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Supreme Court 3 March 2003

Petroulias v Wills

[2003] NSWSC 106

Also reported as 138 A Crim R 182
Fraud & dishonesty
S104 JUSTICES ACT 1902 CHARGE OF DEFRAUDING THE COMMONWEALTH COSTS OF OR INCIDENTAL TO THE APPEAL

Citation: Petroulias v Wills [2003] NSWSC 106
Court: Supreme Court of New South Wales (Common Law Division)
Date: 3 March 2003
Judge(s): Simpson J

Background

The applicant was a former senior officer of the Australian Taxation Office who had risen to the position of Assistant Commissioner. The Crown alleged that between 1997 and 1999 he dishonestly misused his position by securing favourable binding tax rulings for taxpayers involved in arrangements designed to reduce or avoid fringe benefits tax and income tax. He was also alleged to have personally profited by marketing and selling those arrangements.

A magistrate in the Local Court committed the applicant for trial on three counts under the Crimes Act 1914 (Cth), one of which was defrauding the Commonwealth under s 29D. The applicant sought leave to appeal against that committal order in the Supreme Court under s 104 of the Justices Act 1902. Simpson J delivered her primary reasons in December 2002, finding errors of law in the magistrate's decision, and then reconvened the parties to determine the form of final orders in light of a significant new development.

The new development was a Federal Court decision handed down the day after Simpson J delivered her initial reasons. In Essenbourne Pty Ltd v Commissioner of Taxation [2002] FCA 1577, Kiefel J determined that arrangements essentially identical to those at the centre of the applicant's alleged fraud were effective to legitimately avoid taxation. Senior counsel for the respondent conceded the arrangements were essentially the same and identified no material difference between the two schemes.

  • Whether, at committal, there was sufficient evidence that the Commonwealth had been deprived of something of value, as required to establish the offence of defrauding the Commonwealth under s 29D of the Crimes Act 1914 (Cth).
  • Whether the right to litigate the efficacy of a binding tax ruling constituted something of value capable of grounding the fraud charge, in circumstances where the rulings' correctness had not been challenged or disproved.
  • Whether the Supreme Court had power to award costs of the committal proceedings, not only the costs of the appeal itself, under s 76 of the Supreme Court Act 1970.

Decision

Simpson J held that a charge of defrauding the Commonwealth under s 29D requires proof that the Commonwealth was deprived of something of value. At the committal, the informant had been unable to prove the tax rulings were incorrect or even arguably incorrect. This meant there was no evidence that any tax actually payable had been avoided, and therefore no identifiable subject matter for the alleged fraud.

The informant had argued that the Commonwealth was deprived of its right to litigate the validity of the arrangements in court, because the binding rulings foreclosed that avenue. Simpson J rejected this. Unless the rulings were at least arguably wrong, the right to litigate was of no value. If a court had ultimately determined the arrangements were lawful, no tax would ever have been payable, and the Commonwealth would have lost nothing regardless of any dishonesty in the issuing of the rulings.

The Essenbourne decision reinforced this conclusion. A court had now adjudicated arrangements that the respondent's senior counsel accepted were essentially identical, and found them effective to avoid taxation. This confirmed that the Commonwealth had not, in fact, been deprived of anything of value. The s 29D committal order could not stand.

On costs, Simpson J found that s 41A of the Justices Act 1902 did not empower the Supreme Court, in this context, to award costs of the committal proceedings directly. However, s 76 of the Supreme Court Act 1970 provided broader power. That section expressly defines "costs" to include costs of or incidental to the proceedings giving rise to the appeal, not merely the appeal itself. Accordingly, the court ordered the respondent to pay the applicant's costs of the committal proceedings, limited to those costs referable to the s 29D charge.

Orders Made

  • Leave to appeal granted.
  • Appeal allowed in part.
  • The magistrate's order committing the applicant for trial on the s 29D charge under the Crimes Act 1914 (Cth) was quashed.
  • Appeal otherwise dismissed.
  • The respondent to pay the applicant's costs of and incidental to the appeal, including the application for leave to appeal.
  • The respondent to pay the applicant's costs of and incidental to the committal proceedings, so far as those costs were incurred in relation to the s 29D charge.

Key Takeaways

  • A charge of defrauding the Commonwealth under s 29D of the Crimes Act 1914 (Cth) requires proof that the Commonwealth was deprived of something of value. Where no evidence establishes that the relevant tax was actually payable, the subject matter of the fraud is not made out.
  • The right to litigate a binding tax ruling is not itself a valuable thing of which the Commonwealth can be "defrauded" unless there is evidence the ruling was at least arguably incorrect. A foregone or valueless right to litigate does not satisfy this element.
  • Subsequent judicial determination that arrangements were lawfully effective to avoid taxation can be relevant to whether the Commonwealth suffered any deprivation of value, even where that determination post-dates the alleged offending and the initial committal.
  • Under s 76 of the Supreme Court Act 1970, "costs" in an appeal context extends to costs of or incidental to the proceedings giving rise to the appeal. This is broader than the power under s 41A of the Justices Act 1902, which is limited to costs awarded by the magistrate at committal in defined circumstances.
  • In allowing the appeal in part only, the Supreme Court quashed the s 29D count while leaving the committal on the remaining counts undisturbed, reflecting that the errors identified were confined to that charge.

Legislation and Cases Referenced

Legislation:
- Crimes Act 1914 (Cth), s 29D
- Justices Act 1902 (NSW), ss 41A and 104(3)
- Supreme Court Act 1970 (NSW), s 76

Cases:
- Essenbourne Pty Ltd v Commissioner of Taxation [2002] FCA 1577 (unreported, 17 December 2002)
- Petroulias v Wills [2002] NSWSC 1190 (unreported)
- Basha v R (1989) 39 A Crim R 337