R v Cranston

Further directions

1. Before addressing the notices of motion filed for determination on 7 December, I should record that the following pre-trial directions were made on that day: "The Court directs: 4. By 4pm on Thursday 23 December 2021, the Crown to file and serve an index of the proposed trial tender bundle including references to the location of the material to be tendered in the existing Crown Disclosure materials. 5. By 4pm on Thursday 23 December 2021, Mr Dev Menon, Mr Jason Onley and Mr Adam Cranston to file and serve amended responses to the Notice of Prosecution Case pursuant to ss 141(1)(b) and 143 of the Criminal Procedure Act 1986 (NSW). 6. By 4pm on Thursday 23 December 2021, Mr Dev Menon and Mr Jason Onley to provide final versions of their suggested edits to the evidence recorded by telephone intercept or surveillance devices. 7. By 4pm on Wednesday 2 February 2022, Mr Patrick Willmott to file and serve an amended response to the Notice of Prosecution Case pursuant to ss 141(1)(b) and 143 of the Criminal Procedure Act 1986 (NSW). 8. By 4pm on Wednesday 2 February 2022, the Accused to file and serve any notice of motion together with submissions concerning any remaining evidential or other pre-trial issue. 9. By 4pm on Thursday 10 February 2022, the Crown to file and serve submissions in reply to the Accused's submissions. The Court orders: 10. List the matter for a two-day further hearing of pre-trial applications on 14 and 15 February 2022. 11. Bail is continued for each Accused until 14 February 2022. 12. Grant liberty to apply by email to the chambers of Payne JA on 48 hours' notice. 13. Photocopy access is granted to the representatives of Ms Lauren Cranston and the Crown (and to any of the remaining Accused) to the four packets produced by the New South Wales Police on 23, 26 and 30 November and 6 December."
2. I explained to the parties that in addition to those matters specifically addressed in the above directions, I expected that on 14‑15 February 2022 the parties would be in a position to address the following topics: 1. a revised trial plan which should be circulated by the Crown in draft well ahead of the hearing on 14 February; 2. the (hopefully final) position of the parties about agreed facts and/or agreed admissions; 3. any summaries sought to be adduced pursuant to s 50 of the Evidence Act; 4. any visual aids which the parties propose to provide to the jury as a submission; 5. the contents of the tender bundle for trial; and 6. the (hopefully final) edited form of the telephone intercept and surveillance device transcripts, which may then be considered in light of the stood-over portion of the motion addressed in R v Cranston (No 9).

The notices of motion

1. Three notices of motion were filed pursuant to my orders of 27 October 2021: 1. on 12 November 2021, Mr Willmott filed a notice of motion seeking that two paragraphs of the statement of Joshua Kitson dated 22 February 2020 be excluded from evidence; 2. on 14 November 2021, Messrs Menon and Onley filed a notice of motion seeking that use of the assessments and running balance accounts (or other references thereto) be limited to evidence of the views of the Commissioner of Taxation as to the amount(s) of taxation outstanding; and that certain paragraphs in the statements of Ms Katie Whiting dated 10 November 2017 and 28 April 2020 be excluded from evidence; and 3. on 16 November 2021, Ms Cranston filed a notice of motion seeking that certain paragraphs in the statements of a number of witnesses be excluded on the basis that the evidence is opinion evidence which does not come within the exception in s 79 of the Evidence Act or is unfairly prejudicial under s 137 of the Evidence Act.
2. The Crown responded to the notices of motion filed by Mr Willmott and Ms Cranston on 25 November 2021. The notices of motion filed by Mr Willmott and Ms Cranston were wholly resolved prior to the 7 December hearing and do not need to be addressed further.
3. On 29 November 2021, the Crown provided its response to the notice of motion filed by Messrs Menon and Onley.

Messrs Menon and Onley's notice of motion

1. By their notice of motion dated 14 November 2021, Messrs Menon and Onley sought the following orders: "1. The use of the assessments and running balance accounts (or other references thereto) be limited to views of the Commissioner of Taxation as to the amount(s) of taxation outstanding. 2. The evidence of Ms Whiting in her statements of 28 April 2020 be excluded from evidence, insofar as it relates to ATO Benchmarks: [12(c)], heading preceding [17], [17]-[20], [22], table 3, [38] (last sentence), [41] (last sentence), exhibit 76, [42]-[45] and table 10. 3. The following paragraphs of Ms Whiting's statement of 10 November 2017 be excluded from evidence: [8], [55] (last sentence) and [56]. 4. Further or other orders."

Proposed order 1

1. Messrs Menon and Onley did not press proposed order 1 of the notice of motion. It may be, given certain exchanges between Mr Bruckner, who took the lead in this argument for Messrs Menon and Onley, and Ms Burnett SC, who appeared for the Crown, that some version of this argument may re-emerge for determination on 14-15 February, or perhaps at the trial. I will address those arguments if and when they are advanced.

Proposed order 2

1. In order to understand the objection comprised by proposed order 2 it is first necessary to examine the relevant parts of Ms Whiting's statements in the context of the charges faced by Messrs Menon and Onley.
2. Ms Whiting is an officer of the Australian Taxation Office (ATO). Two statements, one dated 10 November 2017 and a second dated 28 April 2020, were before me and evidence from Ms Whiting will be led by the Crown in the trial.
3. Neither of the charges with which the accused are charged require proof, as an element of the offence, that particular sums of money were required to have been paid to the ATO and were not. The Crown nevertheless wishes to prove, as part of its circumstantial case on each count, that a number of the companies allegedly set up and operated by the accused (at least by Messrs Menon and Onley) as part of the Plutus group in fact owed considerable sums in tax to the ATO. Those sums comprised Pay As You Go Withholding amounts (PAYGW) and Goods and Services Tax payments (GST).
4. In her second statement, dated 28 April 2020, Ms Whiting quantifies the amount of PAYGW and GST which she calculates should have been remitted to the ATO by these companies but was not. The accused, including Messrs Menon and Onley, do not object to the admissibility of evidence proposed to be given by Ms Whiting about the correct calculation of PAYGW and GST by means of what Ms Whiting describes as "bank statement analysis". Nor is any objection made to Ms Whiting's evidence about an alternative method for calculating the correct amount of PAYGW, namely "PAYGW analyser".
5. The only objection pressed concerns the alternative methodology employed by Ms Whiting in calculating the GST payable by the various companies involved, known as "industry benchmarks".
6. Ms Whiting in her statement of 28 April 2020 explains that GST can apply if an entity is carrying on an enterprise. GST is payable on taxable supplies. The entity is entitled to input tax credits on its creditable acquisitions.
7. In paragraph 37, to which no objection is made, Ms Whiting explains that the primary method used by her in her capacity as an ATO officer to calculate GST on purchases, to which input tax credits apply, is to use tax invoices and other financial documents such as financial and bank statements and third party cheques. Where a business is unable to produce sufficient tax records, industry benchmarks are used by the ATO to calculate creditable acquisitions. Ms Whiting explains that she used that benchmark method for the Plutus group of companies because the ATO was not given sufficient information by those companies (all now in liquidation) to employ the primary method of calculating GST on purchases. Ms Whiting explains the limitations of the benchmark method: "39. Benchmarks are not definitive. There are a range of legitimate reasons why businesses may vary from industry averages and, conversely, why businesses with ratios close to the industry average may have compliance problems or other financial difficulties."
8. Ms Whiting explains that using the average ratio calculated using a large population is generally more reliable. The benchmark data to which Ms Whiting refers is sourced from tax returns given to the ATO, including GST returns. The focus of the applicants' submissions was on the following paragraph: "41. The ATO publishes datasets on data.gov.au including Taxation Statistics for anyone to access. Data.gov.au is the central source of Australian open government data. Plutus Payroll reported to the ATO on their income tax returns for income year ended 30 June 2014, 30 June 2015 and 30 June 2016 their ANZSIC [Australian and New Zealand Standard Industrial Classification] (industry code) was 72910, refer to annexures Plutus 006, Plutus 11 and Plutus 028 from my statement dated 10 November 2017. I had the industry code for Plutus Payroll therefore I referred to the Activity Statements Ratios - Company, spreadsheet table 2C - Ratios at the finer industry level, by profitable status and turnover range."
9. The spreadsheet of company activity statement ratios referred to by Ms Whiting is also attached to her statement. The important features of the exhibit are that: 1. ATO publishes datasets on data.gov.au, including taxation statistics for anyone to access; 2. data.gov.au is a central source of Australian open government data; 3. the site has over 30,000 publicly available datasets; 4. the Plutus companies reported to the ATO on their income tax returns for the 2014, 2015 and 2016 financial years using the ANZSIC industry code of 72910; 5. Ms Whiting used this self-reported industry code 72910 in identifying and accessing the relevant dataset for the Plutus companies; 6. Ms Whiting selected the average ratio for companies with turnover of $5,000,000 or more and derived an expenses to sales ratio of 0.95 using the formula she describes in paragraph 43 of her statement; and 7. Ms Whiting adjusted the equation to calculate non-capital purchases using the formula described in paragraph 44 of her statement.
10. I accept Ms Burnett SC's pithy explanation of the relevance of the use by Ms Whiting of the ATO benchmarks in deriving inferred expenses and thus creditable acquisitions of the Plutus companies: "This is all in service of trying to give the Plutus companies some credit literally, some input tax credits for their inferred expenses. There isn't direct evidence of those, there aren't tax invoices showing credible acquisitions. The bank statements don't give evidence of anything that the law recognises as [creditable] acquisitions. But here, the Tax Office is giving these companies the benefit of a proxy and that proxy is then on capital purchases."
11. A striking feature of the outcome of Ms Whiting's industry benchmark analysis of GST payable is that it derives a smaller figure for GST payable by the Plutus companies than the principal methodology employed by Ms Whiting, to which no objection is taken.
12. Although in writing, and at the commencement of oral submissions, objection was taken to the relevance of these parts of Ms Whiting's evidence, as Mr Bruckner eventually accepted in oral submissions, "[t]here is no question of prima facie admissibility".
13. That concession was correctly made. The applicants' reliance upon the decision of Leeming JA in Wollongong City Council v Papadopoulos [2019] NSWCA 178 does not support any relevance objection. There Leeming JA was dealing with a question of damages. Whilst his Honour deprecated the use of the ATO benchmarks in calculating damages in that case, his Honour did not doubt the admissibility of the evidence of the ATO benchmarks, even where they came into evidence by operation of s 144 of the Evidence Act.
14. As Leeming JA further explained in Papadopoulos at [70], an ATO benchmark document obtained from the ATO website was a document "the authority of which cannot reasonably be questioned", such that the trial judge in that case was entitled to take judicial notice of the contents of the document.
15. The applicants' real submission was that the evidence should be excluded under ss 135 or 137 of the Evidence Act. I have analysed the legal position in relation to these sections in R v Cranston (No 9) and do not propose to repeat that analysis here.
16. The essence of the complaint made by Messrs Menon and Onley is that the data underlying the ATO benchmarks has not been provided, and the implicit assertion made by Ms Whiting that the benchmarks are apposite cannot be tested, although the applicants also submit that it would be an "undue waste of time" if they were produced and tested.
17. The applicants' key submission is that those parts of Ms Whiting's evidence about GST payable should be excluded under ss 135 and 137 of the Evidence Act because the probative value of that evidence is outweighed by the risk of unfair prejudice to the accused.
18. I reject the applicants' submission.
19. Ms Whiting's evidence is probative in explaining how the Commissioner of Taxation applied the procedures explained in Ms Whiting's statements of 10 November 2017 and 28 April 2020 to the factual evidence of financial transactions. The assessments and running balance accounts which will be in evidence will not be tendered as evidence that the amounts calculated were debts due to the Commonwealth, but rather as evidence that the Commissioner undertook a process of ascertaining the amounts specified in those documents, based on the factual material, legal provisions and systems of ascertainment. Ms Whiting's calculations will explain to the jury the appropriate context for documents and evidence that they will have before them.
20. As to any suggested unfair prejudice, I do not accept the characterisation of data used as being based on "undisclosed and untestable" benchmarks. Ms Whiting has described her application of the benchmark method in her statement. The benchmark information is publicly available and, subject to the limitations Ms Whiting makes clear, regularly used by the ATO in making assessments of GST. In circumstances where the relevant taxpayers, the Plutus group of companies, did not keep sufficient statutory records, in breach of their legal obligations, I do not think it unfair to the applicants to permit Ms Whiting to give evidence about her use of that data. Any unfairness that may arise can properly be addressed by a direction to the jury.
21. A further point about the asserted unfair prejudice is that the benchmark evidence serves to reduce the GST liability calculated by Ms Whiting under that method: it results in an estimate of the input tax credits which would have been available to the Plutus group to offset the GST on its taxable supplies in the absence of direct financial information from which the actual input tax credits could be ascertained. It is not prejudicial to the applicants but, if anything, is to their advantage.
22. As for whether the evidence is misleading, confusing or timewasting, Ms Whiting describes her methodology, including her use of ratios extracted from a public dataset, which dataset is regularly used by the ATO, including in making taxation assessments. Although the data in those datasets is de-identified, there can be no suggestion that the data is unreliable or unexplained. Further, Ms Whiting acknowledges in her report that the benchmark method only produces an estimate of GST payable. Resort was only had to the benchmark method because bank statement analysis (which would provide a more accurate calculation) could not be conducted because the Plutus group had not provided tax invoices or other information substantiating its creditable acquisitions.
23. There is nothing misleading, confusing or timewasting in the jury being informed about how it is that the ATO calculated the assessments which will be in evidence or how it is that Ms Whiting calculated the amounts of GST which she gives evidence that the Plutus companies were required to remit to the ATO but which they failed to do.
24. To the extent that any prejudice is occasioned to the applicants by this part of Ms Whiting's evidence I am satisfied that the prejudice can be sufficiently ameliorated by careful directions to the jury. In this respect, counsel for Mr Menon drew attention to a direction given in a different context by Rothman J and cited by the Court of Criminal Appeal in Pratten v R [2014] NSWCCA 117 at [99]. It may be that a version of the direction given by Rothman J will be appropriate in this case but formulating such a direction now is premature.
25. I reject the applicants' submission, if it is intended to be pressed, that Ms Whiting's evidence falls outside s 79 of the Evidence Act. Ms Whiting is, by her training and experience, well qualified to opine about the appropriate use of the ATO benchmark methodology and to apply that methodology, recognising, as she does, its limitations. I am satisfied that Ms Whiting has specialised knowledge as a result of her training, study and experience. Her evidence as to the industry benchmark approach was wholly based on that specialised knowledge. Ms Whiting is put forward by the Crown as a witness of fact, and not an independent expert witness engaged for the purpose of providing an expert report or giving an expert opinion. To the extent that her statements contain opinions, Ms Whiting is well qualified to express them. As set out above, there is no cogent reason why either ss 135 or 137 of the Evidence Act should lead to the exclusion of Ms Whiting's benchmark method evidence.
26. I also reject the applicants' complaints about the failure of Ms Whiting to refer to the Expert Witness Code of Conduct at Sch 7 to the Uniform Civil Procedure Rules 2005 (NSW). The cases referred to by the applicants (see Wood v The Queen (2012) 84 NSWLR 581; [2012] NSWCCA 21 at [715]-[730]) make clear that a failure to refer to the Expert Witness Code of Conduct is relevant to the exercise of powers to exclude evidence under ss 135 and 137. The same reasoning applies to Pt 75 r 3J of the Supreme Court Rules 1970 (NSW). Even if r 3J applied to Ms Whiting as a witness of fact, it is a matter which goes only to the powers in ss 135 or 137 of the Evidence Act: R v Warwick (No. 33) [2018] NSWSC 1219 at [38]-[42].
27. I see no unfair prejudice to the applicants here which would warrant the exclusion of Ms Whiting's evidence under ss 135 or 137. As I have said, any prejudice to the applicants which does arise can be ameliorated by a careful jury direction.
28. I am not satisfied that the evidence of Ms Whiting to which objection is taken in proposed order 2 should be excluded under either ss 135 or 137 of the Evidence Act.

Proposed order 3

1. The third order sought in the notice of motion may be addressed shortly. The applicants also object to certain paragraphs of Ms Whiting's earlier statement of 10 November 2017, also on the grounds of unfair prejudice in accordance with ss 135 and 137 of the Evidence Act, in that she refers to certain ATO Rulings.
2. Those paragraphs provide: "8. Due to the risks associated with taxpayers taking action to frustrate the ability of the Commissioner to assess and subsequently obtain recovery of tax liabilities which are determined as owing, the audit team often undertakes the above activities without notice to the taxpayers. In circumstances where an audit or review is conducted in this manner it is generally known within the ATO as a 'covert audit'. … 55. ... However, Miscellaneous Taxation Ruling MT 2008/1 Penalty relating to statements: meaning of reasonable care, recklessness and intentional disregard (MT 2008/1), states that using the service of a tax agent or tax advisor does not of itself mean that an entity discharges the obligation to take reasonable care in meeting its taxation obligations. 56. MT 2008/1 further states that it remains the entity's responsibility to properly record matters relating to their tax affairs and to bring all of the relevant facts to the attention of the agent in order to show reasonable care."
3. As Ms Burnett SC pointed out, these paragraphs effectively summarise the effect of s 284‑75 of Sch 1 to the Taxation Administration Act 1953 (Cth).
4. In the circumstances, I do not regard the reference by Ms Whiting to the ATO Rulings as giving rise to any unfair prejudice to Messrs Onley or Menon. Even if there is any such prejudice, I am satisfied that it may be overcome by a direction to the jury explaining the correct legal effect of s 284‑75 of Sch 1 to the Taxation Administration Act.

Conclusion on the Menon and Onley notice of motion

1. For the foregoing reasons the notice of motion filed by Messrs Menon and Onley on 14 November 2021 should be dismissed.

Endnote

1. R v Cranston [2020] NSWSC 469 and Cranston v R [2020] NSWCCA 143 involved a pre‑trial Dietrich application by Mr Adam Cranston which is no longer relevant. 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: 21 March 2023