Cavill v The Queen
[2014] WASCA 77
•15 APRIL 2014
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
TITLE OF COURT : THE COURT OF APPEAL (WA)
CITATION: CAVILL -v- THE QUEEN [2014] WASCA 77
CORAM: McLURE P
PULLIN JA
MAZZA JA
HEARD: 10 FEBRUARY 2014
DELIVERED : 13 MARCH 2014
PUBLISHED : 15 APRIL 2014
FILE NO/S: CACR 137 of 2013
BETWEEN: CAROL CLARA CAVILL
Appellant
AND
THE QUEEN
Respondent
ON APPEAL FROM:
Jurisdiction : DISTRICT COURT OF WESTERN AUSTRALIA
Coram :STEVENSON DCJ
File No :IND 257 of 2012
Catchwords:
Criminal law - Appeal against sentence - Defrauding the Commonwealth - Cooperation with authorities - Whether total effective sentence infringed totality principle - Discount for past and promised future cooperation with law enforcement agencies
Legislation:
Crimes Act 1914 (Cth), s 16A, s 19AC, s 21E
Crimes Legislation Amendment Act (No 2) 1989 (Cth)
Criminal Code (Cth), s 135.1(1)
Sentencing Act 1995 (WA), s 8(5)
Result:
Leave to appeal on ground 2 granted
Appeal allowed
Orders for cumulacy set aside
Sentences on counts 1, 2, 3, 4, 5 and 7 to be served concurrently with the sentence for count 6
The sentence on count 6 to commence on 30 October 2012
Recognisance release order made
Category: B
Representation:
Counsel:
Appellant: Mr S B Watters
Respondent: Mr T W McPhee
Solicitors:
Appellant: Marilyn Loveday
Respondent: Director of Public Prosecutions (Cth)
Case(s) referred to in judgment(s):
A Child v The State of Western Australia [2007] WASCA 285
Coombe v The Queen [2009] WASCA 105
Deakin v The Queen [1984] HCA 31; (1984) 58 ALJR 367
El Rakhawy v The Queen [2011] WASCA 209
FEW v The State of Western Australia [2009] WASCA 201
Grenfell v The Queen [2009] NSWCCA 162
Hili v The Queen [2010] HCA 45; (2010) 242 CLR 520
Ma v The Queen [2001] WASCA 325
Magdi v The State of Western Australia [2010] WASCA 234
Munda v Western Australia [2013] HCA 38; (2013) 87 ALJR 1035
MXP v The State of Western Australia [2010] WASCA 215; (2010) 41 WAR 149
Pearce v The Queen [1998] HCA 57; (1998) 194 CLR 610
Power v The Queen [1974] HCA 26; (1974) 131 CLR 623
R v Baldock [2010] WASCA 170; (2010) 269 ALR 674
R v Lee [2013] WASCA 216
R v Milne (No 6) [2010] NSWSC 1467
R v Nagy [1992] 1 VR 637
R v Ruha, Ruha & Harris; Ex parte Director of Public Prosecutions (Cth) [2010] QCA 10; [2011] 2 Qd R 456
Roffey v The State of Western Australia [2007] WASCA 246
TLM v The State of Western Australia [2009] WASCA 106
Walgar v The State of Western Australia [2007] WASCA 241
McLURE P: These are my reasons for joining in the orders made by the court on 13 March 2014 allowing the appeal, reducing the appellant's total effective sentence from 5 years to 3 years' imprisonment and ordering that she be released after serving 14 months' imprisonment on entering into a recognisance in the sum of $10,000 to be of good behaviour for 22 months.
The relevant background is detailed by Mazza JA. It is sufficient for my purposes to note the following.
The seven charges to which the appellant pleaded guilty were in identical terms, save for the date of the offence and the name of the company that benefited. The charges relevantly stated:
[The appellant] did lodge with the Department of Innovation, Industry, Science and Research (the Department) an application for registration for the Research and Development Tax Concession on behalf of [name of company] with the intention of dishonestly obtaining a gain for [that company] from another person, namely the Commonwealth, contrary to subsection 135.1(1) of the Criminal Code Act 1995 (Cth).
Section 135.1 relevantly provides:
(1)a person is guilty of an offence if:
(a)the person does anything with the intention of dishonestly obtaining a gain from another person; and
(b)the other person is a Commonwealth entity.
At the hearing of the appeal the court requested further documentation to enable it to identify the precise nature and scope of the circumstances of the appellant's offending. It was not possible to make a judgment as to the appellant's culpability on the basis of the facts agreed by the parties which were adopted by the sentencing judge. The additional material was sought for sentencing purposes. There was no claim on behalf of the appellant that the facts were incapable of supporting the convictions.
The circumstances of the offending for sentencing purposes were broadly as follows. Xenex Group Pty Ltd (Xenex), the principal of which was Daniel O'Connor, advised and provided services to clients in relation to obtaining the Research and Development Tax Concession which provided for, inter alia, a tax offset for eligible research and development (R&D) expenditure (the Concession).
To be eligible for the Concession a claimant had to obtain registration of its R&D activities with 'AusIndustry', which was part of the Department. A claimant for registration had to complete a pro forma application which sought, inter alia, general details of the R&D expenditure it intended to claim in the relevant financial year. In particular it sought total figures in respect of specified types of expenditure in relation to R&D projects.
It is not clear from the sentencing materials whether AusIndustry approval of an application and registration was confined to the claimants R&D activities or extended to the expenditure figures provided in the application for registration. There is no finding on that subject.
The Concession was confined to R&D expenditure 'incurred' in the relevant period. Under ATO Taxation Ruling 97/7, an expense was relevantly incurred if it had been paid or the taxpayer had a presently existing (but not contingent) liability to pay it. Expenditure incurred by a claimant on wages and salaries for work on approved R&D activities was eligible expenditure for the purpose of the Concession.
The application for registration the subject of each offence was filled in and lodged by the appellant. The claimant companies had provided to the appellant the expenditure figures for inclusion in their application. They acted on Mr O'Connor's advice that they were entitled to claim for R&D work undertaken in the relevant period by its directors and employees for which they had not been paid, and for which there was no presently existing liability to pay, and to value that work at external contractor rates. The appellant was aware of that advice to clients and knew it was incorrect. The appellant also knew that the R&D expenditure figures provided to her by the claimant companies included amounts for R&D work done internally, not by external contractors, and that no expenditure of that type had been 'incurred' for the purpose of the Concession. The appellant understood that the claimant companies had no intention or ability to pay its directors and employees for R&D work unless and until they became profitable. Accordingly, although R&D work had been undertaken by directors and employees, the appellant knew when she completed and lodged the applications with AusIndustry that the relevant expenditure had not been 'incurred' within ATO Taxation Ruling 97/7 and certainly not at 'inflated' external contractor rates.
The appellant had no involvement in the subsequent preparation or lodgement of the taxation returns of any of the claimant companies. However, the appellant expected that the figures included in each companies' application for registration would go into its taxation return. The gain the subject of each offence was dependent on the lodgement of a taxation return claiming a tax offset on the basis of those figures.
The net loss to the revenue was around $540,792. The appellant was paid a total of approximately $15,000 for her work for Xenex. She did not otherwise benefit from the offences.
Mr O'Connor declined to cooperate with authorities in relation to the matters the subject of the offences and is not to be prosecuted. Counsel for the respondent accepted that the appellant's admissions were essential to securing her conviction for the offences.
The appellant claimed the sentencing judge had made an express and an implied error. She claims he erred in failing to state the discount afforded for her future cooperation with authorities contrary to s 21E(1) of the Crimes Act 1914 (Cth) and that the total effective sentence of 5 years' imprisonment infringed the first limb of the totality principle.
Future cooperation
Section 21E of the Crimes Act relevantly provides:
(1)Where a federal sentence, or a federal non-parole period, is reduced by the court imposing the sentence … because the offender has undertaken to co-operate with law enforcement agencies in proceedings, including confiscation proceedings, relating to any offence, the court must:
(a)if the sentence imposed is reduced ‑ specify that the sentence is being reduced for that reason and state the sentence that would have been imposed but for that reduction.
If after sentence the offender, without reasonable excuse, does not cooperate in accordance with the undertaking, the Commonwealth Director of Public Prosecutions (DPP) may, while the offender is under sentence, appeal against the inadequacy of the sentence if the DPP is of the opinion that it is in the interests of the administration of justice to do so (s 21E(2)).
If the offender has failed entirely to cooperate in accordance with the undertaking, the court hearing the appeal must substitute the sentence that would have been imposed but for the specified reduction (s 21E(3)(a)). If the person has failed in part to cooperate in accordance with the undertaking, the court has the power to substitute a sentence as it thinks fit provided it does not exceed that which could be imposed under par (a): s 21E(3)(b).
Section 21E relates to future cooperation: R v Nagy [1992] 1 VR 637; Ma v The Queen [2001] WASCA 325.
Section 16A of the Crimes Act sets out the matters to which the court must have regard when passing sentence for a federal offence. The matters specified in s 16A are not exhaustive. Section 16A(2)(h) identifies past cooperation as a relevant matter that a court must take into account. Although there is no express reference to future cooperation in s 16A, it is a (mandatory) relevant sentencing consideration at common law and is made relevant by the requirement in s 16A(1) that a court impose a sentence that is of a severity appropriate in all the circumstances of the offence: Hili v The Queen (2010) 242 CLR 520 [25]; R v Lee [2013] WASCA 216.
Although s 21E of the Crimes Act is not the source of the court's duty to take into account future cooperation, it recognises it as a matter that the court must take into account, at least if s 21E applies.
There are two issues of statutory construction in relation to s 21E that seem to have escaped attention in the 25 years since the section was inserted in the Crimes Act by the Crimes Legislation Amendment Act (No 2) 1989 (Cth). The questions are first, does s 21E(1) apply to all categories of future cooperation or is it limited to proceedings relating to any offence and second, can a court give a reduction for future cooperation to which s 21E applies in the absence of an undertaking. Neither issue attracted the attention of the parties to the appeal.
As to the first issue, the relevant statutory expression is 'the offender has undertaken to cooperate with law enforcement agencies in proceedings … relating to any offence'.
Contrast the text of the equivalent provision in s 8(5) of the Sentencing Act 1995 (WA) which provides:
If because an offender undertakes to assist law enforcement authorities a court reduces the sentence it would otherwise have imposed on the offender, the court must state that fact and the extent of the reduction in open court.
In the expression 'co‑operate … in proceedings' in s 21E(1), the use of the preposition 'in' is significant. It is to be contrasted with the well‑known expressions 'in relation to' or 'in respect of' which envisage a relationship, direct or indirect, proximate or not, between two subject matters. Prima facie, the word 'in' requires that the connection be both immediate and direct in the sense that the cooperation must be in (and thus for the purpose of) proceedings for any offence (the narrow construction). The most obvious example is an undertaking to give evidence at a trial in accordance with a statement in existence at the time of sentencing.
The respondent advanced, but subsequently withdrew, a claim that the proceedings must have commenced at the time of sentencing. There is no justification in the text or purpose of s 21E for that limitation. It includes cooperation in future proceedings relating to any offence. It is the connection between the cooperation and the proceedings that must be immediate.
If the expression 'cooperation … in proceedings' is limited in the way I have indicated (the narrow construction), s 21E does not apply in this case. The respondent did not seek and the appellant did not, in terms, offer to give evidence in future proceedings. I infer that was because counsel for the appellant at the sentencing hearing understood that the respondent did not intend to take action against any other person, including Mr O'Connor, for any offence.
The narrow construction of s 21E(1) would have the effect that future cooperation falling outside cooperation in proceedings could, and ordinarily would, result in a reduction in sentence without the court having to comply with the obligation to specify the fact and extent of the reduction. The public policy justification for a bifurcated approach to future cooperation may be to limit the DPP's right of appeal to increase the sentence to that category of future cooperation likely to result in a very significant reduction in sentence so as to provide a powerful incentive to comply with the undertaking.
However, it is unnecessary and undesirable to determine the first question of construction in this case. Unnecessary because there is a separate basis for rejecting the claim of error. Undesirable because the construction issue was not squarely raised and argued.
This ground must fail because the appellant did not give an 'undertaking' falling within s 21E. That term has the same meaning as the State equivalent in s 8(5) of the Sentencing Act. The word 'undertaking' in s 8(5) has the ordinary meaning of 'a pledge or a promise': FEW v The State of Western Australia [2009] WASCA 201 [20]. That level of assurance is to be expected having regard to the very significant consequences under s 21E(2) and (3) of the Crimes Act for a subsequent failure to comply with an undertaking. Moreover, a promise or pledge ought to be given by the offender in person, not through counsel.
For a reason not explained in the appeal, counsel for the parties before the sentencing judge did not raise the fact or consequence of the absence of an undertaking in relation to future cooperation. There would be no consequences in this case if s 21E(1) is narrowly construed in the way indicated because the future cooperation is outside the scope of s 21E. However, if s 21E applies to all future cooperation, the matter is not straightforward and raises the second issue of construction.
The respondent contends that the appellant's willingness to cooperate, short of an undertaking to do so, was taken into account by the sentencing judge. That is correct. After referring to the appellant's plea of guilty and her full and frank admissions, the sentencing judge said:
I also take into account your cooperation in that regard and as I understand it, your willingness to cooperate in the future if called upon to do so in relation to others who may be involved in the frauds (ts 102).
The clear inference is that the sentencing judge regarded willingness to cooperate in the future as a mitigating factor which he took into account and which, together with the other mitigatory factors, resulted in a reduction in sentence. He did not specify the extent of the reduction but in the absence of an undertaking, prima facie, he was not required to do so under s 21E.
That may be regarded as an odd outcome, albeit to the appellant's advantage. It raises for consideration whether the legislative intention is that, in the absence of an undertaking, there can be no reduction in sentence for future cooperation to which s 21E(1) applies. It is also unnecessary and undesirable to determine that issue in these proceedings. If that construction is not correct and the DPP wishes to have appeal rights under s 21E(2) in relation to future cooperation, he/she should seek a personal undertaking from the offender and if it is refused, draw that to the attention of the sentencing judge who is unlikely to place any weight on future cooperation in the absence of such an undertaking.
For these reasons the appellant has failed to establish any express error.
Totality
There is no challenge to the individual sentences imposed by the sentencing judge. As a result, the lowest total effective sentence that can be imposed is, with total concurrence, 3 years' immediate imprisonment.
I was satisfied that the total effective sentence of 5 years' imprisonment did not bear a proper relationship to the overall criminality involved in the seven offences, viewed in their entirety and having regard to all the circumstances of the case, including those referable to the appellant personally.
Offences of dishonesty on the revenue are serious. They affect the community as a whole, detection is difficult and significant weight must be given to the need for general deterrence. However, the circumstances of the appellant's offending are towards the lower end of the scale of seriousness. She was not the principal offender and did not initiate any of the offences. Further, her conduct was not the direct cause of the gain obtained at the expense of the Commonwealth.
In addition, there were very significant matters in mitigation, including in particular, the nature and consequences of her full and frank admissions to investigating authorities. But for her admissions, there would have been no case against the appellant. Moreover, she pleaded guilty, was of prior good character, her offending was against a background of overbearing stress in her personal life and there is no risk of reoffending.
Having concluded that the total effective sentence breached the first limb of the totality principle, I determined to resentence in accordance with the orders already made.
PULLIN JA: I agree with Mazza JA.
MAZZA JA: On 13 March 2014, the court unanimously made these orders in respect of this appeal against sentence:
1.Leave to appeal on ground 2 is granted.
2.The appeal is allowed.
3.The order for cumulacy made by Stevenson DCJ is set aside. The sentences imposed on counts 1, 2, 3, 4, 5 and 7 shall all be served
concurrently with the sentence imposed on count 6. Thus the total effective sentence to be served by the appellant is 3 years' imprisonment. The sentence on count 6 is to commence on 30 October 2012.
4.The non‑parole period is set aside and in lieu thereof a single recognisance release order is imposed on the following terms:
That the appellant be released after serving 14 months' imprisonment on entering into a recognisance in the sum of $10,000 to be of good behaviour for 22 months.
These are my reasons for joining in the making of these orders.
The appellant pleaded guilty, approximately six weeks before her scheduled trial in the District Court, to seven counts of dishonestly obtaining a gain from a Commonwealth entity, contrary to s 135.1(1) of the Criminal Code (Cth). This offence carries a maximum penalty of 5 years' imprisonment or a fine of $33,000, or both. The offences were committed between 27 September 2007 and 22 April 2008. Each offence alleged that the appellant lodged an application with the Department of Innovation, Industry, Science and Research, for registration for the Research and Development Tax Concession on behalf of a named company with the intention of dishonestly obtaining a gain for that company. The gain in each case was a tax offset to which the company was not entitled. The seven counts on the indictment concerned applications lodged on behalf of seven different companies.
On 30 October 2012, the appellant was sentenced to a total effective term of 5 years' imprisonment with a non‑parole period of 2 years.
The details of the individual offences and sentences may be summarised in the following table:
| Count on the indictment | Date | Company | Final outcome |
| 1 | On or about 27 September 2007 | Platform Interactive Pty Ltd | Imprisonment 2 years cumulative head sentence |
| 2 | On or about 2 February 2008 | Bluegem Pty Ltd | Imprisonment 2 years concurrent |
| 3 | On or about 2 February 2008 | Simply Smoked Pty Ltd | Imprisonment 2 years 6 months concurrent |
| 4 | On or about 19 February 2008 | Elk Consultants Pty Ltd | Imprisonment 1 year 6 months concurrent |
| 5 | On or about 7 April 2008 | Basekite (Australia) Pty Ltd | Imprisonment 2 years concurrent |
| 6 | On or about 7 April 2008 | Core Internet Development Pty Ltd | Imprisonment 3 years cumulative |
| 7 | On or about 22 April 2008 | Fiesta Foods Pty Ltd | Imprisonment 1 year 6 months concurrent |
| Total term 5 years effective from 30 October 2012 with a non‑parole period of 2 years |
There are two grounds of appeal. No challenge is made to the individual sentences. Ground 1 alleges that the total effective sentence infringed the first limb of the totality principle. Ground 2 alleges that the learned sentencing judge erred by failing to state the discount to be given to the appellant for her future cooperation with law enforcement agencies contrary to s 21E(1)(a) and (b) of the Crimes Act 1914 (Cth). Leave to appeal has been granted in respect of ground 1. The question of leave to appeal on ground 2 was referred to the hearing of the appeal.
The appeal was filed approximately 7 months out of time. The affidavits filed in support of an application to extend time do not satisfactorily explain the delay. Whether an extension of time is granted will depend upon the merit of the appeal.
The Research and Development Tax Concession
The Research and Development Tax Concession was a Commonwealth government scheme which provided companies that undertook eligible research and development activities with a tax offset.[1] The scheme was jointly administered by the Department of Innovation, Industry, Science and Research, under the name of AusIndustry, and the Australian Taxation Office (ATO).
[1] The R & D Tax Concession was replaced on 1 July 2011 by the R & D Tax Incentive.
In order to have received the tax offset, a company must have first registered its research and development activities with AusIndustry. It was the responsibility of AusIndustry to assess the application and decide whether to approve it. An eligible company was required to complete and lodge a pro forma application. In general terms, the form required information about the company and details of the research and development expenditure the company intended to claim. The details of this expenditure were set out in an appendix to the form. The information to be provided in the appendix included details of the particular research and development project (or projects) undertaken by the company and the expenditure incurred with respect to that project in the financial year under consideration.
For the purposes of the scheme, expenditure was 'incurred' if it came within ATO Taxation Ruling 97/7. This ruling provides that where a taxpayer operates a cash accounting system (as each company did in this case), an expense need not have been actually paid for it to have been 'incurred', provided the taxpayer had a presently existing liability to pay. An expenditure is not considered to be a presently existing liability if it is merely contingent, pending, threatened or expected.
If an application for registration was successful, it was expected that the research and development expenditure figures shown in the application would correlate or closely correlate with the figures included in the company's income tax return.
The information provided to the learned sentencing judge was to the effect that the companies the subject of the charges were entitled, upon registration, to claim a 125% tax deduction on eligible research and development expenditure. Each company was entitled to receive a refund from the ATO if the amount of the offset exceeded the amount of income tax to be paid by the company. It appears that each of the seven companies claimed a tax deduction, although not every company received a refund.
An application for registration could be completed by the company itself or by a third party on its behalf. In each offence, the application form was completed and lodged by the appellant. She was described as a senior consultant for Xenex Group Pty Ltd (Xenex) in the application form provided to this court.
The appellant did not complete or file each company's income tax return.
The appellant, Daniel O'Connor and Xenex
Daniel O'Connor was, at all relevant times, the principal of Xenex. Xenex, through Mr O'Connor, promoted itself as having expertise with respect to Research and Development Tax Concessions. Xenex advised whether a company was eligible for the Concession and assisted applicants to complete and lodge the relevant application form for registration.
I will say more about the appellant's personal circumstances later in these reasons. For the moment, it is sufficient to observe that she holds a diploma in accounting and has been a registered taxation agent. She was not working as a taxation agent at the time of the offending. The appellant developed some knowledge and expertise in relation to the Research and Development Tax Concession and had, in the past, on behalf of others, made applications for registration for research and development activities.
In 2007, the appellant met Mr O'Connor. Later that year, she agreed to work for Xenex, preparing and lodging applications for registration on behalf of Xenex's clients.
It appears from the appellant's interviews with the ATO and a written statement she later gave, that Mr O'Connor attracted the clients and gave advice as to their eligibility for registration and what sums could be claimed as research and development project expenditure under the scheme. If a client agreed to retain Xenex for the purpose of making an application, the appellant was brought in to assist them with making their application. The learned sentencing judge found that the appellant allowed herself to be held out by Mr O'Connor to each of the companies as an expert in the preparation of applications for registration.
Xenex charged a fee for its services. That fee was either a fixed sum, together with a 6% 'success fee', or a flat 10% 'success fee', on the basis that there would be a minimum charge of $10,000 for each successful application.
The appellant submitted at the sentencing hearing that Mr O'Connor was the principal offender. This contention was not challenged either in the court below or in this court. However, Mr O'Connor has not been charged and will, in all likelihood, not be charged with any offence arising out of his conduct. Unlike the appellant, he declined to be interviewed by the ATO.
The facts of the appellant's offending
At the sentencing hearing, the prosecutor read to the learned sentencing judge a lengthy statement of material facts (ts 49 ‑ 60). The appellant's counsel (not her counsel on appeal) did not take issue with it, save for the amount of money the appellant received from Xenex for her work. The learned sentencing judge expressly incorporated into his sentencing remarks the statement of material facts, subject to defence counsel's comment (ts 94).
Despite its length, the statement of material facts obscured rather than illuminated the appellant's criminal conduct. The facts upon which judgment can be made about the appellant's culpability were unclear. Further, some of the language used in it was regrettably loose and apt to mislead. For example, it was alleged that in each application the appellant knowingly claimed, as research and development expenditure, unincurred 'salary and contractor expenses' (ts 51), when, in fact, this was not the case.
Moreover, the statement of material facts did not disclose the full extent and significance of admissions made by the appellant to ATO investigators in two detailed and voluntary records of interview conducted on 13 November 2009 and 30 March 2010.
Because the facts of the case were not fully exposed at first instance, and to ensure that this court was in a position to properly evaluate the appellant's criminality, the parties agreed that the respondent should provide the court after the hearing with further documents, being:
1.copies of the transcripts of the two records of interview;
2.a statement signed by the appellant about her involvement in the offences, dated 18 August 2010;
3.Australian Taxation Office ruling 97/7; and
4.a copy of the registration application relevant to count 1 on the indictment. (Each of the other applications was in the same format.)
These documents were provided to this court under cover of a letter dated 14 February 2014.
Accompanying the documents were additional submissions by the respondent. The leave of this court is required to file submissions after the hearing. Apart from a correction to the respondent's written submissions filed prior to the hearing of the appeal, I have not had regard to the additional submissions.
The appellant's interviews with the Australian Taxation Office
As I have said, the appellant voluntarily undertook two video recorded interviews with ATO officers on 13 November 2009 and 30 March 2010. Both interviews are lengthy and detailed. They were made under caution.
In the first interview, the appellant detailed her previous employment history and how she came to meet Mr O'Connor and undertake work for Xenex. She explained that the information contained in each application was supplied by the company making the application. She said that she queried the research and development expenditure with the relevant officer of each company but was told that Mr O'Connor had said that it could be legitimately claimed (13.11.09, p 40).
The appellant said that she told the companies that it was 'illegal to claim an expense which is not true and correct' (13.11.09, p 41). She said, in effect, that the figures in the applications were 'not [her] paramount concern' and had she been involved with 'tax and accounting' she would not 'have touched it with a barge pole' (13.11.09, p 52). She told the investigators that she believed that the research and development expenditure in relation to each company was 'incorrect' (13.11.09, p 57). She later said that insofar as the figures in the applications were concerned, she was 'reasonably sure that one hundred percent were overstated' (13.11.09, p 58).
The appellant referred to her personal circumstances at the time she performed work for Xenex, describing them as 'the hardest years of my life'. She explained how her husband was in prison and that her 'capabilities were not to their normal level' (13.11.09, p 58 ‑ 59). She conceded that every one of the clients had inflated the value of their time and that the costs that were reported in each company's application were not a true reflection of the costs that were paid (13.11.09, p 74).
In the interview on 30 March 2010, the ATO investigators questioned the appellant in relation to a number of companies, including those that were the subject of the charges. In respect of each company, the investigators made, in substance, the same enquiries and the appellant, in effect, gave the same responses. In substance, she said in respect of each company that:
(a)the research and development expenditure figures were provided by the company;
(b)a portion of those expenses represented work done by the directors at a rate set by the company which was not the true cost to the company, but, rather, at a rate consistent with what an arms‑length contractor would have charged for that work;
(c)Mr O'Connor had informed each client that they were able to 'inflate' their claim, which would result in a larger tax offset and ultimately a tax refund;
(d)the expenditure claimed by the company was not a presently existing liability to pay; and
(e)she was aware that the figures in the research and development application would be used to claim a research and development tax offset from the ATO which each company was not, in fact, eligible to receive.
The appellant repeated a number of points she made in her first interview, including that her principal concern was more that each company met AusIndustry's research and development criteria than the actual figures in the application. She said that at the time 'all of this happened I was at a very low ebb in my life' (30.3.10, p 116, 118).
In this appeal, counsel for the respondent stressed the importance of the appellant's admissions, conceding that without them 'it was going to be a difficult case [for the prosecution]' (appeal ts 24). Later he agreed that, in substance, the appellant's admissions led to her conviction in circumstances where the principal offender has not and, it seems, will not be prosecuted (appeal ts 27). Finally, he conceded that there would have been no case against the appellant without the admissions (ts 30).
The appellant's statement
On 18 August 2010, the appellant made a witness statement to the ATO in relation to the work she undertook on behalf of Xenex. This was expressed to be 'in the matter of Xenex Group', but was focused on the activities of Mr O'Connor. In that statement, she said:
7.… In each case the applications I assisted the client to prepare, included an entry for costs incurred for 'Contractor's Fees'. These fees usually took the form of hours of [research and development] work performed by directors, or staff members of the company concerned, as opposed to out‑sourced [research and development] work.
8.During the course of the interviews I told investigators of my knowledge of the inclusion of [research and development] costs in the form of contractor fees that had been fabricated by the client. Even though I was aware that those inclusions were false and illegal, Daniel [O'Connor] was just as aware as me; in fact I was present on a number of occasions when he advised the clients personally that they could claim for expenses not incurred, being their time valued at a certain cost. I understood at the time that 'expenses not incurred' meant contractors not paid by the company, and not expected to be paid by the company in the financial year concerned. This was often the case where the company had no intention, or ability, to pay for the hours worked until the company became profitable.
…
11.In all cases allocated to me, the company representatives had previously been advised by Daniel [O'Connor] that they could claim and [research and development] contractor costs at a 'commercial charge‑out rate'. I was well aware at the time that such a rate would represent an inflated cost which the companies did not have the capacity to meet during that financial year. I came to understand that it was part of Daniel [O'Connor]'s initial marketing strategy to inform the clients that they were allowed to inflate those costs.
The appellant's culpability
During the hearing of the appeal, counsel for the respondent said that the prosecution allegation against the appellant, in a nutshell, was that she claimed research and development expenses on behalf of each company which she knew were not payable under the scheme (appeal ts 22). Relying upon the appellant's admissions it was said, on behalf of the respondent, that each company claimed sums for work done by directors which she knew the company would not in fact pay (appeal ts 22 ‑ 23). Having regard to the material now before the court, this encapsulation of the appellant's actions may be accepted.
The total amount of directors' fees that were claimed by the companies was $1,358,691.90. Not all of this money was refunded by the ATO due to an audit which uncovered the frauds. Refunds totalling $983,895.90 were paid. Some of this money has been recovered, but the loss to the Commonwealth totals $540,792.52. Some of the companies were required to pay an administration penalty. Two of the companies were placed in administration and three have been deregistered. Only two are currently active.
The respondent did not challenge in the hearing before this court that:
1.each company was genuinely involved in research and development;
2.the information used to calculate the research and development expenditure in the application form came from the company;
3.the directors actually performed the work sought to be claimed;
4.there was no prohibition against directors claiming for research and development work they did;
5.the rates used to calculate the research and development expenditure were consistent with the rates charged by contractors independent of the company;
6.Mr O'Connor advised the directors of each company that they could claim 'inflated' research and development expenditure for their work which had not been incurred and was unlikely to be incurred; in other words, it was an illegal scheme devised by him;
7.based on Mr O'Connor's advice, each company claimed research and development expenditure at inflated rates;
8.while the appellant knew that the information she had been given was false and that it would be included in each company's income tax return, she did not actually prepare or lodge any tax return;
9.her principal concern in each application was to ensure that the company conformed with AusIndustry's research and development requirements;
10.she did not benefit from the offences, save to the extent that she received a total of approximately $15,000 for her work;
11.she cooperated with the ATO, giving two detailed interviews that were full and frank and, had she not given those interviews, she would not have been charged with any offence;
12.the appellant was not the principal offender;
13.the appellant made a witness statement to the ATO and said she was willing to give evidence against Mr O'Connor in the event he was prosecuted;
14.at the time of the offences, she was under enormous personal pressure; and
15.she had excellent antecedents.
The appellant's antecedents
The appellant was 60 years of age at the time she was sentenced. She had no prior convictions. She had studied accounting and had been employed as a bookkeeper and accountant. In 1995, she was registered as a taxation agent. She conducted her own business, Cavill Business Solutions, for approximately twelve years until November 2006. References tendered to the learned sentencing judge spoke highly of her competence.
At about the time of the offences the appellant's father died from emphysema and her mother was suffering from dementia. Her husband was convicted of a sexual offence and later imprisoned.
The learned sentencing judge accepted that the appellant is 'fundamentally an honest person' (ts 97). Further, he accepted that she posed a low risk of reoffending and that there was no need for 'strong personal deterrence' (ts 99).
His Honour acknowledged the mitigatory effect of the pleas of guilty but did not find that they were indicative of 'sincere and genuine remorse' despite finding that the appellant had made full and frank admissions to the ATO and had offered to cooperate in the future.
It is convenient to deal with ground 2 first.
Ground 2: Did his Honour err by failing to state the discount afforded to the appellant for her future cooperation?
It is common ground that the appellant offered to assist law enforcement agencies in the future in respect of any prosecution brought against Mr O'Connor or others by testifying for the Crown. As a sign of her willingness, she signed the witness statement to which I have already referred. It appears that she was not asked, either by law enforcement agencies or the Director of Public Prosecutions, to give a written undertaking to give evidence in future proceedings.
In his sentencing remarks, the learned sentencing judge took into account as a mitigating factor the appellant's 'willingness to cooperate in the future if called upon to do so in relation to others who may be involved in the frauds' (ts 102). However, his Honour did not specify any reduction for the appellant's willingness to cooperate in future proceedings.
The appellant contends that his Honour was obliged, by s 21E of the Crimes Act, to specify the reduction he made and that this failure is an error of law which enlivens this court's discretion to resentence the appellant.
The respondent submitted that the learned sentencing judge was not obliged to specify the discount for the appellant's future cooperation because that willingness did not amount to an undertaking to cooperate. It was submitted that for s 21E to operate, the offender must give a formal undertaking or promise (appeal ts 29). Further, it was argued that the section did not apply because there were no proceedings on foot (other than by the prosecution against the appellant) (AB 48). Finally, it was said that even if the learned sentencing judge erred by not specifying the discount, it is clear from the sentencing remarks that he actually took it into account and gave it due weight (AB 49).
A federal offender must be sentenced according to the general principles contained in pt 1B div 2 of the Crimes Act. Fundamentally, 'a court must impose a sentence or make an order that is of a severity appropriate in all the circumstances of the offence': s 16A(1). Section 16A(2) provides that, '[i]n addition to any other matters', a sentencer must take into account the matters listed from (a) to (p) in that subsection, where relevant and known. By the inclusion of the words 'in addition to any other matters', it is clear that Parliament intended that the matters listed from (a) to (p) to be non‑exhaustive considerations.
In Hili v The Queen [2010] HCA 45 [25]; (2010) 242 CLR 520, 528, the majority (French CJ, Gummow, Hayne, Crennan, Kiefel and Bell JJ) held that s 16A accommodates the application of common law sentencing principles because those principles give relevant content to the words in s 16A(1) 'of the severity appropriate in all the circumstances of the offence' and to the words in s 16A(2)(k), 'the need to ensure that the person is adequately punished for the offence'. Accordingly, concepts of general deterrence and common law sentencing principles such as totality and parity are accommodated in s 16A, even though they are not specifically referred to.
At common law, ordinarily, an offender is entitled to a reduction in sentence by reason of that offender's cooperation with law enforcement agencies, whether that cooperation occurred in the past or is to be given in the future. In the case of future cooperation, a reduction is not dependent upon the giving of a formal undertaking to cooperate. It may be mitigatory where an offender indicates a willingness to cooperate even where law enforcement agencies do not require the offender's assistance. Whether a reduction is given and the amount of that reduction depends upon the facts of the particular case. Absent a statutory provision to the contrary, a sentencer is not obliged to specify any reduction given for cooperation, including future cooperation: MXP v The State of Western Australia [2010] WASCA 215; (2010) 41 WAR 149 [8] ‑ [9], [52] ‑ [56]; A Child v The State of Western Australia [2007] WASCA 285 [11] ‑ [13]; TLM v The State of Western Australia [2009] WASCA 106 [16] and Ma v The Queen [2001] WASCA 325 [118].
Past cooperation is one of the matters specifically referred to in s 16A(2)(h) of the Crimes Act, but there is no express reference to future cooperation in s 16A. However, it is, in my opinion, a common law sentencing principle which is accommodated by s 16A. The relevance of past cooperation to sentencing is assumed by s 21E of the Crimes Act, to which I will now turn.
Section 21E is contained in pt 1B div 10 of the Crimes Act. Division 10 is headed 'Miscellaneous'. Relevantly, s 21E provides:
21EDirector of Public Prosecutions may appeal against reductions where promised co‑operation with law enforcement agencies refused
(1)Where a federal sentence, or a federal non‑parole period, is reduced by the court imposing the sentence or fixing the non‑parole period because the offender has undertaken to co‑operate with law enforcement agencies in proceedings, including confiscation proceedings, relating to any offence, the court must:
(a)if the sentence imposed is reduced—specify that the sentence is being reduced for that reason and state the sentence that would have been imposed but for that reduction; and
(b)if the non‑parole period is reduced—specify that the non‑parole period is being reduced for that reason and state what the period would have been but for that reduction.
(2)Where:
(a)a federal sentence is imposed or a federal non‑parole period is fixed; and
(b)the sentence or non‑parole period is reduced because the offender has undertaken to co‑operate with law enforcement agencies as described in subsection (1); and
(c)after sentence, the offender, without reasonable excuse, does not co‑operate in accordance with the undertaking;
the Director of Public Prosecutions may, at any time while the offender is under sentence, if the Director of Public Prosecutions is of the opinion that it is in the interests of the administration of justice to do so, appeal against the inadequacy of the sentence or of the non‑parole period.
(3)Where an appeal is begun under this section against the inadequacy of a sentence, or of a non‑parole period, that was reduced because of a person's undertaking to co‑operate with law enforcement agencies, the court hearing the appeal:
(a)if it is satisfied that the person has failed entirely to co‑operate in accordance with the undertaking—must substitute for the reduced sentence or reduced non‑parole period the sentence, or non‑parole period, that would have been imposed on, or fixed in respect of, the person but for that reduction; and
(b)if it is satisfied that the person has failed in part to co‑operate in accordance with the undertaking—may substitute for the reduced sentence or reduced non‑parole period such a sentence, or such a non‑parole period, not exceeding in length the sentence that could be imposed, or the non‑parole period that could be fixed, under paragraph (a), as it thinks appropriate.
Section 21E only applies to the giving of future cooperation, being cooperation to be given after a federal sentence has been imposed where an offender undertakes to cooperate with law enforcement agencies in proceedings. When those preconditions are met and the sentence or non‑parole period is reduced, s 21E(1) requires the sentencer to specify that fact and state the sentence or non‑parole period that would have been imposed but for the reduction. In this way, any reduction is quantified. The purpose of s 21E, made manifest by s 21E(3), is to give the Director of Public Prosecutions the right to appeal in the event that an offender fails to fully comply with an undertaking.
A sentencer's obligation to specify any reduction for future cooperation under s 21E only arises where an undertaking is given by an offender.
The appellant's submissions in support of ground 2 proceed on the assumption that the appellant gave an undertaking to cooperate with law enforcement agencies. The Crimes Act does not specify the requirements of an undertaking referred to in s 21E.
I see no reason why the ordinary meaning of the word 'undertaking' should not be applied to s 21E of the Crimes Act.
Pullin and Owen JJA took the same view in FEW v The State of Western Australia [2009] WASCA 201 [20], in construing the meaning of an undertaking for the purpose of s 8(5) of the Sentencing Act1995 (WA). Their Honours said:
The ordinary meaning of the word 'undertaking' is 'a pledge or a promise': see Oxford English Dictionary and Macquarie Dictionary. A 'promise' is a declaration made to another person with respect to the assurance that one will do, not do, give or not give something; or an express assurance on which expectation is to be based: Macquarie Dictionary.
Defence counsel in his plea in mitigation informed his Honour that the appellant had 'offered to cooperate in any way that she can' (ts 72). He said that he had spoken to an ATO investigator who told him that there was 'not much more [the appellant] can probably tell us' (ts 72). Later in his plea in mitigation, he referred once again to the appellant's 'offer to cooperate' (ts 79).
The prosecutor in his sentencing submissions confirmed that '[the appellant] has made indications that there could be future cooperation'. He confirmed that the ATO investigator and the appellant had met 'in relation to any future cooperation' (ts 91).
In my opinion, the material before the learned sentencing judge was insufficient to establish that the appellant had made an undertaking to cooperate in proceedings against Mr O'Connor (and perhaps others). I am not satisfied that the appellant's 'offer' can be equated to a pledge or a promise. As no undertaking was given, the duty to specify the reduction for future cooperation in s 21E(1) did not arise and his Honour did not err as alleged in ground 2.
This is not to say that the appellant's willingness to cooperate in the future, whether or not Mr O'Connor is prosecuted, was an irrelevant or insignificant factor in this case. According to the common law principles relating to future cooperation that I have described, and having regard to the circumstances of this case, the appellant's willingness to cooperate was a significant mitigating factor to be taken into account. It is a factor relevant to the assessment of the appellant's total criminality. The proper focus then in this appeal is on the question of whether the total effective sentence infringed the first limb of the totality principle.
I will turn to ground 1 shortly, but, before leaving ground 2, I wish to make two comments. First, when an offender undertakes to cooperate with law enforcement agencies and seeks a reduction because of that cooperation, any undertaking that is given should be in writing. In this way, the fact that an offender has given an undertaking, its content and the consequences for failing to comply with the undertaking may be clearly and unambiguously set out for the benefit of the offender, the law enforcement agency, the first instance court and, if called upon, an appeal court.
The second comment I wish to make concerns the respondent's submission that for there to be a reduction in sentence for future cooperation, proceedings must actually be on foot. Counsel for the respondent properly withdrew this submission at the hearing of the appeal (appeal ts 30). However, in case there is any doubt about it, the proceedings referred to in s 21E(1) include proceedings which may not have commenced.
While I would give leave to appeal on ground 2, it has not been made out.
Ground 1: Did the total effective sentence infringe the first limb of the totality principle?
The appellant submitted that the total effective sentence of 5 years' imprisonment with a non‑parole period of two years infringed the first limb of the totality principle, having regard to the fact that she was not the principal offender, her financial gain from the offending was 'very small', her past and future cooperation with the ATO and her favourable personal circumstances. The respondent submitted, emphasising the loss sustained by the Commonwealth and the need to provide general deterrence, that the total effective sentence and non‑parole period were within a sound sentencing discretion.
The totality principle is well known. A generally accepted statement of it was made by McLure JA, as she then was, in Roffey v The State of Western Australia [2007] WASCA 246 [24] ‑ [26] as follows:
The appellant relies on the totality principle which comprises two limbs. The first limb is that the total effective sentence must bear a proper relationship to the overall criminality involved in all the offences, viewed in their entirety and having regard to the circumstances of the case, including those referable to the offender personally: Woods v The Queen (1994) 14 WAR 341.
The second limb is that the court should not impose a 'crushing' sentence. The word crushing in this context connotes the destruction of any reasonable expectation of a useful life after release: Martino v The State of Western Australia [2006] WASCA 78 [16]. An aggregate sentence may be inappropriately long under the first limb even if it cannot be described as crushing: Jarvis v The Queen (1998) 20 WAR 201, 216 (Anderson J).
The practical effect of the totality principle is ordinarily to arrive at an aggregate sentence that is less than that which would be arrived at by simply adding up all the terms appropriate for the individual offences: R v Holder [1983] 3 NSWLR 245, 260 (Street CJ). A rationale for the totality principle is that there is assumed rehabilitation and reduced demand for retribution after the initial sentences have been served. Where the principle of totality comes into effect, it is of little importance how the ultimate aggregate is made up: R v Holder (260).
The totality principle is applicable to the sentencing of Commonwealth offenders: El Rakhawy v The Queen [2011] WASCA 209 [69] (Hall J, with whom McLure P and Buss JA agreed).
Although the appellant was not the principal of Xenex and did not devise the scheme used to dishonestly obtain a gain for each of the companies, she knowingly allowed herself to be held out as an expert in the making of applications for registration for the Research and Development Tax Concession. The appellant was aware that the advice Mr O'Connor had given each of the companies, to the effect that unpaid directors' fees charged at commercial contractor's rates could be legitimately claimed, was false. Nevertheless, she included in each application such information knowing that it was highly likely it would be replicated in each company's income tax return and result in a refund being paid to that company to which it was not entitled. The conduct extended over approximately seven months and resulted in substantial loss to the revenue, not to mention the consequences to the companies.
The general sentencing principles applicable to offences of dishonesty on the revenue are uncontroversial. Dishonesty on the revenue affects the whole community. Detection of such offending is not easy. The primary sentencing objectives are deterrence and punishment. Where there are acts of serious dishonesty committed over a period of time and involving substantial sums of money, ordinarily, as a matter of fact, the appropriate penalty is a term of immediate imprisonment: Hili v The Queen [63]; Magdi v The State of Western Australia [2010] WASCA 234 [38]; R v Baldock [2010] WASCA 170; (2010) 269 ALR 674 [145].
The appellant accepts that a term of immediate imprisonment was the only appropriate disposition in this case. She contends, however, that the total effective sentence, including the non‑parole period, was too long.
It is appropriate to have regard to other sentencing cases in order to ensure broad consistency, bearing in mind that each case must be decided on its own facts and that the outcomes in other cases do not fix the boundaries within which sentencing judges must, or even ought to, sentence: Munda v Western Australia [2013] HCA 38; (2013) 87 ALJR 1035.
The appellant cited a first instance sentence of Johnson J in R v Milne (No 6) [2010] NSWSC 1467; El Rakhawy; R v Ruha, Ruha & Harris; Ex parte Director of Public Prosecutions (Cth) [2010] QCA 10; [2011] 2 Qd R 456; Grenfell v The Queen [2009] NSWCCA 162; Coombe v The Queen [2009] WASCA 105.
The respondent referred to seven first instance sentencing decisions contained in annexure 1 to its written submissions. It is unnecessary to cite them by name.
In Hili [57], the High Court stressed the need for consistency of decision throughout Australia in relation to federal offences, including as to the sufficiency of sentences. That consistency, the High Court said, is achieved through the work of intermediate courts of appeal [56]. Accordingly, the citation of first instance sentencing decisions in this court is of little value.
The number of sentencing decisions from intermediate courts of appeal cited by the appellant is too small to give any real guidance in this case. In El Rakhawy and Baldock, some reference was made to the historical range of sentences for offences involving frauds against the Commonwealth. In El Rakhawy, Hall J (with whom McLure P and Buss JA agreed) observed, in the context of a case involving Medicare fraud, that there was no 'clear range for offences of this nature' [76]. In Baldock, a case involving a systematic fraud upon the ATO by an accountant, Pullin JA and Kenneth Martin J, in their joint reasons, reviewed a number of cases involving dishonesty on the revenue. Their Honours concluded [41] that there was 'a remarkable range of sentences'. They said:
Each case appears to turn on the individual circumstances and if any conclusion had to be drawn, it would be the broad conclusion that the penalty tends to be much reduced where the convicted person does not personally receive the proceeds of the fraud, where there is an early plea of guilty and where there is cooperation with the authorities.
In the present case, the factors referred to by Pullin JA and Kenneth Martin J apply, save that the appellant's plea of guilty was not entered early.
The only appropriate penalty to be imposed upon the appellant was a term of immediate imprisonment having regard to the sustained nature of the offending, the loss sustained by the Commonwealth and the need to deter others. The crucial question is whether, having regard to all of the circumstances of the case, the total effective sentence reflected the total criminality of what she did: Pearce v The Queen [1998] HCA 57; (1998) 194 CLR 610, 623 and Walgar v The State of Western Australia [2007] WASCA 241 [9]. The answer to this question depends primarily upon this court's assessment of the appellant's culpability.
I will not repeat what I have written about this earlier. However, there was much to be said in mitigation. The appellant was not the principal offender, she did not to any substantial degree personally gain from her offending and she would not have been charged or convicted save for her full and frank cooperation with the authorities. Moreover, she was willing to assist the law enforcement agencies in the future. She pleaded guilty, she has favourable antecedents and personal deterrence is of little significance. In my opinion, weighing up all of the factors in the case, the total effective sentence, including the non‑parole period, infringed the first limb of the totality principle. It was more than was reasonably required to achieve the principal sentencing objectives of deterrence and punishment.
Implied error has been made out. The extension of time is granted. This court's discretion to resentence the appellant has been enlivened.
Resentencing
As none of the individual sentences was challenged, they will stand. All of the sentences shall be served concurrently with the sentence imposed on count 6. By doing so, the total effective sentence becomes one of 3 years' imprisonment. In my opinion, this sentence properly reflects the appellant's overall criminality in all of the circumstances.
As this does not exceed 3 years, it is necessary to make a recognisance release order: Crimes Act s 19AC. In doing so, I have had regard to the principles in Power v The Queen [1974] HCA 26; (1974) 131 CLR 623 and Deakin v The Queen [1984] HCA 31; (1984) 58 ALJR 367. In my opinion, the appropriate order is that the appellant be released after serving 14 months' imprisonment on a recognisance release order in the sum of $10,000 to be of good behaviour for the balance of the term.
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