New South Wales Court of Criminal Appeal CITATION : REGINA v GAY [2002] NSWCCA 6 FILE NUMBER(S) : CCA 60285/01 HEARING DATE(S) : 8 November 2001 JUDGMENT DATE : 5 February 2002 PARTIES : REGINA v Brian Edward GAY JUDGMENT OF : Mason P at 1; Hulme J at 20; Hidden J at 27 LOWER COURT JURISDICTION : District Court LOWER COURT FILE NUMBER(S) : 00/31/0334 LOWER COURT JUDICIAL Shillington DCJ OFFICER : COUNSEL : Appellant: E Nicholson QC Respondent Crown: G Bellew SOLICITORS : Appellant: Gray & Ryan Crown: Commonwealth Director of Public Prosecutions CATCHWORDS : Criminal appeal - sentencing - tax fraud - appropriateness of custodial sentence - relevance of administrative penalties imposed by Tax Commissioner - serious dely in laying charges a factor in mitigating otherwise appropriate sentence R v Stitt (1998) 102 ACrimR 428 R v Hamman (CCA, 1 December 1998, unreported) R v Kelvin [2000] NSWCCA 190 R v Cappadona (2001) 47 ATR 317 CASES CITED: Blanco (1999) 106 A Crim R 303 R v Todd [1982] 2 NSWLR 517 Mill v The Queen (1988) 166 CLR 59 R v Schwabegger [1998] 4 VR 649 R v Morris (1993) VR 192 Whitnall (1993) 68 A Crim R 119 DECISION : Reasons for orders made 8 November 2001 IN THE NEW SOUTH WALES COURT OF CRIMINAL APPEAL CCA 60285/01 MASON P HULME J HIDDEN J Tuesday 5 February 2002 REGINA v Brian Edward GAY JUDGMENT 1 MASON P: The applicant, Brian Edward Gay, was dealt with in the District Court for ten charges of defrauding the Commonwealth, pursuant to s 29D of the Crimes Act, 1914 (Cth). Five charges related to his failure to declare part of his income in his personal income tax returns for the years ended 30 June 1989 to 1993. The other five charges related to his being knowingly concerned in the failure by a company known as Roktat Pty Limited to declare part of its income in its income tax returns for the same financial years. On 26 April 2001 Shillington DCJ sentenced him on each charge to concurrent terms of imprisonment for three years, to date from the date on which sentence was passed, and directed his release on recognizance upon certain conditions after twelve months. 2 The applicant sought leave to appeal against those sentences. The application was heard on 8 November 2001 and the Court determined that the appeal should be allowed and the appellant resentenced, undertaking to give its reasons later. Effectively, the three year sentence was affirmed but the recognizance release order was varied so as to enable the applicant's release that same day, 8 November. These are my reasons for that decision. 3 The applicant and his wife were the directors of Roktat Pty Limited. However, the applicant's wife had no active role in the company's affairs and it was effectively controlled by the applicant himself. The company carried out electrical installation work in coalmines in the Hunter Valley. During the relevant financial years the applicant prepared invoices in the name of Trademax Products, a registered business name in which he and his wife had an interest, which falsely claimed payment for products said to have been supplied to Roktat. Roktat's cashbook reflected payments for those falsely invoiced goods. The money was then drawn from Roktat's funds and used for the applicant's personal requirements. 4 In the years 1991 to 1993 smaller amounts were withdrawn from Roktat's funds and shown in the cashbook as payments to various building suppliers for Roktat's purposes. In fact, the money was paid for building requisites for a family home which was under construction. 5 As a result, in Roktat's tax returns for the five year period false deductions were claimed totalling $378,173.20, resulting in the avoidance of tax in an amount of $145,703.99. The applicant's use of these funds for his own purposes led to his income being understated in his personal tax returns for the same period. The total income undeclared was $198,751, the tax avoided being $96,386. 6 Rightly, the learned sentencing judge viewed the offences seriously. In his remarks his Honour observed: The nation's well-being depends on the orderly and fair provision of funds from citizens and corporate entities. The fraudulent activity here involved large amounts, continued over a lengthy period, was not readily detected and was deliberately designed to avoid detection. 7 On the other hand, his Honour took into account a number of matters favourable to the applicant. He is fifty one years old, the father of three daughters. He had no previous convictions. There was an impressive body of character evidence, including evidence of his involvement in community affairs. He had been committed to the District Court for sentence, having pleaded guilty in the Local Court. Over the years between the detection of his offences and his standing for sentence his health had deteriorated. 8 His Honour also referred to the delay in the institution of the prosecution, and to the fact that amended tax assessments had been issued which imposed substantial penalties. Both these matters call for closer examination. 9 An audit by the Australian Taxation Office took place between September 1993 and March 1995. During the early stages the applicant proffered a number of the falsified Trademax invoices in an endeavour to escape detection. He also wrote a letter dated 15 April 1994, described as a "Statement of Disclosure", which (to say the least) fell far short of what it professed. Indeed, it falsely represented that the payments to the applicant were a loan. This led to the extension of the audit to cover the years ending June 1989 to 1993 inclusive. Amended assessments issued in March 1995. The applicant was not interviewed by police until November 1996 and it was not until almost three years later, in October 1999, that the summonses instituting the present proceedings were issued notwithstanding that the prosecution is based upon admissions made in the police interview which addressed matters already brought to light in the audit. There appears to have been no undue delay thereafter, but there is no explanation for the passage of some four and a half years between the completion of the audit and the commencement of the prosecution. 10 In the meantime, as I have said, the amended assessments were issued. The company and the applicant were assessed as liable to pay substantial amounts of primary and "penalty" tax on the additional income discovered in the audit. 11 If one is confined to those portions of the assessments which relate to the fraudulently suppressed income of Roktat Pty Ltd and the applicant, the figures, according to a schedule prepared for this Court, are: ROKTAT Year Additional Income Primary Tax on Amended Income Penalty Tax on Amended Income 1989 $55,102 $21,489.78 $12,893.86 1990 $68,870 $26,565.16 $15,939.09 1991 $174,011 $67,425.32 $40,199.00 1992 $57,925 $22,412.24 $14,973.36 1993 $22,264 $ 7,811.49 $ 5,454,86 TOTAL $378,172 $145,703.99 $89,380.17 THE APPLICANT Year Additional Income Primary Tax on Penalty Tax on Amended Income Amended Income 1989 $27,551.00 $13,663.70 $ 8,198.22 1990 $34,435.00 $16,843.64 $10,106.18 1991 $90,834.00 $43.798.10 $25,701.79 1992 $32,860.00 $15,774.46 $10,090.03 1993 $13,071.00 $ 6,306.76 $ 4,235.09 TOTAL $198,251.00 $96,386.66 $58,331.31 12 The applicant objected to those assessments but the objections were disallowed in February 1996. Borrowing money on the security of the family home, the applicant paid the amount due from him personally (as well as meeting his wife's amended assessment). Following demands for payment by Roktat's liquidator, the applicant went bankrupt on his own petition in February 2000. At the end of that year a scheme of arrangement was entered into whereby upon annulment of the bankruptcy, $250,000 was to be paid by the applicant in full satisfaction of the company's tax liability. $100,000 was paid at that time and the balance is to be paid over the next four years. 13 Despite a request from the Court, the respondent has not provided a reference to the sections of the Income Tax Assessment Act pursuant to which the various items of additional tax penalty were imposed. Since however the rate of penalty appears to be at least 60% of the primary tax it may be inferred that the penalty was struck on the basis of false and misleading statements in returns, subject to limited remission (see 1991 Australian Master Tax Guide chapter 24). Ultimately the detail does not matter: it is sufficient to note that there was a significant punitive element in the amended assessments issued in March 1995. As indicated, the applicant met all of the tax imposed in respect of his own income and a substantial portion of the tax imposed in respect of Roktat's income. 14 Were it not for the combined effect of the tax penalties and the delay I would have left the sentence undisturbed. These were serious offences involving studied dishonesty and careful contrivance over a period of years. The sums involved were substantial. Tax evasion is difficult to detect and apparently widespread. See generally R v Stitt (1998) 102 ACrimR 428; R v Hamman (CCA, 1 December 1998, unreported); R v Kelvin [2000] NSWCCA 190; R v Cappadona (2001) 47 ATR 317. 15 It is however well established that fairness may require a court to reduce what might otherwise be an appropriate sentence. In Blanco (1999) 106 A Crim R 303 Wood CJ at CL, who gave the judgment for the Court, referred to R v Todd [1982] 2 NSWLR 517 at 519 and Mill v The Queen (1988) 166 CLR 59 at 64-66 and continued (at 306): The reason why delay is to be taken into account when sentencing an offender relates first to the fact of the uncertain suspense in which a person may be left; secondly to any demonstrated progress of the offender towards rehabilitation during the intervening period; and thirdly, to the fact that a sentence for a stale crime does call for a measure of understanding and flexibility of approach. 16 In R v Schwabegger [1998] 4 VR 649 the Victorian Court of Appeal applied these principles in a case which involved lengthy and substantially unexplained delay between detection and prosecution coupled with the payment by the offender of all tax owing plus substantial penalties. Vincent AJA said (at 659): … Delay which is not attributable to the offender, of course, constitutes "a powerful mitigatory factor.": R v Liang and Li (1995) 124 FLR 350 at 356; 82 A Crim R 39 at 45. It can have relevance at a number of levels. In Duncan v R (1983) 47 ALR 746; 9 A Crim R 354 the Court of Criminal Appeal of Western Australia stated at ALR 749, A Crim R 356-7: … where, prior to sentence, there has been a lengthy process of rehabilitation and the evidence does not indicate a need to protect society from the applicant, the punitive and deterrent aspects of the sentencing process should not be allowed to prevail so as to possibly destroy the results of that rehabilitation. … The very fact of the long delay in bringing the matter to court which led the applicant to have this matter hanging over his head for nearly four years is rightly prayed in aid on his behalf. Further, there is, in my opinion, a serious incongruity between the assertion that an offence is serious and that the courts must, through the sentences they impose, endeavour to limit its incidence, on the one hand, and such a leisurely progression of the criminal justice proceedings which follow its commission that literally years pass before the matter comes before the court, on the other. For a number of reasons, the investigation and prosecution of criminal conduct should be conducted as quickly as is reasonably practicable if the objectives of the system are to be attained. Additionally, a legitimate sense of unfairness can develop when the criminal justice process proceeds in what can be perceived as too leisurely a fashion. 17 I respectfully agree. 18 One hopes that the present circumstances are fairly unique. If they are not, then the practice of the Australian Taxation Office and/or the Office of the Commonwealth Director of Public Prosecutions must change. It is bordering on the unconscionable for three years to elapse between a police interview which results in full admissions and the laying of ensuing charges. The fact that administrative penalties are imposed (prior to the police interview) and substantially met with all of their attendant burdens upon the defaulting taxpayer and his family makes it even more imperative that a sentencing court take the delay into account. The public interest as well as the legitimate private interests of the offender require a matter such as this to be brought to justice quickly. A failure by the authorities to do so will mitigate an otherwise appropriate sentence. 19 In my view a custodial sentence remained appropriate, but the combined effect of the matters to which I have adverted called for separate treatment in the manner I have suggested. Because it seemed to me that in all of the circumstances it was appropriate to halve an otherwise proper non-parole period I joined in the order made on 8 November 2001. 20 HULME J: I agree with the reasons of Mason P. 21 However I would add this. Although it would seem that the principle of autrefois convict does not operate to prevent the bringing of criminal charges in respect of conduct which has been previously punished by the administrative imposition of penalties – a matter which was not argued - justice requires that that earlier punishment be taken into account when a court comes to sentence an offender in respect of the charges. Authorities that it should be include R v Morris (1993) VR 192, Whitnall (1993) 68 A Crim R 119, and DPP v Hamman (unreported, CCA, 1 December 1998) 22 However, in DPP v Hamman (unreported, CCA, 1 December 1998) Sheller JA, with the concurrence of Levine J said: "While undoubtedly it is a matter to be taken into account, it is, in my opinion, of small account, that when caught out the offender pays the tax due and additional tax by way of penalty for which the offender is liable to a greater or lesser extent, according to the Commissioner's discretion, whatever the reason for non-disclosure." 23 So far as these remarks relate to payment of the tax due, I agree. An offender can claim small credit for performing his legal obligations in common with most of the community. The same may be said of so much of the additional tax as represents interest on tax not paid, certainly if this interest is at more or less a commercial rather than a punitive rate. However, I am unable to agree that payment of additional tax is necessarily to be regarded as of small account. If, of course, the amount of additional tax is small, or perhaps even if large, is of little consequence to a particular offender, this may be an appropriate view but otherwise it seems to me that the significance of the payment of additional tax should be assessed on its merits. If it amounts to a significant punishment in its own right, then it may well be that it should significantly mitigate the punishment which would otherwise be imposed. 24 Sheller JA gave no authority or reasoning for his view. In Whitnall (at 125) Higgins J, with whom Drummond J agreed, said that the degree of hardship imposed by a pecuniary penalty imposed administratively was relevant. Drummond J went on to say that if a heavy penalty has been imposed by administrative action, there is an element of oppression involved in asking a court to then deal severely with the offender. It may be that that is not necessarily so in every case but it clearly is a distinct possibility. The preferable approach is to consider every case on its own merits recognising that, even though Parliament may have provided for 2 punishments, it has nowhere said that the quantum of the first should not be fairly taken into account in any determination of the second. 25 Furthermore, it must also be relevant to consider all of the consequences to an offender of his criminality. In consequence of his wrong-doing and the administrative penalties imposed, possibly contributed to by the delay in the bringing of proceedings, the Appellant lost his home and his health. It would seem that he also lost a successful and profitable business albeit he seems to have, at least partially, replaced this with another. 26 Although his Honour recognised that the delay had had a serious effect of the Appellant's health and a sentence of imprisonment was likely to "significantly impact on the viability of" the Appellant's business, such reference as was made to the consequences the Appellant had suffered as a result of his offending was very brief and I confess that my firm impression is that his Honour did not give to these matters the weight they deserved. 27 HIDDEN J: I agree with Mason P. **************** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. 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