WILLS v PETROULIAS

FILE NUMBER(S) : CA 40219/03 COUNSEL : PS Hastings QC / CP Hoy (Claimant) R Richter QC / N Clelland (Opponent) SOLICITORS : Commonwealth Director of Public Prosecutions (Claimant) Diamond Peisah & Co. (Opponent)

LOWER COURT Supreme Court JURISDICTION : LOWER COURT SC 12242/02 FILE NUMBER(S) : LOWER COURT Simpson J JUDICIAL OFFICER :

IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40219/03

SPIGELMAN CJ HANDLEY JA SANTOW JA

Friday 3 October 2003 Gary Andrew WILLS v Nikytas Nicholas PETROULIAS

FACTS Nikytas Nicholas Petroulias (the Opponent) was committed for trial by a magistrate upon a charge of defrauding the Commonwealth contrary to s 29D of the Crimes Act 1914 (Cth). On appeal from the committal, the Opponent argued that the Claimant had failed to demonstrate an element of the charge, namely loss to the Commonwealth. The Opponent, an Assistant Tax Commissioner, had been involved in the promotion of an employee incentive scheme which relied upon private binding rulings issued by the Australian Taxation Office declaring that the scheme would yield certain taxation benefits for participating employers. The trial judge found that the magistrate committed an error of law in deciding to commit the Opponent for trial on the s29D charge. The trial judge decided that the appropriate order was to quash the decision to commit.

HELD Per Spigelman CJ, Handley and Santow JJA agreeing

A. The trial judge erred in exercising the discretion to make the order quashing the decision to commit. The decision of the Federal Court in Essenbourne Pty Ltd v Commissioner of Taxation [2002] FCA 1577 did not establish that the Commonwealth has lost nothing of value by reason of the Private Rulings [43]-[47].

B. The original formulation of the charge, that the Opponent had assisted taxpayers to avoid the payment of taxation did require the Claimant to demonstrate an actual loss of revenue. [51]

C. It is sufficient for purposes of the element of deprivation in a charge under s29D to establish that a bona fide claim to a lawful right interest or opportunity which had not previously been resolved was resolved. This would require the prosecution to demonstrate only that there was a 'genuine dispute' about those matters or that the Commissioner of Taxation was 'genuinely asserting' a position contrary to that adopted in the rulings. There was evidence to satisfy that requirement for the purposes of committal for trial. [72], [73], [78]

Peters v The Queen (1998) 192 CLR 493 ; The Queen v Kastratovic (1986) 42 SASR 59 applied. Wigan v Edwards (1973) 47 ALJR 586 referred to. MacLeod v The Queen (2003) 77 ALJR 1047 ; Spies v The Commonwealth Bank of Australia (1991) 24 NSWLR 691 cited.

D. Upon a correct reading of the decision in Essenbourne supra, the private binding ruling procured by the Opponent was arguably incorrect as to the tax deductibility of contributions to the employee incentive scheme and liability of the employer for fringe benefits taxation. [46]-[47], [85] Essenbourne Pty Ltd v Commissioner of Taxation [2002] FCA 1577 discussed.

E. No relevant prejudice has been identified. The Crown could file an ex officio indictment. Section 110(1) of the Justices Act 1902 applies. The discretion as to what order should be made should be exercised against quashing the committal. [84]-[87], [90], [91] ORDERS

Leave to appeal granted. Appeal allowed with costs. Order quashing the committal set aside. IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40219/03

SPIGELMAN CJ HANDLEY JA SANTOW JA

Friday 3 October 2003 Gary Andrew WILLS v Nikytas Nicholas PETROULIAS Judgment 1 SPIGELMAN CJ: The Court has before it an application for leave to appeal from two judgments of Simpson J in the Common Law Division of the Court: Petroulias v Wills [2002] NSWSC 1190 and Petroulias v Wills [2003] NSWSC 106. Her Honour determined an application pursuant to s104(3) of the Justices Act 1902 for leave to appeal against the decision of a magistrate of the Local Court to commit the Applicant for trial on three charges under the Crimes Act 1914 (Cth). Her Honour granted leave and dismissed the appeal with respect to two charges under s70(1) and s73(2) of the Crimes Act 1914 (Cth). However, her Honour allowed the appeal with respect to a charge under s29D of the Crimes Act 1914 (Cth). Simpson J made an order quashing the committal for trial on that charge. Her Honour ordered the Claimant in this Court to pay the Opponent's costs of the appeal and the Opponent's costs of the committal proceedings so far as those costs were incurred in relation to the charge under s29D. 2 The Justices Act has been repealed. However, cl 4 of Schedule 1 of the Crimes (Local Courts Appeal and Review) Act 2001 preserves the efficacy of the appeal to the Supreme Court and of the appeal to this Court.

The Crown Case 3 Between 1997 and 1999 the Opponent held office in the Australian Taxation Office ("ATO"). In September 1998 he became First Assistant Commissioner. The Crown alleges that at the time of such employment the Opponent was also involved in the planning, promotion and implementation of tax schemes with certain other persons and that he used his position as an officer of the ATO to facilitate favourable Advance Opinions and Private Binding Rulings issued by the ATO. 4 Private Rulings are issued under Pt IVAA of the Taxation Administration Act 1953 (Cth). The scheme of Private Binding Rulings is as follows: · A person may apply to the Commissioner for a ruling as to how a tax law would apply to the person in relation to an arrangement (s14ZAF). · The Commissioner is obliged to comply with an application for such a ruling, subject to certain exemptions (s14ZAL(1) and s14ZAN). · There are circumstances, not presently material, in which a Commissioner may decline to make a ruling (s14ZAQ). · A ruling given in this manner is binding by force of statute (s170BB of the Income Tax Assessment Act 1936 (Cth). 5 The Opponent and his partners established a business known as the Productivity Incentive Corporation ("PIC") which, inter alia, applied for Private Binding Rulings with respect to tax schemes described as Employee Benefit Arrangements ("EBAs"). In general terms the EBAs involved the payment by an employer of monies into a trust fund. The trust would lend money to individual employees for the purpose of purchasing units in the trust. The income of the trust would enure to the benefit of nominated employees. The eligibility of the employees to receive returns on the units would depend on continued service with the employer and the attainment of productivity or performance standards. The corpus would eventually vest in favour of the employee. The purpose of these arrangements was said to be to encourage employees to remain with their employer and also to act as an incentive for such employees to become more productive. 6 As is usually the case, the taxation treatment of the cash flows was of critical significance to the commercial viability of the arrangements. It was always accepted that each employee would be assessable on his or her share of income of the trust. Four issues arose: · Would the employer's contributions be deductible at the time they were made? · Would the employer be liable for fringe benefit tax under the Fringe Benefit Tax Assessment Act 1986 (Cth) with respect to its contributions? · Would the general anti-avoidance provisions found in Pt IVA of the Income Tax Assessment Act apply to the scheme? · Would the employee be assessable on the value of the units in the trust that each acquired? 7 The Crown case was that the Opponent used his position to ensure that officers under his direction issued favourable rulings with respect to applications made by the joint venture in which he had a financial interest. This was in contrast with the Opponent's intervention with respect to applications by other promoters of similar schemes, in the case of which he allegedly intervened to ensure that favourable rulings were not given. Indeed, the Crown contended that the Opponent was involved in the preparation and publication of a Public Ruling in which the ATO indicated a view opposed to the efficacy of the EBAs. 8 There were a number of indicators of dishonesty, which is an essential element of an offence against s29D. The element of dishonesty was not in issue before Simpson J or in this Court. These proceedings did not focus on the mental element of an offence against s29D of the Crimes Act. The focus of these proceedings is the element of 'loss' or 'disadvantage' in the offence of "defrauding the Commonwealth". I will refer to this as the element of deprivation. It is not enough to establish a fraud. Someone must have been defrauded. 9 In Spies v The Queen (2000) 201 CLR 603 at [87], the joint judgment of four judges of the High Court quoted with approval a passage from the judgment in Welham v Director of Public Prosecutions [1961] AC 103 at 123, where Lord Radcliffe said of defrauding: "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." 10 The joint judgment went on to say at [91]: "… 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."

and at [92], with reference to the facts of the case: "… that person … has obtained or used or prejudiced what belongs to the creditors by dishonest means. … 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." 11 Simpson J held that the Crown had not adduced evidence at the committal capable of satisfying the element of deprivation because it had not sought to establish that the Private Rulings were even arguably wrong. Accordingly, her Honour held the charge of defrauding the Commonwealth could not be made out and quashed the order for committal.

The Charge 12 The charge before the magistrate, which remained the basis of the proceedings at the time that the leave application was heard by Simpson J, was in the following terms: "That between about 1 September 1997 and 17 February 1999 Nikytas Nicholas Petroulias, also known as Nick Petroulias, did defraud the Commonwealth, namely the Australian Taxation Office contrary to s29D of the Crimes Act 1914 in that, while an officer of the Australian Taxation Office he did, by dishonest means, assist taxpayers to avoid the payment of taxation." 13 The two particulars originally given of this charge were as follows: "While an officer of the Australian Taxation Office involved in the regulation of tax avoidance arrangements, in breach of his duty he (a) was involved in devising, promoting and implementing tax avoidance arrangements known as employee benefit arrangements; and (b) facilitated the issue by the Australian Taxation Office of favourable Advance Opinions and Private Binding Rulings to taxpayers entering into such arrangements." 14 Further particulars of dishonesty were sought and supplied. No particulars of the element of deprivation were sought. 15 An issue arose in the course of the hearing before Simpson J as to whether or not the charge, as originally formulated, required the Crown to establish an actual loss of revenue. During the course of the hearing those appearing for the Crown, whilst rejecting the proposition that the charge was capable of such an interpretation, nevertheless put forward an alternative charge formulated in the following terms: "Between about 1 September 1997 and 27 February 1999 Nikytas Nicholas Petroulias, did defraud the Commonwealth, namely the Australian Taxation Office, in that, while an officer of the Australian Taxation Office, he did, by dishonest means, assist taxpayers to endeavour to avoid the payment of tax." 16 In the submissions to this Court, the Crown put its case in another formulation. It alleged that the Opponent had "put the interests of the Commonwealth at risk". It may be that the concept of 'risk' or 'imperilment' in this formulation was what was sought to be conveyed by the word "endeavour" in the reformulated charge. 17 During the course of the hearing before Simpson J the Crown case was expressed in a third way, although this version was never reduced to the terms of a formal charge. Her Honour recorded the Crown position at a number of points in her first judgment of 16 December 2002 in terms of the loss of the "opportunity to litigate". 18 For example, after referring to submissions that the element of defrauding could arise where the Commonwealth's revenue was "put at risk, prejudicially affected, or 'imperilled'", her Honour said at [38]: "The consequence … is that the Commissioner was deprived of the opportunity to test, by adjudication in a court, the correctness of the views expressed in the rulings. Once the ruling was given, the employer and employees were safe from the imposition of taxation of the kinds the subject of the rulings. This was so whether or not curial adjudication of the issues involved would have resulted in a favourable decision for the taxpayer. What the Crown proposes to prove was 'imperilled' by the applicant's dishonest conduct was its opportunity to litigate the effectiveness of the schemes or plans." 19 I note that the Crown did not at any time formulate the element of deprivation in terms of "deceiving public officers into committing a breach of duty". This has considerable support in the authorities. (See e.g. R v Bassey (1931) 22 Cr App R 160 at 162; Board of Trade v Owen [1957] AC 602 at 622; R v Withers [1975] AC 842 at 877 (see below [1974] 1 QB 414 at 420); Wai Yu-tsang [1992] 1 AC 269 at 277; Peters v The Queen (1998) 192 CLR 493 at [74]). This effect was once expressed in terms of "deceiving a person responsible for a public duty into doing something that he would not have done but for the deceit" (R v Terry [1984] 1 AC 374 at 379). The Crown case in these proceedings did not rely on any such loss or disadvantage.

The Rulings 20 The proceedings before Simpson J and in this Court did not focus on any Advisory Opinions said to have been issued. The focus of attention was on certain Private Binding Rulings, which the Court was informed were seventy-five in number. One such ruling was tendered as typical in the proceedings before Simpson J. That Ruling, under the heading "What this Ruling is About", said: "The Private Ruling relates to income and fringe benefits tax implications of the Productivity Incentive Trust Plan designed to encourage key employees and contractors (hereinafter simply 'employees') to remain with the business of Morgan H R Pty Limited and to act as an incentive for employees to become more productive so as to increase the profitability of a business of Morgan H R Pty Limited." 21 The Ruling made contained the following pertinent paragraphs: "1 The employer is entitled to an immediate deduction pursuant to Section 8-1 of the 1997 Act for the amount contributed to the unit trust in respect of participating employees. … 3 No figures have been presented to (sic) as to the amounts by which employees or contractors are to be remunerated through the Incentive Trust. As such, no ruling can me (sic) made on the application of Section 65 and Section 109 of the 1936 Act. However, provided the amounts contributed in respect of each participating employee is a reasonable and not an excessive amount (i.e. commercially justifiable) Section 65 and Section 109 of the 1936 Act should have no application. 4 An FBT liability will not arise in respect of Morgan HR at the time contributions are made by the employer to the unit trust or assets are acquired by Newco in its capacity as trustee for the unit trust. Contributions by the employer to the unit trust will not be residual fringe benefits. 5 No FBT liability to Morgan HR arises in respect of the issue of the initial units or any subsequent units to a participating employee. 6 Morgan HR is not subject to FBT in respect of the interest free loan from Newco to the participating employee because of the otherwise deductible rule. … 10 The participating employees will not be assessable on the amount contributed by Morgan HR to the unit trust under Section 6-5 of the 1997 Act and or Section 26(e) of the 1936 Act. … 12 The participating employee will not be assessable on the value of the units in the unit trust that they each acquire. 13 Each participating employee will be assessable on his share of the net income of the unit trust for tax purposes. … 19 That Part IVA of the 1936 Act and Section 67 of the FBTAA should have no application if it can be demonstrated that the dominant purpose of the arrangement is to retain key employees and/or provide an incentive for them." 22 This Ruling was subject to the proviso that the documentation was the same or substantially the same as that contained in, and the arrangement was carried out in the same or substantially the same manner as described in, the request for a Private Ruling. 23 As noted, par [3] of the Ruling made reference to s65 and s109 of the 1936 Act which empower the Commissioner to determine a reasonable level of an allowable deduction in certain circumstances. 24 Some comfort with respect to the application of this condition was supplied in a document headed "Explanation" which was not formally part of the Private Ruling. The "Explanation" stated: "Provided the contributions made by the employer to the unit trust are reasonable and not excessive taking into account the total salary package, Section 65 and Section 109 of the 1936 Act would not apply in the subject circumstances. The cited BIPIERS method for determining reasonableness would seem to be appropriate in giving rise to a reasonable and not excessive amount, but individual circumstances of each employee need to be considered separately." 25 The BIPIERS method referred to was a mode of calculation submitted by the Applicant for the Private Ruling with the application. 26 Similarly, comfort was given with respect to the application of Pt IVA of the 1936 Act referred to in para [19] of the Ruling. The "Explanation" noted, inter alia, that Pt IVA may apply if the scheme were "entered into with the sole or dominant purpose of obtaining a tax benefit". The "Explanation" added: "The number of employees or their remuneration levels has not been provided nor has the nature of their work been considered relative to their remuneration levels other than verbally and in general terms. Accordingly, no ruling can be made as to how Part IVA of the 1936 Act will apply in respect of any particular employee. However, provided the dominant purpose of an employer in creating a Productivity Incentive Trust Plan is to (i) retain key employees, and (ii) increase employee productivity and, therefore, profitability and provided amounts contributed to the unit trust are reasonable, the provisions of Part IVA of the 1936 Act will have no application in the subject circumstances."

Error of Law Identified by Simpson J 27 Her Honour identified the issue before her in terms of whether the evidence before the magistrate was capable of amounting to defrauding the Commonwealth within s29D. She emphasised the terminology of the actual charge which included the phrase: "assisting taxpayers to avoid the payment of tax". Her Honour stated the issue at [38] in the following terms: "What is in issue for the purpose of the present application is whether there was evidence sufficient to establish to the satisfaction of a jury to the requisite degree that the money or property of the Commonwealth was put at risk, prejudicially affected, or 'imperilled'." 28 Her Honour went on to note that the Crown put its case in the following way at [39]: "Initially, senior counsel for the Crown resisted any suggestion that it would be necessary also for the Crown to establish that the rulings were at least arguably wrong. However, after consideration, as I understood his ultimate position, it was that such evidence is available, although he never accepted that it would be necessary or even relevant to adduce such evidence." 29 Her Honour noted that an appeal under s104(3) of the Justices Act was maintainable "on a question of law alone" and stated at [40] that: "The principal issue of law involved concerns whether, and if so, the extent to which, it will be necessary for the Crown to establish the invalidity or incorrectness of the rulings." 30 A crucial step in her Honour's reasoning was the following at [43]: "The mere fact that a ruling is to the effect that, in the particular circumstances outlined in the application for the ruling, tax is not payable, does not confer any benefit except certainty on the taxpayer - unless the ruling is, or is arguably, wrong. It cannot be said that a ruling which correctly acknowledges that, in a particular set of circumstances, a taxpayer is not liable for the imposition of a particular tax, confers any benefit upon that taxpayer, or any corresponding disadvantage upon the Commonwealth." 31 Her Honour went on to say at para [44]: "In the absence of any ruling of a binding character, the Commissioner would have had the opportunity of obtaining an adjudication by the courts on the question of whether tax was payable in the relevant circumstances. Once, however, a favourable ruling had been given, its binding character deprived the Commissioner of that opportunity. What he was 'defrauded' of, on the Crown case, was the opportunity to have the scheme subjected to curial adjudication. Implicit in this analysis is the notion that the schemes were, at least arguably, ineffective; the corollary of which is that the rulings were, at least arguably, incorrect. If the last proposition were not correct - that is, if the rulings were incontrovertibly correct, of it the correctness was not, as the Crown would have it, in question - the Commissioner would have been deprived only of a right to litigate that was of no possible value. … it is necessary that the thing of which the Commonwealth is defrauded have some value. I do not see that a right to litigate a hopeless case is a right that has any value. In order to make out a case of defrauding the Commonwealth under s29D, it was, therefore, essential to the prosecution case that tax was arguably payable under the circumstances detailed in the applications for ruling and that, by corollary, the rulings were arguably incorrect. That would necessarily mean that the right or opportunity to litigate the efficacy of the scheme was a right or opportunity having some value." 32 Her Honour went on to note that counsel for the Opponent sought to cross-examine officers of the ATO on the correctness of the ruling during the course of the committal. Objection was taken by the Crown and cross-examination of that character was rejected. Her Honour concluded that rejection of this cross-examination demonstrated the basic error in the Crown's case that it was not obliged to establish that the ruling was even arguably wrong. 33 Her Honour further concluded that: "[47] Having regard to the concept of defrauding as explained in Peters [ v The Queen (1998) 192 CLR 493], it would be open to the Crown, in a charge under s29D, to set out to prove (as it proposes to do) only that the Commonwealth had, by the applicant's dishonest actions, been deprived of the right or opportunity to litigate the efficacy in avoiding taxation of the schemes or plans. Providing it could establish, also, that it had some prospects of succeeding in such litigation, that would, in my view, be sufficient to establish fraud within the meaning of s29D. [48] But that ignores the manner in which the s29D charge is framed. The Crown has at all times formulated the charge as defrauding by 'assisting taxpayers to avoid the payment of tax'. [49] I am satisfied that, in order to make out that charge - as framed - it will be necessary that the Crown establish that tax was in fact payable, and was in fact avoided by the applicant's dishonest actions. The charge as framed is not apt to encompass, as the subject matter of the fraud - that is, the right or opportunity or valuable thing of which the Commonwealth was allegedly defrauded - the right or opportunity to litigate the liability to taxation of the person seeking the rulings." 34 Her Honour rejected the Crown submission, to which I will refer below as it was also put to this Court, as to the interpretation of the original charge. Her Honour went on to find that the charge as originally framed required "proof of actual loss" ([52]) and concluded: "[53] In the absence of evidence that the rulings were incorrect, and that tax would have been payable in the circumstances outlined in the applications, it was not open to the magistrate to commit the applicant for trial on the s29D charge as formulated. To do so constituted error of law. [54] In the absence of evidence that the rulings were arguably incorrect and that tax may have been payable in the circumstances outlined in the applications, it would not have been open to the magistrate to commit the applicant for trial on a charge under s29D that asserted, not that the applicant assisted taxpayers to avoid the payment of tax, but that the applicant's dishonest conduct deprived the Commissioner of the opportunity to litigate the liability of the taxpayers to tax. If the Crown wishes to pursue its case on this basis, it will be necessary that it reframe the charge. The charge as presently framed, in my view, requires proof of actual loss to the revenue, by the avoidance of tax properly payable." 35 In her Honour's supplementary judgment of 3 March 2003, where her Honour was primarily concerned with the issue of what orders should be made, her Honour reiterated in a summary form the conclusions she had reached as to the error of law that she had identified in the following terms: "[4] At the committal proceedings the informant was not in a position to prove that the rulings were incorrect, and shrank from setting out to prove that they were arguably incorrect. That is, the informant could not prove that any tax which otherwise would have been payable to the Commonwealth had been avoided by any of the participants; or, in other words, that the Commonwealth had been deprived of anything of value. In my view, this has the result that, while the informant was able to adduce evidence of dishonesty, he was not able to identify anything of value of which the Commonwealth had been defrauded. There was no proof of the subject mater of the alleged fraud. [5] The informant sought to identify the subject matter of the fraud by reference to the binding nature of the rulings. The consequence of that, he argued, was that the Commonwealth was not able to litigate the efficacy of the arrangements (or the liability of the participants to taxation) in a court. The rulings, binding as they were, precluded that. The right to litigate the arrangements was put by the informant as the valuable thing of which the Commonwealth was deprived. Once a binding ruling was issued, the ATO was bound to honour it. … I took the view that, unless there was evidence that the rulings were at least arguably incorrect, it remained the position that there was no evidence that the Commonwealth had been deprived of any right of any value. … A taxpayer who implemented arrangements of the kind in question would not, with or without the benefit of a private ruling, be liable to taxation of the kind in question. Regardless of the level and degree of dishonesty, corruption or impropriety involved in the obtaining and issue of private rulings, the informant would be unable to point to anything of value of which the Commonwealth had been deprived. The Commonwealth would not have been deprived of any tax because tax would not have been payable. The right to litigate a different instance of the same arrangement would be of no value, because the conclusion of the litigation would be foregone."

Orders of Simpson J 36 At the conclusion of her first judgment, Simpson J directed attention to the orders that could be made by the Court pursuant to s109 of the Justices Act 1902. This included an order quashing or setting aside the order of the Local Court. Her Honour concluded: "[66] I do not think it appropriate to set aside the order committing the applicant for trial on the s29D count. However, I am conscious that, because of the erroneous view taken of the need for the Crown to prove that the rulings were, or were arguably, incorrect, a relevant issue has not been explored at committal. It may be that this deficiency can be rectified, either by remitting the matter to the magistrate for the purpose of permitting further cross examination of witnesses; that may be remedied by a procedure of the kind envisaged in Basha v R (1989) 39 A Crim R 337." 37 Accordingly, her Honour left open the question of orders and relisted the matter for further submissions. Coincidentally, the day after her Honour handed down her first judgment in this case, the Honourable Justice Kiefel handed down a judgment in the Federal Court of Australia, Essenbourne Pty Ltd v Commissioner of Taxation [2002] FCA 1577, which ruled on the accuracy of a number of the matters contained in the Private Binding Ruling. This judgment proved determinative on the issue of what orders Simpson J eventually made. Notwithstanding the expression of a tentative view, subject of course to further submissions, that it would not be appropriate to set aside the order committing the Applicant for trial, in the event her Honour did make an order quashing the order of the magistrate. 38 The significance of the judgment in Essenbourne was emphasised at a number of points of the supplementary judgment of Simpson J. It was agreed between the parties that the arrangements in the Private Rulings, the subject of the committal proceedings, were essentially the same as those considered by the court in Essenbourne. Her Honour said: "[6] …I propose, therefore, to accept that the decision in Essenbourne amounts to a decision that the arrangements the subject of the applicant's scheme are effective legitimately to avoid the incidence of taxation, and that a taxpayer who implemented arrangements the subject of the private rulings would, on the authority of Essenbourne , not be liable to taxation." 39 Her Honour also said: "[7] … as the law presently stands, as stated by Kiefel J, the arrangements the subject of the private rulings in question being essentially and relevantly similar to the arrangements in Essenbourne, no tax is payable by the taxpayers in question, and the Commonwealth has been deprived of nothing of value. The most that could be said is that the Commonwealth does not have the opportunity to litigate the efficacy of the arrangements. But what does that amount to in the light of the decision of Kiefel J? In order further to litigate such a scheme, it would be necessary for the Commissioner to levy tax on a taxpayer (either by disallowing a claimed income tax deduction, or by requiring the payment of fringe benefits tax); for the taxpayer to commence proceedings; for the Commissioner to persuade the judge (or an appellate court) that Essenbourne was wrongly decided and that, in the circumstances, tax was payable. Although it is complicated by the fact that Essenbourne was partly settled by negotiation, given that the Commissioner opted not to challenge that decision, it seems unlikely that the opportunity to litigate a scheme or arrangement of the same kind is of any real value. [8] Were it not for the decision in Essenbourne , I would have been attracted to disposing of this application by taking one of the courses I mentioned in paragraph 66 of my conclusions and reasons of 16 December 2002. I deferred making a decision on that in order to give the parties an opportunity to put before me their reasons for urging one or other of those, or some other course. Senior counsel for the informant argues that I should adhere to that scenario, putting as the informant's preferred option an inquiry in this court of the kind envisaged in Basha v R (1989) 39 A Crime R 337. That inquiry would necessarily be into the availability of evidence that the favourable rulings given to the taxpayers were, or were arguably, incorrect." 40 Her Honour recorded the submission on behalf of the Opponent to the effect that the appropriate order was to quash the decision to commit. 41 Her Honour indicated: "[10] … I cannot ignore the subsequent developments, particularly when they are of the significance of the judgment in Essenbourne. " 42 Her Honour concluded that the Court was able to take into account such developments as they were relevant to the exercise of the discretion conferred by s109. She concluded that the appropriate order was an order quashing the order for the Applicant to be committed.

The Effect of the Federal Court Judgment 43 In my opinion, Simpson J was in error in assessing the judgment of Keifel J in Essenbourne. Far from constituting some kind of defeat for the Commissioner of Taxation, Essenbourne appears likely to have the effect of destroying the efficacy of the employee benefit arrangements of the character in issue in the present proceedings. 44 It is the case that the judgment in Essenbourne was to the effect that fringe benefits tax was not payable on the employer's contributions made under the arrangement. In the submissions before her Honour, counsel for the Opponent focused on the fringe benefits tax aspect of the Rulings and her Honour adopted that perspective. This apparently reflected the concentration on the fringe benefits tax issue in the defence case at the committal. However, that was not the only tax issue that arose in Essenbourne, or that arises in the present case. 45 Of greater, indeed one would think determinative, significance with respect to the tax position of these arrangements, in the decision in Essenbourne, was the finding that the employer contributions to a trust were not deductible. It appears in the highest degree commercially unlikely that employers would persist in creating arrangements in which payments are made in lieu of wages or salaries, but in a form which is to be classified as non-deductible capital expenditure. 46 Paragraph 1 of the Private Binding Ruling, tendered as typical of the rulings with which the present proceedings are concerned, as quoted above, is a ruling to the effect that the employer is entitled to a deduction for the amount contributed to the unit trust. On the agreed basis that the rulings in these proceedings were not materially different, Essenbourne establishes that this paragraph was incorrect. This is, in my opinion, the lynch pin of the scheme. It is of greater significance, one would have thought, than the fringe benefits tax liability. This deductibility is a matter which the Commissioner will be disentitled from contesting with respect to the administration of the schemes under the Private Rulings obtained in this case, if an arrangement is implemented in accordance with the applications. 47 In my opinion, the determinative weight which her Honour gave to the judgment in Essenbourne with respect to the orders she eventually made, was based on a misunderstanding of that judgment. For that reason her Honour's exercise of discretion in deciding to quash the order for committal miscarried. This error is, alone, sufficient to grant leave to appeal. As will appear there are other reasons. The Court should grant leave and proceed to determine the appeal.

The Appeal 48 The issue before this Court is whether Simpson J erred in coming to the conclusion that the magistrate committed an error of law in coming to the conclusion, to which the magistrate was required to come under s41(6) of the Justices Act 1902, namely that "there is a reasonable prospect that a jury would convict the defendant of an indictable offence". It is no part of this Court's function to advise the Crown. The Court should avoid giving the impression that in some sense it is settling the indictment. The precise terms of the indictment are a matter for the Crown. 49 Throughout, the Crown has taken the position that it does not need to establish that the nature of the loss was an actual decrease in revenue. It did, however, submit that it was sufficient for its revenue to be imperilled. Her Honour came to the conclusion that in order to prove such 'imperilment', the Crown had to adduce evidence to the effect that the Private Binding Rulings issued pursuant to the alleged scheme were, at least arguably, incorrect. Whilst not acknowledging that it had to establish any such proposition, the Crown did submit that there was evidence of that character.

The Original Charge 50 As indicated above, Simpson J formed the view that the charge as originally formulated, i.e. "… did, by dishonest means, assist taxpayers to avoid the payment of taxation" was such as to allege that the Commonwealth did, as a matter of fact, lose revenue. The Crown submission to her Honour, repeated in this Court, was that the use of the word "to" in the phrase "to avoid the payment of tax" did not carry any implication that tax was in fact avoided, but simply put tax payers, to repeat the submission exactly, "in a position to endeavour to minimise their taxation liabilities." It was in order to make this proposition clear that the Crown introduced the words "to endeavour to" in the alternative formulation of the charge. 51 It was, of course, always open to the Commonwealth to particularise an actual loss of revenue as the relevant deprivation for the purposes of the offence of "defrauding". In my opinion, the specific and unusual use of the word "to" in the sense of "to endeavour to", was not the natural meaning of the original charge. At the very least, it is so ambiguous as to be inappropriate for the formulation of an indictable offence. In my view, her Honour was correct to conclude that the charge as originally formulated presented a Crown case to the effect that revenue had in fact been lost. There was no evidence of any such loss.

Alternative Formulations 52 The alternative charge contains difficulties of its own in the use of the word "endeavour" and the word "avoid". Without commenting on the terminology, the Crown invokes a line of authority to the effect that it was sufficient for the purposes of the element of deprivation in a defrauding charge to establish a "risk" or some form of "imperilment" or of "prejudice" to an economic interest of the Commonwealth. It was this approach which, her Honour concluded, required the Crown to adduce some evidence that the Private Rulings were at least arguably wrong. She concluded that it had not done so. 53 The third way the Crown put its case was variously described in terms of a "right to litigate" or as the deprivation of "the opportunity to test the correctness of the views by adjudication". Her Honour rejected this approach to the Crown case on the basis that any such 'right' or 'opportunity' must be shown to have been of some value in the same way as her Honour rejected the previous formulation, i.e. there had to be evidence of an arguable case that the Rulings were wrong.

Risk / Imperilling / Prejudice 54 The proposition that a charge of defrauding can be made out by putting the property or rights of a person at risk or imperilling them or prejudicing them in some way is well established. (See, for example, The Queen v Kastratovic (1986) 42 SASR 59 at 62; Peters v The Queen at [30], [73]-[74], [84] and [138]; Spies v The Queen at [79]-[81]; MacLeod v The Queen (2003) 77 ALJR 1047 at [35]. See also R v Scott [1975] AC 819 at 839; Wai Yu-tsang at 280). 55 In the way Simpson J understood the Crown to put its case, this element of 'risk' or 'imperilment' or 'prejudice' was an actual risk. The Crown could mount a case of that character. The charge as originally formulated, and as substituted with the formula including the word "endeavour", may well be understood in that sense. I agree with her Honour that a charge so understood would depend on the Crown establishing that, at least at the level of an arguable case, the Private Rulings were wrong. 56 In this Court, the Crown submitted that there was evidence before her Honour to indicate that the Crown's case was arguable, particularly, but not only, with respect to that part of the Private Ruling which stated that a scheme of the character which was the subject of the Ruling, would not in fact incur any liability under the fringe benefits tax regime. The Crown pointed to the evidence, presented to her Honour and this Court in summary form, which indicated that strong views had been expressed within the ATO that the regime would apply; that the Opponent himself had actively promoted that opinion with respect to the consideration within the ATO of Private Rulings sought for EBA schemes, other than those in which the Opponent had a financial interest; that the Opponent actively promoted a Public Ruling to the effect that the schemes did not work in terms of their fringe benefits tax implications and that a Public Ruling to that effect was in fact issued. 57 The Crown accepted that, eventually, in Essenbourne this aspect of the scheme was in fact upheld in the Federal Court at first instance, but that did not, it was submitted, affect the risk of prejudice to the position of the Commonwealth as at the date that the Private Rulings in issue in the proceedings were given. 58 The summary way in which the evidence before the committal was given before Simpson J established that a strong opinion to the effect that the EBA schemes did not work from the fringe benefits tax perspective was held. This evidence did not, at least on the materials before this Court, indicate the nature of the arguments upon which this opinion was based. However, prior to her Honour making the orders she did make, she had access to what was likely to have been the foundation of those arguments in the form of the summary of the submissions made, but rejected, by Kiefel J in Essenbourne. 59 The material before this Court does not establish whether or not the material before the magistrate established that the Crown case in this respect was "arguable". It simply established that there was a widely held belief that it was arguable. It may be that there was more material before the magistrate than has been drawn to the attention of Simpson J or this Court. 60 Furthermore, there was material before the magistrate with respect to the ground upon which the ATO succeeded in Essenbourne, i.e. the non-deductibility of the employer contributions to an EBA. Particular H(iii), admittedly supplied only as a particular of dishonesty, was to the following effect: "On 15 April 1998 Petroulias sent an email to Ken Ackhurst, who had received a PBR application for an EBT for a taxpayer not connected to PIC, directing him to rule against the deduction of the contribution and applying FBT." (emphasis added) 61 This intervention was clearly directed to the issue of deductibility and not simply to the issue of the liability to fringe benefits tax. In this regard, the 'risk' or 'prejudice' or 'imperilment' to the Commonwealth, from the issue of a Private Ruling which prevented the Commonwealth from contesting the issue of deductibility, was consistent with the judgment in Essenbourne. 62 I would not have thought that the Crown could establish an actual 'risk' or 'imperilment' or 'prejudice' without at least some indication of the argument in favour of the proposition that some aspect of the ruling was wrong. However, it is unnecessary to finally decide that issue. Insofar as the alternative charge is to be understood as requiring an actual deprivation, (and that is not entirely clear), I agree with Simpson J that the magistrate committed an error of law in concluding under s41(2)(b) that "the evidence is capable of satisfying a jury beyond reasonable doubt" that the Opponent committed an offence under s29D. That does not, however, as Simpson J recognised, lead to an order quashing the committal. The subsequent judgment in Essenbourne and other considerations had to be taken into account.

Opportunity Lost 63 The Crown also relied on an element of deprivation expressed in terms of a loss of an opportunity to test the views expressed in the rulings by adjudication or of an opportunity to litigate. The issue that arises in this respect is whether or not the element of detriment in a charge of defrauding can be made out on the basis of a loss of opportunity to determine a matter, which is an open question and about which a bona fide belief favourable to a person is held by that person. If that is sufficient, then it is not, in my opinion, necessary to establish in a positive way that the Commonwealth had an arguable case. 64 It was the loss of the ability to argue the case, by the mandatory operation of s170BB of the Income Tax Assessment Act 1936 (Cth) which gave the Private Rulings binding force, as distinct from the possibility of winning the case that was, on this approach, the relevant deprivation. It is only if reliance is place on the possibility of winning a case, that establishing an arguable case could be an essential part of the Crown case in proceedings under s29D. 65 In The Queen v Kastratovic, King CJ said at 62: "The essential notion of defrauding is dishonestly depriving some person of money or property, or depriving him of, or prejudicially affecting him in relation to, some lawful right, interest, opportunity or advantage which he possesses." 66 His Honour's approach was affirmed as authoritative in the judgments of the High Court in Peters v The Queen where Toohey and Gaudron JJ said at [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 the 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." (reference omitted) 67 This passage was, in turn quoted with approval in the joint judgment of Gaudron, McHugh, Gummow and Hayne JJ in Spies v The Queen at [79] and in the joint judgment of Gleeson CJ, Gummow and Hayne JJ in MacLeod v The Queen at [35]. 68 In Kastratovic, King CJ went on to give an example of a 'prejudicial effect' of a character pertinent for the present proceedings when he said, at 65: "I think that the intent to deprive a person of the opportunity of having a genuine dispute or a reasonably available defence properly adjudicated upon would be an intent to defraud for the purpose of the offences based upon obtaining money or property by dishonest or forbidden means. An intent by dishonest means to convince the supposed debtor that a defence which the accused believes the debtor to consider to be reasonably available to him, is without merit, and thereby to procure the payment of the claim would be an intent to defraud notwithstanding that the accused might genuinely believe that the defence should not be sustained and that his claim is just. An intent to substantiate by dishonest means a claim which the accused believes to be genuinely disputed is an intention to defraud." (emphasis added) 69 This part of the reasoning of King CJ was reflected in the judgment of Toohey and Gaudron JJ in Peters at [25] in the following way: "To take an example given by King CJ in R v Kastratovic, someone who believes that a person is indebted to him and that a defence which that person is genuinely asserting is without merit , nevertheless has an intention to defraud if he intends by dishonest means to deprive that other person of the opportunity of having the matter adjudicated." (emphasis added, references omitted) 70 To similar effect is the concluding clause in the following passage from par [73] in the judgment of McHugh J: "Although most cases of a conspiracy to defraud involve an agreement to use dishonest means which has the effect of inflicting economic loss on a third party, the infliction of such loss is not an essential element of the offence. It is sufficient that the conspirators intended to obtain some advantage for themselves by putting another person's property at risk or depriving another person of a lawful opportunity to obtain or protect property." (Emphasis added, references omitted)

His Honour referred to Kastratovic at 65 as authority for the italicised clause. 71 Simpson J held that, even in the case of the loss of opportunity to adjudicate or to litigate, it was necessary for the Crown to establish that the Private Ruling was at least arguably wrong. Her Honour did so on the basis that unless that was established positively, the Commonwealth "would have been deprived only of the right to litigate that was of no possible value" and "I do not see that a right to litigate a hopeless case is a right that has any value" (quoted above at [31]). 72 It is, in my opinion, sufficient for purposes of the element of deprivation, to establish that a lawful right, interest or opportunity which had not previously been resolved one way or another has been resolved, so that its very resolution constitutes the relevant detriment. That will be sufficient so long as there is a bona fide claim which, if correct, would be of value. 73 To use the terminology of King CJ in Kastratovic at 65, the Crown must establish a "genuine dispute". To use the terminology of Toohey and Gaudron JJ in Peters at [25], the Crown must establish that it was "genuinely asserting" a position. It is enough for that purpose to establish that a particular position was being taken by the Commissioner of Taxation with respect to these matters. It is not, in my opinion, necessary to establish that the position is in some sense a justifiable or correct or even arguable position, although it is likely that in the course of establishing what the belief is, some of the argument supporting the position will appear in the relevant evidence. 74 It may be what Simpson J had in mind was no more than a way of determining that a "dispute" was in fact a "genuine dispute" or that an assertion was a "genuine assertion". In my opinion, establishing in a positive manner that a Private Ruling was arguably wrong is not the only way which the element of "genuineness" of a dispute or assertion can be determined. 75 An analogous issue arises in contract law where it has been held that a compromise or forbearance to sue will be valid consideration, even if the new promise merely repeats what the promisor is already contractually obliged to do. Once again, there is a test of "genuineness". As Mason J said in Wigan v Edwards (1973) 47 ALJR 586 at 594-5: "The general rule is that a promise to perform an existing duty is no consideration, at least when the promise is made by a party to a pre-existing contract, when it is made to the promisee under that contract, and it is to do no more than the promisor is bound to do under that contract. … An important qualification to the general principle is that a promise to do precisely what the promisor is already bound to do is a sufficient consideration, when it is given by way of a bona fide compromise of a disputed claim, the promisor having asserted that he is not bound to perform the obligation under the pre-existing contract or that he has a cause of action under that contract. The qualification recognizes that for the court itself to examine and determine the correctness of the promisor's claim would be a pointless exercise when the new bargain indicates that the promisee regarded the fresh promise as a benefit, presumably viewing the promise of performance as more advantageous than the remedies available to him for the breach of contract. But the law, by insisting that the claim in dispute is one which was honestly or bona fide made, prevents the qualification from assisting the party who would seek to gain an unfair advantage by threatening unscrupulously to withhold performance under a contract. It is no objection to the existence of a bona fide compromise of a dispute that the court considers that the claim made by the promisor that he was not bound under the former contract would not have succeeded had the issue been litigated. But it is perhaps open to question whether a bona fide compromise of a dispute is sufficiently established by showing that the promisor honestly believed that the claim was well founded. It has been said that it must also be shown that the claim was not vexatious or frivolous." (references omitted) 76 His Honour goes on to consider cases which suggest something more has to be shown, i.e. that the claim was not vexatious or frivolous. He concluded that it was unnecessary to choose between the competing formulations on the facts of that case. Furthermore, his Honour concluded at 595: "The different expressions of the principle do not reflect an important conceptual difference. There will be few cases involving an honest or bona fide belief in a claim which is vexatious or frivolous."

(See also Spies v The Commonwealth Bank of Australia (1991) 24 NSWLR 691 esp at 698 per Handley JA.) 77 Although such cases on the civil law must be treated with care before applying them to the criminal law, nevertheless they do support the proposition that the loss of a right to adjudicate a genuine dispute is a thing of value. 78 In my opinion, there was evidence before the magistrate which established that there was a "genuine dispute", to use the language of King CJ in Kastratovic, or that the Commissioner was "genuinely asserting" a position, to use the language of Toohey and Gaudron JJ in Peters. The element of "genuineness" was established on the basis of the contrary opinions expressed, the contrary rulings made and the circumstances and manner in which they were made. 79 On this basis, there was material before the magistrate which entitled her to conclude that there was "evidence … capable of satisfying a jury beyond reasonable doubt" (within s41(2) of the Justices Act 1902) and that there was "a reasonable prospect that a jury would convict the defendant" (within s41(6)).

Orders 80 The charge before the magistrate was in a form which did, in my opinion, require the Crown to establish an actual loss of revenue. However, s41 of the Justices Act contains a clear distinction between the "information … under inquiry" and the "indictable offence" for which a person is committed (See Kolalich v Director of Public Prosecutions (NSW) (1991) 173 CLR 222 at 226). In my opinion, for the above reasons, there was material before the magistrate upon which she could determine that "there is a reasonable prospect that a jury would convict the defendant of an indictable offence", namely, an offence against s29D of the Crimes Act 1914 (Cth). 81 Even if I had been of the view that the magistrate had committed an error of law in making the order for committal, the issue of what order ought be made in this Court would still arise. As noted above, the original inclination of Simpson J was not to quash the committal even after she had determined that an error of law had been made. 82 Section 109 of the Justices Act 1902 relevantly provides: "The Supreme Court may, after hearing an appeal, determine the appeal by dismissing the appeal or by doing any one or more of the following: (a) confirming, quashing, setting aside or varying the … order … appealed against or any part of it, … (c) making such other orders as it thinks just, (d) remitting the matter to the Magistrate who made the … order … to hear and determine the matter of the appeal." 83 Section 110 further provides: "110(1) The Supreme Court is not to quash or set aside a … order … on an appeal merely because of: … (b) any error in law in the order … if it appears to the Supreme Court that there were sufficient grounds before the magistrate to have authorised a … order … free from the … error. (2) In any such case, the Supreme Court may: (a) amend the … order … and determine the appeal as if the … error did not exist, or (b) remit the case to the Magistrate to make the … order … authorised by law and to amend the … order … accordingly." 84 In the exercise of this discretion it is, in my opinion, permissible to take into account (as Simpson J did) the subsequent judgment in Essenbourne to which I have referred above. No submission to the contrary was put to this Court. That judgment makes it clear that, even with respect to the fringe benefits tax issue, there was an arguable case. More significantly, Essenbourne establishes that the case against the deductibility of the employer's contributions to the trust fund, was strongly arguable. 85 In exercising the discretion as to what orders ought to be made, or whether "any error of law" should lead to an order quashing the order of committal, this development should have been given weight. Her Honour did not do so correctly because, in my opinion, her Honour misunderstood the effect of Essenbourne. That error entitles this Court to re-exercise the discretion. 86 Furthermore, in my opinion, her Honour erred in holding that there was no evidence capable of supporting the lost opportunity case. On this alternative basis, this Court is entitled to re-exercise the discretion. 87 The Opponent has not identified any prejudice that he will or may suffer of a pertinent character. Counsel appearing for him in this Court acknowledged that the Director of Public Prosecutions could file an ex officio indictment in accordance with the charge in the form the Crown now intends to pursue. Perhaps more significantly, in the context of the paper committal system now employed in this State, no relevant prejudice has been identified from the committal having been conducted in accordance with the charge as originally formulated. 88 The absence of prejudice is confirmed by the facts of R v Taylor (1997) 6 Tas R 310, which bears analogies with the present case in a number of pertinent respects. In that case the accused was convicted of three counts of defrauding the Commonwealth contrary to s29D of the Crimes Act 1914 (Cth) on a charge that she had obtained payment of a sole parent pension to which she was not entitled. 89 During the course of the trial it became apparent that the defence case was seeking to establish that the accused was in fact entitled to the payments. The particulars in the indictment included the words "to which she was not entitled". After the close of the Crown case and during the course of a no case to answer submission, the Crown was permitted to delete the words "to which she was not entitled" on the basis that the indictment could be made out without proof of lack of entitlement because the relevant conduct "imperilled" the economic interests of the Commonwealth (see at pp320, 325-326). Here a similar alteration in the position of the Crown has occurred well prior to the commencement of the trial. 90 In my opinion, for the reasons I have outlined above, there were "sufficient grounds before the magistrate to have authorised" an order of committal, within s110(1). Accordingly, that subsection operates to prevent this Court quashing the order of committal. 91 In any event, setting aside my conclusion as to the sufficiency of the evidence to satisfy the loss of a right to adjudicate a "genuine dispute", by reason of the decision in Essenbourne I would exercise the discretion in s109 against quashing the order for a committal. The trial judge can deal with any issues that arise once the Crown has formulated its indictment. That could encompass a Basha inquiry if the Crown seeks to rely on evidence not adduced before the magistrate. 92 In my opinion, this Court should make the following orders:

2. Orders 2, 3, 4, 5 and 6 of 3 March 2003 are set aside.

3. The appeal to the Supreme Court in Matter No. 12242/02 is dismissed.

93 HANDLEY JA: I agree with Spigelman CJ. 94 SANTOW JA: I agree with Spigelman CJ.

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