R v Huston; ex parte Cth DPP; R v Fox; ex parte Cth DPP; R v Henke; ex parte Cth DPP [2011] QCA 350

SUPREME COURT OF QUEENSLAND

CITATION: R v Huston; ex parte Cth DPP; / R v Fox; ex parte Cth DPP; / R v Henke; ex parte Cth DPP [2011] QCA 350

PARTIES: In CA No 97 of 2011: / R v HUSTON, Robin David (respondent) EX PARTE COMMONWEALTH DIRECTOR OF PUBLIC PROSECUTIONS (appellant) In CA No 98 of 2011: R v FOX, Brian Francis (respondent) EX PARTE COMMONWEALTH DIRECTOR OF PUBLIC PROSECUTIONS (appellant) In CA No 99 of 2011: R v HENKE, Ian Sidney (respondent) EX PARTE COMMONWEALTH DIRECTOR OF PUBLIC PROSECUTIONS (appellant)

FILE NO/S: CA No 97 of 2011 / CA No 98 of 2011 / CA No 99 of 2011 / SC No 1488 of 2009

DIVISION: Court of Appeal

PROCEEDING: Sentence Appeal by Cth DPP

ORIGINATING COURT: Supreme Court at Brisbane

DELIVERED ON: 6 December 2011

DELIVERED AT: Brisbane

HEARING DATE: 24 August 2011

JUDGES: Muir and Chesterman JJA, and Margaret Wilson AJA / Judgment of the Court

ORDER: In CA No 97 of 2011 / In CA No 98 of 2011 / In CA No 99 of 2011

CATCHWORDS: CRIMINAL LAW – APPEAL AND NEW TRIAL – APPEAL AGAINST SENTENCE – GROUNDS FOR INTERFERENCE – SENTENCE MANIFESTLY EXCESSIVE OR INADEQUATE – where the appellant Huston was sentenced to four years’ imprisonment to be released on parole after serving 10 months – where the appellant Fox was sentenced to three years and nine months’ imprisonment, to be released on parole after serving nine months – where the appellant Henke was sentenced to four and a half years’ imprisonment to be released on parole after serving 12 months – where the Commonwealth Director of Public Prosecutions (CDPP) appealed against the sentences imposed – where the CDPP submitted that the sentences imposed were manifestly inadequate and that the sentencing judge did not give sufficient weight to the circumstances of the case and gave too much weight to mitigating factors – whether the sentences imposed were manifestly inadequate so as to demonstrate an error in the exercise of the sentencing discretion / CRIMINAL LAW – APPEAL AND NEW TRIAL – APPEAL AGAINST SENTENCE – GROUNDS FOR INTERFERENCE – GENERALLY – where Henke also purported to appeal against his sentence in submissions – where Henke did not apply for leave to appeal against sentence as required by s 668D(1)(c) of the Criminal Code 1899 (Qld) – whether the appeal against sentence should be allowed / Crimes Act 1914 (Cth), s 16A, s 29D, s 86(1) / Criminal Code 1899 (Qld), s 668D(1)(c) / Judiciary Act 1903 (Cth), s 68 / Australian Securities Commission v Marlborough Gold Mines Ltd (1993) 177 CLR 485; [1993] HCA 15, applied / Director of Public Prosecutions (Cth) v Goldberg (2001) 184 ALR 387; [2001] VSCA 107, considered / Director of Public Prosecutions (Cth) v Gregory (2011) 250 FLR 169; [2011] VSCA 145, considered / Director of Public Prosecutions v Hamman, unreported, Supreme Court of New South Wales Court of Criminal Appeal, Sheller JA, Levine and Barr JJ, 60388/98 and 60457/98, 1 December 1998, considered / Hili v The Queen; Jones v The Queen (2010) 242 CLR 520; [2010] HCA 45, considered / Markovic v The Queen (2010) A Crim R 510; [2010] VSCA 105, considered / Pearce v The Queen (2005) 216 ALR 690; [2005] WASCA 74, considered / R v Baunach; Cth Director of Public Prosecutions [1999] QCA 207, considered / R v Cox, Cuffe and Morrison [2011] QSC 187, considered / R v Daher [1981] 2 NSWLR 669, applied / R v Hargraves & Stoten [2010] QCA 328, considered / R v Hart; ex parte Cth DPP (2006) 159 A Crim R 428; [2006] QCA 39, considered / R v Panuccio [1998] VSC 300, considered / R v Ronen (2006) 161 A Crim R 300; [2006] NSWCCA 123, considered / R v Ruha, Ruha & Harris; ex parte Cth DPP (2010) 198 A Crim R 430; [2010] QCA 10, considered / R v Togias (2001) 127 A Crim R 23; [2001] NSWCCA 522, considered

COUNSEL: In CA No 97 of 2011 / A J MacSporran SC, with D R Kent, for the appellant / A J Kimmins, with P Morreau, for the respondent / In CA No 98 of 2011 / A J MacSporran SC, with D R Kent, for the appellant / A M Hoare for the respondent / In CA No 99 of 2011 / A J MacSporran SC, with D R Kent, for the appellant / Mr Henke appeared on his own behalf

SOLICITORS: In CA No 97 of 2011 / Director of Public Prosecutions (Commonwealth) for the appellant / Potts Lawyers for the respondent / In CA No 98 of 2011 / Director of Public Prosecutions (Commonwealth) for the appellant / Legal Aid Queensland for the respondent / In CA No 99 of 2011 / Director of Public Prosecutions (Commonwealth) for the appellant / Mr Henke appeared on his own behalf

THE COURT: Each of the respondents was found guilty of conspiring together and with others to defraud the Commonwealth. The nature of the conspiracy and the circumstances of the intention to defraud are fully set out in the reasons for judgment in the appeals which the respondents brought against their convictions. The duration of the conspiracy, as charged, was between 1 July 1999 and about 23 May 2001, about five weeks short of two years.

The Commonwealth Director of Public Prosecutions (“Director”) appealed against the sentences imposed on all respondents. The grounds of appeal are identical in each appeal. They are:

a)That the sentencing judge erred in imposing a sentence which was manifestly inadequate;

b)That the sentencing judge did not give sufficient weight to the circumstances of the case; and

c)That the sentencing judge gave too much weight to mitigating factors.

Henke’s appeal against conviction purports also to appeal against sentence. He has not applied for leave to appeal against sentence as required by s 668D(1)(c) of the Criminal Code (Qld) “picked up” by s 68 of the Judiciary Act 1903 (Cth). His notice of appeal does not set out any grounds of challenge to the sentence.

Huston was born on 7 February 1946 and was between 53 and 55 years of age at the time the offence was committed. He was 65 when sentenced. Henke was born on 18 July 1936 and was between 63 and 64 at the time of the offence and 75 when sentenced. Fox was born 6 August 1952. He was between 47 and 48 at the time of the commission of the offence and 58 when sentenced.

Huston was sentenced to four years’ imprisonment with a non-parole period of 10 months. Henke was sentenced to four and a half years’ imprisonment with a non-parole period of 12 months. Fox’s sentence was one of three years’ and nine months’ imprisonment with a non-parole period of nine months. The five days each of them had spent in custody prior to sentence was declared time already served.

Huston was convicted on 18 February 1986 in the Brisbane District Court of one count of conspiring to defraud the Commonwealth. He was sentenced to 12 months’ imprisonment. The conviction, though old, is of obvious relevance. Fox had no prior criminal history. Henke has an extensive criminal history. The earliest entry for dishonesty was in 1957. Between then and 1972 he was convicted on 24 separate occasions of many offences of dishonesty. On some three occasions he was sentenced to imprisonment for three years. On other occasions he was sentenced to shorter terms. In 2001 and 2003 he was fined in respect of eight offences of failing to furnish an income tax return.

Although three grounds of appeal are advanced in reality the Director urged that the sentencing discretion miscarried for a reason which cannot be identified but the error is apparent from the unreasonableness of the result. Grounds 2 and 3 are no more than attempts to explain how the discretion miscarried.

In Hili v The Queen; Jones v The Queen [2010] HCA 45 French CJ, Gummow, Hayne, Crennan, Kiefel and Bell JJ said:

“58.The single ground of appeal … was that the sentences imposed at first instance were manifestly inadequate. That is, the error which the Director asserted that the sentencing judge had made was of the last kind mentioned in House v The King. By asserting manifest inadequacy, the Director alleged that the result embodied in the sentencing judge’s orders was ‘unreasonable or plainly unjust’. The Director did not allege that any specific error could be identified (as would be the case if the sentencing judge were said to have acted upon the wrong principle, allowed extraneous or irrelevant matters to guide or affect her, mistaken the facts or not taken into account some material considerations). Rather, the Director asserted that it was to be inferred from the result that there was ‘a failure to properly exercise the discretion which the law reposes in the court of first instance’.

As was said in Dinsdale v The Queen ‘[m]anifest inadequacy of sentence, like manifest excess, is a conclusion’. And, as the plurality pointed out in Wong, appellate intervention on the ground that a sentence is manifestly excessive or manifestly inadequate ‘is not justified simply because the result arrived at below is markedly different from other sentences that have been imposed in other cases.’ Rather, as the plurality went on to say in Wong, ‘[i]ntervention is warranted only where the difference is such that, in all the circumstances, the appellate court concludes that there must have been some misapplication of principle, even though where and how is not apparent from the statement of reasons’. But, by its very nature, that is a conclusion that does not admit of lengthy exposition … .

…

In the present matters, the inadequacy of the sentences imposed at first instance was evident from consideration of all the matters that were relevant to fixing a sentence (and making a recognizance release order) ‘of a severity appropriate in all the circumstances of the offence’. The chief considerations which pointed to inadequacy in these cases were the nature of the offending, and the sentences that had been imposed in cases most closely comparable with the present.” (footnotes omitted)

The Director’s submissions emphasised the need for general deterrence in sentences imposed for offences of defrauding the Commonwealth revenue. The Director submitted as well that Huston’s sentence called for an element of special deterrence given his previous conviction for a like offence. The sentencing judge, it was submitted, did not give sufficient weight to this requirement and overemphasised the personal circumstances of the respondents.

Numerous cases have stressed the need for sentences to be severe, or condign, in order to effectively deter such criminal conduct as the respondents engaged in. In Hili their Honours said:

“63.The applicants’ offending was sustained over a long time. It was planned, deliberate and deceitful, requiring for its implementation the telling of many lies. The applicants acted out of personal greed. The amount of tax evaded was not small. Detection of offending of this kind is not easy. Serious tax fraud, which this was, is offending that affects the whole community. As was pointed out in Ruha, the sentences imposed had to have both a deterrent and a punitive effect, and those effects had to be reflected in the head sentences and the recognizance release orders that were made.”

The case referred to, R v Ruha, Ruha & Harris; ex parte Commonwealth DPP [2010] QCA 10 made the point (at [45]) that sentences imposed for serious tax fraud must necessarily act as a deterrent. The same point was made in Pearce v The Queen [2005] WASCA 74, in which, as here, there was a conspiracy to defraud the Commonwealth contrary to s 29D and s 86(1) of the Crimes Act 1914. The conspiracy involved the marketing of a tax evasion scheme utilising the sale of franchises the purchase price for which was made available by way of a non-recourse loan from the scheme promoters. The loans were represented to the ATO as full recourse loans, which entitled the borrower to a tax rebate. The scheme was sold on the basis that having borrowed $29,500 to buy a franchise for $39,500 a tax rebate of $18,810 would be received in the first year of investment from which the shortfall of $10,000 would be paid.

In all 1,160 franchises were sold. Had the scheme succeeded taxation rebates totalling about $20 million would have been paid giving a profit to the conspirators of about $14 million. A taxation audit revealed the fraud and after rebates of about $1.5 million had been paid the scheme was stopped.

Two of the conspirators were accountants. They were both sentenced to five years’ imprisonment with a recognizance release order after serving 18 months. They complained that the sentences were manifestly excessive:

“… having regard to the strong evidence of their previous good character, the catastrophic effect of conviction upon their business and future occupations and the acknowledged lack of any need for personal deterrence.”

The applications for leave to appeal against sentence were refused. Steytler J (with whom Malcolm CJ and Murray J agreed) described the sentences ([343]) as “entirely appropriate.” His Honour endorsed the remarks of the (Victorian) Court of Appeal in Director of Public Prosecutions (Cth) v Goldberg (2001) 184 ALR 387 at 394 where Vincent JA (Winneke P and Batt JA agreeing) repeated the remarks of the sentencing judge:

“Tax evasion is not a game, or a victimless crime. It is a form of corruption and is, therefore, insidious. In the face of brazen tax evasion, honest citizens begin to doubt their own values and are tempted to do what they see others do with apparent impunity.”

Other cases have made the same point, that those who systematically defraud the revenue of large sums of money over a substantial period should be sentenced to substantial terms of imprisonment. In R v Hart; ex parte Commonwealth Director of Public Prosecutions [2006] QCA 39 Jerrard JA at [76] cited with approval the following passage from the judgment of Davies JA in R v Baunach [1999] QCA 207:

“General deterrence, as this Court has said more than once, is an important factor in cases such as this. Whilst one may doubt the general deterrent effect of sentences of imprisonment in many classes of cases, I think this is one of those in which it is of undoubted importance. It must be made clear to people in positions such as that of the respondent, who are intelligent enough to appreciate it when they are told, that the commission of offences of this kind is likely to result in a substantial term of imprisonment.”

In similar vein the Victorian Court of Appeal considered the comparative importance of general deterrence in Director of Public Prosecutions (Cth) v Gregory [2011] VSCA 145 at [53]:

“53In seeking to ensure that proportionate sentences are imposed the courts have consistently emphasised that general deterrence is a particularly significant sentencing consideration in white collar crime and that good character cannot be given undue significance as a mitigating factor, and plays a lesser part in the sentencing process. In the case of taxation offences general deterrence is also given special emphasis in order to protect the revenue as such crimes are not particularly easy to detect and if undetected may produce great rewards. ‘Deterrence looms large’ as the present process of self assessment reposes on the taxpayer a heavy duty of honesty. Moreover, general deterrence is likely to have a more profound effect in the case of white collar criminals. White collar criminals are likely to be rational, profit seeking individuals who can weigh the benefits of committing a crime against the costs of being caught and punished. Further, white collar criminals are also more likely to be first time offenders who fear the prospect of incarceration.” (footnotes omitted)

To the same effect is R v Hargraves & Stoten [2010] QCA 328 at [223]. Hargraves and Stoten were convicted of conspiring to dishonestly cause a loss to the Commonwealth between May 2001 and June 2005. Their conspiracy involved delivering inflated invoices. Hargraves and Stoten ran a legitimate business which acquired services from a Swiss accounting firm. The conspiracy involved the receipt of invoices from a foreign company in the British Virgin Islands which overstated the amount paid for the accounting services. A tax deduction was claimed for the inflated amount which was, in fact, paid. The overpayment was paid to an overseas bank account which the conspirators accessed via ATM machines in Australia.

The amount of tax evaded was about $1.2 million. When the conspiracy was discovered the tax was recouped together with a significant amount of penalty tax. Hargraves was married with a pregnant wife, and was without criminal history. He showed no remorse and did not assist in the administration of justice. He had good references and was said to be of good character. Stoten was married with three children. He had no criminal history, was a solicitor and played an active part in his local church. He was charitable and of good character but showed no remorse and had destroyed evidence. Imprisonment for both would have significant adverse consequences for their families.

On appeal each was sentenced to five years’ imprisonment with a non parole period of two years and six months.

We have set out a summary of the facts in Pearce, and in Hargraves & Stoten because they afford the closest comparison with the present appeal.

A point of distinction between this case and that of Hargraves & Stoten was that the latter was required by the ATO to pay the evaded tax, and penalty tax, of well over $1 million. That additional payment was regarded as “a form of punishment … imposed upon the offender in addition to that which the Court imposes by way of sentence”. The quote which appears in Hargraves & Stoten at [223] is from R v Ronen (2006) 161 A Crim R 300 at 313. That consideration which ameliorated the sentences in Hargraves & Stoten is not available to the respondents.

The starting point in considering what sentence to impose or, whether, on appeal, the sentencing discretion miscarried, is s 16A(1) of the Crimes Act 1914 (Cth) which insists that:

“… a court must impose a sentence … that is of a severity appropriate in all the circumstances of the offence.”

As the High Court pointed out in Hili the chief considerations are the nature of the offending and the sentences in the most comparable cases. The court must also, of course, have regard to the considerations listed in s 16A(2) of the Crimes Act.

The Director’s submissions identify a number of features of the respondents’ conspiracy which make their offending very serious. The first was said to be the commission of the offence “by (utilising) a complex, sophisticated international tax evasion scheme making the detection and investigation of the offence … difficult.” It came to light only because an accountant to whom the scheme was offered passed the material on to the ATO. Although the scheme utilised a large number of transactions which may rightly be called complex the scheme was hardly sophisticated. In essence it involved no more than directors transferring their companies’ assets to themselves leaving corporate shells unable to discharge their tax liabilities. The “complex, sophisticated” transactions were nothing more than a false façade of legitimate explanation for the unlawful disposal of the companies’ assets. What gave the scheme some chance of success was not the false transactions, none of which had a legitimate business purpose, but the fact that ownership of the companies was transferred to Vanuatu so that the fact that the companies had been stripped of their assets could be concealed from the Commonwealth. It was the concealment in Vanuatu which most contributed to the conspiracy avoiding detection for so long. The scheme was not so much sophisticated as cynical and calculated.

Those involved in the conspiracy were grossly dishonest. Henke and Huston promoted the scheme for their own personal reward. Fox received little from it and would appear to have been motivated by his desire to provide a service for his clients. None of them can have had any doubt that they were engaged in fraudulent activity. They all knew how the scheme was to operate and that the directors of the target companies would be enriched at the expense of Commonwealth revenue. Each of them set out to achieve that result.

The amount of income tax imperilled by the conspiracy was substantial, $4,590,137.63. This amount is substantially larger than the revenue put at risk, or lost, in the cases of Hargraves & Stoten and Pearce. The Commonwealth in fact suffered no loss from the respondents’ actions. The ATO proceeded against the directors of the target companies and recovered from them in aggregate the full amount of the tax their companies should have paid. In addition they were obliged to pay small sums, not amounting to more than a few hundred dollars, for the late lodgement of returns.

The fact that the Commonwealth did not lose revenue is said to be a factor of considerable importance in determining the level of sentence. The respondents urged the point that leniency is called for because their activities did not in fact cause any loss to Commonwealth revenue. The Director submits that what is relevant is the quantum of tax put at risk, not the amount lost.

The Director’s submission has the support of the judgment in Pearce (at [345]):

“Counsel for (the appellants) also offered the submission that, in considering what should be an appropriate sentence, account should be taken of the fact that the Commonwealth was not shown to have lost any money, but only the opportunity of protecting the revenue. In my opinion, this consideration carries little weight. This was a conspiracy to defraud the Commonwealth on what was, by any measure, a comparatively large scale. It is of no great moment whether or not, in the result, the ATO was shown to have lost money.”

The same point was made by the Court of Criminal Appeal in Director of Public Prosecutions v Hamman (unreported, NSWCCA, 1 December 1998) (at 30):

“While undoubtedly it is a matter to be taken into account, it is, in my opinion, of small account, that when caught out the offender pays the tax due and additional tax by way of penalty for which the offender is liable to a greater or lesser extent, according to the Commissioner’s discretion … .”

Notwithstanding the force of these remarks it is, we think, the case that an actual loss of revenue will be a factor, other things being equal, of greater weight than the potentiality of loss. We do not mean to say that potential losses of substantial sums to the revenue of the Commonwealth is not a matter highly relevant to sentence. But, again on the basis that other things are equal, an offence resulting in an actual loss of revenue would be more serious than one in which the same amount was at risk, but was not lost.

One of the matters required by s 16A(2) to be taken into account is “(e) … any injury, loss or damage resulting from the offence”. As a result of the conspiracy the target companies paid in total the sum of $959,280.54 as a fee for facilitating the asset stripping. The payments were entirely wasted because, in the end, the tax was paid in full. The loss occasioned to clients is a fact to be taken into account in sentencing.

The Director’s submissions also point to:

The length of the conspiracy – almost two years.

The lack of remorse. Henke still maintains his innocence. Huston and Fox persist in denying that they knew the scheme was dishonest. A trial was required to establish the respondents’ guilt. There has been no co-operation with the administration of justice though there was a degree of co-operation in the running of the trial.

Two of the respondents, Huston and Henke, have relevant criminal histories.

Huston and Fox were professional accountants who used their professional positions to promote the scheme and encouraged, or at least assisted, their clients to participate in the scheme and evade tax.

Henke received $145,000 from his involvement in the scheme and Huston received $40,000.

A number of other cases, more or less comparable, were referred to. These had been the subject of comment and analysis in several decisions. For convenience we set out the analysis undertaken by Fryberg J in R v Cox, Cuffe and Morrison [2011] QSC 187 which contains thorough and helpful synopses.

Ronen [2006] NSWCCA 123

“[60]The applicants were convicted after a lengthy trial of conspiracy to defraud the Commonwealth, and one of them also pleaded guilty to avoiding reporting requirements under the Financial Transaction Reports Act 1988. Their companies owned and operated a number of stores. They concealed a substantial proportion of the income from those stores, banking no more than 10% of the cash takings. The balance of those takings, somewhere between $15million and $17million, was sent overseas and no tax was paid on it. The offending took place over a period of about 10 years. The effective sentence on each was imprisonment for 8½ years with a non-parole period of 5½ years. They had paid the tax and also paid penalty tax of about $7.18million, although in the absence of evidence of what it meant in real terms to them to make that payment, the Court of Criminal Appeal gave little weight to that factor. They had no prior convictions. The court did not depart from the finding of the sentencing judge that contrition and remorse had been demonstrated by the applicants, but also agreed with him that the offending was “within the worst category given the length of time over which the conspiracy operated, the amount of money defrauded from the Commonwealth and the manner in which the fraud was carried out”. Appeals by the applicants and by the Crown were dismissed.”

Ridley [2008] NSWCCA 324

“[61]After a trial the applicant was sentenced to a total of somewhat under eight years imprisonment on nine counts of defrauding the Commonwealth and three of attempting by deception to dishonestly obtain a financial advantage from the Commonwealth. He dishonestly made false claims for refunds of goods and services tax in 12 business activity statements submitted on behalf of companies controlled by him over a period of five months, conduct described by the Court of Criminal Appeal as brazen. The total amount of tax claimed to be the subject of refund in the 12 charges was $2,858,160. The ATO paid over the claimed refunds for the first nine BASs, totalling $1,746,582, none of which, it seems, was recovered. However, it did not pay over the amounts claimed in the last three BASs, totalling $1,111,578. He had no prior convictions and good prospects of rehabilitation. The court found no error in the weight given by the sentencing judge to considerations of general deterrence and dismissed the appeal.”

Hart [2006] QCA 39

“[62]Hart was convicted by a jury of nine counts of defrauding the Commonwealth and another count of fraud under the Criminal Code of Queensland. He was sentenced to seven years imprisonment with a non-parole period of two years and nine months. The non-parole period was adjusted downward from half of the head sentence to take into account imprisonment served in respect of an earlier conviction on other charges of which Hart was ultimately acquitted. He was an accountant and tax agent and defrauded the Commonwealth by lodging tax returns for clients containing false claims for deductions. The alleged deductions related to expenditure on so-called employee retention plans. It is unnecessary to describe the scheme in detail; it suffices to say that superficially it bore some resemblance to, and may have been the inspiration for, the employee welfare plans which were promoted by the prisoners. The essence of the fraud lay in the fact that Hart represented to the Commissioner of Taxation that payments for insurance bonds had been made in the relevant year when no such payments had in fact been made. The false claims led to an under-assessment of tax exceeding $750,000. In due course this was recovered from the taxpayers, together with interest, late payment tax and penalty tax. The State count related to the misappropriation of $335,000 paid by the taxpayers and intended to be used for the purposes of the scheme, which Hart in fact used for his accountancy practice when cash flow difficulties arose. Neither that amount nor the penalty tax levied on the clients was recovered. Hart’s application for leave to appeal against sentence was refused.”

Gregory [2011] VSCA 145

“[63]The respondent, a solicitor, was convicted after a two week trial of conspiracy to dishonestly cause a risk of loss to a Commonwealth entity. He was acquitted of two counts of defrauding the Commonwealth which apparently related to an earlier period. He was sentenced to imprisonment for two years and ordered to be released on recognizance of $5,000 after 12 months. He conspired with one taxpayer (Wheatley) and two persons overseas for the taxpayer falsely to claim a deduction of $400,000. As a result Wheatley evaded $194,000 in tax for the relevant year. The respondent used his position as a solicitor in the relevant offending conduct and received a commission of $22,000. He paid a pecuniary penalty of nearly $27,500 but showed no contrition for his conduct. On appeal by the Commonwealth Director of Public Prosecutions the Court of Appeal held that the sentence imposed at first instance fell well short of meeting the relevant considerations, describing it as ‘egregiously disproportionate’. It held that a head sentence in the range of four to six years imprisonment with a requirement to serve between three and four years would have been appropriate. It urged caution in relation to earlier (semble Victorian) judgments in this area:

‘54In many if not most cases, imprisonment will be the only sentencing option for serious tax fraud in the absence of powerful mitigating circumstances. A sophisticated degree of planning accompanied by a lack of contrition should ordinarily lead to a more severe sentence of imprisonment. But despite the recognised importance of general deterrence, tax fraud has not always been as severely enforced as other forms of criminality. Over a decade ago this court, constituted by Winneke P, Brooking and Callaway JJA observed in R v Nguyen and Phan that the seriousness of the offence of defrauding the Commonwealth of income tax ‘has not always been sufficiently reflected in the sentence passed’.’” (footnotes omitted)

In her sentencing remarks the primary judge distinguished between the respondents and their respective roles in the conspiracy. Her Honour said:

“You each had discrete and different roles in the conspiracy and your contact with others involved … was different. It seems that Miller was the person who was in common with all of you and Northam, particularly, was also a person in common, dealing with you, Mr Huston, and you, Mr Fox … . I find, Mr Henke, that your concern about the imposition of division 7A tax … motivated your participation … in the set-up of the scheme. You were already in business with Miller and your involvement in this conspiracy was … primarily with Miller (whose) … direct dealing with Marae and the Vanuatuan connections put him as the primary mover in setting up the Vanuatuan end of the scheme. You were aware, Mr Henke, of the establishment of the Vanuatuan companies. You were involved in the planning of the scheme, to the extent of recruiting two staff members of ITR … as the Australian resident directors … . You were involved in drafting the questions to obtain the opinion of Mr Stevens QC, which ... was then used for the purpose of vindicating the scheme. … You sent a copy of Stevens’ opinion to Marae in Vanuatu. You gave instructions … to solicitors … for the preparation of proforma documents, most of which were then used in the scheme … . … I find that you approached Brown to be the first person to use the scheme. … You left it to Miller and Northam to implement the scheme, but you received $145,000 from the proceeds … for your role … .”

The judge then addressed Huston:

“… you had a demonstration from Northam of how the scheme worked on 16 December 1999 and were provided with a proforma set of documents and written instructions … . You acted for Brown, who was the first participant in the scheme. … you knew how the scheme worked and, in particular, that the loan that the director received from Athena did not have to be repaid. … you were willing to act for … clients … who got involved in the scheme by doing the financial documents … required for participation … and to be the conduit for the documents … required to evidence the transactions for most of the steps … . … you were referred clients by Northam. You also acted for two of Northam’s companies that participated in the scheme. … You were in possession of the Stevens’ opinion. You received professional fees for acting for the eight companies that participated in the scheme through your assistance. … There is no evidence of fees … being paid to you, apart from the sum of $40,000 … which I see as reward for your participation above your professional fees. … your willingness to act as an accountant for clients … and your involvement as an accountant acting for participants, assisted in the promotion of the scheme by Northam and was of value to both Miller and Northam in promoting the scheme.”

Lastly, her Honour dealt with Fox:

“You, Mr Fox, had become aware of ITR and made its literature available at your office. … The scheme was promoted to you by Northam and you, in turn, became an enthusiastic promoter of the scheme to clients for whom you thought the scheme was a good match, or who were referred to you because you were prepared to support clients participating in the scheme. … your involvement indicating to both new and existing clients that you thought the scheme was legitimate. You knew of the sham nature of the Athena loan transaction … . You prepared … documents … for directors of companies that participated in the scheme. You also had the opinion of Stevens. The benefit that you received … was … professional fees and the maintenance of a good relationship with valued clients. … your role in the conspiracy … was … a lesser role than Mr Huston, as you were not involved in … (attracting) other accountants as he was.”

Her Honour then referred to the “prime importance” of general deterrence, discussed comparable cases, and noted that Hargraves & Stoten, and Pearce were “particularly helpful”. Her Honour went on:

“… but as would be apparent from the sentences I’ve already indicated, the personal circumstances of each of you was a compelling consideration in these sentences and I’m now going to deal with each of you individually… .”

Dealing with Henke her Honour referred to:

His age of 74 years.

That he was the carer for his wife who has had polio and is able to walk only short distances.

His health. Henke suffers from a heart condition and thyroid dysfunction.

His criminal history.

Lack of remorse.

Limited co-operation with the investigators and in the conduct of the trial.

The judge concluded:

“Your age and health suggest that personal deterrence and rehabilitation prospects are not significant factors. Despite your lack of remorse … you are unlikely to reoffend. Your sentence … will impact on your wife’s situation. … medical care is available … in Queensland prisons. … I have moderated the head sentence that would otherwise have been appropriate for your greater role in this conspiracy … to reflect your age and ill health. I have also taken into account the hardship that your conduct and subsequent imprisonment … has caused to your wife to fix the nonparole period at a far less proportion of the head sentence than would otherwise be appropriate… .”

The judge then dealt with Huston. She mentioned:

His age, about 65 years.

His health. He suffers from diabetes and recently depression and anxiety which requires medication.

His wife’s ill health. She has a heart condition, sleep apnoea and limited mobility. She relied on Huston for “care and assistance”.

His adult children, one of whom, 41 years old is schizophrenic and lives at home. His wife will struggle to care for him alone.

His good references and professional reputation which, together with his business, he will lose as a result of the conviction.

The prior criminal conviction.

His limited co-operation in the trial.

With this respondent, too, the trial judge concluded with a review of his personal circumstances. Her Honour said:

“Your age and the impact this conviction will have in ending your professional practice … means that there is no risk of re-offending … . I have had regard to the fact that your imprisonment will have a very significant impact on your wife and your son. I have taken your age and health issues, together with other mitigating factors … in fixing the head sentence … . … I have also had regard to the tremendous hardship suffered by your wife and your son in fixing the non-parole period at a far earlier point than would otherwise have been appropriate.”

With respect to Fox the sentencing judge referred to:

His age, then 58.

A 27 year old son with hydrocephalus dependent upon him and his wife for care.

Family tragedies involving the death of two grandchildren.

His elderly parents who were unwell and in whose care Fox wished to be involved.

His co-operation with the investigating authorities by agreeing to an interview and in the conduct of the trial.

That the offence was committed at a time of stress in his professional life.

His good references and reputation.

The loss of his profession.

With this respondent, too, the sentencing judge stressed the hardship imprisonment would have on his family. Her Honour said:

“Because of the care that your son requires, your wife will not be able to work full-time while you are in prison. Your family will suffer financially and you will be unable to give your parents the support that they need at the stage of their life they have reached. The care of your 27 year old son will be very difficult for your wife without your support. Although you do not have the same age and health considerations as your co-offenders, your head sentence has to reflect your lesser role … . It also has to reflect your greater cooperation with authorities. The hardship of your actual imprisonment for your family has also resulted in my determining that you spend in actual custody far less proportion of the sentence than would otherwise be the norm.”

The Director complains that the sentences are manifestly inadequate and that a sentence of appropriate severity for the circumstances of the offence was not imposed on any of the respondents because of the emphasis given by the sentencing judge to the respondents’ health, in the case of Henke and Huston, and their families in the case of all respondents. The submission continued that a review of the comparable cases, particularly Hargraves & Stoten and Pearce indicates that sentences of at least five years, and perhaps as high as eight years, would have been appropriate. To impose lesser sentences, and then fix the non-parole period at between nine and twelve months, was said to exacerbate the inadequacy of the sentence.

In a supplementary submission the Director argued that the sentencing judge should not have made any allowance for the effect of the sentence on family without first considering whether the circumstances of adverse affect were exceptional and that the result of such an examination would have shown the circumstances to be unexceptional.

Section 16A(2) lists matters which, among others, the court must take into account. Item (p) is:

“the probable effect that any sentence or order under consideration would have on any of the (prisoners’) family or dependants.”

There is nothing in the terms of s 16A(2) which suggests that the probable effect on family or dependants must be exceptional before the factor can influence a contemplated sentence. However a uniform line of authority has so construed the provision, aligning it with the approach taken under similar statutory regimes imposed by state parliaments and at common law. In R v Togias (2001) 127 A Crim R 23 Spigelman CJ said (25-26):

“His Honour approached the sentencing exercise on the basis that hardship to a child had to be classified as ‘exceptional’ before it could be given substantial weight for the purposes of s 16A(2)(p). Counsel for both the appellant and the respondent … accepted that his Honour was correct.

The necessity for such an ‘exceptional’ effect has long been accepted for sentencing at common law: see, for example, Edwards (1996) 90 A Crim R 510 at 516-517 per Gleeson CJ.

The South Australian Court of Criminal Appeal held that legislation in that State to the same effect as s 16A(2)(p) did not affect the application of the common law principle: Adami (1989) 51 SASR 229; 42 A Crim R 88. The Western Australian Court of Criminal Appeal came to the same conclusion with respect to s 16A(2)(p): Sinclair (1990) 51 A Crim R 418 especially at 430-431. This was also the conclusion of the Court of Appeal in Victoria: Matthews (1996) 130 FLR 230 at 233; see also Carmody (1998) 100 A Crim R 41 at 45.

Courts of Criminal Appeal in three states have interpreted s 16A(2)(p) as not altering the common law. Exceptional hardship is required. It is important that Courts of Criminal Appeal adopt the same approach to the interpretation of national legislation. …

If there is to be any change in this position, and that was not put in this case even on a formal basis, only the High Court can effect it.”

The Court of Appeal of the Supreme Court of Victoria recently reaffirmed its adherence to that principle in Markovic v The Queen [2010] VSCA 105. In their joint judgment Maxwell P, Nettle, Neave, Redlich and Weinberg JJA said:

“11.The exceptional circumstances test has been adopted throughout Australia as governing the position at common law. There is likewise a uniform national position in relation to sentencing for Commonwealth offences. The requirement in s 16A(2)(p) of the Crimes Act**1914 (Cth) – that the court consider ‘the probable effect’ of the sentence on family and dependants – has been construed as being subject to the exceptional circumstances test.” (footnotes omitted)

Earlier their Honours had said:

“6.The case law reveals that the ‘exceptional circumstances’ test was developed in response to several considerations … . First, it is almost inevitable that imprisoning a person will have an adverse effect on (his) dependants. As … (Gleeson CJ) said in R v Edwards ((1996) 90 A Crim R 510 at 515):

There is nothing unusual about a situation in which the sentencing of an offender to a term of imprisonment would impose hardship upon some other person. Indeed, … it may be taken that sending a person to prison will more often than not cause hardship, sometimes serious hardship, and sometimes extreme hardship, to another person. It requires no imagination to understand why this is so. Sentencing judges … are routinely obliged … to sentence offenders who may be breadwinners of families, carers, paid or unpaid, of the disabled, parents of children, protectors of persons who are weak or vulnerable, employers upon whom workers depend for their livelihood, and many others, in a variety of circumstances bound to result in hardship to third parties if such an offender is sentenced to a term of full-time imprisonment.

Secondly, the primary function of the sentencing court is to impose a sentence commensurate with the gravity of the crime. Thirdly, to treat family hardship as the basis for the exercise of leniency produces the paradoxical result that a guilty person benefits in order that innocent persons suffer less. Fourthly, to treat an offender who has needy dependants more leniently than one equally culpable co-offender who has none would ‘defeat the appearance of justice’ and be ‘patently unjust’. Hence it is only in the exceptional case, where the plea for mercy is seen as irresistible, that family hardship can be taken into account.” (footnotes omitted)

Their Honours then referred to what had been said in R v Panuccio [1998] VSC 300 by Winneke P (Brooking and Charles JJA agreeing):

“Although the court is not, both as a matter of compassion and common sense, impervious to the consequences of a sentence upon other members of the family of a person in prison, such factors will need to be ‘exceptional’ or ‘extreme’ before the court will tailor its sentence in order to relieve the plight of those other family members. Such a principle is clearly an obvious one, because the court’s primary function is to impose a sentence which meets the gravity of the crime committed by the person who is being sentenced. There will rarely be a case where a sentence of imprisonment imposed does not have consequential effects upon the spouse, children or other close family members … . … It goes without saying … that the graver the crime … the more difficult it will be to find exceptional circumstances, because the relief usually sought and generally necessary to alleviate the plight of the relevant family members affected will require absolution from incarceration.” (footnotes omitted)

Their Honours went on:

“13.Properly understood, therefore, the avowed purpose – and the effect – of the ‘exceptional circumstances’ test is to limit the availability of the court’s discretion to exercise mercy on grounds of family hardship. This point was eloquently made by Wells J in R v Wirth ((1976) 14 SASR 291 at 295-6):

‘Hardship to spouse, family and friends, is the tragic, but inevitable, consequence of almost every conviction and penalty recorded in a criminal court … . … courts would often do less than their clear duty – especially where the element of retribution, deterrence, or protection of society is the predominant consideration – if they allowed themselves to be much influenced by the hardship that prison sentences … would be likely to cause to those near and dear to prisoners. … hardship likely to be caused by a sentence of imprisonment under consideration ought to be taken into account where the circumstances are highly exceptional, where it would be, in effect, inhuman to refuse to do so. … For example, if it were demonstrated … that to send a man to prison would, without much doubt, drive his wife to suicide, it would be a steely-hearted judge who did not … try to meet the situation by suitably framed orders as to penalty. But further than that, in my judgment, courts should not go.’” (footnotes omitted)

This Court must, obviously, follow the same approach to the construction of s 16A(2)(p): Australian Securities Commission v Marlborough Gold Mines Ltd (1993) 177 CLR 485 at 492; R v Daher [1981] 2 NSWLR 669 at 672.

The circumstances of each of the respondents’ families are not “exceptional” or “extreme” as those descriptions are explained in the cases. It would not, we think, be inhuman to require the respondents to serve the sentences their criminality deserves, by reason of the consequences to their families. Hardship and distress there will inevitably be, but not beyond that commonly observed in the criminal courts as a result of the necessary punishment of wrongdoers. In Fox’s case, his desire to care for his elderly parents and the sad loss of grandchildren would not, in any event, have qualified as circumstances warranting a reduction in sentence.

The sentencing judge cannot be criticised for not approaching the effect of imprisonment on the respondents’ respective families in the manner required by the authorities. Her Honour’s attention was not drawn to the cases and the submission, that family circumstances must be exceptional before they can be taken into account, was not made to the primary judge. Nevertheless it was an error to emphasise, and indeed overemphasise, those family concerns when considering what were the appropriate sentences.

The authorities uniformly point to the conclusion that hardship to family or dependants should not ordinarily ameliorate sentences otherwise appropriate. To emphasise the adverse consequences, as the sentencing judge did, in determining the appropriate sentence was an error and reinforces the need for this Court to intervene.

The authorities earlier referred to, which emphasise the need for deterrence in such cases as in these, also remarked that, for that very reason, personal circumstances of mitigation are of little or no weight.

It is, with respect, impossible not to conclude that the sentencing discretion has miscarried and that the reasoning overvalued the respondents’ personal and family circumstances. The result is that the sentences are substantially more lenient than the offending called for, both in length of sentence and non-parole period. The primary judge expressly gave as a reason for fixing a short non-parole period her desire to permit the respondents to attend to their families. The High Court insisted in Hili that the fixing of a non-parole period, as much as the sentence itself, must reflect the appropriate severity demanded by s 16A(1) to provide “the necessary deterrent and punitive effects of sentences for serious tax fraud.”

The offending here was serious, protracted, deliberate and grossly dishonest. It was embarked upon in the case of Henke and Huston for personal gain. It put at risk about $4.5 million of Commonwealth revenue. The criminal conspiracy involved elaborate attempts at concealment and disguise. Two of the conspirators were accountants who must have understood the gravity of their criminal misconduct. The third (Henke) was a registered tax agent. Such persons, more than most, must know of the need for taxing statutes to be applied uniformly according to their terms, and the consequences of subverting their uniform application. The effect of evading taxation liability is to deprive the community of revenue needed to provide government services and to impose an unfair burden on those who act honestly.

Sentences in these cases must do more than pay lip service to the need for general deterrence. They must be effective deterrents, and address the reality that conspiracy to evade tax is a form of corruption which has an insidious corroding effect on society. They must as well vindicate honest taxpayers.

The sentencing discretion miscarried and must be re-exercised. The seriousness of the offending, and an analysis of the closest comparable cases, Pearce and Hargraves & Stoten show that a sentence in excess of five years’ imprisonment in the case of Henke and Houston was called for. The scheme was more elaborate, and at least in appearance, more sophisticated than what was attempted in those comparable cases. The amount of revenue put at risk was substantially greater than in Hargraves & Stoten. The amount potentially at risk in Pearce was very much larger but the amount lost was not much more than the loss the respondents’ occasioned to their clients. The criminal histories of Henke and Huston is also relevant as showing some propensity to dishonesty and a reluctance to learn from the consequences of past misconduct.

Henke was clearly the instigator and prime mover of the scheme. He devised it and actively promoted it through his agents Miller and Northam. He did so for personal gain. In his case a sentence of seven years’ imprisonment would have been appropriate but his personal circumstances of age and ill health are not to be entirely disregarded. Accordingly, the sentence should be one of six years’ imprisonment.

Huston’s offending calls for a sentence of six years’ imprisonment. It involved slightly less criminality than Henke’s and his reward was less though still substantial. He, however, does not have any compelling personal circumstances of mitigation.

Fox’s offending was less serious than the others. He received no personal reward for his part in the conspiracy though no doubt sought to enhance his professional relationship with wealthy clients. The period in which he was personally involved in the conspiracy was relatively brief, about six months. His level of co-operation with the investigating authorities was greater. His sentence should be one of five years’ imprisonment.

The fixing of a non-parole period is always difficult. There is no “convention” or “norm”. The length of time spent in actual custody is an important aspect of the deterrence intended by the sentences. That requirement means that a non-parole period of less than half the term of imprisonment in each case would be ineffective.

The orders should be:

In CA No 97 of 2011 the appeal should be allowed, and the sentence imposed on Huston be set aside and instead he be sentenced to a term of six years’ imprisonment with a non-parole period of three years.

In CA No 99 of 2011 the appeal should be allowed, and the sentence imposed on Henke should be set aside and instead he should be sentenced to a term of six years’ imprisonment with a non-parole period of three years.

In CA No 98 of 2011 the appeal should be allowed and the sentence imposed on Fox should be set aside and instead he should be sentenced to a term of five years’ imprisonment with a non-parole period of two years and six months’ imprisonment.

In each case the five days spent in custody prior to sentencing should be declared as time served under the sentences.

Henke’s appeal against sentence should be dismissed.