Regina v Ronen & Ors

Supreme Court of NSW|2004-09-30|Before: Whealy J, Mr P, Ms P

The Application is opposed 32 It is fair to say that the application under s 38 is firmly opposed by all counsel for the accused and that opposition has been based upon a number of matters. Mr Hill QC's principal concerns related to the considerations under s 192 of the Evidence Act and to those I might add my own concerns with ss 135 and particularly 137. When an application is made on this basis in a criminal trial, it is necessary for the trial Judge to take great care to ensure that the trial does not become sidetracked into a collateral issue that carries with it the real possibility of prejudice to the accused. Notwithstanding that danger and possibility, it is fair to observe that in New South Wales s 38 is commonly used, very commonly used indeed; and in the main, at least from my brief experience, not only in trials but sitting as a member of the Court of Criminal Appeal from time to time, it has been a section that has often demonstrated its value in getting to the truth of situations. 33 On the other hand, the same experience has revealed to me that great care must be taken, as I have already said, to ensure that the situation of possible prejudice does not arise. 34 It is this particular aspect of the matter that underpinned Mr Richter's submissions. Of course, there were other submissions he made as well, and I mean no disrespect to Mr Richter or other counsel if I don't refer to every single argument advanced, but Mr Richter made the point that there is a real risk, he said, that the trial would be derailed and he opposed the application forcefully. In particular, he argued that not every piece of evidence emerging in cross-examination that does not suit the Crown "theory" will justify the grant of leave under s 38. 35 Mr Van de Wiel QC also opposed the application. He was particularly concerned, I think, with the prospect of MFI 164 being admitted into evidence. I have, of course, already ruled that I am in his favour on that argument but in other respects he also supported both Mr Hill QC and Mr Richter QC on the arguments brought in resistance to the application.

The Crown and Defence case 36 In order to understand what I perceive to be the argument on each side, I think it is necessary to have regard in a broad way, to the Crown case and the defence case. 37 The Crown case, if I may express it somewhat inelegantly, is this: First, that there was in existence during the relevant period an agreement between Mrs Ronen and her two sons which had as its outcome, or incidental to its outcome, the depriving of the Commissioner of Taxation of income tax in relation to the true income of On Fovo Pty Ltd and Ida Ronen trading as Ronen Young Fashion, or at the least the risk of that deprivation. 38 Secondly, that the agreement between Mrs Ronen and her two sons contemplated and intended that the dishonest means to be used to deprive the Commissioner of income tax or to make the collection of tax more difficult was the concealment of the true income of On Fovo Pty Limited and Ida Ronen trading as Ronen Young Fashion. The alleged concealment was said to involve a skim of the cash takings at the retail shops owned by those entities. Of course, in proving this agreement, the Crown carries the onus of establishing beyond reasonable doubt that each accused intended, in entering into the alleged agreement, to prevent the Commissioner from collecting tax payable on the moneys or, alternatively, to make it more difficult for the Commissioner of Taxation to determine the true taxable income of On Fovo Pty Ltd and Mrs Ronen. 39 The defence case is one that, at this stage, I have to express in somewhat guarded terms. This is because I am still attempting to come to grips with it as a consequence of the fact that, other than providing me with broad generalised statements, the defence for forensic reasons has been reluctant to this point to reveal the full ambit of its case. 40 Nevertheless, doing the best I can, I understand the defence case to be this: At the outset, the defence maintains the prosecution has simply got the whole situation wrong. The prosecution in fact has misunderstood the nature of the entries in the books Mrs Ronen was keeping at her apartment and has approached the investigation of the case "with a closed mind". The defence does not deny that there was an agreement between Mrs Ronen and her two sons. Nor does the defence suggest that cash moneys were not "taken out" of the takings, if I may use the expression in a neutral sense for the moment, of the retail shops and given to each of the sons. However, the defence maintain, for reasons I will explain, that the handing over of this cash was not to the two sons in their personal capacity, that is to do what they liked with it. Rather it reflected the nature of the agreement between them, that the cash was to be handed over to the sons in their capacity as representatives of Dolina Fashion Group Pty Ltd and Dolina Enterprises Pty Ltd. 41 Notwithstanding these concessions, if I may so describe them, the defence case is that the agreement between Mrs Ronen and her two sons has nothing to do with concealing the true income of the retail shops. Rather, it was concerned with the delivery of the proceeds of the sale of un-invoiced stock, moving between the Dolinas and the retail shops, to their proper destination. This is because the agreement was essentially an arrangement whereby the retail shops dispose of stock for and on behalf of the Dolina companies 42 The defence case relies in part upon a number of accounting conventions which it maintains have application to the facts and circumstances of the relationship between the retail shops and the manufacturing entities. Put in shorthand fashion, these conventions are said to operate on the facts and circumstances so as to result in a situation that when un-invoiced stock is sold to the public, it then becomes appropriate and correct in accounting terms to record the transactions as sales in the books of Dolina Enterprises and Dolina Fashion Group Pty Ltd. It follows, in general terms, that the sale by Mrs Ronen of uninvoiced stock of this kind in the retail shops carries with it the consequence that the proceeds of sale did not have to be declared in the income tax returns of On Fovo Pty Ltd and Ronen Young Fashion. The corollary of this proposition is that if income (for example, Bankcards and cheques derived from the sale of uninvoiced stock) has been banked and returned in the retail shops' income tax returns, accounting conventions would permit the claiming of appropriately calculated deductions to reduce the gross sales of the retail outlets to the correct bottom line figure. Thus, in accounting terms, it would be equally appropriate to claim deductions for an amount equivalent to the relevant sales recorded in the Dolina books and to treat those amounts as purchases in the retail shops' books of account, even if they were not in truth purchases. 43 Against the background of these accounting conventions and practices, the defence case is, as I have said, that the agreement between Mrs Ronen and her sons was not one to conceal the true income of the retail shops. Rather it was an agreement to calculate and distribute the appropriate amount of money to its proper destination in accounting terms. That this was the agreement, it is said, is to be found in the facts and circumstances that Mrs Ronen distributed all or most of the cash of the businesses to her sons in a representative capacity. Later she sent cheques for un-invoiced stock which amounts, as I have also said, ultimately found their way into the records of the Dolina companies as sales of those entities. The handing over of these amounts, that is the cash and the cheques, represented the fulfillment or the carrying out of the agreement between Mrs Ronen and her sons. Thus it will be said that the defence case is that the facts and circumstances demonstrate the existence of an "agency" agreement between the parties that is consistent with innocence. 44 I will not pause to anticipate in detail what I imagine will be the entirety of the Crown response to these matters. I have not, for obvious reasons, at this stage troubled the Crown to identify its arguments in that regard. It is sufficient to say that I would expect that the Crown may wish to draw attention to the possibility that the large amounts of cash which were handed over to Mrs Ronen's sons may not have found their way into the books of the Dolina companies; and that they were in any event received by the sons and used in a non-representative capacity. 45 Moreover, the Crown, I anticipate, will wish to argue that Mrs Ronen's actual dealing with stock generally, and moneys from the sale of stock, did not in truth recognise any real distinction between invoiced stock and un-invoiced stock. 46 On the particular topic that is at issue in this ruling, however, I would expect that the Crown will wish to argue that the application of the proper principles of law to the facts and circumstances of the case will demonstrate that if there were in fact movements of un-invoiced stock in small or even large quantities between the Dolinas and the retail shops, the jury will be able to conclude, having regard to those legal principles, that these were sales of stock by the Dolinas to the retail shops. Further, the Crown has suggested that one consequence of the sale of the stock was the passing of property and control to Mrs Ronen in respect of the stock. In that situation, I imagine that the Crown proposes to argue that, either by the application of legal or accounting principles, the income ensuing from the sale of stock to retail customers at the stores was in fact income derived in relation to all stock held at the point of sale and that the income accordingly was that of On Fovo and Mrs Ronen. 47 In any event, it needs to be borne in mind that the overall nature of the Crown case is as, I described it earlier, namely that an examination of all the documents in the trial and an examination of all the actions of Mrs Ronen and her two sons throughout the entire period, including what they did and what they said to one another throughout that period, will satisfy the jury beyond reasonable doubt that an agreement of the kind alleged by the Crown was entered into by each of the accused and that an examination of all the facts and circumstances will satisfy the jury that there is no reasonable explanation consistent with innocence. 48 I have taken the trouble to set out my present understanding of the nature of the Crown and the defence case so that I can probably adjudicate upon the present issue before the Court.

Section 38 - Principles to be applied 49 I now propose to set out my understanding of the principles of law that I consider apply to the application. Section 38 was introduced as an important part of the changes brought about by the Evidence Act 1995. The section has been the subject of a number of decisions of the New South Wales Court of Criminal Appeal. The following propositions may be said to have been authoritatively determined as a result of those and other decisions:

Section 38 of the Evidence Act now permits a party, by leave, to cross-examine a witness who meets any of the criteria identified in subs 1. Its exercise is, however, subject to a number of discretionary considerations so as to prevent abuse. The section is one that needs to be applied with some care in criminal trials. So it is before leave is granted that the trial Judge must give consideration to the matters specified in ss 38(6), 135 to 137 and 192 of the Evidence Act . ( R v Fowler (2000) NSWCCA 142 at para 120).

The section is to be given its full effect and is not to be confined to the situation where the party calling a witness is confronted unexpectedly by evidence that is "unfavourable", as that expression was explained in Souleyman (1996) 40 NSWLR 712. (See also Gilbert Adam 47 NSWLR 267). In Souleyman , Smart J held that the word "unfavourable" in 38(1)(a) does not mean adverse. It means "not favourable". The report of the Law Reform Commission in this regard supported the introduction of a less demanding test than that related to the old concept of "a hostile witness". Moreover, Smart J's approach was endorsed in ( R v Fowler at para 120).

There is ample authority that an application to question a witness under s 38 may be allowed where unfavourable evidence is led in cross-examination. ( Regina v Parkes (2003) NSWCCA 12 at 70).

While leave under s 38 does not justify general cross-examination, that is using leading questions and the aggression characteristic of cross-examination on any subject relevant to an issue on credit, nevertheless it does permit questioning provided the questioning is specifically directed to one of the three subjects described in s 38(1). Further, it may be directed to establishing the probability of the factual state of affairs in relation to those subjects contended for by the party conducting the questioning or the improbability of the witness' evidence on those subjects. In establishing the probability or improbability of one or other state of affairs, the questioner is entitled to ask questions about matters going only to credibility with a view to testing the witness' credibility on the s 38(1) subjects. ( R v Le (2002) 54 NSWLR 474 at 481; R v White (NSWCCA 64 at 62-66). 50 It may well be accepted, as Ipp JA noted in Parkes at 81, that s 38 does have the potential for transforming the traditional procedures that obtained under traditional adversarial processes prior to the introduction of the Evidence Act in New South Wales. Although the section does have the potential for transforming those procedures, the Court is nevertheless required to consider carefully the matters specified in those sections of the Evidence Act identified by Wood CJ at CL in Fowler.

Resolution of the issues 51 As I read the questions and answers of Mr Geller commencing at transcript 5005, line 5, and concluding at 5015, line 30, there is, at least on the surface of it, a rather curious logic and an unexpected sequence that emerges. At the outset, the witness acknowledged or appeared to acknowledge that he did not know of any accounting practice in the Dolinas whereby stock that moved without invoice was not recorded as a sale, although this morning he gave a corrected answer. This suggested quite unequivocally that his earlier answer had been incorrect and that he was aware of such a practice. 52 Nevertheless, during his evidence-in-chief, the witness made no mention of the matters to him at transcript 5005 to 5015 and, perhaps more significantly, he gave no evidence that when he had performed his task as accountant and auditor, that he had approached the matter in the manner revealed in those later pages of transcript. Indeed, the tenor of his earlier evidence suggested the contrary. 53 At 5009, he expressed an opinion from an accounting point of view but by the time he had come to line 50 on that page, he said that as far as he was concerned, it "was a sale of Dolina Enterprises and Dolina Fashion Group" rather than just an expression of opinion related to his accounting expertise. 54 Later, as I will point out, he said that the corollary to this proposition, based on certain accounting standards, was that there would never have been a purchase by On Fovo Pty Ltd or Ronen Young Fashion of the un-invoiced stock. 55 As the Crown has pointed out, there were a significant number of instances in the earlier evidence where the witness had said that he based his reclassification on either instructions or assumptions, that the cheque payments related to these stock movements were in fact purchases by On Fovo and Mrs Ronen of Dolina stock. 56 As I have said, the logic of all this is rather curious. Application of the accounting standard referred to by Mr Geller would appear, depending on the facts and circumstances, to dictate rather the opposite conclusion to the one he expressed. Moreover, the sequence is curious because the conclusion he reached that purchases of stock were involved appears to be rather negated by the approach suggested to him in cross-examination. 57 In cross-examination, I will set out only the following passages:

Transcript 5011, lines 10 to 20: "Q. Where you have, on the other side of the transaction, we talk about for Ronen Young Fashions Pty Ltd and On Fovo - I am sorry, Ronen Young Fashions and On Fovo Pty Ltd, where you have the payment across from Ronen Young Fashions and On Fovo to Dolina Enterprises and Dolina Fashion Group, if the sale of those uninvoiced goods when it takes place is a sale - I am talking about the retail sale - is a sale of Dolina Enterprises Pty Ltd and Dolina Fashion Group, I suggest to you that there would never have been a purchase by either On Fovo Pty Ltd or Ronen Young Fashions? A. That's correct." 58 Transcript 5012, lines 5 to 57: " HIS HONOUR: Thank you, Mr Rosenbaum. Mr Crown, I think I will allow Mr Rosenbaum to pursue the matter. ROSENBAUM: Q. I expect you have forgotten the question. Where you have a retail sale of an uninvoiced good at either On Fovo Pty Ltd or Ronen Young Fashions and the retail customer who has made the purchase has paid for the purchase by way of a credit card and the proceeds of that credit card are deposited by the credit card company into the bank account of either On Fovo Pty Ltd or Ronen Young Fashions, in those circumstances, given your earlier evidence that the sale to the retail customer is a sale of Dolina Enterprises--

OBJECTION. (CROWN PROSECUTOR). ROSENBAUM: Your Honour, I object to the last bit. He has got to put it in the context of what significance it is they are deposited into On Fovo. HIS HONOUR: Mr Rosenbaum? ROSENBAUM: With respect, I don't think I have to point out. I think what I am putting to him is a fact of what happens. HIS HONOUR: Again I think I will allow, it, Mr Crown. ROSENBAUM: Q. If it is deposited in the bank account of On Fovo Pty Ltd or Ronen Young Fashions and if it is recorded in the accounts of Ronen Young Fashions or On Fovo Pty Ltd, even though you have said that it is the sales revenue of Dolina Enterprises Pty Ltd - I am sorry, Dolina Enterprises Pty Ltd or Dolina Fashion Group Pty Ltd - in those circumstances, would it be necessary for there to be an adjusting entry in the accounts of On Fovo Pty Ltd or Ronen Young Fashions? A. Correct. Q. In this particular case, you have given evidence that when there has been a reclassification of a loan on the On Fovo Pty Ltd side or the Ronen Young Fashions side, it has been reclassified as a purchase? A. Correct. Q. You would agree, would you not, that where we have these uninvoiced goods and the sale being - the retail customer being the sale of Dolina Enterprises or Dolina Fashion Group Pty Ltd, there is never a sale - I withdraw that - there is never a purchase within On Fovo Pty Ltd or Ronen Young Fashions in regard to those uninvoiced goods? A. Correct." 59 Transcript 5014, lines 18 to 50: " ROSENBAUM: Q. In terms of your evidence that the sales of these un-invoiced goods are truly the sales, from an accounting point of view of Dolina Enterprises and Dolina Fashion Group, and that there has been no sale to On Fovo Pty Ltd or Ronen Young Fashion, the advice which you have just spoken about that you were told that these were purchases from, by On Fovo Pty Ltd and Ronen Young Fashion, is that referable to un-invoiced goods? A. Well, we were informed that payments made by Ronen Young Fashion, On Fovo to Dolina Fashion Group, Dolina Enterprises were for purchases. Q. Were you, you were given those instructions by the accounts people at Dolina? A. And past experience over the years. Q. When you were told about these interim use of the loan account for the payments were reclassified to sales and accounts, in the accounts of Dolina Enterprises and Dolina Fashion Group and purchases in regard to On Fovo Pty Ltd and Ronen Young Fashion, given that the justification was it was in regard to un-invoiced goods, from an accounting treatment point of view, although the bottom line was the same to extract it from the accounts of On Fovo Pty Ltd and Ronen Young Fashion, from a practical accounting point of view did it matter whether it was recorded as purchases, as you did it, as opposed to a decrease in sales? A. Did it matter to bottom line or did it matter? Q. In regards to the bottom line? A. Didn't matter to the bottom line at all." 60 There are no doubt other passages that are relevant as well. 61 Although it is not entirely clear, it seems to me that Mr Geller, in the passages I have just read, is describing or apparently describing an actual process in which he engaged as part of his accounting and auditing work. If so, this is the first time he has said so in his evidence. His evidence has been going for some considerable time. There is nothing necessarily astonishing in that fact of itself, but it must be said it is a sequence of events that appears on the face of it to be largely contrary, or at least different from the sequences he had earlier described. But, more to the point, in my view the whole of that evidence between those pages 5005 to 5015 is plainly evidence that is unfavourable to the Crown as that expression appears in s 38 of the Evidence Act. 62 The evidence is not merely unhelpful, (see Adam v Regina), it positively embraces the defence case as I have identified it, especially if it is to be understood as a description of what Mr Geller thought and did, as opposed to merely his expert opinion based on purely hypothetical circumstances. But even if it be confined to the latter, it does not appear to be an approach he had in fact considered when he acted as accountant and audit manager. At least, I can find no reference to it in the body of his evidence-in-chief. 63 It also appears to me that the evidence is, as I indicated earlier, unambiguously inconsistent with the statements made by Mr Geller in paragraphs 9 and 15 of Exhibit "DU". 64 So far as the stocktake evidence is concerned, the Crown's concern with it is on quite a limited basis. As I understood the Crown's submissions, it suggested that Mr Geller in giving his evidence to the cross-examiner had, in effect, resiled from a position that he had agreed with during evidence-in-chief, namely the requirement in a stocktake as a consequence of accounting standards to recognise the existence of goods even if they were goods of no or little value. 65 The second topic in relation to the stocktake related to the nature of samples and questions as to whether. by definition, samples were not stock. The Crown wants to put to Mr Geller that, if these items were sellable items and if there was a market for them and they had demonstrated a past economic benefit and were capable therefore of producing a future economic benefit, Mr Geller had not been right in saying that accounting standards justified giving them a nil value. This is not a matter that is quite as clear to my mind as the previous topic but I certainly do not see any prejudice to the accused if leave is granted in relation to this brief aspect of the stocktake matters and I am satisfied that the evidence is certainly unfavourable to the Crown but I would indicate that my view is only a very few questions will be permitted to be asked in relation to that matter. 66 I do not consider in relation to the stocktake issue that there are any matters under s 38, s 135, s 137 or s 192 that would or should preclude the Crown from being permitted to undertake the limited questioning I consider is available. 67 To return to the main topic, however, I do think, contrary to Mr Richter's submissions, that notice was given at the earliest opportunity. The Crown adopted what I have described, in an earlier decision, as a middle course in asking a number of leading questions of Mr Geller. He did so with leave and, generally speaking, without objection and I think that in one sense the Crown was quite content with the answers that were given even though there remained issues about whether every reclassification was justified and about the true reason for the reclassification process. I do not think that there was any need, if the evidence had remained in that form, for the Crown to have given notice at that stage that it intended to make an application under s 38. 68 To be fair to the Crown I think that at different stages throughout the very lengthy cross-examination an indication was given that such an application might be made depending on the answers that were given to Mr Rosenbaum by Mr Geller. When, however, this matter was raised, that is the matters at transcript 5005 and following, the application was made almost immediately. 69 In relation to s 192 and ss 135 and 137 this topic is clearly an important topic. It is clearly a significant rung on the ladder of the defence case, as I have indicated, by setting out my understanding of the defence case. On the one hand the question will add length to Mr Geller's presence in the witness box but I think that is of little consequence, having regard to the overall length of the trial and the overall length of the time he has already been here. I do not think it will be unfair to the accused or to Mr Geller if questioning be allowed on that topic. 70 Indeed, to refuse the application for leave in my view would in fact be unfair to the Crown. The position of this witness vis-a-vis the Crown and the defence has always been an awkward one. The transcript is peppered with references to that situation - see also my earlier decisions in relation to Mr Geller, those decisions being 3 February 2004 and 24 September 2004. While I accept in a general sense that there is some merit in Mr Richter's submission that not every piece of evidence inconsistent with a prosecution theory will be evidence unfavourable to the Crown under s 38, (see Adams J in R v Pantoja (unreported), NSWCCA 5 November 1998) this particular body of evidence, and the manner in which it has emerged, is plainly unfavourable. 71 Against this awkward background, I have done my very best to steer the parties in a neutral direction to date. But the questions asked in cross-examination on this topic and the answers given by Mr Geller leave in my view no room for further compromise. I regard it as positively in the interests of justice that the applications by the Crown in relation to this topic be granted. I need to add that I have given careful thought to ss 135 and 137 of the Evidence Act. The matter under deliberation is in my view highly probative for the reasons emerging from my statement and comparison of the respective Crown and defence cases. 72 Care will, however, need to be taken by the Crown in asking questions to ensure, particularly on issues of credit relating to the topic, that the issue of Mr Geller's relationship with the accused does not become a collateral issue. This is the type of issue identified in Regina v Hogan (2001) NSWCCA 297 as potentially creating a very prejudicial situation. The Crown has given me an assurance that it will tread this path carefully and I accept the Crown's assurance. Provided that does not happen I do not consider that there is the danger of unfair prejudice to the accused. 73 There are in my view no reasons to exclude the evidence likely to emerge from the questioning on this topic and, I have already expressed a similar view, in relation to the stocktake issue.

Last Modified: 07/16/2007 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.

CITATION : Regina v Ronen & Ors [2004] NSWSC 1298 HEARING DATE(S) : JUDGMENT DATE : 30 September 2004

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