Australian sources. 12. An Australian taxpayer has 'derived' an amount of income when it is either paid to them, or when it is applied or dealt with in any way on their behalf or as they direct. 13. The assessable income of an Australian tax resident (which includes the accused Castagna) includes: (a) assessable income earned in Australia and assessable income earned overseas; (b) assessable income to which the taxpayer is entitled and which is dealt with on the person's behalf or as the person directs. … 17. Otherwise, an item is ordinary income if the item has been derived in circumstances that give it the character of income. The character of an item as income must be judged in the circumstances of its derivation by the person (which includes corporate entities), and without regard to the character it would have had if it had been derived by another person. 18. The criteria for determining whether an amount (or a gain) is income include: … (j) A gain that is a reward for services rendered or to be rendered has the character of income. … 19. There can be circumstances where two separate incomes arise from the same services, e.g. a company can be rewarded under a contract for services and the individual who provides those services on behalf of the company can be rewarded by the company. Whether in any given circumstances, income is derived by an individual and/or a company will depend on the factors set out at paragraphs 12 to 18 above."
2. Subsequently direction 12 was amended to read as follows: "12. One factor that you might take into account when considering whether an Australian taxpayer has 'derived' an amount of income is that an Australian taxpayer may have derived income when it is either paid to them, or when it is applied or dealt with in any way on their behalf or as they direct. Another factor which you might take into account on this question is the parties and terms of the consultancy agreements (see paragraph 19 below)."

(e) The Crown's closing address

1. The Crown commenced its closing address by reminding the jury of the broad nature of the Crown case in relation to counts 1 and 2: "Now in general terms as I put the Crown case in the opening and I've put it again in my closing, in general terms the Crown allegation about Counts 1 and 2 is a conspiracy to defraud the revenue. This is another way of saying the Commonwealth or the ATO being in essence an agreement that existed between April [1998] and July 2009 to conceal Dr Castagna's true assessable income from the ATO by using foreign bank accounts and foreign entities controlled by his cousin Mr Agius to hide the relevant funds."
2. The Crown then turned to discuss the evidence which had been adduced during the trial in detail. For present purposes, the Crown started to touch on matters relevant to the present case in discussing the evidence of Mr Phillips. The Crown began by stating the following: "Mr Phillips' evidence, I want to suggest to you, is relevant in relation to what the Crown says was the true arrangement in relation to the Macquarie Bank, Billbury, Castagna contract. The Crown does not, I remind you, suggest that this was a sham from Macquarie Bank's point of view. Macquarie Bank entered into this contract on the expectation and understanding and with the intention that the contract was what it said it was. The Crown case is Billbury, as we know was controlled by Mr Agius, and Dr Castagna's intention was different, that is that they always intended, you can see from the voluntary disclosure statement, that they always intended before Billbury was offered to Macquarie Bank, that the money was going to be treated in the way it was treated; that is passed through Billbury and applied for Dr Castagna for his use in this thing called the retirement fund."
3. Following this introduction, the Crown summarised what it said Mr Phillips' evidence showed about the nature of the relationship between Macquarie Bank, Billbury and Dr Castagna: "The relevant starting point, the Crown says, is Mr Phillips was aware Dr Castagna had the necessary skills, qualifications and experience to offer Macquarie Bank the services they required. There is nothing to suggest, and in fact Mr Phillips accepted this, that there was nothing he was expecting from Billbury, that is he didn't want anyone else from Billbury to provide services. He didn't know of anyone else from Billbury and he didn't know if Billbury had any relevant expertise or qualifications. … It is never suggested and I don't think there is any issue that anyone wearing a little Billbury hat, turned up at Macquarie Bank knocked on the door and said "please let me in, I'm here for Billbury". The evidence is that there was a desk, not an office, not far from Mr Phillips and whilst he was in Australia, leaving aside when he had to go overseas for business, but whilst in Australia Dr Castagna worked there. So where does all that bring us? The Crown says, as a result of the relationship that Dr Castagna had and the expertise that he brought to Macquarie Bank, that from that and from other evidence, you will be able to infer that the income paid by Macquarie Bank under the contracts was in fact derived directly or indirectly from Dr Castagna. Leaving aside it was actually paid to Billbury, but the Crown says in reality it was derived by Dr Castagna directly or indirectly."
4. The Crown then explained the nature of the task facing the jury in assessing whether the income was "derived" by Dr Castagna: "Can I tell you the Crown submits the relevant circumstances and the relevant facts from which you can work out that this was income derived by Dr Castagna are a number of things and quite a number of things. The Crown says that these things, lawyers call circumstances, you the jury should take into account in combination. Not micro-analyse each one of them, "Is that particular piece of evidence, evidence from which we will work out Dr Castagna's income?" The Crown says take it all into account. We have a circumstantial case in relation to this income, being Dr Castagna's, and the Crown says you have to take into account all of those circumstances and then work out for yourselves if you would infer from that that this is income derived by Dr Castagna in that he earned the income and that he made directions and took actions in relation to it."
5. In this passage, the Crown emphasised that no single fact was determinative of the issue of whether Dr Castagna had "derived" the relevant income, and that it was necessary to look at the factual circumstances as a whole. This closely aligns with the approach of the Crown in its submissions on the application for a verdict by direction. Indeed, as pointed out at [58] above, the circumstances which the Crown had listed in those submissions as relevant were identical to those which the Crown discussed in its closing address. It is convenient to highlight these circumstances: "So what are those combination of matters the Crown says you ought take into account? Many of these arise from Daniel Phillips' evidence. The first is the consultancy agreement is a tripartite contract. That means there were three parties to it. It is not just Macquarie contracting with Billbury. It is Macquarie contracting with Dr Castagna and Billbury. I am going to come to the contracts in a moment because there are some very relevant parts to them that make it clear, I submit to you, the focus of this contract always was personal to Dr Castagna. Secondly, the services provided to Macquarie Bank were Dr Castagna's personal skills and experience. They were the services they were interested in and they were the services the contracts focus on. … … So, the third circumstance in relation to the combination of facts that point to this being Dr Castagna's income and only his income, by direction and action, the Crown says is that the initial part-time contract with Macquarie Bank was entered into by Dr Castagna personally. … … The fourth category of evidence relevant to this submission is who in fact provided the services? Leaving aside the contract, what is the reality of the actual provision of services? Mr Phillips gave evidence it was only Dr Castagna that turned up and carried out the consultancy services envisaged by this contract. He had no interest in anyone else from Billbury and had no knowledge of anyone else from Billbury turning up to provide this contract. … The fifth circumstance in relation to this submission about the arrangement with Macquarie Bank and the payment of income, being Dr Castagna's income. The Crown says it is a very important piece of evidence in the Crown case, that form the very outset the direction that was given to Macquarie Bank as to where the money was to be paid, where the $22,000 a month was to be paid, that direction was not from Billbury, it was from Dr Castagna. … The Crown says that is powerful evidence that Dr Castagna directed how the income was to be paid. That's what this signature is. He is directing Macquarie Bank to pay the money to this bank account in New Zealand. By doing so the Crown says that it is a circumstance from which you can infer it's his income. He's directing where it goes. He could have said in this letter well pay it into my Commonwealth Bank account in Gordon. Instead he's directing, he, Dr Castagna, is directing the bank to pay it to New Zealand. We know that that account is in the name of Billbury and we know that within days of money hitting that account it was transferred out and found its way to Vanuatu. … Ultimately I expect that you will get some directions about ordinary income and tax law about ordinary income. Anticipating those directions one factor that can be taken into account whether or not income should be declared by an individual is whether or not that individual plays a role in directing money to be paid to somebody else. So for example if you went along to Macquarie Bank and said employ me as a consultant but don't pay me, pay my great great aunt, if you direct that to occur you might find that the tax office would say well look I'm sorry but it's your income. You earned it. You worked for it. Your personal services. Your personal exertion. The fact that you are directing it to somebody else doesn't mean it's not your income. This is a little different because there are three parties involved in the agreement but the Crown says that the direction you see on page 39 and 40 is an extremely relevant direction because it shows from the outset Dr Castagna is telling the bank what to do with the $20,800 a month."
6. It is fair to say that the remaining additional circumstances relied upon by the Crown elaborate and amplify upon what is perhaps already implicit in the first five circumstances. When understood in this light, it is very difficult to accept that the several references by the Crown throughout its closing address to Billbury being a "nominee company" or "corporate vehicle" and to Dr Castagna being "beneficially entitled" to the payments made to Billbury were intended to put to the jury that there was a "bare trust" relationship between Billbury and Dr Castagna without any express reference to that concept. Rather, it is far more likely that those references were simply convenient short-hand descriptions of the general nature of the relationship between Billbury and Dr Castagna for the benefit of the jury, without being intended to refer to the technical legal concept which happens to use the same language.
7. This conclusion is reinforced by examining the other language used in the closing address to refer to Billbury and its relationship to Dr Castagna. One example is that the Crown repeatedly stated that the funds were only ever intended to "pass through" Billbury, and described Billbury as a "pass through entity", "pass through vehicle", or more colourfully, as a "Trojan horse". The use of this type of language in the address to the jury to explain the relationship between Billbury and Dr Castagna strongly suggests that it was not intended to be put to the jury that there was a "bare trust" relationship between Billbury and Dr Castagna, since there is no necessary or even usual connection between the existence of a "bare trust" and the fact that funds "pass through" an entity. However, the relevance of this language is clear once it is recognised that it was being put forward simply as a means of characterising the relationship between Billbury and Dr Castagna as a matter of fact.
8. This same theme also readily appears from the way in which the Crown concluded its closing address when discussing the elements of each of the offences. In relation to count 1, the Crown commenced by stating the following: "Can I suggest to you the real issue in relation to element 1, count 1, is whether or not this was income that ought to have been declared by Dr Castagna. I anticipate the defence will say - No it is not. It is not income that he needed to declare. Billbury's income. Billbury's income. Billbury is a legitimate company. A real legal entity. The Macquarie contract with Billbury and Dr Castagna was not a sham and the money went to Billbury so it's up to Billbury to declare it. We know that Billbury didn't declare anything in Australia and from Anna Lee we also know from the annual returns that it didn't show any income in England, in the UK, so it couldn't have declared any income there because it didn't say it had any. Can I deal with that issue though about income derived. So element 1(a) and that takes us to the directions about tax law. The key question, can I suggest to you in this whole trial, is is [sic] this income and the "it" we're talking about is of course the difference between the 22,000 a month and 8,800. So leave aside the 8,800 a month, adding up to about a million, it was declared. We are talking about the balance that went via the New Zealand Billbury account, straight out of that account and into New Zealand. Whose income was that the Crown says that the correct legal analysis based on her Honour's directions which you now have, exhibit MFI 36, it's a matter for you but the Crown submits to you that on a proper analysis of the tax law that income was derived in all real senses of the word by Dr Castagna."
9. The Crown then took the jury through the relevant paragraphs of the tax law directions contained in MFI 36. The Crown first highlighted the explanation of "assessable income" contained in paragraph 13: "You will see importantly paragraph 13 of her Honour's direction assessable income of an Australian tax resident, see that includes Dr Castagna, it includes (a) and (b). Can I emphasise for you please (a) assessable income earned in Australia and assessable income earned overseas and the Crown says important for the facts of this case (b) assessable income to which the taxpayer is entitled and which is dealt with on the person's behalf or as the person directs. On the person's behalf or as the person directs. Now why is that important? We'll come to the details under the heading … of Ordinary Income but the Crown says the voluntary disclosure statement, in effect Dr Castagna admits that the balance of this Macquarie money was held in Vanuatu on his behalf. He called it his retirement fund. We know from various exhibits that I have taken you through and various documents that the dealing with that money was according to Dr Castagna's direction. … The Crown says that that direction at paragraph 13 of this document is important and in the facts of this case you will be satisfied the income of Dr Castagna was the entirety of the Macquarie Bank payments because 8,800 of it was declared by him and the balance of it was dealt with on his behalf and according to his direction."
10. This passage is significant for understanding how the Crown put its case to the jury. The Crown placed heavy emphasis on the fact that the income is "dealt with on the person's behalf or as the person directs" as a matter of fact, and made no further reference to the fact that the taxpayer was "entitled" to the income, despite this also being referred to in paragraph 13. This strongly tells against the Crown relying on any kind of "bare trust" relationship before the jury, since such a relationship would have clearly entailed that Dr Castagna was "entitled" to the income, and as a consequence the income would have been required to be dealt with at his direction. It is clear that the Crown was not putting any such case to the jury, and was instead relying on the jury to draw an inference that Dr Castagna had "derived" the income from the circumstances of the case as a whole.
11. The Crown then turned to focus on the concept of "ordinary income". It was stated that "ordinary income" was relevant to determining the "assessable income" which had just been discussed, but the connection was not further explained to the jury. The Crown stated the following: "Paragraph [17], an item is ordinary income if it has been derived in circumstances that give it the character of income. It's a bit circular but that's the law. And you will see the next sentence explains that, "The character of an item as income must be judged in the circumstances of its derivation by the person which includes corporate entities and without regard to the character it would have had if it had been derived by another person". Pausing there, the Crown says that you would apply that in these circumstances, the derivation by the person in the context of what I have taken you to about paragraph 13, that is assessable income is income held beneficially for that person or according to that person's direction, the Crown says that that means it includes the balance of the Macquarie Bank payments. How is that money derived? Well it's been derived through Dr Castagna's personal exertion [at] Macquarie Bank."
12. The Crown then discussed the criteria for determining whether an amount is "ordinary income" in paragraphs 18 and 19 by reference to the circumstances of the case as a whole. These differed from the circumstances which were emphasised when the evidence was being reviewed, as we have set out at [75] above. Nevertheless, it is clear from this analysis that the Crown was treating the question of whether the payments to Billbury were income "derived" by Dr Castagna as one to be determined as a question of fact taking into account all the relevant circumstances, and that the Crown case did not seek to rely upon the existence of a "bare trust" relationship between Billbury and Dr Castagna. The way in which the Crown concluded its address on this element of count 1 is clear: "Applying these directions, can I suggest to you, and the factors in paragraphs 12 to 18 of these directions, would satisfy you is the Crown submission that the correct analysis is all of the Macquarie money was Dr Castagna's to declare and he had to declare it."
13. However, after the conclusion of the Crown's closing address on count 1, counsel for Dr Castagna made an objection to the terms of paragraph 12, which had been referred to, although not emphasised, by the Crown in its address. Some discussion and debate followed before the revised paragraph 12 was agreed upon between the parties.
14. The Crown was given an opportunity to readdress the jury on the terms of the revised paragraph 12, and did so in the following terms: "The first sentence of the new paragraph 12 one factor you might take into account when considering whether or not in this case Dr Castagna derived income and I remind you if he derived it in accordance with this factor he had to declare it in his income tax returns. One factor to take into account in determining this is question of did he derive income as her Honour has set out in para 12 is that an Australian tax payer may derive income when one of two things happens and see in the middle of paragraph 12 it says "income when it is either". So one of two things; when it is either, one, paid to them. Lawyers might call that actual receipt. So either, A, paid to them. In this case we know Macquarie Bank payments weren't paid directly to Dr Castagna. They were paid to Billbury. The Crown then places emphasis on what follow so either, (a), or you will see that sentence continues, "or when it is applied or dealt with in any way on their behalf or as they direct". So the Crown says to you after the word "or", "or when is applied or dealt with" that is what lawyers call constructive receipt. In other words although not physically received when paid, by Macquarie Bank, so they did not pay it directly to Dr Castagna, constructively, so effectively the Crown says in reality it was received by him because the second part of this sentence applies. It was applied or dealt with in a way on his behalf and as he directed. Now what does all that mean? The Crown says in the circumstances of this case we know it was applied on his behalf, passed through Billbury in a matter of days, went to Vanuatu on his behalf, his retirement fund, for his use, his beneficial interest in that money. So it is dealt with on his behalf the Crown says by a number of things and you might regard these things as links in the chain."
15. The Crown then discussed several circumstances of the case which it suggested showed that the payments to Billbury were dealt with at Dr Castagna's direction and for his benefit. The Crown concluded by saying the following: "So the revised para 12 can I suggest to you will assist you in determining that this was Dr Castagna's income, it was derived by him, not because it was paid to him by Macquarie Bank. No, we know it wasn't, but because it was paid by Macquarie Bank according to his direction, it was applied for his use and it was used in Vanuatu in a fund for his benefit as he directed and as he has agreed with Mr Agius. So that revised paragraph 12 I suggest to you in the submissions I just made might assist you the Crown says in relation to how you would be satisfied the elements at 1(a) that is using foreign companies and foreign bank accounts, that you would be satisfied that this was Dr Castagna's income, it was derived by him even though it was paid to Billbury."
16. The language used in this portion of the closing address is perhaps the closest that the Crown case came to emphasising only those matters which might have been relevant to determining whether a "bare trust" relationship existed between Billbury and Dr Castagna. However, it must be remembered that this was in the context of addressing only the "one factor" which had been identified by the revised paragraph 12 that the jury might take into account. It cannot be interpreted in isolation from the remainder of the Crown closing address. When that wider context is taken into account, it cannot be said that it was put to the jury at any stage that there existed a "bare trust" relationship between Billbury and Dr Castagna. The Crown case at trial relied upon the jury finding that income was "derived" by Dr Castagna as a matter of fact taking into account all of the relevant circumstances of the case.
17. Further, it is difficult to see how the Crown could have run a case relying upon the jury being satisfied that there was a "bare trustee" relationship between Billbury and Dr Castagna without also seeking a legal direction for the jury on what elements needed to be established before such a relationship could be found to exist. It is telling that the trial judge was not asked to give and did not give any direction to the jury which referred to a "bare trust", or what was necessary to establish a "bare trust".
18. It must be emphasised that the primary position of the Crown on the appeal was to support the approach taken in the Court below. Reliance on a trust relationship between Billbury and Dr Castagna was only a fall-back position. In that context, it is convenient to turn to the submissions of the parties.

(i) Dr Castagna's submissions

1. At the outset of his submissions, senior counsel for Dr Castagna submitted that the Crown case at trial was not put on the basis that Billbury was a bare trustee or nominee, or on the basis of principal and agent. He submitted that the Crown's position at trial was that whilst accepting the agreements with Macquarie were not shams, the Crown ignored the agreements completely. He submitted that "[t]he jury were directed in clear terms that they had to acquit if the money coming from Macquarie to Billbury at that moment was not income of Dr Castagna".
2. In that context, senior counsel for Dr Castagna referred to the following passage of the summing-up by the trial judge: "[297] The Crown submitted that if you looked at all the relevant factual matters, and not just the Consultancy Agreements in a vacuum, you would be satisfied, when you applied the tax directions I have given you in MFI 36, that it was Dr Castagna who derived the income paid to Billbury under the Macquarie agreements for the services physically performed by Dr Castagna and provided by Billbury to Macquarie. It relied on the following combination of matters and there are quite a few matters so rather than number them I will go through them in turn. … [375] On the question of what income Dr Castagna derived, the Crown submitted that on a proper analysis, bearing in mind all of the matters I have already listed above, you would infer that all the monies that were paid by Macquarie to Billbury were actually Dr Castagna's income. The Crown reminded you of the Tax directions document and highlighted what it contended was the significance of Dr Castagna authorising Macquarie to pay the money under the Consultancy Agreement to Billbury's account in New Zealand." To this may be added the following portions of the summing-up summarising the Crown's submissions: "[313] The Crown also submitted that you would take into account in concluding, as it contended you ought, that the income was Dr Castagna's income, not Billbury's; that entities controlled by PKF Vanuatu, Astrolabe Limited and Astrolabe Nominees Limited were shareholders and office bearers of Billbury which was in effect an empty vessel or Trojan horse used by Mr Agius and Moore Stephens later in PKF Vanuatu. [314] The Crown submitted that Billbury's only actual role with respect to Macquarie or Dr Castagna was to receive payments from Macquarie and transfer them to IFTCO for transfer to Dr Castagna's own account in the case of the $8800 or elsewhere in the case of the balance. So in summary the Crown submitted that Billbury was only an empty vessel or Trojan horse which paid all of the money it received from Macquarie for Dr Castagna's services either to Dr Castagna directly or to IFTCO in Vanuatu to be held for his benefit."
3. In submitting that the monies received from Macquarie was not income derived by Dr Castagna, senior counsel for Dr Castagna referred to the evidence of Mr Phillips that Macquarie would only enter into a consultancy agreement with a company, rather than an individual directly and would only pay the consulting fees to a company. Mr Phillips gave evidence stating that this requirement was non-negotiable. Earlier in his evidence he had set out the reasons for Macquarie adopting this position in the following terms: ""Q. As the bank's representative witness in this case are you able to give your opinion as to why Macquarie did not want to enter Consultancy Agreements directly with individuals? A. Because I think there is a clear distinction as an employee which I am and the rights and obligations that it creates and also from a liability point of view on both sides so to the extent that we were not going to employee arrangements to make it clear that that was not, you know, to remove doubt there is an employee relationship, I assume that was part of the rationale for having a corporate entity but, you know, when you work in a large bank they have got lots of procedures and compliance requirements and our job is to run our business and there is an army of people whose job it is to tell us how to do that properly that complies with the law and various regulatory requirements and so on."
4. Senior counsel for Dr Castagna referred to the direction given to Macquarie in response to the letter of 17 April 1998 (see [18]-[19] above). He submitted that notwithstanding the use of the personal pronoun in the direction signed by Dr Castagna, it was signed by him on behalf of Billbury, pointing out that the subsequent directions in the same terms were signed by Mr Agius. He also submitted that if the income was in fact derived by Billbury, s 6-5(4) of ITAA 1997 did not operate to have the effect of including the funds as part of the ordinary income of Dr Castagna once the direction was made.
5. Senior counsel for Dr Castagna pointed out that the consulting agreements required Billbury to provide the services, although he accepted that they had to be provided by Dr Castagna as representative.
6. In his written submissions Dr Castagna referred to a number of cases which he submitted supported the proposition that money received from Macquarie was income derived by Billbury: Tupicoff at 519; Mochkin at [130]-[131]; Bayly v Federal Commissioner of Taxation (1977) 15 SASR 446 (Bayly); Fowler v Federal Commissioner of Taxation (2008) 167 FCR 425; [2008] FCA 528 at [15] (Fowler).
7. Senior counsel for Dr Castagna in dealing with the judgment given on the verdict by direction described the decision in Baker and Baker FFC as a "very thin weed to build an entire case around". He referred to her Honour's reliance on the circumstances surrounding the transaction, but submitted that whilst consideration of such issues was appropriate in a case such as Baker where there were no written agreements, it was not appropriate in the present case. He submitted that in those circumstances Baker and Baker FFC provided no support for the approach taken by the trial judge in her conclusion on the application for a verdict by direction.
8. In addition to the cases to which we have referred above, senior counsel for Dr Castagna also submitted that the approach which he submitted should be adopted was consistent with what was said by the Full Court of the Federal Court in Federal Coke Co Pty Ltd v Federal Commissioner of Taxation (1977) 15 ALR 449 at 459 (Federal Coke) and in Business & Research Management Pty Ltd (In liquidation) v Federal Commissioner of Taxation (2008) 173 FCR 204; [2008] FCA 1652 at [105]-[106].
9. Senior counsel for Dr Castagna submitted that it was not put by the Crown that there was a separate arrangement between Billbury and Dr Castagna that when Billbury received the funds it would be held by it as trustee. He submitted that had the case been put in that way, there would have been a different set of directions.
10. Senior counsel for Dr Castagna further submitted that "the Crown determinatively decided" not to contend that Billbury held the funds as bare trustee for Dr Castagna, having regard to the decision of this Court in Osborne v R; R v Osborne [2017] NSWCCA 11 (Osborne). He also submitted that no reference was made to the provisions of Div 6 of ITAA 1936 which deals with the taxation of trust income, the case having been conducted throughout on the basis that the monies received from Macquarie was the ordinary income of Dr Castagna. He also submitted that the Crown "specifically disavowed" a case that Dr Castagna derived the income the moment the funds left Billbury.
11. In reply, senior counsel for Dr Castagna referred to the document handed up by the Crown in her submissions (see [121] below) indicating how the Crown "wish[ed] to put its case on the basis that [the income] was statutory income, not ordinary income". He submitted that the Crown case was not put in that fashion and if it was, the jury would have to be directed to find beyond reasonable doubt that there was a trust and that Dr Castagna had a present entitlement to the income in question. He submitted that in the event his submissions were successful, the Crown should not be given the opportunity of "re-construing a tax fraud".
12. Senior counsel for Dr Castagna also noted that the events in question took place over 10 years ago, identifying that there was a tax audit in 2008, Dr Castagna was discharged by a magistrate in October 2015 on the basis that no jury would convict, and an ex-officio indictment was laid in May 2016. He submitted that in those circumstances if Grounds 2 and 3 were made out, a verdict of acquittal should be entered.

(ii) Mr Agius' submissions

1. In his written submissions Mr Agius adopted Dr Castagna's submissions on Grounds 2 and 3 of the grounds of appeal.
2. Senior counsel for Mr Agius supported the submission that the Crown should not be permitted to proceed on a basis different from the approach taken in the Court below. She noted that the only directions given in relation to trust were given in relation to the retirement fund said to have been set up for Dr Castagna. She emphasised that these directions did not relate in any way to the tax directions.
3. Senior counsel for Mr Agius also submitted that the note concerning the trust submission which she assumed reflected the way the new case would be put, demonstrated that the way the Crown proposed to put its case on any retrial would be "fundamentally different" to the manner in which the case was in fact put.

The Crown's submissions

1. The Crown described the appellants' submission as requiring the trier of fact to only look at the consulting agreements, and the construction of those agreements would determine who derived the income resulting from the Macquarie payments.
2. The Crown submitted that this was an incorrect approach. It submitted that what was required was to determine whether the assessable income belonged to Billbury or to Dr Castagna. This was consistent with the manner the Crown put its case at trial.
3. In her written submissions the Crown submitted that in determining whether the amounts in question were the assessable income of Dr Castagna or Billbury, it was necessary to "look at all the facts and circumstances" for each of Billbury and the appellant, and look at them in each relevant income year. However, the Crown did not seem to contend that there was any particular distinction in any of the years in which it said the conspiracy was on foot.
4. In her written submissions the Crown referred to the well-known statement of Jordan CJ in Scott v Commissioner of Taxation (1935) 35 SR (NSW) 215 at 219 to the following effect: "The word 'income' is not a term of art, and what forms of receipts are comprehended within it, and what principles are to be applied to ascertain how much of those receipts ought to be treated as income, must be determined in accordance with the ordinary concepts and usages of mankind, except in so far as the statute states or indicates an intention that receipts which are not income in ordinary parlance are to be treated as income, or that special rules are to be applied for arriving at the taxable amount of such receipts."
5. The Crown submitted that this approach to the identification of income demonstrated that all the facts and circumstances had to be taken into account. It submitted that this approach was supported by what was said by the High Court in Federal Commissioner of Taxation v Montgomery v (1999) 198 CLR 639; [1999] HCA 34 at [65] and [117] (Montgomery); Hayes v Federal Commissioner of Taxation (1956) 96 CLR 47 at 55 (Hayes) and Windeyer J in Scott v Federal Commissioner of Taxation (1966) 117 CLR 514 at 526. It submitted that it was also supported by a number of decisions of the Federal Court of Australia: Alexander v Commissioner of Taxation (2014) 99 ATR 773; [2014] FCA 1161 at [5] (Alexander); Reuter v Commissioner of Taxation (1993) 111 ALR 716 at 731, on appeal Reuter v Commissioner of Taxation (1993) 93 ATC 5030; Rotherwood v Commissioner of Taxation (1996) 64 FCR 313 at 323 (Rotherwood); Zobory v Federal Commissioner of Taxation (1995) 95 ATC 4251; MacFarlane v Commissioner of Taxation (1986) 13 FCR 356 (MacFarlane); and indirectly by the decision of the High Court in Richardson v Federal Commissioner of Taxation (1932) 48 CLR 192 (Richardson). It must be remembered that in considering those cases the question in the present case was whether the payments from Macquarie was income derived by Billbury or Dr Castagna, not whether the payments were income or capital in the recipient's hands. At the hearing, the Crown accepted that a number of the cases relied upon in the written submissions dealt with the latter issue.
6. In her written submissions, the Crown sought to distinguish the authorities relied upon by the appellants. So far as Tupicoff was concerned, she pointed to the fact that there was a separate agreement between the insurer (National Mutual) and the service company which separately nominated Mr Tupicoff as an "accredited representative". She noted that unlike the present case, the representative, Mr Tupicoff, was not a party to the contract pursuant to which the payments were made.
7. The Crown also noted that in Tupicoff the service company was a registered group employer and lodged an income tax return disclosing a profit, including the commission income received from National Mutual. She also noted that the service company had acquired the assets of Mr Tupicoff used in carrying on the business, noting the comment of Beamont J in that case that "the parties were fastidious to ensure the scheme was put into effect in the manner outlined by National Mutual". She submitted that in contrast to the present case, the business was actively carried out by the service company.
8. The Crown submitted that Mochkin could be similarly distinguished on the facts. She submitted that Bayly was "not a case involving a separate corporate entity but rather a case where there was found to be a general transfer of the legal and equitable [interests in a] pharmaceutical business from a husband to his wife", whilst Fowler was a case involving the personal service provisions in Pt 2-42 of ITAA 1997.
9. As in the Court below, the Crown in her written submissions placed particular reliance on Baker and Baker FFC. She said that Baker, upheld by the Full Federal Court in Baker FFC reflected the following principles: 1. "[T]he question of whether an amount is assessable income of a taxpayer is a mixed question of fact and law" referring to Alexander. 2. "[W]hether an amount is 'income according to ordinary concepts' is to be decided having regard to the ordinary concepts and usages of mankind" referring to Scott v Commissioner of Taxation (1935) 35 SR (NSW) 215 and Montgomery.
10. In her written submissions dealing with the factual circumstances surrounding the transaction, the Crown referred to the direction to Macquarie to which we have referred at [19], the fact that the subsequent direction was not signed by directors of Billbury (two Vanuatuan companies), although it should be noted in this context that it was also part of the Commissioner's case that Mr Agius controlled Billbury. She also referred to the fact that the consulting agreements were sent to Dr Castagna's home address and the fact that no one from Macquarie Bank, including Mr Phillips, had any contact with any representative of Billbury other the appellant. The Crown also referred to the circumstances raised by it in its submissions on the application for the verdict by direction, which were summarised by the trial judge in the manner we have set out in [63] above.
11. At the hearing, the Crown emphasised the financial position of Billbury as disclosed in its financial statements. She pointed out that the financial statements from Billbury for the year ended 31 October 1997, disclosed a turnover of $US265 and a loss of $US365; in 1998 a turnover of $US640 and a loss of $US75; in 1999 a turnover of $US468 and a loss of $US262, in 2000 a turnover of $US842 and an operating loss of $US872; in 2001 a loss of $US365 and that in subsequent years the company appeared to be dormant. She said that, coupled with the absence of any of the Macquarie payments being recorded in the Billbury accounts, showed that Billbury was merely a conduit. The Crown also relied on the voluntary disclosure statement.
12. The Crown submitted that one of the reasons that it was necessary to look at the whole of the circumstances was to see whether "there was a trust in place. She submitted that this could lead to a different conclusion than that which would be reached if the agreement was looked at in isolation.
13. The Crown submitted that Dr Castagna had the legal right to receive the income from Macquarie. She submitted that looking at all the circumstances, the person who was "really generating the assessable income" was Dr Castagna. The Crown submitted that whilst the jury could take into account the consultancy agreements as part of the factual matrix, it was not the only matter. The Crown stated that "one really has to look at the requirements under s 6-5 [ITAA 1997] … [to see] whose assessable income was it actually and … to answer that look at all the facts and circumstances and here it's quite clear it was Dr Castagna's assessable income".
14. However, at the commencement of the second day the Crown seemed to accept that Dr Castagna had no legal entitlement to the payments. The Crown first expressly noted that Dr Castagna was a party to the consultancy agreements and had provided consideration, but then submitted that clause 2 of the consultancy agreement dated 23 August 1999 "would seem to imply that Dr Castagna has some at least entitlement to the payment referred to in paragraph 3". Clause 2 in fact deals with director's fees payable to Dr Castagna "in addition to any payments referred to in paragraph 3 below", referring to the consultancy fees payable in clause 3.
15. The Crown on the second day of the hearing put what might be described as an alternative case. She made the following submissions: "Now if I can turn to your Honour's question. If we are looking at strictly without looking at the Crown's approach below, which is I submitted yesterday was broadly the facts and circumstances, if we narrow our focus on the questions of the legal relationships, the Crown would submit that the relationship between Dr Castagna and Billbury/Mr Agius would have been one of a bare trust. We would put it this way, that Dr Castagna is the beneficiary of a trust estate and that he was presently entitled to a share of the income of the trust estate. If that is correct then Dr Castagna's assessable income would include a corresponding share of the net income of the trust estate, as is attributable to a period when Dr Castagna was a resident or a resident taxpayer. Now I can go through that in more detail but your Honour the Chief Justice yesterday raised specifically what evidence was before the jury as to the existence of that relationship. Yesterday afternoon I took your Honours to the voluntary disclosure statement and in particular para 11 where there was the conversation between Mr Agius and Dr Castagna before any payments were made, where it was nominated that Billbury would be the name given to Macquarie. We would also submit that in determining whether such a bare trust exists the evidence of the transactions that occurred pursuant to the voluntary disclosure statement, being the transient receipt by Billbury, and then the transfer of 100% of the receipts to IFTCO with some being then returned to Dr Castagna in the amount of $8,800, the rest going off onto the on-call deposit fund. We say that evidence can be taken into account."
16. The Crown accepted that whilst the analysis was not expressly put in the Court below, there was reference throughout the Crown address to Billbury being a nominee company and to whether Dr Castagna was beneficially entitled to the payments. She accepted that what was involved in putting the case in this fashion was that the consultancy agreements regulated the arrangements between Billbury, Dr Castagna and Macquarie to pay the consulting fees to Billbury, and that there was a separate arrangement to the consulting agreements between Billbury and Dr Castagna by which it was agreed that Billbury would be the corporate vehicle entering into the consulting agreements, would derive no benefit and bear no liability and that any money received from Macquarie would be payable to Dr Castagna or at his direction. She submitted that the case was consistent with the manner that the case was put below, referring to references that "Billbury was not beneficially receiving the Macquarie payments or was a nominee".
17. The Crown submitted that in the circumstances surrounding the payments made to IFTCO and the $8,800 going back to Dr Castagna with the remainder to an "on call deposit fund", it was implicit that the funds only came to Billbury as a nominee. She submitted that this was consistent with the payments to Billbury not being recorded in its accounts. She submitted, referring to Union Fidelity Trustee Co of Australia Ltd & Mayfield v Federal Commissioner of Taxation (1969) 119 CLR 177 at 182, that where monies were paid to beneficiaries during the course of an income year, the income is treated as ordinary income rather than statutory income assessable under Div 6 of ITAA 1936.
18. At the request of the Court a note was provided setting out the case sought to be put. It was in the following terms: "The payments from Macquarie Bank to Billbury (the Macquarie monies) were not Billbury's assessable income because the company did not receive them beneficially but instead received them on bare trust for Dr Castagna (s 96 Income Tax Assessment Act 1936 (Cth) and cases cited at Respondent's Submissions at [38]-[40] and oral submissions on 4 April 2019 concerning a 'bare trust'). Within days of receipt of the Macquarie monies, the evidence showed that Billbury as trustee sent all of the Macquarie monies to IFTCO (apart from three isolated payments): AB 1, p 147. Dr Castagna was the beneficiary of the trust and the Macquarie monies that were held for a transitory period by Billbury and then paid to IFTCO occurred pursuant to the direction of Dr Castagna or was otherwise applied on his behalf or for his benefit pursuant to paragraph 11 of the VDS together with other evidence referred to in oral submissions that would allow the Court to infer that there was a trust. The Macquarie monies were included in his assessable income under s 6-5 Income Tax Assessment Act 1997 (Cth) and there was deemed receipt for Dr Castagna under s 6-5(4). The time when the amounts were applied or dealt with in any way by Billbury on Dr Castagna's behalf or as he directed will be the time that Dr Castagna is deemed to have derived the ordinary income. Although Dr Castagna is a beneficiary of a trust estate, Division 6 Income Tax Assessment Act 1936 (Cth) is not an exclusive code for beneficiaries (as opposed to trustees) and where monies are paid to beneficiaries during an income year, s 6-5 will apply (see Union-Fidelity Trustee Co of Australia Ltd v Commissioner of Taxation (1969) 119 CLR 177 at 182 per Barwick CJ; Cajkusic and Others v Commissioner of Taxation (2006) 155 FCR 430 at [35])."
19. The Crown submitted that if the Court came to the view that the Crown's primary case that the income received from Macquarie was derived by Dr Castagna not Billbury could not be made out, there should not be a verdict of acquittal, but rather there should be a new trial where the Crown should be permitted to put its 'trust case'. She submitted, referring again to the references to "nominee" and "beneficial entitlement" in the Court below, that the case proposed was not significantly different to that put at trial and it should be a matter for the Commonwealth Director of Public Prosecutions to determine whether or not there should be a new trial.

Consideration

1. As we have pointed out the primary fashion in which the Crown put its case was that the income received from Macquarie was derived by Dr Castagna. It was not suggested that this resulted from the application of the personal services provisions in Pt 2-42 of ITAA 1997 or the application of Pt IVA of ITAA 1936, but rather depended on the proposition that a consideration of the circumstances surrounding the payments showed that the income was derived by Dr Castagna rather than by Billbury. This was the question essentially posed by the Crown to the jury in both his opening address and his closing address (see [41], [50] and [76] above).
2. The expression "ordinary income" in s 6-5 of the ITAA 1997 is not defined (although there was previously a definition of income from personal exertion in ITAA 1936). However, the nature of income for the purpose of the taxing statutes is well established. In Montgomery, the majority, after citing the passage from the judgment of Jordan CJ in Scott v Commissioner of Taxation (1935) 35 SR (NSW) 215 to which we have referred above, made the following remarks (at [64]): "[64] Because the distinction between income and capital has so often been considered by the courts, attempts to classify a particular receipt often proceed by seeking to draw analogies with decided cases. That approach is often helpful, but resort to analogy should not be permitted to obscure the essential nature of the inquiry which is to determine whether 'in ordinary parlance' the receipt in question is to be treated as income. As Jordan CJ made plain, the references to 'ordinary parlance' and to the 'ordinary concepts and usages of mankind' are no mere matters of ritual incantation; they identify the essential nature of the inquiry."
3. However, it is important to remember that in the present case the question is not whether the money paid by Macquarie was properly characterised as income rather than capital, but rather whether the income which was derived was that of Dr Castagna or Billbury.
4. In Federal Coke, agreement was reached between a coal producer and a purchaser that the purchaser would compensate the producer for a variation of the contract by paying a total sum of $1 million in two equal annual instalments of $500,000 less certain adjustments. It was agreed between the parties that the payments would be made to the taxpayer appellant, an associated company of the producer, which had no business relationship with the purchaser. It was held by Bowen CJ and Nimmo J that "[t]he payments in the taxpayer's hands were sums received without consideration and were not the product of any business or income producing activities" and so did not constitute income of the taxpayer. Bowen CJ and Nimmo J held that "[a]lthough the payments were made to [the] taxpayer … with the motive of avoiding tax, it was not legitimate to disregard the separateness of different corporate entities and decide liability to tax on the basis of the substantial economic or business character of what was done".
5. Although the facts in this case were significantly different to those of the present case, the following remarks of Bowen CJ at 459 are of relevance: "His Honour appears to have considered that he could approach the characterization of the receipts in the hands of the taxpayer by treating them as if they were received by Bellambi or the Bellambi group. On the other hand, if they were treated as received by Federal, his Honour thought that they were received by Federal just as much as compensation for the contraction of the contract to supply coke as if the payee had been the parent rather than the subsidiary. One may have some sympathy with an approach of this kind. However, in taxation matters, the court is obliged to have regard to the actual facts and not to their equivalents. In cases where it is appropriate the court may apply a statutory provision such as s 260 to get rid of a contract, agreement or arrangement and deal with the case in disregard of that element, but, where there is no statutory warrant for doing so, the court cannot disregard certain of the facts or rearrange the facts or decide the case according to its view of the substance of the matter. It is not legitimate to disregard the separateness of different corporate entities or to decide liability to tax upon the basis of the substantial economic or business character of what was done (Slutzkin v Federal Commissioner of Taxation (1976) 12 ALR 321 at 324; Inland Revenue Commissioner v Europa Oil (NZ) Ltd [1971] AC 760 at 771; cf. Littlewood's Mail Order Stores Ltd v Inland Revenue Commissioners [1969] 1 WLR 1241 at 1255)."
6. In the present case the arrangements between Macquarie, Billbury and Dr Castagna were regulated by the consulting agreements which were acknowledged not to be shams. As was pointed out in Equuscorp Pty Ltd v Glengallen Investments Pty Ltd (2004) 218 CLR 471; [2004] HCA 55 at [46], "'[s]ham' is an expression which has a well-understood legal meaning" referring to "steps which take the form of a legally effective transaction but which the parties intend should not have the apparent, or any, legal consequences".
7. It follows from the concession that the agreements were not shams, that the agreements must be given effect according to their terms. The consulting agreements obliged Billbury, albeit through its representative, to provide the services (cl 2). It obliged Macquarie to pay the consulting fees to Billbury (cl 3). The payments made to Billbury from Macquarie thus discharged Macquarie from its obligations.
8. The agreements expressly imposed on Billbury the responsibility for holding and maintaining any necessary insurance and obliged Billbury to indemnify Macquarie if it was held that Dr Castagna was an employee of Macquarie, as well as obliging Billbury to comply with all laws and regulations of government authorities.
9. The trial judge in dealing with the application for a verdict by direction, expressed the view that Dr Castagna could sue on the agreements if payment was not made to Billbury. It may well be that Dr Castagna and Billbury were joint promisees such that Dr Castagna could sue Macquarie for outstanding fees, joining Billbury as a defendant, if Billbury declined to sue or be joined as plaintiff. However, any judgment in such a suit would be in favour of Billbury (Coulls v Bagot's Executor and Trustee Co Ltd (1967) 119 CLR 460 at 478-479; McEvoy v The Belfast Banking Co Ltd [1935] AC 24 at 43; Olsson v Dyson (1970) 120 CLR 365 at 389-390).
10. In any event, the money was paid to Billbury. It was not suggested that the payments did not discharge Macquarie's obligations under the consulting agreements. The fact that Dr Castagna may have been able to sue as joint promisee is not a matter of particular significance in these circumstances.
11. The trial judge, both in her judgment on the application for a verdict by direction and in her summing-up, stated that in considering whether or not Dr Castagna derived the income it was necessary to look at the circumstances surrounding the entry into the agreements and the payments (see [64] above).
12. It is certainly relevant to look at the surrounding circumstances in construing the agreements to determine whether it actually reflects the legal relationship between the parties to it and whether there was some other agreement external to the consulting agreements which would lead to the conclusion that the payments made by Macquarie to Billbury or an equivalent amount, was income derived by Cr Castagna.
13. Thus, it would be relevant to look at the surrounding circumstances to determine whether there was an arrangement between Billbury and Dr Castagna, that the monies received by Billbury would be held on trust for Dr Castagna, to pay the money to him or at his direction, or whether Billbury was the trustee for Dr Castagna of the promise made to it by Macquarie to pay the consulting fees (see Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107 at 120-121, 147-149; in Re Schebsman [1944] Ch 83 at 104; Vandepitte v Preferred Accident Insurance Corporation of New York [1933] AC 70 at 79; Wilson v Darling Island Stevedoring and Lighterage Company Ltd (1956) 95 CLR 43 at 67), or whether irrespective of any trust relationship, the money paid by Billbury to Dr Castagna or into the retirement fund (to the extent it existed) was paid to him as consideration for providing the consulting services on behalf of Billbury or in recognition of the fact that he provided those services. In the latter case, the assessable income derived by Dr Castagna would be the money received from Billbury, not the money received by Billbury from Macquarie. Billbury would have derived income from Macquarie but have made an allowable deduction in an equivalent amount in respect of the payment to Dr Castagna.
14. However, leaving aside the question of trust, the case was not put on any of these bases. Rather, it was simply stated that the payment made by Macquarie to Billbury formed part of the assessable income of Dr Castagna notwithstanding the express terms of the consulting agreements. It seems to us that absent reliance on any of the alternatives to which we have referred, having regard to the terms of the agreements the monies paid by Macquarie was income derived by Billbury, not Dr Castagna.
15. The conclusion which we have reached is consistent with authority. Tupicoff, a case upon which considerable reliance was placed by the appellants in the Court below, involved a taxpayer resigning his appointment as a commission agent with an insurance company, procuring the appointment instead of a company in the capacity of a newly formed discretionary trust of which he and his family were beneficiaries and on whose behalf he then carried out the insurance selling activities. The Court determined that the purpose of the arrangement was splitting the taxpayer's income between members of his family and was therefore void against the Commissioner of Taxation, pursuant to s 260 of ITAA 1936. However, the Commissioner's primary contention that the agreements were a sham was rejected. Beaumont J, with whom Fisher and Jenkinson JJ agreed, in rejecting the proposition made the following remarks at 518-519: "In this Court also, the Commissioner contends that the transactions relied on were a 'sham' and should therefore be ignored. Although his Honour made no findings on this score, the evidence I have recited, particularly the material originating from National Mutual, clearly establishes that the parties intended that the transactions, which were obviously genuine, take effect according to their tenor: see Mullens Investments Pty Ltd v Commissioner of Taxation (1976) 135 CLR 290 at 316. Indeed, since the supposed fiscal and other advantages could only accrue to the taxpayer within a given legal framework, it was essential, from the taxpayer's standpoint, that the transactions take effect in accordance with their terms. In this connection, it is an important consideration that this was not a matter for the taxpayer alone. The transactions were bilateral, involving National Mutual as a vital party. From the documentary material earlier described, it is clear beyond demonstration that all parties, including National Mutual, intended that the documents executed take effect in accordance with their respective provisions. So far as the taxpayer was concerned, any departure from the plan of action sketched out for him by National Mutual would have led to the highly improbable result that entry into the transactions was an exercise in futility. Since the parties were fastidious to ensure that the scheme was put into effect in the manner outlined by National Mutual in its informational material, it is impossible to attribute to the parties any intention other than a genuine desire to give effect to the documentation which they so carefully prepared. It follows that there can be no suggestion here of any 'sham'."
16. The trial judge on the application for a verdict by direction referred to these remarks as distinguishing the factual circumstances in Tupicoff from those of the present case. However, it is important to bear in mind that the remarks were directed to the question of whether the arrangements entered into were a sham, something that was not in issue in respect of the consulting agreements.
17. Tupicoff makes clear that an agreement that is not a sham will have legal effect even if the purpose of entering into it is to evade or avoid any tax liability subject always to the provisions of Pt IVA of ITAA 1936 or its predecessor s 260 of ITAA 1936. The case demonstrates that it is not appropriate to ignore the legal arrangements of a contract in favour of the Court's view of the substance of the matter (see Federal Coke at 469), even if it is plain that the purpose of the arrangement was to avoid taxation. As it was put succinctly by Menzies J in Peate v Federal Commissioner of Taxation (Cth) (1964) 111 CLR 443 at 445, "in the absence of a special law a genuine transaction does not lose its legal effect because it was carried out to avoid, limit or postpone tax".
18. Mochkin provides further support for the appellants' case. The proceedings involved a challenge under Pt IVA of ITAA 1936 to arrangements whereby a taxpayer stockbroker caused trustees of a discretionary trust to enter into commission arrangements with other stockbrokers. The beneficiaries of the trust were the taxpayer, his family and charity. The Court held that the particular arrangements in question which had a self-evident commercial purpose was not one which a reasonable person would conclude was "entered into or carried out … for the dominant purpose of obtaining a tax benefit". However, in the course of dealing with the matter Sackville J with whom Merkel and Kenny JJ agreed, rejected the proposition that the income received from the trading activities carried out by the trustee company was income derived by the appellant. Sackville J with whom Merkel and Kenny JJ agreed applied what was said in Tupicoff in dealing with this issue (127 FCR 185 at [131]).
19. Sackville J also rejected the submission that s 19 of ITAA 1936 (repealed), the equivalent to s 6-5(4) of ITAA of 1997, had the effect that the income was deemed to be derived by the taxpayer whenever it was dealt with as the taxpayer directed. He made the following remarks (at [132]): "[132] Section 19 of the ITAA [1936] does not advance matters from the Commissioner's perspective. Section 19 does not say that income is deemed to be derived whenever it is dealt with as a Taxpayer directs. As was pointed out by the High Court in Permanent Trustee Co of New South Wales v Commissioner of Taxation (Cth) (1940) 6 ATD 5 at 12, the section: '… says that it shall be deemed to be derived income on the assumption that it is income and in other respects is derived notwithstanding that there is no actual payment over but a capitalisation or other dealing on behalf of the Taxpayer or under his direction.' (Emphasis added.) See also Brent v Commissioner of Taxation (Cth) (1971) 125 CLR 418 at 430-431, per Gibbs J."
20. A similar conclusion to that reached in Tupicoff and Mochkin was reached by Bray CJ in Bayly at 454-455. In Fowler, the appellant was the sole director, shareholder and employee of a company, the core business of which was to supply the appellant's consultancy services to third parties. The appellant was assessed to tax under the alienation of personal services income provisions contained in Pt 2-42. Lindgren J in applying the test in s 84-5(1) of ITAA 1997 noted (at [41]) that it could not be disputed that the amounts were ordinary income of the company.
21. The Crown placed particular reliance on Baker and Baker FFC.
22. In Baker, the taxpayer carried on the business of an accountant in partnership. Separately, he earned income from certain tax avoidance arrangements made by him on behalf of his clients. He claimed that the income derived from that activity was not derived by him but was earned by companies he controlled which were the trustees of various discretionary trusts.
23. The taxpayer's clients gave evidence that they were told that the commissions paid were for "the appellant's trouble and expense in arranging and advising" on the arrangements. There were no contracts between the clients and the companies.
24. In these circumstances, Pincus J in Baker rejected the proposition that the income was derived from the company. He made the following remarks ((1989) 20 ATR 798 at 800): "The dispute just mentioned appears to be essentially one of fact: it is common ground that the activities which led to the income's being earned were, in a physical sense, carried out by the appellant himself, but he says that in each of the nine matters the income was earned by a company, in the course of carrying out contracts made between it and his clients. As to most of the nine matters, it is the appellant's case that the income was earned by a company as a profit on the execution of a contract for the sale of goods which was genuine, although entered into for the purpose of tax avoidance. I am satisfied that the money in question was not earned in the way the appellant alleges and that there were no contracts for the sale of goods, or contracts of any other kind, entered into between the companies I have mentioned and the appellant's clients. All that happened was that, under agreements between the appellant himself and the clients, certain payments and (in some cases) accounting entries were made, tending to show that such contracts had been made, although they never were. The payments were not made in pursuance of contracts for sale or the like, and the entries in accounting records relating to them were bogus. I am not satisfied of the truth of the appellant's assertions that the income was earned by the companies I have mentioned in the course of commercial transactions between those companies and the appellant's clients. Clients have given evidence, and the effect of their evidence, speaking generally, is that the appellant suggested to them that, by the making of certain payments and entries, their respective taxable incomes could be reduced and that a fee or commission of 5 per cent or 10 per cent was to be charged. The consideration for the fee or commission was not any commercial dealing, but merely the appellant's trouble and expertise in arranging and advising on the payments and other matters he claimed would be likely to secure a tax advantage for the clients. In performing these functions, I am satisfied that the appellant acted on his own behalf and not on behalf of any of the companies which made or received payments as part of the intended tax avoidance. That is so, in my view, although in each of the nine categories matters were so arranged by the appellant that the fee or commission was deposited for a time, not in his own bank account, but in an account in the name of one of the companies he controlled."
25. Pincus J expressly rejected the taxpayer's evidence (20 ATR 798 at 801-802): "Two important examples of the appellant's attitude are as follows. The first and more general point is that he gave affidavit evidence of the nine 'transactions' in question which was incomplete and misleading; its effect, to put the matter generally, was that each of the dealings constituted a genuine commercial dealing, although one designed for tax minimisation, but it became obvious in the course of the hearing that that was not so. Secondly, when the respondent asked the appellant for information, in July 1982, about the trusts and matters of that nature, he replied (Exh 2) by a letter reading in part as follows: 'We are seeking to have copies of the trust deeds made available by trustees which were appointed to the trusts subsequent to the above companies and will supply these to you as soon as and if they become available. We are not aware whether returns of income were lodged in respect of the above trusts, but can confirm that this did not occur through our office. We have inquired of the trustees who assumed trusteeship from the above companies whether they have lodged or have available for lodgement any returns, and await their reply.' This was all very misleading. The appellant was not in truth seeking to have copies made available. He had no intention of supplying any and was well aware that the chance that those to whose tender mercies the trusts had been subjected might lodge returns was slight indeed."
26. The result was hardly surprising. There were no contractual arrangements between the companies and the clients which obliged the companies to provide any services or entitled them to any fees. Having rejected the appellant's evidence, the conclusion that the income was derived by him was inevitable.
27. The decision was upheld on appeal, Baker FFC. The Court (at 1709) noted that Pincus J stated that the "basic point, namely, [was] that the appellant did not establish 'that the income, which was undoubtedly earned by his own work, was in truth that of any corporate entity'". The Court's conclusion was expressed in the following terms (at 1710-1711): " … It was accepted that there could be no disturbance to his Honour's findings that there were no contracts for the sale of goods or contracts of any other kind entered into in truth between the various companies and clients of the appellant, that relevant entries in accounting records were bogus and that steps taken by the appellant to appoint new trustees were for the purpose of getting rid of the earlier trusts and their records to make investigation by the Commissioner more difficult. There must be added to these matters his Honour's findings, which were not challenged, that there was a serious absence of documentary evidence which was at least in part deliberately caused by the appellant himself because the documents were sent away by him in order to hamper investigation by the Commissioner. Although some attack was made on one or two of the findings of the trial judge with respect to the credibility of the appellant, it was not sought to make out a case before us that the basic findings of his Honour on the question of the credibility of the appellant should be disturbed; and nor could any such submission have been successfully made. This is really a simple case albeit with a large number of complicated transactions and actors. The appellant, in addition to his professional activities as an accountant, provided tax avoidance advice and assistance to his clients by promoting tax avoidance schemes to them which purported to bring into existence real transactions for the purpose of inducing the Commissioner to believe that they had occurred and to assess the clients to income tax accordingly. There never were any such transactions in fact, and their only purpose was to deceive the Commissioner and obtain tax benefits to the clients with the resultant commissions or fees being received by the appellant through the agency of Serula and Larchwood. There was ample evidence to support the primary judge's conclusion that those companies were agents or instruments of the appellant himself rather than he being their agent. The evidence plainly supports the conclusion of his Honour that the various trust entities and companies involved in the transactions were creatures of the appellant either created by him or used by him, in each case for the purposes of his deriving income from the advice given and activities undertaken by him on behalf of his clients. It does not matter that the relevant moneys found their way into the banking accounts of Serula and Larchwood or that they were never billed as fees or commission but were the balance remaining from the credits and debits made to the accounts of Serula and Larchwood. Those facts are elements in the matrix of facts to which regarded must be had in determining who in truth derived the income. When those elements are viewed in the context of all the facts, his Honour was plainly right in concluding that it was the appellant who in truth derived the relevant income. Serula and Larchwood did not carry on business as advisers on tax avoidance. The appellant did. Serula and Larchwood were merely instruments which the appellant used in the tax avoidance schemes which he devised and implemented."
28. In that case, once it was concluded that there were no contractual or other arrangements between the company and the clients and the evidence of the taxpayer was rejected, it followed that the taxpayer was providing the services rather than the companies through the taxpayer as its agent. By contrast in the present case, there was a contractual arrangement between the client (Macquarie) and the company (Billbury) by which Billbury agreed to provide the services to the client through its representative Dr Castagna. Unless it could be said that the agreement was a sham or any of the alternatives to which we have referred at [135] were established, it follows that the income was derived by Billbury. It was not contended that the agreement was a sham and none of the alternatives to which we referred were relied upon.
29. The Crown relied on a number of other authorities to support its contention. It was submitted that these cases established that it was necessary to look at the facts surrounding the entry into the agreements and the conduct of the parties, as well as the agreements itself to identify who in fact derived the income. However, as is demonstrated below, these cases in the main involved the question of whether receipts undoubtedly received by the taxpayer had the character of income in his or her hands, a different question to whether the taxpayer or another entity derived what was admittedly income.
30. In that context, the Crown relied on four decisions of the High Court: Hayes; Montgomery; Scott v Federal Commissioner of Taxation (1966) 117 CLR 514 and Richardson. Hayes concerned the question of whether a transfer of shares to the taxpayer was a gift or whether it constituted income. Fullagar J in the passage relied upon by the Crown (96 CLR 47 at 55) stated "[t]he question in each particular case is as to the character of the receipt in the hands of the recipient" and "[t]he test to be applied is an objective, not a subjective test". His Honour's remarks were directed to the characterisation of a payment to a particular taxpayer, not to the question of who derived the income.
31. Montgomery concerned the question of whether certain payments made as an inducement to enter into a lease formed part of the taxable income of the taxpayer. The case was argued on the basis that the ultimate issue was whether the amounts received were income or whether they were capital (198 CLR 639 at [32]). The remarks made by the majority (at [62]-[64]) to which we have referred above, were made in the context of dealing with that question.
32. Scott v Commissioner of Taxation involved the question of whether a payment of £10,000 to a solicitor by a longstanding client was derived as income or a gift. In her written submissions the Crown relied on a passage from the judgment of Windeyer J. However, a consideration of the whole of that passage makes it clear that it was directed to the question of whether the monies in question were income or a gift. Thus Windeyer J stated (at 526): "I return to the general concept of income. Whether or not a particular receipt is income depends upon its quality in the hands of the recipient. It does not depend upon whether it was a payment or provision that the payer or provider was lawfully obliged to make. The ordinary illustrations of this are gratuities regularly received as an incident of a particular employment. On the other hand, gifts of an exceptional kind, not such as are a common incident of a man's calling or occupation, do not ordinarily form part of his income. Whether or not a gratuitous payment is income in the hands of the recipient is thus a question of mixed law and fact. The motives of the donor do not determine the answer. They are, however, a relevant circumstance."
33. The fourth of the High Court cases relied upon, Richardson, bears some superficial resemblance to the present case. In that case, part of the profits derived by the applicant from carrying on a hotel business were falsely returned in the name of a nominee. The Commissioner, on discovering this fact, issued amended assessments to the taxpayer. However, the Commissioner refused to make any allowances for the tax paid by the nominee. Both Starke J and the Full Court of the High Court held that the allowance should be made. Importantly, it was not in dispute that the income returned by the nominee formed part of the income of the taxpayer. The case in those circumstances provides no assistance to the Crown.
34. Nor do we think that the cases in the Federal Court relied upon by the Crown support the proposition for which she contends. In Alexander, Edmonds J refused to order certain separate questions, stating that they involved "questions of mixed fact and law". He stated that would always be the case "where the question is whether a receipt has the character of income". (emphasis added) (see 99 ATR 773 at [3]). In that context, he referred to what was said by Dixon and Evatt JJ in Western Gold Mines NL v Commissioner of Taxation (WA) (1938) 59 CLR 729 at 740, stating that the question involved "a wide survey and an exact scrutiny of the taxpayer's activities". Those remarks (59 CLR 729 at 740) were stated by Dixon and Evatt JJ to be necessary in determining whether a profit was of an income or capital nature. It does not provide assistance in the present case.
35. In Alexander, Edmonds J made reference to the decision of Hill J in Reuter v Federal Commissioner of Taxation (1993) 111 ALR 716 and on appeal, 93 ATC 5030, another decision relied upon by the Crown. The facts were complicated but the taxpayer was approached by Rothwells Limited to provide services in connection with a proposed takeover by Tryart Pty Ltd of John Fairfax Limited. It was agreed that the fee payable would be 45% of the $100 million fee payable on the successful completion of the takeover.
36. The takeover was successful but Rothwells Limited had fallen into financial difficulties. As a consequence it was agreed that another company, Bond Media Limited, would provide the fee. Following subsequent negotiations Rothwells (or its managing director, Mr Laurie Connell) agreed to pay the applicant $8 million for his services.
37. However, it was realised that if Rothwells made the payment it may constitute a preference. As a consequence, a Deed of Covenant was entered into, pursuant to which Bond Media acknowledged that it had paid $8 million to the applicant, and the applicant, in consideration of the payment of $8 million, covenanted not to sue anyone for the fee without the consent of Bond Media Limited.
38. The applicant sought to characterise the payment solely by reference to the Deed of Covenant as a payment for temporarily giving up the right to sue Rothwells.
39. Hill J rejected this contention stating (111 ALR 716 at 729-730) that he was "entitled to take into account all relevant circumstances [surrounding the deed] in determining the character of the receipt of the $8 million in Mr Reuter's hands". In that context, he concluded that "[t]he payment was so closely associated with the services provided" by the taxpayer to Rothwells, that "as a matter of fact … the payment was a product of his services" and thus a matter of income. The Full Court reached a similar conclusion ((1993) ATC 5030 at 5036).
40. In that case, the Crown emphasised that the agreement between Bond Media and Reuter was not a sham but nonetheless, the Commissioner and the Court were entitled to look outside the agreement to determine the true characterisation of the payment. However, when, as in the present case, the question is who derived the income in circumstances where the agreements were not a sham, it does not seem to us that its effect can be disregarded in determining the question of who derived the income notwithstanding the fact that the work was done by Dr Castagna, that Billbury had no other capacity to meet its obligations and that Billbury only retained the funds for an extremely limited period of time. These matters may be highly relevant in determining whether the payments made by Billbury to Dr Castagna formed part of his assessable income but that is not the manner in which the case was put by the Crown.
41. Similarly, Rotherwood involved the question of whether the payment was income or capital. The Court emphasised in that case that the question is objective and whilst the description in the contract was relevant, it was only part of the matrix of fact from which the character of the payment may be derived (64 FCR 313 at 323). However once again, this case involved the question of whether the payment admittedly made to the taxpayer was income or capital in his hands.
42. The Crown submitted, relying on the decision of MacFarlane, that it was sufficient if it could be established that the income was derived beneficially by Dr Castagna and that it was enough if Billbury was merely the "nominee" of Dr Castagna.
43. In MacFarlane the taxpayer successfully argued that his wife was beneficially entitled to half of the income of their joint venture and was not required to be included in his assessable income. Beaumont J with whom Fisher and Burchett JJ agreed on this issue, explained the position as follows at 367: "I turn first to the question whether Miss Masterman was beneficially entitled to one-half of the investment income. His Honour found that the appellant and Miss Masterman expressly agreed that the business generating the earnings represented by the investments was to be beneficially owned by himself and Miss Masterman in equal shares. There was also evidence that, in discussions between them, the appellant and Miss Masterman agreed that the investments were jointly owned in equal shares. In any event, the investments could be traced back to the earnings of the business. Moreover, as has been said, Miss Masterman made an equal contribution to their venture. She injected a cash amount equal to that provided by the appellant. She also matched his contribution to the profits of the business by way of services rendered. In these circumstances, equity would regard the appellant and Miss Masterman as beneficially entitled in equal shares to the assets and income of their joint venture, including the income from the investments in question. Given the express agreement of the parties, it is appropriate to characterise their relationship as involving an express trust. However, if the appellant sought to raise the possible application to such a trust of the Statute of Frauds 1667 (UK) (see Conveyancing Act 1919 (NSW), s 23c), equity would declare a resulting or constructive trust in favour of Miss Masterman (see Calverley v Green (1984) 59 ALJR 111; Muschinski v Dodds (1985) 60 ALJR 52; Last v Rosenfeld [1972] 2 NSWLR 923. The appellant, of course, has never sought to deny the beneficial entitlement of Miss Masterman. Moreover, before us, the respondent disclaimed any reliance upon the Statute of Frauds. It follows, in my view, that since the appellant held the investment income as to a one-half share upon trust for Miss Masterman under an express or, alternatively, resulting or constructive trust, the appellant was beneficially entitled to the remaining one-half share of income only. In my opinion, the learned Judge erred in holding that, for the purposes of the Act, the legal title to income is determinative. The Act, in my view, takes the taxpayer's income as it finds it - that is to say, subject to the general law in all its aspects. This will pick up the position at law and in equity, modified by any relevant legislation, including the provisions of the Act itself. In Stewart Dawson and Co (Vic) Pty Ltd v Federal Commissioner of Taxation (1933) 48 CLR 683 Dixon J, speaking of the presumption of advancement, said (at 691): 'I see no reason why this rule should not apply in revenue matters. If liability for tax depends upon the existence or non-existence of a trust, the occasion seems to demand the application of the rules by which the determination of such questions is governed in courts of equity.' Dixon J was there dealing with a question arising under land tax legislation, but his observations are equally applicable to the operation of the Act."
44. His Honour's remarks, with respect, are undoubtedly correct. However, to establish a case based on beneficial entitlement to the income, the Crown would need to show that Dr Castagna was beneficially entitled to the monies from Macquarie, either as a result of an express trust or perhaps because of a resulting or constructive trust. As we point out below, the difficulty is that such a case was not sought to be raised.
45. So far as the contention that Billbury was the mere nominee of Dr Castagna, that again ignores the fact that the consulting agreements provided for Billbury to perform the services through its representative and receive the payments. There is nothing in the agreements to suggest that Billbury was a mere nominee in the sense of simply being the recipient of the payments and having no positive obligations under the agreements.
46. Apart from the trust contention, there were two further issues raised. First, whether s 6-5(4) provides any assistance to the Crown and secondly, whether the directions given by Dr Castagna and subsequently by Mr Agius that the funds were to be paid to Billbury provides support for the Crown case.
47. Section 6-5(4) of ITAA 1997 is relevantly in the same terms as the former s 19 of ITAA 1936. As Hill J pointed out in Liedig v Federal Commissioner of Taxation (1994) 50 FCR 461 at 470 (Liedig), the section only operates when the amount in question is "'income' of the person which, if paid to him or her, would clearly have been derived by him or her". See also Mochkin at [132].
48. Further, we do not think that the directions and authorisations to Macquarie to which we have referred at [18] - [19]; [21]; [23] - [24] above, alter the position. The directions were made pursuant to the consulting agreements and directed payment to Billbury. They do not affect the contractual relationship which existed between the parties under the consulting agreements.
49. Fundamentally, the Crown case amounted to the proposition that because the services were performed by Dr Castagna, Billbury had no capacity to proffer the services other than through Dr Castagna and only held the monies for a very short period of time, meant that notwithstanding the terms of the agreements, the income was derived by Dr Castagna as the service provider. A somewhat similar proposition was argued by the Commissioner in Liedig. In that case, where the taxpayer performed certain services as trustee of a trust, it was argued by the Commissioner that as the income was earned by the trustee through his personal exertion, it was taxable in his hands. Hill J rejected the submission and after referring to Tupicoff and Bayly, made the following remarks which are apposite to the present case at 474-475: "The insurance agent in Tupicoff, whose business comprised canvassing prospective customers to enter into policies of insurance, clearly was deriving income from his personal exertion yet that, of itself, did not bring about the result that the income earned was income of the person whose exertion, coupled with the agency contract, enabled that income to be earned. Where is the line to be drawn? It has never been suggested that income earned by the trustee of a trust carrying on business as a milkman or plumber or an electrician is derived by the person pursuing the respective occupation, yet each involves significant personal service or personal exertion. The Commissioner's answer before me was that the income had to be a result 'substantially' of the personal exertion of the taxpayer. How that submission squares with the full Court's decision in Tupicoff is difficult to say. Equally it is difficult to relate to the examples given above. Only where no trust property was involved could the distinction become meaningful. This difficulty was adverted to by the Deputy President who recognised that there were some trust assets, including goodwill, and that income could be said to flow in part from those assets as well as the skill of Mr Liedig. But the problem is not even as simple as that. A land broker, like a solicitor, may, and probably does, enter into a contract with the client for the performance of work. Ordinarily moneys would not be payable under that contract unless and until the work contracted to be performed had been completed. Those contracts, like the service contracts with staff, the physical assets and goodwill, are all assets of the trust estate. Any income is derived by force of those contracts in just the same way as income was derived by Mr Tupicoff from the contract with the insurance company. The income derived in both cases was probably as much dependent upon personal services as upon the relevant contractual arrangements."
50. Similarly to that case, the income in the present case was derived from the contract with Macquarie, albeit dependent on the personal services of Dr Castagna.
51. It follows that subject to the proposition that Billbury was trustee for Dr Castagna, such that he was beneficially entitled to the income received from Macquarie, Grounds 2 and 3 of the grounds of appeal have been made out.
52. In the circumstances, it is not necessary to deal with the reserved questions.

Was it open to the jury to reach its conclusion on the basis that Billbury held the monies received from Macquarie on trust for Dr Castagna?

1. We have pointed out at [121] the manner in which the Crown ultimately sought to put its case based on the existence of a trust. Because of the importance of the issue both as to the fate of the grounds of appeal themselves and the orders which should be made were the appeal to be allowed, we have set out in considerable detail the manner in which the case was put at trial (see [39]-[86] above). It is unnecessary to repeat what we have set out but it demonstrates with abundant clarity that a contention of the nature of that suggested at [121] was not put. However, there are a number of matters which may be added.
2. Although it is correct as pointed out in the note to which we have referred at [121] that where monies are paid to beneficiaries during an income year, income derived by them is treated as ordinary income for taxation purposes, it would still be necessary for the Crown to demonstrate that the whole of the distributable income was held on trust for Dr Castagna (Federal Commissioner of Taxation v Bamford (2010) 240 CLR 481 at [45]).
3. The Crown relied on an express trust. It would thus have been necessary for it to prove beyond reasonable doubt that the person creating the trust intended to do so. The intention must be clear and it must also be clear what property is the subject of the trust and the identity of the beneficiaries be reasonably certain. Intention is to be inferred objectively from the words used and the surrounding circumstances (Byrnes v Kendle (2011) 243 CLR 253 at [14]-[16]; [57]-[65]; [114]; Associated Alloys Pty Ltd v ACN 001 452 106 Pty Ltd (in liq) (2000) 202 CLR 588; [2000] HCA 25 at [29], noting at [34] that "[a]n express obligation … to keep the 'proceeds' separate would have pointed to the existence of a trust", although the absence of that requirement does not of itself deny the trust; see also Korda v Australian Executor Trustees (SA) Ltd (2015) 255 CLR 62; [2015] HCA 6 at [3] - [10]; [109] - [111]; [204]).
4. Finally on this issue it is important to bear in mind the fact that mere control over a company's funds does not render the company a trustee for the controller. The position was summarised by Leeming JA in Osborne in the following terms: "[122] It is one thing for a person to control the legal owner of property. It is quite another for that legal owner to hold that property on trust for that person. This was the point squarely made by defence counsel during the trial in support of the second application for a directed verdict. It is, with respect, fundamental. [123] There must be many thousands of Australian private companies, with the same natural person being their sole shareholder and director, which hold property other than on trust for that person. One familiar example is the special purpose corporate vehicles regularly established for particular property developments, which are wholly owned and controlled by the property developer. Another is the company through which a tradesperson or professional person conducts his or her business, which is often wholly owned and controlled by the person. Examples could readily be multiplied. Obviously, a sole shareholder can (by member's resolution) rapidly cause the company to perform any corporate act. Obviously, a sole director can (by a director's resolution) rapidly cause the company to perform most corporate acts. [124] But that does not make the company a bare trustee for its director or shareholder. Still less does it achieve the result for which the Crown contended in the present case, namely, that the director or shareholder is presently entitled to any income derived by the company as trustee."
5. The jury was not directed or invited to draw a conclusion on any of these issues as the Crown did not conduct the case on this basis. It is not for this Court to speculate what the result would be had the Crown done so. The possibility that the Crown may have done so does not alter the fact that Grounds 2 and 3 have been made out.

The appeal against the conviction on Count 13

1. The grounds of appeal in respect of Count 13 were in the following terms: "4. The trial judge erred in her directions as to how the jury could approach the question of tracing the proceeds of crime the subject of the conspiracy in count 13. 5. The verdict on count 13 is unreasonable and cannot be supported having regard to the evidence."
2. It was accepted that if the appeal against the convictions on Counts 1 and 2 are made out, the appeal against the conviction on Count 13 must also be allowed there being no proceeds of crime to constitute the offence.
3. Count 13 essentially involved a conspiracy to repatriate part of the funds transferred overseas by Billbury to Dr Castagna by what were described by the Crown as "sham loan[s]". The case was essentially based on two matters. First, the monies paid overseas by Billbury, or at least a part which represented unpaid tax, were the proceeds of crime and second, that Mr Agius and Dr Castagna conspired to have the money returned to Dr Castagna by way of "sham loans".
4. It did not seem to be disputed that a portion of the funds paid by Billbury to IFTCO represented proceeds of crime if the Crown was successful on Counts 1 and 2. That was accepted, notwithstanding the fact that there would be no liability to pay tax out of the particular funds in question had the income been declared and an assessment issued. The tax assessed would constitute a debt to the Crown for which Dr Castagna was liable but not a charge over any particular funds.
5. The issue which was argued on the appeal related to the repatriation of these funds. The Crown essentially contended that the repatriation funds were directly or indirectly derived from the proceeds of the offence the subject of Counts 1 and 2, whilst the appellants contended that the repatriation funds were genuine loans and could not be traced to such proceeds of crime.
6. The issues raised by the grounds of appeal on Count 13 thus raised difficult questions of whether the money in question was wholly or partly derived or realised directly or indirectly from the conspiracy the subject of Counts 1 and 2 (c/f Commissioner of Australian Federal Police v Hart (2019) 262 CLR 76; [2018] HCA 1 at [16]; [91]-[93]; [98]). Because, as appears below, we are of the view that a verdict of acquittal should be entered, it is both unnecessary and inappropriate to deal with what is now a hypothetical issue.

The remaining grounds of appeal

1. In the circumstances it is unnecessary to deal with these grounds.

Should a retrial be ordered?

1. The appellants contended that if they were successful on these grounds a verdict of acquittal should be entered. The Crown by contrast submitted that a new trial should be ordered and it be left to the prosecuting authorities to determine whether or not a new trial should be had. In that context, the Crown submitted that it would not be relying on any fresh factual material, but merely be seeking to place a different characterisation on the transactions.
2. In King v The Queen (1986) 161 CLR 423, the appellant was charged along with another man with the murder of the appellant's wife. The case put was that the husband was an accessory before the fact having procured the other man to do the killing. The trial judge initially directed the jury that it was not possible to enter different verdicts against the two men. However, following objection by the prosecution, the jury was told that they could convict the husband if they were satisfied that he arranged for someone to kill his wife, even if it was not the other man charged. The husband was convicted and the other accused acquitted.
3. The Court of Criminal Appeal set aside the conviction and ordered a new trial on the basis that the trial judge had erred in allowing the alternative way the case was put to go to the jury.
4. A majority of the High Court held that the Court of Criminal Appeal was correct in ordering a new trial. It was accepted by Dawson J, with whom the other members of the majority agreed, that a new trial should not be ordered "when the evidence in the Court below was not sufficiently cogent to justify a conviction, or to allow the Crown to supplement a case which had proved to be defective and in particular the Crown should not be given an opportunity to make a new case which was not made at the first trial (161 CLR 423 at 433). However, as the alternative case was raised belatedly at the trial and the case was a strong one, a new trial was ordered.
5. In Jiminez v The Queen (1992) 173 CLR 572; [1992] HCA 14, a case involving a misdirection on a charge of dangerous driving causing death, the plurality ordered an acquittal rather than a retrial stating that it was "more than three and a half years since the accident occurred", the applicant had "already been subjected to the expense, strain and inconvenience of a trial", "the case against him was not a compelling one" and the sentence was "one of periodic detention which, if it had been served, would … have expired".
6. In Parker v The Queen (1997) 186 CLR 494; [1997] HCA 15, the applicant was convicted of stealing, the Crown asserting that the applicant used monies provided by donors to his parliamentary election campaign which was deposited in a bank account for purposes other than to support his parliamentary election, contrary to a direction by the donors that it be only used for the purpose of the election campaign. The Western Australian Court of Criminal Appeal held that there had been a misdirection on the relevant provisions of the legislation (s 373 of the Criminal Code (WA)) but held that a retrial was appropriate on the basis that s 373 deemed the money to be held on trust, and that equitable principles could be applied to determine who owned the money when it was withdrawn from the account.
7. The majority in the High Court held that s 373 did not have that deeming effect. However, the Crown indicated that on a retrial, it "would contend that the campaign account represented a common fund but that donors were owners of different parts of the fund". The Crown said it "would rely upon principles of tracing so as to identify a relationship between money paid into the account and money paid out".
8. The majority, in ordering an acquittal, stated that it was "apparent that on a retrial the appellant would be called upon to meet a quite different case to that presented against him at trial" which would have been "unfair, particularly having regard to the sentence already served" (186 CLR 494 at 519).
9. In The Queen v Taufahema (2007) 228 CLR 232; [2007] HCA 11, an accused was charged with the murder of a police officer on the basis of secondary liability. By the conclusion of the trial, the joint criminal enterprise was described in a different way: the judge directed the jury that the Crown alleged a joint enterprise to avoid apprehension, involving the shooting of a police officer as a foreseen possibility. The Court of Criminal Appeal quashed the conviction on the ground that evasion of apprehension was not an offence known to law and entered a verdict of acquittal. On an application for special leave to appeal to the High Court, the Crown for the first time characterised the joint enterprise as the commission of an armed robbery in which a fatal shooting which was foreseen as a possible occurrence occurred.
10. The majority of the Court concluded that a new trial should be ordered. The majority pointed out that one of the key circumstances referred to in s 8(1) of the Criminal Appeal Act 1912 (NSW) is "the public interest in the due prosecution and conviction of offenders" and that "[a]n order for acquittal conflicts with 'the desirability, if possible, of having the guilt or innocence of the [accused] finally determined by a jury'" (228 CLR 232 at [49] - [51]). They pointed out at [51] that "the trial which took place was a flawed one" due in part to the influence of the trial judge. They also pointed out at [55] that "only a relatively small part of a very long sentence … had been served" and that a delay between the offence and the new trial was not such as to prejudice the accused. Having reviewed the authorities to which we have referred, the majority stated at [67] that "the difference between the case relied on in the first trial and the case to be relied on in a second trial must be substantial if the difference is to stand as a bar to an order for a second trial".
11. Gleeson CJ and Callinan J who with Kirby J dissented, referred at [35] to the statements made by Dawson J in King to which we have referred above. They stated that "[i]n the context of a new trial for the same offence, the reference to a 'new case' must be to the particulars of the charge, and to the nature of the evidence". They emphasised at [37] "[t]he general rule that litigants are bound by the conduct of their counsel, a rule essential to the adversarial system, applies with at least as much force to the prosecution as to the defence".
12. It may be assumed that the case which will be put on any retrial would be based on the propositions in the note to which I have referred at [121]. However, it would at least be necessary to amend the particulars of the conspiracy to provide for an agreement, presumably between Mr Agius and Dr Castagna, that the monies received from Macquarie be held by Billbury on trust for Dr Castagna, be dealt with at his direction for the purpose of defrauding the Commonwealth and dishonestly causing a loss to the Commonwealth.
13. The case can thus be seen to be significantly different to that propounded in the original trial. It would involve proving a different conspiracy, as well as establishing whether the elements necessary to constitute the trust existed. In this context, the importance of proper particulars in a conspiracy case must be emphasised (see Gerakiteys v The Queen (1984) 153 CLR 317 at 333).
14. It is difficult to form an assessment of the strength of the suggested case, but even if it is assumed to be strong, and taking into account the desirability of the guilt or innocence of the accused to be determined by a jury, the countervailing factors lead us to the conclusion that the appropriate order is the entry of an acquittal. First, and importantly, the conclusion which we have reached means that the appellants were in fact entitled to a verdict by direction. It would be unjust in these circumstances to order a new trial to enable a new case to be agitated. Second, as we have pointed out, it is undoubtedly a new case in the sense referred to by Dawson J in King. Third, the events in question took place between 10 and 20 years ago. Fourth, the appellants have already been exposed to a trial of approximately 8 weeks and a new trial which could not take place until 2020 would take at least the same time having regard to the contemplated issues. Fifth, in the case of Dr Castagna he has already served 1 year of a 4 year non-parole period. Sixth, at the time of the trial Mr Agius was 69 and Dr Castagna was 71. Thus, they would both be in their seventies at the time of a new trial.
15. Section 8(1) of the Criminal Appeal Act empowers the Court to order a new trial whenever a miscarriage of justice can be more adequately remedied by a new trial than by any other orders. Having regard to the matters to which we have referred, we do not think a new trial, as distinct from the entry of a verdict of acquittal, is the appropriate remedy.
16. We would therefore quash the convictions and enter a verdict of acquittal.

Conclusion

1. In the result, we would make the following orders: 1. Appeals allowed. 2. Convictions of each appellant on Counts 1, 2 and 13 be quashed and, in lieu thereof, a verdict of acquittal be entered.

Amendments 07 June 2019 - Cover sheet Representation "Hazen" changed to "Hazan" DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 07 June 2019