' mrtg eth) CATCHWORDS ADMINISTRATIVE LAW - committal proceedings before Magistrate for conspiracy to defraud Commonwealth and defeat execution of a law of the Commonwealth - application for order of review - what the Magistrate need be satisfied of - requirements for an order of review for committal proceedings - whether Commissioner has interim rights prior to assessment - whether it meed be decided that a scheme is efficacious - what interest 18 required before there can be a defrauding - whether funds need be retained if not known that there is tax liability - consideration of commissioner's potential rights - position of legal adviser in taxation scheme - secondary participation in a taxation scheme ~- when a conspiracy is complete - effect of dealings by counsel for the prosecution with a company named as a co-conspirator. Administrative Decisions (Judicial Review) Act 1977 s.5 Bankruptcy Act 1966 5.40(1)(c) Crimes Act 1914 ss.7A(a), 86(1)(b), B6(1)(e) Income Tax Assessment Act 1936 ss.6(1), 17(1), 48, SOA-N, 78, 177(1), 204, 260 Judiciary Act 1903, 5.68(1)(b) Magistrates (Summary Proceedings) Act 1975 s.56(1)(b). Armah v. Government of China (1968) A.C. 192 Wentworth v. Rogers (1984) 2 N.S.W.L.R. 422 Lamb v. Moss (1983) 49 A.L.R. 533 Seymour v. Attorney-General (1984) 57 A.L.R. 68 Edwards v. Von Einem (Full Court - VG191 of 1984 - 12th October 1984) Murphy v. Director of Public Prosecutions (1985) 60 A.L.R. 299 2. The Queen v. Walsh and Harney (1984) V.R. 474 Parker v. Churchill (1986) 9 F.C.R. 316 Stephens v. Abrahams (1902) 27 V.L.R. 753 Barton v. Deputy Commissioner of Taxation (1974) 131 C.L.R. 370 Peter Buchanen Ltd. v. McVey (1955) A.C. 516 Clyne v. Deputy Federal Commissioner of Taxation (1981) 150 C.L.R. 1 Federal Commissioner of Taxation v. Casuarina Pty Ltd (1971) 127 C.L.R. 62 Federal Commissioner of Taxation v. Patcorp Investments Limited (1976) 140 C.L.R. 247 Cridiand v. Federal Commissioner of Taxation (1979) 140 C.L.R. 330 Mullens v. Federal Commissioner of Taxation (1976) 135 C.L.R. 290 Federal Commissioner of Taxation v. Gulland and Ors. 62 A.L.R. 545 Director of Public Prosecutions v. Nock (1978) A.C. 979 Reg. v. Cahill (1978) 2 N.S.W.L.R. 453 Perpetual Trustee Co. v. Bligh (1940) 41 5.R. (N.S.W.) 33 Albton Hotel Pty Limited v. Federal Commissioner of Taxation (1965) 115 C.L.R. 78 Leary v. Federal Commissioner of Taxation (1980) 32 A.L.R. 221 A.R.M. Constructions Pty Ltd v. Commissioner of Taxation (1986) 10 F.C.R. 197 McAndrew v. Federal Commissioner of Taxation (1956) 98 C.L.R. 263 E.d. Bloemen Pty Ltd v. Federal Commissioner of Taxation (1981) 147 C.L.R. 360 R. v. Tighe and Maher (1926) 26 S.R. (N.S.W.) 94 Peq, ¥. Lantert (1985) 4 N.S.W.L.R. 359 The Queen v. Mayberry (1973) Qd.R. 211 Director of Public Prosecutions v. Doot (1973) A.C. 807 Reg. v. Cuthbertson (1981) A.C. 470 Woss v. Jacobsen (1985) 60 A.L.R. 313 Req. v. G.F.S. and W. (1974) 1N.S5..L.R. 31 The King v. Sussex Justices, Ex parte McCarthy (1924) 1 K.B. 256 Reg. v. Commonwealth Conciliation and Arbitration Commission, Ex parte Angliss Group (1969) 122 C.L.R. 546 The Queen v. Watson, Ex parte Armstrong (1976) 136 C.L.R. 248 Reg. v. Smith (1975) 61 C.A.R. 128 RE NO. VG296 of 1986 JOHN MICHELE VEREKER, IAN DOUGLAS SWANSSON, JOHN TERRENCE BROWN, LESLIE EDWARD LITHGOW and STEPHEN GERARD CONNELL v. PHILIP JOHN RODDA AND RICHARD DENIS 0' DONOVAN RE NO. VG297 of 1986 NEIL HARRY MARK FORSYTH v. PHILLIP JOHN RODDA and RICHARD DENTS 0' DONOVAN Jackson J. Sydney lst April 1987 IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISTON JACKSON J. lst April 1987 Sydney BETWEEN : No. VG296 of 1986 JOHN MICHELE VEREKER , IAN DOUGLAS SWANSSON, JOHN TERRENCE BROWN, LESLIE EDWARD LITHGOW and STEPHEN GERARD CONNELL Applicants PHILIP JOHN RODDA and RICHARD DENIS 0' DONOVAN Respondents No. VG297 of 1986 NEIL HARRY MARK FORSYTH Applicant PHILIP JOHN RODDA and RICHARD DENIS O'DONOVAN Respondents -2- MINUTES OF ORDER THE COURT ORDERS THAT: 1. The decisions of the first respondent be set aside. 2. The matter be remitted to the first respondent for further hearing and determination in accordance with the reasons for judgment herein. NOTE: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA ) ) VICTORIA DISTRICT REGISTRY ) No. VG296 of 1986 ) GENERAL DIVISION ) BETWEEN : JOHN MICHELE VEREKER, IAN DOUGLAS SWANSSON, JOHN TERRENCE BROWN, LESLIE EDWARD LITHGOW and STEPHEN GERARD CONNELL Applicants AND: PHILIP JOHN RODDA and RICHARD DENIS 0' DONOVAN Respondents No. VG297 of 1986 BETWEEN : NEIL HARRY MARK FORSYTH Applicant AND: PHILIP JOHN RODDA : and RICHARD DENTS 0' DONOVAN Respondents CORAM: JACKSON J. DATE lst April 1987 PLACE Sydney ; -2- REASONS FOR JUDGMENT In each of these proceedings the applicants seek orders of review under s.5 of the Administrative Decisions (Judicial Review) Act 1977 in respect of the decision of the first respondent, a stipendiary magistrate of the State of Victoria, that in committal proceedings before him there was evidence sufficient to require him to take the steps referred to in s.56(1)(b) of the Magistrates (Summary Proceedings) Act 1975 of that State. The procedures of s.56(1)(b) were applicable by reason of s.68(1)(b) of the Judiciary Act 1903. The committal proceedings were in respect of charges against all the applicants:- (a) of conspiracy to defraud the Commonwealth contrary to s.86(1)(e) of the Crimes Act 1914; and (b) of conspiracy to prevent or defeat the execution or enforcement of a law of the Commonwealth, namely the Income Tax Assessment Act 1936, contrary to s.86(1)(b) of the Crimes Act. Mr Forsyth, the applicant in Matter VG297 of 1986, was also charged with:- (1) inciting, urging, aiding or encouraging others to conspire to defraud the Commonwealth contrary to ss.7A(a) and 86(1)(e) of the Crimes Act; and (ii) inciting, urging, aiding or encouraging others to conspire to prevent or defeat the execution of a law of the Commonwealth, namely the Income Tax Assessment Act, contrary to ss. 7A(a) and 86(1)(b) of the Crimes Act. The hearing of the committal proceedings was very lengthy but on 23 June 1986 the first respondent ruled that in terms of s5.56(1)(b) he was satisfied that:- ». the evidence is sufficient to put the accused person upon his trial for the indictable offence with which is is charged" and that:- "the evidence given for the prosecution raises a strong or probable presumption of the guilt of the accused person in respect of that charge .." Accordingly, and as s.56(1)(b) required, he stated that he proposed to read the charge to the accused persons again, to caution them in the terms set out in s.56(1) and to request them to plead to the charges. ' -4- The terms of s.56(1)(b) which I have quoted above make it clear that the provision provides for two possible degrees of satisfaction, namely:- (a) that the evidence is sufficient to put the accused person on trial for the offence charged; or (bd) that the evidence for the prosecution raises a strong or probable presumption of guilt in respect of that charge. See Armah v. Government of Ghana (1968) A.C. 192 and Wentworth v. Rogers (1984) 2 N.S.W.L.R. 422 at 431-433 per Glass J.A.. Tt was sufficient for the first respondent to be satisfied on the basis of the lower standard, namely that the evidence was "sufficient to put the accused person upon his trial for the indictable offence with which he is charged", but as I have said he formed the view that he was satisfied on the application of both standards. It is of course the rule that, as the Full Court said in Lamb v. Moss (1983) 49 A.L.R. 533 at 564-565:- "The power to make an order of review under the Act in respect of committal proceedings should be exercised only in most exceptional cases, especially in respect of a decision in the course of proceedings. Additional considerations might intrude at the final stage; for example, in respect of committal for trial and commitment to prison pending trial ....It is, however, not necessary to consider that question further in these proceedings." ' ~5- The view has been repeated in the Full Court on a number of occasions (Seymour v. Attorney-General (1984) 57 A.L.R. 68, Edwards v. Yon Einem (Full Court - VG 191 of 1984 - 12th October 1984)) but in order to determine whether the present cases are exceptional in the sense referred to in Lamb v. Moss it is necessary to go to some extent into the circumstances of then. The charges against the applicants arose from their alleged participation in a taxation scheme which has been described as the Norfolk Island Public Art Gallery ("NIPAG") scheme. The scheme was designed to apply to circumstances where companies - called in some of the documents "current year profits" or "CYP" companies - were likely to have a taxable income in the year of income then uncompleted, and the beneficial owners of the shares in those companies wished to sell the shares for a price which was such that they would, as Mr Forsyth put it in an Advice to which I shall refer, "effectively realize, inter alia, the benefit of the profits made in the current year without bearing the burden of taxation upon them." One of the difficulties involved in achieving that aim was that in circumstances where there had been a change in ownership of shares in a company during a year of income, ss.50A-50N of the Income Tax Assessment Act required some apportionment of deductions to the period of ownership in which F -6- they occurred. Section 50C(3) recognized, however, that some "full-year deductions" might yet apply against the whole of the income during a year of income, and one of the "full-year deductions" was "any deduction allowable to the company under section ... 78" (see s.50F(1)(c)). Section 78(1) (a) (xxvii) provided that gifts to, inter alia, a "public art gallery" were allowable deductions. Upon the evidence before the first respondent the NIPAG scheme, which sought to utilise the provisions to which I have just referred, had first been devised by one Geoffrey Manners on behalf of Metropolitan Taxation Services (Aust.) Pty Ltd ("MTS") a company with which the applicants, other than Mr Forsyth, were involved. Mr Forsyth was a Queen's Counsel specialising in revenue work and a brief dated 7th March 1979 to advise on the scheme was delivered to him. On its face the brief was delivered to Mr Forsyth by Messrs Alfred Branicki & Associates, solicitors, on behalf of MTS. The brief to advise set out the outline of the proposal, and asked Mr Forsyth: - ",.. to advise on the proposal generally and to specifically answer the following questions:- (i) Will C.¥.P. obtain a deduction under Section 78 of the Income Tax Assessment Act for the donation of $1,000,000 bearing in mind the amendments of recent times and specifically considering whether Section 78A(2) has any detrimental effect on the dohation made by C.Y.P. ' -7- (ii) In the overall will the proposal achieve the objective of providing a "full year deduction" to C.Y¥.P. and therefore overcome the provisions of sections 50A - 50N so as to enable Q to he able to purchase Companies with profits earned in the Current Year without first injecting any loss. (iii) Will Q be able to offset the consideration received on the sale of the object d'art against the loss on disposal of the shares in C.Y¥.P. to P. (iv) Does Section 260 or any other section of the Income Tax Assessment Act have any detrimental effect on the proposal? (v) Should more than $10,000,000 be required, Counsel is requested to advise whether more than one sale of an object d''art would in any way jeopardise the proposal. If soa, alternatively, would an escalation in price to say $50,000,000 jeopardise the proposal. (vi) Should Counsel consider any alteration amendment or modification has the effect of enhancing the prospects of achieving the objectives of this proposal, then Counsel is requested to so advise." I shall not set out the proposal, as contained in that brief, because there were apparently some modifications to it, and the modified proposal is set out helow. Mr Forsyth's Advice in response to that brief was given on 23rd March 1979 and noted that the proposal contained in the brief had been "discussed, and to some extent modified, in conference". The Advice then set out the proposal, as modified, which was as follows:- "(a) (b) (c) (d) (e) (f) (q) (i) -B- Q (a trust controlled by MTS) will acquire an objet d'art for a relatively small price (say $500) and sell it to BS (another trust the beneficiaries under which exclude Q and its associates and P and its associates) for say $10 million. BS sells the objet d'art to an Art Gallery for $10 million. The Art Gallery has been established for some time and is, I am assured, a "Public Art Gallery" so that gifts to it are allowable deductions pursuant to section 78(1)(a). Concurrently with, or slightly before, the transactions mentioned above, Q enters into an agreement with the Art Gallery by which, in consideration of the Art Gallery agreeing to purchase the objet d'art for $10 million, Q will guarantee that gifts will be made to a specified fund of the Art Gallery (e.g. "the Acquisitions Fund", "the No. 1 Fund") within a particular period (say before the 30th June, 1979) and promise that in default of such donations, Q will itself make up the required amount. An associate of MTS lends the $10 million to the Art Gallery which pays BS, and BS pays Q (who lends it back to X). Q purchases a number of CYPs. A typical CYP will have $1 million cash at bank representing $200,000 of accumulated profits from previous years, and $800,000 current year profits. The typical purchase will be $900,000. Q will cause CYP to declare a dividend to Q of $200,000. Q will sell all the shares in CYP for a nominal sum to P upon condition that P will, after acquiring the shares, cause CYP to make a donation of $800,000 to the specified fund of the Art Gallery. P is a group of three companies controlled by a person quite independent of 9, MTS and the original vendors of the shares in CYP. CYP duly makes the donation. Other CYP's make like donations totalling $10 million together with the Art Gallery's "fee". : -~9- The Advice then proceeded to express views on the questions contained in the brief and, to put it shortly, Mr Forsyth expressed the view that, subject to a number of considerations which he mentioned, the proposal was one which would be effective to attain the objectives for which it was to be implemented. He concluded by adding a warning, perhaps in part a disclaimer, that:- "One final comment should be made, namely that a number of hazards now attend those engaging in artificial taxation schemes. First of all there is the risk of outright retrospective legislation, which can no longer be dismissed as negligible. Secondly, there are the usual risks that I am mistaken in my judgment or assessment, or have overlooked some point, or have approached the matter from a point of view which is not shared by a judge. Thirdly one must take into account the possibility that there will be a judicial reaction against artificial schemes of this kind. Fourthly, one should not underestimate the ingenuity of the Commissioner in finding some further way of making life unpleasant for participants in such arrangements." After the receipt of that Advice the NIPAG scheme was amplemented by MTS and the scheme was applied to some 186 companies. Objets d'art initially purchased for $5,400.00 were sold to the Gallery for $60,000,000.00. The companies to which the scheme was applied were ultimately assessed by the Commissioner of Taxation as liable to pay income tax totalling $29,710,615.91, the deductions for donations to the Art Gallery (which was on Norfolk Island) having been disallowed. Of course, the effect of the scheme was that the companies, having made the donations to the Gallery, did not have the funds to pay the tax so assessed. . -10- It is convenient at this point, having given the above, admittedly bare, outline of the basic facts alleged, to turn to the arguments which have been advanced on behalf of the applicants. In this regard there is one argument which has been advanced in both cases, and which if correct goes to the whole of the manner in which the first respondent approached the issues before him. Because the error, if it was such, made by the first respondent would be fundamental, I think it is appropriate - bearing in mind the observations which I have earlier quoted from Lamb v. Moss (supra) - to enter upon the question of the correctness of the argument. Compare Murphy v. Director of Public Prosecutions (1985) 60 A.L.R. 299 at 304. That argument is, in essence, that the first respondent erred in adopting what counsel described for brevity as the "interim rights" approach. What is meant by that expression for this purpose is that the first respondent did not enter upon the question whether the NIPAG scheme was or was not efficacious to obtain allowable deductions for the companies making the donations - in which case the companies would have no taxable income for the year in question - but rather proceeded on the basis that whether or not the NIPAG scheme was efficacious in the sense to which I have referred, its implementation had the consequence that if the Commissioner of Taxation were to assess income tax on the basis that the NIPAG scheme was not so -1ll- efficacious, and to insist on payment of the tax so assessed — notwithstanding any pending objection, review or appeal, he would be unable to obtain payment because the company would have no funds with which to pay it. The first respondent in his reasons for decision summarized his views on this aspect as being:- "Applying the principles I have earlier found to be applicable in relation to conspiracy to defraud, dishonesty and mens rea, inter alia, and my findings thereon as they relate to these proceedings I am ' satisfied again, in the absence of credible evidence from Messrs Connell, Lithgow, Swansson, Vereker and Brown to explain and clear up the circumstances, that at this stage of these proceedings the evidence points to the abovementioned agreement, to which Messrs Connell, Lithgow, Swansson, Vereker and Brown were parties, as being an agreement by dishonest means and dishonesty to deprive the Commissioner of Taxation of income tax which was payable by the companies processed through the NIPAG scheme. Such tax being payable unless and until such time that the Commissioner allowed the donations claimed as deductions, or upon disallowance by the Commissioner the courts held the donations to be a lawful deduction, upon appeal by the companies." (Emphasis added) There are three comments which should be made concerning these observations. First it is clear from other parts of the reasons for decision that the first respondent's reference to "income tax which was payable by the companies" does not involve a conclusion by him that the NIPAG scheme was inefficacious. Secondly it is not entirely clear from the parts of the passage which I have emphasized whether the reference by the first respondent to the Commissioner's allowance or disallowance is a reference to the initial assessment of income tax by the " -12- Commissioner or to the disallowance by the Commissioner of objections to an assessment in which the claim to deduct the donations had not been allowed. In the end, however, it seems not to matter. Thirdly it is apparent from an earlier passage in the first respondent's reasons that he considered that the Commissioner's rights existed throughout the year during which the income giving rise to the taxable income was derived. In this regard he said that he was:- " ,... satisfied that the interest the Commissioner had at the time of commencement and during the currency of the agreement to operate the NIPAG scheme was "something which was his" or at least was "something to which he is or would or might be entitled", as enunciated in Scott's case ... and R v Walsh & Harney ..." As I have said the charges with which all applicants were charged were conspiracy to defraud the Commonwealth and conspiracy to prevent or defeat the execution or enforcement of the Income Tax Assessment Act. It was thus necessary to identify the respects in which the conduct of the applicants might be said to have amounted, if the conspiracy were implemented, to "defrauding" the Commonwealth or to "preventing or defeating the execution or enforcement of" the Income Tax Assessment Act. I shall discuss the two offences separately. The elements of the offence of conspiracy to defraud the Commonwealth, insofar as is presently relevant, are that the persons alleged to he the conspirators must have agreed to deprive the Commonwealth by dishonesty of that which it is or -13- would or might but for the perpetration of the fraud be entitled. As Viscount Dilhorne, with whose reasons the other members of the House of Lords agreed, said in Scott v. Metropolitan Police Commissioner (1975) A.C. 819 at 840:- ... it is clearly the law that an agreement by two or more by dishonesty to deprive a person of something which is his or to which he is or would be or might he entitled ... suffices to constitute the offence of conspiracy to defraud." The tests referred to by Viscount Dilhorne have been applied in Australia in relation to the offence of conspiracy to defraud (The Queen v. Walsh and Harney (1984) V.R. 474, The Queen v. Horsington and Bortolus (1983) 14 A. Crim. R. 118 at 121-122), and also as indicating the meaning of the expression "defrauding the Commonwealth" found in s.29D of the Crimes Act (Parker v. Churchill (1986) 9 F.C.R. 316 at 348-349). In Parker v. Churchill (ibid.), there was also adopted the view of Hodges J. in Stephens v. Abrahams (1902) 27 V.L.R. 753 at 767 that an intent to defraud the revenue was an intent:- »-. to get out of the revenue something that was already in it, or to prevent something from getting into the revenue which the revenue was entitled to get." The argument in the present case is concerned with the the concept "something ... to which he is or would be or might be entitled" used by Viscount Dilhorne. That expression causes no particular difficulties in circumstances where what is in issue is an existing right, as where a customs duty is sought to be avoided by providing customs authorities with untrue invoices ' -14- (compare Stephens v. Abrahams (supra)) or where there is an agreement to take the steps necessary to prevent a company paying a tax which is already due (compare Parker v. Churchill (supra), Edwards v. Von Einem (supra)). Again in Reg. v. Walsh and Harney (supra) which was much relied on before me, the relevant right was to have starting positions of greyhounds in a race determined by a form of "draw", a right which would be affected by an agreement to arrange matters so that a particular greyhound obtained the advantageous No.1 starting box. To apply the remarks of Viscount Dilhorne to such a case the owners of greyhounds in the race, were it not for the implementation of the agreement, "would be entitled" to a fair "draw" and, depending on the result of the draw, "might be entitled" to the No. 1 starting box position. Some difficulties in application of the test begin to emerge, however, where the matters in question relate to future liabilities to income tax. In this regard, and turning first to matters of background, it seems clear that a conspiracy to defraud may be established by showing an agreement dishonestly to dispose of property to avoid the payment of then existing debts, whether the debts are those of the persons charged or of others (Regina v. Hall (1858) 1 F. & F. 33, 175 E.R. 613). Further an intent to defraud "creditors" may be established by showing an intent to defraud persons who are not yet but are to become creditors. As Stephen J. said in Barton v. Deputy Federal Commissioner of Taxation (1974) 131 C.L.R. 370 at 374 in relation -15- to s.40(1)(c) of the Bankruptcy Act 1966:- ",.. awareness of an impending liability is sufficient for the purposes of 5.40(1)(c). That paragraph employs language very similar to the reference, in the Statute 13 Eliz. c.5, to conveyances made "with intent to defraud, defeat or delay creditors" and it is well established that conveyances may fall within that Statute, although there existed no creditors at the date of conveyance, so long as the intent to defeat future creditors be made out - Mackay v. Douglas; Re Mackay. In Ex parte Russell, in which Sir Richard Malins' decision in Mackay v. Douglas was applied, the members of the Court of Appeal again referred to the Statute of Elizabeth as concerned with the protection of future creditors. In Williams v. Lloyd, although the majority allowed the appeal, all the members of the Court treated the "intent to defraud creditors" to which s.37A of the Conveyancing Act 1919 (N.S.W.) referred as capable of being established despite undoubted solvency at the time of the challenged alienation of property. So too in the case of s.40(1)(c) there may, I think, be the requisite intent despite the absence of existing indebtedness. A fortiori, the intent may exist if the debtor, unaware of his existing indebtedness, nevertheless believes in some impending indebtedness." That the "impending liability" may be a liability to taxation appears from Barton v. Deputy Federal Commissioner of Taxation (supra) itself and also from Peter Buchanan Ltd v. McVey (1955) A.C. 516n at 521-2 and at 533-4. I should add that in the case of the excess profits tax referred to in Peter Buchanan Ltd v. McVey (supra) it appears to have been accepted that, as in the case of income tax under the Income Tax Assessment Act (see Clyne v. Deputy Commissioner of Taxation (1981) 150 C.L.R. 1 at 16-17, 24), there was no liability until assessment. The difficulties in the application of Viscount Dilhorne's test in relation to income tax exist, however, where what has occurred is not a simple removal of the assets of the company, so that a liability which it is known will exist in the -16- future if nothing else is done cannot be met, but the adoption of a course which may or may not give rise to an allowable deduction. I make that observation because the Commonwealth's "entitlements" of which it might be deprived are not merely created by, but their ambit is determined by, the provisions of the Income Tax Assessment Act (and of course the relevant Taxing Act). As has been said on many occasions the Income Tax Assessment Act enables taxpayers to take advantage of particular provisions of it and if a company does so "no liability to tax imposed by the Act on the company is avoided for whatever tax is appropriate to its situation remains payable" (Federal Commissioner of Taxation v. Casuarina Pty Ltd (1971) 127 C.L.R. 62 at 104 per Gibbs J.). See too Federal Commissioner of Taxation v. Patcorp Investments Limited (1976) 140 C.L.R. 247 at 300), Cridland v. Federal Commissioner of Taxation (1979) 140 C.L.R. 330 and Mullens v. Federal Commissioner of Taxation (1976) 135 C.L.R. 290. Those cases, and Federal Commissioner of Taxation v. Gulland and Ors. (1985) 62 A.L.R. 545 at 552, 561 and 594, make it clear that where a specific provision of the Income Tax Assessment Act gives an allowable deduction if certain conditions are satisfied, and those conditions are satisfied, the Commonwealth's "entitlements" abate in consequence. As a broad proposition one would thus not expect the Commonwealth to be defrauded by the implementation of the NIPAG scheme unless the scheme were not effective to make the donations to the Gallery an -17- allowable deduction in the manner to which I have earlier referred. Compare the observations of Davies J. in Edwards v. Von Einem (supra) at 4-5 where, in relation to a scheme to avoid payment of sales tax, he said:- "I turn first to the conspiracy to defraud. It was necessary that the prosecution show: (a) that there was a scheme which, if put into effect, would defraud the Commonwealth; (b) that Mr Edwards entered into an agreement or arrangement to put that plan into effect; and (c) that in entering into that agreement or arrangement, Mr Edwards had the necessary mens rea or guilty mind. With respect to (a), it was necessary for the prosecution to prove that the plan, if given effect, would impose liability for sales tax upon the wholesaler or upon one of the entities "A", "B" or "C". Unless the wholesaler or entities "A", "B" or "C" wouid be liable to pay sales tax, the Commonwealth of Australia would not be defrauded and the plan could not have been a plan to defraud the Commonwealth. It was urged that the judgment of Lockhart J. in the same case suggested that it was not necessary that the scheme be one which, if carried into effect, would have had the effect that no sales tax was taxable. In that regard Lockhart J. at 10-11 listed four possible constructions of the facts before the magistrate 1n the committal proceedings, saying:- "Various possible interpretations of the evidence were open to the Magistrate for his consideration. He was in a position to decide which of them, if any, he should accept. One possible construction of the facts is that the participants in the scheme intended that no sales tax would be payable by anybody and that the intervention of companies A, B and C would achieve that object. If so, -18- and if the scheme had successfully operated to achieve that object, there could be no question of any conspiracy to defraud the Commonwealth or to prevent or defeat the execution or enforcement of the sales tax legislation. A second possibiliity is that the participants did not succeed in achieving that object so that sales tax was payable by one of the companies, perhaps the wholesaler or company C. A third possibility is that the role of companies A, B and C was a sham, intended by the participants, or some of them, to mask their real purpose of concealing from the Commissioner of Taxation, for as long as possible, the liability of the wholesaler to sales tax, this concealment to be achieved by various means including the fact that company A quoted its sales tax exemption number on the sale by the wholesaler to it. A fourth possibility is that the participants may have intended the scheme to operate according to its tenor so that no sales tax would be payable by anybody, but thought that, at worst, if anyone were liable, it would be company C on the basis that the transfer of the property in the goods to it from companies A and B was the last sale by wholesale. We were told from the Bar table that company C was a company of straw. Hence, it may be that the participants thought that in these circumstances all the Commissioner would find at the end of the day would be a valueless shell. Smithers J. appears to have contemplated this last possibility in the closing stages of his reasons for judgment. As I said above, there may be other possibilities; but it is, I think, helpful to keep in mind the ones I have mentioned when considering the submissions of the appeallant." It is clear from His Honour's judgment that he regarded the first and second of these constructions as being innocent and the third and fourth as giving rise to the possibility of conspiracy to defraud. I do not think that the "fourth possibility", to which much argument was addressed both before the first respondent and before me, should be treated as assuming that the scheme may or may not have been effective; rather I ' -19- think that Lockhart J. was dealing with the question whether the state of mind to which he adverted in the fourth possibility was capable of being dishonest, the assumption being that the scheme was inefficacious. The issue which arises in cases such as this appears to me similar to that discussed by Lord Scarman, with whose reasons the other members of the House of Lords agreed, in Director of Public Prosecutions v. Nock (1978) A.C. 979 when he said at 998:- "Unless the law requires the actus reus as well as mens rea to be proved, men, whether they be accused of conspiracy or attempt, will be punished for their guilty intentions alone. And again, as with the statutory ground, common sense and justice combine to require of the law that no man should be punished criminally for the intention with which he enters an agreement unless it can also be shown that what he has agreed to do is unlawful." Very similar considerations apply, in my view, in relation to the charge of conspiracy to defeat or prevent the execution or enforcement of the Income Tax Assessment Act. The Commonwealth's rights under the Income Tax Assessment Act are measured by the terms of that Act and if their effect is to permit a taxpayer to adopt a particular course having taxation consequences defined by the Act, the adoption of such a course cannot amount to defeating or preventing the execution or enforcement of the Act. That that is so is well illustrated by Req. v. Cahill (1978) 2 N.S.W.L.R. 453 when persons who were ~20- prohibited immigrants had sought to improve their prospects of being permitted to remain in Australia by entering into marriages of convenience with Australian citizens, the marriages not being shams. They were charged with conspiring to prevent the enforcement of the Migration Act 1954 and it was held that on the facts the charges could not be sustained. As Street C.J. said in that case at 455-6:- "What was here being done involved no more than the bringing into existence of a change in the legal status of the male appeallants which would, it can be assumed, be a relevant, perhaps even a decisive, consideration to be weighed by the Minister when deciding whether to order the deportation of the male appellants. By no legitimate stretching of the meaning of the word "prevent" could this, in my opinion, be brought within the meaning of the phrase "prevent the enforcement of a law of the Commonwealth". It has always been permissible in many fields so to order one's affairs as to avoid attracting the operation of a law, whether it be a law of the Commonwealth or a law of the State. Equally, it has always been permissible to bring about circumstances which will create a climate favourable to the person concerned in respect of a statutory discretion which might be exercised for or against his interests. It is not necessary to canvass the many areas where such planning and action is both commonplace and legitimate, but the revenue field comes at once to mind." See also the observations of Mahoney J.A. at 465 where he said that it was for the Crown to demonstrate that that which the parties conspired to do was to prevent the enforcement of the Act. ' -21- It is obvious, of course, that there are grounds on which the view might be taken that the NIPAG scheme was not effective to achieve the deduction for the donation to the Art Gallery. Thus it might be that the whole scheme was a sham, i.e. that the transactions were not intended to have effect according to their terms (Perpetual Trustee Co. v. Bligh (1940) 41 5.R. (N.S.W.) 33 at 39, Albion Hotel Pty Limited y, Tedera Gor Commissioner of Taxation (1965) 115 C.L.R. 78 at 91-92). Again it might have been that the Gallery on Norfolk Island - apparently a rather modest establishment - was not a "public art gallery" in terms of s.78(1)(a)(xxvil). Further it may have been that the fact that the Art Gallery was, in effect, to utilise the donations to pay a grossly inflated price for the works purchased meant that, by the application of the reasoning in Leary v. Federal Commissioner of Taxation (1980) 32 A.L.R. 221, the donations were not "gifts". The first respondent's decision, however, is not based on the expression by him of a view on any of these particular matters, nor (speaking more generally) does he express a view on the question whether the NIPAG scheme was efficacious. His consideration thus proceeded on the basis that the NIPAG scheme in fact may have been operated to make the donations to the Gallery allowable deductions and thus to reduce the companies' taxable incomes to a level where no tax was payable. -22- There are considerable doubts, it seems to me, about the correctness of the approach taken by the first respondent. It was said first in support of that approach that the Commissioner had a potential right, pursuant to 3.17 of the Income Tax Assessment Act, to be paid income tax "upon the making of taxable income", although his right would not "crystallise" until the making of an assessment. But whilst it is true that s.17 provides that tax is levied, and shall be paid, upon the taxable income derived during a year of income, taxable income is not "made", but is - see the definition of "taxable income" in s.6(1) - the result of a calculation, namely either the amount calculated in accordance with s.48 or the amount calculated in accordance with s.50C. In neither case can it be predicated at the time when income is derived that there will be taxable income because allowable deductions may have the effect that there is none. Further as the High Court said in Clyne v. Federal Commissioner of Taxation (supra) income tax does not become "due", in the sense of being "owing", until it has been assessed and notice of assesment served. The position which then obtains ais that the Commonwealth, during a year of income, is entitled to be paid what, if anything, will be the taxable income of a taxpayer once it is assessed at the conclusion of that year. Secondly 1t was said that the provisions of the Income Tax Assessment Act relating to recovery of tax assessed notwithstanding the pendency of an objection or review or appeal -23- gave rise to the interim rights of which the Commonwealth might be defrauded. I have difficulty in accepting this argument. It involves the assumption, of course, that the Commissioner of Taxation, incorrectly, has made an assessment of income tax on the basis that the donations are not allowable deductions. It means also that one must assume that the Commissioner either has acted under s.204 to fix a date for payment of the tax so assessed at a time prior to the determination of an objection, or review or appeal, or by not fixing a date for payment has allowed s.204 to bring about a similar result (see the observations of Burchett J. in A.R.M. Constructions Pty Ltd v. Commissioner of Taxation (1986) 10 F.C.R. 197 at 206). It further involves the assumption that the Commissioner would be paid in fact or if not paid voluntarily would seek to recover the tax assessed in legal proceedings for recovery and in so doing would rely on a document to which s.177(1) applied, for it is only reliance upon production of such a document in recovery proceedings which prevents the assessment being put in issue in those proceedings (McAndrew v. Federal Commissioner of Taxation (1956) 98 C.L.R. 263 at 270, 281-2, F.d. Bloemen Pty Ltd v. Federal Commissioner of Taxation (1981) 147 C.L.R. 360 at 375)) and would be paid in consequence of the judgment. All of this indicates, it seems to me, that there is an underlying fallacy in the view that the "interim" rights are . -24- rights of the nature to which Viscount Dilhorne referred. It was said on behalf of the second respondent that the rights are of the relevant kind but that the real question is whether the Commissioner's ability to recover would be taken away "dishonestly"if the agreement were implemented. I have difficulty with this argument, however, because if what has been done has been to create a situation where a deduction has been lawfully brought into existence reducing taxable income to nil, it is impossible to regard it as dishonest not to keep available the funds necessary to pay an assessment based on the assumption that the deduction claimed will be wrongly disallowed. In these circumstances my view is that the approach taken by the first respondent on this aspect was incorrect in relation to the charge of conspiracy to defraud. Exactly similar problems appear to me to arise in relation to the charge of conspiracy to prevent or defeat the execution or enforcement of the Income Tax Assessment Act and I quite fail to see that an execution and enforcement of that Act is in any way prevented or defeated if the Commissioner is not able to recover as tax moneys which in truth he is not entitled so to recover. Accordingly it seems to me that the first respondent has applied an incorrect test in determining whether either of the requirements of s.56(1)(b) has been satisfied. -25- The question which then arises is that of the course of action which I should take. Because the first respondent did not apply the correct legal test when considering whether he was satisfied as to the application of the limbs of s.56(1)(b) it is quite possible that if he were to apply the correct test, matters appearing in the evidence which he regarded as material in arriving at his previous decision would cease to be so. Again it may be that matters which he regarded as immaterial on the basis which he adopted would be material when he applied the correct test. Accordingly the course which I shall take is to set aside the first respondent' decision and remit the matter to him for reconsideration according to law. In doing so, however, there are some other matters with which I should deal. One is the contention, advanced strongly on behalf of Mr Forsyth, that all that he was doing was to act as counsel and that he could not by so doing be guilty of any of the offences with which he is charged. I agree that as a general proposition it 1s important to bear in mind the observations of Street C.J. (with whom Gordon and Ferguson JJ. agreed) in R. v. Tighe and Maher (1926) 26 5.R. (N.S.W.) 94 at 108-109 that:- "It is expected of course of every solicitor that he shall act up to proper standards of conduct, that he shall give his clients sound advice to the best of his ability, and that he shall refrain from doing anything s -26- likely to mislead a Court of Justice; but, in the course of his practice he may be called upon to advise and to act for all manner of clients, good, bad or indifferent, honest or dishonest, and he is not called upon to sit in judgment beforehand upon his client's conduct, nor because he does his best for him as a solicitor within proper limits, is he to be charged with being associated with him in any improper way. In acting for a client, a solicitor is necessarily associated with him, and is compelled to some extent to appear as if acting in combination with him. Se he may be, but combination is one thing and improper combination, amounting to a conspiracy to commit a crime or a civil wrong, is another thing. An uninstructed jury may easily fail to draw the necessary distinction between such combined action as may properly and necessarily be involved in the relation of solicitor and client, and such acts on the part of a solicitor, over and above what is required of him by his duty as a solicitor, as may properly give rise to an inference of an improper combination. I think, therefore, that it may be useful to point out the importance, in cases where a solicitor is charged with entering into an agreement with his client which amounts to a criminal conspiracy, of seeing that the jury are properly instructed as to a solicitor's duty to his client, and that it is made plain to them that, before a solicitor can be convicted of conspiring with his client to commit a wrong, it must be proved that he did things in combination with him, over and above what his duty as a solicitor required of him, which lead irresistibly and conclusively to an inference of guilt." and that these remarks are equally apposite to the position of a barrister. I agree also that upon those parts of the evidence which I have seen there is no doubt much to be said for the view that the evidence did not show more than that Mr Forsyth was acting as a barrister but I am not inclined to take the course urged upon me, namely to set aside the first respondent's decision in respect of Mr Forsyth, but to decline to remit the matter to the first respondent for reconsideration. I am not inclined to adopt that course because I have seen only those extracts from the evidence -27- which the parties have chosen to put before me and the question whether there is or is not evidence which could give rise toa satisfaction in terms of s.56(1)(b) is primarily one for the first respondent, who has seen all the evidence. I should add, because the assertion was that Mr Forsyth was doing no more than acting in the normal way as a barrister, that there was before the first respondent some evidence that the brief to advise of 7th March 1979 although it purported to come from Alfred Branicki & Associates, had come direct from MTS ata time when MTS had no "in-house" solicitor and that Mr Forsyth, by taking part in the conferences referred to in his Advice of 23rd March 1979, must have been aware of these matters. Whether any and what significance might be given to this aspect is a matter for the first respondent. The second additional matter with which I should deal is the contention that the charges under s.7A against Mr Forsyth cannot be sustained as a matter of law. It was argued that insofar as charges of inciting, urging, or encouraging others were concerned, the conspiracies alleged were complete at the time of the events which might constitute the inciting, urging, aiding or encouraging and that those events could not give rise to an offence. A somewhat similar question was raised but not decided in Req. v. Lanteri (1985) 4 N.S.W.L.R. 359. ° -28- Section 7A(a) of the Crimes Act provides that:- "7A. If any person - (a) incites to, urges, aids or encourages; the commission of offences against the law of the Commonwealth ..., he shall be guilty of an offence." As I have said earlier, the relevant "offences" for the purposes of s.7A(a) are those stated in ss.86(1)(b) and 86(1)(e) in the following way:- "(1) A person who conspires with another person - (b) to prevent or defeat the execution or enforcement of a law of the Commonwealth; (e) to defraud the Commonwealth ..., shall be guilty of an indictable offence." It is thus to be seen that when s.7A(a) speaks of inciting etc the "commission" of offences, it is speaking relevantly of inciting etc the "conspiracy", and it seems correct as a matter of principle to say that conduct of the nature referred to in s.7A(a) cannot constitute an offence if the conspiracy (in terms of s.86(1)) to which it is said to relate is no longer being committed. The argument which the applicant then advances is that because the offence of conspiracy is complete upon agreement, and because agreement between other conspirators had come into being at a time prior to the acts which might attract the operation of s.7A(a), there is no basis on which the two charges can be sustained. I do not agree with this submission. -29- An offence may be complete without being completed. Thus rape is complete upon penetration, but the offence continues to be committed until penetration ceases. If a person who had previously played no part in the offence were to grab and hold the victim's arm to facilitate the continuance of the rape during that time, there seems no reason why that person would not he liable to conviction as a secondary party to the rape which commenced upon the initial penetration. See The Queen v. Mayberry (1973) Qd. R. 211 at 229, 295. The authorities support the view that conspiracy is a continuing offence in the same sense. The issue was dealt with in the House of Lords in Director of Public Prosecutions v. Doot (1973) A.C. 807 where the conspiracy in question had been formed out of, but was performed within, the jurisdiction and a submission that conspiracy was both complete, and completed, upon agreement was rejected. Two passages from the reasons for judgment will suffice. Thus Viscount Dilhorne said at 825:- "The conclusion to which I have come ... is that though the offence of conspiracy is complete when the agreement to do the unlawful act is made and it is not necessary for the prosecution to do more than prove the making of such an agreement, a conspiracy does not end with the making of the agreement. It continues so long as the parties to the agreement intend to carry it out. It may be joined by others, some may leave it. Proof of acts done by the accused in this country may suffice to prove that there was at the time of those acts a conspiracy in existence in this country to which they were parties and, if that is proved, then the charge of conspiracy is within the jurisdiction of the English courts, even though the initial agreement was made outside the jurisdiction," -30- and at 827 Lord Pearson, with whose reasons for judgment Lord Wilberforce agreed, said:- "A conspiracy involves an agreement expressed or implied. A conspiratorial agreement is not a contract, not legally binding, because it is unlawful. But as an agreement it has its three stages, namely (1) making or formation (2) performance or implementation (3) discharge or termination. When the conspiratorial agreement has been made, the offence of conspiracy is complete, it has been committed, and the conspirators can be prosecuted even though no performance has taken place: Req. v. Aspinall, 2 Q.B.D. 48 per Brett J.A. at pp. 58-59. But the fact that the offence of conspiracy is complete at that stage does not mean that the conspiratorial agreement is finished with. It is not dead. If it is being performed, it is very much alive. So long as the performance continues, it is operating, it is being carried out by the conspirators, and it is governing or at any rate is being carried out by the conspirators, and it is governing or at any rate influencing their conduct. The conspiratorial agreement continues in operation and therefore in existence until it is discharged (terminated) by completion of its performance or by abandonment or frustration or however it may be." See too Req. v. Cuthbertson (1981) A.C. 470 at 481 where Lord Diplock with whose reasons Lords Edmund-Davies, Russell of Killowen and Keith of Kinkel agreed, said:- "The offence is a continuous one in the sense that it continues to be committed by the parties to the agreement so long as the agreement remains on foot, Reg. v. Doot £19733 A.C. 807; but it is complete as soon as the agreement has been made, irrespective of whether any steps have actually been taken by the parties to carry out the course of conduct agreed upon." and Woss v. Jacobsen (1985) 60 A.L.R. 313 at 319 and Req. v. G.F.S. and W. (1974) 1N.S.W.L.R. 31. It follows in my view that there may be offences under s.7A(a) brought about by inciting, urging, aiding or encouraging others to conspire in terms of s.86(1) although the agreement the , -31- subject of the conspiracy has been entered into at a time prior to events alleged to attract s.7A(a). It is possible, of course, that some parts of s.7A(a) will be inapposite to the facts of particular cases, and perhaps of this case, but the issue was argued before me on the broad basis that s.7A(a) could not be applicable to conspiracy cases and I think I need do no more than reject that broad proposition. The third matter with which I should deal is the contention that the proceedings befofe the first respondent should be set aside for material irregularity. The irregularity relied on in the proceedings is the fact that it appeared that Mr Meldrum Q.C., who was senior counsel for the prosecution before the first respondent had himself been involved in a taxation minimization scheme, not the NIPAG scheme, with Baldor Investments Proprietary Ltd, ("Baldor") a company named in the charges as a co-conspirator. In this regard, it appeared that on 21st February 1987 Mr Meldrum had entered into an agreement in writing with Baldor to borrow $8,500.00 from it, the scheme in question being generally similar to that held to be inefficacious in Leary v. Federal Commissioner of Taxation (supra). The connection between that scheme and the NIPAG scheme was that in his opening of the case, Mr Meldrum referred to the > -32- scheme to which he had been party in the following way:- "The gallery, your Worship, and this is an important part of the case, had been set up by Mr Brown, who was a solicitor in Norfolk Island. One has to go back a little before it is set up to understand the purpose of it as the Crown would put it. In the tax year of 1977-78 there were marketed in Australia tax schemes for individuals and one of the principal marketers was Metropolitan Taxation Services. It was not then owned by the present defendant, its present principals were not then the owners. That company had been set up by the principals of a firm of solicitors of Clements, Lucan & Mulvany and they were the owners of it at the time that it ran the prior scheme. The prior scheme that was set up for individuals was one in respect of which the Full Court of the Federal Court ruled at a later stage, and we will be putting to your Worship the elements of that, but the scheme was one whereby individual taxpayers would enter into an agreement with MTS and would take out what was called in this industry a collapsible loan and they would gear up therefore by collapsing the loan and paying only a very small part of it, a relatively small sum into an allegedly enormous donation. The Order of St John was the test case, it was the Order of St John that was organised by MTS as it was then composed and MIS marketed to individual taxpayers in this country some millions of dollars of alleged deductions. The Full Court of the Federal Court subsequently ruled in what became the test case that the scheme did not involve any donation, there was not the necessary element that the common law required to make a donation and no doubt to the chagrin of the hundreds of taxpayers that had involved themselves in that scheme it failed, but it set the genesis of the Norfolk Isiand Public Art Gallery because on 31 January, one day after Mr Manners had gone to Norfolk Island, and his movements backwards and forwards will be matters on which evidence will be given in this case, along with the movement of other defendants backwards and forwards to Norfolk Island." The argument then advanced is that because Mr Meldrum was "contractually engaged with a named co-conspirator in connection with a scheme which he has opened to have failed, which has apparently cost him something, with an outstanding loan obligation following upon that arrangement", his position was -33- such as to disqualify him from continuing as counsel for the prosecution and - because he had acted as counsel for the prosecution - to render the proceedings before the first respondent liable to be set aside. There is no doubt that, as was emphasized in The King v. Sussex Justices, Ex parte McCarthy (1924) 1 K.B. 256 at 258-9:- ",. it is not merely of some importance but is of fundamental importance that justice should not only be done, but should manifestly and undoubtedly be seen to be done." (See too Req. v. Commonwealth Conciliation and Arbitration Commission, Ex parte Angliss Group (1969) 122 C.L.R. 546 at 553-554 and The Queen v. Watson, Ex parte Armstrong (1976) 136 C.L.R. 248, bearing in mind that, as Barwick C.J., Gibbs, Stephen and Mason JJ. said in the latter case at 262, it would be wrong to regard the observations of Lord Hewart C.J. in The King v. Sussex Justices; Ex parte McCarthy (supra) as meaning that the appearance of justice is of more importance than the attainment of justice itself.) It is clear that the principle stated in The King v. Sussex Justices, Ex parte McCarthy (supra) does not apply merely to the question of the appearance of bias in the persons who are to adjudicate upon the issues in question. See, in addition to that case itself, Req. v. Smith (1975) 61 C.A.R. 128 where a verdict was set aside because a pupil in the prosecuting counsel's chambers had discussed the accused's case with the ~34- accused before he became aware of the retainer in his chambers to prosecute, but yet sat robed in-court with prosecuting counsel during the trial. The question is in the end whether the circumstances were such that justice could not be seen to he done and questions of degree are involved. In my view the circumstances were not such that justice could not be seen to be done. The connection between Mr Meldrum's involvement with Baldor and the subject matter of the charges was in truth slight and the proceedings before the first respondent were not, of course, a criminal trial but rather committal proceedings. I might add that it is not suggested that the conduct of the matter was in fact affected in any way by Mr Meldrum's involvement with Baldor. Other matters which were raised in argument before me, but in the light of the views which I have expressed it is unnecessary fo enter upon them. The decisions of the first respondent in question are set aside, and the matter is remitted to him for further hearing and determination in accordance with these reasons. rake 39> t Vi cerufy trartusc ; \ i ~ - Ps iprocacrs "ccatr ear we TcovarI. Pepcctpt- | tur aera yhisrtionce ; - Ar Cosi = JACKSow