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Court of Criminal Appeal 5 June 2019

Castagna v R; Agius v R

[2019] NSWCCA 114

Also reported as (2019) 278 A Crim R 194
Fraud & dishonesty
INCOME TAX ORDINARY INCOME APPEALS APPEAL AGAINST CONVICTION NEW TRIAL

Citation: Castagna v R; Agius v R [2019] NSWCCA 114
Court: Court of Criminal Appeal, New South Wales
Date: 5 June 2019
Judges: Bathurst CJ; Macfarlan JA; Gleeson JA

Background

A consultant and his associate were convicted of conspiracy to defraud the Commonwealth and conspiracy to deal with proceeds of crime. The charges arose from consulting payments made by Macquarie Bank and associated companies over approximately a decade, from 1998 to 2009. Macquarie made those payments not directly to the consultant but to Billbury Ltd, a company controlled by the associate, pursuant to written agreements under which Billbury would supply the consultant's services. Macquarie's policy at the time required all consulting arrangements to be with companies rather than individuals, so there was no suggestion the agreements were shams.

The prosecution's case at trial was that the payments to Billbury were nonetheless "ordinary income" derived by the consultant under s 6-5(2) of the Income Tax Assessment Act 1997 (Cth), making them part of his assessable income that he was required to declare. On that basis, the consultant's failure to declare those amounts, and steps taken by both accused to conceal them, underpinned the conspiracy charges.

The primary judge rejected applications for directed verdicts and directed the jury to consider the surrounding circumstances as a whole when determining whether the payments were ordinary income derived by the consultant. The jury returned guilty verdicts on the conspiracy counts. Both accused appealed.

  • Whether the primary judge erred in directing the jury to look beyond the terms of the agreements to determine whether the payments to Billbury were "ordinary income" derived by the consultant under s 6-5(2) of the Income Tax Assessment Act 1997 (Cth)
  • Whether it was open to the prosecution on appeal to argue, for the first time, that the payments were assessable income because Billbury held them on trust for the consultant
  • Whether, if the convictions could not stand, the Court should order a retrial rather than enter acquittals

Decision

On the jury direction. The Court of Criminal Appeal held that the primary judge erred in directing the jury to consider surrounding circumstances when assessing whether the payments were ordinary income derived by the consultant. Looking beyond the terms of the agreements would only have been appropriate if some other legal relationship affecting how those agreements operated had been put in issue. No such case was advanced at trial, so the direction invited the jury to assess a matter that was not properly before them.

On the prosecution's trust argument. On appeal, the prosecution sought to uphold the convictions on a new basis: that Billbury held the payments on trust for the consultant, making them part of his assessable income. The Court rejected this. The trust argument had never been put to the jury at trial. Had it been, the jury would have needed to be satisfied that the requirements for creating a valid trust were met, including the settlor's intention. That exercise was never performed, and the convictions could not be salvaged on a theory the jury was never asked to consider.

On the retrial question. The Court declined to order a retrial. Any retrial would have been fought on the trust case, a materially different theory from the one advanced at the original trial. Several countervailing factors weighed heavily: the events in question occurred between 10 and 20 years before the appeal; the accused were 69 and 71 at the time of trial and would be in their seventies before any new trial could be heard; the original trial ran for approximately eight weeks and a retrial would take at least as long; and the consultant had already served one year of a four-year non-parole period. Most significantly, the Court's conclusion on the directed verdict applications meant the accused had in fact been entitled to acquittals at trial. Allowing a retrial on a fresh legal theory in those circumstances would have been unjust.

Orders Made

  • Appeals allowed
  • Convictions of each appellant on Counts 1, 2 and 13 quashed
  • Verdicts of acquittal entered in lieu of the convictions

Key Takeaways

  • Where a prosecution at trial relies on a particular legal theory to establish an element of an offence, an appellate court will not uphold the conviction on a different legal theory that was never put to the jury and never tested at trial.
  • For payments made to a company to constitute "ordinary income" derived by an individual under s 6-5(2) of the Income Tax Assessment Act 1997 (Cth), it is not sufficient to invite a jury to consider surrounding circumstances at large; some additional legal relationship affecting the operation of the agreements must be specifically identified and put in issue.
  • A trust-based argument for treating company receipts as an individual's assessable income requires proof of the elements necessary to constitute the trust, including the relevant intention to create it. That proof cannot be assumed or implied from the circumstances alone.
  • In deciding whether to order a retrial under s 8(1) of the Criminal Appeal Act 1912 (NSW), the Court weighed factors including the age of the accused, time elapsed since the offences, the length and likely delay of any new trial, time already served, and whether the proposed retrial would advance an entirely new case not agitated at first instance.
  • Ordering a retrial to permit the prosecution to run a substantially different case was held inappropriate where the accused had, on the Court's analysis, been entitled to directed verdicts of acquittal at the original trial.

Legislation and Cases Referenced

Legislation
- Income Tax Assessment Act 1997 (Cth), s 6-5(2)
- Income Tax Assessment Act 1936 (Cth)
- Criminal Appeal Act 1912 (NSW), s 8(1)
- Judiciary Act 1903 (Cth)
- Criminal Code (WA)

Cases
- Agius v The Queen (2013) 248 CLR 601; [2013] HCA 27
- Baker v Federal Commissioner of Taxation (1989) 20 ATR 798; (1989) 20 ATR 1706
- Federal Commissioner of Taxation v Mochkin (2003) 127 FCR 185
- Tupicoff v Federal Commissioner of Taxation (1984) 4 FCR 505
- King v The Queen (1986) 161 CLR 423
- Jiminez v The Queen (1992) 173 CLR 572
- Parker v The Queen (1997) 186 CLR 494
- R v Taufahema (2007) 228 CLR 232
- Gerakiteys v The Queen (1984) 153 CLR 317
- Osborne v The Queen [2017] NSWCCA 11
- Hayes v Federal Commissioner of Taxation (1956) 96 CLR 47
- Federal Coke Co Pty Ltd v Federal Commissioner of Taxation (1977) 15 ALR 449