R (Cth) v Petroulias

Crimes Act 1914 (Cth) LEGISLATION CITED : Evidence Act 1995 Income Tax Assessment Act 1936 (Cth)

R v Petroulias (2005) 62 NSWLR 663 R (Cth) v Petroulias (No. 1) [2006] NSWSC 788 Petroulias v R (Cth) [2006] NSWCCA 415 Petroulias v The Queen [2007] HCA Trans 92 Essenbourne Pty Limited v Commissioner of Taxation [2002] FCA 1577 Walstern Pty Limited v Commissioner of Taxation [2003] FCA 1428 Spotlight Stores Pty Limited v Commissioner of Taxation [2004] FCA 650 CASES CITED : Pridecraft Pty Limited v Commissioner of Taxation [2004] FCAFC 339 Caelli Constructions (Vic) Pty Limited v Commissioner of Taxation [2005] FCA 1467 Commissioner of Taxation v Indooroopilly Children Services (Qld) Pty Limited [2007] FCAFC 16 Doney v The Queen [1990] 171 CLR 207 Harris v Commissioner of Taxation [2002] FCAFC 226 Prebble v Commissioner of Taxation [2003] FCAFC 165 Kajewski v Commissioner of Taxation [2003] FCA 258 Cameron Brae Pty Limited v Commissioner of Taxation [2006] FCA 918

PARTIES : Regina (Commonwealth) (Crown) Nikytas Nicholas Petroulias (Accused)

COUNSEL : Mr P Hastings QC (Crown) Mr R Sutherland SC (Accused)

SOLICITORS : Commonwealth Director of Public Prosecutions (Crown) Coadys (Accused)

IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION CRIMINAL LIST

2002/93 Regina (Cth) v Nikytas Nicholas Petroulias (No. 28)

JUDGMENT (On objection by Accused to tender by Crown of certain decisions of the Federal Court of Australia - See T1805) 1 JOHNSON J: Objection is taken on behalf of the Accused to the tender by the Crown of four decisions of the Federal Court of Australia. That the tender of decisions of a Court is happening at all in a criminal trial before a jury is but one indicator of the unusual nature of the present trial. 2 The Accused is standing trial upon an indictment alleging the following offences:

(a) one count of defrauding the Commonwealth contrary to s.29D Crimes Act 1914 (Cth) ;

(b) one count of agreeing to receive a benefit on an understanding that the exercise by him of his duty as a Commonwealth officer would be affected, contrary to s.73 Crimes Act 1914 (Cth) ; and

(c) one count of publishing to a person to whom he was not authorised to publish, documents which came into his possession by virtue of him being a Commonwealth officer and which it was his duty not to disclose, an offence under s.70 Crimes Act 1914 (Cth) . 3 In a number of decisions of the Court of Appeal and the Court of Criminal Appeal, detailed attention has been given to the element of deprivation which the Crown must prove as part of the fraud count. See, in particular, the judgment of the Court of Criminal Appeal in R v Petroulias (2005) 62 NSWLR 663 at 667-671 [11]-[20], [27]-[29]. An argument that the Crown was foredoomed to fail on the fraud count, with respect to the element of deprivation, was rejected by me in R (Cth) v Petroulias (No. 1) [2006] NSWSC 788 at [100]-[174]. Leave to appeal from that decision was refused by the Court of Criminal Appeal: Petroulias v R (Cth) [2006] NSWCCA 415. The High Court of Australia refused special leave to appeal from the decision of the Court of Criminal Appeal: Petroulias v The Queen [2007] HCA Trans 92.

Federal Court Decisions Tendered by Accused 4 The Accused proposes to tender, without objection from the Crown, the following decisions of the Federal Court of Australia:

(a) Essenbourne Pty Limited v Commissioner of Taxation [2002] FCA 1577;

(b) Walstern Pty Limited v Commissioner of Taxation [2003] FCA 1428;

(c) Spotlight Stores Pty Limited v Commissioner of Taxation [2004] FCA 650;

(d) Pridecraft Pty Limited v Commissioner of Taxation [2004] FCAFC 339;

(e) Caelli Constructions (Vic) Pty Limited v Commissioner of Taxation [2005] FCA 1467;

(f) Commissioner of Taxation v Indooroopilly Children Services (Qld) Pty Limited [2007] FCAFC 16. 5 It is submitted for the Accused, and the Crown accepts, that these six decisions of the Federal Court of Australia are relevant to facts in issue in the present trial.

The Element of Deprivation in this Case 6 To prove the element of deprivation, it is necessary for the Crown to prove that the Commissioner of Taxation had an arguable case to put that the private binding rulings or advance opinions were wrong and, accordingly, that the risk to the revenue was such that the Commonwealth was deprived of something of value: R v Petroulias at 667 [11]. It is an issue of law for me, as the trial Judge, to determine whether the arguable case was capable of success in the sense explained by Spigelman CJ and Hunt AJA in R v Petroulias at 667 [12]. If this issue arises at the close of the Crown case, it will fall to be determined in accordance with the principles in Doney v The Queen [1990] 171 CLR 207 at 214-215. 7 If the fraud count is left to the jury, then in accordance with the judgment of Spigelman CJ and Hunt AJA at 668 [14], despite its obvious legal character, the arguable case issue is a fact in issue in the trial involving the element of deprivation, and is to be determined by the jury. In the joint judgment of Spigelman CJ and Hunt AJA, the approach to be taken by a jury with respect to this issue was expressed in the following way at 667 [13]: "An arguable case is (by definition) a case which is supported by an argument which is plausible or apparently reasonable on its face. A plausible or apparently reasonable argument is one which can be reasoned logically from one step to the next step to its conclusion. It is not the function of the relevant tribunal to determine whether either the Commissioner's argument or the taxpayer's argument is correct, or even which is the more plausible or the more apparently reasonable argument. It may be that each of those parties has an arguable case. That is not unusual in litigation. Even though the taxpayer may have an arguable case, it does not mean that the relevant tribunal may not be satisfied beyond reasonable doubt that the Commissioner also has an arguable case. If so satisfied that the Commissioner has an arguable case, the relevant tribunal has resolved the issue posed by a second category fraud case, subject to the mens rea component identified in para 3, supra." 8 After referring to the directions to be given to the jury concerning the arguable case issue, Spigelman CJ and Hunt AJA stated at 668-669 [18]-[19]: "The issue for the jury to determine is whether or not the arguments propounded on either of the two issues identified in the previous paragraph are of sufficient strength to justify the conclusion beyond reasonable doubt that the Commonwealth was in fact deprived of something of value by reason of the issue of the private rulings. It should be noted that the Commonwealth's case in this regard could be made out if the members of the jury determined that the Crown case was of sufficient strength on either the fringe benefits tax issue or the deductibility issue. It would not be necessary for jurors to be unanimous as to which of the two were of such strength.

The approach to be taken, already identified in para 13, supra, will constitute the basis for the directions to be given to the jury. It would not be appropriate for the trial judge to direct the jury that, depending on the view they have formed of certain factual matters, the Australian Tax Office did lose something of value - or even that the rulings did put the revenue of the Commonwealth at risk. Such a direction may well be subject to various permutations and combinations of the factual matters, and the direction could lead to confusion. The more usual form of directions to a jury - and the infinitely safer one - is to define the issue which the jury must determine, then explain to them the arguments of both parties in relation to the relevant factual material, and finally conclude that, if the Crown has satisfied them that it has established that particular issue, they may move on to the next issue." 9 With respect to the nature of admissible evidence on the arguable case issue, their Honours observed at 670-671 [27]: "Related to this issue as to whether the decision is one for the judge or the jury is the admissibility of evidence upon which the decision is to be based. In our opinion, but subject to the Crown being permitted to enlarge its particulars in the light of the decision now given by the Court of Criminal Appeal, there is no bar to the admission of relevant statements by courts or others as to the interpretation of these provisions merely because they may have come into existence after the time when the private rulings were made. What the law was at that time is an objective matter which the Crown must prove. That objective fact has nothing to do with any state of mind on the part of the accused which may be relevant to his mens rea. There is therefore no need to restrict the admissible material to material which was in existence at that relevant time. The issue as to what the law was at the relevant time may be proved by reference to what has since been held to be the law, provided that there has been no change in the relevant statutory provisions in the meantime. It is presumed to have been the law all along." 10 In a separate judgment, Mason P dissented upon the question whether the arguable case issue was one for the trial Judge or the jury. Mason P held that the arguable case issue was a matter of law, as part of a mixed question of fact and law, which the trial Judge ought determine: R v Petroulias at 691-693 [125]-[134]. 11 A number of the Federal Court decisions referred to at paragraph 4 above were adverted to by Mason P in R v Petroulias at 679 [61]-[62], 691 [125], 693 [137] and 694-697 [140]-[149].

Federal Court Decisions Tendered by the Crown 12 The judgments tendered by the Crown, and objected to by the Accused, are as follows:

(a) Harris v Commissioner of Taxation [2002] FCAFC 226;

(b) Prebble v Commissioner of Taxation [2003] FCAFC 165;

(c) Kajewski v Commissioner of Taxation [2003] FCA 258;

(d) Cameron Brae Pty Limited v Commissioner of Taxation [2006] FCA 918.

The Relevance Test 13 Evidence is relevant in a proceeding if it is evidence that, if accepted, could rationally affect (directly or indirectly) the assessment of the probability of the existence of a fact in issue in the proceeding: s.55 Evidence Act 1995. Except as otherwise provided by the Act, evidence that is relevant in a proceeding is admissible in the proceeding: s.56(1) Evidence Act 1995. 14 I approach the question of relevance on the basis that there is not said to be a decision of the Federal Court of Australia dealing expressly with an arrangement directly under consideration in this trial. In tendering the six decisions listed in paragraph 4 above, the Accused seeks to open up a broad category of defence as to the way in which the fringe benefits tax and deductibility issues have been treated in the Federal Court of Australia. I anticipate that arguments will be advanced for the Accused which seek to demonstrate that the six Federal Court decisions listed in paragraph 4 bear upon the arguable case issue forming part of the element of deprivation. This will likely involve a process of examination of the six decisions to ascertain whether they are distinguishable in fact or law, and whether they shed light upon the arguable case issue. 15 I approach the objection as to relevance of the four decisions tendered by the Crown, bearing in mind that there will be questions of fact and degree in determining the extent of assistance of particular decisions to the jury in this trial. The question of relevance is to be considered by reference to the fringe benefits tax and/or deductibility issues relied upon by the Crown in the trial. 16 In approaching these objections, I bear in mind the range and variety of the 75 advance opinions and private binding rulings contained in Exhibit C95 and summarised in the schedule (Exhibit C94). The question of relevance is not be approached by reference only to the set of Federal Court decisions which the Accused seeks to tender and which is listed at paragraph 4 above. Rather, the test of relevance involves consideration of the fringe benefits tax and deductibility issues in the context of the range of arrangements identified in the advance opinions and private binding rulings contained in Exhibit C95.

The Harris and Prebble Decisions 17 Mr Sutherland SC, for the Accused, objects to the tender of the Harris and Prebble decisions upon a number of bases, including relevance. His submissions are recorded in the transcript (T1768, 1788-1793, 1804) and need not be reproduced in this judgment. The submission contends that the decisions relate to circumstances which are so different to the facts in issue in the present trial that they do not satisfy the relevance test. He submits that the Crown, in tendering these cases, seeks to advance a case not previously put by the Crown. It is submitted that the tender of these decisions cannot be seen as a reaction by the Crown to the tender of the six Federal Court decisions relied upon by the Accused. He submits that the deductibility question in Harris and Prebble involved the construction and application of s.82AAE Income Tax Assessment Act 1936 (Cth), a provision which is not under consideration in this trial. Accordingly, Mr Sutherland SC submits that these decisions ought not be admitted into evidence. 18 The Crown submits that these decisions are relevant with respect to the deductibility and fringe benefits tax issues which have been part of the Crown case throughout with respect to the fraud count. The Crown submits that both Harris and Prebble deal with non-complying superannuation fund arrangements for employee benefits and, in both cases, the Courts ruled that deductions were not allowable primarily because of the link between the employer/controller of the fund and the beneficiary. The Crown submits that these characteristics are to be found in the Productivity Incentive Corporation non-complying superannuation fund and, accordingly, the decisions provide guidance in ascertaining whether the contrary argument is arguable given the arguments accepted by the Full Court by the Federal Court of Australia in each case. 19 I have read these decisions for the purpose of the present ruling. Having done so, I am satisfied that each decision is relevant and admissible having regard to the statutory test in ss.55-56 of the Act. I accept the Crown submissions with respect to these decisions. I am not satisfied that there is any unfairness to the Accused in the tender of these decisions, nor that the Crown is in some way changing its case. I accept that the question of deductibility under consideration in these cases arose under a different statute to that directly relevant to this trial. Nevertheless, the concept of deductibility under consideration in these cases is sufficiently relevant to warrant their admissibility in the trial. The weight to be given to these decisions for the purpose of determining the issues in the trial will be a matter for the jury. I am satisfied, however, that each decision is admissible.

The Kajewski Decision 20 Mr Sutherland SC submits that the Kajewski decision is irrelevant. He contends that the facts are far removed from the circumstances under consideration in this trial. 21 The Crown submits that Kajewski considered an employee benefit trust arrangement. The Crown submits that the decision is relevant as no deduction was held to be allowable. The Crown submits that Kajewski is also relevant as an example as a mass-marketed scheme being implemented. 22 I have read the decision in Kajewski and have given careful consideration to the submissions made concerning its admissibility. As observed earlier, there will be questions of fact and degree as to the extent to which a particular decision may assist the jury in the determination of the arguable case issue as part of the element of deprivation. I am satisfied that the decision in Kajewski satisfies the statutory test of relevance and I propose to admit the decision.

The Cameron Brae Decision 23 Senior Counsel for the Accused submits again that this decision is not relevant. The Crown submits that Cameron Brae involves an employee benefit trust of a superannuation type, where Ryan J followed Essenbourne on the deductibility and fringe benefit tax issues. The deduction was disallowed. Ryan J adverted to Essenbourne, Walstern, Spotlight Stores, Pridecraft and Caelli Constructions, all being cases tendered by the Accused. 24 Having read Cameron Brae, I am satisfied that the decision is relevant to the issues of deductibility and fringe benefits tax. The decision ought be admitted.

Some General Observations 25 In approaching the question of admissibility of each of these decisions, I have also had regard to the Crown submissions that the decisions would provide the jury with examples of the unbridled ability of the Commissioner of Taxation to advance arguments in circumstances where private binding rulings had not been given. It also seems to me that the six decisions tendered by the Accused and the four decisions tendered by the Crown will assist the jury in understanding the manner in which arguments concerning these matters are advanced, considered and determined (in these cases at least) by the Federal Court of Australia. This may be relevant to the concept of arguable case, about which the jury will receive directions from me in due course. 26 In summary, I am satisfied that the four Federal Court decisions tendered by the Crown are relevant and admissible. I overrule the defence objection to their tender.

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