Petroulias v Wills [2003] NSWSC 106 | Case summary

SUPPLEMENTARY JUDGMENT 1 HER HONOUR: In December 2002 the applicant applied to this court, pursuant to s104 of the Justices Act 1902, for leave to appeal against the decision of a magistrate in the Local Court to commit him for trial on three counts under the Crimes Act 1914 (Cth). On 16 December 2002 I delivered my reasons for concluding that the decision of the magistrate disclosed certain errors of law, and that, accordingly, the leave sought should be granted: Petroulias v Wills [2002] NSWSC 1190, unreported. Having regard to the complexities of the issues involved, and the variety of options available following the delivery of my reasons and conclusions, rather than proceeding to make orders at that time, I afforded the parties a further opportunity to be heard on the form of the orders to be made as a result of my reasoning and conclusions. I stated my intention to grant leave to appeal. 2 In view of what has occurred since I delivered judgment, it is as well to recapitulate, briefly, some salient matters. What follows is not intended to replace the original reasons given, but merely to state, in a convenient form, facts and circumstances relevant to what remains to be decided, in the light of a new development. These remarks should be read together with the original judgment. The facts as stated are allegations the informant (the present respondent) makes against the applicant giving rise to the criminal charges. 3 Between 1997 and 1999 the applicant was a Commonwealth officer, holding positions in the Australian Taxation Office ("ATO"), where he rose to the position of Assistant Commissioner. According to the Crown case, he misused his position for the purpose of securing advantage to individuals and companies who had purchased a scheme or arrangement designed to reduce or avoid the incidence of income tax and fringe benefits tax. He did this by securing the issue of favourable and binding tax rulings for taxpayers who applied to the ATO for such rulings in relation to their potential liability for fringe benefits tax, and in relation to claimed deductions from income. In doing so, the applicant acted dishonestly. He also secured advantage for himself, in that he was involved in marketing and selling the arrangements. As a result, the applicant was charged, inter alia, with defrauding the Commonwealth under s29D of the Crimes Act. 4 At the committal proceedings the informant was not in a position to prove that the rulings were incorrect, and shrank from setting out to prove that they were arguably incorrect. That is, the informant could not prove that any tax which otherwise would have been payable to the Commonwealth had been avoided by any of the participants; or, in other words, that the Commonwealth had been deprived of anything of value. In my view, this has the result that, while the informant was able to adduce evidence of dishonesty, he was not able to identify anything of value of which the Commonwealth had been defrauded. There was no proof of the subject matter of the alleged fraud. 5 The informant sought to identify the subject matter of the fraud by reference to the binding nature of the rulings. The consequence of that, he argued, was that the Commonwealth was not able to litigate the efficacy of the arrangements (or the liability of the participants to taxation) in a court. The rulings, binding as they were, precluded that. The right to litigate the arrangements was put by the informant as the valuable thing of which the Commonwealth was deprived. Once a binding ruling was issued, the ATO was bound to honour it. If the rulings were in favour of the taxpayer, the taxpayer was absolved of any liability to pay tax of the kind the subject of the ruling, and the Commissioner of Taxation ("the Commissioner") was not able to test the efficacy of the arrangements in a court. I took the view that, unless there was evidence that the rulings were at least arguably incorrect, it remained the position that there was no evidence that the Commonwealth had been deprived of any right of any value. The view I then took (and to which I adhere) may be illustrated in this way. Let it be supposed that, at some time, whether before or after the applicant was charged, the Commonwealth, through the ATO, had the opportunity of obtaining curial adjudication of the efficacy of the arrangements and the liability of the participants to taxation, in the relevant circumstances, determined. Let it further be supposed that the ultimate determination, after all avenues of appeal had been exhausted, was favourable to the taxpayer. A taxpayer who implemented arrangements of the kind in question would not, with or without the benefit of a private ruling, be liable to taxation of the kind in question. Regardless of the level and degree of dishonesty, corruption or impropriety involved in the obtaining and issue of private rulings, the informant would be unable to point to anything of value of which the Commonwealth had been deprived. The Commonwealth would not have been deprived of any tax because tax would not have been payable. The right to litigate a different instance of the same arrangement would be of no value, because the conclusion of the litigation would be foregone. 6 At the time the application for leave to appeal was heard, and at the time my conclusions and reasons were delivered, there had been no such adjudication on arrangements of the kind promoted by the applicant. However, that brings me to the new development which I mentioned above. On 17 December 2002, the day after I delivered my conclusions and reasons on this application, Kiefel J in the Federal Court delivered judgment in Essenbourne Pty Ltd v Commissioner of Taxation [2002] FCA 1577 (unreported, 17 December 2002). During the course of the resumed hearing on the present application, I was provided with a copy of the judgment. I was told that, in that case, the Commissioner of Taxation had indeed litigated an arrangement which was in relevant respects identical with, or comparable to, those the subject of the private tax rulings the foundation of the s29D fraud alleged against the applicant. Bearing in mind the rather scanty information available to me concerning the factual basis of the private rulings and the s29D charge, it is not possible for me to make an informed or independent assessment of the extent to which the arrangements the subject of the Essenbourne judgment are comparable with those of which the applicant was the proponent. However, senior counsel for the respondent agreed that the arrangements were essentially the same, and made no attempt to identify any material difference between the two schemes. I propose, therefore, to accept that the decision in Essenbourne amounts to a decision that the arrangements the subject of the applicant's scheme are effective legitimately to avoid the incidence of taxation, and that a taxpayer who implemented arrangements the subject of the private rulings would, on the authority of Essenbourne, not be liable to taxation. 7 The next question that arises concerns the extent to which the judgment of a single judge can be said to be a final determination on the efficacy of arrangements of the kind described, but implemented by other than the parties involved in that litigation. Again, I have to rely upon what I was told from the bar table. That was that the Commissioner has not appealed against the decision in Essenbourne, does not intend to appeal against that decision, and that, indeed, to some extent the issues in Essenbourne were resolved by agreement between the parties, although not before Kiefel J had ruled upon the Essenbourne arrangements. The consequence of that is that, unless and until another taxpayer seeks to litigate another relevantly similar case, the judgment of Kiefel J states the law on the efficacy of the schemes and the liabilities to taxation of taxpayers implementing arrangements of a relevantly similar type. That, of course, does not have the same degree of finality as a decision of the High Court at the end of the available appellate process. Nevertheless, as the law presently stands, as stated by Kiefel J, the arrangements the subject of the private rulings in question being essentially and relevantly similar to the arrangements in Essenbourne, no tax is payable by the taxpayers in question, and the Commonwealth has been deprived of nothing of value. The most that could be said is that the Commonwealth does not have the opportunity to litigate the efficacy of the arrangements. But what does that amount to in the light of the decision of Kiefel J? In order further to litigate such a scheme, it would be necessary for the Commissioner to levy tax on a taxpayer (either by disallowing a claimed income tax deduction, or by requiring the payment of fringe benefits tax); for the taxpayer to commence proceedings; for the Commissioner to persuade the judge (or an appellate court) that Essenbourne was wrongly decided and that, in the circumstances, tax was payable. Although it is complicated by the fact that Essenbourne was partly settled by negotiation, given that the Commissioner opted not to challenge that decision, it seems unlikely that the opportunity to litigate a scheme or arrangement of the same kind is of any real value. 8 Were it not for the decision in Essenbourne, I would have been attracted to disposing of this application by taking one of the courses I mentioned in paragraph 66 of my conclusions and reasons of 16 December 2002. I deferred making a decision on that in order to give the parties an opportunity to put before me their reasons for urging one or other of those, or some other course. Senior counsel for the informant urges that I should adhere to that scenario, putting as the informant's preferred option an inquiry in this court of the kind envisaged in Basha v R (1989) 39 A Crim R 337. That inquiry would necessarily be into the availability of evidence that the favourable rulings given to the taxpayers were, or were arguably, incorrect. 9 Senior counsel for the applicant, however, argued that the appropriate course (in any event, but with immeasurably greater strength since the judgment in Essenbourne) is to quash the decision to commit the applicant for trial on the s29D charge. I have come to the view that there is merit in this submission. On the present state of the prosecution evidence, the informant is unable to adduce evidence to establish that the Commonwealth was defrauded of anything of value. The prosecution evidence is not capable of satisfying a jury beyond reasonable doubt that the applicant has committed an indictable offence against s29D. There is, plainly, then no prospect that a jury would convict the applicant of any such offence (see Justices Act 1902, s41, sub-s(2) and sub-s(6)). 10 The position I find myself in is a little curious and complicated. The application for leave to appeal was conducted on the basis that there had been no adjudication on the merits or efficacy of the schemes, and it was on that basis that my conclusions and reasons were reached and published. In the ordinary course, orders would be made on the same basis. But I cannot ignore the subsequent developments, particularly when they are of the significance of the judgment in Essenbourne. 11 By s109 of the Justices Act this court is given a wide variety of options following determination of an appeal under s104. In my opinion, as a matter of practical justice, the court is able to take into account developments subsequent to the hearing but relevant to the exercise of the discretion conferred by s109. Certainly the respondent put forward no opposition to my being informed of the judgment in Essenbourne or my taking it into account on the present issue. I have concluded that the appropriate order is an order quashing the order that the applicant be committed for a trial on the charge pursuant to s29D for the Crimes Act 1914.

(2A) Costs are not to be awarded in favour of a defendant unless the Justice or Justices is or are satisfied as to any of the following: (a) that the investigation into the alleged offence was conducted in an unreasonable or improper manner, … (b) that the proceedings were initiated without reasonable cause or in bad faith or were conducted by the prosecution in an improper manner, (c) that the prosecution unreasonably failed to investigate (or to investigate properly) any relevant matter of which it was aware or ought reasonably to have been aware and which suggested either that the defendant might not be guilty or that, for any other reason, the proceedings should not have been brought, (d) that, because of other exceptional circumstances relating to the conduct of the proceedings by the prosecution, it is just and reasonable to award costs." 14 Obviously, because of her decision to commit for trial, the magistrate did not consider the question of making a costs order in favour of the applicant. Accordingly, she made no "order". Senior counsel for the informant pointed out that the application for leave to appeal did not include any application for leave to appeal against a refusal to make an order for costs in favour of the applicant. This is plainly so, because, the magistrate having committed the applicant for trial, no application was, or could have been, made. S109, however, permits this court not only to make orders in relation to the actual order by the magistrate, but also permits the court to make "such other orders as it thinks just". It further permits this court to remit the matter to the magistrate "to hear and determine the matter of the appeal". 15 However, on examination of the relevant legislation, I have concluded that neither s41A nor s109 permits this court to order that the informant pay the applicant's costs of, or of part of, the committal proceedings. True it is, s109(a) confers a wide discretion to make such orders as this court thinks just. However, that has to be read in the light of s41A, which limits the power to award costs of a committal proceeding, but, more importantly, requires the satisfaction of a magistrate of one or more of the four circumstances I have set out above. Further, a magistrate is empowered to make an award of costs "when making an order discharging a defendant as to the information then under inquiry" (s41A(1)(a)), or "when committing a defendant to trial for an indictable offence which is not identical in all respects to the indictable offence with which the defendant was charged" (s41A(b)). The magistrate in this case has done neither of those things in relation to the s29D charge. I have not overlooked the power contained in s109(d) to remit the matter to the magistrate, but that power, also, is limited to a power to remit to the magistrate "to hear and to determine the matter of the appeal". Costs of the committal were not "the matter of the appeal". 16 By s76 of the Supreme Court Act costs are "in the discretion of the court", the court has full power to determine by whom and to what extent costs are to be paid. It was not argued on behalf of the informant that s76 is inapplicable to the present proceedings. I have no difficulty in acceding to the application for an award of costs in relation to the s104 proceeding in this court. I propose to make such an order. In sub-s(2) of s76, "costs" are expressly defined to include, in the case of an appeal to the court, the costs of or incidental to the proceedings giving rise to the appeal, as well as the costs of or incidental to the appeal. The power to award costs pursuant to s76 is not confined in the same way as the corresponding power under s41A. 17 In my opinion, the applicant has made out his claim under s76, and I propose to order that the respondent pay the applicant's costs of and incidental to the committal proceedings, limited to those costs which were incurred in relation only to the s29D charge. It may be necessary that those costs be assessed. 18 The orders I make are:

leave to appeal granted;
appeal allowed in part;
the order of the magistrate committing the applicant for trial on a charge under s29D of the Crimes Act 1914 (Cth) quashed;
appeal otherwise dismissed;
respondent to the pay the applicant's costs of and incidental to the appeal, including the application for leave to appeal;
respondent to pay the applicant's costs of and incidental to the committal proceedings, so far as those costs were incurred in relation to the charge under s29D. **********

Petroulias v Wills

At a glance

Court

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Before

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Judgment (11 paragraphs)

Parties

Legislation Cited (1)

Cases Cited (2)

Cited By (3)