Commonwealth Director of Public Prosecutions v Hart
[2010] QDC 457
•30/11/10
DISTRICT COURT OF QUEENSLAND
CITATION:
Commonwealth Director of Public Prosecutions v Hart [2010] QDC 457
PARTIES:
COMMONWEALTH DIRECTOR OF PUBLIC PROSECUTIONS
(Applicant)
v
STEVEN IRVINE HART
(Respondent)
FILE NO/S:
BD1416 of 2003
DIVISION:
Civil Trial Division
PROCEEDING:
Application for pecuniary penalty order pursuant to ss116 & 134 of the Proceeds of Crime Act 2002
ORIGINATING COURT:
District Court of Queensland
DELIVERED ON:
Judgment 19/11/10 reasons 30/11/10
DELIVERED AT:
Brisbane
HEARING DATE:
29 July, 3,4,5,6,7,13,14,18,24,25 August, 15,16,17, 18 and 21 September 2009. Written submissions 28 and 29 September and 8 October 2009. At the parties’ request consideration of the judgment deferred to 20 November 2009. Judgment given 19 November 2010.
JUDGE:
Andrews SC DCJ
ORDER:
Order that the respondent pay to the applicant the sum of $14,757,287.35. COSTS RESERVED
CATCHWORDS:
JURISDICTION, PRACTICE AND PROCEDURE – Proceeds of Crime Act 2002(Cth) – application for pecuniary penalty order for $14,757,287.35 – whether the District Court of Queensland has proceeds jurisdiction where the sum sought exceeds the monetary limit in s 68 District Court of Queensland Act
JURISDICTION, PRACTICE AND PROCEDURE – Proceeds of Crime Act 2002(Cth) – application for pecuniary penalty order – where the application relates to a person's conviction for an indictable offence - where the applicant relies on a transcript of counsel’s opening from the trial in which the respondent was convicted – purpose for which the opening is admissible – whether the opening is admissible as evidence against the respondent in the application for a pecuniary penalty order
PECUNIARY PENALTY ORDER – Proceeds of Crime Act 2002(Cth) – application for pecuniary penalty order – assessment of benefits derived indirectly - where the application relates to accountant's convictions for indictable offences of defrauding the Commonwealth – where offences involved causing clients’ income tax returns to be lodged claiming a deduction for expenditure in June 1990 which had not been incurred – where the expenditure would have been the first step in a lawful tax minimisation scheme to continue for several years – where the clients at the accountant’s direction and to participate in the scheme paid a third party monthly payments from November 1990 pursuant to lawful agreement between the clients and the third party – where a consequence of the clients’ payments to the third party was to support the appearance of the expenditure in June 1990 which had not been incurred - where payments to the third party preceded and followed the lodgement of income tax returns – whether lawful payments pursuant to agreement with the third party were benefits indirectly derived by the accountant from the offence
CRIMINAL LAW – Particular Offences – defrauding Commonwealth - Crimes Act 1914 (Cth) s29D – where accountant promoted tax schemes – where accountant knew clients would claim expenses in income tax returns – whether accountant knew taxpayer clients not entitled to claim expenses as deduction – where no proof ATO deceived with respect to particular tax returns – where no proof of assessments issued relying on false claims in particular tax returns – where no proof of loss by Commonwealth - whether fraud occurs without proof of assessment – whether fraud occurred before tax returns lodged
CRIMINAL LAW – Particular Offences – defrauding Commonwealth - Crimes Act 1914 (Cth) s29D – Criminal Code Act 1995 (Cth) s 135.1(5) - where accountant promoted tax schemes – where accountant knew clients would claim scheme payments in income tax returns – where clients made “loan” agreements with finance company - where finance company provided promissory note not money as loan principal – where promissory note used as client’s contribution to trustee of an employee welfare fund or superannuation fund – where promissory note not presented by trustee – where insurer accepted promissory note from trustee as price of premium for 10 year insurance bond – where promissory note not presented by insurer and not to be presented to finance company before 10 years – whether finance company had capacity to pay promissory notes if presented - where finance company lacked capacity to pay promissory note - where clients paid finance company’s fees and interest pursuant to “loan” agreements – where agreements not shams or illegal– whether there was a loan by finance company to client of amount of promissory note – whether there was a benefit for the fund’s beneficiary – where client claimed fees and interest paid and the face value of the promissory note contributed to the trustee as deductions - whether they were tax deductible – whether accountant knew no loan – whether accountant knew finance company had no capacity to pay promissory notes – whether accountant knew clients not entitled to claim fees or interest paid or the contribution as a tax deduction – whether contribution for providing a benefit to a beneficiary of trust – whether accountant intended to prejudice the economic interests of the Commonwealth – whether accountant received legal advice that claims for deductions were lawful - whether accountant’s means were dishonest by the standards of ordinary decent people – whether accountant knew his means were dishonest by the standards of ordinary decent people
Proceeds of Crime Act 2002 (Cth) ss 5,116, 134, 138(2), 314
Crimes Act 1914 (Cth ) s 29D
Criminal Code Act 1995 (Cth) s 135.1(5)
District Court of Queensland Act 1967 s 68
Briginshaw v Briginshaw [1938] HCA 34; (1938) 60 CLR 336 applied
Rejfek v McElroy [1965] HCA 46; (1965) 112 CLR 517 applied
Jones v Dunkel [1959] HCA 8; (1959) 101 CLR 298 applied
R v Hart; ex parte Cth DPP [2006] QCA 39 [72] distinguished
Director of Public Prosecutions (Cth) v Saffron (1989) 85 ALR 153 distinguished
State of Queensland v Brooks [2008] Qd R 484 applied
CDPP v Hart & Ors [2007] QCA 184 considered
R v Iannelli [2003] NSWCA 1; (2003) 56 NSWLR 247 at [108] applied
Welham v Director of Public Prosecutions [1961] AC 103 considered
Scott v Metropolitan Police Commissioner [1975] AC 818 considered
R v Barker (1994) 127 ALR 280; (1994) 54 FCR 451 followed
Campbell v R [1996] FCA 809
Spies v The Queen (2000) 201 CLR 603 at [78] applied
Peters v The Queen (1998) 192 CLR 493 considered
R v Kastratovic (1985) 42 SASR 59 at 62 - 63 considered
McMunn v R [2007] VSCA 149 applied
Pearce v R [2005] WASCA 74 applied
Dyers v R (2002) 210 CLR 285 [6] distinguished
R v Fagher (1989) 16 NSWLR 67 at 80 followed
State of Queensland v Hirst [2003] QSC 266 at [14] followed
New South Wales Crime Commission v Kelly [2003] NSWSC 154 at [49] followed
Archbold Criminal Pleadings, Evidence and Practice 42nd edition
COUNSEL:
Flanagan SC and Brien for the applicant
Respondent for himself and on 17 September 2009 with Davis SC who addressed on certain of the matters of law
SOLICITORS:
Office of Commonwealth Director of Public Prosecutions for the applicant
James Conomos and Co on 17 September 2009 to instruct Davis SC
Index
Nature of the Application …………………………………………………………………...8
Mr Hart’s Legal Representation and Submissions ………………………………………..9
Proceeds Jurisdiction of this court in this Proceeding……………………………………..9
Onus and Standard of Proof…………...………………………………….……...………...12
Inference from prior convictions ……………………………..…………….………..…….13
Mr Hart’s failure to give evidence and the rule in Jones v Dunkel …………….………...14
Matter admissible pursuant to POCA s138 ………………………..………….…………..16
Application 1(a) for benefits derived from offences the subject of nine convictions .. ....16
Benefits “derived” from commission of the nine offences………………………..…….…21
Alleged Offences by Mr Hart against s29D of the Crimes Act 1914 (Cth) & s135.1 (5) Criminal Code (Cth)……………….….……….………….………….………....…..……...28
No limitation period defence……………..……..…….………….………….……………...28
First issue of law relating to s29D of the Crimes Act ………………………..…...……….29
Second issue of law relating to s29 of the Crimes Act ………………………..…...………31
Were the participants entitled to claim their deductions? ………………………..……...40
Application – Paragraph 1(b)(i): 1997 Employee Welfare Fund (“EWF”) ……….…….47
Pleadings regarding dishonest relating to application 1(b)(i) and the 1997 EWF ……...48
Pleading argument: Whether CDPP fairly raised an issue that Mr Hart knew payments did not provide a benefit for employees…………..…………………………..……..…….51
Facts relevant to the 1997 EWF and subsequent schemes ……………………………….52
The CDPP’s failure to call certain witnesses relevant to the 1997 EWF and subsequent schemes and the rule in Jones v Dunkel ….…………………..…………………....………53
Facts continued ………………………..………………………..……..……………........….57
Operation of the 1997 EWF Scheme ………………………..……………..………………58
Operation of the 1998 EWF Scheme …………………..………………………..…………75
Non-recourse “loans” by UOCL …...………………..………………………..……..……..76
UOCL’s financial capacity ………………..………………………..……..………………..80
Conclusions with respect to 1(b)(i) of the application …………………..………………...95
European Grande Assurance S.A .……..………………………..……..…………………. 97
(a) Transfer of money to specified accounts …...…………..…………..……..………...109
(b) Status of deposit and bank balances …………………..………………………..…...112
(c) UOCL Loans …………………..………………………..……..……………………113
(d) Office arrangements and payments …………………..………………………..…....114
(e) Authorise payments of commission …………………..………………………..……116
(f) Consulting fees …………………..………………………..……..………………….117
Application 1 (b) (ii) and the 1998 EWF ……..………………………..……..………….118
Conclusions with respect to 1(b)(ii) of the application………………..…………..……..119
The 1999 EWF Scheme …………………..………………………..……………….….......120
Non-Complying Superannuation Scheme …………………….……………………..…...121
Application 1(b)(iii)……………….……….………………………………………….……125
Application 1(b)(iv) ……………….…...…………………………………………….…….125
Application 1(b)(v) ………………..……………………………………………………….125
Findings in relation to applications 1(b)(iii), 1(b)(iv) and 1(b)(v) ………………..……..126
Promissory notes are lawful ………………..………………………..……..……………..127
Legal advices ………………..………………………..……..……………………………...127
Serious Offence s29D Crimes Act…………………………………………………………134
Assessment of benefits regarding applications 1(b)(i) –1(b)(v) …………………………134
Total benefits derived/Penalty amount……………………………………………………139
[1] This is an application by the Commonwealth Director of Public Prosecutions (“CDPP”) for a pecuniary penalty order (“PPO”) that the respondent, Steven Irvine Hart (“Mr Hart”) pay to the Commonwealth $14,757.287.80 pursuant to the Proceeds of Crime Act 2002 (“POCA”). The application is brought[1] to deprive Mr Hart of $706,402.93 as benefits he allegedly derived from his commission of nine offences against the laws of the Commonwealth for which he was convicted (“the nine offences”). The CDPP also seeks to prove that Mr Hart committed further offences against the laws of the Commonwealth for which he has not been charged (“further offences”). If the further offences are proved the CDPP seeks also to deprive Mr Hart of benefits derived by him from his commission of the further offences. The CDPP alleges that he derived a further $18,850,884.42 from those further offences. The further offences are denied by Mr Hart. The quantum of benefits derived from the further offences is disputed.
[1]under POCA Chapter 2, Part 2-4, Division 2, pursuant to s 116 and s 134
[2] The parties were before me on 19 November 2010. At the parties’ request I then gave judgment on the basis that I would subsequently publish reasons. In giving judgment I then found that Mr Hart committed the offences alleged at paragraphs 8,10,12,14 and 16 of the CDPP’s further amended points of claim and found that they were serious offences within the meaning of POCA. I ordered that Mr Hart pay the CDPP $14,757,287.35 with costs reserved.
[3] Mr Hart practised as an accountant. All offences are alleged to have occurred in Mr Hart’s promotion to clients of investment schemes which would minimise tax. The nine offences were offences of defrauding the Commonwealth, by contravening s 29D of the Crimes Act 1914 (Cth). The alleged further offences from which Mr Hart allegedly derived benefits would have been offences of defrauding the Commonwealth, by contravening s 29D of the Crimes Act 1914 (Cth) or its subsequent equivalent, s 135.1(5) of the Criminal Code Act 1995(Cth).
[4] In respect of the nine offences Mr Hart concedes that it would be appropriate to make a PPO against him in the sum of $85,617.73[2] but the CDPP seeks a further $620,785.20. The contest in relation to the nine offences is about whether payments of $620,785.20 made by clients over four years as part of a scheme are benefits “derived” directly or indirectly by Mr Hart.
[2]Respondent’s Outline Of Submissions On Matters Of Law paragraph 6
[5] The CDPP seeks a PPO requiring Mr Hart to pay a total of $14,757,287.35 to the Commonwealth. That is in respect of the $706,402.93 benefits allegedly derived from the nine offences and $14,050,884.42 of $18,850,884.42 allegedly derived from the further offences it seeks to prove. If the court is to make a PPO in this proceeding there is an agreement between the parties that any penalty amount is to be reduced pursuant to POCA Chapter 2, Part 2-4, Division 2 Subdivision C by the amount of $4,800,000.00. It was not made clear in submissions whether Mr Hart’s concession that it would be appropriate to make a PPO against him in the sum of $85,617.73 is subject to reduction pursuant to the agreement to reduce the amount of any penalty by $4,800,000.00. Reference to the further amended points of claim suggests that even the sum of $85,617.73 is subject to reduction. The total of $14,757,287.35 sought by the CDPP takes into account the reduction of $4,800,000.00.
The nature of the application
[6] Principal objects of POCA are “to deprive persons of … benefits derived from offences against the laws of the Commonwealth …”[3] and “to punish and deter persons from breaching laws of the Commonwealth”[4] As a means to those ends, POCA provides for the making of a PPO by a court with proceeds jurisdiction[5] on the application of the CDPP if the court is satisfied, inter alia, that the person against whom the PPO is sought has been convicted of an indictable offence and has derived benefits from the commission of the offence[6] or that the person against whom the PPO is sought has committed a serious offence as defined by POCA within certain time limits.[7]
[3]POCA s 5(a)
[4]POCA s 5(c)
[5]POCA s 116 and see s 335
[6]POCA s 116(1)(b)(i)
[7]POCA s 116(2)(a)
[7] The CDPP may make application for a PPO[8]in relation to one or more offences.[9]
[8]POCA s 134(1)
[9]POCA s 134(4).
[8] POCA s 116 provides, so far as is relevant:
“116 Making pecuniary penalty orders
(1) A court with proceeds jurisdiction must make an order requiring a person to pay an amount to the Commonwealth if:
(a) the DPP applies for the order; and
(b)the court is satisfied of either or both of the following:
(i)the person has been convicted of an indictable offence, and has derived benefits from the commission of the offence;
(ii)subject to subsection (2), the person has committed a serious offence.
(2) Subparagraph (1)(b)(ii) does not apply in relation to a serious offence that is not a terrorism offence unless the court is satisfied that the offence was committed:
(a)within the 6 years preceding the application (or, if some or all of the person’s property is already covered by a restraining order, preceding the application for the restraining order); or
(b) since the application was made.
The period of 6 years may be a period that began before the commencement of this Act.
(3) In determining whether a person has derived a benefit, the court may treat as property of the person any property that, in the court’s opinion, is subject to the person’s effective control.
(4) The court’s power to make a pecuniary penalty order in relation to an offence is not affected by the existence of another confiscation order in relation to that offence.”
[9] POCA s 116, imposes an obligation on the court to make a PPO where the CDPP applies for an order and the court is satisfied of either or both of the following:
Mr Hart has been convicted of an indictable offence and has derived benefits from the offence;
Mr Hart has committed a serious offence within a specified time period.
[10] On 26 May 2005, Mr Hart was convicted of nine indictable offences of defrauding the Commonwealth contrary to section 29D of the Crimes Act 1914 (Cth). There is no contest that Mr Hart derived benefits from the commission of those offences.[10]It follows that this court is obliged to make a PPO in respect of those nine indictable offences for which Mr Hart was convicted, at least in respect of benefits found to be derived from commission of those nine offences.
Mr Hart’s legal representation and submissions
[10]Statement of agreed facts paragraph 12
[11] Mr Hart’s points of defence were settled by senior counsel. Mr Hart appeared during trial without legal representation until the third day of addresses. On the third of five days of oral addresses, senior counsel appeared briefly for Mr Hart to present a written submission entitled “Respondent’s Outline of Submissions on Matters of Law” and made some oral submissions to explain it and also made oral submissions in reply to a written submission of counsel for the CDPP in reply to “Respondent’s Outline of Submissions on Matters of Law”. Senior counsel for Mr Hart, by his written submission confirmed that it did “deal with matters of law” and that it responded to the CDPP’s written outline and matters of law in the written opening of the CDPP. The written submission advised that a second written submission was prepared by Mr Hart which presented Mr Hart’s case concerning the factual disputes. Mr Hart provided that second written submission. After oral addresses Mr Hart added a further written “Submission that the Applicant be Limited to its Original Pleadings”, the CDPP subsequently provided a further written submission entitled “Dishonest Means” and Mr Hart supplied a written “Respondent’s Reply Submission to the Applicant’s Dishonest Means Submission”.
Proceeds jurisdiction of this court in this proceeding
[12] It became necessary to consider whether this court has “proceeds jurisdiction” within the meaning of those words in POCA s 116(1). It was not raised in the points of defence as the subject of contest nor was it the subject of submission by Mr Hart. On the third day of addresses, senior counsel for Mr Hart advised in response to a question from the bench about jurisdiction that he did not have instructions to concede in submissions that this court has jurisdiction to make the orders sought.[11] Accordingly, I will consider whether this court has proceeds jurisdiction to make the orders sought in this proceeding.
[11]T14 -2 L45
[13] Mr Hart was convicted in the District Court at Brisbane on 26 May 2005 upon indictment containing nine counts of defrauding the Commonwealth between the first day of June 1990 and the 30th day of June 1991 at Brisbane in the State of Queensland. The PPO sought relates in part to the conduct constituting those nine offences.
[14] POCA relevantly provides:
“314 State and Territory courts to have jurisdiction
(1) Jurisdiction is vested in the several courts of the States … with respect to matters arising under this Act.
(2) … the jurisdiction vested in a court by virtue of subsection (1) is not limited by any limits to which any other jurisdiction of the court may be subject…
335 Proceeds jurisdiction(1) Whether a court has proceeds jurisdiction for an order depends on the circumstances of the offence or offences to which the order would relate.
General rules(2) If all or part of the conduct constituting an offence to which the order would relate:
(a) occurred in a particular State …;
(b) is reasonably suspected of having occurred in that State…;
the courts that have proceeds jurisdiction for the order are those with jurisdiction to deal with criminal matters on indictment in that State...
(3) If all of the conduct constituting an offence to which the order would relate:
(a) occurred outside Australia; or
(b) is reasonably suspected of having occurred outside Australia;the courts that have proceeds jurisdiction for the order are those of any State … with jurisdiction to deal with criminal matters on indictment.”
[15] There were no submissions addressed to the issue of this court’s jurisdiction to deal with an order for a PPO for a sum which exceeds the monetary limit referred to in the District Court of Queensland Act 1967, s 68. The jurisdiction of the District Court of Queensland in civil matters is conferred in all “personal actions” where the amount sought to be recovered does not exceed a monetary limit.[12] The CDPP seeks to recover amounts exceeding that monetary limit. Proceedings for a PPO are proceedings for a “confiscation order” within the meaning of those words in POCA[13] and are not criminal proceedings.[14] It is arguable that this proceeding falls within the description of a “personal action” in the District Court of Queensland Act, s 68 especially having regard to sub-section (1)(a)(iv) of s 68. The intent of POCA s 314 is that if this court is given jurisdiction with respect to matters under POCA that jurisdiction is not limited by any limits to which any other jurisdiction of this court is limited. There has been no argument as to whether the two laws are inconsistent or, alternatively, separate and consistent sources of jurisdiction with the District Court of Queensland Act creating jurisdiction to a certain monetary limit and POCA creating a further jurisdiction unaffected by a monetary limit. The District Court of Queensland, unlike the Supreme Court, has no inherent jurisdiction. Its jurisdiction derives from statute. If this proceeding is a “personal action” within the meaning of the District Court of Queensland Act, s68 it seems to me that s 68 does not operate to restrict the District Court of Queensland from hearing and determining a personal action where the amount sought to be recovered exceeds the monetary limit imposed by that Act. It operates as a source of jurisdiction to the monetary limit. It does not purport to be the exclusive source or to restrict the court from receiving jurisdiction from another statutory source or to restrict the Commonwealth parliament from conferring jurisdiction beyond the monetary limit. I do not regard District Court of Queensland Act, s68 as inconsistent with POCA s 314. The fact that District Court of Queensland Act, s 68 created a jurisdiction to a monetary limit is not inconsistent with POCA creating jurisdiction where the amount in dispute exceeds that monetary limit.
[12]District Court of Queensland Act 1967, s 68.
[13]s 338 POCA
[14]s 315(1) POCA
[16] If I am wrong about the absence of an inconsistency, any inconsistency between the laws is to be resolved in favour of the Commonwealth law.[15] It becomes unnecessary for me to determine whether the two laws are inconsistent. If this court is given proceeds jurisdiction by POCA, that proceeds jurisdiction is not limited by a monetary limit on the jurisdiction conferred by the District Court of Queensland Act.
[15]Commonwealth of Australia Constitution Act, s 109
[17] This court has proceeds jurisdiction for making the PPO sought in respect of the offences for which there were nine convictions: firstly, all or part of the conduct constituting those offences occurred “at Brisbane in the State of Queensland” as the indictments alleged; secondly, this court has jurisdiction to deal with criminal matters on indictment in Queensland. That leaves the issue of the court’s jurisdiction to make a PPO in respect of other alleged offences by Mr Hart which are not the subject of his nine convictions.
[18] The CDPP submitted that as the offences for which there were nine convictions all occurred in Queensland this court has been vested with jurisdiction to deal with this matter.[16] This implies that, if the court has proceeds jurisdiction to make a PPO relating to those nine offences for which Mr Hart was convicted it has jurisdiction to make a PPO relating to other conduct for which Mr Hart has not been convicted but which is found to be unlawful. That seems to ignore POCA s335 and the geographical conditions for jurisdiction which that section creates.
[16]Applicant’s Submissions on Jurisdiction 17/9/09
[19] For the court to have proceeds jurisdiction in respect of any one of the other alleged offences, according to POCA s335 it must be established that all or part of the conduct constituting the offence to which the order would relate either occurred in Queensland, or is reasonably suspected of having occurred in Queensland, or all of the conduct constituting an offence to which the order would relate occurred outside Australia or is reasonably suspected of having occurred outside Australia.
[20] If other alleged conduct by Mr Hart constituted an offence to which the PPO would relate it is plausible, if not probable that a part of the conduct alleged to constitute an offence occurred in or would reasonably be suspected of having occurred in Queensland. That may explain why there was no issue raised by Mr Hart in the pleadings or in argument about this geographical condition for jurisdiction for the conduct which was not the subject of nine convictions.
[21] If Mr Hart had sought to challenge the jurisdiction of this court in respect of this proceeding he was required to file a conditional notice of intention to defend.[17]Mr Hart filed an unconditional notice to defend and is taken to have submitted to the jurisdiction of this court and waived any irregularity in the proceeding. The parties raised no contest about the geographical requirements for jurisdiction in their pleadings, in the evidence, in the questions to witnesses or in addresses. It makes it unnecessary for me to determine whether there was a geographical requirement for this court to exercise jurisdiction in respect of the further offences. I proceed on the basis that this court has proceeds jurisdiction for the orders sought in this proceeding.
Onus and standard of proof
[17]Uniform Civil Procedure Rules 1999 r 144 (1)
[22] The onus is on the CDPP, as applicant, to prove the matters necessary to establish the grounds for making the PPO.[18] Any question of fact is to be decided on the balance of probabilities.[19]
[18]POCA s 317(1).
[19]POCA s 317(2)
[23] The degree of proof required to establish unlawful activity on the balance of probabilities was authoritatively set out in Briginshaw v Briginshaw [1938] HCA 34; (1938) 60 CLR 336
“The truth is that, when the law requires proof of any fact, the tribunal must feel an actual persuasion of its occurrence or existence before it can be found. It cannot be found as a result of a mere mechanical comparison of probabilities independently of any belief in its reality. No doubt an opinion that a state of facts exists may be held according to indefinite gradations of certainty; and this has led to attempts to define exactly the certainty required by the law for various purposes. Fortunately, however, at common law no third standard of persuasion was definitely developed. Except upon criminal issues to be proved by the prosecution, it is enough that the affirmative of an allegation is made out to the reasonable satisfaction of the tribunal. But reasonable satisfaction is not a state of mind that is attained or established independently of the nature and consequence of the fact or facts to be proved. The seriousness of an allegation made, the inherent unlikelihood of an occurrence of a given description, or the gravity of the consequences flowing from a particular finding are considerations which must affect the answer to the question whether the issue has been proved to the reasonable satisfaction of the tribunal. In such matter ‘reasonable satisfaction’ should not be produced by inexact proofs, indefinite testimony or indirect references. Everyone must feel that, when, for instance, the issue is on which of the two dates an admitted occurrence took place, a satisfactory conclusion may be reached on materials of a kind that would not satisfy any sound and proven judgement if the question was whether some act had been done involving grave moral delinquency.”
[24] The High Court in Rejfek v McElroy [1965] HCA 46; (1965) 112 CLR 517 at 521 explained the application of the Briginshaw principle to fraud cases:
“The "clarity" of the proof required, where so serious a matter as fraud is to be found, is an acknowledgment that the degree of satisfaction for which the civil standard of proof calls may vary according to the gravity of the fact to be proved: see Briginshaw v. Briginshaw per Dixon J.; Helton v Allen per Starke J.; Smith Bros. v. Madden, per Dixon J.
11. But the standard of proof to be applied in a case and the relationship between the degree of persuasion of the mind according to the balance of probabilities and the gravity or otherwise of the fact of whose existence the mind is to be persuaded are not to be confused. The difference between the criminal standard of proof and the civil standard of proof is no mere matter of words: it is a matter of critical substance. No matter how grave the fact which is to be found in a civil case, the mind has only to be reasonably satisfied and has not with respect to any matter in issue in such a proceeding to attain that degree of certainty which is indispensable to the support of a conviction upon a criminal charge: see Helton v. Allen per Dixon, Evatt and McTiernan JJ.”(Footnotes removed)
[25] In the present case, there is a Statement of Agreed Facts (“SAF”, or “SOAF”).[20] There are however, a number of important facts which have not been agreed. These include the facts that are central to establishing that Mr Hart’s conduct in respect of which Mr Hart has not been convicted constituted defrauding the Commonwealth. The CDPP seeks to establish that Mr Hart engaged in that alleged unlawful activity as a matter of inference drawn from various facts, matters and circumstances. Much of the factual dispute goes to the extent of Mr Hart’s influence or control over a number of overseas entities which were involved in the various arrangements. Another factual dispute is in relation to the capacity of a financier, United Overseas Credit Limited (“UOCL”), to make loans to the participants in the arrangements, and whether any such loans were in fact made by UOCL to any participants.
[20] Exhibit 1.
[26] The CDPP accepts that it bears the onus of establishing these disputed factual matters on the balance of probabilities as that concept is understood and applied in the way explained by the High Court in Briginshaw.
Inferences from prior convictions
[27] Mr Hart was convicted of nine offences which involved the element of dishonesty by him. The fact of those convictions is necessarily before me to justify the application for PPOs. The dishonest conduct involved in the nine offences was conduct of a kind which occurred at the expense of the Federal Commissioner of Taxation. Convictions for nine such offences are thus evidence of a disposition to engage in conduct which is dishonestly detrimental to the interests of the Federal Commissioner of Taxation. That evidence, if it is relied upon when considering other alleged conduct by Mr Hart, could be prejudicial to him. Mr Hart’s disposition in the commission of those nine offences would arguably have probative value supporting a finding that he had a similar disposition while engaged in the other conduct. The CDPP submitted that the court is bound to ignore those implied findings of dishonesty involved in the conviction of the nine offences when considering what inferences to draw in respect of other conduct alleged to involve Mr Hart.[21] I propose to act as the CDPP submitted when considering Mr Hart’s state of mind in respect of other conduct allegedly involving him. I ignore the inferences of dishonesty available from Mr Hart’s convictions when considering other conduct alleged against Mr Hart.
[21] T6-71
[28] The evidence in chief of witnesses called by the CDPP was often in affidavit form. The CDPP, with Mr Hart’s consent, sought to strike from some affidavits portions of typed evidence conceded to be inadmissible. This was sometimes done on the affidavits on the court file and sometimes, at the request of Mr Hart, on only the electronic copies. The paper record may contain evidence ruled inadmissible. I have ignored the parts which have been struck out or conceded to be inadmissible.
Mr Hart’s failure to give evidence and the rule in Jones v Dunkel
[29] An issue arose whether any inferences should be drawn from the election by Mr Hart to neither give or to call evidence. At directions hearings before trial, and during the presentation of the CDPP’s case, including during the examination, cross-examination and re-examination of witnesses, Mr Hart represented himself. Only during a part of the addresses on the third day of addresses was he represented by senior counsel. The CDPP was directed to adduce its evidence in chief by affidavits to be served in advance on Mr Hart. The CDPP complied.[22] Mr Hart had sufficient time to become familiar with the evidence to be presented against him before witnesses were called. Mr Hart appeared to be familiar with the evidence against him when the CDPP closed its case.
[22]With insignificant exceptions, by leave.
[30] The CDPP offered an undertaking to Mr Hart when he was considering his election about giving evidence. It was as follows:
"In respect of District Court proceedings BD 1414 of 2003 the Director of Public Prosecutions Commonwealth undertakes:
1. Not to make any direct or indirect use of any evidence
given or document produced by Steven Irvine Hart; and
2. Not to disclose directly, or indirectly, any evidence
given or document produced in those proceedings to any;
except in the following circumstances:
(a) in criminal proceedings for giving false or misleading
evidence or documents;
(b) where a Court rules or orders that the CDPP is required to
use or disclose the said evidence or documents; and/or
(c) in or for the purposes of District Court proceedings BD
1416/2003 and/or District Court proceedings BD 3048/2006;
(d) in or for the purpose of proceedings ancillary to and/or
for the enforcement of an order made in District Court
proceedings BD 1416/2003 and/or District Court proceedings BD
3068/2006;
And in any case where the CDDP proposes to disclose the said
evidence or documents to an officer of an external agency, the
CDPP will not do so without first obtaining an undertaking in
writing from the external agency to the effect that the agency
will not make any direct or indirect use of the relevant
evidence of documents other than in accordance with the
paragraphs (a) to (d) above."
[31] Mr Hart’s election to give no evidence is notable. Mr Hart gave an explanation from the bar table. The relevant parts of the explanation can be summarised as being Mr Hart’s forensic judgment based on his assessment of the evidence coupled with his fear that his evidence might be used against him in future criminal proceedings. As to that fear Mr Hart added:
“On the 27th of August 2004 there was a letter of comfort given to Mr Geoff Todd to give evidence to these proceedings which said, "The Australian Federal Police do not propose to charge, nor does this office" - and it came from the DPP - "propose to prosecute you in relation to your involvement with this particular investigation."
However, in a letter that was used to obtain the search warrant in Mauritius sent by the Attorney-General's department in 2006, on the 23rd of May 2006, it states:
"There are a number of other people involved in the promotion of the tax fraud schemes in Australia. These people include Steven Cox and Geoffrey Todd. Australian authorities may also wish to use the material obtained in answer to this request for assistance for the purpose of the investigation and possible prosecution of these people."
Now … based on the contradiction of a 2004 letter of comfort to Mr Todd and a 2006 letter to the Mauritian authority to obtain a search warrant, I can't and don't wish to take the risk that the Director at some future time might change his mind.”
[32] An unexplained failure by a party to give evidence or to call witnesses may lead to a court’s drawing an inference that the uncalled evidence would not have assisted that party’s case. Where a court draws that inference it is entitled to take that into account in deciding whether to accept other evidence which relates to a matter on which the absent witness could have spoken and allows the court more readily to draw any inference fairly to be drawn from the other evidence. These are aspects of the rule in Jones v Dunkel [1959] HCA 8; (1959) 101 CLR 298. If applied, the rule[23] is not used to fill gaps in the evidence nor permit an adverse inference that the evidence of uncalled witnesses would have been damaging to the party not calling them.
[23] For a summary of the rule see Heydon J, Cross on Evidence Australian ed [1215].
[33] The CDPP drew attention to uncertainty as to the application of the rule in Jones v Dunkel where a PPO is sought. The CDPP submitted that I should not draw any “adverse” inference from the fact that Mr Hart did not give evidence despite the undertaking provided by the CDPP and that the CDPP has discharged its onus and that the evidence is of such strength the CDPP will succeed without the need for the court to draw an inference. It may be inaccurate to describe all Jones v Dunkel inferences as “adverse” and so I note that the CDPP also submitted that no Jones v Dunkel inference is sought.
[34] From the election by Mr Hart to give no evidence I draw no inference that his evidence would not have assisted his case and draw no inference from his failure to give evidence that I should more readily accept evidence which relates to a matter on which Mr Hart could have given evidence. I was not asked to find that there are other witnesses whom Mr Hart might have called to give relevant evidence. From Mr Hart’s election to call no witnesses to give evidence on his behalf I draw no inference. Based upon the CDPP’s submissions it is unnecessary to make a finding about the truth of the unsworn explanation given by Mr Hart for his election not to give evidence.
Matter admissible pursuant to POCA s 138
[35] POCA s138 concerns evidence on an application for a PPO in relation to convictions for indictable offences. Section 138(2) provides:
"If the application relates to a person's conviction of an indictable
offence, the court may, in determining the application, have regard to:
(a) the transcript of any proceeding against the person for:
(i) that offence; or
(ii) ...; and(b) the evidence given in any such proceeding. "
[36] The CDPP sought to place reliance upon parts of the transcript of the five week trial which resulted in Mr Hart’s convictions for the nine offences. No submission was made by or for Mr Hart that this was improper. The CDPP referred in submissions to the transcript of oral testimony and of the prosecutor’s opening to the jury in that trial. It seems unlikely that a court’s liberty to have regard to an opening in the trial transcript was intended to mean that the court was at liberty to regard it as admissible for more than proof of what prosecuting counsel expected to be the prosecution evidence. I am not prepared to have regard to the extracts of the opening as a source of evidence upon which to make findings against Mr Hart’s interests in this proceeding. I am at liberty to have regard to the evidence given in the criminal trial.
[37] Application 1 (a) for benefits derived from offences the subject of nine convictions
[38] The first component of the order sought by the CDPP by its application is:
“Pursuant to section 116 and 134 of the Proceeds of Crime Act 2002("the Act") for a pecuniary penalty order that Steven Irvine Hart pay to the Commonwealth an amount of money the court determines under Chapter 2, Part 2-4, Division 2 of the Act in respect to:
(a) the benefits derived by Steven Irvine Hart from nine offences of defrauding the Commonwealth contrary to section 29D of the Crimes Act 1914 (Cth) between 1 June 1990 and 30 June 1991 of which the said Steven Irvine Hart was convicted on 25 May 2005”
[39] Mr Hart stood trial in 2005 for the following nine relevant offences. Those nine counts each alleged that between 1 June 1990 and 30 June 1991 at Brisbane, Mr Hart defrauded the Commonwealth by causing an income tax return to be lodged for the financial year ending 30 June 1990, which contained a false claim for a deduction. The particulars provided for each count read:
''Particulars
(a) the income tax return for the following entity claimed the
following amount as expenditure in relation to the purchase
of an insurance bond:
(i) (in each count there appeared the name of a [different]
small proprietary company and a dollar amount ranging
from $80,000 to $500,000):
(b) no such expenditure had been incurred in that financial
year."
[40] The particulars in the indictment were not an accurate statement of the gravamen of the allegations against Mr Hart in that trial. The relevant point for the prosecution at trial was that the deduction claimed, however it was described, was for an expenditure which had not in fact been incurred in that financial year, and to which the taxpayer had not been definitively committed in that financial year, even if the payment was not made in that year.[24]
[24]R v Hart; ex parte Cth DPP[2006] QCA 39 at [45]
[41] Mr Hart was found guilty by jury in the District Court at Brisbane on 25 May 2005 of those nine counts of defrauding the Commonwealth between the first day of June 1990 and the 30th day of June 1991 at Brisbane in the State of Queensland. Those counts are the nine offences to which I have referred.
[42] The “facts and circumstances forming the basis of Mr Hart’s conviction” are agreed in SAF at paragraph 4.
[43] Mr Hart was a director and secretary of Harts Fidelity Ltd, formerly known as Hartcorp Fidelity Ltd (“HFL”). Mr Hart was also a director of Harts Pty Ltd, formerly known as Steve Hart & Associates Pty Ltd (“Hart’s accounting practice”). Mevton Pty Ltd (“Mevton”) was a company associated with Mr Hart. At the relevant time, Mr Hart was a registered tax agent. Mr Hart ran an accounting practice and provided accounting services to, inter alia, the nine client employers named in the indictment (“the nine clients”).
[44] Mr Hart appealed against his convictions for the nine offences in R v Hart; ex parte Cth DPP [2006] QCA 39. The general facts of the scheme were agreed on appeal and are set out in reasons for judgment on by Jerrard JA and. There was no submission as to whether this court could rely on the facts set out in the judgment as res judicata or otherwise binding the parties to this proceeding, for example by reference to POCA s 138(2). Accordingly, I do not. I refer to the judgment for his Honour’s nice recital of those facts which are consistent with the facts agreed in the SAF. That part of the judgment follows:
“[10] … in 1989 Mr Hart adapted an investment opportunity then being marketed by the AMP, known as Employee Retention Plans (“ERPs”), and offered those to some of the clients of the accounting practice in the period leading up to 30 June 1990. The nine counts of defrauding the Commonwealth were based on events involving nine clients who agreed to enter into the arrangements known as ERPs. A significant feature of an ERP (as described originally to the clients) was that it could provide a tax deduction to a client employer making a contribution to a staff benefit trust fund for the purchase of a 10 year lump sum single premium insurance bond from the AMP, in favour of a key employee of the client. If the employee remained employed by the client for a period of 10 years, the employee would receive the proceeds of the insurance bond; the contribution to the staff benefit trust for the purchase of the bond was tax deductible because the client was providing an incentive to retain key employees by way of the gift to the trust. The appellant’s written outline contended that the deductions were valid provided the ERP was a commercially viable and realistic arrangement. The scheme was marketed on the basis that participating clients would contribute 12.7 per cent by way of deposit and borrow the remaining 87.3 per cent of the face value of the bond from Chase AMP; the 12.7 per cent contributed by the client and the 87.3 per cent borrowed would be used by the trustee of the staff benefit trust fund to buy the lump sum bond.
[11] The necessary arrangements and structuring of ERPs properly entered into, as originally proposed, were as follows:
• A trust would be set up for the benefit of the employee of a corporate taxpayer, and in the case of each employer there was a separate ERP trust fund.
• HFL was the trustee of each trust fund.
• The amounts to be contributed to those trust funds differed from client taxpayer to taxpayer.
• Each client taxpayer would provide 12.7 per cent of the total contribution of cash needed to buy the lump single premium insurance bond.
• The balance of the contribution would come from a loan by the Chase AMP Bank.
• The client corporate taxpayer (the employer) and the employee – usually the active director, or a significant director or employee of the taxpayer – would enter into agreements, the essence of which was a provision that the employer would enter into ERP arrangements for the benefit of the employee, and the employee would be loyal to the employer.
• The money deposited to the trust funds would be used to purchase the lump sum bonds in the name of the trustee, which would hold those bonds under the respective trusts for the benefit of the respective employees for a period of 10 years.
• Promoters of the ERP scheme asserted that the capitalised income earned by each bond would not be taxable in the hands of the trustee, and that the only tax attaching to the payment by the trustee of the matured bond to the employee would be fringe benefits tax, payable either on the original lump sum (the view of the promoters) or, perhaps, on the full amount of the matured bond (the opinion of one of the tax investigators involved in the matter). Nothing turns on those two differing opinions. Advantages described by Mr Hart in his evidence included that the 87.3 per cent borrowed was an interest only loan, with the interest payments tax deductible, as well as the 100 per cent deductibility of the bond amount.
[12] A number of Mr Hart’s clients entered into ERPs, and approvals for loans to those client taxpayers by the Chase AMP Bank had been made by 30 June 1990. For those clients there were what the prosecution conceded to be genuine arrangements in place, permitting the client company to claim a tax deduction in that financial year, pursuant to s 51 of the Income Tax Assessment Act 1936 (Cth). Shortly before 30 June 1990 it became apparent to Mr Hart that some client taxpayers who had agreed to enter into ERP arrangements would not have loans to them approved by the Chase AMP Bank prior to 30 June 1990. The Chase AMP Bank, which had as its sole security for its loan a charge over the AMP bond to be purchased, had required in the first week in June 1990 that the loan from it be to the trustee (HFL) and not to the client taxpayer. That in turn required the preparation of further documents, including an indemnity from the employer (the client taxpayer) indemnifying the staff benefit trust fund with respect to the loan. That requirement by the Chase AMP Bank delayed loan approvals by it.
[13] To deal with the problems caused by those delays, documents were prepared recording the introduction of a company Mevton Pty Ltd (“Mevton”) into the proposed arrangements, as a lender in place of the Chase AMP Bank prior to 30 June1990. Those documents approved loans by Mevton to the taxpayer clients. Mr Hart intended that when the Chase AMP Bank approved loans to those clients (necessarily after 30 June 1990), Mevton would be treated as an intermediary or what he called a “securitiser”, and would drop out…”
[45] The documents referred to as recording the introduction of Mevton Pty Ltd into the proposed arrangements, as a lender in place of the Chase AMP Bank prior to 30 June 1990 were created before 30 June 1990.
[46] The ERP scheme was promoted to the nine clients by Mr Hart on the bases that if the client’s application for finance was approved by 30 June 1990, the relevant client would receive a tax deduction in its return for the financial year ending 30 June (“FYE”) 1990 for amounts expended in purchasing the insurance bonds, including cash funds contributed by the client to HFL as trustee, the amount of the loan funds and any loan application fees and the relevant client would also receive a tax deduction for interest the client paid on the loan in future financial years. The particulars of the ERP explained to the nine clients included that the client made a cash payment or initial contribution of 12.7% to HFL as trustee in respect of the nominated employee member; the client made application to Chase AMP Bank for finance for the purpose of borrowing monies to fund a further contribution to HFL as trustee; HFL made application to AMP to purchase a single premium insurance bond in respect of the life of the member of the employee’s benefit trust.
[47] Loans for the purchase of insurance bonds for the nine clients were not made by 30 June 1990 and for the nine clients the ERP scheme was not in place by 30 June 1990.
[48] During FYE 1990, the payments made by the nine clients in relation to the purchase of the insurance bonds totalled $196,192.00. An amount of $110,574.27 was returned to four of the nine clients in respect of their contributions to the ERP. CDPP and Mr Hart treat the amount returned as reducing the $196,192.00 to $85,617.73 and accept that lesser amount to be a benefit derived by Mr Hart relating to payments made by the nine clients in FYE 1990.
[49] The nine clients were subsequently advised that the loans had been provided by Mevton, not Chase AMP and that payments in relation to the purchase of the insurance bonds should be made to Mevton. The nine clients commenced paying Mevton by about November 1990. The advice that the nine clients pay Mevton must have been given in about October 1990.
[50] The CDPP submitted that Mr Hart instructed participants to pay Mevton and relied upon extracts of evidence from Mr Hart’s criminal trial.[25] No submission to the contrary was made by or for Mr Hart. Mr Hart’s amended points of defence denied that he caused the nine clients to make the payments to Mevton in FYE 1991 – 1994 on the basis that the payments were made by each client in discharge of the client's contractual obligations to Mevton as a consequence of the operation of the ERP. Mr Hart did not raise as a basis for his denial that he did not cause the clients to enter into contractual obligations to Mevton as a consequence of the operation of the ERP. On these bases I accept that payments made by the nine clients to Mevton in FYE 1991 – 1994 were made at Mr Hart’s direction. Mevton received a monthly payment from a client which it then transferred it to HFL which in turn paid it to AMP.[26]
[25]Affidavit of Simon Matthew Allen SA-01, page 1043, lines 40 to 60; see also page 1063, lines 25 to 32; page 635, lines 38 to 52; page 636, lines 25 – 50.
[26]Affidavit of Simon Matthew Allen, Exhibit SA-01, page 123, lines 25 to 55
[51] One consequence of directing clients to pay Mevton from about November 1990 was to support the appearance of a loan having been made by Mevton in June 1990. Unless there was a loan made by Mevton by 30 June 1990 to fund 87.3% of the purchase price of an AMP insurance bond the ERP scheme promoted would not have been effected and the opportunity would be lost to include in the income tax return for FYE 1990 a claim for the full price of an AMP insurance bond as a deductible expense. The directions in about November 1990 to the nine clients to pay Mevton were necessary for maintaining the claims for a deduction in the income tax returns for FYE 1990. Unless Mevton was paid in FYE 1991 on account of interest it would not have been possible to maintain an argument that the clients had by 30 June 1990 either borrowed or been definitively committed to borrow 87.3% of the face value of an AMP insurance bond.
[52] Income tax returns for FYE 1990 were prepared by Hart’s accounting practice for the nine clients in each case claiming a tax deduction in the amount of the cash funds contributed by the client to HFL and the amount of loan funds purportedly borrowed in June 1990 from Mevton. The timing is easier to understand by way of example. One of the nine clients, Gamcove Pty Ltd, made a payment to HFL by 30 June 1990 anticipating that it was participating in an ERP as promoted by Mr Hart. Gamcove ought to have expected to be billed from July 1990 to make payments to its financier which it would have then have expected to be Chase AMP. Gamcove was advised after June 1990 that the loan had been provided by Mevton instead of Chase AMP. Gamcove was directed by Mr Hart by about November 1990 to make payments pursuant to the ERP to Mevton instead of Chase AMP and would have commenced to do so in about November 1990. Gamcove’s income tax return for FYE 1990 was processed by the Australian Tax Office on or from 18 April 1991. It would have been lodged on or before that date. Gamcove’s payments to Mevton from about November 1990 would not have been included as deductions in the income tax return for FYE 1990 lodged in about April 1991. If payments to Mevton were claimed as deductions the claims would have been made in the return for the financial year in which the payment was made to Mevton.
[53] During FYE 1991 to 1994, payments made by the nine clients to Mevton in respect of application fees, interest charged and repayments of principal totalled $620,785.20.[27]The payments were made to continue participation in the ERP scheme.
[27]SAF 6
[54] The nine clients who participated in the ERP scheme were not entitled to claim amounts expended in purchasing insurance bonds and paying application fees and interest charged as a tax deduction in the FYE 1990.
[55] Mr Hart knew that any such claim for a tax deduction by the nine clients for FYE 1990 and any subsequent years was, or was likely to be, false.[28]
[28] SAF 10
Benefits “derived” from commission of the nine offences
[56] There is a dispute as to what benefits Mr Hart “derived” from commission of the nine offences. To understand it requires an understanding of s 121(3) in Division 2 of POCA. S 121 provides:
“121 Determining penalty amounts
(1)The amount that a person is ordered to pay to the Commonwealth under a pecuniary penalty order (the penalty amount) is the amount the court determines under this Division.
(2)If the offence to which the order relates is not a serious offence, the penalty amount is determined by:
(a)assessing under Subdivision B the value of the benefits the person derived from the commission of the offence; and
(b)subtracting from that value the sum of all the reductions (if any) in the penalty amount under Subdivision C.
(3)If the offence to which the order relates is a serious offence, the penalty amount is determined by:
(a)assessing under Subdivision B the value of the benefits the person derived from:
(i)the commission of that offence; and
(ii)subject to subsection (4), the commission of any other offence that constitutes *unlawful activity; and
(b)subtracting from that value the sum of all the reductions (if any) in the penalty amount under Subdivision C.
(4)Subparagraph (3)(a)(ii) does not apply in relation to an offence that is not a terrorism offence unless the offence was committed:
(a)within:
(i)if some or all of the person’s property is covered by a restraining order—the period of 6 years preceding the application for the restraining order; or
(ii)otherwise—the period of 6 years preceding the application for the pecuniary penalty order; or
(b)during the period since that application for the restraining order or the pecuniary penalty order was made
[57] Mr Hart’s pleading alleged that the payments to Mevton by the nine clients “are not a benefit of any alleged serious offence committed by him within six years preceding the application or any restraining order” and that the payments cannot be taken into account in determining the penalty amount by reason of sections 121(3) and 121(4). Thus the pleading appeared to raise as issues whether the nine offences were “serious offences” and whether they were committed “within six years preceding the application or any restraining order”.
[58] In POCA s338 it is provided, so far as is relevant, that unless the contrary intention appears:
“serious offence means:
(a)an indictable offence punishable by imprisonment for 3 or more years, involving:
(iii) unlawful conduct by a person that causes, or is intended to cause, a benefit to the value of at least $10,000 for that person or another person; or
(iv) unlawful conduct by a person that causes, or is intended to cause, a loss to the Commonwealth or another person of at least $10,000;”
[59] Each of the nine offences was an indictable offence punishable by imprisonment for 3 or more years. Clauses (a)(iii) and (a)(iv) of the definition of “serious offence” raise factual matters which are to be satisfied as a precondition for an offence being a “serious offence”. Despite pleading that each of the nine offences was not a “serious offence” within the meaning of s 121(3), there was no argument made by or for Mr Hart that each of the nine offences was not a “serious offence” within the meaning of s 121(3). There were no written submissions by either party on this issue. In relation to the issue of whether the nine offences were “serious”, in reply to a question from the bench, senior counsel for the CDPP in oral submissions explained that for the payments to Mevton it relied upon clause (iii) and principally upon clause (iv) of the definition of “serious offence” at POCA s338 and that there is no dispute that the nine offences are serious offences.[29] If there is no dispute I need not examine the facts further on this issue. Mr Hart provided a written opening[30] before the CDPP led oral evidence. It explained that the only dispute on application 1(a) was on a matter of law. As it happened, the dispute raised in addresses was on a question of mixed fact and law, namely whether payments made by the nine clients to Mevton were benefits derived by Mr Hart. On these bases I proceed on the basis that there is no dispute that each of the nine offences was a “serious offence” within the meaning of POCA s 121(3).
[29] CDPP’s opening par 20; T 12-7 L17-23
[30] On 3 August 2009
[60] Despite pleading an issue as to whether the nine offences were committed as specified by POCA s 121(4) “within six years preceding the application or any restraining order” there was no submission made by or for Mr Hart or the CDPP about this issue. The nine offences were committed more than six years preceding the application or any restraining order. However the requirement that an offence which is not a terrorism offence be committed “within six years preceding the application or any restraining order” does not apply to the nine offences as each is a “serious offence” and referred to in POCA s 121(3)(a)(i). The temporal condition is imposed only where the offences in question are those referred to in POCA s 121(3)(a)(ii) by the words “any other offence that constitutes unlawful activity”.
[61] The contest about benefits received from commission of the nine offences relates to those payments in FYE 1991 to FYE 1994 inclusive, which totalled $620,785.20.
[62] It was agreed between Mr Hart and the CDPP that in the event that the court is satisfied that subsequent payments made by the nine clients to Mevton for FYE 1991 to 1994 are directly or indirectly derived from the nine offences the amount of benefits derived by Mr Hart from the commission of the nine offences is $706,402.93.[31] It was agreed that in the event that the court is not satisfied that subsequent payments made by the nine clients to Mevton are directly or indirectly derived from the nine offences, the amount of benefits derived by Mr Hart from the commission of the nine offences is $85,617.73.[32]The issue is so narrowed because of the words of s116 which are, so far as is relevant to this issue:
[31] $85,617.73 from FYE 1990 and $620,785.20 from FYE 1991-1994
[32]SAF 12
“116 Making pecuniary penalty orders
(1) A court with proceeds jurisdiction must make an order requiring a person to pay an amount to the Commonwealth if:
(a) the DPP applies for the order; and
(b)the court is satisfied of either or both of the following:
(i)the person has been convicted of an indictable offence, and has derived benefits from the commission of the offence;”
[63] In POCA the meaning of “derived” appears in s 336 which provides, so far as is relevant:
“336Meaning of derived
A reference to a person having derived proceeds, a benefit or literary proceeds includes a reference to:
(a)the person; or
(b)another person at the request or direction of the first person;
having derived the proceeds, benefit or literary proceeds directly or indirectly.”
[64] The definition at s 336(b) includes a meaning for “derived” which is different from common parlance and which is relevant in this proceeding. Mr Hart may have “derived” a benefit where, at the request or direction of Mr Hart, for example to his nine clients, Mevton has derived proceeds or a benefit, directly or indirectly. Thus Mr Hart may have “derived” a benefit though no money or benefit is provided to him. If Mevton derived a benefit at the request or direction of Mr Hart from Mr Hart’s commission of the nine offences that is a benefit “derived” by Mr Hart within the meaning of POCA s 336.
[65] The court is required by POCA s 116(1) to make an order requiring a person (Mr Hart) to pay the further $620,785.20 to the Commonwealth if the CDPP applies for the order (it has) and the court is satisfied the person (Mr Hart) has been convicted of an indictable offence (he has been convicted of the nine indictable offences), and has derived (directly or indirectly) benefits from the commission of the offence. The issue is whether the $620,785.20 paid to Mevton was “derived” by Mr Hart directly or indirectly from the commission of the nine offences.
[66] The issue does not concern whether it was paid to Mr Hart or whether he benefited from payments made to Mevton. Mr Hart accepted his liability for the $85,617.73 paid by clients to HFL in FYE 1990. A premise for that liability is that Mr Hart “derived” that sum as proceeds or a benefit. That premise did not require proof that Mr Hart personally received or profited from any of it.
[67] The issue the CDPP pleaded[33] which relates to the $620,785.20 was essentially confined to paragraphs 4 and 7 which read:
[33] Amended points of claim paragraphs 4 and 7
“4. Hart caused subsequent payments to be made by the nine clients to Mevton in the amounts shown in respect of application fees, interest charged and repayments of principal during the years ending 30 June 1991 to 30 June 1994.
Particulars of How Hart Caused these Subsequent Payments
(a) The payments were made to Mevton by the nine clients as a consequence of the operation of the ERP as promoted by Hart.
7. The amount of $706,402.93[34] constitutes the benefit derived by Hart from the commission of the nine indictable offences because:
[34]Now limited to $620,785.20
(a) the payments by the nine clients to Hartcorp Fidelity and to Mevton were paid at the request or direction of Hart.
Particulars
(i) The Applicant repeats and relies on the particulars of how Hart caused the payments and subsequent payments to be paid in paragraphs 3 and 4 above;
(b) the offences were committed as a consequence of the nine clients participation in the ERP promoted by Hart.
(c) Hartcorp Fidelity and Mevton were companies associated with Hart.
(d) The payments came under the control of Hart.”
[68] The CDPP appeared by paragraph 7 (d) to raise as an issue as to whether the payments came under the control of Mr Hart. The nice question of whether Mr Hart “derived” the further $620,785.20 is not dependent on finding that the payments came under the control of Mr Hart.
[69] Consistently with the reference at paragraph 7(d) of the pleading to payments coming under the control of Mr Hart, senior counsel for the CDPP, in oral submissions, submitted that Mevton was a company under Mr Hart’s control.[35] There was no submission as to what evidence was relied upon for the submission or what significance should follow from a finding that Mr Hart controlled Mevton. I note that the CDPP did not plead or submit that the money paid to Mevton came under Mr Hart’s “effective control” within the meaning of those words in POCA s116(3).[36] In POCA, “effective control” has a meaning affected by POCA s 337.[37] POCA s 337 sets out a number of meanings of “effective control” which are not exhaustive. The words “effective control” have special significance because of their appearance in POCA s 116(3). Those words can be distinguished from the word “control”. A finding that property came under the mere “control” of a person is relevant to the assessment of the value of benefits that a person has derived.[38] A person’s mere “control” of property does not appear in POCA to be relevant to whether a person has derived a benefit unless it is relevant because proof of control is relevant to proof of “effective control”. In R v Hart; ex parte Cth DPP [2006] QCA 39 Jerrard JA at [13], when setting out general facts agreed on appeal, wrote that “Mevton was effectively controlled by Mr Hart and the indemnified Crown witness Ian Stevens”. That fact does not appear in SAF and is not a conclusion which can be made from the facts in SAF or from the affidavit evidence of Ian Stevens. It may be a proper inference from the transcript of evidence of the criminal trial[39]however I have not undertaken the task of determining whether it is an inference to be drawn. I proceed on the basis that the CDPP has not raised as an issue that money paid to Mevton by the nine clients was under Mr Hart’s effective control. I make no finding as to whether payments received by Mevton in FYE 1991 to 1994 were under Mr Hart’s control while in Mevton’s control. The failure to make that finding does not determine the issue of whether Mr Hart derived a benefit as Mr Hart may derive a benefit from directing a payment to Mevton, without proof that Mr Hart controlled the money or Mevton.
[35] T14 -27.
[36] Set out at [7] herein.
[37] POCA s 338.
[38] POCA s 122(1)(a).
[39]Affidavit of Simon Matthew Allen, Exhibit SA-01
[70] Mr Hart’s argument was made by Davis SC.[40]It is useful to remember that each of the nine offences and the Crown case in each case was that between 1 June 1990 and 30 June 1991 Mr Hart defrauded the Commonwealth by causing an income tax return to be lodged which contained a claim for a deduction which was false because it was for an expenditure which had not been incurred in FYE 1990 and to which the client had not definitively committed in 1990. The payments of $620,785.20 were not referred to as deductions in the nine income tax returns lodged for FYE 1990. Those payments were made over the four financial years following FYE 1990. It was submitted that it cannot be that the nine clients’ payments to Mevton in subsequent financial years[41]were derived directly or indirectly from Mr Hart’s act[42] of causing nine false returns for FYE 1990 to be lodged. It was explained by Davis SC:
“…the real point is they're not derived from the act or omission of which he was convicted, which was lodging the tax returns in 1990[43] … They're derived from the ongoing scheme, … what's actually happened is tax returns are lodged in 1991, '92, '93, '94, claiming, as I understand it, the ongoing deductions under the Mevton scheme. But he wasn't charged with those. He wasn't charged with an offence of defrauding the Commonwealth in relation to each of those alleged offences. And the Commonwealth are now out of time to allege those as unlawful conduct under section 116 and 121 of the Act. So they have to allege that those later payments were derived from the offence for which he's been convicted.”[44]
[40] In respondent’s outline of written submissions on matters of law and at T 14-24 to 14-25
[41] Which implies the 4 financial years in which $620,785.20 was paid to Mevton
[42] Occurring between the first day of June 1990 and the thirtieth day of June1991
[43] I infer Davis SC meant to say “which was causing the lodging of the tax returns for FYE 1990 in
the 13 month period between the first day of June 1990 and the thirtieth day of June1991”
[44] T 14-24 to 14-25 per Davis SC
[71] The argument was put concisely and differently in his pleading where Mr Hart denied that he caused the payments to be made on the basis that the payments were made by each client in discharge of the client's contractual obligations to Mevton as a consequence of the operation of the ERP.
[72] Senior counsel for the CDPP orally submitted:
“By committing the offence he has caused clients to enter into loan arrangements with Mevton and make those claims for the amount of the loan in their relevant tax return for the 30th of June 1990, but we say it's at least an indirect benefit to him that as a result of that illegal conduct, or that convicted conduct, they have to pay interest on the loan … to Mevton, which is a company under his control, … at his direction. So we would say it's an indirect benefit to him from the commission of that offence.”[45]
[45] T 14-27 per Flanagan SC
[73] The CDPP submitted in writing that the conduct for which Mr Hart was convicted included promoting a scheme where participants were advised that they had borrowed monies from Mevton for the purpose of obtaining a tax deduction for the purchase of an insurance bond in their tax return for the year ending 30 June 1990 in circumstances where the respondent knew that claims for tax deductions in respect to interest payable on those loans to Mevton by participants in that and subsequent years were or were likely to be false. It is in those circumstances that the CDPP submitted that the subsequent payments of interest, application fees and principal by participants to Mevton constituted either a direct or indirect benefit to the respondent from the commission of the nine offences.
[74] It oversimplifies matters to submit that commission of the offence caused the clients to enter into a loan from Mevton. Firstly, each offence was not complete until the return was lodged and that lodgement occurred by 30 June 1991. In the case of Gamcove it occurred by 18 April 1991. It is possible with respect to each of the nine clients that lodgement of the return occurred months after the clients entered into arrangements with Mevton. Secondly, it may be that there was an agreement between Mevton and each of the nine clients, at least to be inferred from the clients’ conduct in making payments to Mevton from November 1990 and it may be that the agreement can be properly characterised as a loan. It oversimplifies matters to submit that the conduct for which Mr Hart was convicted included promoting a scheme when the conduct for which he was convicted was misrepresenting an aspect of the scheme in nine returns.
[75] The act of directing clients to make payments to Mevton was not of itself an offence or charged as an offence. No legal obligation to make payments to Mevton arose from Mr Hart’s subsequently causing lodgement of 1990 FYE income tax returns. The CDPP submission is that payments to Mevton were a benefit derived at least indirectly from the commission of the offence.
[76] The CDPP supported its submission that the payments to Mevton were indirect benefits by reference to Director of Public Prosecutions (Cth) v Saffron.[46]I derive no assistance as to the meaning of an indirect benefit from that case. It concerns a prior statute but its benefit is lost because the reasons in the passage extracted from her Honour’s judgment at [158] and relied upon by the CDPP were based upon the combined effect of sections 4(3) and 27(4) of that statute. The reasons were more an application of section 27(4) than a finding as to the meaning of a benefit indirectly derived.
[46](1989) 85 ALR 153
[77] The parties have agreed that “facts and circumstances forming the basis of Mr Hart’s conviction” include that the nine clients were advised that the loans had been provided by Mevton, not Chase AMP and that interest and loan repayments should be made to Mevton. It does not matter whether the nine clients’ returns were lodged before or after the nine clients entered into arrangements with Mevton which led to the payments to Mevton.
[78] Whether the arrangement is properly called a loan or not, the arrangements between the nine clients and Mevton which resulted in the clients paying Mevton were necessary to facilitate the commission of the offences for which Mr Hart was convicted. Payments to Mevton facilitated the commission of an offence by maintaining appearances of either a loan made by Mevton in June 1990 or of the client’s definitive commitment in June 1990 to accept a loan from Mevton. That appearance was created to support the claim for a deduction against income for FYE 1990 for the amount Mevton supposedly lent.
[79] The clients’ arrangements with Mevton and their payments pursuant to the arrangements were lawful activities. That lawfulness does not prevent the payments from falling within the category of benefits indirectly derived from the commission of offences. I am assisted by the CDPP’s reference to a statement by Keane JA as his Honour then was in State of Queensland v Brooks[47]. Though his Honour was considering the Criminal Proceeds Confiscation Act 2002 (Qld) the observations apply with equal force to the Commonwealth Act, as the definition of “derived” in both statutes includes benefits directly or indirectly derived. His Honour wrote that:
“The expansion of the definition of the expression ‘derived’ to include ‘indirectly derived’ is quite inconsistent with such a narrow focus. It is sufficiently broad to encompass a combination of legal and illegal activity as the cause of a benefit within the meaning of s 18 of the Act. A thief who deposits stolen money with a bank could not be heard to say that the interest on the deposit is not the proceeds of his theft merely because it was also, and more directly, derived from a lawful deposit. So Mr Brooks cannot claim that the profit he intended to make was not the proceeds of his fraud merely because part of his scheme involved the lawful purchase and sale of the apartment.”
[47][2008] Qd R 484 at [58]
[80] I am satisfied that payments made by the nine clients to Mevton for FYE 1991 to 1994 are indirectly derived from the nine offences. The amount of benefits derived by Mr Hart from the commission of the nine offences is $706,402.93.
Alleged Offences by Mr Hart against s29D of the Crimes Act 1914 (Cth) ands 135.1(5) of the Criminal Code (Cth)
[81] The CDPP also seeks to prove that Mr Hart committed further offences for which he has not been charged. The CDPP’s application describes the alleged further offences as unlawful activity and separates the unlawful activity into five episodes which are particularised in the application at paragraph 1 clauses (b)(i) to (b)(v). If the further offences are proved the CDPP seeks also to deprive Mr Hart of benefits derived by him from his commission of the further offences. The CDPP alleges that he derived a further $14,070,937.87 from his commission of the further offences. The further offences are denied by Mr Hart. The quantum of benefits derived from the further offences is disputed.
[82] The first four in time of the five episodes of unlawful activity are particularised in the application at paragraph 1 clauses (b)(i) to (b)(iv) and are alleged to have occurred at dates when section 29D of the Crimes Act 1914 (Cth) (“Crimes Act”) was in force. Section 135.1(5) of the Criminal Code (Cth) replaced s 29D of the Crimes Act 1914 by the enactment of the Criminal Code (Cth) in 1995. Section 135.1(5) commenced on 24 May 2001[48]. The fifth episode of unlawful activity particularised in the application at paragraph 1(b)(v) is alleged to have occurred between 24 May 2001 and 30 June 2003 being a period when Section 135.1(5) of the Criminal Code (Cth) was in force.
[48]Subsection 135.1 was inserted into the Criminal Code Act 1995 by the Criminal Code Amendment (Theft, Fraud, Bribery and Related Offences) Act 2000 (No. 137)
No limitation period defence
[83] No defence based upon a limitation period is raised with respect to any episode of the alleged unlawful activity. The date of the offending alleged is relevant for the purposes of a six year limitation period in POCA s 121(4)(a).[49] Mr Hart admits that on 8 May 2003 an application for a restraining order was made and the order was granted and some of Mr Hart’s property is covered by the restraining order. S 121(4) was considered in CDPP v Hart & Ors [2007] QCA 184. Mr Hart previously applied to strike out that part of this application which seeks benefits alleged to have been derived by Mr Hart more than six years before 17 July 2006. This date was the date of the filing of this application for the PPO. The Court of Appeal determined that some or all of Mr Hart’s property was “covered by” the restraining order of 8 May 2003 within the meaning of POCA s 121(4)(a)(i) so as to permit the CDPP to quantify the pecuniary penalty order which was sought by reference to benefits derived by Mr Hart during the six years prior to 8 May 2003. The unlawful activity alleged in the application at paragraph 1 clauses (b) (i) to (v) is alleged to have occurred within the period of six years preceding the application for the restraining order made on 8 May 2003. Mr Hart does not by his amended points of defence or by submissions raise this limitation point in defence of the claims relating to the further offences.
First issue of law relating to Crimes Act s 29D
[49]See [57] herein
[84] Two issues of law arose relating to specifically s 29D of the Crimes Act.
[85] Firstly, is it a necessary element of an offence against s 29D that Mr Hart knew that his conduct was dishonest according to the standards of ordinary honest people? This issue was not raised between the parties. I raise it from caution because in Queensland, a jury considering an offence against s 29D is commonly instructed that it is necessary that the prosecution prove it. Despite that convention, the CDPP submission did not include it as an element of an offence against s 29D and senior counsel for Mr Hart raised no issue about it.
[86] Section 29D of the Crimes Act 1914 provided at material times:
“A person who defrauds the Commonwealth or a public authority under the Commonwealth is guilty of an indictable offence.”
[87] The successor to s 29D, s 135.1(5) of the Criminal Code (Cth) provided at the material time:
“A person is guilty of an offence if:
[382]SDF Vol.1, page 384 - 385
[511] What is contemplated by Mr Olesnicky in this advice is that EGA would call upon UOCL in respect to the promissory notes and then lend back these proceeds to UOCL for the purpose of making the relevant investment pursuant to the insurance bond. This did not occur. EGA did not present the notes and made annual promises not to present them.
[512] Mr Olesnicky in his Memorandum of 20 August 1998 contemplated that an investment would be made by the insurance company when he refers in paragraph 1(d):
“Your client might establish an Australian resident unit trust. The trustee of the unit trust will purchase property in Australia. It will borrow the purchase price from the insurance company. The loan will be funded out of the client’s policy portfolio. Interest will be payable by the unit trustee (subject to withholding tax). The interest will accrue to the benefit of the policy portfolio.”
[513] Mr Olesnicky continued at paragraph 1(e) of the Memorandum of 20 August 1998: “after 10 years, your client will redeem the policy and will receive the original amount, together with interest payments, on a tax free basis.” What was being contemplated was that EGA would actually present the promissory notes for payment to UOCL and receive actual funds. Those funds would then be invested by EGA on behalf of the trustee in an Australian resident unit trust. His advice is in relation to the tax consequences in Australia for profits derived from such an investment by EGA. What was contemplated by Mr Olesnicky was an actual investment by EGA as the issuer of the insurance bond not the passive postponement of presentation of promissory notes.
[514] In his subsequent email of 25 August 1998, Mr Olesnicky contemplated a slightly different arrangement for Mr Hart: whereby EGA having presented the promissory notes for payment by UOCL, subsequently lends those monies to UOCL for UOCL to invest. In either scenario, what is still contemplated is the presentation of the promissory notes for payment and an actual investment by EGA for the benefit of employees.
[515] An inference cannot be drawn that this advice from Mr Olesnicky constitutes advice to Mr Hart that the different schemes Mr Hart actually implemented would provide participants with a lawful tax deduction for their claims for fees, and interest actually paid to UOCL and their initial contribution notionally paid to a trustee.
[516] An advice was obtained from Mr Searle[383]dated 1 October 1998. Mr Searle’s instructions are that:
“The contributions to the employee welfare fund will not be made for any purpose other than to provide the abovementioned benefits to employees(Clause 11). Contributions are generally made with a large first up payment and then smaller quarterly contributions. The contributions may be invested in a life insurance bond (26AH compliant) issued by a Mauritius incorporated insurance company or in other insurance policies taken out by the independent New Zealand trustee. Each of the contributions will be actuarially calculated based on the profile of the employees (ie. gross income, age, sex, length of service etc). Contributions are not accounted for separately within the trust for each employee.’[384] Mr Searle is also instructed that the ‘trust deed provides that the fund is not to be applied for the benefit of the Employer Sponsor in any manner and the employer sponsor can only make contributions to the fund”[385].
[383] SDF Vol.1, p.571-580
[384] SDF Vol.1, p.572, para.4
[385] SDF Vol.1, p572, para.5
[517] The EWF arrangements that were promoted differed from the arrangements described in the instructions referred to by Mr Searle in that:
(a) the assignment of a promissory note which was not to be presented for payment and could not be paid upon demand did not constitute a “contribution” to an EWF;
(b) if the assignment of the promissory note constituted a contribution, it was not for the purpose of providing benefits to employees as there was no money to be paid and no funds which could be invested for the benefit of employees;
(c) the assignment of the promissory note to NET was for the purpose of the employer/participant claiming a tax deduction and for the purpose of the respondent and UOCL earning fees, interest and commissions;
(d) the New Zealand trustee was not independent;
(e) there is no evidence that the contributions were actuarially calculated based on the profile of the employees; and
(f) the life insurance bond was provided as security for the loan the employer obtained from UOCL and UOCL was to be repaid from the bond which constituted an asset of the fund. In that respect the fund was being applied for the benefit of the employer.
[518] In paragraph 8 of his advice Mr Searle refers to the general principles concerning deductibility to the EWF under Section 51(1) of the Income Tax Assessment Act 1936 (now 8-1 under the 1997 Act)[386] and quoted from the judgment of Nicholson J in Gandy Timbers Pty Ltd v F.C. of T. 95 ATC 4171[387]:
“... the characterisation of the outgoing involves a commonsense or practical weighing of the various aspects of the whole set of circumstances including the direct or indirect object of the taxpayer in making the outgoing and the advantages which the taxpayer sought in doing so: Hallstroms Pty Ltd v FCT (1946) 8 ATD at 195, (1946) 72 CLR 634 at 648; FC of T v Foxwood (Tolga) Pty Ltd 81 ATC 4261 at 4264; (1981) 147 CLR 278 at 285, 293; Fletcher & Ors v FC of T 91 ATC 4950 at 4957-4958; (1991) 173 CLR 1 at 18-19. “Necessarily” means the outgoing must be appropriate and adapted for the ends of the business carried on for the purpose of earning assessable income: Rimpibon Tin NL v FC of T (1949) 8 ATD 431 at 434-435: (1949) 78 CLR 47 at 55-56: FC of T v Snowden & Wilson Pty Ltd (1958) 11 ATD 463 at 469 and 464; (1958) 99 CLR 431 at 444 and 437 cited in Magna Alloys & Research Pty Ltd v FC ot T 80 ATC 4542 at 4558; (1980) 33 ALR 213 at 233. It means for practical purposes that, within the limits of reasonable human conduct, it is for the person carrying on the business to be the judge of what outgoings are necessary to be incurred: FC of T v Snowden and Wilson, (supra) at ATC 469; CLR 444; Magna Alloys, (supra) at ATC 4558; ALR 233. An outgoing will be necessarily incurred in carrying on the business when, viewed objectively, it is seen in the circumstances to be reasonably capable of being seen as desirable or appropriate in pursuit of the business ends of the business being carried on for the purpose of earning assessable income; Magna Alloys & Research, (supra) ATC 4559; ALR 235”
[386] “(1) You can deduct from your assessable income any loss or outgoing to the extent that:
(a) it is incurred in gaining or producing your assessable income; or
(b) it is necessarily incurred in carrying on a * business for the purpose of gaining or producing your assessable income.
Note: Division 35 prevents losses from non‑commercial business activities that may contribute to a tax loss being offset against other assessable income.
(2) However, you cannot deduct a loss or outgoing under this section to the extent that:
(a) it is a loss or outgoing of capital, or of a capital nature; or
(b) it is a loss or outgoing of a private or domestic nature; or
(c) it is incurred in relation to gaining or producing your * exempt income or your * non‑assessable non‑exempt income; or
(d) a provision of this Act prevents you from deducting it. “
[387]SDF Vol.1, p.573, para.8
[519] Mr Hart knew that no money would be provided by UOCL to the participants, for the initial contribution or available to the trustee or the insurance company. Mr Hart, if he relied upon the advice, must have known that for his schemes the initial contribution, fees and interest payments were not desirable or appropriate in pursuit of the participant’s business.
[520] Mr Hart suggested in cross examination that participants obtained a return on their investment in the bonds in the early years and that the only reason that they did not receive a return on their investment when the bonds were cancelled or redeemed after 2000 was because of the arrears in interest payments. It is from email correspondence between Mr Hart and Mr Horne that an additional charge was to be made on all outstanding policies purportedly to take account of investment losses.[388]
[388] SDF Vol.2, p.1230
[521] Mr Hart tendered an opinion[389]provided by Russell QC on 29 June 1999 on the taxation consequences which follow where the controlling shareholder of a company who is also an employee of the company makes a contribution to a non-complying superannuation fund in respect of the taxpayer. The facts are set out at page 1 and 2 of the opinion and in the instructions to Mr Russell on 28 June 1999[390]. In his instructions Mr Hart wrote:
[389] SDF Vol.2, p.721-768
[390] SDF Vol.2. p.696-697
“The structure and arrangement is as follows.
(1)All contributions are for genuine superannuation purposes.
(2)The client borrows money from United Overseas Credit Limited, a finance company that is registered in Hong Kong. The interest rate varies between 5.5% and 9%. The client also pays any withholding tax on that interest.
(3)The person has greater than 50% shareholding in the company, is a director of the company, and earns assessable income from the company.
(4)The fund is established with the Trustee being a New Zealand company “National Employee Trust (New Zealand) Limited”. The contribution is made to this fund with the independent trustee.
(5)The Trustee invests the money in a life assurance company, European Grande Assurance S.A., which is based in Mauritius. A 26AH bond is issued by the insurance company for the amount of the investment made by the Trustee. The anticipated bond’s earning rate is between 4% to 7% per annum.
(6)No monies are lent back to the contributor in any manner whatsoever. The only time the contributor receives any benefit from the fund will be when that person retires from the fund.
It has been stressed to every person who makes a contribution in the above manner that it must be only for genuine superannuation purposes. To the writer’s knowledge, each party has stated that as being the fact.”
[522] No reference is made to the contribution being made by assigning a promissory note which would not be presented to UOCL for payment. Russell QC wrote that he was asked to assume that “the fund trustee will invest the contribution in a bond which complies with the requirements of section 26AH of the 1936 Act. The anticipated earning rate of the bond will be between 4% and 7% per annum.” Russell QC says at page 5 of his opinion “that provided what has been brought into existence is a genuine superannuation arrangement in the sense discussed by Windeyer J in Scott v Federal Commissioner of Taxation (No. 2) there is no reason in principle why the arrangements should not have achieved their intended effect.” He quoted a passage from Windeyer J which includes the following:
“I have come to the conclusion that there is no essential attribute of a superannuation fund established for the benefit of employees except that it must be a fund bona fide devoted as its sole purpose to providing for employees who are participants money benefits (or benefits having a monetary value) upon their reaching a prescribed age. In this connexion “fund”, I take it, ordinarily means money (or investments) set aside and invested, the surplus income therefrom being capitalised....................
The inference I draw from the evidence as a whole is that there never was in truth a superannuation fund established for the benefit of employees.”
[523] Mr Russell QC further stated:
“This opinion proceeds on the basis that the fund will satisfy this description. A trust estate which does not do so will be taxed in accordance with Division 6 of Part III of the 1936 Act. To the extent that the Commissioner’s recent public utterances on the topic sought simply to say that his Office would not accept as a matter of course that every taxpayer claiming to be, to have contributed to, or to have benefited from a superannuation fund in fact had that status, they could not be cavilled with”.[391]
[391] SDF Vol.2, p.730
[524] At page 10 of his opinion Mr Russell QC emphasised:
“It may be observed that in order to be deductible a contribution must be for the purpose of making provision for superannuation benefits for an eligible employee. Superannuation is simply a form of saving. So it seems that a borrowing on long terms of money by a contributor to establish a fund which simply enabled repayment of the borrowing on distribution of the fund would not be for superannuation purposes, particularly where the investment return is (as on my instructions seems a possibility) less than the cost of funds”.
[525] At page 46 Mr Russell QC repeated:
“Unless the dominant purpose of what is done is to provide superannuation benefits for an eligible employee, section 82AAE will not apply, in which case there is no tax benefit to which part IVA might apply.”
[526] Mr Hart emphasized that Russell QC understood that the there was a possibility that the return on the insurance bonds could be lower than the cost of borrowings and advised:
“if, however, the borrowing was on very short terms, repaid from current or future earnings, it seems to me clear that what is proposed would satisfy the description of a form of savings… Ideally, the borrowing would be liquidated in a short period (say 2 to 3 years) from current earnings although it seems to me that provided it has been liquidated before the benefits are payable it cannot be said that this aspect of the matter precludes deductibility”
[527] The matters stressed by Mr Hart in the advice were not a hypothesis consistent with the schemes. The borrowing was not to be liquidated in a short period, (it was conceivable that it would never be repaid), and the premise of a return on the insurance bonds was implausible where the insurer had no investment capital. A reader such as Mr Hart would not regard that as advice that the different schemes Mr Hart actually implemented would provide participants with a lawful tax deduction for their claims for fees and interest paid to UOCL and their initial contribution notionally paid to a trustee.
[528] An opinion dated 9 June 1999 was also obtained from Russell QC in relation to the EWF Scheme.[392] At page 2 of this opinion Russell QC refers to the employer having made contributions to the Fund for the benefit of all its employees. There is no reference to the contribution being by assignment of a promissory note which would not be presented for payment.
[392] SDF Vol.2, p.852-918
[529] Mr Hart submitted that the court should infer, unless the CDPP can exclude it, that reputable lawyers such as those who advised him, would have advised that the schemes did not provide lawful deductions if that had been their opinion; that there is no opinion produced that a scheme is unlawful; that I should infer that Mr Hart honestly believed that the deductions claimed were valid. I do not infer that the lawyers knew the precise nature of the schemes. If some did, I do not infer that they would have advised that the claims to be made were properly deductible.
[530] It is an agreed fact that Mr Hart believed that for client/employers in the schemes to be entitled to a deduction for a contribution made to the trustee of the relevant EWF/NCS, the contribution had to be for the purpose of providing a benefit to an employee who was a member of the fund.[393]
[393]See for example SAF, para.84 and 99
[531] I reject the defence that Mr Hart relied upon legal advice to the effect that the deductions whether for application fees, interest or contributions were or could be lawfully claimed.
[532] Serious offences: Crimes Act, s 29D provided for a penalty of 1000 penalty units or imprisonment for ten years in the event of an offence against that section. An offence against s 135.1(5) of the Criminal Code carries a penalty of imprisonment for five years. Because the term of imprisonment for each of those offences is three years or more the alleged unlawful activity would therefore be a “serious offence” as that term is defined in POCA s 338[394]subject to the conduct which constitutes the unlawful activity meeting the $10,000 loss or benefit or intended loss or benefit elements set out in that section in the definition of “serious offence” at (a) (iii) or (a) (iv). In the case of the five episodes of unlawful conduct alleged in each of applications 1 (b) (i) to 1 (b) (v) that conduct was intended by Mr Hart to cause a loss to the Commonwealth of at least $10,000 and was intended to cause a benefit to the value of at least $10,000 for Mr Hart or another person. UOCL is another person. There were no submissions by or for Mr Hart to the effect that if any of the five episodes of conduct was unlawful it was not a “serious offence” within the meaning of POCA s 338. Considering the amounts paid to UOCL and the amounts which might have been paid in later years, there can be no doubt that if offences were committed in respect of the 1998 EWF, the 1999 EWF and the 1999 Superannuation schemes as alleged in the further amended points of claim at paragraphs 10, 12, 14 and 16 that each of the offences fell within the category of “serious offence.” Those amounts paid are set out in the section considering “Assessment of benefits re applications 1(b) (i) to 1 (b) (v)”. I made a finding elsewhere in these reasons in respect of the offence alleged and relating to the 1997 EWF that it was a serious offence.
[394]See [58] herein
[533] Assessment of benefits re applications 1(b) (i) to 1 (b) (v): By the stage of its submissions in reply the CDPP submitted that Mr Hart derived a further $14,050,884.87 from the unlawful conduct I have found in respect of the conduct pleaded in the further amended points of claim and in relation to applications 1(b) (i) to 1 (b) (v).
[534] Courts have observed that the assessment of benefits derived will be performed, often on unsatisfactory material[395]and where there are “difficulties of quantification the court will simply do its best to reach a reasonable result in all the circumstances, bearing in mind the self evident legislative intent that people should not profit from criminal activities.”[396]
[395] R v Fagher (1989) 16 NSWLR 67 at 80 per Allen J quoted with approval by McMurdo J in State of Queensland v Hirst [2003] QSC 266 at [14]
[396]New South Wales Crime Commission v Kelly [2003] NSWSC 154 per Shaw J at [49]
[535] The CDPP’s case is that all monies directed to UOCL by scheme participants were directed to UOCL by Mr Hart and are assessable as benefits derived by Mr Hart. The CDPP submits that UOCL’s records of money received from participants will be the minimum it received and can be accepted as an appropriate amount subject to deduction for some refunds UOCL paid to participants.
[536] Mr Vincent, a forensic accountant, assessed material and provided reports. Mr Hart submitted the task should have been performed by an auditor instead. I express no opinion as to whether an auditor would have been of more assistance. Mr Hart challenged Mr Vincent in cross-examination and established that Mr Vincent made some errors in his reports though mostly in matters unrelated to the calculations. Mr Vincent said that he had reviewed the accounts of EGA for FYE 1999. Mr Hart established that Mr Vincent had not reviewed an auditor’s report and that an auditor’s report is an important document. Mr Vincent said he found no evidence of UOCL seeking repayment of loans in part or in full, but Mr Hart submits that the reports show that at least one person “repaid” $200,000. Reference to schedule A[397] to Mr Vincent’s Task 2 report reveals that one payment of $200,000 was recorded as “principle”. No other payment of principal was recorded in the period 1 July 1998 to 15 September 2004. The record revealed $17,524,904 traced by Mr Vincent as deposits received by UOCL on account of interest and establishment fees and principal. I accept that Mr Vincent failed in his answer in cross-examination to refer to that one deposit of principal. These submissions by Mr Hart were effectively a submission that the court should be wary of the weight to be given to Mr Vincent’s evidence. Mr Hart also submitted that Mr Vincent should have been instructed to investigate whether UOCL had the capacity to honour its promissory notes and to investigate other matters such as whether UOCL had arrangements with a bank. The fact that Mr Vincent was not instructed to consider more tasks has little effect on the tasks he undertook. It does not affect his calculations. It is a matter I bear in mind when considering the reliability of his opinions on matters other than calculations. Mr Hart made submissions challenging the accuracy of conclusions or assumptions made by Mr Vincent about payments made by UOCL and the propriety of some payments. I bear those matters in mind. Mr Hart also identified matters in the reports which directly affect the correctness of Mr Vincent’s calculations. They are significant matters I propose to consider separately.
[397]Q00015689
[537] Mr Hart submitted: “Mr. Vincent agreed that Merrell could have been an investment arm of UOC/EGA. This is evidence of Mr. Vincent was unchallenged and should be accepted”. This can be contrasted with what Mr Vincent actually was asked and answered:
Were you ever informed or could you draw a conclusion either
or from the information you've seen whether UOCL or EGA, or
both, used Merrell as an investment vehicle?-- All I can
identify are the payments that went to Merrell, so what the
purpose of those payments were, I'm not sure.
[538] I reject the submission that Merrell’s receipt of money from UOCL was to act as an investment vehicle for EGA. There is no evidence that Merrell was paid money by EGA to invest for EGA.
[539] The assessment of the benefits derived is made pursuant to Subdivision B of the Act. Section 122(1) relevantly provides:
“(1)In assessing the value of benefits that a person has derived from the commission of an offence or offences (the illegal activity), the court is to have regard to the evidence before it concerning all or any of the following:
(a) the money, or the value of the property other than money, that, because of the illegal activity, came into possession or under the control of:
(i)the person; or
(ii)another person at the person’s request or direction.”
[540] The applicant submits that the payments by participants in the EWF schemes and the non-complying superannuation schemes to UOCL constitute benefits derived (either directly or indirectly) by the Mr Hart in respect to the offences that constitute unlawful activity.
[541] The term “unlawful activity” is defined in POCA s 338 to mean an act or omission that constitutes (relevantly for present purposes), an offence against a law of the Commonwealth. Here the acts or omissions that constitute unlawful activity are the offences of defrauding the Commonwealth and its subsequent equivalent, namely, s 135.1(5) of the Criminal Code (Cth).
[542] POCA s 121(3)(a)(ii) is made subject to s 121(4) each of which are set out at [55] above.
[543] The unlawful activity to which applications1(b) (i) to 1 (b) (iv) relate from which the benefits are said to be derived by Mr Hart occurred within the period of six years preceding the application for the restraining order made on 8 May 2003.
[544] Mr Muller of the Australian Federal Police database compiled a database to quantify the total amount of money paid to UOCL in Hong Kong by participants of the EWF and non-complying superannuation schemes. This quantification was based on a analysis by Mr Muller of the files obtained by the Hong Kong Police Force from the offices of Zetland Corporate Services. For each purported loan entered into between UOCL and a participant in the schemes, Mr Muller generated one entry in the database. This entry was automatically allocated a “loan ID”number. In respect of each loan, the database record consisted of introductory fields and four sections, namely:
(a) application for loan;
(b) letter of Offer;
(c) loan agreement; and
(d) statement[398].
[398]See paragraphs 2, 3, 7 and 9 of Mr Muller’s affidavit – Q00048118
[545] Mr Muller was cross-examined by the respondent. No challenge was made to the accuracy of the AFP database which quantified the total amount of money paid to UOCL in Hong Kong by participants in the schemes.
[546] Mr Vincent concluded that the AFP database accurately recorded that payments totaling $19,168,097.77 were recorded by UOCL in the client files of the participants in the schemes. This amount comprised payments of establishment fees, repayments of principal and interest paid by the participants in respect to their alleged loans with UOCL. Mr Vincent also identified that payments totaling $47,647.96 were recorded in client files of the participants, but were not recorded in the database. Accordingly, in his opinion, the amount recorded in the database represents the minimum amount that UOCL recorded in their own files as payments from participants in the schemes.[399] It is this lesser amount of $19,168,097.77 which Mr Vincent uses to quantify the amount paid to UOCL at the direction of Mr Hart. He then makes a deduction for refunds by UOCL.
[399]Task 2 Report, paragraphs 2.1 and 2.2
[547] Mr Vincent was provided with a copy of the affidavits of Mr Michael Hawthorn dated 7 May 2009[400] and 27 May 2009.[401] These affidavits of Mr Hawthorn reviewed the client files of UOCL and identified documents relating to the closure or cancellation of client “loans” by UOCL. Based on his review of the information, Mr Vincent determined that a total amount of $297,159.90 was refunded by UOCL in respect of the cancellation of loans by scheme participants[402]. Mr Vincent sets out the details of these refunds in Schedule A to the Task 2 Supplementary Report. In the majority of cases, the amount refunded by UOCL was paid to the trustee of the schemes, namely NET. Mr Vincent noted that NET would ordinarily deduct an administration fee from the refunded amount received from UOCL, before forwarding the balance of funds to the scheme participant.[403]
[400]Q00015584
[401]Q00015804
[402]Task 2 Supplementary Report, para.2.1
[403]Task 2 Supplementary Report, para.5.5(iv)
[548] Mr Vincent gave evidence that this amount of $297,159.90 should be subtracted from the amount of $19,168,097.77 to arrive at the total contributions by participants in the scheme to UOCL as being $18,870,937.87.[404] Mr Hart identified six more participants whose “loans” totaled $1,045,000.00 to whom he submitted refunds of $20,053.45 were paid by UOCL. The CDPP submitted: “Given the size of this sum, the applicant is content to agree that the figure of $297,159.90 should be altered to the figure of $317,213.35. This results in the total of the pecuniary penalty order sought by the applicant as being $14,757.287.80.”
[404]T 9-10 L34-51
[549] Mr Hart raises a challenge to a further $1,974,165.75 which he submits should be deducted from the amount of the $19,168,097.77 which was recorded by UOCL in the client files of the participants as having been paid to UOCL. In Mr. Vincent's report at paragraph 2.4 (ii) he stated:
I have identified additional deposits totalling $1,974,165.75 were recorded in the banking records of UOCL from participants who had an alleged loan from UOCL, but were not recorded in the database. Based on my review, I was unable to identify any record of these amounts in the client files of those participants. For this reason, I am unable to positively ascertain whether such payments were made to UOCL in relation to the schemes, or for another reason.
[550] The flaw in the challenge is that Mr Vincent’s figure of the $19,168,097.77 which was recorded by UOCL in the client files of the participants does not include the “additional deposits totalling $1,974,165.75 were recorded in the banking records of UOCL from participants who had an alleged loan from UOCL, but were not recorded in the database”. It is clear to me that Mr Vincent declined to include the $1,974,165.75. This figure may represent further amounts received by UOCL from participants. They are amounts which were not recorded in client files or the AFP database but were nonetheless recorded in the banking records of UOCL. They should perhaps have been included as further benefits derived. Rather than using the figure as a basis for subtraction, it makes me more comfortable in regarding the initial starting point of $19,168,097.77 as reasonable. I will not add the $1,974,165.75 as a further benefit and the CDPP does not submit that I should.
[551] Mr Hart made a submission which concerned the schemes other than the 1997 EWF. He submitted that about 41% of the deductions participants could have claimed were not claimed; that about $49,000,000 was not claimed as deductions. He submitted that accordingly 41% of the penalty otherwise assessable should be subtracted. The factual premise submitted is wrong. It is wrong to conclude that 41% of deductions were not claimed by reasoning from the ATO’s amended assessments. Mr Singh of the ATO made it clear that he has been unable to identify all the entities that claimed deductions in respect of the arrangements. The AFP access database will therefore include amounts claimed as deductions by tax payers who, for various reasons, were not identified by the ATO during the audit process and for which the tax avoided has not been raised in amended assessments or collected. Mr Singh further states that in some cases, amended assessments were not raised in respect to certain tax payers that were insolvent, bankrupt or in liquidation at the time that their participation in the arrangements was detected. Others were simply not identified.
[552] It follows that Mr Hart cannot use the amount raised by way of amended assessments by the ATO, namely, $71,086,935.00 as a foundation to submit that this represents the percentage of the total number of participants who claimed such deduction.
[553] Further, the inference sought to be drawn by Mr Hart is not supported by Exhibit PJ7 to the affidavit of Mr Singh. This schedule lists the participants in the schemes who were actually audited by the ATO. Of the participants audited, only a small percentage made no claim in the relevant tax return for contributions either initial contributions, interest or establishment fees in respect to the schemes. For example, from Exhibits PS3 and PS6 of Mr Singh’s affidavit dated 17 July 2006 the following arises:
for the 1997 scheme all 28 entitles claimed deductions;
for the 1998 schemes seven out of 227 entitles did not claim deductions.
[554] Therefore, only seven out of 227 entitles in total did not claim deductions. This represents only 2.7%. I reject the factual submission. As a matter of law it provides no basis to reduce an assessment of benefits derived by Mr Hart.
[555] The question for the Court is not the amount of tax that has actually been defrauded, but rather the benefits that Mr Hart has derived either directly or indirectly from unlawful activity.
[556] I am satisfied on the balance of probabilities that the benefits derived by Mr Hart directly or indirectly from the unlawful acts are $19,168,097.77 less $297,159.90 less $20,053.45 = $18,850,884.42
Total benefits derived/penalty amount
[557] The benefits derived from the commission of the nine offences I assessed as $706,402.93. The total of benefits derived from the nine offences and the unlawful activity is $706,402.93+$18,850,884.42=$19557287.35
[558] Taking account of the agreed reduction of $4,800,000.00 from the benefits assessed the balance of $14,757,287.35 is the appropriate pecuniary penalty.
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