Castagna v R; Agius v R

[2019] NSWCCA 114

Court of Criminal Appeal

Supreme Court

New South Wales

• Summary available
• Amendment notes

Medium Neutral Citation:	Castagna v R; Agius v R [2019] NSWCCA 114
Hearing dates:	3–4 April 2019
Date of orders:	05 June 2019
Decision date:	05 June 2019
Before:	Bathurst CJ; Macfarlan JA; Gleeson JA
Decision:	(1)   Appeals allowed. (2)   Convictions of each appellant on Counts 1, 2 and 13 be quashed and, in lieu thereof, a verdict of acquittal be entered.
Catchwords:	INCOME TAX – Ordinary income – agreement to make payments to a company in exchange for supply of services by a consultant – company did not operate any business other than the supply of services by the consultant – whether payments were ordinary income derived by the consultant   CRIME – Appeals – Appeal against conviction – New trial – prosecution advanced argument on appeal not raised at trial to support conviction– significant elapse of time since offences and likely delay in new trial – whether appropriate to make an order for a new trial
Legislation Cited:	Criminal Appeal Act 1912 (NSW) Criminal Code (WA) Income Tax Assessment Act 1936 (Cth) Income Tax Assessment Act 1997 (Cth) Judiciary Act 1903 (Cth).
Cases Cited:	Agius v The Queen (2013) 248 CLR 601; [2013] HCA 27 Alexander v Commissioner of Taxation (2014) 99 ATR 773; [2014] FCA 1161 Associated Alloys Pty Ltd v ACN 001 452 106 Pty Ltd (in liq) (2000) 202 CLR 588; [2000] HCA 25 Baker v Federal Commissioner of Taxation (1989) 20 ATR 1706 Baker v Federal Commissioner of Taxation (1989) 20 ATR 798 Bayly v Federal Commissioner of Taxation (1977) 15 SASR 446 Business & Research Management Pty Ltd (In liquidation) v Federal Commissioner of Taxation (2008) 173 FCR 204; [2008] FCA 1652 Byrnes v Kendle (2011) 243 CLR 253 Commissioner of Australian Federal Police v Hart (2019) 262 CLR 76; [2018] HCA 1 Coulls v Bagot’s Executor and Trustee Co Ltd (1967) 119 CLR 460 Equuscorp Pty Ltd v Glengallen Investments Pty Ltd (2004) 218 CLR 471; [2004] HCA 55 Federal Coke Co Pty Ltd v Federal Commissioner of Taxation (1977) 15 ALR 449 Federal Commissioner of Taxation v Bamford (2010) 240 CLR 481 Federal Commissioner of Taxation v Mochkin (2003) 127 FCR 185 Federal Commissioner of Taxation v Montgomery v (1999) 198 CLR 639; [1999] HCA 34 Fowler v Federal Commissioner of Taxation (2008) 167 FCR 425; [2008] FCA 528 Gerakiteys v The Queen (1984) 153 CLR 317 Hayes v Federal Commissioner of Taxation (1956) 96 CLR 47 Jiminez v The Queen (1992) 173 CLR 572; [1992] HCA 14 King v The Queen (1986) 161 CLR 423 Korda v Australian Executor Trustees (SA) Ltd (2015) 255 CLR 62; [2015] HCA 6 Liedig v Federal Commissioner of Taxation (1994) 50 FCR 461 MacFarlane v Commissioner of Taxation (1986) 13 FCR 356 McEvoy v The Belfast Banking Co Ltd [1935] AC 24 Olsson v Dyson (1970) 120 CLR 365 Osborne v R; R v Osborne [2017] NSWCCA 11 Parker v The Queen (1997) 186 CLR 494; [1997] HCA 15 Peate v Federal Commissioner of Taxation (Cth) (1964) 111 CLR 443 Re Schebsman [1944] Ch 83 Reuter v Commissioner of Taxation (1993) 111 ALR 716 Reuter v Commissioner of Taxation (1993) 93 ATC 5030 Richardson v Federal Commissioner of Taxation (1932) 48 CLR 192 Rotherwood v Commissioner of Taxation (1996) 64 FCR 313 Scott v Commissioner of Taxation (1935) 35 SR (NSW) 215 Scott v Federal Commissioner of Taxation (1966) 117 CLR 514 The Queen v Taufahema (2007) 228 CLR 232; [2007] HCA 11 Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107 Tupicoff v Federal Commissioner of Taxation (1984) 4 FCR 505 Union Fidelity Trustee Co of Australia Ltd & Mayfield v Federal Commissioner of Taxation (1969) 119 CLR 177 Vandepitte v Preferred Accident Insurance Corporation of New York [1933] AC 70 Western Gold Mines NL v Commissioner of Taxation (WA) (1938) 59 CLR 729 Wilson v Darling Island Stevedoring and Lighterage Company Ltd (1956) 95 CLR 43 Zobory v Federal Commissioner of Taxation (1995) 95 ATC 4251
Category:	Principal judgment
Parties:	Anthony Castagna (first appellant) Robert Agius (second appellant) The Crown (respondent)
Representation:	Counsel: T Game SC with S White SC and T Epstein (first appellant) G Bashir SC with C Ensor (second appellant) P McDonald SC with M Hirschhorn, A McGrath and R Raffell (respondent)   Solicitors: Hazan Hollander (first appellant) David H. Cohen & Co (second appellant) Commonwealth Director of Public Prosecutions (respondent)
File Number(s):	2018/138946;2018/138952;2016/136935;2016/137095
Publication restriction:	Nil
Decision under appeal	Court or tribunal: Supreme Court of New South Wales Jurisdiction: Common Law Citation: [2018] NSWSC 1248 Date of Decision: 10 August 2018 Before: Adamson J File Number(s): 2016/136935; 2016/137095

HEADNOTE

[This headnote is not to be read as part of the judgment]

Dr Anthony Castagna and Mr Robert Agius were charged with offences arising out of payments made by Macquarie Bank Ltd and its associated companies in exchange for the supply of Dr Castagna’s services as a consultant during a period of time from 1998 to 2009. It was alleged that Dr Castagna was required to declare these payments as part of his “assessable income” for income tax purposes and that he failed to do so. Thus, the charges were that Dr Castagna and Mr Agius were members of a conspiracy to defraud or cause financial loss to the Commonwealth by concealing Dr Castagna’s “assessable income”, and a conspiracy to deal with money which was the proceeds of crime, being the part of the payments not declared as “assessable income”.

The payments were made by Macquarie Bank and its associated companies pursuant to a series of agreements between itself, Dr Castagna, and Billbury Ltd, a company controlled by Mr Agius. The agreements provided that Billbury would supply Dr Castagna’s services as a consultant in exchange for the payments from Macquarie Bank. The agreements did not provide for any payment to be made directly to Dr Castagna. The evidence showed that, at the relevant times, Macquarie Bank required all agreements with its consultants to be with companies rather than individuals. Thus, there was no suggestion that the agreements between Macquarie Bank, Dr Castagna and Billbury were “shams”.

At trial, the prosecution case was that, even though the payments were made to Billbury and the agreements between Macquarie Bank, Billbury and Dr Castagna were not “shams”, the payments were “ordinary income” which had been “derived” by Dr Castagna within the meaning of s 6-5(2) of the Income Tax Assessment Act 1997 (Cth), and therefore were “assessable income” which he had not but was required to declare on his income tax returns. The prosecution case invited the jury to consider the circumstances of the case as a whole to determine whether the payments to Billbury were “ordinary income” which had been “derived” by Dr Castagna.

At the conclusion of the prosecution case, Dr Castagna and Mr Agius each made an application for a directed verdict on the basis that, as a matter of law, the payments to Billbury could not be “ordinary income” which had been “derived” by Dr Castagna by reason of the terms of the agreements between Macquarie Bank, Billbury and Dr Castagna. The primary judge rejected their applications. The primary judge gave directions to the jury about how they were to approach the task of determining whether the payments to Billbury were “ordinary income” which had been “derived” by Dr Castagna which reflected the prosecution case by inviting them to consider the circumstances of the case as a whole. The jury found Dr Castagna and Mr Agius guilty of conspiracy to defraud or cause financial loss to the Commonwealth, and to deal with money which was the proceeds of crime.

Dr Castagna and Mr Agius appealed from their convictions on the grounds that the primary judge had erred in directing the jury about how they were to approach the task of determining whether the payments to Billbury were “ordinary income” which had been “derived” by Dr Castagna, relying on similar arguments which they had raised on their applications for directed verdicts. At the hearing of the appeal, the prosecution sought to uphold the convictions on the basis that it was open to the jury to hold that the payments to Billbury formed part of Dr Castagna’s “assessable income” because they were held by Billbury on trust for Dr Castagna. Both counsel for Dr Castagna and counsel for Mr Agius objected to the prosecution putting its case in this way on the appeal when it had formed no part of its case at trial.

The main issues on the appeal were:

1   whether the primary judge had erred on the applications for directed verdicts and in directing the jury that, in order to determine whether the payments to Billbury were “ordinary income” which had been “derived” by Dr Castagna within the meaning of s 6-5(2), it was necessary to consider the circumstances surrounding the agreements;

2   whether it was open to the jury to find that the payments to Billbury formed part of Dr Castagna’s “assessable income” because they were held by Billbury on trust for Dr Castagna; and

3   whether, in these circumstances, the court should order that Dr Castagna and Mr Agius be retried.

Whether circumstances surrounding the agreements could be considered in determining whether the payments were “ordinary income”

(i)   The primary judge erred on the applications for directed verdicts and in directing the jury that, in order to determine whether the payments to Billbury were “ordinary income” which had been “derived” by Dr Castagna within the meaning of s 6-5(2), it was necessary to consider the circumstances surrounding the agreements. It would only have been relevant to do so to determine if there was some other legal relationship which affected how the agreements would be carried out. However, since no such case was put at trial, it was an error to go beyond the terms of the agreements to determine whether the payments were “ordinary income” which had been “derived” by Dr Castagna: [133]–[136] (The Court).

Tupicoff v Federal Commissioner of Taxation (1984) 4 FCR 505; Baker v Federal Commissioner of Taxation (1989) 20 ATR 798; Baker v Federal Commissioner of Taxation (1989) 20 ATR 1706; Federal Commissioner of Taxation v Mochkin (2003) 127 FCR 185; [2003] FCAFC 15, considered.

Whether open to the jury to find that the payments were “assessable income” because they were held on trust

(ii)   It was not open to the jury to find that the payments to Billbury formed part of Dr Castagna’s “assessable income” because they were held by Billbury on trust for Dr Castagna. The prosecution had not put any such case to the jury at trial. If it had, it would have been necessary for the jury to be satisfied that the settlor had the relevant intention to create the trust and that the requirements for a trust to be created had been fulfilled, which was not done. Therefore, the convictions of Dr Castagna and Mr Agius could not be supported on this basis: [175]–[179] (The Court).

Osborne v The Queen [2017] NSWCCA 11, referred to.

Whether the Court should order a retrial

(iii)   The Court declined to make an order that Dr Castagna and Mr Agius be retried. On the assumption that the case which would be put at any retrial would have been based on the allegation that Billbury held the payments from Macquarie Bank on trust for Dr Castagna, this case would have been significantly different from that put at the original trial. Even assuming that such a case would have been strong, it was not appropriate to order a retrial when the time which had elapsed since the offences occurred, the likely delay before any new trial, the age of Dr Castagna and Mr Agius, the time which had already served, and the fact that the case had not been put at the original trial were taken into account: [198]–[201] (The Court).

King v The Queen (1986) 161 CLR 423; [1986] HCA 59 Jiminez v The Queen (1992) 173 CLR 572; [1992] HCA 14; Parker v The Queen (1997) 186 CLR 494; [1997] HCA 15; R v Taufahema (2007) 228 CLR 232; [2007] HCA 11, considered.

Judgment

1. THE COURT: The appellants, Anthony Castagna (Dr Castagna) and Robert Agius (Mr Agius) were charged on indictment presented on 19 February 2018 with 13 offences arising out of payments made from Macquarie Bank Ltd and its associated companies (Macquarie), pursuant to letter agreements, three of which were dated 9 April 1998, 23 August 1999 and 6 September 2001. In the broadest terms, it was alleged that the payments made formed part of the assessable income of Dr Castagna and that Dr Castagna and Mr Agius conspired together to defraud the Commonwealth by taking steps to conceal the fact that such payments formed part of the income of Dr Castagna, in particular by lodging income tax returns for the financial years ended 30 June 1999 to the year ending 30 June 2008, which failed to disclose such income.

2. It was alleged that the monies received from Macquarie were paid into an account that a company Billbury Limited (Billbury) held with a New Zealand branch of the Australian & New Zealand Banking Group Ltd (ANZ) and from then paid into various bank accounts held by International Finance Trust Company Ltd (IFTCO), a Vanuatuan company.

3. It was also alleged by the Crown that certain transactions between Mr Agius and companies associated with him on the one hand and Mr Castagna on the other hand, involved a repatriation of those funds including monies which should have been paid to the Commissioner of Taxation by way of income tax. The Crown alleged that this payment involved a conspiracy between Mr Agius and Dr Castagna to deal with money that was the proceeds of crime (the avoided tax) and which, at the time of dealing, had a value of $1 million or more.

4. The relevant provisions of the indictment, Counts 1, 2 and 13 were in the following terms:

“The Director of Public Prosecutions of the Commonwealth of Australia, who prosecutes in this behalf for Her Majesty, charges on 28 June 2017 that

ROBERT FRANCIS AGIUS

ANTHONY DANTE CASTAGNA

1. Between about 8 April 1998 and about 23 May 2001 at Sydney in the State of New South Wales and elsewhere, did conspire with each other to defraud the Commonwealth.

Contrary to section 29D and s86(1) of the Crimes Act 1914 (Cth) (Law Part Code: 11102)

And the said Director of Public Prosecutions further charges that

ROBERT FRANCIS AGIUS

ANTHONY DANTE CASTAGNA

2. Between about 24 May 2001 and about 30 July 2009 at Sydney in the State of New South Wales and elsewhere, did conspire with each other with the intention of dishonestly causing a loss to a third person, namely the Commonwealth.

Contrary to section 135.4(3) of the Criminal Code (Law Part Code: 41505).

…

And the said Director of Public Prosecutions further charges that

ROBERT FRANCIS AGIUS

ANTHONY DANTE CASTAGNA

13. Between about 2 February 2004 and about 15 April 2008 at Sydney in the State of New South Wales and elsewhere, did conspire with each other to deal with money or other property which was proceeds of crime, believing the money or other property to be proceeds of crime, and at the time of dealing the value of the money and other property was $1,000,000 or more.

Contrary to section 11.5(1) and 400.3(1) of the Criminal Code (Law Part Code: 41450).”

5. Counts 1 and 2 were charged separately to take into account the change in the underlying legislation which occurred on 24 May 2001. It was not contended that a separate agreement was required to establish each conspiracy alleged. It was accepted, consistent with the decision of the High Court in Agius v The Queen (2013) 248 CLR 601; [2013] HCA 27, that it was sufficient that the alleged conspirators continued to adhere to or participated in an existing agreement.

6. Following a jury trial which commenced on 19 February 2018, the jury returned verdicts of guilty for Counts 1, 2 and 13 on the indictment on 18 April 2018. Each of Dr Castagna and Mr Agius have appealed their convictions, or to the extent necessary, have sought leave to appeal against them.

A   The appeals against conviction on Grounds 1 and 2

(a)   The grounds of appeal

7. Dr Castagna relied upon the following grounds of appeal in respect of his conviction on Counts 1 and 2:

“1.   The trial judge erred in her directions as to how the jury was to approach the question of derivation of ordinary income.

2.   The trial judge erred in directing the jury that they could take into account matters extraneous to the terms of the Consultancy Agreements in determining whether the appellant derived income from the consulting fees paid by Macquarie to Billbury.

3.   The trial judge erred in refusing the application for a verdict by direction.

…

7.   The trial judge erred in declining the application to discharge the jury after the Crown prosecutor raised the appellant’s bad character in closing address.

8.   The verdicts on counts 1 and 2 are unreasonable and cannot be supported having regard to the evidence.”

8. Mr Agius relied upon identical grounds of appeal.

9. In addition, prior to the return of the jury verdict, the appellants applied for the reservation of a question of law pursuant to s 72(1A)(a) of the Judiciary Act 1903 (Cth). The questions as ultimately agreed upon were in the following terms:

“1.   In circumstances where it was accepted that the three Consultancy Agreements (the Agreements) between Anthony Dante Castagna (the applicant), Macquarie Bank Limited or Macquarie Equities US Inc (Macquarie), and Billbury Limited (Billbury) were not sham agreements, were the terms of the Agreements the only relevant considerations in the determination of whether the applicant’s assessable income for the years specified in the indictment for the purposes of s 6-5 of the Income Tax Assessment Act 1997 (Cth) comprised:

(a)   all the monies which Macquarie paid to Billbury under the Agreements (as the Crown contended); or

(b)   only those monies which Billbury actually paid to the applicant, being $8,800 per month, from the monies referred to in (a) which it received from Macquarie (as the applicant contended)?

2.   If the answer to question 1 is yes, was the trial judge obliged to direct the jury to return verdicts of not guilty on all counts on the indictment?”

(b)   The background facts

10. There was little dispute surrounding the background facts the subject of Counts 1 and 2.

11. Dr Castagna was a venture capitalist with expertise in investing in technology companies. Until late 1998, he lived and worked in the United States. However, from 1 January 1999, he was a resident of Australia for tax purposes.

12. Mr Daniel Phillips was an employee of Macquarie Technology Investments Banking, a division of Macquarie. The division focused on venture capital and worked with early stage technology companies. In 1997, Mr Phillips discussed with Dr Castagna the possibility of him taking on an advisory role with Macquarie.

13. Mr Phillips indicated to Dr Castagna that if the arrangement between Dr Castagna and Macquarie was to be a consulting arrangement, Macquarie’s policy was that it would only deal through companies and it would not enter into a consultancy agreement with individuals.

14. Billbury was a company incorporated in the United Kingdom on 29 June 1983. The directors and shareholders of Billbury were companies incorporated in Vanuatu. There was no issue in the proceedings that Billbury was in some way associated with Mr Agius. Billbury held bank accounts in New Zealand and the signatories to those accounts including Mr Agius, were directors and employees of the Vanuatuan accounting firm, Moore Stephens Vanuatu.

15. Mr Agius and Dr Castagna are cousins and had a close relationship. It was not in contest that Mr Agius suggested Billbury as a potential participant in the consultancy arrangement.

16. Between 1998 and 2008, Dr Castagna provided consultancy services to Macquarie pursuant to a series of consulting agreements. Two of these agreements were in evidence. The first of those was dated 23 August 1999 and the second, 6 September 2001.

10. Although not in evidence, it was clear that there was an earlier agreement dated 9 April 1998. This was because there was a letter of that date from Macquarie addressed to Billbury, care of Dr Castagna at an address in the United States, that referred to a “Consultancy Agreement dated 9 April 1998” and set out what was described as a “schedule for monthly payments to Billbury”.

11. The letter was signed on behalf of Macquarie by Mr Phillips and a Mr Charles Wheeler and was in the following terms:

“STRICTLY PRIVATE AND CONFIDENTIAL

9 April 1998

Billbury Limited

C/- Dr Anthony Castagna

247 Billingsgate Lane

FOSTER CITY CA 94404

UNITED STATES OF AMERICA

Dear Sir

Pursuant to Section 3, Consultancy Fees of the Consultancy Agreement between Billbury Limited, its Representative and Macquarie Bank Limited dated 9 April 1998 please find below the schedule for monthly payments to Billbury Limited.

Payments will be made monthly in arrears on the last day of each calendar month for the amount of AUD20,833.33, which is a monthly payment based upon the agreed annual consultancy fee of AUD250,000.

Payments will be made to the following Bank account:

Australia and New Zealand Banking Group Limited

Central Branch

Cnr Queen and Victoria Streets

Auckland, New Zealand

BSB Number:      115200

Account Number:   307652.001

Could you please sign the accompanying page to acknowledge that this schedule meets your requirements for payment under the terms of our Consultancy Agreement dated 9 April 1998.

Yours sincerely

MACQUARIE BANK LIMITED

CHARLES WHEELER            DANIEL PHILLIPS”

19. The following page contained an authorisation signed by Dr Castagna which was in the following terms:

“I hereby accept the terms of the payment to be made to me as per the Consultancy Agreement between Billbury Limited, its Representative and Macquarie Bank Limited dated 9 April 1998.

_________________

Signed

A D CASTAGNA

Name (please print)”

20. As will appear, the Crown placed some reliance on the fact that the acknowledgment signed by Dr Castagna referred to payments to be made “to me”.

21. The first agreement in evidence was dated 23 August 1999. It was addressed to Billbury care of Dr Castagna at an address in Gordon, NSW. Relevantly it provided as follows:

“This letter (‘the agreement’) sets out the terms on which Macquarie Bank Limited (‘Macquarie Bank’) will engage Billbury Limited (‘Billbury’), and the obligations imposed on Billbury, Dr Anthony Castagna (‘the Representative’) of Billbury and Macquarie Bank.

In particular, the agreement acknowledges that Billbury and the Representative will acquire experience, confidential information, trade secrets, know-how and particular skills in the affairs, practices, client requirements and trade connections of the Macquarie Bank (‘the Group’). In light of this, an obligation is imposed on Billbury and the Representative in this agreement both during and after the termination of the engagement by Macquarie Bank not to use the knowledge, information and other matters for the benefit of others to the detriment of the Group and its businesses and in violation of its rights.

…

1.   ENGAGEMENT AND TERM

Macquarie Bank will appoint Billbury on the terms and conditions set out in this agreement as a consultant to Macquarie Bank for a term commencing on 1 July 1999 and continuing until 30 June 2001 (‘the Term’). The parties may extend the operation of the agreement, at any time during the agreement or upon the expiry of the Term, in writing with the consent of all parties.

If the parties extend the Term they may in writing with the consent of all parties alter the terms and conditions of the agreement for the extended period.

2.   RESPONSIBILITIES

Billbury must provide services to Macquarie Bank pursuant to this agreement, including, without limitation, the services set out in Schedule 1. These services do not include the Representative’s role as a Director of Macquarie Technology Funds Management Pty Limited, in respect of which the Representative is entitled to Directors’ Fees in addition to any payments referred to in paragraph 3 below.

Both Billbury and the Representative must perform the Contracted Services faithfully and diligently, consistent with the position of consultant to Macquarie Bank, and to a standard acceptable to Macquarie Bank.

3.   CONSULTANCY FEES

Macquarie Bank will pay to Billbury by way of remuneration for performing the Contracted Services:

(a)   on an exclusive, full time basis, a consultancy fee of AUD275,000 per annum; payable monthly in arrears on the last day of each calendar month.

(b)   effective from 1 April 1999 (ie. in respect of the year ending 31 March 2000), a discretionary profit share based on the overall performance of the Macquarie Technology Investment Banking group of Macquarie Bank. This profit share will be determined at Macquarie Bank’s sole discretion (but in consultation with Billbury and the Representative) on an annual basis, within 3 months of the end of each 31 March financial year. The profit share will be payable to Billbury no later than 30 June.

…

6.   RELATIONSHIP OF THE PARTIES

The legal relationship created by this agreement is not one of partnership or employer-employee but is one of principal-independent contractor. As a consequence, Billbury has the responsibility for holding and maintaining any necessary insurance in relation to performing the Contracted Services.

Further, the Group shall not be responsible for any payments in respect of annual leave, sick leave, long service leave, superannuation, workers’ compensation, accidents, sickness and life insurance in respect of the Representative or any other employee or agent of Billbury. However, while performing the Contracted Services, the Representative will be covered by the Group’s health and travel insurance policies.

In the event that the Representative or another employee of Billbury is deemed to be an employee of the Group under the general law or statute, Billbury will indemnify the Group and keep the Group indemnified in respect of any taxation or similar liability the Group may have to pay where such liability arises as a consequence of the Representative or another employee of Billbury being held or deemed to be an employee of the Group.

In addition, Billbury must:

(a)   comply with all laws, regulations, awards and valid directions of any governmental authorities whatsoever; and

(b)   obtain all necessary permits or approvals to undertake all responsibilities under this agreement.”

22. Schedule 1 of the agreement described the services to be provided. It was in the following terms:

“SCHEDULE 1

Description of Services

The services to be provided by Billbury to Macquarie Bank include but are not limited to the following:

(a)   Provide assistance to Macquarie Technology Funds Management (‘MTFM’), and its staff in the formation, development and growth of MTFM both nationally and internationally;

(b)   assist in the development and growth of MTFM’s investee companies;

(c)   assist Macquarie Technology Investment Banking (‘MTIB’) and its staff on their prospective and mandated transactions;

(d)   assist MTIB in the development of its global business in Australia, Asia, the United States and elsewhere;

(e)   promote the goals of MTFM and MTIB to potential clients, partners and investors; and

(f)   act variously as a mentor, coach, facilitator, and as a general resource, when required, for the development of investee companies, and for the staff at MTFM and MTIB.”

23. At the same time a payment direction was given pursuant to schedule 3 of the agreement. Although the schedule is not in evidence, the payment direction dated 23 August 1999 was in the following terms:

“STRICTLY PRIVATE AND CONFIDENTIAL

23 August 1999

Billbury Limited

C/- Dr Anthony Castagna

8 Cawarra Place

GORDON NSW 2072

Dear Sir

Pursuant to Section 3, Consultancy Fees of the Consultancy Agreement between Billbury Limited, its Representative and Macquarie Bank Limited dated 23 August 1999 please find below the schedule for monthly payments to Billbury Limited.

Payments will be made monthly in arrears on the last day of each calendar month for the amount of AUD22,916.67, which is a monthly payment based upon the agreed annual consultancy fee of AUD275,000.

Payments will be made to the following Bank account:

Australia and New Zealand Banking Group Limited

Central Branch

Cnr Queen and Victoria Streets

Auckland, New Zealand

BSB Number:      115200

Account Number:   307652-001

Could you please sign the accompanying page to acknowledge that this schedule meets your requirements for payment under the terms of our Consultancy Agreement dated 23 August 1999.

Yours sincerely

MACQUARIE BANK LIMITED

CHARLES WHEELER            DANIEL PHILLIPS”

24. The direction also contained an acknowledgment of the terms of payment signed by Mr Agius which was as follows:

“I hereby accept the terms of the payments to be made to me as per the Consultancy Agreement between Billbury Limited, its Representative and Macquarie Bank Limited dated 23 August 1999.

______________

Signed

Robert AGIUS

Name (please print)”

25. The third agreement was dated 6 September 2001. It was expressed to be for a term commencing on 1 July 2001 and continuing until 30 June 2003. It was otherwise identical to the second agreement.

26. Notwithstanding the termination date of the third agreement, payments continued to be made by Macquarie to Billbury up to and including the financial year ended 30 June 2008. It was not suggested that the payments made after 30 June 2003 were made on different terms than those made during the term of the earlier agreements.

27. Macquarie paid the money due under the consultancy agreements to Billbury, the payments being made into either a United States dollar account or an Australian dollar account held by Billbury with ANZ in New Zealand. The Crown’s forensic account, Mr Rositano, identified approximately $6.3 million of payments made by Macquarie to Billbury over the period the subject of the charges.

28. The bulk of the monies paid to Billbury were transferred into bank accounts standing in the name of IFTCO. The accounts included an Australian and a New Zealand dollar account held by IFTCO with ANZ in New Zealand and similar accounts with the same bank in Vanuatu. They also included two other accounts which could not be identified but were likely to be Vanuatu accounts, and two in respect of which neither the account number nor the jurisdiction in which they were established could be identified.

29. Throughout the period the subject of the charges, approximately $8,800 per month was paid by Billbury to Australian bank accounts standing in the name of Dr Castagna. Billbury, however, did not retain funds out of the monies initially received from Macquarie to make these payments. Rather, funds were transferred to it by IFTCO out of which the payments were made.

30. The amounts totalling $999,647, paid in this fashion to Australian bank accounts standing the name of Dr Castagna, were declared as income by Dr Castagna. The amounts were described in his tax returns as “other business income”. Dr Castagna did not declare any of the other monies received by Billbury pursuant to the consultancy agreements.

31. Dr Castagna provided a voluntary disclosure statement to the Australian Taxation Office in 2008. Relevantly it contained the following statements:

“6.   I met with Dan Phillips at his Sydney office, sometime late in 1997 and he introduced me to his team at the time, following which, he offered me a part time consulting contract with Macquarie Bank.

7.   I no longer have a copy of the original Contract as signed. It operated for the balance of 1997 and the early months of 1998. It was later replaced by another contract (I do not recall the exact date), starting in about March 1998, for Billbury to provide my services to Macquarie Bank Limited or Macquarie Technology Investment Banking Group on a full time basis – I no longer have a copy of this contract.

8.   Dan advised me at the time that he offered me a full time contract that Macquarie Bank would only contract through a company and that Macquarie Bank would not contract with me as an individual. During my discussions with Dan, we said words to the following effect:

He said:	‘I will arrange for you to receive a consulting contract but it will have to be provided through a company as Macquarie will not contract with individuals’
I said:	‘That is fine by me’

9.   I spoke about Macquarie Bank’s requirements with my cousin Robert Agius sometime after I spoke to Dan Phillips. Robert is a trusted family member and advisor, who is a Chartered Accountant living in Vanuatu and a partner of Moore Stephens at the time (now called PKF). I have had a long, close, and trusting relationship with him. Robert and his sister were raised by my parents as children and they both lived with us at my parent’s home in Islington, an inner suburb of Newcastle. Robert told me that Billbury could be used as the contracting party and that it would pay me consulting fees.

…

11.   To the best of my recollection, during my discussions with Robert Agius we said words to the following effect:

He said:	‘I can provide Bilbury [sic] for the contract’.
I said:	‘I will provide Billbury’s name to Macquarie as they have advised me that they intend to prepare a contract for services.’
He said:	‘How much will you need for your living expenses? What you don’t need can be contributed to a retirement fund.’
I said:	‘I’ll need about $8,800.00 per month for living expenses.’
He said:	‘When Macquarie pays fees to Billbury, Billbury will send $8,800.00 to you and Billbury can contribute the rest in the retirement fund for you.’
I said:	‘I’d like the retirement fund to be left on deposit. From time to time I would like the fund to invest in start-up companies that I may recommend.’
He said:	‘That will be fine.’
I said:	‘Are there any issues about arranging my affairs in this way?’
He said:	‘No. There are no issues. I have an opinion from a QC that these arrangements are fine.’

…

14.   Robert subsequently advised me to set aside a fund for my retirement in a company structure called a company limited by guarantee. I followed his advice. The company, named Delrick Limited (‘Delrick’), was established by Moore Stephens and its activities were managed and controlled by the firm.

…

16.   Pursuant to my discussion with Robert Agius referred to above, I provided Macquarie Bank with the name of Billbury. A contract between Macquarie Bank Limited or Macquarie Technology Investment Banking Group (I do not recall which of these names was noted on the contract) and Billbury was prepared by Macquarie Bank and presented to me.

…

26.   All monies paid by Macquarie for my consulting services have since the first half of calendar 1998 been paid to Billbury on a monthly basis and in arrears. Macquarie has transmitted by telegraphic transfer the monthly equivalent consulting fees in US dollars to Billbury’s bank account held at ANZ Bank, Auckland in account No. 307 652-001.

…

28.   The portion of the Macquarie Bank consulting fees that I receive, approximately $8,800.00 per month, is transferred to my account at Commonwealth Bank of Australia (CBA) held at the Bank’s Gordon branch in Account No. XXX-XXX-XXXX-XXXX [redacted].

…

30.   Under the contracts between Macquarie and Billbury, Macquarie also pays a discretionary profit share to Billbury, but only at its sole discretion, as detailed in clause 3(b) of the Agreement (Exhibit A). …

31.   In each of the years in which there has been a discretionary profit share paid, Macquarie has paid it to Billbury, to the same ANZ Bank account in Auckland. Normally, the profit share payment is paid in July for the prior financial year ending 31 March of that year.

32.   Since the first half of 1998, the monies retained by Billbury out of Macquarie’s monthly payments and discretionary profit shares have been dealt with by Billbury, to the best of my understanding and knowledge, as additions to the retirement fund. I now understand from information more recently provided to me by Robert Agius that the retirement fund has been constituted as follows:

• The money that Billbury has received from Macquarie in excess of the $8,800 per month sent to my CBA bank account is transferred by Billbury to International Finance Trust Company (NZ) Limited (‘IFTC’), a registered Trust company of PKF (previously called Moore Stephens).

• IFTC is a company managed and controlled by PKF.

• The funds are held by IFTC on behalf of Delrick, a company that I understand to be limited by guarantee and incorporated in Vanuatu.

• The retirement fund monies held on behalf of Delrick by IFTC are held in New Zealand.

Further I now understand that I am not presently entitled to the retirement fund; that I do not control the fund; that upon my retirement in 2012, the fund which is structured as a company limited by guarantee, and for which Robert is the guardian and his partner at PKF is the appointor, must be liquidated in order to release the accumulated quantum of the fund for expatriation to Australia.”

32. The balance of the voluntary disclosure statement although it had some relevance to Count 13, is not relevant in relation to Counts 1 and 2.

(c)   The relevant legislation

33. The following provisions of the Income Tax Assessment Act 1997 (Cth) (ITAA 1997), are relevant to the determination of the appeal in respect of Grounds 1 and 2:

“Section 6-5    Income according to ordinary concepts (ordinary income)

(1)   Your assessable income includes income according to ordinary concepts, which is called ordinary income.

Note: Some of the provisions about assessable income listed in section 10‑5 may affect the treatment of ordinary income.

(2)   If you are an Australian resident, your assessable income includes the *ordinary income you *derived directly or indirectly from all sources, whether in or out of Australia, during the income year.

(3)   If you are a foreign resident, your assessable income includes:

(a)   the *ordinary income you *derived directly or indirectly from all *Australian sources during the income year; and

(b)   other *ordinary income that a provision includes in your assessable income for the income year on some basis other than having an *Australian source.

(4)   In working out whether you have derived an amount of *ordinary income, and (if so) when you derived it, you are taken to have received the amount as soon as it is applied or dealt with in any way on your behalf or as you direct.

Section 6-10   Other assessable income (statutory income)

(1)   Your assessable income also includes some amounts that are not *ordinary income.

Note:   These are included by provisions about assessable income.For a summary list of these provisions, see section 10‑5.

(2)   Amounts that are not *ordinary income, but are included in your assessable income by provisions about assessable income, are called statutory income.

Note 1: Although an amount is statutory income because it has been included in assessable income under a provision of this Act, it may be made exempt income or non‑assessable non‑exempt income under another provision: see sections 6‑20 and 6‑23.

Note 2: Many provisions in the summary list in section 10‑5 contain rules about ordinary income. These rules do not change its character as ordinary income.

(3)   If an amount would be *statutory income apart from the fact that you have not received it, it becomes statutory income as soon as it is applied or dealt with in any way on your behalf or as you direct.

(4)   If you are an Australian resident, your assessable income includes your *statutory income from all sources, whether in or out of Australia.

(5)   If you are a foreign resident, your assessable income includes:

(a)   your *statutory income from all *Australian sources; and

(b)   other *statutory income that a provision includes in your assessable income on some basis other than having an *Australian source.”

34. Having regard to the manner in which the argument developed, the provisions dealing with the taxation of trust income in Pt III, Div 6 of the Income Tax Assessment Act 1936 (Cth) (ITAA 1936) are also of relevance. The relevant provisions for present purposes are s 96, s 97(1)(a) and s 99(2). They are in the following terms:

“Section 96   Trustees

Except as provided in this Act, a trustee shall not be liable as trustee to pay income tax upon the income of the trust estate.

Section 97   Beneficiary not under any legal disability

(1) Subject to Division 6D, where a beneficiary of a trust estate who is not under any legal disability is presently entitled to a share of the income of the trust estate:

(a)   the assessable income of the beneficiary shall include:

(i)   so much of that share of the net income of the trust estate as is attributable to a period when the beneficiary was a resident; and

(ii)   so much of that share of the net income of the trust estate as is attributable to a period when the beneficiary was not a resident and is also attributable to sources in Australia; and

…

Section 99   Certain trust income to be taxed as income of an individual

…

(2)   Where there is no part of the net income of a resident trust estate:

(a)   that is included in the assessable income of a beneficiary of the trust estate in pursuance of section 97;

(b)   in respect of which the trustee of the trust estate is assessed and liable to pay tax in pursuance of section 98; or

(c)   that represents income to which a beneficiary is presently entitled that is attributable to a period when the beneficiary was not a resident and is also attributable to sources out of Australia;

the trustee shall be assessed and is liable to pay tax on the net income of the trust estate as if it were the income of an individual who was a resident and were not subject to any deduction.”

The Crown case

35. There are four matters which should be noted at the outset. The first is that the Crown did not contend that the agreements between Macquarie, Dr Castagna and Billbury were shams. The Crown case was that notwithstanding that the agreements, on their face, required Macquarie to pay the consulting fees to Billbury, the income was in fact was derived by Dr Castagna.

36. The second matter is that no reliance was placed on the anti-avoidance provision in Pt IVA of ITAA 1936. The operation of those provisions are conditional on the Commissioner of Taxation making a determination under s 177F of that Act, which has not occurred in the present case.

37. The third matter is that no reliance was placed on the personal services income provisions in Pt 2-42 of ITAA 1997, which are designed to deal with arrangements concerning the alienation of personal services income of individuals.

38. The fourth matter is this. As will appear, the Crown as a fall-back position to its primary case that the receipts from Macquarie constituted income derived by Dr Castagna, sought to submit, at least on appeal, that if the income was derived by Billbury it was derived by that company as trustee of a trust in respect of which Dr Castagna was entitled to the income and which thus formed part of his assessable income. To understand the manner in which the case was put at trial and to consider the availability of the alternative position, it is necessary to consider the course of the trial in some detail.

(a)   The Crown’s opening address

39. The Crown opened its case over the course of three days. In relation to counts 1 and 2, the Crown stated the following early in its opening address:

“In general terms count 1 and 2 allege one ongoing conspiracy to defraud the Revenue. … In essence, the Crown says, there will be evidence from which you can infer there was an agreement between Dr Castagna and Mr Agius between April 1998 and July 2009. … The Crown alleges that the agreement was to conceal Dr Castagna’s full and true assessable income from the Australian Taxation Office by using foreign companies and foreign bank accounts that were controlled [by] Mr Agius to hide the relevant funds.”

40. After reviewing the remaining counts, the Crown then gave an overview of its case in relation to each of the counts as a whole. While somewhat lengthy, this overview is important in understanding the way in which the Crown put its case. In relation to the facts which are relevant to counts 1 and 2, the Crown stated the following:

“In relation to all of the counts on the indictment the Crown case in a nutshell … is that between 1999 and 2008 Dr Castagna was a venture capitalist. Dr Castagna was a venture capitalist who was party to a contract that he signed with Macquarie Bank. The Crown alleges that contract was specifically designed for Dr Castagna to provide his services and no other person’s services so that he and nobody else would work at Macquarie Bank as a consultant.

Now the contract … for Dr Castagna’s services was signed not surprisingly by Macquarie Bank. It was also signed not surprisingly by Dr Castagna. It was also signed by a foreign company named Billbury Limited. We all know that companies can’t sign things, it was in fact signed by Mr Agius, one of the accused, Dr Castagna’s cousin, an accountant who worked in Vanuatu and he signed it as a director of Billbury. Dr Castagna’s signature on the contract was signed nominating him as the representative of Billbury, who was going to be providing his consultancy services to the bank.

During, I’ll call it the charge period, this span of years from 1999 to 2008, during that period in total Macquarie Bank paid $6.3 million. The Crown case is that those payments related solely and specifically to Dr Castagna providing his personal services and working at Macquarie Bank, turning up to their offices, going about the work that they required him to do.

That $6.3 million though was not paid to Dr Castagna it was transferred into a foreign bank account in the name of Billbury. Out of that amount, that is out of the $6.3 million, Dr Castagna received into his personal bank account in Australia only $849,000-odd. … The Crown alleges that it was only that amount, that is $849,000-odd received into Dr Castagna’s personal bank account in Australia and only that amount spread over these number of years that he declared as his income in his Australian income tax returns.

…

I’ve told you about the $6.3 million Macquarie Bank paid, I have told you about a much lesser amount of $849,000-odd declared in the tax returns. You might ask yourself, well, what became of the rest? The remainder, the Crown says, and the majority of the fees that Macquarie Bank paid for Dr Castagna’s personal services, about $5.7 million, were held in Vanuatu and New Zealand in bank accounts that, the Crown says, were controlled by Dr Castagna’s cousin and his co-accused, Mr Agius. Those funds, the $5.7 million-odd, were not declared by Dr Castagna in his Australian income tax returns. The fact is that it is the Crown case that Dr Castagna didn’t even mention the $5.7 million or his contract with Billbury and Macquarie Bank to his accountants, who prepared his income tax returns for the relevant years.”

41. In this part of the address, it is apparent that the Crown was placing some emphasis on the fact that, while Billbury was a party to the consultancy agreements and received payments from Macquarie Bank, it was Dr Castagna who had “earned” those payments by providing his services to Macquarie Bank. Further, while it was not explicitly stated, it is also apparent that the Crown was suggesting that Dr Castagna should have declared the payments to Billbury in his income tax returns over the relevant period.

42. The Crown then proceeded to outline the evidence in some detail. The Crown first identified and described some of the corporate entities which were relevant to its case. When discussing Billbury, the Crown noted that the payments made to Billbury were not recorded by Billbury as its income in its United Kingdom financial statements. The Crown did not suggest any explanation for this omission.

43. In dealing with the relationship between Mr Agius and the accounting firm Moore Stephens in Vanuatu, the Crown emphasised that its case was that Dr Castagna earned income by working with Macquarie. The following remark is of relevance:

“Pausing there to put this in context, the Crown does not allege that any of Dr Castagna’s income was earned by a Vanuatu international company. It was earned through working at Macquarie Bank. I am taking you to this because Moore Stephens, International Finance Trust Company and the use of Vanuatu entitles and bank accounts looms very large in this case.”

44. The Crown then turned to the consultancy agreements between Macquarie Bank, Billbury and Dr Castagna. Whilst reviewing their terms and the payments which they required to be made, the Crown made the following statements to the jury about, first, the rationale for the consultancy agreements and, second, what they expected to be one of the principal issues during the course of the trial:

“I expect that Mr Phillips will tell you that because he was aware, perhaps not of the particular résumé, but of Dr Castagna’s qualifications generally, that Dr Castagna would be a good fit for his department at Macquarie Bank and as a result he, Mr Phillips, offered Dr Castagna to work at Macquarie Bank as a consultant.

Now apparently at the time somebody at Macquarie Bank, not Mr Phillips, told him that Macquarie Bank required consultants not to be directly employed under their own name, because there might be workers compensation, holiday pay requirements, et cetera; they might be considered to be employees. I understand that somebody at Macquarie Bank told Mr Phillips that if he wanted to employ Dr Castagna as a consultant that had to be done through a company. That is they would arrange the consultancy with a company for the provision of Dr Castagna’s services. I understand Mr Phillips will tell you that he or somebody else at Macquarie Bank told Dr Castagna that was Macquarie Bank’s requirements [sic] that a company become involved in the consultancy agreement.

Now pausing there, I also expect that he will tell you that it was nothing of his requirements or Macquarie Bank’s requirements that the company involved had to be a foreign company. I expect he will tell you that nobody at Macquarie Bank said that the company involved had to have bank accounts offshore or the consultancy fees had to be paid into offshore bank accounts. That was none of Macquarie Bank’s dealings, but it was their requirement to engage Dr Castagna as a consultant that there had to be a company involved.

…

Much of this case I expect will be about whether or not this really was Dr Castagna’s income and whether or not this was generated through his personal exertion, through his personal qualifications and attributes or whether or not it was really Billbury and he was working for Billbury.” (T54)

45. The Crown clarified this position a little later while giving an overview of the evidence of the payments which were actually made to Billbury by Macquarie Bank. The Crown said the following in relation to bonuses which were payable under the consultancy agreements:

“You may not be surprised by this, like the 22 odd thousand dollars a month, those large bonuses in fact didn’t go into Dr Castagna’s account. They went to Billbury. The Crown’s position in relation to those bonuses, like the other figures, the monthly figures, is that they were ordinary income arising directly from Dr Castagna’s personal exertion, his work at Macquarie Bank, and ought to have been declared by him in his income tax returns and they were not.”

46. It is here that there is the first reference to the payments made by Macquarie Bank to Billbury being “ordinary income”. Although the Crown did not highlight to the jury that this term had a particular legal meaning at this point, this was done at the conclusion of the address, where it was described as including “a gain that is a reward for services rendered”. There was no reference to the payments being any form of statutory income, either explicitly or implicitly at any point in the Crown’s opening address.

47. In concluding its overview of the payments which were actually made to Billbury, the Crown made a statement upon which it placed considerable reliance at the hearing of the appeal. The statement was the following:

“Now the Crown allegation, just so you can understand the evidence and what the Crown says its relevance to these charges might be, the Crown allegation is that flow of funds – even ignoring the payments of bonus payments for the time being – so that flow of funds, 22,000 paid by Macquarie expressly for the work that Dr Castagna did when he went into Macquarie Bank’s offices, and the return of only $8,800, the Crown alleges was designed by both accused, given that Mr Agius was involved in both Billbury and IFTCO, the Crown says you can infer there was an agreement between the accused, by virtue of this circular transaction of sending some of the money out of the country and some of it back, to conceal Dr Castagna’s true and complete income.

The Crown says part of that consideration is that Billbury really had no role whatsoever in this arrangement with Macquarie Bank other than to receive 22,000, to send it to IFTCO, to receive 8,800 back from IFTCO, and to return that smaller monthly payment to Dr Castagna.

In other words, the Crown says that Billbury and IFTCo [sic] were corporate vehicles that were used to conceal Dr Castagna’s income by hiding it overseas.”

48. This statement was called in aid by the Crown to support a submission that, “even though ‘bare trustee’ … terminology [was] not used in substance … what was being put to the jury, was the way that the money … was treated in such a transitory fashion by Billbury and really immediately sent on to IFTCO and then from IFTCO, the living expenses to Dr Castagna, the rest to the on call deposit, reflects in substance a bare trustee relationship”. Whether this statement was correct as a characterisation of the opening address or the Crown case at trial as a whole will be considered later.

49. During its opening address, the Crown also spent considerable time reviewing the evidence relating to the income tax returns filed by Dr Castagna. It is not necessary to go through these parts of the address in detail. It is sufficient to note the allegation which the Crown ultimately made about this evidence:

“Now the Crown says that the information contained in the tax returns for each year was false. The Crown says it was intentionally, knowingly and dishonestly false because Dr Castagna failed to declare in his other business income section of his tax returns the full amounts of the payments from Macquarie Bank that were directly attributable to his personal exertion as a consultant at Macquarie Bank. The Crown says that in the instructions letter to his accountants, which we have seen for each year, simply advising a fairly modest amount for his advisory fees and making no mention of the $11,000 that apparently went into some retirement fund was knowingly and intentionally false. And that as a result of those false instructions his accountants were deceived, the tax returns were false and false and misleading income tax returns were lodged with the Commissioner of Taxation.

…

The Crown position is that the income that Dr Castagna failed to declare, so the difference between the $22,000 a month and the $8,800 that he did declare over the period of 1999 to 2008 adds up to slightly more than 5 and a half million dollars that he failed to declare, and that includes the bonuses. The Crown says attributable to his personal exertion over various years. So about five and a half odd million dollars in total over the various years should have been declared and it wasn’t.”

50. In this part of the address, it is apparent that the Crown was placing significant emphasis on the fact that the payments made to Billbury were “directly attributable to [Dr Castagna’s] personal exertion as a consultant at Macquarie Bank”. This is consistent with the Crown’s earlier statement to which we have referred at [44] above that one of the principal issues in the case would be “whether or not [these payments] was generated through [Dr Castagna’s] personal exertion, through his personal qualifications and attributes”.

51. The Crown then turned to consider Count 13.

52. The Crown returned to counts 1 and 2 at the conclusion of its opening address, but did not say anything relevant to those issues, apart from reiterating that the agreement between Dr Castagna and Mr Agius which the Crown relied upon was one to conceal Dr Castagna’s “true and complete assessable income”. It was also emphasised that on the Crown case, the funds received from Macquarie were not Billbury’s income. This was made clear in the following passages of the opening :

“So the Crown says that directing money to go to Billbury doesn’t mean it is Billbury’s income. It is a question that you will have to determine in relation to whether or not the money Macquarie paid to Billbury was money that should have been declared by Dr Castagna as assessable income that he directed to another party.

…

Ordinary income, can I suggest to you, includes a number of things, but it in particular includes a gain that is a reward for services rendered. The Crown says that services rendered by Dr Castagna that generated these payments were income that were required to be declared by him as ordinary personal income in his tax returns. Other income that is ordinary income are gains that arise from carrying on business. So if you ultimately find that Dr Castagna was carrying on a business by providing his services to Macquarie Bank that gain derived from carrying on that business, the Crown says, is ordinary income.”

53. We have dealt with the Crown opening in some detail because it was suggested during the course of the appeal that the manner in which the case was put was wide enough to encompass the allegation that the relationship between Billbury and Dr Castagna in respect of the monies received from Macquarie was that of trustee and beneficiary and, in particular, that Billbury held the funds received from Macquarie as bare trustee for Dr Castagna. However, it is difficult to see any indication in the Crown’s opening address that the case was being put on the basis that the relationship between Dr Castagna and Billbury was a “bare trustee” relationship. It was correctly conceded that there was no express reference to the concept. It seems quite clear that the principal basis upon which the Crown opened its case was that Dr Castagna should have included the payments made by Macquarie Bank to Billbury as part of his assessable income in his income tax returns because those payments were “directly attributable to his personal exertion as a consultant at Macquarie Bank”.

54. The statements which we have extracted at [47] above and which were relied upon by the Crown on the appeal do not lead to a different conclusion. At its highest, it could be said that the statements that “Billbury really had no role whatsoever in this arrangement” and that Billbury was a “corporate vehicle” are consistent with a case that there was a “bare trustee” relationship. However, when read in the context of the opening address as a whole, it is not possible to read them as conveying that meaning. Instead, they simply serve to emphasise the idea which was at the heart of the Crown case: that Billbury was not doing any independent work for Macquarie Bank which might have entitled it to the payments which were instead “directly attributable to [Dr Castagna’s] personal exertion as a consultant at Macquarie Bank”.

(b)   Application for a verdict by direction

55. At the conclusion of the evidence, an application for a verdict by direction was made to the trial judge on behalf of both accused. Counsel for Dr Castagna commenced his address by stating that “if the Crown accepts, as it does, that the agreement between Billbury and Macquarie Bank is genuine then this fact permits only one conclusion, namely the income paid pursuant to that agreement was derived by Billbury not Dr Castagna”. In response to a comment by the trial judge, he then explained this submission in more detail:

“[T]he contract … provided Macquarie to pay Billbury, that is the legal source of the income and that is the critical determining feature in our respectful submission that determines the question as to who derived the income from Macquarie. In our respectful submission it was not at law and did not become at any time the income of Dr Castagna and just because the valuable thing which Macquarie received in consideration for the fees was the provision of services to be performed by Dr Castagna does not make it Dr Castagna’s income nor does it mean that he derived the income from Macquarie.

The Crown case is anchored, with respect, to the proposition that the money paid by Macquarie to Billbury was derived by Dr Castagna and in our respectful submission if the Crown fails to establish that proposition then there must be an acquittal in respect of all charges and indeed Mr Crown accepted as much the other day when your Honour will recall there was a debate about MFI 30 dealing with our proposed changes to the tax directions and your Honour will recall Mr Crown said if your Honour accepted the two paragraphs that were proposed that was tantamount to a verdict by direction.

We accept that would be so and we contend that it is so because the facts of this case point in only one direction. That your Honour has raised with me the Consulting Agreement I will come to in a bit more detail in a moment, but there is no issue and never has been an issue that Macquarie Bank and Billbury intended to give effect to the terms of that contract accord to its tenet. It was a genuine bona fide contract and that is a critical factor which may separate this case from other cases but it is an important guide post that will assist your Honour in determining who derived the income that was paid by Macquarie.”

56. Counsel for Mr Agius adopted the submissions made on behalf of Dr Castagna.

57. The Crown responded to the submissions made on behalf of the appellants in the following manner:

“Your Honour, the Crown response in relation to the substantive submissions is that they, with respect, are misconceived but by focusing only on the issue of sham and the issue of contract and receipt that the accused, with respect, directing your Honour’s attention to the incorrect test. The correct test in relation to ordinary income the Crown says is that one first has to determine … if there was income; and secondly determine if there is some direction or action by the individual taxpayer which, according to ordinary income principles, would allow a tribunal of fact to infer from the direction or action that the taxpayer has himself in this case or themselves derived that income through that direction or action.”

58. The Crown placed considerable reliance on the decision of the Federal Court both at first instance and on appeal in Baker v Federal Commissioner of Taxation (1989) 20 ATR 798 (Baker); on appeal Baker v Federal Commissioner of Taxation (1989) 20 ATR 1706 (Baker FFC):

“Your Honour Baker is, the Crown says, still good law. I found nothing to distinguish it or to overturn it. It is stood good law in relation to the analysis in his Honour Pinkus [sic] J’s decision at first instance at paragraphs, at least lines 33 to about 42 on page 811 and a consideration by his Honour over the page at 812. And as your Honour, with respect of course correctly noted, those findings were not overturned by the full Federal Court in the appeal from Baker and the Federal Commissioner of Taxation. So those considerations have been given full Federal Court approval in the Baker decision.”

59. The Crown explained the point of difference with the submissions made on behalf of the appellants in the following manner:

“Mr White of course, because I think his submission depends on it, says exclude everything else but just look at the contract and look at whether or not it’s a sham and look at actual receipt by company. That microanalysis of only one fact ignores the whole matrix and the Crown … submits that the relevant factual matrix which includes everything that a tribunal of fact would take into account in determining income and derivation …”

60. The Crown then referred to its written submissions on the application, which listed a wide range of circumstances which it said would be included within the “factual matrix” in the present case. It should be noted that the circumstances listed in these submissions were identical to those identified by the Crown in its closing address to the jury on this issue.

61. At this point, it is apparent that there was a slight divergence between the language used by the Crown and the appellants in the application for a verdict by direction to describe the Crown case. The submissions made on behalf of the appellants viewed the Crown case as to whether Dr Castagna could be taken to have “derived” income as depending upon the fact that “the valuable thing which Macquarie received in consideration for the fees was the provision of services to be performed by Dr Castagna”. This understanding accords with the emphasis placed by the Crown on the fact that the payments made to Billbury were “directly attributable to [Dr Castagna’s] personal exertion as a consultant at Macquarie Bank” in its opening address.

62. However, the submissions made by the Crown on the application for a verdict by direction used slightly broader language to describe the circumstances in which Dr Castagna would be taken to have “derived” income. In an exchange with the trial judge about the effect of one of the relevant authorities, the Crown stated that “the income was not in this case derived in any legal meaningful sense by Billbury because it was passed through and immediately to the benefit of Dr Castagna and acknowledged by him at the outset that that was always the arrangement”. The Crown expanded upon this submission by stating the following:

“The Crown says technically the income here was derived by Dr Castagna, in any real sense, because it was passed within days from Billbury’s account directly to Dr Castagna’s benefit, and that that was always the intention.

…

It is quite clear from the voluntary disclosure statement that the arrangement even before Billbury was proffered to Macquarie Bank was it was always the intention of Mr Agius and Dr Castagna that the commission payments were to pass promptly through Billbury and to find their way to Vanuatu for Dr Castagna’s sole benefit. For those reasons the Crown says … this is technically income that was derived in a legal sense because Dr Castagna directed that the money be treated in a certain way, paid into a certain account and then applied to his benefit.”

63. This submission focused on the “benefit” which Dr Castagna received from the payments in order to determine whether he had “derived” income, rather than the fact of his “personal exertion”.

64. Despite this divergence, it seems clear that there was still a common understanding that the Crown had put its case on the basis that the question of whether Dr Castagna had “derived” income by reason of the payments made by Macquarie Bank to Billbury was ultimately a question of fact to be determined by the jury from the circumstances of the case as a whole, or the “factual matrix”. While the Crown had started referring to whether Dr Castagna had received a “benefit” as relevant to the factual question of whether he had “derived” income, it could not be said that this amounted to an allegation that the relationship between Billbury and Dr Castagna was a “bare trustee” relationship. The focus remained on an assessment of all the circumstances as a matter of fact, not a legal analysis of the relationship.

(c)   The judgment on the application for a verdict by direction

65. The trial judge noted the submission made by senior counsel for Dr Castagna that “in circumstances where the Crown did not suggest that any of the Consulting Agreements were shams, no regard could be had to anything outside the four corners of these agreements”. She noted in this regard that reliance was placed on the decision of the Full Court of the Federal Court in Tupicoff v Federal Commissioner of Taxation (1984) 4 FCR 505 (Tupicoff).

66. Her Honour noted that in opposing the application, the Crown relied on the decision of Pincus J in Baker and the Full Federal Court in Baker FFC in submitting that the question of who derived the relevant income was “a question of fact which was to be determined having regard to all relevant circumstances”. The trial judge also referred to the wide range of circumstances referred to by the Crown in its written submissions. She summarised these as follows:

“15   The relevant factual matrix, to establish that the accused Dr Castagna derived the income by direction and action, includes the following combination of matters:

(a)   the consultancy agreement with MBL [Macquarie] was a tripartite contract, which Dr Castagna signed as a contracting party;

(b)   the services provided to MBL were Dr Castagna’s personal skills and experience, as opposed to any skills provided by Billbury;

(c)   the initial, part-time, contract with MBL was entered into by Dr Castagna personally;

(d)   Dr Castagna provided the services to MBL;

(e)   Dr Castagna arranged and directed that payment for those services should be made to Billbury, including by directing the bank account into which the income was to be paid;

(f)   Dr Castagna was the only person who could provide those services and no other person was contemplated or could be substituted to provide those services under the consultancy agreement;

(g)   the consultancy agreement with MBL could be terminated by MBL if Dr Castagna was not available to perform the services;

(h)   there is no evidence to show Billbury carried on the business of providing any consultancy services during the relevant period;

(i)   Dr Castagna admitted in his voluntary disclosure statement that the initial draft of the contract with MBL included a non-competes [sic] clause which would prevent him personally from working in the industry, and that he personally negotiated for the removal of that clause;

(j)   the funds transferred by MBL to Billbury were transferred to IFTCO within a few days of receipt with the only deduction being a bank transaction fee rather than a profit derived from the provision of services;

(k)   Billbury earned very little or no income for financial years 1998 to 2007;

(l)   The turnover represented in the financial statements of Billbury is from interest and commission earned on loans and deposits made through financing operations, not from the provision of consulting services;

(m)   For financial years 1998 to 2000 Billbury operated at a loss. For the 2002 to 2007 financial years the company appeared to be inactive as it did not earn any income or incur any expenses and had $3 Cash at Bank;

(n)   Billbury’s Directors and Secretary is Astrolabe Limited, a Vanuatu Nominee company utilised by PKF Vanuatu. In 2008 Mr Agius was named as a Director, additionally to Astrolabe Nominees Limited. Two shares were issued in the company. One held by Astrolabe Limited and the other by Astrolabe Nominees Limited.

(o)   The financial statements indicate Billbury has no employees. The statements report the directors did not receive emoluments for their services, and there was no remuneration paid to the two employees during this time. Billbury does not appear to have any other paid employees;

(p)   Billbury is not registered for a TFN or an ABN for Australian tax purposes and has never lodged an Australian tax return;

(q)   On 22 November 2007 Mr Agius sent an email to his solicitor stating he “controlled and owned Billbury”.

(r)   On 13 February 2008 Mr Agius swore a Statutory Declaration, declaring the following:

-   he was a Director of Billbury;

-   Billbury is a foreign company for the purposes of the Australian Corporations Law;

-   Billbury is not a foreign company registered in Australia; and

-   Billbury does not carry on business in Australia.

(s)   Billbury has never reported its business activity as including providing consultancy services. Nor has it reported any income that could have been derived from providing such services.

(t)   The inference is Billbury is neither a legitimate finance company, nor a consultancy firm. Entities controlled by PKF Vanuatu employees, Astrolabe Limited and Astrolabe Nominees Limited were shareholders and office bearers of Billbury;

(u)   The lack of activity in Billbury’s accounts coupled with the fact its Director is a Nominee Vanuatu company controlled by PKF Vanuatu indicates Billbury is nothing more than a nominee company managed by PKF Vanuatu and utilised on its client’s behalf.

(v)   There is no evidence Billbury has made decisions concerning the manner in which the consultancy services would be carried out by Castagna for MBL;

(w)   Billbury was only used to receive and on-forward payments from MBL;

(x)   Billbury is described in the partnership agreement (Ex 1D-5) as an on-billing company;

(y)   No agreement setting out the terms of any arrangement between Dr Castagna and Billbury has been located, nor is any such agreement referred to in the evidence.

16.   The true nature of the arrangement is further apparent from the evidence of Mr Daniel Phillips, an Executive Director at MBL, who stated that he formed the view Dr Castagna had the appropriate skills and experience to assist MBL so he offered him a consultancy. He did not seek out a consultancy firm and ask if they had a consultant available to provide the required services. Nor did he seek out Billbury. Mr Phillips stated he only ever had dealings with Dr Castagna and no other officers of Billbury. Further he gave evidence that he had no interest in anyone from Billbury providing the services in question and that the bonus payments were quantified on the basis of Dr Castagna’s personal contributions.”

67. The trial judge referred to Tupicoff, and to the fact that it had been followed by the Full Court of the Federal Court in Federal Commissioner of Taxation v Mochkin (2003) 127 FCR 185 (Mochkin). She also referred to Baker stating that Pincus J said that it was “a question of fact which was to be determined in light of all the circumstances” whether the monies paid to the companies controlled by the applicant were in fact the income of the applicant or that of his companies. She noted that Pincus J found that there were no contracts between the clients to whom services were provided and the companies who received the fees. She noted that “[t]his was regarded as significant … but not determinative”.

68. Her Honour also noted that the Full Court in Baker FFC concluded that Pincus J was correct in stating that “the case turned on what were, essentially, questions of fact” and that the conclusions reached by Pincus J were correct.

69. The trial judge noted that the agreements in the present case were “tripartite agreements”. She noted that unlike Tupicoff, there was no evidence of any enforceable legal documentation between Billbury and Dr Castagna. She stated that she did “not accept the submission that … [Dr] Castagna would not have had a right to sue for monies owing to him by Macquarie if Billbury did not”.

70. Her Honour also stated that “Billbury contributed nothing of value” to the consulting agreements and that “it had no assets” to meet the various obligations imposed upon it under the agreements. She stated that on one view, Billbury was “merely the conduit through which money passed at … [Dr] Castagna’s direction”.

71. The trial judge stated that she regarded Tupicoff as “factually distinguishable”. She stated that what was of significance in that case was the documentation which established the legal relationship between the insurance company (which was liable to pay the commissions), the trust company (which was named as the entity entitled to receive the commissions), Mr Tupicoff as an employee of the trust company and the structure of the trust company, which held assets and sold insurance. She stated that although the present case is “not similar to Baker, where there were found to be no agreements in place in to provide a legal justification for the payments by clients to [the taxpayer’s] companies”, the statements of principle in Baker and Baker FFC were applicable. She said that it followed that the question of whether the income was that of Dr Castagna or the company was “a question of fact for the jury as the tribunal of fact”.

(d)   The trial judge’s tax directions

72. The trial judge gave the following directions to the jury relevant to the issues the subject of Grounds 1 and 2:

“11.   Australian resident taxpayers are requires to include in their returns all income derived directly or indirectly from all sources, whether inside or outside Australia, in the twelve months of the relevant financial year or other approved substituted accounting period. In other words, Australian taxpayers are required to include in their returns their worldwide income for the relevant financial year. A foreign resident is assessable only on income derived from Australian sources.

12.   An Australian taxpayer has ‘derived’ an amount of income when it is either paid to them, or when it is applied or dealt with in any way on their behalf or as they direct.

13.   The assessable income of an Australian tax resident (which includes the accused Castagna) includes:

(a)   assessable income earned in Australia and assessable income earned overseas;

(b)   assessable income to which the taxpayer is entitled and which is dealt with on the person’s behalf or as the person directs.

…

17.   Otherwise, an item is ordinary income if the item has been derived in circumstances that give it the character of income. The character of an item as income must be judged in the circumstances of its derivation by the person (which includes corporate entities), and without regard to the character it would have had if it had been derived by another person.

18.    The criteria for determining whether an amount (or a gain) is income include:

…

(j)   A gain that is a reward for services rendered or to be rendered has the character of income.

…

19.   There can be circumstances where two separate incomes arise from the same services, e.g. a company can be rewarded under a contract for services and the individual who provides those services on behalf of the company can be rewarded by the company. Whether in any given circumstances, income is derived by an individual and/or a company will depend on the factors set out at paragraphs 12 to 18 above.”

73. Subsequently direction 12 was amended to read as follows:

“12.   One factor that you might take into account when considering whether an Australian taxpayer has ‘derived’ an amount of income is that an Australian taxpayer may have derived income when it is either paid to them, or when it is applied or dealt with in any way on their behalf or as they direct. Another factor which you might take into account on this question is the parties and terms of the consultancy agreements (see paragraph 19 below).”

(e)   The Crown’s closing address

74. The Crown commenced its closing address by reminding the jury of the broad nature of the Crown case in relation to counts 1 and 2:

“Now in general terms as I put the Crown case in the opening and I’ve put it again in my closing, in general terms the Crown allegation about Counts 1 and 2 is a conspiracy to defraud the revenue. This is another way of saying the Commonwealth or the ATO being in essence an agreement that existed between April [1998] and July 2009 to conceal Dr Castagna’s true assessable income from the ATO by using foreign bank accounts and foreign entities controlled by his cousin Mr Agius to hide the relevant funds.”

75. The Crown then turned to discuss the evidence which had been adduced during the trial in detail. For present purposes, the Crown started to touch on matters relevant to the present case in discussing the evidence of Mr Phillips. The Crown began by stating the following:

‘I see no reason why this rule should not apply in revenue matters. If liability for tax depends upon the existence or non-existence of a trust, the occasion seems to demand the application of the rules by which the determination of such questions is governed in courts of equity.’

Dixon J was there dealing with a question arising under land tax legislation, but his observations are equally applicable to the operation of the Act.”

169. His Honour’s remarks, with respect, are undoubtedly correct. However, to establish a case based on beneficial entitlement to the income, the Crown would need to show that Dr Castagna was beneficially entitled to the monies from Macquarie, either as a result of an express trust or perhaps because of a resulting or constructive trust. As we point out below, the difficulty is that such a case was not sought to be raised.

170. So far as the contention that Billbury was the mere nominee of Dr Castagna, that again ignores the fact that the consulting agreements provided for Billbury to perform the services through its representative and receive the payments. There is nothing in the agreements to suggest that Billbury was a mere nominee in the sense of simply being the recipient of the payments and having no positive obligations under the agreements.

171. Apart from the trust contention, there were two further issues raised. First, whether s 6-5(4) provides any assistance to the Crown and secondly, whether the directions given by Dr Castagna and subsequently by Mr Agius that the funds were to be paid to Billbury provides support for the Crown case.

172. Section 6-5(4) of ITAA 1997 is relevantly in the same terms as the former s 19 of ITAA 1936. As Hill J pointed out in Liedig v Federal Commissioner of Taxation (1994) 50 FCR 461 at 470 (Liedig), the section only operates when the amount in question is “‘income’ of the person which, if paid to him or her, would clearly have been derived by him or her”. See also Mochkin at [132].

173. Further, we do not think that the directions and authorisations to Macquarie to which we have referred at [18] - [19]; [21]; [23] - [24] above, alter the position. The directions were made pursuant to the consulting agreements and directed payment to Billbury. They do not affect the contractual relationship which existed between the parties under the consulting agreements.

174. Fundamentally, the Crown case amounted to the proposition that because the services were performed by Dr Castagna, Billbury had no capacity to proffer the services other than through Dr Castagna and only held the monies for a very short period of time, meant that notwithstanding the terms of the agreements, the income was derived by Dr Castagna as the service provider. A somewhat similar proposition was argued by the Commissioner in Liedig. In that case, where the taxpayer performed certain services as trustee of a trust, it was argued by the Commissioner that as the income was earned by the trustee through his personal exertion, it was taxable in his hands. Hill J rejected the submission and after referring to Tupicoff and Bayly, made the following remarks which are apposite to the present case at 474-475:

“The insurance agent in Tupicoff, whose business comprised canvassing prospective customers to enter into policies of insurance, clearly was deriving income from his personal exertion yet that, of itself, did not bring about the result that the income earned was income of the person whose exertion, coupled with the agency contract, enabled that income to be earned. Where is the line to be drawn? It has never been suggested that income earned by the trustee of a trust carrying on business as a milkman or plumber or an electrician is derived by the person pursuing the respective occupation, yet each involves significant personal service or personal exertion.

The Commissioner’s answer before me was that the income had to be a result ‘substantially’ of the personal exertion of the taxpayer. How that submission squares with the full Court’s decision in Tupicoff is difficult to say. Equally it is difficult to relate to the examples given above. Only where no trust property was involved could the distinction become meaningful.

This difficulty was adverted to by the Deputy President who recognised that there were some trust assets, including goodwill, and that income could be said to flow in part from those assets as well as the skill of Mr Liedig. But the problem is not even as simple as that. A land broker, like a solicitor, may, and probably does, enter into a contract with the client for the performance of work. Ordinarily moneys would not be payable under that contract unless and until the work contracted to be performed had been completed. Those contracts, like the service contracts with staff, the physical assets and goodwill, are all assets of the trust estate. Any income is derived by force of those contracts in just the same way as income was derived by Mr Tupicoff from the contract with the insurance company. The income derived in both cases was probably as much dependent upon personal services as upon the relevant contractual arrangements.”

175. Similarly to that case, the income in the present case was derived from the contract with Macquarie, albeit dependent on the personal services of Dr Castagna.

176. It follows that subject to the proposition that Billbury was trustee for Dr Castagna, such that he was beneficially entitled to the income received from Macquarie, Grounds 2 and 3 of the grounds of appeal have been made out.

177. In the circumstances, it is not necessary to deal with the reserved questions.

Was it open to the jury to reach its conclusion on the basis that Billbury held the monies received from Macquarie on trust for Dr Castagna?

178. We have pointed out at [121] the manner in which the Crown ultimately sought to put its case based on the existence of a trust. Because of the importance of the issue both as to the fate of the grounds of appeal themselves and the orders which should be made were the appeal to be allowed, we have set out in considerable detail the manner in which the case was put at trial (see [39]-[86] above). It is unnecessary to repeat what we have set out but it demonstrates with abundant clarity that a contention of the nature of that suggested at [121] was not put. However, there are a number of matters which may be added.

179. Although it is correct as pointed out in the note to which we have referred at [121] that where monies are paid to beneficiaries during an income year, income derived by them is treated as ordinary income for taxation purposes, it would still be necessary for the Crown to demonstrate that the whole of the distributable income was held on trust for Dr Castagna (Federal Commissioner of Taxation v Bamford (2010) 240 CLR 481 at [45]).

180. The Crown relied on an express trust. It would thus have been necessary for it to prove beyond reasonable doubt that the person creating the trust intended to do so. The intention must be clear and it must also be clear what property is the subject of the trust and the identity of the beneficiaries be reasonably certain. Intention is to be inferred objectively from the words used and the surrounding circumstances (Byrnes v Kendle (2011) 243 CLR 253 at [14]-[16]; [57]-[65]; [114]; Associated Alloys Pty Ltd v ACN 001 452 106 Pty Ltd (in liq) (2000) 202 CLR 588; [2000] HCA 25 at [29], noting at [34] that “[a]n express obligation … to keep the ‘proceeds’ separate would have pointed to the existence of a trust”, although the absence of that requirement does not of itself deny the trust; see also Korda v Australian Executor Trustees (SA) Ltd (2015) 255 CLR 62; [2015] HCA 6 at [3] - [10]; [109] - [111]; [204]).

181. Finally on this issue it is important to bear in mind the fact that mere control over a company’s funds does not render the company a trustee for the controller. The position was summarised by Leeming JA in Osborne in the following terms:

“[122]   It is one thing for a person to control the legal owner of property. It is quite another for that legal owner to hold that property on trust for that person. This was the point squarely made by defence counsel during the trial in support of the second application for a directed verdict. It is, with respect, fundamental.

[123]   There must be many thousands of Australian private companies, with the same natural person being their sole shareholder and director, which hold property other than on trust for that person. One familiar example is the special purpose corporate vehicles regularly established for particular property developments, which are wholly owned and controlled by the property developer. Another is the company through which a tradesperson or professional person conducts his or her business, which is often wholly owned and controlled by the person. Examples could readily be multiplied. Obviously, a sole shareholder can (by member’s resolution) rapidly cause the company to perform any corporate act. Obviously, a sole director can (by a director’s resolution) rapidly cause the company to perform most corporate acts.

[124]   But that does not make the company a bare trustee for its director or shareholder. Still less does it achieve the result for which the Crown contended in the present case, namely, that the director or shareholder is presently entitled to any income derived by the company as trustee.”

182. The jury was not directed or invited to draw a conclusion on any of these issues as the Crown did not conduct the case on this basis. It is not for this Court to speculate what the result would be had the Crown done so. The possibility that the Crown may have done so does not alter the fact that Grounds 2 and 3 have been made out.

The appeal against the conviction on Count 13

183. The grounds of appeal in respect of Count 13 were in the following terms:

“4.   The trial judge erred in her directions as to how the jury could approach the question of tracing the proceeds of crime the subject of the conspiracy in count 13.

5.   The verdict on count 13 is unreasonable and cannot be supported having regard to the evidence.”

184. It was accepted that if the appeal against the convictions on Counts 1 and 2 are made out, the appeal against the conviction on Count 13 must also be allowed there being no proceeds of crime to constitute the offence.

185. Count 13 essentially involved a conspiracy to repatriate part of the funds transferred overseas by Billbury to Dr Castagna by what were described by the Crown as “sham loan[s]”. The case was essentially based on two matters. First, the monies paid overseas by Billbury, or at least a part which represented unpaid tax, were the proceeds of crime and second, that Mr Agius and Dr Castagna conspired to have the money returned to Dr Castagna by way of “sham loans”.

186. It did not seem to be disputed that a portion of the funds paid by Billbury to IFTCO represented proceeds of crime if the Crown was successful on Counts 1 and 2. That was accepted, notwithstanding the fact that there would be no liability to pay tax out of the particular funds in question had the income been declared and an assessment issued. The tax assessed would constitute a debt to the Crown for which Dr Castagna was liable but not a charge over any particular funds.

187. The issue which was argued on the appeal related to the repatriation of these funds. The Crown essentially contended that the repatriation funds were directly or indirectly derived from the proceeds of the offence the subject of Counts 1 and 2, whilst the appellants contended that the repatriation funds were genuine loans and could not be traced to such proceeds of crime.

188. The issues raised by the grounds of appeal on Count 13 thus raised difficult questions of whether the money in question was wholly or partly derived or realised directly or indirectly from the conspiracy the subject of Counts 1 and 2 (c/f Commissioner of Australian Federal Police v Hart (2019) 262 CLR 76; [2018] HCA 1 at [16]; [91]-[93]; [98]). Because, as appears below, we are of the view that a verdict of acquittal should be entered, it is both unnecessary and inappropriate to deal with what is now a hypothetical issue.

The remaining grounds of appeal

189. In the circumstances it is unnecessary to deal with these grounds.

Should a retrial be ordered?

190. The appellants contended that if they were successful on these grounds a verdict of acquittal should be entered. The Crown by contrast submitted that a new trial should be ordered and it be left to the prosecuting authorities to determine whether or not a new trial should be had. In that context, the Crown submitted that it would not be relying on any fresh factual material, but merely be seeking to place a different characterisation on the transactions.

191. In King v The Queen (1986) 161 CLR 423, the appellant was charged along with another man with the murder of the appellant’s wife. The case put was that the husband was an accessory before the fact having procured the other man to do the killing. The trial judge initially directed the jury that it was not possible to enter different verdicts against the two men. However, following objection by the prosecution, the jury was told that they could convict the husband if they were satisfied that he arranged for someone to kill his wife, even if it was not the other man charged. The husband was convicted and the other accused acquitted.

192. The Court of Criminal Appeal set aside the conviction and ordered a new trial on the basis that the trial judge had erred in allowing the alternative way the case was put to go to the jury.

193. A majority of the High Court held that the Court of Criminal Appeal was correct in ordering a new trial. It was accepted by Dawson J, with whom the other members of the majority agreed, that a new trial should not be ordered “when the evidence in the Court below was not sufficiently cogent to justify a conviction, or to allow the Crown to supplement a case which had proved to be defective and in particular the Crown should not be given an opportunity to make a new case which was not made at the first trial (161 CLR 423 at 433). However, as the alternative case was raised belatedly at the trial and the case was a strong one, a new trial was ordered.

194. In Jiminez v The Queen (1992) 173 CLR 572; [1992] HCA 14, a case involving a misdirection on a charge of dangerous driving causing death, the plurality ordered an acquittal rather than a retrial stating that it was “more than three and a half years since the accident occurred”, the applicant had “already been subjected to the expense, strain and inconvenience of a trial”, “the case against him was not a compelling one” and the sentence was “one of periodic detention which, if it had been served, would … have expired”.

195. In Parker v The Queen (1997) 186 CLR 494; [1997] HCA 15, the applicant was convicted of stealing, the Crown asserting that the applicant used monies provided by donors to his parliamentary election campaign which was deposited in a bank account for purposes other than to support his parliamentary election, contrary to a direction by the donors that it be only used for the purpose of the election campaign. The Western Australian Court of Criminal Appeal held that there had been a misdirection on the relevant provisions of the legislation (s 373 of the Criminal Code (WA)) but held that a retrial was appropriate on the basis that s 373 deemed the money to be held on trust, and that equitable principles could be applied to determine who owned the money when it was withdrawn from the account.

196. The majority in the High Court held that s 373 did not have that deeming effect. However, the Crown indicated that on a retrial, it “would contend that the campaign account represented a common fund but that donors were owners of different parts of the fund”. The Crown said it “would rely upon principles of tracing so as to identify a relationship between money paid into the account and money paid out”.

197. The majority, in ordering an acquittal, stated that it was “apparent that on a retrial the appellant would be called upon to meet a quite different case to that presented against him at trial” which would have been “unfair, particularly having regard to the sentence already served” (186 CLR 494 at 519).

198. In The Queen v Taufahema (2007) 228 CLR 232; [2007] HCA 11, an accused was charged with the murder of a police officer on the basis of secondary liability. By the conclusion of the trial, the joint criminal enterprise was described in a different way: the judge directed the jury that the Crown alleged a joint enterprise to avoid apprehension, involving the shooting of a police officer as a foreseen possibility. The Court of Criminal Appeal quashed the conviction on the ground that evasion of apprehension was not an offence known to law and entered a verdict of acquittal. On an application for special leave to appeal to the High Court, the Crown for the first time characterised the joint enterprise as the commission of an armed robbery in which a fatal shooting which was foreseen as a possible occurrence occurred.

199. The majority of the Court concluded that a new trial should be ordered. The majority pointed out that one of the key circumstances referred to in s 8(1) of the Criminal Appeal Act 1912 (NSW) is “the public interest in the due prosecution and conviction of offenders” and that “[a]n order for acquittal conflicts with ‘the desirability, if possible, of having the guilt or innocence of the [accused] finally determined by a jury’” (228 CLR 232 at [49] - [51]). They pointed out at [51] that “the trial which took place was a flawed one” due in part to the influence of the trial judge. They also pointed out at [55] that “only a relatively small part of a very long sentence … had been served” and that a delay between the offence and the new trial was not such as to prejudice the accused. Having reviewed the authorities to which we have referred, the majority stated at [67] that “the difference between the case relied on in the first trial and the case to be relied on in a second trial must be substantial if the difference is to stand as a bar to an order for a second trial”.

200. Gleeson CJ and Callinan J who with Kirby J dissented, referred at [35] to the statements made by Dawson J in King to which we have referred above. They stated that “[i]n the context of a new trial for the same offence, the reference to a ‘new case’ must be to the particulars of the charge, and to the nature of the evidence”. They emphasised at [37] “[t]he general rule that litigants are bound by the conduct of their counsel, a rule essential to the adversarial system, applies with at least as much force to the prosecution as to the defence”.

201. It may be assumed that the case which will be put on any retrial would be based on the propositions in the note to which I have referred at [121]. However, it would at least be necessary to amend the particulars of the conspiracy to provide for an agreement, presumably between Mr Agius and Dr Castagna, that the monies received from Macquarie be held by Billbury on trust for Dr Castagna, be dealt with at his direction for the purpose of defrauding the Commonwealth and dishonestly causing a loss to the Commonwealth.

202. The case can thus be seen to be significantly different to that propounded in the original trial. It would involve proving a different conspiracy, as well as establishing whether the elements necessary to constitute the trust existed. In this context, the importance of proper particulars in a conspiracy case must be emphasised (see Gerakiteys v The Queen (1984) 153 CLR 317 at 333).

203. It is difficult to form an assessment of the strength of the suggested case, but even if it is assumed to be strong, and taking into account the desirability of the guilt or innocence of the accused to be determined by a jury, the countervailing factors lead us to the conclusion that the appropriate order is the entry of an acquittal. First, and importantly, the conclusion which we have reached means that the appellants were in fact entitled to a verdict by direction. It would be unjust in these circumstances to order a new trial to enable a new case to be agitated. Second, as we have pointed out, it is undoubtedly a new case in the sense referred to by Dawson J in King. Third, the events in question took place between 10 and 20 years ago. Fourth, the appellants have already been exposed to a trial of approximately 8 weeks and a new trial which could not take place until 2020 would take at least the same time having regard to the contemplated issues. Fifth, in the case of Dr Castagna he has already served 1 year of a 4 year non-parole period. Sixth, at the time of the trial Mr Agius was 69 and Dr Castagna was 71. Thus, they would both be in their seventies at the time of a new trial.

190. Section 8(1) of the Criminal Appeal Act empowers the Court to order a new trial whenever a miscarriage of justice can be more adequately remedied by a new trial than by any other orders. Having regard to the matters to which we have referred, we do not think a new trial, as distinct from the entry of a verdict of acquittal, is the appropriate remedy.

191. We would therefore quash the convictions and enter a verdict of acquittal.

Conclusion

206. In the result, we would make the following orders:

1. Appeals allowed.

2. Convictions of each appellant on Counts 1, 2 and 13 be quashed and, in lieu thereof, a verdict of acquittal be entered.

********

Amendments

07 June 2019 - Cover sheet Representation "Hazen" changed to "Hazan"

Decision last updated: 07 June 2019