R v Song CHANG [2017] NSWDC 429

District Court New South Wales

Medium Neutral Citation: R v Song CHANG [2017] NSWDC 429 Hearing dates: 2 June 2017 Date of orders: 02 June 2017 Decision date: 02 June 2017 Jurisdiction: Criminal Before: Tupman DCJ Decision: Sentenced to an overall term of 5 years and 6 months with a non-parole period of 4 years and 6 months Catchwords: CRIMINAL LAW – Sentence – Conspire with intention of dishonestly causing loss – Commonwealth Legislation Cited: Criminal Code 1995; Crimes Act 1914 Category: Sentence Parties: Song Chang Australian Taxation Office Representation: Mr Buckner Mr Ginges File Number(s): 2015/00083383

Judgment 1. The offender Song Chang is before the Court for sentence following his plea of guilty, entered on 14 February 2017, to one count in an indictment dated that date, that between about 1 April 2002 and 28 February 2007 at Sydney and elsewhere he conspired with Lee Xhang and Simon Chan with the intention of dishonestly causing a loss to the Commonwealth. The matter had originally been committed to this Court for trial on a different indictment which covered a slightly longer time period, but was the same charge, and when it came before me for trial on 7 February 2017 there was initially a plea of autrefois convict. That was withdrawn, with leave, on 14 February 2017 and the plea of guilty was entered. The Crown accepted that plea of guilty in full discharge of the earlier indictment. 2. This is an offence contrary to s 135.4(3) of the Criminal Code, 1995 which carries a maximum penalty of 10 years' imprisonment. As a Commonwealth offence, the Court is required to sentence the offender having regard to the general provisions of Part 1B of the Crimes Act, 1914 but with particular reference to the matters contained in s 16A. An important overriding consideration is that the sentence must be of a severity appropriate in all the circumstances, including the circumstances of the offending, the circumstances of the offender and punishment and general deterrence. Full-time imprisonment can only be imposed if no other sentence is appropriate in all the circumstances. This is the case here, and the contrary has not been argued on behalf of the offender. 3. Considering the nature and circumstances of the offending is a necessary and important step in order to understand the objective criminality and level of culpability of the offender. In this matter they are to be found from the signed statement of agreed facts tendered on this sentence. From those I accept that between about 1 April 2002 and 28 February 2007 the offender and two others, Mr Zhang and Mr Chan, conspired to prepare and make excessive refund claims in business activity statements (BAS) lodged on behalf of a developer named Resort Hunter Valley Pty Limited, which I will call RHV in this sentence, and that they did so with the intention of dishonestly causing a loss to the Commonwealth. 4. Under the GST tax system relevant at the time, an entity could claim input tax credits from the ATO for purchases made or supplies obtained during the course of trade. These are referred to as ITCs, input tax credits. If these ITCs in any GST period exceed the amount of GST due to the ATO by that entity, then the ATO pays the difference to the entity by way of refund or offset. During this conspiracy RHV received a total of $10,500,000.00 in ITC refunds or offsets from the ATO in excess of that to which it was entitled, because of the dishonest overstatement of expenditure in the BAS. 5. RHV itself was part of a group of companies called the High Trade Group of companies. RHV was a property developer which developed a hotel resort complex at Pokolbin in the Hunter Valley. That development occurred between about 2003 and June 2007 and ultimately gave rise to a large hotel resort complex which is currently occupied by the Intercontinental Hotel Group and trading as Crowne Plaza Hunter Valley. 6. The development went ahead in three stages between March 2004 and June 2007. The companies within the High Trade Group were structured in tiers. RHV was a tier 1 company as the developer. There were four building companies sitting beneath RHV in that structure, which undertook the building construction work for the development. These tier 2 companies were High Trade Construction (HTC), AusChintle Pty Limited, Anidan Group Limited and Ferro Construction Pty Limited, referred to hereafter as Ferro. 7. There were also tier 3 companies below this which were essentially suppliers of goods and services. Some of these tier 3 companies were unrelated third party companies, but many were related companies within the High Trade Group, in that they had either shareholders or directors or both who were related to other High Trade Group entities. 8. Eight of these tier 3 companies are referred to in para 16 of the agreed facts, and these are companies which are relevant to this conspiracy. These tier 3 companies would give invoices to the tier 2 construction companies for goods or services supplied to the tier 2 companies for use in the construction of the development. 9. RHV and the tier 2 companies were registered on an accrual accounting basis, meaning that they became entitled to claim ITCs in their BAS based on the invoices they received and were liable to pay GST on the basis of invoices they issued. The tier 3 companies were registered on a cash accounting basis, meaning that they became entitled to claim ITCs on money they actually spent, but only became liable to pay GST on receipt of payment. 10. The practical effect of this, as I understand it, trying to break this down as much as possible for the purpose of sentence, is that when a tier 2 company issued an invoice to RHV for construction work undertaken, that tier 2 company incurred a GST liability representing the purported supplies to RHV for the relevant period as shown in the relevant invoices. When that tier 2 company received invoices from another entity, a tier 3 company, it was entitled to claim ITCs to offset their GST liability, whether they had paid the invoice or not. When one of the tier 3 companies issued invoices for goods or services supplied to the tier 2 company, that did not incur a GST liability in the hands of that tier 3 company until it received payment of that invoice. 11. I accept from the agreed facts that the net effect of this structure meant that if the invoice issued by the tier 3 company was never paid then the GST liability of that company fell into what has been described as an accounting no man's land and the tier 2 company was entitled to offset against its own GST liability, as an ITC, the goods or services for which it had been invoiced, even if that invoice had not been paid, and thus became entitled either to a refund for the difference or a credit offset against its GST liability. 12. This is in fact what occurred during this conspiracy within this group of companies. Sometimes there was no involvement by a tier 2 company and RHV purported to purchase goods directly from the tier 3 companies. Sometimes a supply of goods was routed through High Trade, the parent company. Some of these individual invoices were for goods and services actually supplied, albeit overstated and albeit these invoices were not paid, and sometimes the invoices were false invoices which purported to record what were in fact non‑existent purchases. 13. The principal means by which the conspiracy was carried out was by the four tier 2 companies invoicing RHV for significantly more than the cost actually incurred by these companies in carrying out the work undertaken by them on the development. 14. As set out in para 13 of the agreed facts, there were journal entries within RHV's accounting records showing that during the course of the whole development, payments were made to the four tier 2 building companies in payment of invoices issued by that company to RHV as follows: $37.209 million being payments made to HTC from invoices issued totalling $111.132 million; 15. $27.396 million paid to AusChintle from invoices totalling $90.152 million; $17.705 million paid to Ferro from invoices totalling $18.054 million and $27.046 million payments made to Andean from invoices which totalled $27.406 million. 16. Because of the inflated costs in these invoices issued by tier 3 companies, the acquisitions claimed by RHV in the BAS which they submitted to the ATO during the period were far greater than that to which they were entitled based on what the development had actually cost RHV or the tier 2 companies to build. 17. Many of these inflated costs were recorded in the accounts of many of the companies as a credit entry, but many of these companies were wound up and de-registered. Paragraph 23 of the agreed facts sets out the most relevant companies and de-registration dates. Also each of the tier 2 companies were de-registered or liquidated and those details are set out in para 24 of the agreed facts. 18. Mr Zhang, one of the co-conspirators, was a person in effective control of the companies, in the High Trade Group and the other co-conspirator, Mr Chan, was the group's internal accountant. The offender before me became an employee of the High Trade Group from about 1987 when he came to work in Australia, sponsored by Mr Zhang. During the period covered in this charge he undertook a number of roles including performing the administration of accounting functions. His work was with the authority of and under the oversight of Mr Zhang but included instructing Mr Chan, the internal accountant, to issue invoices, being aware of and being involved in the issuing of some of the inflated or false invoices and preparing some of BAS spread sheets for RHV using the MYOB accounting records which were then submitted to RHV's external accountant who used them to prepare and BAS. 19. There was ongoing communication between the external accountant and Mr Chan and the offender, providing information and instructions in relation to the BAS and attending to ATO queries. The offender was involved in these communications substantially. RHV reported quarterly to the ATO initially and then monthly from October 2003 onwards. The offender personally signed five BAS on behalf of RHV during the period covered by the charge, namely April 2005, September 2005, November 2005, January 2006 and June 2006. I accept that the offender knew that the GST claims which were being made by RHV were excessive because he knew they were based on false or inflated invoices. He knew that the construction costs being claimed by RHV in their BAS were significantly more than the costs which were being assessed by independent assessment companies providing progress claims to financiers and others to allow draw-downs on finance. He also knew of the GST status of RHV and the other relevant tier 2 and tier 3 companies. 20. During the period covered by the offence the ATO became concerned that payments were not being made by RHV in respect of invoices received by it and started auditing their activities, after which the offender and Mr Chan paid some of these inflated invoices in a round robin type manner amongst other connected entities. However I accept that the evidence indicates the offender was not significantly involved in this series of round robin type transactions. The details of these transactions are set out in para 34 of the agreed facts. 21. Other roles undertaken by the offender during the period of the offence are set out in paras 35 and 36 of the agreed facts which I accept. I also take into account paras 37 to 40 of these facts which sets out the various stages of financing, estimations of construction costs and assessing construction costs between March 2004 and June 2007. As I have said the offender, I accept, was aware that the total construction costs estimated by the quantity surveyors was approximately $73 million inclusive of GST. He was also aware, in a general sense, that the costs of construction claimed by RHV in the BAS lodged up to February 2007 was $240 million which included GST and which gave rise to ITCs of about $22 million. 22. There is expert evidence, from which I accept that the reasonable total development costs for the whole development was $96 million inclusive of GST and there were other valuations obtained from financiers and RHV itself. A criticism of these estimates of total development costs has been made, that they were wildly different, ranging as they did, from around 73 million to about 114 million. Whether it is correct or not to describe that as wildly different is debatable. Whether it be wildly different or not, it is about half of the cost of construction claimed by RHV in their business activity statements. That is the relevance of that evidence in my view. 23. The offender was aware that there were excessive claims for ITCs being made by RHV during the relevant period, facilitated them in his role as employee, undertaking the tasks that I have already summarised and knew that the claims were bolstered by inflated or false invoices issued to RHV and to the tier 2 building companies. It is agreed in the facts that RHV claimed and received the benefit of GST refunds and ITCs of $10.5 million beyond its entitlement based on $155,500,000 in overstated expenditure. The offender himself however I accept did not make any financial gain from his involvement in this conspiracy, apart from his ongoing employment with the High Trade Group of companies. 24. On 15 April 2009 authorities executed search warrants on the High Trade Group offices and the residential premises of Mr Zhang and the offender. Mr Zhang left Australia on 25 April 2009 and has not returned. Receivers were appointed to RHV on 15 January 2010. On 5 March 2010 Mr Chan left Australia and has not returned. On 28 May 2010 a liquidator was appointed to RHV and at that stage the ATO claimed that RHV owed a debt of $15,844,648 in primary tax, including the over-claimed tax credit the subject of this conspiracy. RHV was deregistered on 1 September 2014. 25. None of the subject matter of this charge will ever be recovered because all of the relevant entities have either been deregistered or liquidated, or both. There is an annexure to the agreed facts, setting out a selection of the overall overt acts which are relied on by the Crown and I accept the Crown's submission that this selection demonstrates the nature of the conspiracy, but also highlights the offender's knowledge of it and his role in it. I accept that most of the overt facts are to be gleamed or inferred from a large quantity of emails, apparently three volumes of emails, passing amongst various people, including the offender, and from which the offender's knowledge of, and role in the conspiracy, can be determined. 26. This was, as I understand it, which is probably patently clear already from these remarks on sentence, a complex investigation, including a brief of evidence which apparently extended to more than 100 folders. Any trial for this offence would have been lengthy and complicated. That much is clear from the fact that the offender has already faced trial and been convicted on one count contrary to s 135.4(3) of the Criminal Code,1995 which ran before Judge Lakatos in this Court, for a lengthy period between 30 March 2015 and 10 June 2015. This was involving the same co‑conspirators and largely the same corporate entities, but covering a different conspiracy centred on a development at Chippendale and a development company called JKC Developments, which was in the same sort of position in relation to the company structure as was RHV, namely, a development company, a tier 2 company. It was, no doubt, the similarity between those earlier proceedings and the matter before me, which motivated and gave rise to the initial autrefois convict application. 27. I have had the benefit of his Honour's sentence judgment in that matter, containing findings of fact that he was required to make because it was a matter that went to trial, leading to a finding of guilt by the jury. The conviction and sentence were both appealed to the Court of Criminal Appeal but, as I understand it, the sentence was untouched, the findings of fact on sentence were untouched and the other findings by the Court of Criminal Appeal are not, in large part, relevant to the sentence before me. 28. At pp 5 to 7 of his Honour's sentence judgment, he sets out facts which he found from the evidence that had been called at the trial before him and which in large part summarised the offender's role in that conspiracy involving JKC. On the basis of the agreed facts before me on this sentence, and particularly taking into account the selection of overt acts annexed to those agreed facts, it is clear that the offender's role in this conspiracy is very similar to that found by Judge Lakatos in the proceedings before him. I accept from that combination of material that the following emerges, particularly from the schedule of overt acts. 29. (1) The offender had a close relationship with the other co‑conspirators right throughout the whole period. 30. (2) He reviewed all of the monthly or quarterly BAS spreadsheets, and the preparation of the business activity statements for RHV. 31. (3) He provided instructions for the issuing of invoices from tier 2 and tier 3 entities to RHV, and approved responses to the external accountant. 32. (4) He was not just a person responding to instructions from other conspirators higher in the chain. He often responded to requests from Mr Chan on how to issue invoices. 33. (5) He knew about the GST status of RHV and the other high trade companies. (6) He was prepared to endorse the claims in the business activity statements, knowing that they were based on false invoices, and specifically did so by signing five of the business activity statements himself. 34. (7) He had some, albeit limited, involvement in a knowledge of the round robin of these inflated invoices that was entered into as a way of deflecting ATO attention when they started to audit RHV. 35. (8) He knew of the construction estimates being undertaken by independent assessors for third parties, including financiers, and therefore knew that they were significantly less, as much as half of the amount being claimed as construction costs by RHV in their business activity statements. 36. His role was thus important in facilitating this conspiracy. He was not the head of this conspiracy, however. That was Mr Zhang. The offender did not either devise nor organise the scheme. He was not a mere cipher however. He did act with autonomy and authority, albeit that increased over time. 37. Like Judge Lakatos, I do accept that the offender was not aware of the actual amount of loss to the Commonwealth as a result of his involvement in this conspiracy, and as I said earlier, he did not make anything from his involvement in this conspiracy, over and above his employment. 38. I accept that his level of culpability and knowledge almost certainly increased as the conspiracy progressed and I accept that the reference made on his behalf in submissions to his being, to an extent, like a frog in boiling water, is a good analogy. He has pleaded guilty to being involved in this conspiracy between April 2002 and February 2007 but I do accept that his involvement and knowledge accelerated over time, and short of losing his employment, he would have found it difficult to extricate himself from the conspiracy. 39. It is also highly unlikely, on my finding, that his withdrawal from the conspiracy would have brought it to an end. He was working as an employee and presumably there were many others who would have filled his role. 40. I also accept that this offence was part of a course of criminal conduct which includes the earlier offence for which he was convicted and sentenced. The Crown argues that therefore I should not regard this offence as an isolated incident. I do not, but it seems to me that this is a somewhat artificial construct in any event, in a conspiracy charge, where a myriad of individual acts are relied on as overt acts over a period of five years, to constitute the one offence of conspiracy. It is, of course, part of a course of criminal conduct which includes the earlier offence involving the Chippendale project, but I do accept that whilst they were different conspiracies, the methods used are almost identical and it is appropriate to regard this offence as part of one overall course of criminal conduct involving this and the Chippendale conspiracy. 41. There was considerable loss resulting from the offence. As already stated, it was a $10.5 million loss to the Commonwealth that will never be recovered. That is an important consideration in determining the appropriate sentence, but not necessarily determinative. It was a sophisticated conspiracy over a period of five years. As I have said however, it is not necessarily determinative of the outcome, but it is a matter to take into account. 42. The amount involved however, is very relevant here, when considering parity or proportionality between the earlier sentence and the one that I will impose. There are two differences, it seems to me, between the circumstances involving the earlier proceedings, that is the Chippendale conspiracy charge, and the matter before me. One is the amount and the other is the fact that this is a plea of guilty where the other matter went to trial. Whilst the amount is not, in an individual case, determinative of sentence, it is the major fact of difference here. Both the Crown and the accused submit that the sentence for this matter must be higher than that imposed by Judge Lakatos as a result of the larger amount involved, but how much higher is a matter I will address in due course. Neither of those submissions appears to have taken into account the role that a plea of guilty would take in determining the length of the sentence. 43. The offender pleaded guilty after committal for trial, after the trial had been due to commence before me and after he made and then withdraw a plea of autrefois convict. His plea represents some contrition and remorse. It is of greater significance in terms of representing a willingness to facilitate the interests of justice. There has been much made of this in these sentence proceedings and it is said to be perhaps the only real difference between the Crown and the accused. Whether or not that is so, it seems to me, is also debatable. 44. The plea was entered on 14 February after negotiations between the parties and in the other circumstances that I have outlined. The Crown conceded a part of its indictment by shortening the period and by accepting that the loss was $10.5 million. The shortening was not of great moment, however. This cannot be regarded as a plea made at the first available opportunity in these circumstances. The matter was already before the Court for trial. There had been many listings in the District Court. There had already been a plea of autrefois convict entered and withdrawn and attempts to settle this matter by negotiated plea that was ultimately accepted. 45. However, there is represented by that plea, albeit in those circumstances, a willingness to facilitate the interests of justice. This is not to be assessed just on the basis of its utilitarian value as if it were a sentence being conducted under the provisions of the New South Wales State Law. The plea could have been entered much earlier and had it been entered much earlier the willingness to facilitate the interests of justice would have been clear. 46. This case must be assessed as being a strong Crown case simply because a case has already been run on much the same evidence, leading to a conviction which survived the Court of Criminal Appeal. However, even though this theoretically it is a strong Crown case, it was also complicated and would have required lengthy Court proceedings and deliberation by a jury. 47. The offender's willingness to plead, even if to substantially the same indictment on which he had been committed for trial, does indicate some willingness to facilitate the interests of justice. Those interests have been well served as a result of that plea by seeing all of these proceedings come to an end without the need for further lengthy trial proceedings. 48. He has not cooperated with Law Enforcement Agencies in the way that it is understood in the relevant provisions of s 16A during the course of the investigation, but I accept that he did cooperate during the execution of the search warrants at his own house and the premises of Hightrade and did assist in enquiries with the ATO. 49. There must obviously be general deterrence incorporated into this sentence. Fraud on the revenue is one of those offences for which general deterrence is very important. I accept the submissions made by the Crown in this regard at paras 46 to 49 of their written submissions. Those authorities referred to there, if not the application of logic, make it abundantly clear that it is regrettably too easy and too common for frauds of this type and other frauds on the revenue to be committed. It is the community at large which suffers when funds are not available as they ought be through taxation and also when funds need to be diverted to investigate and prosecute these offences which are invariably lengthy and costly proceedings. 50. Whether specific deterrence is required here seems to me is not made out on the evidence. I accept from the psychological report which has been tendered on behalf of the offender, that he had shown some insight into his situation, that he accepts his guilt and despite the lengthy period during which he participated in this and the earlier offence, he is unlikely to offend in the future. This sentence, it seems to me, no matter what its length might be, is not likely to have any impact on the possibility that he might reoffend. Specific deterrence for this man, it seems to me, is not necessary. 51. This then leads to a review of his subjective circumstances, or as it is referred to in s 16A, his character antecedents, age, means and physical or mental condition. 52. He is now 45 years of age. He is married with one child and his wife and son live in Sydney. He was born in China but has lived in Australia since the mid-1990s and I understand has a right to continue residing in Australia and will continue to live in Australia once he is free from custody. He has no criminal convictions except for the offence dealt with by Judge Lakatos which, as I have found, involves largely the same course of conduct, albeit a different conspiracy. He came to Australia to work with the Hightrade Group of Companies and continued to work with them until they stopped trading in 2009. He does have formal qualifications from China, albeit not formal accounting qualifications, but that is what he did. His employment with Hightrade ended in 2009 during the liquidation process of the company. 53. He remained on bail, it would appear, after being charged with the first offence and throughout the trial and until he was convicted by the jury on 10 June 2015. He has been in custody since then. He was sentenced on 26 November 2015 to a term of 5 years imprisonment with a non-parole period of 3 years all backdated to 10 June 2015. I accept that his medical condition is relatively good, but is deteriorating somewhat in custody. His time in custody has been without any internal misconduct charges. He is currently classified as B-medium in Goulburn gaol. He is considered to be a quiet and compliant inmate who does not present any management or other issues. 54. He wishes to undertake courses of study and further education in custody by way of distance education once his Court case is finished and I accept that this will have a positive impact on his prospects of rehabilitation. His family apparently remains available for him in Sydney, which also assists his prospect of rehabilitation. 55. There is some assertion in the psychological report that his family is suffering as a result of his time in custody. That is, no doubt, the case. The evidence is not to an extent, however, that would have an impact upon the length of sentence in this case. 56. As I said, I accept from what he said to the psychiatrist, that he has insight into his offending behaviour. His statement that he would leave his employment rather than allowing himself to be involved in similar offending in the future indicates that insight in my view. 57. He does have some medical conditions including some mobility problems caused by knee pain but also dental problems which are on the face of the material before me, at least, not being properly treated in prison. This has had an impact on his ability to eat properly and therefore an impact on his overall medical condition. It is to be hoped that this does not continue and that the prison authorities look to his dental situation so that his overall medical health improves. 58. So with all of those factors taken into account, the issue then is what should be the appropriate sentence here and then the degree of accumulation or concurrence with the earlier sentence. As I have said the parties have agreed that the sentence for this matter should be higher than that imposed by Judge Lakatos to represent the higher amount, however, there is a further distinction and that is in that imposed by Judge Lakatos there had been no plea of guilty and the matter was a matter that went to trial. 59. In this matter the plea of guilty, albeit late, exists and the sentence should be decreased to represent, to an extent, a willingness to facilitate the interests of justice. I have concluded, taking all of that into account,that the overall sentence should be 5 ½ years with a non-parole period of 3 1/2 years. I have taken into account, to the extent that I can, the list of comparative sentences by the Crown. 60. I then need to look to the issue of totality represented by the earlier offence and the matter before me, and decide what the overall outcome should be. The question is what should be the length of the term of imprisonment for an overall conspiracy involving two different development companies using largely the same methodology, involving largely the same group of people over more or less the same period of time, for a total of just under $13 1/2 million dollars where, as to just under $3 million of it, the Chippendale conspiracy, there was no plea of guilty and as to $10 ½ million dollars of it, the matter before me, there was. 61. I understand I do not need to set a non-parole period in those circumstances, where I will have to set an single non-parole period taking into account that which already exists. 62. For these reasons then I make the following formal orders. The offender is convicted. He is sentenced to a term of imprisonment of 5 years and months commencing on 10 June 2016 expiring 9 December 2021. Pursuant to s 19AD(2)(e) I impose a new single non-parole period in respect of all Federal sentences of 4 years and 6 months commencing 10 June 2015 expiring 9 December 2019. 63. I know that I'm obliged to explain the sentence to the offender. I've never quite understood what that means, because I think that's probably what I've been doing for the last hour but in fact, the bottom line is that the offender should know that he's got an extra 18 months in gaol for this offence and that overall his non-parole period, which started on 10 June 2015, now expires on 9 December 2019 and he will then be subject to parole being supervised by the Parole Board for two years after that. I don't think there's any real point in trying to explain things any further. I think that's really all that's required.