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Court of Criminal Appeal 17 February 2017

Osborne v R; R v Osborne

[2017] NSWCCA 11

Fraud & dishonesty
CRIMINAL LAW DEFRAUDING THE COMMONWEALTH

Citation: Osborne v R; R v Osborne [2017] NSWCCA 11
Court: Court of Criminal Appeal, New South Wales
Date: 17 February 2017
Judge(s): Leeming JA (with whom Harrison J and Wilson J agreed)

Background

The appellant was an accountant who had lodged personal income tax returns for his client across four financial years from 1999 to 2002. The Crown alleged that those returns failed to disclose all of the client's assessable income. Specifically, the client controlled a British Virgin Islands company (Leominister) which held a large parcel of shares. Leominister sold those shares and the client directed the proceeds to himself, his family, and associated entities.

The accountant was charged under both s 29D of the Crimes Act 1914 (Cth) and s 135.1(5) of the Commonwealth Criminal Code with defrauding the Commonwealth and dishonestly causing a risk of loss to the Commonwealth respectively. He pleaded not guilty. The trial ran for 34 days in the District Court, with the jury ultimately returning guilty verdicts on all four counts. The trial judge imposed suspended sentences of imprisonment.

The accountant appealed against conviction. The Crown cross-appealed against the leniency of the sentences. Both appeals were heard concurrently by the Court of Criminal Appeal.

  • Whether the Crown was entitled, after the close of all evidence, to introduce a new theory that the client was the beneficiary of a bare trust over the Leominister shares and proceeds.
  • Whether the Crown correctly directed the jury that proof of the client's control of Leominister was sufficient, in law, to establish that he was a beneficiary of a bare trust.
  • Whether the trial judge erred by leaving it to the jury to determine the correct legal test for the existence of a trust.
  • Whether the evidence was sufficient to sustain a finding, to the criminal standard, that the client was the beneficiary of a bare trust.
  • Whether the verdicts were unreasonable or unsupported by the evidence on all counts.

Decision

The central difficulty arose from a significant shift in the Crown's case late in the trial. For most of the proceedings, the Crown had not relied on any trust relationship to establish that the client derived assessable income from the Leominister proceeds. After the defence case closed and after the accountant had been extensively cross-examined, the Crown sought and obtained the trial judge's permission to advance an additional case that Leominister held the shares as a bare trustee for the client. Over the defence's objection, this trust theory then became the primary vehicle in the Crown's closing address for establishing the income element of each charge.

The Court of Criminal Appeal found that the Crown's directions to the jury on the trust issue were legally wrong. The Crown told the jury that finding the client controlled Leominister was sufficient to conclude he was a beneficiary of a bare trust. In point of law, control alone does not establish the existence of a bare trust. The trial judge compounded this error by leaving the jury to determine the applicable legal test themselves, rather than directing them on what the law actually requires.

Leeming JA (with whom Harrison J and Wilson J agreed) held that the evidence did not otherwise entitle the jury to conclude, to the criminal standard, that a bare trust existed. Because the trust theory formed the primary basis upon which the Crown sought to establish the income element of the charges, and because that basis could not be sustained, the guilty verdicts could not stand. This conclusion was sufficient to dispose of the appeal, and the Court declined to resolve the earlier grounds concerning directions and the adequacy of the summing-up, noting that success on those grounds would only have produced a retrial, which was academic once acquittals were to be entered.

The Crown's sentence appeal fell away as a consequence of the conviction appeal succeeding.

Orders Made

  • Leave granted to appeal against conviction.
  • Appeal against conviction allowed.
  • Convictions on all four counts quashed.
  • Verdicts of acquittal on each count entered.
  • Crown appeal against sentence dismissed.

Key Takeaways

  • Control of a company does not, as a matter of law, suffice to establish that the controller is the beneficiary of a bare trust over that company's assets. The Crown's submission to the contrary was a legal error that infected the jury's deliberations.
  • Where two bases are put to a jury for establishing an essential element of a charge and one of those bases cannot be sustained in law, the resulting conviction cannot stand, even if the other basis may have been available.
  • A trial judge must direct the jury on the correct legal test for a matter such as the existence of a trust. Leaving the jury to determine the applicable legal test for themselves is an error.
  • The Court of Criminal Appeal declined to resolve grounds of appeal that would, even if successful, only have produced a retrial, once the more fundamental ground requiring acquittals had been established. This reflects a principle of judicial economy in disposing of appeals.
  • Under s 97 of the Income Tax Assessment Act 1936 (Cth), a beneficiary's present entitlement to trust income is the operative concept for assessability. The Crown's failure to establish the trust itself meant the income element of the charges could not be made out.

Legislation and Cases Referenced

Legislation
- Commonwealth Criminal Code, ss 5.1, 130.3, 135.1
- Crimes Act 1914 (Cth), s 29D
- Criminal Appeal Act 1912 (NSW), s 6(1)
- Income Tax Assessment Act 1936 (Cth), s 97

Cases
- Commissioner of Taxation v Bamford (2010) 240 CLR 481
- Doggett v The Queen (2001) 208 CLR 343
- King v The Queen (1989) 161 CLR 423
- M v The Queen (1994) 181 CLR 487
- Nasrallah v R; R v Nasrallah [2015] NSWCCA 188
- Phillips v R [2016] NSWCCA 159
- Pratten v R [2014] NSWCCA 117
- R v Cox [1999] NSWCCA 62
- R v Esho; R v Sako [2001] NSWCCA 415
- R v Jimenez [2000] NSWCCA 390
- Rasic v R; Johnny Lee Vella v R; Damien Charles Vella v R [2009] NSWCCA 202
- Re Ellenborough [1903] 1 Ch 697
- Silva v R [2016] NSWCCA 284