Regina v Ronen & Ors [2004] NSWSC 1300

New South Wales Supreme Court

CITATION : Regina v Ronen & Ors [2004] NSWSC 1300 HEARING DATE(S) : JUDGMENT DATE : 13 October 2004

JUDGMENT OF : Whealy J at 1 DECISION : Evidence allowed.

CATCHWORDS : Admissibility of Accounting evidence - Relevance - prejudice - s 137 Evidence Act LEGISLATION CITED : Evidence Act Regina v Ida Ronen PARTIES : Regjna v Nitzan Ronen Regina v Izhar Ronen FILE NUMBER(S) : SC 70222/03; 70032/03; 70223/03 Mr T. Game SC; Ms S. McNaughton - Crown COUNSEL : Mr R. Richter QC; Mr N. Rosenbaum - Accused Ida Ronen Mr I. Hill QC; Mr E. Power - Accused Nitzan Ronen Mr R. Van de Wiel QC - Accused Izhar Ronen SOLICITORS : Ms P. Musgrave - Cth DPP Watsons Solicitors

LOWER COURT Local Court JURISDICTION : LOWER COURT FILE NUMBER(S) : LOWER COURT JUDICIAL OFFICER :

IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION CRIMINAL LIST

WHEALY J

WEDNESDAY 13 October 2004

70222/03 - REGINA v Ida RONEN 70032/03 - REGINA v Nitzan RONEN 70223/03 - REGINA v Izhar RONEN

JUDGMENT - On admissibility of evidence, see p 5505

1 HIS HONOUR: The current issue here arises from the evidence of an accountant Ms Georgina Wade. 2 Ms Wade has produced two documents, one of them is in evidence marked as Exhibit "GE" and the second document has been marked as Exhibit "GF". At the time it was marked an objection was taken. 3 The objection relates in reality to the general matter which arises out of Exhibits "GE" and "GF". The question posed by the documents may be described in this way; what would have been the tax position of On Fovo Pty Ltd, Dolina Enterprises Pty Ltd and Dolina Fashion Group in 1994 if certain payments by On Fovo recorded in the documents had not been claimed as deductions? 4 In the case of Exhibit "GE" the particular payments were identified as being for purchases, that is payments related to costs of sales and hence deductions. In Exhibit "GF" the amounts were items recognised as purchases, although the amounts remained payable and had not been paid. In each case, the payments had been originally allocated to loans in the records of On Fovo Pty Ltd but were later re-allocated to purchases. 5 The objections which have been taken fall into two categories. The first was enunciated by Mr Van de Wiel QC. He argued that the evidence was simply not relevant and that at the same time it was material which might be misleading and would carry with it a suggestion that the entities involved may have, in an illegitimate fashion, not paid tax, as they should have done. Mr Van de Wiel argued that the evidence created a spectre of the commission of an offence other than that charged; and it was prejudicial and might be used prejudicially for that reason by the jury. 6 Mr Richter QC also adopted this argument and elaborated upon it briefly. Mr Hill QC also adopted the argument. The argument, I think it may be fairly said, reflects an argument Mr Hill had earlier advanced at greater length before me at transcript 4648. This was on 9 September 2004 at a time when an aspect of this same general topic arose, albeit in a slightly different context. 7 The second ground of objection was taken by Mr Rosenbaum. He took strong exception to the correctness of Ms Wade's approach, both in accounting and taxation terms. He identified what he described as a number of errors of principle in her approach, and indeed an inconsistency of approach which he said infected the conclusions that she had reached in her charts. She was, he said, simply not right in relation to the conclusions she had drawn. 8 It may be convenient if I go back to the occasion in the transcript when the topic first arose. It arose at transcript 4642 and this was on 9 September 2004 when Mr Geller, an accountant with Krochmalick & Hurwitz, was giving evidence as a witness called by the Crown. 9 Arguments not dissimilar to those presented today were raised at that time. I gave a brief decision at transcript 4652. There were other decisions I gave on the same day at transcript 4658 and 4659. Those three decisions all touched in one way or another upon the arguments which have been presented today. 10 The gist of the decision I gave at transcript 4652 was this: the Crown, in examining whether the payments then under discussion were or were not "tax neutral", as Mr Geller had said at transcript 4636, had suggested to Mr Geller that there were for a number of years "tax savings" situations achieved as a consequence of the accounting decisions he made or in which he had participated. 11 The Crown's arguments at that time were in response to the defence case that the cheque payments in question were part of a process reflecting an agreement between the accused relating to the sale of un-invoiced consignment stock, that stock being sold to the public at the retail shops on behalf of the Dolinas. The Crown's position was put on an alternative basis. The first alternative was that there was no substantial movement of un-invoiced stock between the Dolinas and the retail shops. As part of this argument, the Crown suggested that Mr Geller's accounting decisions were in large part based on his own assumptions. These assumptions, however, could the more readily be made by Mr Geller since they had the secondary advantage of improving his clients' general tax position in the particular year. Alternatively, if there were movements of un-invoiced stock, the cheques paid by On Fovo Pty Ltd and Ronen Young Fashion to the Dolinas, or for that matter to one another, reflected in that case actual purchases of stock. In other words, the relationship was that of vendor and purchaser. 12 In that regard the Crown indicated that it proposed to argue that the purchase of un-invoiced stock in this manner, if that is what occurred, was inconsistent with the existence of a consignment agreement in relation to that stock. 13 The questions then asked and which were the subject of the ruling I gave at transcript 4652 were, it seems to me, relevant to what Mr Geller did. They were relevant to the decisions he made; and to the related issue as to whether he was acting on instructions and, if so, the identification of the source of those instructions. 14 There is no doubt that Mr Geller, and the journal entries to which he was referred, had an important role to play in the reclassification of loans to purchases arising from the payment of the relevant cheques. 15 As I indicated earlier, I gave a further decision on that day in relation to the prejudice or otherwise of the expression "tax saving" and I gave a decision in relation to an application to discharge the jury, the latter decision at transcript 4658. This touched upon the present issue as well. 16 It is fair to say that, in one sense, the Crown case has moved on somewhat since 9 September 2004. In particular, the Crown was, on a limited basis, permitted at a later stage to question Mr Geller under s 38 of the Evidence Act. One particular topic was the reclassifications of loans to purchases. The effect of the questioning in that regard may be summarised for present purposes: it tended to demonstrate that Mr Geller confirmed in his evidence that he had directed the reallocations on the basis he had mentioned in chief, namely, that these payments related, so far as he was concerned, to the purchase of stock by On Fovo Pty Ltd and Ronen Young Fashion. 17 One of the problems I mentioned during argument before the luncheon adjournment in relation to the present contention is the somewhat unusual position taken by the parties. The Crown has continued with its alternative approach, as I have described it. It has not abandoned the first limb or the first alternative of that approach. At the same time, it has, it may be said, cemented in one respect Mr Geller's adherence to a factual situation more consistent with the second of the two alternative positions, namely that the payments were for the purchase of the relevant stock, notwithstanding that it may have been un-invoiced stock. 18 The defence, on the other hand, having firmly embraced the proposition that these payments were not loans but payments relating to or dealing with stock, now wishes to argue or at least emphasise that the payments were not necessarily purchases by On Fovo, for example, of Dolina's stock; but were payments treated as purchases for accounting purposes. And, as I say, the way in which there are certain shifts within those various arguments makes it difficult to come to a clear conclusion about the relevance of the present material. 19 I should say that although I have given earnest consideration to Mr Rosenbaum's argument, I remain of the view that his argument is really one that focuses upon whether it may be said the witness is correct or incorrect in relation to the view she has taken. That, it seems to me, is essentially a matter for cross-examination, re-examination, perhaps even further evidence-in-chief. If the topic is allowed, then it will become a factual issue that the jury may have to determine. 20 I do not think the fact that the asserted tax saving position is in contention, and perhaps seriously so, can be said to bear upon whether the material is relevant or not or whether it should be rejected. I do not think it is open to me to reject it merely because I can see some force in Mr Rosenbaum's arguments. It may well be that there is a slight difference of approach between the Crown and the defence on what this so-called tax saving is, or at least the period in which it could be said to exist. So I put to one side that objection, although, as I say, I have carefully considered everything Mr Rosenbaum has put to me on the point. 21 The central issue, it seems to me, relates to the relevance of the material and to its prejudicial nature, if that be the nature it possesses. 22 There is no doubt that the issue of the reallocation of loans to purchases and the true nature of the payments leading to those entries and reclassifications in the records of On Fovo Pty Ltd, Ronen Young Fashions and the Dolinas is a crucial issue in the trial. It is clearly important to the defence case. I refer in that regard to my earlier decision of 30 September when I set out at some length my present understanding of the defence case. It is also an important issue in relation to the task the Crown bears, namely to discharge the onus of proof that is laid upon it in bringing this prosecution. 23 In my earlier decisions given on 9 September 2004, I formed the view that the questions then sought to be asked by the Crown of Mr Geller were relevant to the issues in the trial. It was for that reason I permitted the material to be raised. Similarly, Mr Rosenbaum was, without objection, permitted to cross-examine on those very topics. Now we have come to the evidence of Ms Wade. This involves the tender of the documents that were shown to Mr Geller and there is proposed as well, a detailed analysis of the material that Ms Wade claims support and justify her analysis. 24 In my view, although the focus of the Crown case has shifted somewhat, I have come to the conclusion that it could not be said that the Crown has by any means abandoned the first of its alternative positions. In my view, accordingly, the material remains relevant, to the facts in issue. It may be that the measure of relevance is not overwhelming or critical to the issues I have identified. It has perhaps a greater relevance to the first of the two alternatives proposed by the Crown but it is, for the reasons I identified in the earlier decisions, still relevant to the broader issues in the trial. 25 There is, I accept, a risk involved in the material that is now sought to be tendered and the questions that are sought to be asked. The examination of the possibility of a net tax saving position between the entities in the context of Mr Geller's evidence and the general topic of reclassifications from loans to purchases may perhaps carry with it a possibility that the jury will be diverted from its proper task and led into a situation where they may, without proper instruction, consider the material in an impermissible way. That is the matter that has most concerned me in reflecting upon the arguments that have been put. 26 This, however, was a situation I contemplated in one of my earlier decision on 9 September. I then said in the context of the discharge application, at page 3: "I do not believe the Crown has made any allegation of fraud against this witness." 27 That was a reference to Mr Geller. "From my careful attention to the questions that have been asked and the answers that have been given, there has been no mention of any tax evasion in any question, although I do understand the Crown wants to put a question to the witness to suggest that the appropriate adjustments made in 1998 as between On Fovo and Ronen Young Fashions created a net tax saving for those entities." 28 I said: "That, it seems to me, is a far cry from the suggestion of tax evasion." 29 In that same decision, particularly in response to Mr Hill's submissions, I said this: "This is not a situation where there is any need for me to give a direction. As I said to Mr Hill earlier this morning, it may be that if at the end of any part of the cross-examination there is any need to say anything about any suggestion that there is some other wrongdoing lurking in the background of the questions that are put, it seems to me that a stern direction from the trial Judge would prevent the jury from perceiving that as the issue in the trial but I do not think there is any call for any such direction at this point in time. At least certainly not in relation to the application to discharge the jury that has been made." 30 My view of these matters remains unaltered. I will give a direction but, at the moment, unless I can be persuaded, I am not altogether sure that it should be given at the present time. Indeed, it is my tentative view that the giving of such a direction at this point of time, in isolation and removed from the issues that will be presented before the parties, may have a tendency to highlight the issue in a way that could do more harm than good. Much, of course, will depend upon the way in which the evidence emerges. Unless the defence wish it, I do not foreshadow the need to give such a direction during the course of the questioning or cross-examination or at the end of it. 31 Depending upon what may happen, my present view can be summarised in these four propositions: One, that I am firmly of the view that a direction is needed to make sure this evidence is not used in any prejudicial way. 32 Secondly, I am inclined to the view that such a direction would be better given in the context of an examination of the actual issues as they emerge from submissions rather than to be given in isolation at this point in time. 33 Thirdly, I would be prepared to change that point of view if anything happens in the calling of evidence that is said to identify the need for a direction at an earlier point of time. 34 Fourthly, if counsel for the defence want me to give a direction either now or at an earlier point in time, I would be grateful if they would give consideration to the contents of such a direction and let me know what they want me to say and when they want me to say it.