Finnan v Catrupi

[2002] NSWSC 569

CITATION:	Finnan v Catrupi [2002] NSWSC 569
CURRENT JURISDICTION:	Common Law
FILE NUMBER(S):	SC 13178/01
HEARING DATE(S):	13/6/02
JUDGMENT DATE:	26 June 2002
PARTIES :	Malcolm FINNAN - Plaintiff Raymond Vincent CUTRUPI (Commonwealth Services Delivery Agency - Defendant
JUDGMENT OF:	Mathews AJ

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

COUNSEL :	C Waterstreet - Plaintiff I Bourke - Defendant
SOLICITORS:	Stephen Hodges Commonwealth Diector of Public Prosecutions
CATCHWORDS:	Appellant convicted of knowingly receiving overpayments of Social Security benefits - basis upon which overpayments calculated - extent of knowledge required.
LEGISLATION CITED:	Social Security Act (Commonwealth) 1001 Justices Act 1902 Income Tax Assessment Act 1936
DECISION:	Appeal dismissed with costs.

IN THE SUPREME COURT
OF NEW SOUTH WALES
COMMON LAW DIVISION

MATHEWS AJ

26 June 2002

13178/01
Malcolm FINNAN v Raymond Vincent CUTRUPI (COMMONWEALTH SERVICES DELIVERY AGENCY)


JUDGMENT

1 HER HONOUR: On 16 March 2000 the appellant was charged with five counts under s 1347 of the Social Security Act (Commonwealth) 1991 (“the Act”). Four of the charges (the first, second, third and fifth charges) alleged that on various dates the appellant knowingly obtained payment of a social security payment under the Act which was only payable in part. A further charge (the fourth charge) alleged that the appellant knowingly obtained payment of an instalment of a social security payment which was not payable. On 11 September 2001, following a three day hearing, Mr G Johnson, Magistrate, in a reserved decision, found each of the offences proved beyond reasonable doubt. The appellant has appealed to this Court under s 104 of the Justices Act 1902 claiming that the Magistrate’s finding in each case was wrong in law and that his decision cannot be supported having regard to the evidence.

2 The facts of the matter can be stated briefly. Between 5 January 1995 and 13 January 1999 the defendant received a Newstart Allowance under the Act. Applicants for Newstart Allowance were routinely advised of the necessity to inform the Department of any income received from external sources as this would affect the rate of payment under the Newstart scheme. In addition, the appellant was required to lodge regular applications for payment of his allowance. Eight of these were in evidence before the Magistrate. Each included a question as to whether the applicant had been working during the relevant period. On each of the eight forms which was before the Magistrate the appellant had answered these questions in the negative.

3 In fact, the appellant had worked for The Ecology Lab Pty Limited, (“The Ecology Lab”) apparently as a sub-contractor, between 14 January 1998 and 13 January 1999 with a gross income of $12,158.75. Between 14 August 1998 and 30 December 1998 he had worked, apparently again as a sub-contractor, for CPF Gas & Plumbing Pty Limited (“CPF Gas”) for which he had received a gross income of $5,000.

4 On 13 August 1999, on the basis of the figures which had been provided to it, the Department calculated the amounts by which it said the appellant had been overpaid his Newstart Allowance. The calculations were assessed on a fortnightly basis. The documents containing these calculations were before the Magistrate.

5 On 14 September 1999 the Department wrote to the appellant, under the “Centrelink” letterhead, informing him of the overpayment. As relevant here, the letter was in the following terms:

“Dear Mr Finnan
I am writing to advise that you have been paid money by Centrelink which you were not entitled to receive.
This occurred because of your income from employment with The Ecology Lab P/L from 14/1/98 to 13/1/99 (total gross income $12,158.75), and CPS Gas & Plumbing P/L from 14/8/98 to 30/12/98 (total gross income $5000.00). As we have now combined your income from both the above employers the debt that was originally raised for $968.60 debt No 28132032) has been amended to a nil amount and the money you paid off this debt has been taken off your new debt (debt No 28153794).

AMOUNT OWED

A debt of $6,369.07 has been calculated and this amount is legally recoverable under Section 1224 of the Social Security Act 1991.

If you do not agree that you have a debt, or that the debt should be recovered, and you wish to discuss this, please phone Newstart Data Match Officer on 02 92086648. She will be able to listen to your questions and explain things about your overpayment that are not clear. She also has the power to change the decision, if it is incorrect.

HOW TO PAY BACK THE DEBT

Could you please pay the amount as quickly as possible. Preferably, you should pay all of it on or before 29 September 1999.”

6 Nothing turns on the fact that a previous debt had apparently been raised.

7 The letter went on to inform the appellant of various methods of payment. It warned him that if an offence under the Social Security Act had been committed, the case could be referred to the Director of Public Prosecutions to consider prosecution action. Prosecution action would take place separately from the recovery of the debt.

8 Finally, the appellant was told that if, after speaking with the Newstart Data Match Officer, he still disagreed with the decision relating to the overpayment, there were further avenues available to him. These included having an Authorised Review Officer (“ARO”) assess his case. He was told that the ARO could change the decision if it was not correct.

9 On 14 September 1999 the appellant requested review of the decision by an ARO. His file was noted that “Customer doesn’t agree with amount of debt as he states it took six mths to get paid and we should have been more lenient towards him as he told us about employment.”

10 On 25 October 1999 the ARO wrote to the appellant telling him that his review had been unsuccessful and that in the ARO’s opinion the decision to raise and recover the overpayment was correct. The appellant was told that he could appeal to the Social Security Appeals Tribunal (“SSAT”).

11 The appellant took this step. It seems that the hearing before the SSAT took place in May or June 2000, well after the appellant had been charged with the present offences. Little is known of what transpired at that hearing. The records of the proceedings were rejected by the Magistrate. However, the outcome is known: the appeal was unsuccessful, as the appellant confirmed in cross-examination. He said that he disagreed with the result, but decided not to take the matter further.

12 On 6 December 1999 the Department wrote to the appellant, asking him asked to attend for an interview on 13 December 1999. He did so, and was interviewed by the informant, Raymond Cutrupi. Their interview was recorded. and the transcript was before the Magistrate. The appellant was shown a list of the gross wages which were said to have been paid by CPF Gas and by The Ecology Lab. He expressed some doubt as to the correctness of the date of payment of the wages from The Ecology Lab, but otherwise confirmed the accuracy of these figures. The following exchange took place between Mr Cutrupi and the appellant:

“Cutrupi: Mind you, these figures are before tax.
Appellant: Yeah, yeah, I realise that and HECS and superannuation and insurance.

Cutrupi: Okay.
Appellant: And deductions.”

13 The appellant was shown the various forms he had completed in applying for the Newstart allowance in which he had answered “no” to the question as to whether he had done any part time, casual or temporary work during the relevant period. The following exchange took place:

”Cutrupi: Is that answer correct?
Appellant: No.
Cutrupi: Why did you fail to declare your earnings on the forms that I’ve shown you today?

Appellant: Because I was broke and needed the money for reasons of having to wait long periods to be paid by both employers and to prove that I will have to get a transaction record from the bank.

Cutrupi: Under those relevant questions that I’ve asked you about, are the words:

“ You must tell us what you will get even if you have not been paid yet”.


Had you read that at the time you were completing the form?

Appellant: Can’t, can’t remember, possibly.
Cutrupi: Do you realise that you’ve been overpaid by giving false and misleading information to the agency?

Appellant: Yes.
Cutrupi: Do you realise that this money must be repaid to the agency?

Appellant: Yes.
Cutrupi: Do you realise that even if you repay this money, the agency may still commence legal proceedings in relation to any offences that you may have committed?

Appellant: Yes.
Cutrupi: Is there anything else you wish to say about this matter?

Appellant: Yes. I’ve already paid half of the money back and within a week or two would have paid 60 per cent of it back and it was my initiative to pay the money back and inform the agency of the situation, my initiative alone and so I dobbed myself in to the tune of $6336, plus the tax which I have to pay which I probably also would have got away with if I had of been deceitful enough and because of my situation as it’s self employed and so to the tune of $6,300-odd plus roughly another 600 tax for that period that I’ve paid, that I have to pay. So there you go.

Cutrupi: When you say the tax that you had to pay - - -
Appellant: Yes.
Cutrupi: - - - tax on what?
Appellant: On the earnings, on these earnings. Those figures are gross.”

14 On 16 March an information was taken out against the appellant containing the five charges under s 1347 of the Act.

15 The proceedings before the Magistrate occupied three hearing days in February and April 2001. The prosecution adduced evidence that the appellant had received income from each of the two companies named in the information whilst at the same time denying the receipt of extraneous income in his Newstart Allowance application forms. Evidence was given by Ms Parker, a Centrelink Administration Officer, about the Department’s dealings with the appellant. She was cross-examined by Mr Hodges, who appeared for the appellant before the Magistrate, to the effect that the Department had based its calculations upon the gross income derived by the appellant from The Ecology Lab and CPF Gas without making any allowance for deductible business expenses. Ms Parker was under the impression that only the gross income was relevant in calculating the appellant’s overpayment. When pressed on the matter she said that the appellant had never provided her with details of any deductible expenses.

16 Mr Cutrupi gave evidence before the Magistrate of his interview with the appellant in December 1999. He was cross-examined by Mr Hodges about the fact that the appellant’s gross earnings had been used as a basis for the calculations which resulted in the charges against him. Mr Cutrupi agreed that, if the appellant were self employed, he would be entitled to have his legitimate business deductions taken into account in reduction of his gross earnings and therefore in reduction of his debt to the Commonwealth. It was suggested to Mr Cutrupi that, depending on the level of the appellant’s deductions, it was possible that there was no debt at all. Mr Cutrupi answered that the appellant’s business would need to be almost in a loss position in order to achieve this outcome.

17 The appellant gave evidence in the proceedings before the Magistrate. He did not dispute that he had earned income from The Ecology Lab and CPF Gas whilst receiving his Newstart allowance. He stressed that he was working as a sub-contractor and said that he assumed that only his net earnings would be taken into account by the Department. In January 1999 he became concerned that he might have been overpaid by the Department. His enquiries revealed that this was probably the case. At this point, he said, he ceased applying for a Newstart Allowance and some time later informed the Department of his 1998 earnings.

18 The appellant was cross-examined on a number of aspects of his evidence. It is unnecessary to detail here the various subjects which were traversed. There were various aspects upon which the Magistrate found that his evidence was unsatisfactory. He expressed the view that the defendant’s evidence lacked credibility in a number of respects. Accordingly the Magistrate, in a reserved judgment dated 11 September 2001, found each of the offences proved.

19 The appellant has, as indicated, appealed from this decision pursuant to s 104 of the Justices Act 1902. He urges that the Magistrate’s finding was wrong in law, alternatively that it could not be supported having regard to the evidence. He seeks an order that the Magistrate’s decision be set aside and that the matter be remitted to be dealt with according to law.

20 Two grounds of appeal were relied upon by the appellant. The first is that the Magistrate erred in law in deciding that the Social Security payments received by the appellant were either not payable or payable only in part. The second ground, which relates only to the first, second, third and fifth charges, asserts that the Magistrate adopted the wrong test as to the state of knowledge required for an offence under s 1347.

21 I shall discuss each of these grounds in turn. Before doing so, however, it is apposite to quote s 1347 of the Act. It is contained in Part 8.1 of Chapter 8, which deals with “offences”.

1347 Payment knowingly obtained where not payable
A person must not knowingly obtain:
(a) payment of a social security payment under this Act or of fares allowance; or
(b) payment of an instalment of a social security payment under this Act;
for which the person is not eligible, or which is:
(c) not payable at all; or
(d) only payable in part.

The appellant’s first ground

22 The first ground urged by Mr Waterstreet, who appeared for the appellant before me, was that the Magistrate adopted what Mr Waterstreet described as “the wrong income test” when determining whether the appellant had received Social Security payments which were either not payable at all or payable only in part. It was submitted that the evidence indicated that the appellant, rather than being employed by The Ecology Lab and CPF Gas, was an independent contractor operating his own business. As such, his income from these sources was to be treated in accordance with s 1075 (1) of the Act. This section provides that, if a person carries on a business, the person’s ordinary income from the business is to be reduced by losses and outgoings, depreciation, and any other amounts that relate to the business and are allowable deductions under the Income Tax Assessment Act 1936. The Department had taken account only of the appellant’s gross income in raising the overpayments against the appellant and in prosecuting the charges under s 1347.

23 This matter was raised before the Magistrate. He discussed it in his judgment in the following terms:

“It must be proved that the relevant payments were not payable or only payable in part. The defendant disputes this. It is the defendant’s contention that the wrong income test was applied to him. Certainly under the Act, section 1075 provides that if a person carries on a business, the ordinary income from the business is reduced by losses and outgoings that are allowable for the purposes of the Income Tax Assessment Act. Mr. Cutrupi conceded that it appeared that the income test applied to the defendant was that for a P.A.Y.E. taxpayer. Ms Parker was unaware of the different income test that applied for a person who carried on a business. This evidence must be considered in the light of the defendant’s own evidence. It is clear that the defendant did not provide Ms Parker with any information about his business activities prior to the assessment being made. He appealed against the raising of the debt to the Authorised Review Officer. It does not appear that the defendant in that appeal raised the issue that he was self-employed and entitled to certain deductions to be made from his income in order to determine his eligibility for Newstart. The defendant failed in this appeal and then appealed to the Social Security Appeals Tribunal. At that hearing, the defendant attended and gave evidence. He said that he produced a profit and loss statement from his business but that the Tribunal did not look at it. He told the Tribunal that he was a musician and gave evidence of certain expenses that he incurred. He was asked “so did that business exist or didn’t it exist”. He said “Well, yes it did exist”. He agreed that the agreement with Employment Assistance Australia was to pursue the scientific business. When asked “and yet when you went to the SSAT they seemed to somehow have gotten the idea that your business was in fact related to the music industry?” he said “Yeah, well I disagreed with that. They misunderstood me. I was talking about something I’ve done since then and something I was learning at the time. I don’t know.” As the defendant had ceased to receive Newstart payments before the time of the appeal, it seems hard to accept that the defendant in pursuing his appeal about his entitlements during the relevant period, would talk about events that had occurred after he ceased to obtain the benefits, and present a profit and loss statement about those later activities.
It seems in any event, from the defendant’s evidence, that the Tribunal received evidence as to his business expenses. It would appear that the Tribunal either did not accept that he was entitled to those deductions or that any deductions would not have affected his rate of entitlement. The defendant whilst not accepting the result of the appeal did not pursue any further appeal rights and paid the amount of the debt so calculated. A Debt Calculation document was produced by Mr Cutrupi. In the record of interview the defendant admitted that he was not entitled to those payments.
In all the circumstances I am satisfied that there is ample evidence that the defendant received a payment which was not payable in respect of one charge and that he received payments in respect of the remaining charges that were only payable in part.”

24 Mr Bourke, who appeared before me for the defendant, relied on the following propositions in response to the plaintiff’s submissions on this ground: first that the Magistrate did not accept that the plaintiff “carried on a business”; alternatively that there was no evidentiary basis for the Magistrate to apply the “income test” created by s 1075 of the Act.

25 Mr Bourke submitted that the portion of the Magistrate’s judgment quoted above indicated his finding that the plaintiff was not carrying on a business, but rather was an employee of the two companies from which he had derived his income. However, a close reading of the judgment does not, in my view, support that conclusion. The Magistrate was satisfied that the appellant had received a payment which was not payable in respect of the fourth charge and that he had received payments which were only payable in part in respect of the remaining charges. But his reasons do not indicate whether he reached this finding because he was satisfied that the appellant was an employee (as opposed to an independent contractor), or upon other bases. Without going in detail through the material which was before the Magistrate, it seems to me that the evidence overwhelmingly indicated that the appellant was an independent contractor rather than an employee. Accordingly, I propose to deal with the appeal upon this basis.

26 This brings me to the respondent’s second submission, namely that there was no evidentiary basis for the Magistrate to apply the ”income test” created by section 1075.

27 I have put these words, “income test” in quotation marks, because it was a phrase used by the appellant’s representative before the Magistrate and again before me. It was suggested that a different “test” applied to P.A.Y.E. employees than to self-employed persons. However this will not necessarily be the situation in all cases.

28 Under s 1072 of the Act it is the person’s gross income from extraneous sources which is to be taken into account in determining the extent, if any, by which Social Security benefits have been overpaid. This applies regardless of the status of the person. However in relation to self-employed persons, s 1075 (1) provides that their ordinary income “is to be reduced” by their allowable business deductions. It follows that if there are no such deductions, then the “test” will remain unaltered.

29 When I put this to Mr Waterstreet, he responded that, in all cases he had encountered, self-employed persons had allowable business deductions. I accept that this is likely to be so in the great majority of cases. However we are not to know whether it was the case in relation to the appellant, for he never provided either the Department or the Magistrate with any details of his business expenses.

30 The only figures which were before the Magistrate were the gross payments which had been made to the appellant by The Ecology Lab and CPF Gas together with the Department’s overpayment calculations which were based on those figures. Therefore, on the material before the Magistrate, there was no other income level which he could place into the equation. On the figures before him he was therefore entitled to be satisfied beyond reasonable doubt that the appellant had received Social Security payments which were either not payable at all or payable only in part, depending on the relevant charge.

31 However this is not necessarily the end of the matter. For the appellant submitted that it was incumbent upon the prosecution to adduce evidence of the appellant’s allowable deductions in order to enable the correct calculations to be made. In the absence of evidence from the prosecution on this matter, the Magistrate should not have proceeded to determine the matter, as he did, on the assumption that there were no such deductions.

32 On the face of it there is some strength in this submission. After all, the onus lies on the prosecution to prove each element of its case beyond reasonable doubt. The problem lies, as Mr Bourke pointed out, in the fact that information as to the appellant’s allowable deductions is inherently a matter within his own knowledge. Hence Mr Bourke’s submission that the appellant had an evidential burden to inform the Court of any such deductions. When he failed to do so, there was no basis upon which the Magistrate could reject or vary the overpayment calculations which were relied upon by the prosecution.

33 I asked Mr Waterstreet how, in cases of this nature, the prosecution could be expected to obtain information as to a defendant’s allowable deductions so that it could adduce evidence to enable appropriate reductions, if any, to be made under s 1075. He responded that the Social Security Department has access to the Taxation Office’s records. These would reveal whether deductions had been claimed from the gross earnings. Alternatively the Department could ask a potential defendant for information as to his deductions.

34 Dealing first with the taxation records. There was no evidence before the Magistrate as to whether the Department had sought access to the appellant’s taxation records in order to determine whether business deductions had been claimed or allowed in relation to the gross income which he had received from The Ecology Lab and CPF Gas. In many cases, as we all know, income tax returns are not lodged until well after the expiration of the financial year in question and in some cases there are further delays before returns are fully processed. In other words, the ATO is a most uncertain source of potential information relating to an individual’s business deductions. To make it a pre-requisite of a successful prosecution that the prosecutor have obtained details of a defendant’s allowable deductions from his or her taxation records would be to favour a person who had not lodged a return or whose deductions had not yet been determined over a person who had lodged his or her taxation return in good time and good order.

35 As to Mr Waterstreet’s suggestion that the Department could have “asked” the appellant about his allowable deductions, in one sense the Department did this in its letter dated 14 September 1999. This letter indicated to the appellant that his debt had been calculated according to his gross income from The Ecology Lab and CPF Gas. If he disagreed with the debt, he was asked to contact the Department. He apparently did not do so. He did appeal to the ARO and again to the SSAT, but there is no suggestion that he provided them with the amount of any business deductions which he claimed to reduce his debt. Indeed there was evidence before the Magistrate that the appellant had repaid the debt in full. Given that he could, if he wished, have claimed allowable deductions in reduction of the debt, this was a matter which the Magistrate was entitled to take into account as indicating that there were no such deductions.

36 Mr Bourke relied upon the manner in which the proceedings were conducted before the Magistrate. The appellant’s solicitor submitted to the Magistrate, at the close of the evidence, that the “wrong test” had been applied in the appellant’s case with the result that the Magistrate should not be satisfied that the charges had been correctly laid. But no figures were ever put before the Court to contradict the Department’s calculations of the appellant’s debt. The document containing these calculations was tendered without objection. Moreover the appellant gave evidence before the Magistrate. Had he adduced evidence of allowable deductions which related to his gross income from The Ecology Lab and CPF Gas, the Magistrate would have been obliged to take this into account as affecting the calculations tendered by the Department which were, as indicated, based on the appellant’s gross earnings. This the appellant failed to do, Rather, his evidence was apparently directed to establishing that he had no dishonest intent. In this regard, he sought to explain some of the answers in his record of interview, and again asserted that it was he who had first told the Department about his extraneous income. These matters were challenged in cross-examination, and the Magistrate made findings which were generally adverse to his credibility. It was never put to the Court that, given the extent of his deductions, he had not committed offences under s 1347. Rather, it was suggested that the Court could not accept that the prosecution’s calculations were based on the “correct income test”.

37 It was within the appellant’s power, and on one view of the matter only within his power, to provide information which would enable the “correct income test” to be applied. He could have done this simply by giving evidence of his allowable deductions. He failed to do this. In my view, notwithstanding that the prosecution bears the burden of proving its case beyond reasonable doubt, the Magistrate was entitled to accept, from the whole of the material before him, that the appellant had received payments which were either not payable or which were payable only in part.

38 Given the manner in which this case was conducted before the Magistrate, I find that no error has been established in relation to the first ground of appeal.

The appellant’s second ground of appeal

39 The second ground of appeal relates only to the first, second, third and fifth charges, which alleged that the appellant had knowingly obtained Social Security payments which were only payable in part. This ground goes to the mental element to be established by the prosecution in support of these charges.

40 The Magistrate dealt with the issue of knowledge at some length in his judgment. After citing a number of cases, he concluded that it was sufficient if the appellant “believed” that he was receiving Social Security payments which were not payable or payable only in part. No complaint was made about this aspect of the Magistrate’s findings. Rather, this ground was directed to the proposition that, in relation to the charges that the appellant knowingly obtained Social Security payments which were payable only in part, it was essential for the prosecution to prove that the appellant had sufficient knowledge of the income test under the Social Security Act to realise that the effect of his extraneous income was to reduce his Social Security entitlements but not to eliminate them. In other words, the prosecution was required to prove that the appellant believed that the payment he received was payable only in part, as opposed to not payable at all. It was suggested that this situation could have been avoided had the prosecution chosen to frame its charge in the alternative, alleging that the appellant had knowingly obtained Social Security payments which were either not payable at all or only payable in part.

41 In my view this ground of appeal is misconceived. It was not open for the prosecution to frame the charges in the alternative, as suggested by the appellant. Any attempt to do so would inevitably have been met with a successful challenge on the ground of duplicity. Nor, in my view, was it necessary for the prosecution to prove that the appellant knew that the Social Security payments he received were payable only in part as opposed to not payable at all. It is sufficient, in my view, for the prosecution to prove that the appellant in fact obtained payments which were payable only in part, knowing that at least part of those payments were not payable. It defies both logic and principle that a person could escape liability for obtaining payments which were only payable in part on the basis that he or she might have believed that they were not payable at all.

42 This ground of appeal also fails.

43 The appeal is dismissed with costs.

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Last Modified: 06/28/2002