Regina v Iannelli

LOWER COURT District Court JURISDICTION : LOWER COURT 01/41/0196 FILE NUMBER(S) : LOWER COURT Hosking DCJ JUDICIAL OFFICER :

IN THE COURT OF CRIMINAL APPEAL 60385/02

HANDLEY JA SIMPSON J BELL J

Wednesday 26 February 2003 REGINA v Rachel Lorna IANNELLI Judgment

1 HANDLEY JA: The appellant stood trial before Hosking DCJ and a jury on two counts of being knowingly concerned in the commission by two companies of the offence of defrauding the Commonwealth contrary to s 29D of the Crimes Act 1914: "by failing to pay tax instalment deductions to the Commissioner of Taxation". She has appealed to this Court from her convictions on both counts. 2 The facts and the relevant provisions of the income tax legislation are set out in the reasons for judgment of Bell J, which I gratefully adopt. The principal submission for the appellant was that the charges were misconceived because the evidence did not disclose offences against the section. 3 The appellant was a director of and the sole shareholder in the two companies which she controlled for all purposes relevant to these appeals. If each company committed the offence of defrauding the Commonwealth she was knowingly concerned in its commission. There was no dispute that the first company deducted tax instalments (group tax) from the wages of its employees between 1 April 1994 and 1 December 1999 and the second between 1 July 1993 and 1 December 1999, which they did not remit or remit in full to the Commissioner. The real issue was whether the companies "defrauded the Commonwealth" by failing to pay group tax. 4 When group tax is deducted from wages payable to employees the employer incurs a debt to the Commissioner payable at the times specified in the legislation. The debt is an ordinary unsecured debt and the Commissioner enjoys no priority and has no legal or equitable interest in the assets of the employer. 5 The counts baldly allege that the Commonwealth as creditor was defrauded by the debtor's failure to pay the debt. The concept that defrauding can occur as a result of a mere omission raises immediate doubts which are not removed on closer examination. 6 The joint judgment of Gaudron, McHugh, Gummow and Hayne JJ in Spies v The Queen (2000) 201 CLR 603 provides authoritative guidance on the elements of an offence of defrauding another. Deceit is not a necessary element (ibid 630). "Nevertheless to prove a defrauding the prosecution must establish that the accused used 'dishonest means' to achieve his or her object" (630) (emphasis supplied). "This is an essential element in a defrauding offence" (633). The joint judgment quoted (630-1) from the judgment of Toohey and Gaudron JJ in Peters v The Queen (1998) 192 CLR 493, 503: "Ordinarily ... fraud involves the intentional creation of a situation in which one person deprives another of money or property or puts the money or property of that other person at risk or prejudicially affects that person in relation to 'some lawful right, interest, opportunity or advantage' knowing that he or she has no right to deprive that person of that money or property or to prejudice his or her interests". 7 The joint judgment in Spies quoted (631) from the judgment of McHugh J in Peters (ibid 529): "In most cases of conspiracy to defraud, to prove dishonest means the Crown will have to establish that the defendants intended to prejudice another person's rights or interest or performance of public duty by: . making or taking advantage of representations or promises which they knew were false or would not be carried out; . concealing facts which they had a duty to disclose; or . engaging in conduct which they had no right to engage in". 8 In Wellham v DPP [1961] AC 103, 123 Lord Radcliffe said of defrauding in a passage quoted in the joint judgment in Spies at 633-4: "It requires a person as its object: that is, defrauding involves doing something to someone. Although in the nature of things it is almost invariably associated with the obtaining of an advantage for the person who commits the fraud, it is the effect upon the person who is the object of the fraud that ultimately determines its meaning". (emphasis supplied) 9 The joint judgment in Spies concluded, relevantly, (635): "... when there is a charge of defrauding, ... what is required is an actual obtaining of property or of depriving the person defrauded of something which is regarded as belonging to him or her ...The appellant had no relevant dealings with the creditors and obtained no property of any creditor. Nor did he alter their legal rights. It is not enough to constitute 'defrauding' that an accused has acted dishonestly or that his or her dishonest conduct has had an effect on creditors". 10 Spies therefore makes it quite clear that "dishonest means" are an essential element of an offence of defrauding, and that such means must "deprive the person defrauded" of some property, right, interest or advantage. 11 McHugh J in the passage from Peters, quoted in the joint judgment in Spies [par 7], lists examples of dishonest means all of which involve active steps on the part of the fraudster to prejudice the victim. These included making or taking advantage of false representations or dishonest promises, engaging in conduct which the fraudster had no right to engage in, or concealing facts which he or she had a duty to disclose. It might appear that a mere omission could constitute conduct of the latter kind but further consideration demonstrates that this is not the case. 12 In Peters the conspiracy to defraud the Commonwealth involved sham transactions for the purpose of disguising assessable income of one of the conspirators. The fraud became complete when that conspirator failed to report the income in his tax return. This omission in a return which should have disclosed all the taxpayer's assessable income involved concealment and its half truths were fraudulent misrepresentations. Spencer Bower, Turner and Handley "Actionable Misrepresentation" 2000, pp 45-9. See also R v Kylsant [1932] 1 KB 442 where omissions made a prospectus false and misleading although it contained no positive untruth. In Peters the conspirators intended the Commissioner to act on the return when issuing his assessment and he did so. 13 In Adams v The Queen [1995] 1 WLR 52, referred to by McHugh J in Peters [ibid 530], the Privy Council upheld convictions of company directors for conspiracy to defraud where they had concealed their interest in assets purchased by the company and the secret profits they earned as a result. Lord Jauncey said at 65: "Since a company is entitled to recover from directors secret profits made by them at the company's expense ... any dishonest agreement by directors to impede a company in the exercise of its right of recovery would constitute a conspiracy to defraud. In their Lordships' view a person can be guilty of fraud when he dishonestly conceals information from another which he was under a duty to disclose to that other or which that other was entitled to require him to disclose". 14 In the present case, for reasons given later, there was, in my opinion, no evidence that the companies made any false or misleading statements to the Commissioner, or concealed their failures to pay, or that the Commissioner was deceived. The charges in the indictment were based on the bare fact of non payment (as a matter of law in breach of statutory duty) by Dromore Fresh Produce Pty Ltd (Dromore) of $556,027 between April 1994 and December 1999 and by Iannelli Freight Pty Ltd (Freight) of $61,301 between July 1993 and December 1999. 15 Dromore made a number of payments of group tax between 1993 and 1995, and none thereafter. The trial was conducted on the basis that Freight made no payments but Ex U, which details its liability for group tax, shows no debts for July and August 1994. This matter was not explored. The companies had no overdraft facilities (145) but from time to time each had enough funds in its bank account to pay its current group tax and part of the arrears, but the funds were used to pay other creditors. There was no evidence that the recipients were not genuine creditors whose debts were payable. The payment of a genuine creditor is not a fraud on other creditors who are not paid although it may be a voidable preference if an insolvent administration should supervene. 16 Lord Mansfield developed the principle that where a debtor paid a creditor on the eve of his bankruptcy with the intention of preferring that creditor over others the transaction was void as a fraud on the bankruptcy laws. Alderson v Temple (1768) 4 Burr 2235, 2240 [98 ER 165, 168]; Thompson v Freeman (1786) 1 T.R. 155, 157 [99 ER 1026, 1028]. 17 Australian insolvency laws have for a long time provided for the avoidance of de facto preferences not just fraudulent preferences. 18 A fraudulent preference must be a voluntary act of the debtor and payments to creditors under legal or commercial necessity are not voluntary for this purpose. Sharpe v Jackson [1899] AC 419, 422-5. There is no evidence that any of the payments to other creditors were voluntary in this sense and as such fraudulent preferences. Thus the use of available funds to pay other creditors did not constitute dishonest means for present purposes even if a fraudulent preference was capable of satisfying this requirement. 19 The appellant may have caused the companies to continue trading after they became insolvent but that also cannot be dishonest means for present purposes and the Crown case was not conducted on that basis. In Hardie v Hanson (1960) 105 CLR 451 the High Court reversed a judgment of the Supreme Court of Western Australia that a director had carried on a company's business with intent to defraud its creditors. The High Court held that the fact that a company continues to trade, to obtain goods on credit, and to incur other liabilities without any reasonable prospect of being able to pay for them does not, of itself, show that the directors carried on the business with intent to defraud creditors. The intent to defraud must be real and a constructive, imputed or implied intent was not sufficient. 20 These convictions therefore depend essentially on omissions. Criminal liability for mere omissions in Anglo-Australian law is exceptional unless it has been expressly imposed by statute. Glanville Williams "Criminal Law - The General Part" (1961) states at pp 3-5: "In some instances a omission will create criminal responsibility without any positive act ... In law, as in morals, the concept of culpable omission presupposes a duty to act; and a rule penalising an omission must state to whom this duty belongs ... the criminal law does not impose a duty upon someone to act to prevent a consequence whenever it imposes a duty not to bring about the consequence. The law relating to omissions is not co-extensive with the law relating to acts. It is partly coincident in manslaughter and murder, but here the event of death leads the law to look upon the omission with special severity. Most crimes, particularly those at common law, are defined to need a positive act ...". 21 "Halsbury's Laws of England" 4th ed Criminal Law vol 11 p 15 is to the same effect: "As a rule the criminal law imposes no obligation on persons to act so as to prevent the occurrence of harm or wrongdoing. There is no general duty to prevent the commission of crime; nor does a person commit a crime or become a party to it solely because he might reasonably have prevented its commission. Omission to act in a particular way will give rise to criminal liability only when a duty so to act arises at common law or is imposed by statute. Such a duty is exceptional and the criminal law does not ordinarily require a man to be his brother's keeper". 22 Criminal responsibility for omissions can occur where the accused has, or has accepted, the duty of looking after another, such as an infant, or an invalid, who is not able to look after himself or herself and that person dies or suffers injury through neglect of that duty. Compare Glazebrook "Criminal Omissions : The Duty Requirement in Offences Against the Person" (1960) 76 LQR 386 and Ashworth "The Scope of Criminal Liability for Omissions" (1989) 105 LQR 424. 23 In my judgment a bare omission cannot constitute "dishonest means" for the purposes of the crime of defrauding another. Criminal responsibility in such cases depends on proof of the use of active steps to "achieve his or her object" [par 6] of defrauding the victim. 24 Simpson J has concluded that there was evidence that the appellant intended to use dishonest means to prejudice the Commonwealth's economic interests which would entitle a jury to convict and would therefore order a new trial. With respect I am unable to agree. 25 The group certificates issued to employees of the companies at the end of the relevant fiscal years set out the wages paid and the tax deducted in accordance with ss 222F(5), Exs (5A), (5B) and (5D). The companies were obliged by s 221F (5) (f) no later than 14 August each year to furnish to the Commissioner copies of the group certificates and a statement reconciling the total deductions on the group certificates with the amounts paid to the Commissioner. 26 Dromore was incorporated in 1992, probably as a shelf company, and the appellant became a director in September 1993. On 22 September 1993 it applied for registration as a group employer (374) which was granted with effect from 1 September. The company remitted group tax until April 1994 (ex F) and payments for the 1994 fiscal year totalled some $47,000 (50). No payments were then made until November but after that were made until May 1995. No further payments were made until the Tax Department investigation commenced. 27 Mr Lane, the tax investigator who audited these companies, said that Dromore sent copies of its group certificates to the Tax Office (16). He did not say that the company failed to submit reconciliations as required by s 221 F (5) (f) (ii). The appellant was asked about the reconciliations in her interview but it was not suggested to her that they had not been lodged. 28 Mr Lane believed that Freight was not registered as a group employer and was thus bound until 1995 to pay its group tax by purchasing tax stamps (45). The law was changed in 1995 to oblige non group employers to periodically remit group tax to the Commissioner direct (45). Freight was in fact registered as a group employer as from 1 October 1991 (73, 82, 134, Exs 1 and 2) although it had no employees until 1993 (85, 135, 464). 29 Mr Lane had been unable to discover this registration in the Department's records (73) and had also been unable to discover any group certificates or reconciliations from Freight (46). However he agreed in cross-examination that if the registration of Freight as a group employer was genuine its group certificates "are with the ATO somewhere" (73). Moreover Ex W shows that the appellant's personal return for the 1994 year was accompanied by a group certificate from Freight showing a credit for $12,766 tax deducted by that company. The company could only have obtained that group certificate from documents supplied to it by the Commissioner on the basis that it was a group employer. 30 The accused said she had sent in "her" paperwork and group certificates to the Department (194). This was correct in the case of Dromore, as Mr Lane accepted (32). On the above evidence the jury could not have been satisfied beyond reasonable doubt that it was not also true in the case of Freight. 31 The reconciliations and copy group certificates sent by Dromore to the Department should have revealed its true position with respect to unpaid group tax. Copies of those reconciliations and group certificates were obtained by the Department from Dromore pursuant to notices under s 264 of the Income Tax Assessment Act and following their return to the company, when search warrants were executed by the Federal Police. They are not in evidence. There was no evidence that they contained any misrepresentation or fraudulent concealment, or that the Department was induced by them to act, or refrain from acting, to its financial prejudice. 32 Copies of the reconciliations retained by Freight were available to the Commissioner prior to the trial as a result of their seizure by the Federal Police. They were not in evidence. There was no evidence that they contained any misrepresentation or fraudulent concealment, or that the Department was induced by them to act, or refrain from acting, to its financial prejudice. 33 Section 221H (1) requires employees to forward their group certificates to the Commissioner with their return. Under sub s (2) the employee is entitled to credit against his or her tax for the amount of the group tax shown in any group certificate whether or not the employer has paid the group tax to the Commissioner. The risk of non payment falls wholly on the Commissioner. 34 The Crown proved that the appellant lodged her personal income tax returns for the relevant years, together with group certificates issued by Dromore and Freight for the group tax those companies had deducted. The credits claimed in group certificates attached to her returns were shown on Ex W (469). The appellant was lawfully entitled to those credits although the companies had not remitted, or fully remitted, the group tax. 35 An employee who annexes group certificates to his or her return makes no representation that the employer has paid the group tax to the Commissioner. The only representation is that the tax has been deducted. A representation must be found, if at all, in what is communicated to the representee. The representor's knowledge, as such, is not part of the representation. Thus if other employees made no representation in their returns that the companies had paid the group tax, neither did the appellant. All the returns would relevantly have been in the same form. 36 Although the appellant's tax returns were not exercises in good citizenship they contained no relevant fraudulent misrepresentation or non disclosure and the Crown did not establish that they deprived the Commonwealth of the group tax or put its right to that tax at risk. See Wai-Yu Tsang v The Queen [1992] 1 AC 269, Peters v The Queen (1998) 192 CLR 493, 525. There was no evidence on which the jury could have found that the Department was induced by them to act or refrain from acting to its financial prejudice in relation to group tax or that there was any other causal nexus. They did not constitute fraudulent means for present purposes. 37 The principal offences were charged as having been committed by the companies, not by the appellant who was charged as an accessory. Therefore any fraudulent means used to defraud the Commissioner had to be means used by the companies, their servants and agents. The appellant did not act on behalf of the companies when she lodged her personal tax returns, and in any event they could not constitute fraudulent means used by the companies. 38 The Crown proved that the companies claimed tax deductions in their returns for the gross earnings of their employees although the group tax component had not been paid or paid in full to the Commissioner. The companies' returns were correct because each had incurred an immediate obligation to pay the unremitted group tax to the Commissioner, and was entitled under s 51 of the Income Tax Assessment Act then in force to those deductions although the group tax had not been paid or paid in full. See generally Coles Myer Finance Ltd v Federal Commissioner of Taxation (1993) 176 CLR 640, 661-3 per Mason CJ, Brennan, Dawson, Toohey and Gaudron JJ. 39 Thus the companies' returns contained no fraudulent misrepresentation or non disclosure and in any event the Crown did not establish that they deprived the Commonwealth of the group tax or put its right to that tax at risk. There was no evidence that the Department was induced by these returns to act or refrain from acting to its financial prejudice in respect of the unremitted group tax or that there was any other relevant causal nexus. The company returns could not constitute dishonest means for present purposes. 40 In R v Walters [2002] NSW CCA 291 this Court upheld convictions of the appellant for being knowingly concerned in offences by ten companies between January 1989 and May 1998 in defrauding the Commonwealth of group tax amounting to some $7.3 million. The Crown case was that the income of the companies had been used to pay the personal expenses of the accused in maintaining an extravagant lifestyle. The figures for such personal expenditure varied between 69% and 100% of the income of the first nine companies and the figure for the tenth was 46%. The appellant had in this way stripped the companies of available funds in the knowledge and with the intent of depriving the Commonwealth of the tax. 41 Although the Crown case at this trial was not conducted on that basis there was evidence that the appellant or another company she controlled had acquired substantial assets during the period covered by the charges. Cantrala Pty Limited purchased the Dromore property from K E Finance which had lent money to the appellant and her husband in 1987 to enable them to purchase the property (131). The husband went bankrupt in 1991 and the appellant arranged to lease the Dromore property from the finance company at a yearly rent of $240,000 (131). 42 Cantrala Pty Limited purchased the Dromore property in 1995 borrowing $2 million for the purpose at 11% interest (142). Although the annual interest bill was $220,000 this was still less than the rent of $240,000 that "they" had previously been paying (136). The company later purchased some adjacent land (169) but there was no evidence of the price paid or the source of funds used for the purchase. 43 The appellant agreed in cross-examination that "she" had paid more than $500,000 in interest between 1995 and 1998 on the mortgage over the Dromore property. She also agreed that the unremitted group tax for these companies during that period was about $500,000 and that Dromore supplied the labour to work the property (170). 44 The appellant also agreed in cross-examination that she purchased a house in Chapman, Canberra, from her brother-in-law in 1995 for about $443,000. The property, which had formerly been her matrimonial home, was leased to the High Commissioner for Cyprus for a term of 5 years and the rent was used to pay off the mortgage of $360,000 (181-3). She funded the difference from her own resources but had no "deposits of cash" available to her and said that she thought the house was funded right to the maximum and she did not have to put much in there at all (183-4). 45 The bank statements of the two companies for the relevant periods were in evidence (Exs N and BB). Dromore's cheque butts were produced to the Tax Department (24) and the cheque butts of both companies were seized by the Federal Police under search warrants (44). 46 The Crown made no attempt to establish that the funds used to make up the difference between the mortgage on the Chapman property and the purchase price, or to make the rent and interest payments on the Dromore property, came from these companies. In particular there was no evidence that these payments came from the companies' bank accounts. If the rent and interest cheques for the Dromore property were paid from these accounts one would have expected the Crown to prove this. 47 There was no evidence of the actual purchase price for the Dromore property and thus no evidence of the amount (if any) which the purchaser then had to fund from its own resources and if so how and where the company obtained the necessary funds. There was also no evidence of the sources of funds available to the purchaser to make the interest payments under the mortgage and these matters were not explored with the appellant in her interview or in cross-examination. 48 The Crown's opening and closing addresses to the jury were not recorded, but the nature of the Crown case appears sufficiently from the summing-up. The Judge said (280-1): "... the Crown says that you will find that the accused did deprive the Commonwealth of money, or at least put its money at risk ... because she chose not to remit the group tax but rather used those monies to meet her own business expenses ... a person can be deprived of something by that thing being withheld even though the deprivation is not permanent ... by not remitting this tax for month after month and instead continuing trading, that created the risk that at any time the companies could fail financially with the result that the Commonwealth's tax to which it was entitled would have been lost". He continued (281): "Let me come to the second part ... this adoption of dishonest means to ... arrive at that result. This part ... is concerned with what the accused's intention was ... The Crown must prove that the accused acted, knowing she had no right to deprive the Commonwealth of the tax it was entitled to or to prejudice its interest therefore the Crown can prove this element of dishonesty if it can show that the accused intended to prejudice the rights of the Commissioner of Taxation". 49 The Judge did not properly direct the jury on the onus borne by the Crown of establishing that the accused had used dishonest means to defraud the Commonwealth of the group tax and that the mere failure to pay the tax coupled with payments to other creditors could not constitute the use of dishonest means for this purpose. 50 Almost at the very end of his summing-up the Judge referred, as it were in passing, to "the Crown's proposition that what Mrs Iannelli was doing was using this money to, in effect, build up her assets". For the reasons already given there was no evidence that "this money" had been used to build up the assets of the accused. His Honour did not identify "this" money, but if he intended to refer to the credit balances in the companies' bank accounts shown in Exs C and DD (470-475), there was no evidence that those funds had been used to build up the appellant's assets. The Crown had not conducted its case on the basis that those funds had been used by the appellant for her own purposes and there is no other reference in the 39 page summing-up to a Crown case of that kind. Indeed earlier at 301 the Judge had said in relation to Freight: "The Crown said that from July 1995 to June 1998 ... there were no remittances at all and that the company, and of course, Mrs Iannelli, had embarked upon a course by which the tax was not paid and the monies retained instead for company purposes". 51 A Crown case along the lines of the submission referred to was not within the charges in the indictment which simply alleged defrauding by failure to pay. By way of comparison the charges in Walters [par 40] alleged that the companies had defrauded the Commonwealth of the group tax without particularising the dishonest means that were used. 52 I conclude therefore that there was no evidence that the companies had used dishonest means to deprive the Commonwealth of the group tax, or to put its rights to that tax at risk, and that their failure to pay the tax cannot constitute dishonest means for this purpose. 53 A disturbing feature of the present case, which has been present in other recent cases in this Court and the Court of Appeal, has been the laxness of the Taxation Department during the relevant years in monitoring payments of group tax by employers and its failure to take prompt action when default occurred. The defaults by Dromore in this case could have been detected as soon as it failed to make a monthly payment on the due date. The defaults could also have been detected from documents lodged by it and by its employees after the end of the fiscal year. These matters were also a feature in the civil cases of DCT v George [2002] NSW CA 336 (September 1998-February 2000), DCT v Saunig [2002] NSW CA 390 (November 1996-March 1998) and in R v Walters [2002] NSW CCA 291 (January 1989-May 1998 involving ten different companies controlled by the accused). As Gzell J said in DCT v George, in a judgment concurred in by Giles JA and myself [par 33]: "It is incumbent upon the Commissioner to exercise his powers under Division 9 expeditiously for otherwise their exercise after the escalation of debts can have draconian consequences. An early sign of problems in a company is its living on the false reserves of non remitted PAYG withholdings. The Commissioner is in the position that he will have notice of a failure to remit. He should act then, when PAYG withholdings are relatively low and the directors' liabilities are correspondingly so". 54 I would allow the appeal and make the orders proposed by Bell J.

55 SIMPSON J: I have had the opportunity of reading in draft the judgment of Bell J. For the reasons given by her Honour, I agree that there was evidence to establish a defrauding of the Commonwealth in the sense that the money or property of the Commonwealth was put at risk. Accordingly, I agree that ground 1(a) should be rejected. I also agree that, in the circumstances of this case, the directions in respect of dishonesty were inadequate and that, therefore, ground 1(b) should be upheld. The consequence of that is that a new trial should be ordered. 56 With respect to ground 2, however, I respectfully disagree with her Honour's conclusion that it was not open to the jury to be satisfied beyond reasonable doubt that the appellant intended to use dishonest means to prejudice the Commonwealth's economic interests. I can state my reasons with relative brevity. In order to do so, it is necessary to refer briefly to the statutory scheme which provides for the payment and collection of income tax implemented by Part VI, Division 2 of the Income Tax Assessment Act 1936. Most of the provisions to which I refer have already been extracted in the judgment of Bell J, and it is unnecessary that I do more than restate their effect. 57 By s221C(1A), the employer company (whether Dromore Pty Ltd ("Dromore") or Iannelli Freight Pty Ltd ("Iannelli Pty Ltd")) was required, when paying employees, to make from the salary or wages of employees, deductions of amounts as prescribed by regulation. 58 By s221F(5)(a) Dromore, as a group employer, was required to pay to the Commissioner of Taxation ("the Commissioner") each month an amount representing the amount of the deductions so made, and by s221F(5)(b), (c) and (d), together with s221F(5A), (5B) and (5D), at the end of each financial year to issue a group certificate to each employee setting out the total of amounts paid as salary or wages, and the amounts of deductions made under s221C(1A). 59 By s221F(5)(f), Dromore was required to furnish to the Commissioner a copy of each group certificate, and a statement reconciling the total amounts of the deductions shown with the copies of the group certificates with the total amounts paid to the Commissioner in respect of the deductions. 60 Corresponding obligations were imposed by statute in relation to Iannelli Pty Ltd, which was not a group employer, and was therefore required to attend to the payment of tax instalments by the purchase of income tax stamps. 61 Of some significance is s221H. By subs(1) an employee is to include, in his/her annual income tax return required by s161, the group certificate issued by the employer. By subs(2), receipt by the Commissioner of the group certificate operates to entitle that employee to credit for tax in the amount shown on the certificate. The employee is entitled to this credit whether or not the deduction declared on the group certificate has in fact been translated into payment to the ATO. 62 Over a period of years the appellant caused both companies to provide group certificates to employees showing that the amounts prescribed by the regulation had been deducted. This was the literal truth. Theoretically, it represented compliance with s221C(1A). Nowhere on the group certificate was there any explicit declaration that the amounts shown to have been deducted had in fact been paid to the Commissioner in accordance with s221F(5)(a). The appellant also caused the companies to furnish to the Commissioner the reconciliation statement required by s221F(5)(f) showing the amounts of deductions made. These statements were not in evidence, but it appears to have been common ground that, as with the group certificates, they contained only statements that were the literal truth. That is, they stated that deductions at the prescribed rate had been made from the salary or wages of employees. They contained no explicit declaration that the deductions to which they attested had in fact been paid to the Commissioner. 63 There was, therefore, no express statement made by the appellant (on behalf of either company) that could be shown to have been false. However, in my opinion, when regard is had to the scheme under which income tax payments are to be made, it was open to a jury to find that the appellant represented, falsely, both to employees and to the Commissioner, that payments had been made. The representation was an implied one, but could, in my opinion, have been seen by a jury as dishonest. By reason of s221H the representations on the group certificates put the Commonwealth's economic interests at risk. 64 Further, Iannelli Pty Ltd at least, claimed, on its income tax returns, deductions for the gross wages said to have been paid to employees, even though employees had been paid only the amounts properly payable after the statutory deductions had been made, and those deductions had not been paid, as required, to the Commissioner. This, too, was, in my opinion, evidence of dishonesty. The appellant, through Iannelli Pty Ltd, was impliedly claiming that the payment had been made. She knew that was not true. The same applies to the appellant's own income tax return. She, as an employee, had been given group certificates indicating that deductions for tax had been made, and she accordingly claimed in her own returns, that tax had been paid on her behalf. She knew that deductions had been made, but she also knew that it was not true that those payments had been made to the Commissioner. By reason of s221H, she, like the other employees who, (unlike her) were ignorant of the truth, was entitled, by reason of the conclusive nature of the group certificates, to credit for taxation in the amounts shown on the group certificate. 65 There is, I recognise, a distinction to be drawn between proof of dishonest means in the perpetration of the fraud alleged, and proof of a dishonest state of mind. Evidence of the latter kind may shed some light on the evidence going to dishonest means. I incline to the view that the evidence of the plainly dishonest claims in the income tax returns of Iannelli Pty Ltd and of the appellant was evidence of the latter kind - that is, of a dishonest state of mind as distinct from evidence of dishonest means. But I remain of the view that the evidence of the issue of the group certificates, and the furnishing of the reconciliation statements, containing, by clear implication, false representations, was evidence that could establish to the satisfaction of a jury properly instructed that the appellant used dishonest means to defraud the Commonwealth. 66 Accordingly, I would reject ground 2, which, if upheld, would entitle the appellant to an acquittal. In my opinion the proper order for this court to make is that the convictions and sentences be set aside, and a new trial on each count be ordered.

67 BELL J: On 22 May 2002 the appellant was arraigned before his Honour Judge Hosking in the District Court at Queanbeyan on an indictment containing two counts charging her with the following offences: (i) that between 1 April 1994 and 1 December 1999 she was knowingly concerned in the commission of an offence by Dromore Fresh Produce Pty Limited ("Dromore") against a law of the Commonwealth, namely s 29D of the Crimes Act 1914, in that the company defrauded the Commonwealth by failing to pay tax instalment deductions to the Commissioner of Taxation;

(ii) between 1 July 1993 and 1 December 1999 she was knowingly concerned in the commission of an offence by Iannelli Freight Pty Limited ("Iannelli Freight") against a law of the Commonwealth, namely s 29D of the Crimes Act 1914, in that the company defrauded the Commonwealth by failing to pay tax instalment deductions to the Commissioner of Taxation. The appellant pleaded not guilty to both counts and stood her trial. On 29 May 2002 the jury returned verdicts convicting her on each count. 68 On 19 June 2002 she was sentenced on count one to a term of eight months imprisonment to be served by way of periodic detention with a direction that she be released on recognizance after six months conditioned that she be of good behaviour. In respect of the conviction of the offence charged in count two she was released on a recognizance to be of good behaviour. 69 The maximum penalty for an offence contrary to s 29D of the Crimes Act 1914 (Cth) ("the Act") was one of imprisonment for ten years and/or a fine of 1,000 penalty units. Grounds of Appeal

70 The appellant appeals against her conviction on the following grounds: 1 - Error of law, in that: (a) neither the amount of group tax deductions made by an employer, nor monies in the hands of the employer which could be applied to remit the amount of those deductions, is something of which the Commissioner of Taxation may be defrauded; (b) the trial judge failed to direct the jury that as well as establishing that the accused acted knowing that she had no right to deprive the Commonwealth of the money or to prejudice its interest, it was necessary also for the Crown to establish that she used dishonest means to achieve that end, and no such means were identified in the Crown case or in the summing-up nor open on the evidence. 2 - Miscarriage of justice, in that: The verdict of the jury was unreasonable and cannot be supported having regard to the evidence, and the jury ought to have entertained a reasonable doubt as to whether the appellant intended to deprive or prejudice the Commissioner in respect of group tax deductions.

71 The appellant and her husband were produce growers. Their business was conducted through Dromore and Iannelli Freight. It was not in issue at the trial that throughout the relevant period the appellant was the guiding mind of both companies.

72 Dromore was registered as a group employer under s 221F of the Income Tax Assessment Act 1936 ("the ITAA"). Throughout the period charged Dromore deducted sums from the salary and wages of its employees, as required by Part VI Division 2 of the ITAA ("group tax"), but largely failed to remit the amount of the deductions to the Commissioner of Taxation ("the Commissioner").

73 Iannelli Freight was not registered as a group employer. It did not employ ten or more employees and was not required to register as a group employer. As a non-group employer Iannelli Freight came within a different system initially involving the purchase of tax stamps in the amount of the deductions of group tax and later involving remitting the amount of the deductions to the Commissioner. Iannelli Freight deducted sums from the salary and wages of its employees as required by the ITAA but failed to purchase tax stamps or to remit the amount of the deductions on any occasion in the relevant period. The statutory scheme for the deduction of tax by employers from the salary and wages of employees

74 The provisions relating to the deduction of tax from the salary or wages of employees at source, as they applied in the relevant period are contained in Division 2 of Pt VI of the ITAA. It is appropriate to set out a number of those provisions: " 221C(1) [Regulations] For the purpose of enabling the collection by instalments from employees of income tax, the regulations may prescribe rates of deductions to be made by employers from payments of salary or wages that employees receive or are entitled to receive in respect of a week or part of a week. 221C(1A) [Deductions from pay] Where an employer pays to an employee salary or wages, the employer shall, at the time of paying the salary or wages, make a deduction from the salary or wages at such rate (if any) prescribed in accordance with ss (1) as is applicable. Penalty: $1,000. 221C(1B) [Courts power to order payment] Where a person (in this subsection referred to as the ' convicted person ') is convicted before a court of an offence against ss (1A) in relation to the refusal or failure of the convicted person or another person to make a deduction from salary or wages in accordance with that subsection, the court may, in addition to imposing a penalty on the convicted person, order the convicted person to pay to the Commissioner an amount not exceeding the amount of the deductions. 221F(5) [Duties of employers] A group employer shall - (a) in respect of deductions made by the employer: (i) if the deductions were made during the first 14 days of a month and the employer is an early remitter in relation to that month - pay to the Commissioner the amount of the deductions not later than the 21st day of that month; and (ii) in any other case - pay to the Commissioner the amount of the deductions not later than the seventh day of the month next succeeding the month in which the deductions were made; (b) subject to subsection (5E), issue to each employee, not later than 14 July in each year, a group certificate in accordance with subsection (5A); … (f) not later than 14 August in each year, furnish to the Commissioner: (i) a copy of each group certificate issued by the employer to each employee in respect of salary or wages paid by the employer to the employee during the period of 12 months that ended on 30 June in that year; and (ii) a statement in a form authorised by the Commissioner, signed by the group employer, reconciling the total of the amounts of any deductions shown in each of those copies of group certificates with the total of the amounts paid to the Commissioner in respect of those deductions. 221F(5A) [subsec. (5)(b) group certificate] A group certificate for the purpose of paragraph (5)(b) shall set out: (a) the total of the amounts paid by the employer to the employee as salary or wages during the period of 12 months that ended on 30 June in the same year; and

(b) where deductions from the salary or wages of the employee have been made by the employer as a group employer during the same period - the total of the amounts of the deductions; other than amounts that have been included in a group certificate previously issued to the employee. … 221F(9) [tax in excess of deductions made] Where the Commissioner has credited in payment of tax, or made a payment in respect of, an amount shown in a group certificate which is in excess of the amount which the group employer by whom the certificate was issued has deducted from the salary or wages of the employee to whom the certificate was issued in respect of the period specified in the certificate: (a) the group employer shall be liable to pay to the Commissioner the amount of the excess; and (b) the group employer may sue for and recover from the employee as a debt due to him any amount paid to or recovered by the Commissioner in pursuance of this subsection. 221R(1) An amount payable to the Commissioner under the provisions of this Division shall be a debt due to the Commonwealth and payable to the Commissioner, and may be sued for and recovered in any court of competent jurisdiction by the Commissioner or a Deputy Commissioner suing in his official name."

75 I have not set out the provisions that from time to time applied with respect to the obligations imposed on Iannelli Freight as a non-group employer with respect to the manner in which it was required to deal with the deductions that it made from the salary or wages of its employees. The Evidence

76 A spreadsheet was tendered in the Crown case, without objection, setting out details of the employees of Dromore and showing in each case the amount of the wages paid and of the deductions of group tax from those wages (Ex "D"). Ex "D" also showed the employees' claims for tax credits on account of those deductions.

77 Throughout the period charged in the indictment Dromore submitted to the Australian Tax Office ("the ATO") copies of all group certificates that it issued to its employees. 78 On 16 June 1998 the appellant attended at interview with Anthony Lane, an investigator with the ATO ("the interview"). The recording of the interview and a transcript of it were in evidence. The interview related to the affairs of Dromore. At this time no investigation had been undertaken with respect to Iannelli Freight. 79 During the course of the interview the appellant said that she was the holder of all the shares in Dromore and its sole director. She was the sole person authorised to sign cheques drawn on Dromore's bank account. She agreed that tax had been deducted from the wages paid to Dromore's employees. She acknowledged that the instalments of group tax deducted from the wages of Dromore's employees had not been paid to the ATO in respect of a number of years. She was asked: "Q. Can you, uh, explain why you haven't made any payments to the Australian Taxation Office? A. Mm. Well, the first year we had a really bad year, we had a problem with our plants, so we lost a lot, so things were pretty grim that year. So then we thought we'd catch up the next year and we did manage to catch up with a few bills but we still sort of had a few to pay. And then we thought we'd catch up this year and with the drought it just really knocked us around." (ROI 34). 80 A table setting-out each period from 1 April 1994 to 30 June 1998 in which Dromore made deductions of group tax from the salary or wages of its employees was in evidence (Ex "F"). This showed both the amount of the deduction in each period and the amount of the unpaid liability. The total amount of Dromore's group tax liability to the Commissioner for the period charged was $556,027.44.

81 The appellant was served with a director's penalty notice issued pursuant to s 222AOE of the ITAA dated 11 September 1998. The notice would operate in certain events to make the appellant personally liable to pay an amount equal to the unpaid amount of the group tax liability of Dromore.

82 On 28 September 1998 the appellant and her husband attended a meeting with Mr Lane at the ATO's Belconnen office. At this meeting they discussed the possibility of repaying the outstanding group tax debt by instalments. Following this meeting Dromore entered into an agreement with the Commissioner whereby it agreed to pay the liability of $556,027.44 by instalments that were set out in a schedule. The agreement was dated 6 October 1998. The schedule provided for repayments to commence on 14 January 1999 and to conclude on 7 July 2002. Some payments were made pursuant to that agreement.

83 In the initial period charged Iannelli Freight had been required to purchase tax stamps to the value of the amounts of group tax that it deducted. The stamps were to be attached to a sheet and submitted to the Commissioner. There was no record that Iannelli Freight had submitted tax stamps to the Commissioner. In December 1995, as the result of some amendments to the ITAA, Iannelli Freight became liable to remit to the Commissioner an amount representing the amount of the group tax deductions that it made. In July 1998 (as the result of a further amendment to the ITAA) Iannelli Freight as a "small remitter" was required to make its remittances on a quarterly basis. A table setting out the amount of the group tax deductions made by Iannelli Freight in each of the deduction periods between 1 July 1993 and 31 July 1999 together with the amount of the unpaid liability for each period was in evidence (Ex "U"). Iannelli Freight had a total group tax liability of $61,301.05. 84 Mr Lane gave evidence, without objection, that both Dromore and Iannelli Freight had claimed the amount of their gross wages expenditure as a deduction in their income tax returns. Mr Lane also gave evidence, without objection, of the contents of the appellant's income tax returns. The effect of this evidence (which was set out in a table (Ex "W")) was that the appellant had claimed tax credits in respect of sums deducted from her salary that had not been remitted by either company to the Commissioner in the financial years 1994 to 1998. 85 Mr Lane agreed that the appellant had cooperated with the ATO in the investigation into the affairs of Dromore and Iannelli Freight. He said that it was not the policy of the ATO to seek to terminate businesses that were perceived to be viable. He had encouraged the appellant and her husband to "keep fighting" (T57). It appeared to him that the Iannelli's had decided to fight the problems and endeavour to overcome them and meet their obligations to the ATO (T57.14). 86 Kathleen Bowerman, a bookkeeper who had worked for Dromore and Iannelli Freight in the period 1995 to 1999, explained some of the companies' accounting records. She said that the records reflected the wages paid to employees. There was no suggestion that anything had been hidden. 87 A table showed the balance of funds standing to the credit of Dromore as at the due date for remitting instalment payments of group tax for the period April 1994 to June 1998 was in evidence (Ex "CC"). On occasions Dromore had sufficient funds to pay instalments of group tax on the due date. A similar analysis of the Iannelli Freight bank account was also in evidence (Ex "DD"). On occasions Iannelli Freight had sufficient funds to pay instalments of group tax on the due date. 88 The appellant gave evidence. She maintained that she had always intended that the group tax owed to the Commissioner would be paid. Dromore was set up in late 1993. In the first two financial years of its operation Dromore had paid some (but not all) of the amount of the group tax that it owed. The appellant described a litany of problems that had beset Dromore. These included repayment of the creditors who had loaned start-up funds for the business. In 1995-1996 the broccoli crop had been lost due to the use of inferior quality seedlings. The supplier sued Dromore for the purchase price of the seedlings claiming $600,000. Dromore cross-claimed asserting that the seedlings were not of merchantable quality and seeking to recover its loss. These proceedings were pending at the date of the trial. A bad drought led to further difficulties in 1996. The drought had a long-term impact on the soil quality of the land owned by Dromore and this, in turn, affected the company's profitability. The business was also badly affected by pest infestations. Generally it was the appellant's evidence that her companies faced financial difficulties throughout the period charged in the indictment.

89 The appellant knew that the companies were required to remit the group tax deductions. Neither Dromore nor Iannelli Freight had overdraft facilities and it had been necessary for her to carefully monitor their bank statements to ensure that their accounts did not become overdrawn. She had never written a cheque knowing that it would not be met on presentation. In the course of cross-examination the appellant agreed that she regarded the payment of group tax as one of a number of bills that she had to pay. The cross-examination continued: "Q. You see you referred earlier in this cross-examination to the fact that effectively the group tax was one of a number of bills that you had to pay, remember just telling me that? A. Yes. Q. The group tax is quite different isn't it from other sorts of bills, do you agree with that? A. Yes, it is different. Q. The reason it is different is this, the group tax is something that you, as an employer, deduct from wages that you pay to your employees, that's right, isn't it? A. Yes. Q. Group tax is not really the employers' money at all? A. No. Q. Group tax is money which relates to the taxation affairs of individual employees that's right, isn't it? A. Yes. Q. Those individual employees will, at the end of each financial year, go along to the Taxation Commissioner and they will put their hand out asking for a credit in relation to the group tax that has been deducted by, in this case, you? A. Yes. Q. And you knew that didn't you? A. Yes." (T159-160). 90 The Crown Prosecutor put this proposition to the appellant during her cross-examination: "Q. Mrs Iannelli, I'm going to suggest to you that despite what you have said about your intention to pay these amounts of tax at some stage, you never had a firm intention of paying these amounts at all did you?

A. That is absolutely incorrect. I had all the intention the whole time." (T 187). 91 A number of witnesses called in the appellant's case gave evidence of her good character and of her reputation for honesty. Evidence was also led from a number of witnesses regarding the difficulties encountered by produce growers over the relevant period caused by drought, pests and erosion.

92 John Drummond, a fruit and vegetable merchant at Flemington Markets, said that he had advanced money to the appellant prior to the planting of various crops. He understood that she did not have the funds to commence planting. She would purchase plants with the loan funds, cultivate them and take the crops to market. When the crops were sold Mr Drummond would deduct the advance from the returns. He might start lending money to the appellant as early as October/November and, in some years, he would not recover his money until the end of June of the following year. The sums that he loaned to the appellant were substantial. They ranged from around $60,000 in 1995/1996 to around $197,000 in 1998/1999. He did not approve the use of his loan funds for any purpose other than "for the crop".

93 Anthony Campisi, a fruit and vegetable merchant at Flemington Markets, gave evidence that he had known the appellant since 1996. He had advanced money to her for the purchase of crops and would not have approved of the use of those funds to discharge debts unconnected with the crop (T 207). The Summing-Up

94 Judge Hosking directed the jury that each of the charges had three ingredients: (1) That the company, failed to pay tax instalment deductions that it was obliged by law to pay; (2) that this failure amounted to defrauding the Commonwealth; (3) that the accused was knowingly concerned in the commission of that offence by the company. 95 His Honour went on to direct the jury that there were two parts to the second ingredient, "defrauding the Commonwealth". Before turning to this, he directed the jury as to the meaning of the term "defrauded" (SU13). He said this: "Defrauded has a meaning in law wider than, at least what I think its popular meaning is. In popular speech, we think of a person who defrauds another as one who plays some kind of trick, like the popular image of a conman who, for example, cheats people out of money by making promises that the conman knows to be untrue. That is the kind of thing we see on many evenings on those kind of investigative programs at around the time that the news is on. Those kinds of situations involve what might be described as active deceit by the person involved. To defraud another often involves an element of actual deceit but not always. Actual deceit is not necessarily an element of defrauding, and in this case the Crown does not allege that Mrs Iannelli was deceitful in the way that I have been talking about. To use the example that Mr Bellanto gave to you in his closing address, it is not a case where she was keeping two sets of books, one true set of books for her own records and another false set of books to present to the Taxation Office. There was no deceit of that kind. There is a question here of whether she acted dishonestly, but it is not dishonestly in that deceit kind of way of saying anything that was actually untrue or making any false representations. In the scheme of the circumstances of these alleged offences, to defraud the Commonwealth the Crown must prove two things, and I am dealing now with element (2). Firstly, that the accused's actions, or inactions perhaps, deprived the Commonwealth of money or put that money at risk and, secondly, that the accused adopted dishonest means in doing that." (SU13-14). 96 Judge Hosking directed the jury that the second ingredient of the offence ("defrauding the Commonwealth") had both a physical and a mental part. The physical part was the appellant's actions or inactions in depriving the Commonwealth of money or putting the Commonwealth's money at risk. His Honour directed that it was the Crown case that the companies had put the Commonwealth's money at risk by not remitting the tax and by choosing to continue trading. The risk was that at any time the companies might fail with the result that the tax to which the Commonwealth was entitled would have been lost (SU15-16). 97 His Honour next turned to the mental element involved in defrauding the Commonwealth. He said at SU16: "This part of element (2) is concerned with what the accused's intention was. For you to be satisfied that she is guilty of either of these two offences, you must be satisfied beyond reasonable doubt that she knew she was adopting dishonest means in the way that I have described them, and are about to describe them, in depriving the Commonwealth of its money or putting its money at risk. The Crown must prove that the accused acted, knowing she had no right to deprive the Commonwealth of the tax it was entitled to or to prejudice its interests. Therefore, the Crown can prove this element of dishonesty if it can show that the accused intended to prejudice the rights of the Commissioner of Taxation. In this sense, the term 'dishonesty' has perhaps a wider meaning than it does in ordinary speech."

98 These directions form the basis of the appellant's second ground of challenge (ground 1 (b)).

The Appellant's Submissions - Ground 1 (a) Neither the amount of group tax deductions made by an employer, nor monies in the hands of the employer which could be applied to remit the amount of those deductions, is something of which the Commissioner of Taxation may be defrauded.

99 Mr Brereton SC, who appeared on the appellant's behalf, contended that the Commonwealth was not deprived of anything capable of being the subject matter of a defrauding. In his submission the Crown case was that neither company had paid unsecured debts owed to the Commissioner as and when the debts fell due. Regardless of the intention of the debtor, the failure to pay a debt was said to be not capable of amounting to a defrauding of the creditor.

100 The appellant accepted that the infliction of economic loss on the object of the fraud is not essential to the offence and that it is sufficient that the victim's property or money is put at risk; Wai-Yu Tsang v The Queen [1992] 1 AC 269; Peters v The Queen (1998) 192 CLR 493, per McHugh J at 525 [73]; or that the victim is deprived of a lawful opportunity to obtain or protect property; R v Kastratovic (1985) 42 SASR 59 at 65. Nonetheless the concept of defrauding is said to have at its heart the idea of depriving the victim of something to which he or she is entitled. Reliance was placed on a passage in Spies v The Queen [2000] HCA 43; 201 CLR 603 per Gaudron, McHugh, Gummow and Hayne JJ at 635 [91] in which their Honours stated that to establish an offence of defrauding it is necessary that there be an actual obtaining of property or deprivation of the person defrauded of something "which is regarded as belonging to him or her". In Mr Brereton's submission the Commissioner had no greater interest in the assets of Dromore or Iannelli Freight than that of any other unsecured creditor.

101 In the appellant's submission the joint judgment in Spies at [91] requires that the victim of the fraud have a proprietary interest in or proprietary claim to the subject matter of the fraud. At the least, it was submitted that the concept of something "which is regarded as belonging to him or her" does not extend to money in the hands of a debtor that is not impressed with any trust or charge.

102 In Mr Brereton's submission Peters and other cases involving sham transactions may be distinguished. In such cases the transactions are entered with a view to concealing from the Commissioner income on which tax is payable. The fraud consists not in the failure to pay the tax that is owed but in depriving the Commissioner of making an assessment that tax is owed and, hence, of his right to recover the same. The debt owed by Dromore and Iannelli Freight to the Commissioner was characterised as a chose in action that is not put in jeopardy by non-payment.

103 In written submissions the Crown contended that: "The obligation to deduct and remit income tax in relation to employees is not the same as debts owed to private creditors because the tax deductions required to be paid and remitted is not the employer's money and there is a statutory requirement to pay by a fixed day each month. It is money that is part of the income of the employee required to be paid on that employee's behalf to the ATO. It is for that reason that it is quite wrong to characterise a failure to remit group tax as not depriving the Commonwealth of something it is entitled to." (emphasis added)

104 The Crown's submission that the tax deductions that are required to be remitted are "not the employers money" is not without its difficulties. It might be thought to receive some support from a passage in the judgment of Street CJ (with whom Lee and Enderby JJ agreed) in R v Gamble and Moore (1984) 14 A Crim R 179. That was a case in which the respondents were convicted of conspiracy to defraud the Commonwealth contrary to s 86(1)(e) of the Act, arising out of the failure of companies over which they exercised control to remit group tax. Through an elaborate scheme the respondents had sought to distance themselves from personal knowledge of (or involvement in) the misapplication of the group tax deductions. Street CJ observed at p 181: "They thus stood for sentence upon the basis of being two men who had not only misapplied these very substantial sums of money that did not belong to them or their companies , but who had been able to misapply those sums for a period of some two years … ." (emphasis added) 105 Gamble and Moore was a Crown appeal against the inadequacy of sentence. It appears that the respondents defended the matter at trial contending that neither was involved in the scheme. The point now taken was not in issue. His Honour's reference to the substantial sums of money as not belonging to the respondents or their companies was one made in the context of reviewing the objective seriousness of the offence of which the respondents had been convicted in circumstances in which there was no challenge to the convictions. 106 In this case the Crown's submission that the deductions required to be remitted are not the company's money was not further developed. The suggestion that the employer holds the sums withheld from the salary wages of its employees as trustee for the Commissioner is not one that has found favour in other contexts; Sands & McDougall Wholesale Pty Ltd (in Liq) v Federal Commissioner of Taxation (1998) 147 FLR 323. 107 The Crown did not press the contention that the funds were not the property of the company. It seems to me that they were. Rather, in the Crown's submission the Commonwealth's interest or entitlement arises by virtue of the ITAA, which obliges employers to withhold tax at source and requires the Commissioner to credit the employee with payment of the amount deducted.

108 Section 29D was introduced into the Crimes Act 1914 by the Statute Law (Miscellaneous Provisions) Act (No. 2) 1984. It created the substantive defence of defrauding the Commonwealth or a public authority under the Commonwealth. In Peters v the Queen [1998] HCA 7; 192 CLR 493 Kirby J observed that the Act does not define the word "defraud" (540 [109]). His Honour noted that the principles of the common law with respect to criminal liability apply in the interpretation of the Act by virtue of s 4. In Peters each of their Honours approved the definition of the term "to defraud" given by Viscount Dilhorne in Scott v Metropolitan Police Commissioner [1975] AC 819 at 839: "To defraud' ordinarily means, in my opinion, to deprive a person dishonestly of something which is his or of something to which he is or would or might but for the perpetration of the fraud be entitled." Toohey & Gaudron JJ (with whom Kirby J agreed) said at 508 [30]: "Ordinarily, however, fraud involves the intentional creation of a situation in which one person deprives another of money or property or puts the money or property of that other person at risk or prejudicially affects that person in relation to "some lawful right, interest, opportunity or advantage" ( R v Kastratovic (1985) 42 SASR 59 at 62, per King CJ), knowing that he or she has no right to deprive that person of that money or property or to prejudice his or her interests (see Archbold Criminal Pleading, Evidence and Practice (1996), vol 2, par 17 - 89, 17 - 94. See also R v Sinclair [1968] 1 WLR 1246." This passage in the judgment of Toohey & Gaudron JJ is reproduced in the joint judgment in Spies at [79].

109 The appellant contended that: "The essential issue in this appeal is whether a debtor who does not pay his unsecured creditor, knowing that he or she has no right to refuse to pay, can be said to be guilty of defrauding that creditor. The effect of the convictions if they be upheld is that the non-payment of an unsecured debt, with knowledge on the part of the debtor that he or she is not entitled to refuse to pay the debt, is a defrauding of the creditor."

The obligation to pay group tax does not arise by contract. The employer is subject to a statutory obligation to remit the amount of the deductions by the due date. The circumstance that the ITAA deems unpaid group tax to be a debt due to the Commonwealth and provides a mechanism for ease of recovery does not mean that no distinction is to be drawn between failure to remit group tax and the failure to pay an unsecured private creditor.

110 The Commonwealth has an interest in receipt of revenue under the ITAA that is not to be equated with the position of a private unsecured creditor. In Stephens v Abrahams (1902) 27 VR 753 at 767 Hodges J observed: "I take the "revenue" to be moneys which belong to the Crown, or to which the Crown has a right, or moneys which are due to the Crown, as indicated by sec 153 of the Customs Act 1901, which says: - "all duties shall constitute Crown debts charged upon the goods in respect of which the same are payable and payable by the owner of the goods and recoverable at any time in any court of competent jurisdiction by proceedings in the name of the Collector". I would include those duties as part of the revenue, and the question is, Was there evidence of an intent to defraud the revenue - that is, to get out of the revenue something that was already in it, or to prevent something from getting into the revenue which the revenue was entitled to get? That, I think, would be defrauding the revenue."

111 Jackson J (in a judgment with which Bowen CJ and Lockhart J agreed on this aspect) cited the above passage from the judgment of Hodges J with approval in Parker v Churchill (1986) 9 FCR 334. The judgment under appeal was a determination of a review, brought pursuant to the Administrative Decisions (Judicial Review) Act 1975 (Cth), of decisions made to issue a number of search warrants. The warrants recited the satisfaction of the issuing Justice that there existed reasonable grounds for believing that the documents and things referred to in the schedule would afford evidence of the commission of offences, including an offence contrary to s 29D of the Act. In this latter respect the applicants were said to have defrauded the Commonwealth by failing to account for sales tax. Jackson J said at 348-349: "The case under this head comes down to the question whether failing to pay sales tax is capable of amounting to 'defrauding the Commonwealth' in terms of s 29D. In Welham v Director of Public Prosecutions [1961] AC 103 at 124 Lord Radcliffe said that 'to defraud' may mean to deprive someone by deceit of something which, though not belonging to him, 'is regarded as due to him or his right'. Again in Stephens v Abrahams (1902) 27 VLR 753 at 767 Hodges J described an intent to defraud the revenue as an intent: 'To get out of the revenue something that was already in it, or to prevent something from getting into the revenue which the revenue was entitled to get'. In Scott v Metropolitan Police Commissioner (1975) AC 819 at 838 Viscount Dilhorne, with whom the other members of the House of Lords agreed, expressed the view that the observations of Lord Radcliffe in Welham v Director of Public Prosecutions (supra) should be treated as a general application in relation to the meaning of "defraud" and went on to say that: 'To 'defraud' ordinarily means, in my opinion, to deprive a person dishonestly of something which is his or of something to which he is or would or might but for the perpetration of the fraud be entitled.' Scott v Metropolitan Police Commissioner (supra) also decided that deceit of the person intended to be defrauded was not an essential element of conspiracy to defraud. It seems to me that whilst it is true to say that mere non-payment of sales tax, to use the phrase put to us in argument, may not amount to defrauding the Commonwealth, it does not follow that non-payment of sales tax cannot occur in circumstances which amount to defrauding the Commonwealth. In the present case I think that the material before the Justice was such as to entitle him to grant the warrant in relation to the second limb of par (c)." (At 348 -349).

112 In R v Walters [2002] NSWCCA 291 the appellant was convicted of ten counts charging him with being knowingly concerned in defrauding the Commonwealth in respect of the failure of a company to remit group tax to the Commissioner. He was convicted at trial of each count. It was the Crown case that the appellant was in control of each of the ten companies named in the counts. Each company employed a large number of employees and regularly deducted group tax from their salary and wages. Substantial defaults were made by each company in remitting the amount of the deductions to the Commissioner. Each company received significant income from bricklaying and the appellant applied that income largely to fund an extravagant lifestyle. In this way he effectively stripped the companies of their available funds. Each company was wound up with substantial arrears of group tax owing. The Commissioner was unable to recover the same. Hodgson JA (with whom the other members of the Court agreed) observed at [9]: "The contention of the Crown was that the appellant, as the person having sole effective control of the financial affairs of each company, intended, between the dates charged in the relevant count, that those affairs should be so conducted that the Commissioner of Taxation would be left without effective recourse to company assets to obtain payment of group tax, and that this involved dishonest conduct by the company and by the appellant."

Hodgson JA set out the directions given by the trial judge to the jury as to the elements of the offence. Those directions included the following at [26]: "1. That in fact the particular company failed to pay the Commissioner of Taxation, as required by law, monthly amounts of group tax deducted from the gross wages of the various persons who were employed by that company during its operational lifetime. You will remember that the unchallenged evidence is that the law, relevantly, was that group tax had to be paid for a given month by the seventh of the succeeding month. That wasn't an optional extra. That is what the law required to be done, not to be paid in part, or to be paid as best one could; or to be the subject of a well intentioned attempt to pay. The law required that money that had been taken from the gross wage packet of the employees should be remitted by the seventh of each month to the Commissioner of Taxation. 2. That the failure of the company so to pay the lawfully required group tax continued in such circumstances as to entail that the Commissioner was left, not only unpaid, but without recourse to any company assets from the proceeds of which he could recover what he was owed by the company."

113 The appellant in Walters challenged his conviction placing reliance on the decision of the High Court in Spies. He contended that he could not have defrauded the Commonwealth (with whom he had no legal relationship) merely because his actions made it less likely that the companies would pay money that each owed to the Commonwealth. It was his submission that the most that could be said was that regular expenditure of the company's monies in various ways had left insufficient money to pay the group tax. This had been done openly and without concealment. 114 Hodgson JA at [36] found that the directions given by the trial judge (set out at [50] above) were an appropriate statement of the elements of the offence. His Honour went on to say [37]: "In my opinion also, it was open to the jury to find that the appellant was the mind and will of each company at all times; that he determined that available money in the company should be spent on his own personal matters, money which could have been used to pay group tax; and that the appellant knew that thereby each company would be rendered unable to pay the Commissioner of Taxation so that the Commissioner of Taxation would ultimately not be paid at all. It was also open to the jury to find that this amounted to dishonesty both of each company and of the appellant. It did not matter, in my opinion, that the relevant amounts of expenditure would not have fully paid the group tax, so long as they could have paid a substantial part of that group tax and the expenditure deprived, and was known to deprive, the Commissioner of that substantial part. [38] In my opinion, there is no substance in the argument that the expenditure merely amounted to choices between competing creditors, not all of whom could be paid. It was open to the jury to find that the appellant chose to create obligations for his own personal purposes; and in any event, even the pre-existing leases of motor vehicles, as to which it was submitted that the appellant had not during the period of any charge created an obligation to pay, were all in the name of the appellant and not guaranteed by the relevant companies, so that there never was an obligation on the companies to pay them." 115 I am not persuaded that monies held by Dromore and Iannelli Freight in an amount of the group tax deductions withheld from the salary and wages of their employees were not something of which the Commonwealth may be defrauded. I would reject ground 1 (a).

The trial judge failed to direct the jury that as well as establishing that the accused acted knowing that she had no right to deprive the Commonwealth of the money or to prejudice its interest, it was necessary also for the Crown to establish that she used dishonest means to achieve that end, and no such means were identified in the Crown case or in the summing up, nor open on the evidence.

116 In Peters Toohey & Gaudron JJ (rejecting the suggestion contained in the report of Model Criminal Code Officers Committee - that to say dishonesty was not an essential element of conspiracy to defraud - would mean that the offence would pick up any intentional infliction of economic loss), observed at [24]: "[I]t overlooks the need for the use of dishonest means or, more precisely in the context of conspiracy to defraud, the need for there to be an agreement to use dishonest means. And it also pays insufficient regard to the consideration that fraud involves an element of dishonesty over and above the use of dishonest means."

117 The Crown acknowledged the necessity for it to prove that the appellant's act involved the use of dishonest means. To submit otherwise would carry with it that any intentional failure to remit tax might constitute defrauding the Commonwealth. In the Crown's submission the case fell within the third category identified by McHugh J in Peters at [84] (and approved in the joint judgment in Spies at 631 [80]): "In most cases of conspiracy to defraud, to prove dishonest means the Crown will have to establish that the defendants intended to prejudice another person's right or interest or performance of public duty by: • making or taking advantage of representations or promises which they knew were false or would not be carried out; • concealing facts which they had a duty to disclose; or • engaging in conduct which they had no right to engage in. In the latter class of case, it will often be sufficient for the Crown to prove that the defendants used dishonest means merely by the Crown showing that the defendants intended to engage in a particular form of wrongful conduct. Proof of an agreement by the defendants to engage in conduct that involves a breach of duty, trust or confidence or by which an unconscionable advantage is to be taken of another will usually be sufficient evidence of dishonest means unless the defendants raise an actual or supposed claim of right or allege that they acted innocently or negligently."

118 The Crown's reliance on the above passage in the judgment of McHugh J in Peters needs to be read in the context of his Honour's statement of the mental element of the offence of conspiracy to defraud at [85], namely that it is the intention to prejudice the interests of a third person by the use of means that are dishonest.

119 In Peters the majority were of the view that proof of the use of dishonest means for the purpose of an offence of defrauding is a question in the first instance of knowledge, belief or intent. Generally the question of whether an act done by a person possessed of that knowledge, belief or intent is dishonest will not be an issue. In the exceptional case in which it is in issue, the majority held that it should be left to the jury (assuming the means are capable of being characterised as dishonest). The jury should be instructed that the question of whether the means used are to be characterised as dishonest is to be determined by the standards of ordinary, decent people (Toohey & Gaudron JJ at 508 [28] - [29] Kirby J agreeing at 555-556 [145]). 120 The jury were directed that it was necessary for the Crown to establish that the appellant knew she was adopting dishonest means in depriving the Commonwealth of its money or putting its money at risk. His Honour went on to direct the jury that the Crown could establish this fact by showing that the appellant intended to prejudice the rights of the Commissioner knowing that she had no entitlement to do so. He said (SU 16.5): "You must be satisfied beyond reasonable doubt that she knew she was adopting dishonest means in the way that I have described them, and are about to describe them, in depriving the Commonwealth of its money or putting its money at risk. The Crown must prove that the accused acted, knowing she had no right to deprive the Commonwealth of the tax it was entitled to or to prejudice its interest. Therefore the Crown can prove this element of dishonesty if it can show that the accused intended to prejudice the rights of the Commissioner of Taxation." His Honour went on to observe (SU 17): "The Crown says here that the accused must have known that she was, at least, acting intentionally to put the Commonwealth's money at risk."

121 Although the jury were told to bear in mind the appellant's evidence concerning her intention and her explanations of why she acted in the way she did, it was given no guidance as to the significance of this evidence. The directions included that "dishonesty" had a wider meaning for the purposes of the trial than its meaning in ordinary speech. Read as a whole, it seems to me that the summing up left open that the jury might be satisfied that the Crown had established the ingredient of "defrauding the Commonwealth" if it found that the appellant, knowing that she was not entitled to prejudice the interests of the Commonwealth in the receipt of group tax, allowed the companies that she controlled to fail to remit group tax as it fell due.

122 The Crown did not submit that intentional non-remittance of group tax (knowing that there was no entitlement so to do) of itself constituted the offence of defrauding the Commonwealth. Yet the effect of the directions was that the Crown would succeed if it established no more.

123 The question of whether the means used by the appellant (the non-remittance of group tax by the companies that she controlled) were dishonest was critical. It was not a case in which it was immediately apparent that they were. It was necessary that the directions make clear that the Crown must prove that (i) the appellant intended to prejudice the economic interests of the Commonwealth (knowing that she was not entitled to allow the companies that she controlled to fail to remit group tax to the Commissioner), (ii) by the use of means that were dishonest. Whether the appellant's act in allowing the companies that she controlled to fail to remit group tax was to be characterised as dishonest was a question of fact for the jury to be determined by the standards of ordinary decent people; Peters at 508 [28] & [29] per Toohey and Gaudron JJ, 555 [145] per Kirby J.

124 Counsel did not seek any redirection concerning the adequacy of the directions as to the proof of the appellant's dishonest means. Mr Brereton drew our attention to an exchange between the trial judge and counsel then appearing for the appellant, recorded at T234. His Honour outlined the way he proposed to direct the jury in terms consistent with the summing up as given. Counsel observed "it's just the expression 'adopting dishonest means'". Counsel went on to submit (T235): "I suppose the difficulty is that no-one is doubting that tax wasn't paid, but if in her position she couldn't pay the tax, without looking at the mental aspect of this, on the face of it, on the directions that my friend seeks, it's almost a case of saying well if the tax hasn't been paid - she knows it hasn't been paid - that's sufficient. We would be asking your Honour to re-direct (sic) if that was the way the matter was left to the jury, in other words, if those bald facts are left, the jury may come to the view well, the tax wasn't paid, she knew it wasn't paid, therefore, there's an offence. HIS HONOUR: Well, subject only to proof that she acted knowing that she no right to deprive the Commonwealth of its tax or the ATO of its tax, or that she acted knowing that what she was doing was prejudicing the ATO's interests. COUNSEL: But either of those don't allow for the mental element. That is we would say there must be the intention not to pay, because either of those directions that your Honour refers to would apply even where somebody intended to pay but couldn't." 125 Mr Brereton contended that this passage (read in the context of the whole of the exchange) amounted to a submission that something more in the way of directions on the issue of dishonesty was required than the outline of the directions that the trial judge proposed. Mr Brereton contended that counsel might be excused for not seeking a re-direction since the trial judge had considered and rejected his submission. Whether more was required to preserve the point does not seem to me to be critical in this case. The directions as to the elements of the offence went to the root of the trial. The appellant should not be deprived of the opportunity to argue this ground by r 4 of the Criminal Appeal Rules 1952; R v Tripodina (1988) 35 A Crim R 183. I would grant leave to the appellant to argue this ground.

The verdict of the jury was unreasonable and cannot be supported having regard to the evidence, and the jury ought to have entertained a reasonable doubt as to whether the appellant intended to deprive or prejudice the Commissioner in respect of group tax deductions.

127 There was no evidence that the appellant had taken any step to conceal from the Commissioner the true state of affairs concerning the liability of Dromore or Iannelli Freight for the payment of group tax. In each instance the company furnished group certificates stating the amount deducted from the salary or wages of its employees. There was no evidence of the making of false representations, or of a scheme such as that employed in Walters. The Crown case was that the two companies controlled by the appellant did not remit group tax in accordance with the statutory obligation on them to do so.

128 In oral submissions the Crown sought to contend that while the case had not been put as one involving deceit, the appellant's income tax returns and the companies' income tax returns were "false" and that this was material to the issue of dishonesty. The companies' income tax returns claimed gross wages as expenses. The appellant's income tax returns claimed credits for the deductions of tax from her salary made by each of the companies.

129 The evidence as to the contents of the companies' income tax returns was given by Mr Lane. The returns themselves were not in evidence nor were the companies' annual accounts. I do not think that it can be said that the companies' income tax returns were false because they recorded the gross wages as expenditure when the group tax had not been remitted to the Commissioner. The company did incur expenditure in the amount of the gross wages and it incurred a liability in the amount of the unremitted group tax. Equally, I do not think it right to describe the appellant's income tax returns as false because she claimed a credit for the income tax that had been deducted from her salary in circumstances in which she knew that the sums deducted had not been remitted to the Commissioner.

130 The Crown also submitted that the provision of group certificates to the employees and to the ATO was capable of being seen as a representation that "all was in order" and, thus, of amounting to evidence of dishonest means. The practical effect of issuing the group certificates was said to be that the employees believed that their income tax had been collected at source and remitted to the ATO. The ATO is a large organisation and it was suggested that it might receive the group certificates in the ordinary course without making inquiry to see if the amount of the deductions had been remitted.

131 It does not seem to me that issuing group certificates accurately setting out the information that is required to be contained in them by s 221F(5A) of the ITAA can be said to evidence dishonesty. Section 221F(5A) requires that a group certificate set out the total of the amounts paid to the employee as salary or wages during the period of twelve months ending on 30 June in the same year and, where deductions from the salary or wages have been made by the employer, the total of the amounts of the deductions. The certificate does not purport to evidence that the deductions have been remitted to the ATO.

132 In identifying the dishonest means upon which it relied the Crown submitted that conduct not inherently dishonest can acquire that character when placed in context. Thus it was said there is nothing dishonest about winding-up a company but to do so may be dishonest in circumstances such as those proved in Walters. In this case the Crown contended that it had been open to the jury to reason that at some point over the course of the five/six years charged in the indictment the appellant must have come to realise that the recovery section of the ATO did not cross-check with the section responsible for compiling the information contained in group certificates. She might be taken to have understood that her companies could continue to trade and to make use of the deductions withheld from the wages of their employees without risk of recovery action by the ATO. To take advantage of this deficiency in the administration of the ATO was relevantly dishonest and eloquent of an intention not to remit the group tax that was owed regardless of the financial position of the companies.

133 It does not seem to me that the case was conducted on the basis that the appellant had come to realise that the ATO was inefficient and that she had taken advantage of that knowledge by having the companies that she controlled withhold group tax in the expectation that they would not be called on to pay it. Such a proposition was not put to her in cross examination. The matter was not left to the jury on this basis.

134 The test to be applied by this Court in dealing with a ground that contends that the verdict is unreasonable in that it cannot be supported by the evidence is that stated in M v the Queen (1994) 181 CLR 487 per Mason CJ, Deane, Dawson & Toohey JJ at 493, namely, whether upon the whole of the evidence it was open to the jury to be satisfied beyond reasonable doubt that the accused was guilty. In answering this question it is necessary to bear in mind that the jury is the body entrusted with the primary responsibility of determining guilt or innocence and that it had the benefit of seeing and hearing the witnesses. In this case I approach the matter upon the basis that it was open to the jury to reject the evidence of the appellant. Nonetheless it seems to me that on the whole of the evidence it was not open to the jury to find the appellant guilty of defrauding the Commonwealth by reason of the failure of the companies that she controlled to remit payments of group tax. I do not consider that it was open to the jury to be satisfied beyond reasonable doubt that the appellant's intention was to prejudice the economic interests of the Commonwealth by means that were dishonest.

135 For these reasons I would propose that the appeal be allowed and that the convictions be quashed and verdicts of acquittal entered in each case.

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