JUDGMENT No. S49. Bt ' CATCHWORDS Administrative Law - application * under Administrative Decisions (Judicial Review) Act 1377 seeking order of review of decisions of stipendiary magistrate - committal proceedings before magistrate - decisions by magistrate that there was sufficient evidence to caution accused under State law - appeal from decisions of trial Judge setting aside decisions of magistrate - whether decisions of magistrate made pursuant to Magistrates (Summary Proceedings) Act 1975 (Vic) were decisions to which the Administrative Decisions (Judicial Review) Act applies. Income Tax - implementation of tax minimization scheme - when tax becomes due and payable - whether Commonwealth has right to tax pending final determination of objection or appeal - whether necessary for magistrate to determine efficacy of scheme. Conspiracy to defraud the Commonwealth - conspiracy to prevent or defeat the execution or enforcement of a law of the Commonwealth - history and nature of common law conspiracy. Liability of a barrister when giving advice in professional capacity. Administrative Decisions (Judicial Review) Act 1977 ss.3,5,9 Bankruptcy Act 1966 5.40(1)(c) Crimes Act 1914 ss.7A,86(1)(b)(e) Federal Court Rules 0.52 r.22 Income Tax Assessment Act 1936 ss.6,17,78(1)(a) (xxvii) ,166,174,177,201,204,206,208,209 Judiciary Act 1903 5.68 Magistrates (Summary Proceedings) Act 1975 (Vic) s.56(1)(b) Sales Tax Assessment Act (No. 3) 1930 PHILLIP GEORGE CURRY Vv. BARRY SAUNDERS AND GERARD CIs S$ V. No. G 88 of 1987 FOX, NORTHROP AND PINCUS JJ. 15 OCTOBER 1987 MELBOURNE IN FED COURT OF STRALI VICTOR DIs CT REG ¥ V. No. G 88 of 1987 GE DIVISION ON APPEAL FROM THE FEDERAL COURT OF AUSTRALIA PHILLIP GEORGE CURRY Appellant and BARRY SAUNDERS and ANOTHER Respondents a ie) EF be] : FOX, NORTHROP AND PINCUS JJ. i 15 OCTOBER 1987 LACE: MELBOURNE MINUTES OF ORDER THE COURT ORDERS THAT: - 1. The appeal be allowed with costs. 2. The orders appealed from be set aside and in lieu thereof it is ordered that the application be dismissed with costs. (Settlement and entry of orders is dealt with in 0.36 of the Rules of Court.) IN THE FEDERAL COURT OF AUSTRALIA ) . ) VICTORIAN DISTRICT REGISTRY ) VIC G88 of 1987 1] ) GENERAL DIVISION ry ON APPEAL from a judgment of a single judge of the Federal Court of Australia BETWEEN: PHILLIP GEORGE CURRY Appellant AND: BARRY SAUNDERS and GERARD FRANCIS SHEEHAN Respondents CORAM: FOX. NORTHROP AND PINCUS JJ. DATE: 15 OCTOBER 1987 REASONS FOR JUDGMENT FOX J. In this matter. I agree with the order proposed, and I agree in substance with the reasons for that result aiven by Northrop J. and Pincus J. I certify that this page is a true copy of the Reasons for Judament herein of his Honour Mr. Justice Fox. Associate: SOA cr Date: 15 OCTOBER 1987 IN THE FEDERAL COURT OF AUSTRALIA ) VICTORIA DISTRICT REGISTRY V. No. G 88 of 1987 GENERAL DIVISION ~~ eww ON APPEAL FROM THE FEDERAL COURT OF AUSTRALIA PHILLIP GEORGE CURRY Appellant and BARRY SAUNDERS and ANOTHER Respondents COURT: FOX, NORTHROP AND PINCUS JJ. DATE : 15 OCTOBER 1987 PLACE: MELBOURNE REASONS FOR JUDGMENT NORTHROP J. This appeal raises for consideration questions of law similar to those considered in O'Donovan v. Vereker and ethers (V. No. G 86 of 1987) and O'Donovan v. Forsyth (V. No. G 87 of 1987) which were heard together immediately before the hearing of this appeal. It should be noted however that in the present appeal the informant 1s not the informant referred to in the other two appeals, the magistrate conducting the committal proceedings is not the magistrate conducting the committal proceedings referred to in the other two appeals and the scheme adopted by the respondents to avoid income tax is not the NIPAG scheme referred to in the other two appeals. In order to understand these reasons for judgment 1t is necessary to have "read the reasons for judgment in the other two appeals. In the present appeal, each of the respondents had been charged by the appellant, ("the informant") with indictable offences under paragraphs 86(1)(b) and (e) of the Crimes Act 1914 (Cth) ("the Crimes Act"). Mrs. 5.E. Brown, a stipendiary magistrate ("the magistrate") was conducting the committal proceedings under the Magistrates (Summary Proceedings) Act 1975 (Vic.) ("the Summary Proceedings Act"). At the conclusion of the evidence against them, counsel on their behalf submitted to the magistrate, in substance, there was no sufficient evidence to support the charges. On 21 July 1986, the magistrate announced that there was sufficient evidence before her to caution each of the respondents as required by paragraph 56(1)(b) of the Summary Proceedings Act. At the same time the magistrate published her reasons for those decisions. The respondents, as applicants, commenced proceedings in the Federal Court pursuant to the Administrative Decisions (Judicial Review) Act 1977 (Cth), ("the Judicial Review Act") seeking an order of review of the decisions of the magistrate made on 21 July 1986. The magistrate and the informant were named as respondents to those proceedings. Those proceedings came on for hearing before the Federal Court constituted by Jackson J. immediately after he had heard the applications involved in the other two appeals. On 1 April 1987, immediately after publishing his orders and reasons for judgment in the other two appeals, the Court made the following orders in the proceedings commenced by the respondents:- "1. The decision of the first respondent (the Magistrate) be set aside. 2. The matter be remitted to the first respondent for further consideration in accordance with the reasons for judgment herein." At the same time, the Court published its reasons for judgment for those orders. The informant appealed from the whole of the orders made. By his notice of appeal, the informant is seeking an order:- "That the whole of the judgment appealed from be set aside and that the Respondents pay to the (anformant) the costs of and incidental to this Appeal and the Application to Review the decision." As in the other two appeals, there are deficiencies with respect to the orders sought. The respondents have not given any notice of cross appeal or notice of contention; see 0.52 v.22 of the Federal Court Rules. It is not necessary to refer in any detail to the scheme devised and implemented by the respondents. It related to a number of companies which had earned substantial current year profits which would, normally, constitute taxable income under the Income Tax Assessment Act 1936 ("the Income Tax Act"). The scheme involved the acquisition of those companies by companies controlled by the respondents, the creation of artificial deductions to reduce or eliminate the current year profits, the stripping of the companies' other assets and finally the liquidation of the companies. The stripping process was to take place after the end of the current tax year and in some cases took place after the Commissioner had issued and served default assessments under 5.167 of the Income Tax Act with respect to some of the companies. Essential parts of this scheme were that the companies were to receive the benefit of deductions which may not be allowable under the Income Tax Act and that the companies were, in addition to the deductions, to be stripped of all of their assets with the result, that in the event of tax becoming due and payable by the company, the Commonwealth would not be able to recover that tax from that company. The elements of the conspiracies alleged against the respondents were the agreement to enter into and implement the scheme and to do that by unlawful means, namely to deprive, dishonestly, the Commonwealth of the income tax to which 1t would be entitled in the event of tax becoming due and payable by the company to the Commonwealth. In her reasons for making the decisions, the , Magistrate made it clear that for the purposes of the committal proceedings, she did not have to form any opinion as to whether the scheme was effective to reduce the taxable income of the companies involved. In her reasons, she used the phrase "interim rights" but in so doing did not use it in the sense the same phrase was used in the other two appeals. She used the phrase in the context of referring to the relevant provisions of the Income Tax Act. She said:- "I have previously referred to the decision of Viscount Dilhorne in Scott v Metropolitan Police Commissioner and the characterisation of the proprietary right as 'something which is his or of something to which he 15 or would or might but for the perpetration of the fraud be entitled'. What the law looks to in assessing fraudulent intent is possible prejudice to some person as a consequence of giving effect to the agreement. (See R_v Landy, White & Kaye C1981] 1 W.L.R. 355 at 365). It is my view that the Commissioner had a right of the type envisaged in Scott v Metropolitan Police Commissioner. Certainly, post default assessment that right existed, he then being entitled to Payment of the tax assessed on the due date. An apprehension by the defendants of the Commissioner's rights is demonstrated by the fact that a sum sufficient to cover a provision for tax was left in the companies after the declarations of dividends in December 1979. Further, I an satisfied that prior to the issuing of the default assessments he had interim rights to something which he 'would or might but for the perpetration of the fraud be entitled'. I refer in particular to re Mendonca; ex parte Commissioner of Taxation C19693 F.L.R. 256 at page 259 a decision of the Federal Court of Bankruptcy of Gibbs J (as he then was) who at page 259, considered the relevant provisions of the Income Tax Assessment Act and said: 'It is now settled that the effect of these and similar provisions is that the liability to income tax 15 imposed by the Statute itself and that assessment is only a method of ascertaining the extent of the liability, so that the tax is a debt due and owing although not payable, notwithstanding that no assessment has been made.'" The views expressed by Gibbs J. in Re _ Mendonca, namely, that a liability to tax may arise before 1t becomes due and payable, may require further consideration having regard to Clyne v. Deputy Commissioner of Taxation (1981) 150 C.L.R. 1. See also Taylor v. Deputy Commissioner of Taxation, Full Court of the Federal Court, 20 May 1987, unreported. In Clyne's Case, the High Court held that income tax does not become due until it is assessed and notice of the assessment is served. However, the reliance by the Magistrate on Re Mendonca does not affect the decision in this case and it is not necessary to consider this matter further. In his reasons for judgment, Jackson J., after referring to the Vereker and others and the Forsyth applications, said:- "As in those cases the (magistrate) did not express a view on the question whether the schemes had been effective to create allowable deductions. She did consider the question whether the transactions involved were shams but took the view that they were not, with the exception of part of the transaction involving an acquisition of shares by Baleshare Pty Ltd as trustee of an employees trust (on the occasions when Baleshare Pty Ltd was used in the transactions). What effect the finding of a partial sham had upon the efficacy of the remainder of the scheme was not further explored. The approach taken by the (magistrate) was that the Commissioner of Taxation, both prior to the issue of the default ass@ssments to which reference was made, and certainly thereafter, had interim rights to payment of such tax as might be, or had been, assessed. For the reasons which I have given in the judgments I have delivered today Vereker and Ors. v. Rodda and Anor. and Forsyth v. Rodda and Anor. Ido not regard those 'interim' rights as being within the concept to which the House of Lords, per Viscount Dilhorne, referred in Scott v. Metropolitan Police Commissioner (1975) A.C. 819 at 840. In consequence the consideration of the matter before the (magistrate) has proceeded on an incorrect basis in relation to the charge of conspiracy to defraud. I also consider and again for the reasons which I gave in those cases that the consideration of the matter has proceeded on an incorrect basis in relation to the charges under s.86(1)(b). I should add that I do not regard the fact that the stripping phases took place after default assessments had issued as requiring that a different view be adopted. The making and issue of assessments, whether default assessments or not, does not mean that the schemes were not effective to create allowable deductions." His Honour considered this was an exceptional case within Lamb v. Moss (1983) 49 A.L.R. 533, exercised his discretion accordingly, and made the orders he did. What has been said in the reasons for judgment in the other appeals, which reasons are published today, with respect to Lamb v. Moss, conspiracy, and whether the Magistrate is required to form a view with respect to the efficacy of the scheme, applies to the present appeal and need not be repeated. Those reasons are applied to this appeal. The magistrate may have been in error in her application of R. v. Landy, White and Kaye, above, but for the reasons expressed by Pincus J. that was not sufficient to justify setting aside the decisions she made. Accordingly, the appeal should be allowed with costs, the orders appealed from set aside and in lieu thereof it be ordered that the application be dismissed with costs. I certify that this and the seven (7) preceding pages are a true copy of the Reasons for Judgment herein of the Honourable Mr. Justice R.M. Northrop. Associate .. Sheray . P. ARROYO. 15 October 1987 IN THE FEDERAL COURT OF AUSTRALIA ) VICTORIAN DISTRICT REGISTRY ) VIC G88 of 1987 GENERAL DIVISION ) ON APPEAL FROM A JUDGMENT OF _A_SINGLE JUSTICE OF THE FEDERAL COURT BETWEEN: PHILLIP GEORGE CURRY Appellant AND: BARRY SAUNDERS and GERARD FRANCIS SHEEHAN Respondents CORAM: FOX, NORTHROP & PINCUS JJ. DATE : 15 OCTOBER 1987 PLACE: MELBOURNE REASONS FOR JUDGMENT PINCUS J.: This is an appeal from a single judge of this Court against an order setting aside under the Administrative Decisions (Judicial Review) Act 1977 a decision made in the exercise of federal jurisdiction. The decision 1n question was that there was sufficient evidence to require that the present respondents be cautioned within the meaning of s.56(1) of the Magistrates' (Summary Proceedings) Act 1975 in respect of each of two charges of conspiracy. The charges were laid under ss.86(1)(b) and 86(1)(e) of the Crimes (Commonwealth) Act 1914. Each of the present respondents was charged that he did, between the 30th day of June 1977 and the 3lst day of December 1983 at Melbourne in the State of Victoria, and at other places within and outside the State of Victoria, conspire with the other respondent and diverse other persons - (1) to prevent or defeat the execution or enforcement of the law of the Commonwealth, namely the Income Tax Assessment Act 1936; (ii) to defraud the Commonwealth. The charges had to do with a scheme or schemes designed to escape payment of income tax. They related to 45 companies of which four were taken as representative of the whole. Each had substantial profits earned during the then current year on which tax would, in the ordinary course, ultimately have been exacted. By methods it is unnecessary to describe, a company owned and operated by the respondents acquired each of the four; that was called the "acquisition stage". Then each went through what was called a "treatment stage", the "treatment" being an attempt' to create artificial deductions to eliminate the current year profits. It is unnecessary to describe the methods which were applied. Next came a third stage, being the focus of the appellant's complaint of criminality: the companies' assets were abstracted - stripped - first by declarations of dividend, and secondly by a more elaborate process. The companies were then liquidated. From what has been said so far, it will have been noticed that there is a difference between the character of the scheme presently under discussion and that in issue in the appeals in the cases of O'Donovan v. Forsyth and O'Donovan v. Vereker and Others in which judgment is also being delivered today: in those cases, but not in this, the process which was intended to obtaina deduction was the same as that whereby the companies were stripped. Here, by a separate and elaborate set of transactions occurring after the deductions claimed had been (it was hoped) created, the assets were removed. That could have had no purpose, it appears, other than to ensure that there were no assets to which recourse could be had to recover the tax on the current year's profits, if the treatment stage failed to have its intended legal effect. A second important difference between those cases and this is that here the Taxation Commissioner issued default assessments in respect of the tax alleged to be due by each company, before the stripping stage occurred. In brief summary, the learned stipendiary magistrate's view was as follows. Following R. v. Ghosh £1982] Q.B. 1053, her Worship held that "the Court must consider whether the defendants subjectively knew that their conduct was dishonest according to the standards of the community." She held that the Commissioner of Taxation had rights of the type envisaged in Scott v. Metropolitan Police Commissioner £19753 A.C. 819 - a reference to the well-known expressions of Viscount Dilhorne: ",.. 'to defraud' ordinarily means, in my opinion, to deprive a person dishonestly of something which is his or of something to which he is or would or might but for the perpetration of a fraud be entitled. "(p.839) . Her Worship said that, both prior to and after the issue of the assessments I have mentioned, the Commissioner had such rights. She said there were, in the course of carrying out the schemes, a number of breaches of State legislation such as the Stamps Act and that those breaches pointed towards dishonesty. Her Worship also held that most of the transactions giving effect to the scheme were not shams, but that the risk that the scheme for obtaining tax deductions might not succeed was the sole reason for the stripping and liquidation phases of the scheme, and that according to ordinary standards what was done was dishonest. As to the efficacy of the attempts to create deductions, her Worship came to no conclusion, but held that even if deductions were properly allowable that would not make the respondents' agreement honest. On appeal to a single judge of this Court, the learned stipendiary magistrate's decisions were set aside, and the matter was remitted to her for further hearing and determination. The learned primary judge said that it was unnecessary to set out at length his reasons on points common to the issues dealt with in the Forsyth and Vereker appeals, in which he gave judgment on the same day. He pointed to the circumstance that the magistrate did not say whether the schemes created allowable deductions, but held that the Commissioner had interim rights to payment of such tax as might be, or have been, assessed. His Honour said that for reasons given by him in the other two cases mentioned above, he did not regard the interim rights as being within the concept referred to by Viscount Dilhorne in Scott's case (above). His Honour pointed out that the making and issue of assessments, whether default assessments or not, did not mean that the schemes were ineffective to create deductions. It appears that the reason why the learned primary judge assimilated this case in principle to the Forsyth and Vereker cases (as he did) was that, in all three, the Court had accepted the argument that the Commissioner had interim rights which might be the object of a conspiracy to defraud him. The basis upon which his Honour's judgment proceeded, at least implicitly, seems to have been that there could be no conspiracy to defraud the Commissioner unless ultimately the tax in question was. properly due. Presumably, the task upon which the magistrate was intended by his Honour to embark, when reconsidering the case, was that of deciding whether the schemes engaged in were effective in order to create deductions. It was argued for the appellant in this case, as in the Forsyth and Vereker cases, that it was enough to hold, as the magistrate did here, that there was sufficient evidence of a dishonest attempt to deprive the Commissioner of any tax to which he might be entitled. There was in my view ample foundation for the inference to be drawn against these respondents that' the stripping phase was intended to make it impossible to recover any tax held to be due. Although the facts were complex (there were said to be 50,000 documents), in essence the prosecution case was fairly simple: that the respondents, after tax assessments against the companies had been received, had done away with the companies' assets to make sure the Commissioner could not recover any tax which might be due. It -could-hardly be, and indeed was not, disputed before us that an agreement along those lines might be found by a jury to be fraudulent. The argument advanced on behalf of the respondents was to the effect that the paramount issue had to be the respondents' belief in the ultimate rights of the Commissioner. The learned magistrate should have treated, and did treat, the extent of the respondents' confidence in the devices designed to obtain deductions as relevant; but she made no error in declining to regard that as the essential question. Her Worship referred to evidence suggesting that the respondents thought the scheme to obtain deductions had a good chance of success; she was not obliged to infer from that evidence that the stripping phase necessarily had any purpose other than to ensure that the tax assessed could not be collected. Counsel for the respondent also criticised a passage in the reasons of the learned stipendiary magistrate dealing with the question of fraud. Her Worship said: "What the law looks to in assessing fraudulent intent is possible prejudice to some person as a consequence of giving effect to the agreement (see R. v. Landy, White and Kaye £1981] 1W.L.R. 355 at 365)." Reference to the case cited shows that it was one in which the summing up in a trial on a charge of conspiracy to defraud was held to be defective, partly because it contained a direction along the lines quoted by the learned stipendiary magistrate. With respect, her Worship appears to have misread that decision. The principal point made by the Court of Appeal there was that in such a case the jury have to be satisfied of dishonesty, and nothing else will do. In particular, the Court said, the jury do not have to decide "What the reasonable man or the jurors themselves would have believed or intended in the circumstances in which the defendants found themselves ..." (p.365). The learned stipendiary magistrate did not quite apply that test, but followed R. v. Ghosh (above) which held that it is enough to show that the accused acted "in a way which he knows ordinarily people consider to be dishonest", even if he thinks it is not. The erroneous allusion to the Landy case, however, was not any part of the reason for the primary judge's order. Nor should this Court interfere with the magistrate's decision on that ground. The occurrence, in a careful analysis of the facts and law applicable, of the mistake just mentioned could not justify this Court's taking the extraordinary course of setting the magistrate's decision aside. Nor was any other of the criticisms of the magistrate's reasoning of such weight as to justify our interference. The central point is that the primary judge appeared to have been of opinion that there could be no valid committal, in cases of this sort, unless the magistrate formed and applied a view as to the legal efficacy of the methods adopted to create allowable deductions. Since that is not so, in my opinion, and no other ground for interference with the course of proceedings before the learned magistrate has been made out, the appeal should be allowed, with costs, the orders of the trial judge set aside and the application made to this Court dismissed, with costs. 4 - "% - ~ 1, - rewe S c4stthoang os 7 preceding ~ en - £ pore Tarracls oF th2 -aasc+s for a tae beaver Le $m [ticle 2 ae a fs Bear ~ Mr Justice P.ncus ELEC ES Assoc até Dated 15 October 1987 ° ATTACHMENT A « Title of Action : PHILLIP GEORGE CURRY v. BARRY SAUNDERS & GERARD FRANCIS SHEEHAN File Number : V. No. G 88 of 1987 Dates of Hearing : lL and 2 July 1987 Judgment Delivered $ 15 October 1987 Counsel for Appellant : Richter Q.C. with E. Lorkin Solicitors for Appellant : Director of Public Prosecutions 200 Queen St. Melbourne Counsel for Respondents : J.G. Judd Respondents' Solicitors : Galbally & Rolfe 200 Queen St. Melbourne Signed . Sham. £.iUeeN . Date 15 October 1987