R v Dowding & Grollo [2000] VSC 222

8. My first reaction on perusing the April 2000 statement was to think that it was much more elaborate than I had expected, especially as I had said in the December 1999 reasons that I expected that the time needed to be spent in remedial work should not be substantial. Other initial reactions included that the statement appeared to address most of my concerns, that the splitting of material into divisions and issues addressed my concern as to focus, that the identification of documents relied on and sources was much more specific, and that there was not as much as I had hoped for by way of reference to specific accounting principles.

11. Mr Judd has made many criticisms of the April 2000 statement. The criticisms can be categorised as those going to: consequences; partiality; departure from the ideal; absence of principles; and absence of definition or detail. Some of the criticisms fell into more than one category. He also argued that many deficiencies amounted to failures to comply with my ruling. I will refer later to particular instances of claimed non-compliance. I would note now that I am not persuaded that there are any major examples of non-compliance. It seems to me that a very considerable effort has gone into complying with my ruling. It also seems that my ruling has been misinterpreted. I accept that some responsibility for that rests with me. Like Cardozo, at 29, I can now see "cracks and crevices and loopholes". I did not intend my reasons to be treated like a statute.

14. I turn to the criticisms of Mr Judd going to the subject that I have tagged "tax consequences". In referring to it, Mr Judd quoted paragraphs 9, 36, and 38 of the December 1999 reasons. In the December 1999 reasons I referred to certain issues focused on certain tax accounting events, and the consequences of a particular treatment given to those events. I indicated my conclusion that those tax consequences should not be analysed or calculated in detail, as opposed to being referred to in a more general way.

17. Mr Judd put to me that it was appropriate to infer, from the way that the April 2000 statement had been framed, that the prosecution had taken a step back in the process of calculating tax consequences. He noted that there was no longer reference to particular amounts of tax, which may have been due and payable, or to amounts of taxable income. He argued that, nevertheless, the use of terminology of income and profit in the April 2000 statement amounted to dealing with the subject of taxable income "under another guise". It was put that, under that guise, it should be seen that the intention of the evidence was to prove a "correct" taxable income, in contrast to the income returned by the taxpayer on the income tax returns. Mr Judd said that that was an impermissible approach. He put to me that, in the April 2000 statement the prosecution was still relying on tax consequences, albeit of a different nature that in the May 1998 statement, and that evidence of that kind remained what it always had to be seen as, namely a re-audit.

20. In support of that argument, Mr Judd referred me to a number of paragraphs in the April 2000 statement, including those numbered 95.1, 95.3, 122.3, 126.1, 150. He said that those paragraphs showed constancy in the use of inappropriate terminology. He said that "income" was not defined, but in the context could only mean returnable income. He argued that the intention of the evidence presented in these paragraphs was clearly to link the tax accounting events with the amount of income returnable by the taxpayer under s.161 of the Income Tax Assessment Act. He referred to the six issues dealt with in the April 2000 statement. He said that with each one there were defined numerical consequences. In other words, amounts were being identified in order to establish that those amounts were what should have been returnable income but were not returned in the income tax return filed by the taxpayer. Mr Judd put to me that it was not the process of arriving at a figure, which made the evidence inadmissible. It was the need to rely upon a link between the tax accounting events and the legal obligation of the taxpayer under s.161. Mr Judd put to me, as he put to me last year, that to hear evidence referable to the legal obligations of the taxpayer under the Act as to whether the amount of income returned was correct or incorrect was not permissible. It was impermissible because it amounted to the conducting of a mini-audit during a criminal proceeding, and that amounted to a collateral attack on the proceedings and outcome at the AAT, where the focus was on whether the Commissioner's assessment of returnable income was correct.

23. Mr Judd referred to paragraph 38 of my December 1999 reasons. I there said: "If the prosecution case was dependent on establishing a "correct" taxable income as contended for by counsel for the accused, I would have to address the question of whether the challenged evidence should not be admitted." He argued that the prosecution case as currently stated was so dependent, and that what he referred to as the reserved issue in my December 1999 reasons remains for me to decide.

26. In reply on this issue, Mr Robberds put to me that it was not part of the prosecution case either to establish the correct taxable income of the taxpayer or to calculate an amount of income that should have been returned by the taxpayer. Accordingly, there was no reserved question in my December 1999 reasons that remained to be dealt with. He pointed out that, in the April 2000 statement, the analysis viewed as a whole was not in a tax accounting context, but in a general accounting context. The April 2000 statement went to the accounting consequences of the entries in the books of account. It dealt with tax consequences only broadly, in that it went in parts to the question of whether amounts were removed from fees received accounts, and hence from the income column on the profit and loss summary in the tax return. As there was no greater particularity, the statements were not in conflict with any part of my ruling.

29. Mr Robberds put to me that "income" as it was used in the paragraphs highlighted by Mr Judd was not a term of art under the Income Tax Acts, but a term used in both general accounting and tax accounting. He said that, in the April 2000 statement, "income" was used in the ordinary sense of the word, in an accounting context, not in a tax accounting context. He accepted that the April 2000 statement addressed the six entries in the books of account that reduced the amounts entered in the fees received accounts, which was an income account. He put to me that, nevertheless, it was not part of the evidence to be adduced from the statement to prove that the amounts dealt with in the six entries were returnable income under s.161. He indicated that the prosecution would make submissions to the effect that a legal consequence of the entries was the removal of income that was returnable under the Act.

32. Mr Judd in reply put to me that the submissions of the prosecution had emphasised the live issue of the legal character of those amounts said to be have been removed from the accounts, and that made them amounts which were returnable to the Commissioner. He argued that as that was a threshold issue in these proceedings, at some point it would have to be decided. Leon Maddern could give evidence of the treatment of the six accounting events, but a decision would have to be made as to whether amounts that were the subject of that treatment were by law required to be returned but were not. He argued that, even if Leon Maddern's evidence was confined to accounting consequences rather than tax consequences, it was irrelevant to the charges as put and therefore inadmissible. It was inadmissible because the accused were not charged with false accounting but an element of what they were charged with was directed to whether there had not been returned income to which the Commissioner was entitled, and if the evidence bore no relation to returnable income in that sense, then it was irrelevant.

35. I am satisfied from my review of the April 2000 statement that it is directed essentially as to accounting events. I am satisfied that it is admissible as providing relevant assistance to the jury in determining facts as revealed by an examination of the books of account. I do not accept Mr Judd's submission that the evidence can only be intended to arrive at an alternative estimate of taxable income, and as such is impermissible. I do not accept that, because it does not deal with returnable income or other tax accounting consequences, it is irrelevant to the issues to be decided by the jury.

38. The question of the consequences of the accounting events is one of mixed law and fact. The April 2000 statement is admissible as to the facts. It is my responsibility to instruct the jury as to the law. It is for the jury to decide if the facts of the case fit the legal definition of the offence. I am very conscious of the difficulties facing a trial judge in this area. I have already read carefully, and will review further, authorities such as Stephens, Mainwaring, Mumford, Spens, Adams, Maharaj and Baxter. As with my December 1999 reasons, a table of cases or other sources forms part of these reasons. It is the first table below. At the appropriate time I will be seeking considerable assistance from counsel on the treatment of areas where questions are of mixed law and fact. I will return to aspects of this subject below.

41. There is one further matter I would address at this point. It was argued, in August 1999, relative to the May 1998 statement of Leon Maddern, that the prosecution was precluded from introducing evidence that opened up the issue of how much tax ought to have been paid by the taxpayer in question. Much the same argument was raised this time relative to the April 2000 statement. It was put: that the issue of what the taxpayer ought to have paid was finally concluded by the process of assessment, challenge and settlement; that it was impermissible to allow the introduction of evidence in criminal proceedings to show that a different amount ought to have been paid; that such impermissibility sprang from a review of statutory provisions, from dicta in certain cases, and from the application of principles as to abuse of process. Recourse to such statutory provisions, and to a review of what was said in cases including O'Donovan, and to the cases on abuse of process left me unpersuaded that there was any reason, let alone any compelling reason, why any such preclusion as had been argued for should be given effect to. I remain of that opinion, and have difficulty understanding why it might be thought otherwise.

44. I turn to the criticisms of Mr Judd that I categorise as going to partiality. These criticisms can also be broken up into criticisms going to: the absence of an indication of expertise; lack of independence; a disposition to argue; the use of words like "distort"; the inappropriate use of assumptions; and focusing not on accounting events but on the substrata of facts.

47. Mr Judd argued that the April 2000 statement had to be scrutinised more stringently because of Leon Maddern's lack of independence. Leon Maddern was a tax auditor in the employ of the Commissioner for Taxation for many years. He played a major role in the audit of the Grollo group of companies, and in the civil litigation as to the recovery of tax. The April 2000 statement does not contain any reference to the expertise Leon Maddern was claiming to bring to bear. Some information as to his experience was provided in earlier statements. He was cross-examined as to his experience in August 1998 at the committal hearing. Mr Judd submitted that there was a risk that a jury would not appreciate the significance of Leon Maddern having multiple roles, and that that warranted a stringent review of his statement.

50. Mr Judd also took me to various passages in the April 2000 statement that he said illustrated at least a disposition by Leon Maddern to inappropriately argue and to use discrediting expressions under the guise of reasoning. I am not persuaded that I should either comprehensively or selectively rule out any part of the statement at this time for reasons going to any lack of independence or disposition to argue.

53. I do have a concern as to independence. The problem of the independence of expert witnesses has long occupied the attention of lawyers and judges. In recent years, it has excited a lot of attention. It has been much discussed in major reports on civil justice, at legal conventions and elsewhere as in articles such as that of Cooper placed before me by Mr Judd. I am closely familiar with the reports of Woolf, Freckleton/AIJA, and Sallman. Cooper has noted that the judges of the Federal Court agreed with Lord Woolf's assessment that experts had lost their independence and become partisan. In an attempt to deal with this development both the recommendations of Lord Woolf and the Federal Court guidelines provide that an expert has an overriding duty to assist the Court rather than the person retaining the expert, and that an expert not be an advocate for a party. This is a highly laudable ideal. On the other hand, the comments of the High Court in Vakauta at 570 illustrate that a certain degree of unavoidable partiality by expert medical witnesses can be tolerated without undermining the proceedings. More stringent guidelines may be appropriately applied where there is a large pool of experts. Because of the adversarial nature of litigation, there will almost always be at least a suspicion of a degree of partiality. In Arbinger, Jessel MR expressed the view that there is a natural bias on the part of the expert in favour of the person employing him. I am reassured by what was said in More, where the cynical universal categorising of experts was criticised. Freedman JA maintained that to generalise in this manner was "an act of gross unfairness against men and women who from time to time assist the judicial function by placing before the court fair and reasoned conclusions which are the product of their training, experience, examination and research." The majority of the Supreme Court of Canada later expressed agreement with Freedman JA's assessment. In this regard, I would also refer to what is said by Rich ACJ in Adelaide, at 563-564, as to the position of a decision-maker relative to hearing expert testimony. In circumstances where suspicion or more as to impartiality exists, it has been my experience that the process of cross-examination can usually be expected to elucidate whether and to what extent the evidence of an expert witness might be seen not to be impartial. It is then a question of what weight can be ascribed to the evidence in the light of any partiality revealed in cross-examination. In the instant case, I do not consider that there are, or are likely to be, grounds for concern as to the jury misunderstanding Leon Maddern's position. I cannot conceive that cross-examination will not be utilised to bring out the potential for impartiality at least adequately. Being particularly alive to the issue, I propose to take up the subject with the jury in the usual or stronger terms as appropriate.

56. I also have a concern as to what can be characterised as the argumentative role of an expert witness. Mr Judd claimed that Leon Maddern had used the April 2000 statement to argue the prosecution's case. It was put that he had done so using a number of mechanisms, such as using terms like "distort" and "distorting", and incorporating unnecessary additional material in assumptions. Argument can be an indication of being partisan. On the other hand, it can also be seen to be a legitimate part of the reasoning process. I am disposed to accept what Eggleston posits at 131 and 132, that if the expert makes his assumptions clear, there is no objection to his arguing what the consequences of accepting those assumptions should be. He may argue, or reason, or seek to persuade, on the assumption that the "facts" advanced by the evidence before him are true. Part of the reasoning process can be to examine alternative inferences or ultimate conclusions based on those "facts", and to state why the witness preferred his own conclusions to alternatives that might be offered. What the expert may not do is tell the judge or jury which facts they should accept as true. In Ancher Street CJ spoke of the benefits of an argumentative approach when hearing from differing experts in the circumstances then before him. "By attending to the progress of this argumentative process between counsel and expert the court is enabled to perceive and more readily to appreciate the points of similarity and dissimilarity."

59. I turn to the criticisms of Mr Judd that go to lack of definition or detail. Mr Judd was critical of the April 2000 statement in that Leon Maddern used certain expressions without clearly defining what those expressions meant. One was "established accounting principles". I will come back to the subject of "accounting principles". Another was "Grollo group accounts" or like phrases. It was also put that Leon Maddern failed to elaborate as to what he meant when he referred to being unable to locate documents. It was also put that he referred to documents seen during audit without providing adequate context. It was also put that he did not clearly distinguish, when referring to documents, the limits of his role in giving his understanding of their import as against interpreting those documents.

62. Mr Robberds indicated that, in relation to references to either or both of the Grollo records and the Grofam records, the prosecution would be happy to provide details of which documents were being referred to, and to supply any further information required by the accused. Given that, it seems unnecessary to go into the matter much further. I would note that it seems to me that the April 2000 statement would make it easier to limit the ambit of the "Grollo group documents" which any freshly engaged accountant would have to review. I have annexed to this ruling my table in HUB order of the documents that are the source of most if not all of the accounting entries referred to by Leon Maddern in the April 2000 statement. It is the second table below. I would note that the table is not intended to be accurate in every detail. Of course I accept that another expert would not be limited to those documents just because Leon Maddern has made them the primary focus.

65. I have reviewed carefully the cross-examination of Leon Maddern by Mr Judd at the committal hearing. I am satisfied that both the general position and the specific position as to the particular issues is now reasonably comprehensively laid out. I will say more on this subject below. As to the limits of a witness dealing with documents, I would propose to follow the principles as discerned from Stephens and Spens. I take the view that any attempt to try to spell out with any precision any bright lines would be counter-productive. It would be inappropriate to expect that all of the bright lines would be fixed in precisely the right place in advance in relation to a long witness statement dealing with a subject that judges and juries find particularly difficult to understand.

68. I turn to the criticisms of Mr Judd that go to the limited provision of accounting principles. In my first ruling, I said that an expert accountant witness has to spell out his accounting principles. I said so on the basis that, with any expert witness, certain principles had to form part of the premises relied on, along with facts assumed and inferences from facts, to reach a conclusion. Mr Judd criticised the April 2000 statement as being deficient in that Leon Maddern had not spelt out adequately the taxation principles that were part of the premises for his conclusions. There was a further criticism that some of what were advanced as "principles" were no more than "book-keeping aspirations". The April 2000 statement is short on what I had hoped to get by way of a statement of principles. What Leon Maddern has provided in the April 2000 statement was a selection of definitions from the CCH Macquarie dictionary and one reference to an AAS standard.

71. In my December 1999 ruling I adverted to many references in cases and articles to "accounting principles". I had assumed then that there was a repository or source of such principles. I now consider that there is no repository of the kind that I had contemplated. There are lots of books about the fundamentals of accounting. In response to a question I put to Mr Judd, he referred me to three such texts. One was Yorston. Those texts explain how books of account should be kept, and provide examples of how to keep books correctly. My review of them and of Yorston in particular, taken with events during argument, including that Mr Robberds made clear that the focus of the April 2000 statement was on accounting, not on tax accounting, has helped to clarify my thinking. I am now satisfied that it is those fundamentals that are a significant part of what I have chosen, as others have chosen, to describe as "accounting principles". Every accountant and bookkeeper should: be accurate as to date and amount; match income and expenses as to time; be consistent; place entries in books of account in the right place; describe entries accurately; and more. Leon Maddern has not said expressly in his statement that these fundamentals are the principles, but that is implied. Mr Robberds put the proposition to me in these terms: that accounting principles were the distillation of matters that the accounting profession recognises when treating money in the accounts. I would add that a review of Yorston and the CCH/Macquarie dictionary and many cases makes it hard to distinguish accounting (or commercial or bookkeeping): aspirations; concepts; conventions; doctrines; elements of theory; policies; postulates; practices; principles; procedures; rules and standards. It may or may not help to have added as a qualifying word: accepted; basic; established; fundamental; ordinary; recognised; or standard. It seems that there is a significant level of interchangeability, save that some words are clearly more conceptual and others are more practical in character. I obtained reassurance in my conclusion when I reviewed many of the cases referred to in my December 1999 ruling. There were lots of references to variations of "established accounting principles". I was struggling to find reference to a particular principle, save to the "matching principle" in AGL and Coles Myer.

74. I turn to the criticism of Mr Judd that there were many respects in which the April 2000 statement departed inappropriately from the ideal. Mr Judd put before me what he contended was a pro forma that set out the basics of an ideal expert witness statement. In the sense that it represented an embodiment of a worthwhile aspiration, the pro forma had value. On the other hand, it highlighted the problems of trying too hard to set an ideal standard. The result can be unduly mechanistic. There is no allowance made for the experience of the expert witness. That experience can be an extremely important ingredient. An expert witness, as an expresser of opinions, is a form of decision-maker, analogous to a judge or jury. An expert witness bases opinions on premises, and those premises may include inferences that he draws from facts. In Martin, at 375, when Dixon J set out his often quoted remarks about the drawing of inferences, he referred directly and indirectly to the role of experience. In Chamberlain, Brennan J referred to the role of experience in the process of a juror drawing an inference. Eggleston at 125, 130 and 131 referred generally to the role of the experience of an expert witness, and what he said was quoted approvingly in Arnotts, at 350. Dixon CJ in Clark at 490-491, and Barwick CJ in Weal at 438, referred to the experience of one kind of expert witness. Mahoney JA addressed the subject of the experience of a medical expert witness in X and Y at 33 and 34. The experience of judges affects the inferences they draw. What to one judge is a reasonable inference may be speculation to another. Refer Tadgell JA in Kear, at 557, quoting Fullagar J in Lane, but compare the position of the majority in both cases. Relative to an expert witness, see McHugh in Abalos at 174. For an overall view, see Cardozo from 167.

77. I would make another point about making comparisons with an ideal. Generally, in litigation, it is preferable to be practical. Litigation is expensive. As Eggleston said, at 4, "the exigencies of the legal process require that somewhere in the search for truth a halt must be called; otherwise litigation would become interminable." Wigmore had his chart method for analysing evidence, which he described as the "only thorough and scientific method". _Twinin_g, at 126 f, describes the chart method, but notes, at 173, its drawbacks including its perceived impracticality. It seems to me that much of what was put to me by Mr Judd cannot be accepted on practicality grounds. I am conscious of the proceedings before me being, or appearing to be, of a kind where expense is not the same problem as would usually be the case. The circumstance that the parties may be able to afford to meet more stringent requirements should not mean that such requirements should be imposed.

80. In argument before me, there was reference to the question of whether an accountant can be asked for his understanding of the effect of legal documents. Mr Judd argued for a very restrictive approach, after referring to instances where he claimed that the April 2000 overstepped the line. Mr Robberds argued that that was not so, Leon Maddern having simply stated his assumptions and conclusions which were not as to law or mixed fact and law. Neither referred to authorities on the subject of where the line was to be drawn. I have no doubt that an accountant cannot be asked to authoritatively construe a document. That is a role reserved for the judge. I see no difficulty in an accountant giving his understanding of or assumption as to a documents' effect, where that is one of the assumptions of fact upon which he draws inferences. Aspects of the role of the judge in construing documents and statutes and in the context of a jury trial were considered in several of Stephens, Mainwaring, Mumford, Spens, Adams, Maharaj and Baxter, to which I have earlier referred. Those same cases are also helpful to me in assessing the appropriate course on other questions. Such questions include when and how, in the context of a jury trial, a judge ought to address a question of law - like the interpretation of a document - or of a statute. The focus of the court in most of those cases was on the interpretation of either or both of a provision in a Crimes Act or an agreement. The focus in the instant case will be on provisions in the Income Tax Acts as to income and deductions. For example, because of the Acts, "income derived" is a statutory concept, and the jury will have to be instructed as to parts of it as a matter of law. Both prosecution and defence have given indications of the matters of law that they say will or might have to be addressed at some point. Unless, it is by consent, or unless there is an extremely compelling case for doing so in the face of opposition, I am not disposed to make preliminary findings on matters of law.

83. Allied to that point is another I would make. I have a considerable familiarity with many aspects of the thousand of pages of papers. The further I have read, the more I have sensed that I need more than I have before me at present to get an adequate feel for this case. I would like to hear witnesses. I would also like to have the accused do more to define the issues. The legal representatives of the accused have understandably pressed the prosecution to define the prosecution's position. The prosecution has provided to me, as is only to be expected, a copy of the indictment, the witness statements and documents in the brief. It has also provided: particulars of conspiracy; an outline of the Crown case: a list of overt acts; a CD-ROM with software for accessing imaged documents. I am conscious of having receiving from the accused criticisms of Crown documents and the CD-ROM. I am not conscious of having received material from the accused like a defence statement that would help to define issues.

86. I would repeat in conclusion a point that I made earlier. I have reviewed the April 2000 statement in the light of his earlier statements and of Mr Judd's cross-examination of Leon Maddern at the committal hearing. I feel no misgivings as to the capacity of the accused and their advisers and any experts they may care to engage to appreciate the character of the issues addressed and the substance of how they are addressed in the April 2000 statement.

[1990] HCA 47; (1990) 171 CLR 167

(1993) TLR 32

[1940] HCA 45; (1940) 64 CLR 538

Australian Gas Light Co v Federal Commissioner of Taxation

(1971) 2 NSWLR 278

(1873) 17 LR Eq 358

Arnotts Limited and other v Trade Practices Commission

(1900) 24 FCR 313

(1998) 3 NZLR 144

[1984] HCA 7; (1992-1993) 153 CLR 521

[1960] HCA 42; (1960) 103 CLR 486

[1993] HCA 29; (1992-1993) 176 CLR 640

(1997-80) Aust Bar Rev 203

Australian Judicial Perspectives on Expert Evidence

(1997) 2 VR 555

[1983] VicRp 105; (1983) 2 VR 449

(1995) 85 A Crim R 374

(1982) 74 Cr App R 99

[1936] HCA 23; (1936) 55 CLR 367

(1963) 43 WWR 30

(1987) 18 FCR 101

Going to court: a discussion paper on civil justice in Victoria

(1991) 4 All ER 421

(1978) 21 ALR 680

(1989) 167 C.L.R. 558

(1966) 40 ALJR 436

(1991) 23 NSWLR 26

Yorston, Smyth & Brown: Accounting Fundamentals (3rd Edn.)

Grofam journal entries inc 49, 50, 51 (also HUB12187)

PJV w/papers for 1983 L Grollo Sales P/L tax return