Gavin Mark RIDLEY v REGINA

Gavin Mark RIDLEY v REGINA - [2008] NSWCCA 324 - NSWCCA 2008 case summary — Zoe

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The Crown case 12 It was the Crown case that during the period February 2001 to July 2001 the appellant dishonestly made false claims for refunds for Goods and Services Tax ("GST") in twelve Business Activity Statements ("BASs") submitted to the Australian Taxation Office by the appellant in the names of three companies controlled by him. The Crown said that in each, the subject BAS contained false information concerning alleged acquisitions claimed to have been made which incurred GST. It was said that the BASs falsely claimed that the companies in question had made these acquisitions and that the companies were entitled to a refund of the GST component of the acquisition. The total amount of tax claimed to be the subject of refund in the twelve charges was $2,858,160. The ATO paid over the claimed refunds for the first nine BASs (Counts 1 to 9), totalling $1,746,582. However, it did not pay over the amounts claimed in the last three BASs (Counts 10 to 12), totalling $1,111,578. 13 The GST system, and how it was administered, was explained to the jury by witnesses. It was explained that the GST was a consumption tax levied on the supply of goods, services and activities, and imposed at a rate of 10%. It was explained that in a typical situation in which goods were sold or services supplied, the seller or provider included the GST in the price of the goods or services and the seller or provider accounted to the Australian Taxation Office for the GST component in the sale. It was explained that if the buyer bought goods or services for its business purposes, the buyer was able to claim a credit for the amount of GST that it had paid. This credit was called an "input tax credit". This credit was offset against any GST on goods or services that the buyer supplied to its own customers. 14 It was explained that as part of the administration of the GST scheme, businesses have to register with the ATO and that businesses account to the ATO for the GST on the supplies they make and obtain credits pursuant to claims for the GST input tax credits. These returns and claims are made in a BAS which the ATO requires to be completed monthly or quarterly. The system that operated was one of "self assessment" requiring the taxpayer to make an honest and complete return. 15 The GST legislation came into operation on 1 July 2000. 16 During 1998 and 1999, the appellant and a business partner, Mr Anthony Gee, were interested in establishing a business venture involving tyre recycling. The appellant participated in negotiations with representatives of a company called Link Pty Ltd ("Link"). Link's founder, a Mr Wenzel, had invented a method of stripping and processing motor vehicle tyres to produce crumbed rubber material which could be used to make various rubber products. Link was in the business of making and selling speciality plant and equipment to undertake this manufacturing process. Link had a factory in Brisbane where its plant and machinery were demonstrated. The appellant and Mr Gee were interested in establishing manufacturing plants in Sydney, Brisbane and Melbourne to operate the Link recycling process and obtain from Link sole rights to use this process in defined areas. This proposal was subject to the appellant and Mr Gee raising all of the required funds from potential investors. 17 Three companies were incorporated by the appellant and Mr Gee to operate the proposed businesses: Envirotyre Industries Pty Ltd ("Envirotyre Industries"); Southern Rubber Technology Pty Ltd ("Southern Rubber Technology"); and Queensland Tyre Resources Pty Ltd ("Queensland Tyre Resources"). In addition, the appellant incorporated two other companies: Envirotyre Management Pty Ltd ("Envirotyre Management") and Envirotyre Sales Pty Ltd ("Envirotyre Sales"). These five companies comprised what was referred to as the Envirotyre Group. 18 The appellant drafted a heads of agreement document between Envirotyre Management and Link which came to be dated 23 December 1998. The heads of agreement outlined a proposal to purchase plant and machinery from Link and Link's agreement to supply exclusively such plant and machinery to Envirotyre Management in a defined geographic area (Queensland, New South Wales, Australian Capital Territory, Victoria, Tasmania and South Australia). The appellant later substituted another company which he and Mr Gee controlled, Interequity Capital Management Limited (Hong Kong) ("Interequity"), for Envirotyre Management in the heads of agreement. The heads of agreement concerned a proposed arrangement for the supply of technical equipment and machinery. It referred to the obtaining of a $10m letter of credit for the purchasing of the Link plant and machinery for three factories by 30 September 1999, that date being the final date for the entering into of a binding contract. Under the heads of agreement, Link also permitted the use of its name "within public documents that are required for the capital raising process". The final clause of the heads of agreement stated that the heads of agreement represented the understanding of the parties with respect to the matters referred and, except for two clauses, the heads of agreement was not binding. 19 The appellant and Mr Gee set about attempting to raise large sums of money from potential investors to establish three separate ventures for a factory in each of three different states. Seventeen million dollars was sought to be raised from the public for each of three ventures under a prospectus. These efforts were unsuccessful. Interim stop orders were imposed by the Australian Securities and Investments Commission on the use of the prospectuses and final stop orders were placed on the prospectuses in August 2000. 20 The money required for preparing the prospectuses and other start up costs of $20,000 came from the appellant. The appellant claimed in cross-examination that both he and Mr Gee advanced about $150,000 each to Envirotyre Management in or by November 2000. There was no documentary or bank evidence to substantiate this in the evidence. 21 At no time was there ever any purchase of plant or equipment or technology rights from Link made by the appellant or Mr Gee or by any of the companies referred to above associated with them; nor was any contract or arrangement ever entered into with Link (other than the heads of agreement). Envirotyre Industries, Southern Rubber Technology, and Queensland Tyre Resources never operated any business. These three companies were, however, registered with the ATO for taxation and GST purposes. 22 In early February 2001, the ATO received notification of a change to the bank details for the above three companies. The new bank account was at the Commonwealth Bank in the name of "Envirotyre Group". The persons nominated to operate the account were the appellant, Mr Gee and Mr Gee's father. 23 On the day that the ATO received notification of this change of bank account, three BASs were lodged with the ATO for the three companies, Envirotyre Industries, Southern Rubber Technology and Queensland Tyre Resources, for the quarter July to September 2000. In each respective BAS, the relevant company claimed a GST input credit in relation to "other acquisitions", but otherwise revealed no financial activity resulting in tax implications for the quarter. Envirotyre Industries claimed an input tax credit of $144,960 (Count 1); Queensland Tyre Resources claimed an input tax credit of $83,730 (Count 2); and Southern Rubber Technology claimed an input tax credit of $139,536 (Count 3). 24 On 7 February 2001, three BASs were lodged with the ATO for the three companies for the quarter October to December 2000. In each respective BAS, the relevant company claimed an "input tax credit in relation to other acquisitions", but otherwise revealed no financial activity resulting in any tax implications for that quarter. Envirotyre Industries claimed an input tax credit of $173,880 (Count 4); Queensland Tyre Resources claimed an input tax credit of $100,403 (Count 5); Southern Rubber Technology claimed an input tax credit of $167,371 (Count 6). 25 On 15 Feburary 2001, the ATO refunded the amounts claimed in each of the six BASs filed up to that point, by way of direct transfer to the Envirotyre Group bank account. 26 On 20 April 2001, three BASs were lodged for the three companies for the quarter January to March 2001. Each of the companies claimed an "input tax credit in relation to other acquisitions", but otherwise revealed no financial activity resulting in tax implications for the quarter. Envirotyre Industries claimed an input tax credit of $376,959 (Count 7); Queensland Tyre Resources claimed an input tax credit of $201,567 (Count 8); and Southern Rubber Technology claimed an input tax credit of $355,223 (Count 9). 27 On 30 April 2001, the ATO refunded the claimed amount for Envirotyre Industries' BAS for the quarter January to March 2001. 28 On 22 May 2001, the ATO refunded the amount claimed by Queensland Tyre Resources, plus $614.81 interest for late refunding for the same period. 29 The evidence disclosed that in early June 2001, a compliance officer of the ATO, a Ms Janceska, telephoned the appellant to ascertain further details about the January to March 2001 BAS for Southern Rubber Technology. She asked what the main business activity of the company was. The appellant told her that it was tyre recycling and that a plant was being set up and should be completed by October 2001. Ms Janceska queried the acquisitions nominated in the BAS as amounting to $3,907,453. She said she would need a breakdown of the expenses to verify the amount. She gave the appellant her facsimile number. 30 On or about 4 June 2001, Ms Janceska received a facsimile transmission on Southern Rubber Technology letterhead signed by the appellant. The document stated the following: "Following our telephone conversation on Friday of last week, please find enclosed the details for the breakdown of "G11 - other acquisitions" as requested. #1 Vendor: Tiphaze Pty Ltd Supply: Tyre Recycling Technology Licence Fee Amount: $1,684,030.00 incl GST #2 Vendor: Tiphaze Pty Ltd Supply: Tyre Recycling Processing Equipment - first installation/hire payment Amount: $2,219,465.00 incl GST #3 Vendor: FPD Savilles Pty Ltd Supply: Office Rental Amount: $3,958.00 incl GST Total of G11 "other acquisitions" - $3,907,453.00 I trust that this provides the information that you require such that our refund can now be processed." 31 After receiving this document, Ms Janceska requested the appellant to provide invoices from the suppliers. Ms Janceska then received two invoices which were in evidence, both dated 15 January 2001. They were sent to her by facsimile. The invoices purported to be from "Tiphaze Pty Ltd - The Industrial Process People". After receipt of these invoices, Ms Janceska decided to allow the processing of the refund for the quarter January to March 2001 for Southern Rubber Technology. On 18 June 2001, a taxation refund was made, plus a sum $2,338.24 by way of interest for late refund payment. 32 The above two invoices contained line items for the price of "Core Technology Licence Fee - Link Process Installation; Southern Rubber Technologies Tyre Plant"; and "Equipment Supply/Licence - Link Process Installation; Southern Rubber Technologies Tyre Plant Stage 1, include: PS 6000 Shredder, SH 1500 Grinding/Granulation System, FST 3000 Fibre System, SCR 2400 Screening System, Computer Controller and Process Module." The prices in the two invoices were ex GST, with a line item of a GST component. Each invoice contained at the bottom of the page the statement: "All accounts due and payable 30 days from invoice date." 33 On 12 July 2001, three BASs were lodged for the three companies for the quarter April to June 2001. Envirotyre Industries claimed an input tax credit of $457,192 (Count 10); Queensland Tyre Resources claimed an input tax credit of $230,310 (Count 11); and Southern Rubber Technology claimed an input tax credit of $424,076 (Count 12). 34 On or about 20 July 2001, another ATO officer, Mr Hale, telephoned the appellant concerning the April to June 2001 BAS for Queensland Tyre Resources. When he questioned the appellant about the purchases of $2,533,410 referred to in the BAS, the appellant said: "The amount was to set up a factory to recycle car tyres by shredding them into small rubber pellets and turning them into new products." 35 Mr Hale asked the appellant to send him a copy of the tax invoice for verification purposes. On 31 July 2001, Mr Hale received a facsimile with Queensland Tyre Resources letterhead signed by and in the handwriting of the appellant. The coversheet stated: "David, sorry for the delay. I had to retrieve the document back from the accountant. Any questions please call." 36 The copy invoice supplied was a Tiphaze Pty Ltd tax invoice dated 6 June 2001. The invoice in the description column identified: "Equipment Supply/Licence - Link Process Installation; Queensland Tyre Resources Tyre Plant Stage 1; Include: PS 3000 Shredder, SH 1500 Grinding/Granulation System; FST 3000 Fibre System, SCR 2400 screening system, computer controller and process module." 37 Mr Hale then made enquiries of ATO records concerning the company Tiphaze Pty Ltd and identified a telephone number for the accountants for the company. On 1 August 2001, Mr Hale spoke to someone at that firm and asked for some verification of the invoice. No response was ever forthcoming. 38 On 2 August 2001, Mr Hale again spoke to the appellant on the telephone. Mr Hale asked the appellant some questions concerning the business of Queensland Tyre Resources. Mr Hale asked the appellant where the Queensland Tyre Resources factory was. The appellant said that it was at Beaudesert, but that he could not give the precise address and said that he would get back to Mr Hale. Mr Hale asked if there were any employees there. The appellant said that there were not, but there would eventually be 13 employees on the site. The appellant said that in all there would be 64 employees working for the group. The appellant said that Tiphaze staff were currently at the site (of Queensland Tyre Resources' factory). The appellant told Mr Hale that Tiphaze was manning the plant (in Queensland) and that he dealt with Ryner Wenzel and Peter Cook from Tiphaze. 39 On 8 August 2001, under cover of a facsimile headed "Envirotyre Group" and signed by the appellant, Mr Hale received two further invoices from Tiphaze dated 6 June 2001 relating to Envirotyre Industries and Southern Rubber Technologies having information of the kind referred to earlier under the description column with substantial amounts of payment, each over $4m and GST for each company over $400,000. 40 Thereafter, another ATO officer, Mr Brown was given the ATO files of the three companies for the purpose of auditing their BASs. Mr Brown made a number of unsuccessful telephone calls to the appellant and left messages for him. On 6 September 2001, Mr Brown received a telephone call from the appellant. During the telephone conversation, the appellant said words to the effect: "They would have a factory operating at some point where they could install all the machinery and press a button and the thing would start operating."

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The appellant also said: "Delivery hasn't occurred, installation hasn't taken place because we've got a dispute with the supplier, Tiphaze, and we also have some issues with the sites in that we haven't secured the locations for the reasons of a dispute with the EPA." 43 On 21 September 2001, Mr Brown left a telephone message for the appellant requesting amongst other things the location of the factory sites. Later that day Mr Brown received an email from the appellant stating: "Locations being secured subject to required approvals: 36 Lisbon Street, Fairfield; 29 and 31 Reo Cr, Campbelltown; site in Redbank Plains Road, Blackstone or Coopers Plains to be determined. Subject to above along with lease issues." 44 On 26 September 2001, Mr Brown checked one of the site location addresses that had been given to him, namely 36 Lisbon Street, Fairfield. He found that it consisted of a vacant factory with a for sale or lease sign outside. 45 On 28 September 2001, Mr Brown telephoned the appellant's office and was told by the receptionist that the appellant was not in and that she did not know when to expect him. Mr Brown attended the appellant's business premises on 8 October and was told that the appellant was overseas. 46 On 30 April 2002, a search warrant was executed on the appellant's business premises at Bulletin Place and various documents and computer material were seized. Documents located during the police search included three "licence agreements" each dated 8 September 2000, which had been shown to Mr Brown on 17 September 2001. According to the terms of these licence agreements, the licensor (Tiphaze) purported to confer "certain rights in relation to certain hardware and technology" to Southern Rubber Technology, Queensland Tyre Resources and Envirotyre Industries. Each of the documents was executed. They appear to have been signed by Mr Gee (in stamped signature) on behalf of the three companies and by the appellant on behalf of Tiphaze. 47 Federal Police printed out hard copies of various computer files seized from the appellant's computer. The computer files that related to Tiphaze invoices showed that the files were all (first) created on Sunday 16 September 2001, the day before the ATO officer, Mr Brown visited the appellant. The computer files that related to the licence agreements dated 8 September 2000 showed that the files were (first) created on 21 February 2001 and last modified on 16 September 2001. 48 Evidence concerning Tiphaze was presented at the trial. According to incorporated records, Tiphaze was incorporated in 2000 and registered in New South Wales. Its sole director and shareholder was Mr Mark Heasman. Tiphaze was registered with the ATO and provided with a tax file number. According to information supplied to the ATO, Tiphaze's principal business activity was labour hire. Seized from the business premises of the appellant were some (unregistered) documents, some bearing the date 15 June 2001 transferring ownership of Tiphaze (the documents included resignation of the director, appointment of new director and transfer of shares). 49 Evidence was given at the trial by Mr Lance Heasman, the brother of Mr Mark Heasman, who had recently died. Lance Heasman was the managing director of a crane hire company. In the year 2000, he purchased a number of shelf companies through a firm of accountants (Cassaniti and Associates). One of these companies was Tiphaze. He caused his brother, Mark Heasman, who was one of his employees, to become the sole director of that company. Lance Heasman said that he was planning to use these shelf companies to re-structure his crane-hire business, but subsequently changed his mind. Lance Heasman employed Mr Gee as a business consultant. During 2000, Mr Gee told Lance Heasman that he could use the company Tiphaze if it was not required. Lance Heasman got his brother to sign various company documents (in blank) to transfer Tiphaze. He understood that these documents were taken away by Mr Gee. 50 Evidence was given at the trial concerning the address which appeared at the bottom of the Tiphaze invoices, namely Suite 179, 3 Holtermann Street, Crows Nest. 3 Holtermann Street was a shop which offered mail boxes for rent. The appellant first applied to rent mail box No 179 on 4 May 2001. 51 Evidence was given at the trial that the factory premises at 36 Lisbon Street, Fairfield were purchased by a company called Eagle Fly Pty Ltd which had, until 2003, no association with the appellant or Mr Gee. A tyre recycling plant using Link equipment was established there by Eagle Fly during the years 2001-2002. 52 The appellant gave evidence at the trial. His evidence was to the effect that at the time of lodging the various BASs he intended establishing tyre recycling businesses. He claimed that he thought he was entitled and was indeed obliged to lodge these BASs as the acquisitions claimed in them were (or would be) made. He claimed that Interequity had claimed the rights to the Link Tyre Recycling System through the heads of agreement document and that Tiphaze, as agent of Interequity, was entitled to and did, enter into licensing agreements with Southern Rubber Technology, Queensland Resources and Envirotyre Industries. He said that the acquisitions in the BASs were referred to in the three licensing agreements. He claimed that the prospectuses which were issued to raise money for the proposed ventures stated that Interequity owned Link Technology and that he believed that this was so, as he had received advice to this effect from a lawyer. In his cross-examination he stated the following which was the essence of his explanation: "My honest belief was at all times there was a right to claim the input tax credits as they were put forward otherwise we wouldn't have put them forward in the first place. There was [sic] investors coming in. There was a variety of discussion going on to move the business forward and these activity statements were filled out on the premise that the business was still moving forward."

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Issues at the trial 53 Before coming to the notice of appeal and the grounds of appeal, it is important to understand, in essence, how the cases were put at the trial. The Crown case was that there were no transactions involving Tiphaze or any of the three companies in whose names the BASs were lodged. The Crown case was that the claims for GST refunds were based on fictitious transactions, that Tiphaze had nothing to sell or supply and that the supporting documentation generated by the appellant, including the Tiphaze invoices and licensing agreements, were shams created to fool the ATO. In those circumstances, the appellant was necessarily and obviously acting dishonestly in submitting the claims for taxation refunds. 54 The appellant's case was that the claims for input tax credits were based on genuine transactions or, at least, that the appellant believed that they were genuine transactions, the Tiphaze invoices reflected actual transactions and Tiphaze was acting in those transactions as the agent for Interequity. Interequity had (or the appellant believed that it had) obtained rights under the heads of agreement to the subject matter of the Tiphaze invoices. The three companies were entitled or obliged to account for the Tiphaze invoices in their BASs, even though no actual money was paid as the three companies reported to the ATO on an accruals basis. The appellant was not acting dishonestly in submitting the claims for taxation refunds. 55 This claim of the appellant involved the proposition that under the heads of agreement, Interequity had acquired (or at least the appellant believed it had acquired) rights to the "Link tyre recycling process". The appellant relied on the prospectuses dated 19 May 2000 to support his claim about the acquiring of rights. The appellant pointed to parts of the prospectus in which it was said that Interequity had such rights and had licensed (or would license) such rights to Envirotyre Industries, Southern Rubber Technology and Queensland Tyre Resources. 56 Whether Interequity had in fact acquired the property referred to in the Tiphaze invoices and therefore had the legal capacity to transfer or license to the three companies that property was an issue at the trial. A direction from the trial judge concerning the heads of agreement was therefore necessary. 57 In Mr Lowe's address to the jury on behalf of the appellant, it was suggested the Crown case had failed to appreciate and understand "the notion of managed investments of which the joint venture under the prospectus was one". 58 The only agreement that was proved to have existed between Link and Interequity was that contained in the amended heads of agreement, that is, the heads of agreement in which Interequity was the substituted party, being the agreement dated 23 December 1998, which was drafted by the appellant. There was no subsequent agreement between the parties as contemplated in that document, binding or otherwise. The heads of agreement concerned a proposed arrangement for the supply of technical equipment and machinery. The reference to rights was in clause 2 where the word "rights" was used in the following sense: "Further, Link will supply exclusively to [Envirotyre/Interequity] in the Territories only, and [Envirotyre/Interequity] agrees to acquire the distribution and supply rights to the equipment and technology developed, owned, produced by or licensed to Link ("rights") in the Territories geographical areas so defined in Schedule B." 59 Nowhere in the heads of agreement was the sale of the intellectual property to the Link tyre recycling process envisaged. I have already set out clause 11 of the heads of agreement. The qualification to the lack of any binding arrangement reflected in clause 11 concerned clauses 9 and 10 which were directed to ensuring that Link did not sell its machinery to anyone else in the designated geographical area during the term of the heads of agreement, being 23 December 1998 to 31 July 1999. 60 None of the stipulations provided for in the heads of agreement, including the furnishing of a $10M letter of credit was met by Interequity. 61 On the face of the agreement, as a matter of law, Interequity did not at any time acquire any rights from Link arising from the heads of agreement. There was no other evidence of any other source of rights. 62 There was no other basis in the evidence for any conclusion as a matter of law that the Tiphaze invoices reflected genuine transactions. There was no documentary evidence of any connection between Tiphaze and Interequity, nor any evidence other than what the appellant said at the trial that Tiphaze was the agent for Interequity. 63 In his address to the jury, Mr Lowe, counsel for the appellant, put the following: "If you accept that he (the appellant) had an honest mistaken belief, putting aside the issue of law, but he had a mistaken belief [that] the heads of agreement conferred rights, technology rights, hire equipment rights and the like. If you accept he had an honestly mistaken belief the heads of agreement conferred rights to the use of the technology or access to the use of technology then at the end of the day I will be putting to you that you must acquit my client."

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Ground one: the trial judge erred in law when he directed the jury regarding the legal effect of the heads of agreement 64 The direction of the trial judge was as follows: "… you have heard evidence in both the Crown case and from the accused as to the existence to two documents entitled heads of agreement - essentially the same document but with different parties and the documents are before you. Both documents were not expressed to be, nor were they, binding contracts - and this is a direction of law I give you. A binding contract: the terms of the document indicate that they were intended to be, namely," the understanding of the parties with respect to the matters referred to above, and is not … binding on any party", which is clause 11. Neither Mr Wenzel signing those documents, nor the payment of $20,000 by the accused, had the consequence of altering the nature of those documents into binding contracts. As a matter of law no property of any kind passed under the terms of those documents." 65 Mr Lowe, on appeal, argued that this was an incorrect conclusion from the heads of agreement. I do not agree. It was plainly correct. It was plainly an arrangement to be binding in only the limited sense identified by clauses 9 and 10. 66 Detailed submissions were put on behalf of the appellant that somehow the surrounding circumstances of the prospectuses elevated the heads of agreement to some legal effect not reflected in the words. I reject this submission. The evidence did not support any such proposition. The trial judge was plainly correct in his direction. 67 There was a submission that there was a conferral of rights under the heads of agreement by part performance. This was said to be by the payment of $20,000. No basis in the evidence arose for this conclusion. 68 It was also said that subsequent conduct of the parties created a body of rights. In particular, it was said that Mr Wenzel and Link continued their dealings with the Envirotyre Group of companies including in relation to the issue of prospectuses in which they permitted their names to be used. None of these matters were a foundation for any conclusion that there were rights in the nature reflected in the invoices; nor does any of this material invalidate in any way the direction of the trial judge. 69 The matter was also put as a question of estoppel. No factual foundation was made out in the evidence for such a proposition. 70 Ground one fails.

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Judgment (41 paragraphs)

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