Criminal law - Practice and procedure - Appeal against conviction - Conspiracy to defraud the Commonwealth - Taxation - SelfAssessment system - Deliberate concealment of material facts from investors in franchise scheme - Investors then innocently filing income tax returns containing false claims for deductible expenditure relating to their franchise - Part of tax rebate from ATO remitted to the appellants to fund the franchise scheme - Whether proof of dishonest means - Whether the trial Judge misdirected or failed adequately to direct the jury - Turns on own facts

Criminal law - Practice and procedure - Appeal against sentencing - Whether sentence was manifestly excessive - Conspiracy to defraud - Whether there is a distinction between subjective dishonesty and objective dishonesty - Whether sentences out of parity - Whether sentence should be reviewed in light of subsequent events - Section 19AP of Crimes Act 1914 (Cth)

Legislation:

Crimes Act 1914 (Cth), s 19AP, s 29D, s 86(1)

Criminal Code (WA), s 689(3)
Income Tax Assessment Act 1936 (Cth), Pt IVA, s 51, s 177, s 177A, s 177D, s 177F

Income Tax Assessment Act 1997 (Cth), s 8-1

Result:

Appeals against conviction dismissed
Applications for leave to appeal against sentence refused

Category: B

Representation:

CCA 110 of 2004

CCA 111 of 2004

Counsel:

Appellant: Mr W S Martin QC
Respondent: Mr R J H Maidment SC & Mr A L Troy

Solicitors:

Appellant: Sceales & Co
Respondent: Commonwealth Director of Public Prosecutions

CCA 112 of 2004

CCA 113 of 2004

Counsel:

Appellant: Mr W S Martin QC
Respondent: Mr R J H Maidment SC & Mr A L Troy

Solicitors:

Appellant: Simon Watters
Respondent: Commonwealth Director of Public Prosecutions

CCA 115 of 2004

CCA 116 of 2004

Counsel:

Appellant: Mr D Grace QC & Mr S B Watters
Respondent: Mr R J H Maidment SC & Mr A L Troy

Solicitors:

Appellant: Simon Watters
Respondent: Commonwealth Director of Public Prosecutions

Case(s) referred to in judgment(s):

Australian National Hotels Ltd v Federal Commissioner of Taxation (1988) 19 FCR 234
Cliffs International Inc v Federal Commissioner of Taxation (1979) 142 CLR 140
Commissioner of Taxation v Cooke [2004] FCAFC 75
Commissioner of Taxation v Sleight (2004) 136 FCR 211
Cooper v Federal Commissioner of Taxation (1957) 97 CLR 397
Director of Public Prosecutions (Commonwealth) v Goldberg (2001) 184 ALR 387
Federal Commissioner of Taxation v Emmakell Pty Ltd (1990) 22 FCR 157
Federal Commissioner of Taxation v Ilbery (1981) 58 FLR 191
Federal Commissioner of Taxation v James Flood Pty Ltd (1953) 88 CLR 492
Federal Commissioner of Taxation v Lau (1984) 6 FCR 202
Federal Commissioner of Taxation v Myer Emporium Ltd (1987) 163 CLR 199
Federal Commissioner of Taxation v Spotless Services Ltd (1996) 186 CLR 404
Fletcher v Federal Commissioner of Taxation (1991) 173 CLR 1
GP International Pipecoaters Pty Ltd v Federal Commissioner of Taxation (1990) 170 CLR 124
Harman v State of Western Australia [2004] WASCA 230
Henry Walker Contracting Pty Ltd v Farnworth [2002] WASCA 167
Interstruct Pty Ltd v Wakelam (1990) 3 WAR 100
Johnson v Miller (1937) 59 CLR 467
M v The Queen (1994) 181 CLR 487
Madison Pacific Property Management Pty Ltd & Ors v Australian Securities Commission (1999) 89 FCR 263
Mobil Oil Australia Ltd v Federal Commissioner of Taxation (1965) 112 CLR 407
Mullins Investments Pty Ltd v Federal Commissioner of Taxation (1976) 135 CLR 290
Peters v The Queen (1998) 192 CLR 493
Postiglione v The Queen (1997) 189 CLR 295
R v Anderson (1997) 92 A Crim R 348
R v Kennedy (2000) 118 A Crim R 34
R v McMaster (2004) 144 A Crim R 428
R v MRW (1999) 113 A Crim R 308
R v Rosenthal, Su & Oades (1987) 28 A Crim R 375
Ronpibon Tin NL v Federal Commissioner of Taxation (1949) 78 CLR 47
Sharrment Pty Ltd v Official Trustee in Bankruptcy (1988) 18 FCR 449
Snook v London and West Riding Investments Ltd (1967) 2 QB 786
Spies v The Queen (2000) 201 CLR 603
Steele v Deputy Commissioner of Taxation (1999) 197 CLR 459
Texas Co (Australasia) Ltd v Federal Commissioner of Taxation (1940) 63 CLR 382
Welham v Director of Public Prosecutions [1961] AC 103
Wills v Petroulias (2003) 58 NSWLR 598

Case(s) also cited:

Associated Newspapers Ltd v Federal Commissioner of Taxation (1938) 61 CLR 337
Beard v The Queen [2003] WASCA 262
Bunnings Forest Products Pty Ltd v Shepherd, unreported; SCt of WA (Franklyn, Ipp, Anderson JJ); Library No 980235; 5 May 1998
Caratti v The Queen (2000) 22 WAR 527
Commissioner of Taxation v Consolidated Press Holdings Ltd (2001) 207 CLR 235
Commissioner of Taxation v Hart (2004) 206 ALR 207
Goddard v The Queen (1999) 21 WAR 541
Hardie v Hanson (1960) 105 CLR 451
Howland-Rose v Commissioner of Taxation (2002) 118 FCR 61
King v The Queen (1986) 161 CLR 423
Kotzmann v The Queen [1999] 2 VR 123
Lowe v The Queen (1984) 154 CLR 606
MacLeod v The Queen (2003) 214 CLR 230
Merchant v Commissioner of Taxation (1999) 99 ATC 4221
O'Donovan v Vereker (1987) 19 ATR 380
Perpetual Trustee Co Ltd v Barnett [1969] 2 NSWR 721
Puls v The Queen [2000] WASCA 11
Puzey v Commissioner of Taxation (2003) 201 ALR 302
R v GAS [1998] 3 VR 862
R v Iannelli (2003) 139 A Crim R 1
R v Ireland (1970) 126 CLR 321
R v Kastratovic (1985) 42 SASR 59
R v Mok (1987) 27 A Crim R 438
R v Tangye (1997) 92 A Crim R 545
R v Tran (2000) 105 FCR 182
Re Sharrment Pty Ltd, unreported; Federal Court of Australia (Lockhart, Beaumont and Foster JJ); G348 of 1987; 3 June 1988
Wong v The Queen (1988) 37 A Crim R 385

MALCOLM CJ: On 1 July 2004, the appellants Pearce, Tieleman and Wharton were each convicted in the Supreme Court at Perth of conspiring with each other and two others named Aistrope and Wahby to defraud the Commonwealth contrary to s 29D and s 86(1) of the Crimes Act 1914 (Cth). They were each subsequently sentenced to imprisonment for 5 years with a conditional release order after 18 months.
In the meantime, Aistrope and Wahby had pleaded guilty to the charge of conspiring to defraud the Commonwealth.
The original appeals against conviction and applications for leave to appeal against sentence were each dated 15 or 16 July 2004. By notices of motion dated 25 October 2004, each of the appellants sought leave to amend the grounds of their appeals against conviction and applications for leave to appeal against sentence. In each case there were originally 15 identical grounds of appeal against conviction and one identical ground of appeal against sentence. At the commencement of the hearing of the appeals and applications on 1 December 2004, leave was granted to each of the appellants to amend the grounds of appeal against conviction and the grounds of the applications for leave to appeal against sentence.

Particulars of the Conspiracy to Defraud

The offence of conspiracy to defraud typically involves the making of an agreement between two or more persons to inflict economic loss on a third party by dishonest means: Peters v The Queen (1998) 192 CLR 493 at [73] per McHugh J. It needs to be borne in mind, however, that actually causing economic loss is not an element of the offence. It is sufficient to constitute the offence if those involved in the conspiracy intended to obtain an advantage for themselves by putting the property of another party at risk or by depriving another party of a lawful opportunity to acquire or protect property: see Peters v The Queen (supra) and Wills v Petroulias (2003) 58 NSWLR 598 at [54] per Spigelman CJ. The offence will be committed if the conspirators were aware that there was a risk of economic loss as a result of their agreement to act in the way in which they did: Peters at [25] per Toohey and Gaudron JJ; and see Welham v Director of Public Prosecutions [1961] AC 103 at 131.
In Peters at [84] McHugh J made it clear that proof of a conspiracy to defraud ordinarily requires the Crown to prove that:
"The defendants intended to prejudice another person's right or interest or perform a public duty by:
· making or taking advantage of representations or promises which they knew were false or would not be carried out;
· concealing facts which they had a duty to disclose; or engaging in conduct which they had no right to engage in."
See also Spies v The Queen (2000) 201 CLR 603 at [77] – [81].
The particulars of the conspiracy to defraud ultimately alleged against the appellants were as follows:
"The Conspiracy was to defraud the Commonwealth by prejudicing the rights of the Commonwealth to tax payable by participants in the Servcom franchise scheme and/or by depriving the Commonwealth of monies paid as tax refunds to participants in the said scheme or by putting the rights of the Commonwealth to the said monies at risk.
The parties agreed that the defrauding would be achieved by procuring tax‑payers to make such false representations (by positive assertion and/or by concealment of material facts) as were deemed by the conspirators to be necessary to deceive the ATO [Australian Taxation Office] into accepting that deductions from the tax‑payers' [sic] assessable income, totalling (as it transpired) about $38,343, were properly claimed as expenses actually incurred by the tax‑payer in the acquisition of a genuine business franchise (that was intended to produce and was capable of producing assessable income) and incurred by the tax‑payer for the purpose of earning substantial assessable income."
It was also stated in the particulars that:
"Particulars of the said false representations are provided in the accompanying Particulars of Overt Acts."
The alleged conspiracy involved a tax evasion scheme. The scheme was alleged to have been developed following an approach made to an accounting firm McKessar Tieleman ("MKT") by Messrs Aistrope and Wahby in February 1998. The business idea or proposal was one involving Internet service provider facilities. Aistrope and Wahby met with a partner in a firm of accountants, the appellant Tieleman, and a senior manager of the firm, the appellant Pearce. From about this time, it was apparent to the four that the initial plans to raise capital for the business were not likely to produce the funding required. Consequently, it would be necessary to devise and market a scheme that would, in effect, generate the funding from tax refunds for those to whom the scheme would be marketed. The scheme to produce these results was a complex one, requiring the expertise of the two accounting professionals, and the involvement of a third party "lender at arm's length" from whom the bulk of the investment of those to whom the scheme was marketed would be borrowed. The "lender" that was procured was a company associated with the appellant Wharton, the fifth person charged in connection with the scheme.
The scheme in its final form involved the sale of franchises to investors for a total of $39,500 of which $29,500 was lent to investors by the company associated with Wharton. In the marketing of the scheme, it was represented as one which would result in a tax rebate to investors of up to $18,810 in the year of investment, of which the franchisee would pay $10,000 to the franchisor which, added to the proceeds of the loan, would pay for the franchise.
A part of the scheme as marketed was an arrangement for an investor on payment of an initial amount of $675 by way of an indemnity fee and an annual payment of $150 to limit his or her liability to repay the $29,500 loan. Further, the investor was to provide authorisation to the company associated with Wharton to pay the loan moneys to the franchisor. The intended effect of the first set of arrangements was to make the loan a non‑recourse arrangement, which would appear to the taxation authorities to be a recourse arrangement, an appearance which was crucial to the tax rebate sought; while the effect of the payment authorisations was intended to create an appearance of payments where none were to be made.
In the event, a total of 1160 franchises were sold. Had the scheme worked as the five participants had intended, taxation rebates totalling approximately $20 million would have become available, which would have produced a total benefit to those promoting the scheme about $14 million and a net benefit to Aistrope and Wahby of approximately $6 million. In the event, the franchisor was selected for a taxation audit, and after refunds in an initial amount of $1,589,540 had been paid, further refunds were stopped. There was an investigation into the activities of Aistrope, Wahby and the three appellants by the National Crime Authority. Before any criminal proceedings had been instituted, Aistrope left Australia for Turkey, apparently in search of business, and Wahby left Australia for Egypt, apparently to be with his ailing parents.
Subsequently, Wahby, Aistrope and the appellants were each charged on one count of conspiring to defraud the Commonwealth, contrary to s 29D and s 86 of the Crimes Act 1914 (Cth). Aistrope was arrested in Turkey in July 2003 and, after spending some time in custody there, he was extradited to Australia, arriving in Perth on 9 December 2003 to stand trial with his co‑accused, other than Wahby. The trial was listed for 12 weeks, commencing in April 2004. On 27 February 2004, Aistrope pleaded guilty and on the same day was sentenced to imprisonment for 4 years which was reduced by 1 year on account of his co‑operation with the authorities. McKechnie J sent a minimum term of 18 months with a recognisance release order subject to security in the sum of $10,000 without surety and with the offender to be of good behaviour for a period of 3 years. Credits of 8 months for Aistrope and 4 months for Wahby went against their minimum terms.
Upon learning of Aistrope's arrest in Turkey, Wahby contacted Aistrope's lawyer in Perth. After Aistrope had been sentenced, Wahby contacted the Commonwealth Director of Public Prosecutions and voluntarily returned to Perth from Egypt. On 6 May 2004, Wahby pleaded guilty and was sentenced by McKechnie J on that day on the same basis as in the case of Aistrope, except for a different credit against the minimum term.
The three appellants were convicted on 1 July 2004, following a trial lasting some eight weeks before McKechnie J and a jury. After their trial, each of the appellants was sentenced by McKechnie J to imprisonment for 5 years, with a minimum term of 18 months and with a recognisance release order on the same terms as for Aistrope and Wahby, except that no period for good behaviour was stipulated. On 5 November 2004, the Court made orders granting Aistrope and Wahby leave to appeal and ordered that the minimum terms of their imprisonment be varied by reducing them by 4 months in each case, so that Aistrope's minimum term was reduced to 6 months and Wahby's minimum term reduced to 10 months.

Overt Acts

The overt acts relied upon by the prosecution were as follows: on 20 January 1998, Servcom Pty Ltd ("Servcom") was registered as a company. Aistrope was appointed as a director of Servcom. On 4 February 1998, Aistrope and Wahby met with an accountant named Baker who referred them to specialist tax accountants. The topic of limited recourse loans was discussed. On 9 February 1998, there was a meeting between Aistrope, Wahby, Pearce and Tieleman. Agreement was reached at that meeting to use a round-robin of cheques, to set up a 4:1 (at that time) ratio between sums borrowed and sums provided by investors themselves, a possible third party lender at arm's length and to check out the tax loss situation. At a meeting on 16 February 1998 between Aistrope, Wahby, Pearce and Tieleman, Tieleman and Pearce recommended the engagement of Wharton. There was then a discussion about non‑recourse loans.
On 17 February 1998, Percom Pty Ltd ("Percom"), a company controlled by Wharton, changed its name to Mortgage and General Indemnity Co Australia Pty Ltd ("Magica"). This became what was described as the "indemnity company". Tieleman talked to Wharton. They discussed tax losses and the need to make the loans full recourse, but with an indemnity effectively limiting liability. Tieleman noted that Wharton proposed full recourse loans, due to the level of Australian Tax Office ("ATO") inquiry into schemes which adopted a limited recourse debt.
On 18 February Tieleman and Pearce proposed that they be paid a percentage on a sliding scale of capital raised and said they were contemplating liaising with a group providing tax loss protection. On 23 February Pearce asked Wharton if he would be interested in providing the tax protection. On the following day, 24 February, Aistrope accepted a proposal regarding the payment of Tieleman and Pearce.
On 6 March Wharton provided Aistrope with a disingenuous corporate profile of the entity supposedly providing the finance. On 10 March there was a conversation between Wharton and Aistrope in which there was a discussion of a limited recourse loan and the trust structure regarding the sale of tax losses. On the same date, Wahby was appointed a director of Servcom. On 19 March 1998, Wharton unilaterally altered the supposed franchise cost from $35,000 to $39,500. This cost was an artificially contrived figure, which bore no resemblance to the actual costs incurred in setting up the enterprise. Wharton informed Wahby by fax that "moneys (ie investors' money due to Servcom) would be loaned to various entities and the loans repaid when franchisee loans were repaid (to Allied Securities) and flowed back to relevant parties "as per our agreement in relation to loan back". In this respect, Wharton was said to be foreshadowing a round‑robin arrangement. Allied Securities Pty Ltd ("Allied Securities") was a company controlled by Wharton.
On 20 March, Wharton and Wahby agreed that the finance company controlled by Allied Securities would retain 62.5 per cent of repayment of the long‑term loan. On 23 March, Wharton discussed with Tieleman, the promoters' accountant, the level of the indemnity fee being provided by the supposedly independent indemnifier. Tieleman suggested the level of an indemnity fee and noted that Servcom retain 62.5 per cent of capital repayments. Tieleman noted that "… we couldn't have a position where the buyers' assets are exposed because the indemnity does not stand up" and "Wharton confirmed in effect limited recourse if you had full recourse loan agreement and indemnity agreement together". Tieleman also observed "Isn't the full recourse indemnity arrangement simply a limited recourse with an additional element of limited recourse being the indemnity rights".
On 1 April, Roseranch Holdings Pty Ltd ("Roseranch") was registered. On 2 April, Tieleman observed to Pearce that the scheme could not work if the lender had recourse against the personal assets of the borrower. On the same day, Aistrope was appointed as a director of Roseranch. On 6 April, Pearce wrote to Servcom regarding the information memorandum and advised Aistrope that it would be undesirable to openly state tax benefits in the information memorandum, but, instead, MKT would be available to discuss tax benefits with a franchisee or financial adviser individually. He further advised Aistrope to remove any reference to the loan being limited recourse in the information memorandum.

On 6 April, Pearce also queried whether the fact that if 500 franchises were sold, that would only lead to $5 million in cash being received and whether that would be enough to perform the level of services. Wharton suggested to Wahby the appropriate indemnity fee. On 6 April, there was a meeting between Aistrope, Wahby, Pearce and Tieleman as to how to make the ratio between money loaned and money provided by the investor acceptable. Tieleman recorded the need to raise arguments in support of how a ratio of 4:1 would be acceptable.
On 8 April, the trust deed in respect of tax losses was accepted by Wahby and Aistrope on behalf of Servcom Australia Pty Ltd ("Servcom Australia"). Having been introduced by Tieleman and Pearce, Aistrope and Wharton participated in a tax loss protection strategy. They did so as a result of their knowledge that the purported movement of funds was a sham. The cost of arranging the tax loss structure to Servcom was an obligation to pay Wharton, if there were 1100 franchises sold, the sum of $2,803,500.
On 15 April, Roseranch changed its name to Servcom Pty Ltd. Servcom was set up to allow the commencement of an Internet service provider business. It owned the intellectual property. It granted the franchiser, Servcom Australia, an exclusive licence to market Servcom services in Australia. In turn, Servcom Australia issued licences to investors to acquire one or more of 1430 exclusive Servcom franchises. The franchises were for the marketing and promotion of Internet services provided by Servcom and described as the Servcom Business System. The cost of obtaining a franchise was $39,500.
The franchises each entitled the franchisee to a block of at least 5000 telephone listings which comprised the franchisee's "exclusive territory" and which were randomly spread through each State of Australia. The term of the franchise was 20 years on the basis that each franchisee would be provided with the operating system and training required in order to develop the business and use the Servcom name and logo.
The cost of the "total package" for the franchise of $39,500 was made up of a "franchise grant and establishment fee" of $1500 payable by the franchisee for the grant of the franchise; an amount of $34,700 in respect of initial franchise fees; a "training fee" of $2625; and an "indemnity fee" of $675. The franchise fees of $34,700 were said to be paid in respect of licensing, administration and advertising services.
Servcom arranged finance for the franchisee through Allied Securities. Allied Securities agreed to loan the investor $29,500 per franchise toward the total cost of $39,500. Aistrope claimed that an investor was entitled to a tax deduction of $38,000 per franchise for the initial year of the scheme's operation. Such a deduction would result in a tax refund to the franchisee of up to $18,810. Out of that sum, the franchisee could then pay the balance of $10,000 that was owed.
Additionally, Aistrope offered to a potential investor the facility of a short‑term loan agreement. This agreement in conjunction with an "accountant's irrevocable authority to pay" permitted the franchisee's tax agent or accountant to deduct $10,193 (inclusive of $193 in stamp duty) from the tax refund received and to pay the balance of $10,000 required to obtain the franchise. The lender was Servcom Australia as trustee for the Servcom Australia Trust.
Included in the franchise cost of $39,500 was an indemnity fee of $675. This arose out of a further agreement the investor would be invited, by Aistrope, to enter into. The agreement was an indemnity agreement with Magica. In return for the initial payment of $675 and an annual payment of $150, the investor limited his or her liability to repay the loan of $29,500. In the franchise application form, it was stated:
"… if applicable, the Franchisee directs Allied Securities Pty Ltd to pay the money under the Loan agreement to Servcom Australia Pty Ltd."
Aistrope knew that an arrangement would be set up whereby it would be claimed that the moneys would be paid into a clearing account. He knew this would be a round‑robin transaction and, hence, a facade. In total, 1160 franchises were sold. In no case was the $29,5000, or any part of it, actually paid into the clearing account.

The O'Connor Opinion

In the meantime, on 24 April 1998, Tieleman instructed solicitors to obtain a tax opinion from Mr R O'Connor QC. Tieleman knowingly provided information for the purposes of the opinion which was inaccurate to his knowledge and upon which the opinion was ultimately based. Tieleman stated in his instructions that:
"… the franchise proposal outlined in the information memorandum stands on its own as a commercial investment and the projections of the franchiser makes [sic] no mention of the taxation benefits so that the potential franchisee can judge the commerciality of the arrangement solely from the projected performance of the franchise business."
Wharton provided further false information to the solicitors briefing Mr O'Connor in that he said "… the indemnifier is not the same company as the lender". He also claimed in the letter of instructions that Tye Nominees Pty Ltd was a company not associated with the Servcom group of companies. Again, that was false. Wharton also claimed that, on demand, the indemnifier would physically pay to the lender the amount of the debt. It was not in a financial position to do that and that was wholly within Wharton's knowledge.
Potential investors were referred, among other things, to Mr O'Connor's opinion. The opinion assumed that the situation was as outlined in Tieleman's letter dated 24 April, namely, that:
"… the loan funds (the $29,500) will be utilised by the Franchisee solely to meet their obligations under the franchise agreement and are specifically directed to the Franchiser for this purpose."
Mr O'Connor stated that, on the basis of his instructions, real funds and real transactions were involved and there was no sham. The false information supplied by Wharton and Tieleman led Mr O'Connor to erroneously conclude, in his widely circulated opinion, "… the indemnifier is a company unrelated to the franchiser and lender … the indemnity fees are calculated by the indemnifier on commercial considerations … the loans are not non‑recourse".

The Marketing of the Franchises and Interpretation of the Scheme

Aistrope continued to use what he knew to be an inaccurate document to persuade taxpayers to buy franchises. It was made clear by Aistrope to the sales force that only people earning above $40,000 per annum should be targeted so that they would be attracted by the tax advantage.
In late April or May, Wahby instructed the person in charge of marketing, Mr Rick Shenton to tell his sales staff to inform all potential franchisees that, should their claim be rejected by the Tax Department, their involvement in the scheme would be revoked. In his letter to the ATO dated 2 September 1998, Pearce stated that:
"… the promoters had not expressly or impliedly led franchisees to believe that they could exit the franchise where tax deductions were not allowable and that marketing agents were never advised or instructed to undertake to franchisees that the arrangement could be reversed."
Shenton also recollected Wahby stating that:
(1)he had used money from his ex‑wife's family to establish the scheme;
(2)the scheme involved the sale of franchises in a telemarketing operation for the Internet provider, Servcom;
(3)franchisees would be allocated 5000 randomly selected telephone numbers;
(4)Servcom would then contact the subscribers of the selected telephone numbers with a view to selling the subscribers Internet access through Servcom;
(5)a percentage of earnings of the Internet access or Internet advertising would then be paid to the franchisee by Servcom after deduction of costs;
(6)while the franchisee owned the franchise, the business would be managed by Servcom for a fee;
(7)the cost of each franchise would be $38,000 which provided the investor with a 20‑year operating licence;
(8)the $38,000 purchase price is a cost incurred in establishing the business, comprising management fees and other fees which would be fully tax deductible;
(9)the deduction would result in a considerable tax refund to a person on the top tax rate;
(10)franchise sales were to be targeted at people earning in excess of $50,000 per annum who would gain a maximum tax benefit from the scheme;
(11)each investor would be required to pay Servcom $10,000 from the proceeds of their tax refund, with the investor retaining any refund balance; and
(12)Wahby told Shenton that it was possible, but highly improbable that a franchisee would actually market and promote the product and confirmed that if there was no tax refund, no involvement would be expected of the franchisee.
The first round‑robin was said to have taken place on 12 May 1998. On 11 May 1998, Allied Securities opened a bank account entitled "Allied Securities Pty Ltd Servcom Australia Clearing Account ("the clearing account") with the National Australia Bank in Melbourne. The signatories were Wharton, John Gillies and Sharon Smith. No Servcom office holder had access to the account. Cheques of $187,650 were issued on 12 May 1998 to Magica in respect of 278 indemnity premiums and $10.79 million to Tye Nominees. Wharton was a signatory to the Tye Nominees account.
On the same date, Tye Nominees issued a cheque for $14.32 million to Allied. Wharton never relinquished control of the purported "loan funds" of $10,891,000 and Servcom never received them.
On or about 15 May, Wahby told Shenton that he was going to run the business for a few years before "gutting it". He also said that 37.5 per cent of the business was owned by a person supplying tax losses to the business and that this person was to receive what was effectively a commission of 7.5 per cent for the tax losses. He further said that a Melbourne company would be legitimising the loan by a system of round‑robin cheques, that no money would ever change hands and that the loan would be a paper transaction at arm's length to satisfy the ATO.
In a letter dated 20 May 1998 to Aistrope and Wahby, Tieleman distinguished between "actual cash funds" and the "financed portion" in respect of the funds received by Servcom, of which a percentage would be payable to MKT. In a letter dated 3 June 1998 to Servcom, Pearce stated that cl 3 of the franchise agreement made it clear that the services provided were ongoing business expenditure. Pearce was concerned that the information provided by Servcom to an unnamed accountant represented that the total expenditure per franchise was $17,500, although the price (if paid in advance) was shown as $34,700. Pearce queried whether Servcom needed to show him their costs, as opposed to just what services they were providing.
On 15 June 1998, Wharton faxed to Tieleman and Pearce a copy of a recent speech by the Commissioner of Taxation and suggested a subcontracting structure. The Commissioner noted that, in such arrangements, there was an underlying activity with the potential for profit, but the actual amount going to that activity was a small fraction of the claimed investment. Wharton's suggested solution was to consider adding a step with Servcom paying a subcontractor the majority of the costs, but retaining a profit margin on managing that activity, and that intending investors be advised that the majority of funds will be spent "into [sic] the project".
On 19 June, Pearce instructed his clients about what steps to take to ensure that the ATO did not regard the Servcom scheme as suspicious, in the sense that only a small fraction of the total investment would be available to be used to perform the services to the franchisee. Pearce also advised that Servcom take the franchise "cost" and work out what funds were required for what services as opposed to ascertaining the cost of services and deriving the cost of the franchise from that analysis. He posed the following question to Aistrope:
"[H]ow will you be able to show (to the ATO) that you have commenced providing any of the franchise services prior to 30 June1998?"
Pearce also noted that:
"[T]he ATO was concerned with schemes whereby only a small fraction of the total investment was available to be used to perform the services to the franchisee. In Servcom's case, of the $38,000 in fees paid, $28,000 is financed leaving $10,000 in cash."
Pearce also suggested a "cosmetic" subcontracting arrangement to Aistrope and Wahby in that he advised them to set up, through Wharton, subcontractors to provide services to franchisees. He indicated that this would demonstrate to investors that Servcom Australia was expending a major portion of the fees it received in providing services to franchisees.
On 23 June 1998, Wharton wrote to Aistrope regarding the financing arrangements and made a number of false observations. Wharton claimed that guarantees from ABC supported Allies Securities' finance facility provided by its bankers, which allowed it to initiate loans. There were no guarantees. There was no finance facility. Wharton also stated that:
"… upon completion of the Franchise Licensing arrangement under this project and draw down of facility to Franchisees, Allied Securities Pty Ltd will enhance this parcel of loans."
On 24 June, the name of an account with the National Australia Bank was changed from Servcom Pty Ltd to Magica. On 26 June, John Gillies, the director of Allied Securities, a company controlled by Wharton, wrote to Servcom and indicated that loans of $29,500 each had been approved in relation to named borrowers. On the same day, Pearce repeated the advice given on 19 June and said that the cosmetic arrangement would strengthen Servcom's position against the Commissioner arguing that only a small fraction of the investment was used to perform the services.
On 30 June, there was a second "round‑robin". Pursuant to the franchisees' direction to pay, Allied issued a cheque (following a reversing entry on 1 July to rectify a transposition error) of $34,839,000 payable to the clearing account. This represented 882 additional franchisees, all of who were each being lent $39,500. The balance in the Allied account on this occasion was $719,374. Two cheques were then issued from the clearing account on the same day. The first was for $595,350 which was made payable to Magica (again with 882 indemnity premium payments) and $34,238,650 to a company called National Investment and Loans Australia Pty Ltd ("NILA"). NILA had been incorporated four days earlier. One of the signatories of the cheques was Wharton. NILA then issued cheques for $54,331,573 and $1,585,200 on 30 June 1998. Once again, the loan agreement was reneged upon in that, of the "loan funds" of $34,839,000, Wharton had never relinquished control of them and Servcom never in fact received them. Magica then changed its registered offices. Banking records show that Magica paid back its indemnity premiums to the lender immediately they were received. In the week prior to 30 June, Wahby told Parham, one of the sales persons, that a limited number of Servcom franchises could be sold even after 30 June. On that day, Servcom sent agents' packs to franchisees' accountants.
On 10 July 1998, Pearce wrote to Aistrope and explained a proposal to purchase an Internet service provider through Servcom. He noted that Servcom Australia required all of the funds it had to provide the balance of the services and that funding from another party would be required. In the first two weeks of July, a number of franchise agreements were completed and backdated to 30 June. Aistrope signed them on behalf of Servcom. On 16 July, Tieleman wrote to Wahby suggesting a letter be sent to the franchisees reassuring them of the absence of round‑robin financing arrangements and stating that the debt was full recourse with the indemnity option. On 19 August, Aistrope was prompted by Pearce to issue loan repayment invoices when they fell due under the short‑term loan agreement.
On 2 September, Pearce sent a copy of a fax he intended to send to the ATO to Wharton for his approval. It contained, to the knowledge of both Pearce and Wharton, a number of inaccurate and false statements. In particular, the assertion that "the lender has advised us that actual funds were physically passed to the Franchiser by virtue of the direction to pay and that the loan funds remain under the control of the franchiser". It was further asserted that no round‑robin of cheques occurred and that the lender and indemnifier were non‑associated third parties. On 3 September, Wharton approved the letter to the ATO with some minor modifications. Pearce sent the letter dated 3 September 1998 to the ATO.
On 16 November, Gillies, acting on behalf of Wharton, confirmed to a number of franchisees that their request for finance has been approved and the principal sum was advanced to the Servcom Australia Clearing Account and disbursed pursuant to their authority and direction.

Further Particulars of the Conspiracy and the Prosecution Case

Further particulars of the overt acts were provided in a document dated 24 February 2004 which substantially repeated the earlier document and, by way of introduction, alleged that:
"Between 9 February 1998 and about 30 October 1998 there were numerous communications amongst the accused Pearce, Tieleman, Wharton and Aistrope and between each of the accused and the alleged co‑conspirator Wahby. It is the Crown case that each such communication may properly be described as an overt act of the conspiracy charge. The Crown relies, by way of particulars, on the content of the statement of the accused Aistrope as providing an almost continuous catalogue of overt acts and does not attempt to repeat them all herein."
The Crown also provided particulars of the indictment dated 3 March 2004 which made it clear that the offence charged was conspiracy contrary to s 86(1) of the Crimes Act 1914 (Cth) to commit an offence of defrauding the Commonwealth, contrary to s 29D of the Act. The conspiracy alleged was to defraud the Commonwealth by depriving the Commonwealth of moneys to be paid by the ATO as tax refunds to franchisee participants in what became the "Servcom scheme" ("the scheme") and/or by putting such moneys at risk and/or by prejudicially affecting the Commonwealth in relation to its lawful rights concerning the said moneys.
The prosecution case was that the parties to the conspiracy agreed that the defrauding would be achieved by procuring taxpayers to enter into franchise agreements and, pursuant to the scheme (innocently), to file income tax returns containing false claims for deductible expenditure, totalling (as it transpired) $38,000 per franchise, purportedly incurred in the 1998 financial year in the discharge of genuine obligations under a business franchise agreement and by those means to trigger the ATO self‑assessment system to issue tax refunds of up to $18,810 per franchise, $10,193 of which the taxpayer recipients were then to remit to the franchisor under the scheme. The parties further agreed that the taxpayers were to be given only such false or misleading information about the scheme (by positive assertion and/or by concealment of material facts) as would cause the taxpayers to deceive the ATO into accepting the false claims as properly founded and allowable claims for expenditure actually incurred by the taxpayer in the 1998 financial year, in the discharge of genuine obligations under a business franchise agreement and thereby incurred by the taxpayer in gaining assessable income, or necessarily incurred in carrying on the franchise business for the purpose of gaining or producing such income.

It was alleged that to that end, the conspirators agreed to provide the taxpayer franchisees so procured with false or misleading information designed at once:
"•to sell the scheme (by convincing them and their advisers that the scheme was lawful and effective), and
•to equip and induce the said franchisees to maintain the said deception in the face of scrutiny from the ATO."
Further, the conspirators were alleged to have agreed to structure the scheme so that PAYE taxpayers who had earned sufficient taxed income during the 1998 financial year (about $40,000 or more) to generate a refund from the ATO of more than $10,193 by participating in the Servcom scheme as franchisees, were to be procured to make the following false representations:
"•That claims in their income‑tax returns for deductible expenditure in relation to the Servcom scheme totalling $38,000 per franchise were well‑founded in fact and law and should properly cause the ATO to allow (and not to disallow) them in full and to refund tax accordingly.
•That the deductions claimed were in respect of funds that flowed in their entirety to the franchisor to be used by the franchisor solely to perform its obligations under the franchise agreement during the 1998 and 1999 financial years.
•That information contained in documents supplied or to be made available to each such taxpayer, including but not limited to:
(a)an Information Memorandum;
(b)an opinion from Robert O'Connor QC; and
(c)an opinion letter from McKessar Tieleman, Chartered Accountants;
was accurate and provided a reliable and proper basis for the ATO to determine whether or not the claim should be disallowed."
In essence, the prosecution case was that the said representations to be made by the franchisee to the Commissioner under the scheme were, to the knowledge of the appellants, false or misleading in that:
"[1]$29,500 of the $38,000 to be so claimed (per franchise) was based on ostensible obligations of the franchisee taxpayers under an agreement for a loan of $29,000 that was fictitious and none of the said $29,500 was to be available to the franchisor in the 1998 or 1999 financial years, or at all, to enable the franchisor to discharge its purported obligations under the franchise agreement.
[2]None of the balance of the $38,000 (per franchise) to be claimed was genuinely to be incurred in the 1998 financial year (or at all) in that the purported obligations of the taxpayer franchisees were not ones to which they were to be definitively committed in the 1998 financial year but were to be conditional upon their receipt (necessarily after 30 June 1998) of a tax refund of at least $10,193 (being the amount they were required to pass on to the franchisor in full discharge of their ostensible financial obligations and risks under the scheme).
[3]The capacity of the franchisor to honour its purported obligations under the franchise agreement and thereby to generate assessable income as represented in the Information Memorandum was non‑existent, speculative and unfunded as at 30 June 1998 and was reliant upon such funding as could be extracted from the ATO after 30 June 1998 through the operation of the scheme pursuant to the conspiracy charge. There was no 'business' in existence as at 30 June 1998.
[4]The $10,193 component of the tax refunds to be generated under the scheme was to be applied by the franchisor to meet expenses inherent in or incidental to the scheme other than and in priority to those arising from its obligations under or disclosed in the franchise agreement (and other than those disclosed, adverted to or implied in the Information Memorandum or otherwise revealed to the franchisees), including substantial commissions to agents for selling the scheme to franchisees (about $2.5 million), fees to the accused Wharton for providing the franchisor with protection from liability to income‑tax (depending on projected sales of between 1000 and 1430 franchises) of between $15 million and $20.55 million on paper income generated notionally by the scheme of between $38 million and $54.14 million (at the rate of 7 per cent of the income protected but apparently capped by later agreement at $2.5 million) and fees and performance related commissions to the accused Pearce and Tieleman (up to about $599,000).
[5]Thus, on a projected sales range of between 1000 and 1430 franchises, instead of the deductions to be claimed under the scheme as represented in the Information Memorandum producing a cash‑flow to the franchisor of between $38 million and $54.14 million, whether or not the said claims for deductions were allowed, as the accused were aware, the franchisor could expect to have available to discharge its obligations under the franchise agreement for the 1998 and 1999 financial years a net cash‑flow (sourced from the ATO) of between $5.59 million and $8.96 million, but only if the tax refunds were successfully obtained from the ATO in each case."
The Crown contended that, to the knowledge of each accused, the information in the documents supplied to each franchisee did not provide a true and proper basis for the ATO to determine whether or not the claimed deductions should be disallowed. Rather, they were designed by the accused to conceal the true nature of the scheme beneath a gloss of propriety in order prejudicially to affect the rights of the Commonwealth in relation to tax refund moneys paid by or claimed from the ATO under the scheme.
The Crown case was that each of accused intended that funds belonging to the Commonwealth represented by the refunds claimed under the scheme were to be (and were) put at risk and the rights of the Commonwealth concerning those refunds that would automatically be triggered under the self‑assessment system by the lodgement of tax returns containing claims for deductible expenditure, were to be (and were) prejudiced at two levels:
"[1]By causing refunds to be made in response to the claims and thereby placing Commonwealth funds outside the control of the ATO.
[2]By ensuring that, in the event of scrutiny by the ATO, the franchisee taxpayers revealed in response only the false or misleading facts with which they had been fed under the scheme."
It was also stated that the Crown could not provide full particulars of what false representations may have been made by individual taxpayers as a result of the agreement beyond saying that all of those taxpayers who were induced to lodge tax returns containing claims for deductions in relation to the scheme falsely claimed, by implication, that there was a proper basis, in fact and law, for such claims to be allowed by the ATO and not to be disallowed.
The Crown also alleged that the conspirators agreed to procure any taxpayer with a taxable income of about $40,000 or more in the 1998 financial year who could be induced to purchase a Servcom franchise, and participate in the scheme up to a maximum of 1430. The taxpayers so procured were all those that purchased Servcom franchises and submitted claims for deductions in their 1998 income tax returns. The above particulars were dated 3 March 2004 and duly served. They essentially maintained the allegation of a conspiracy to defraud by agreeing to cause taxpayers to make false representations to the ATO. The particulars also incorporated a reference to a report by one Eric Barr, but, after objection by the appellants, Mr Barr was not called at the trial and his report was not tendered in evidence.
It may be accepted that the Crown was constrained by the particulars provided. As White AUJ said in Henry Walker Contracting Pty Ltd v Farnworth [2002] WASCA 167, at [15] a person:
"… cannot be convicted on the basis of evidence outside the defined particulars …"
See also Johnson v Miller (1937) 59 CLR 467, at 497 per Dixon J; and Interstruct Pty Ltd v Wakelam (1990) 3 WAR 100, at 118 where Pidgeon J said, in the context of a prosecution under s 19 of the Occupational Safety and Health Act 1984 (WA) that:
"There is only the one offence of failing to provide the defined environment. However, one would expect an offence of this nature to be particularised and if particularised that is the offence the defendant is required to answer, and it would not be open to introduce evidence beyond particulars without amendment or to convict the defendant of an offence where the omissions to establish the offence are clearly outside the defined particulars."
His Honour enlarged on this point at 120, as follows:
"In prosecutions of this nature the complainant is bound by its pleadings …"
In Interstruct Pty Ltd v Wakelam (supra) it was held that the particulars failed to identify the essential factual ingredients of the actual offence charged.

The Case for Pearce and Tieleman

Senior Counsel for the appellants Pearce and Tieleman described the Servcom scheme as an invitation to members of the public to invest in the purchase of a franchise of the nature described in the Information Memorandum. The franchise enabled an applicant to acquire one or more Servcom franchises under a franchise agreement. The Servcom franchise comprised a block of 5000 telephone listings in an exclusive territory, randomly spread in each State of Australia. Servcom was the owner of the intellectual property and granted Servcom Australia as trustee for the Servcom Australia Trust (the franchisor) an exclusive licence to market the Servcom services in Australia. Servcom Australia as franchisor granted a licence to each investor as the franchisee to acquire an exclusive Servcom franchise. The franchisee operated the business of selling and marketing Internet and advertising services within the exclusive territory. The question whether this would constitute a relevant business for the purpose of the Corporations Regulations, reg 1.02 and reg 7.102 was considered in Madison Pacific Property Management Pty Ltd & Ors v Australian Securities Commission (1999) 89 FCR 263. As previously described, the cost of a franchise, if the total package was taken, was $39,500, but structured in such a way that with a loan of $29,500 the net cash outlay was $10,000. The application procedure required the investor to pay a full franchise cost of $38,825, but if the fully indemnified loan option was preferred, a payment of $10,000 or a payment of $2000 together with a short‑term monthly loan agreement for the balance of $8000 was available. So far as the tax consequences were concerned, the initial grant and establishment fee of $1500 was said to be not deductible under s 8‑1 of the Income Tax Assessment Act 1997 (Cth) ("the ITAA") which came into force on 1 July 1997. The amount was not deductible because it was of a capital nature.
The initial franchise fee of $34,700 was said to be deductible under s 8‑1 of the ITAA for the franchisee, being incurred to obtain the franchisor's services as long as none of the services were of a capital nature. The amount was said to be deductible under both limbs of s 8‑1. As the fees were paid for services to be provided within 13 months following payment, s 82KZM of the ITAA 1997 did not limit or deny deductibility. The training fee of $625 was said to be deductible under s 8‑1 of the ITAA for the franchisee, as was the annual approved sales agent's fee of 15 per cent of gross annual revenue. The indemnity fee of $625 in the first year and $150 each subsequent year was a capital outlay and not deductible. Interest payable on the fee, however, was said to be deductible under s 8‑1 of the ITAA. The proceeds receivable under the indemnity agreement were of a capital nature.
As the loan was for more than five years, however, and the indemnity fee was expenditure incurred for borrowing money, the indemnity fee was said to be deductible under s 25‑25 of the ITAA. In answer to the question whether the fact that the franchisee obtained loan finance to fund the payment of the expenses altered the deductibility of the expenses, it was said that the question was whether the taxpayer incurred the outgoing rather than how he financed it: Federal Commissioner of Taxation v Lau (1984) 6 FCR 202.
In answer to the question whether Pt IVA or any other anti‑avoidance provision would operate to deny deductibility of any or all of the expenses, the answer provided was that a Department ruling TR97‑217 described the circumstances in which Pt IVA may apply to afforestation schemes. It was contended that the franchise fees were not excessive within the meaning of par 115, par 116 or par 150 of taxation ruling TR97/D17 because, so it was said, the fees were commercially reasonable and paid solely for the purpose of obtaining the franchisor's services.

The Controversy about the Basis of the Crown Opening of the Case

Counsel for the Crown took more than two days to open the case. There was controversy later in the trial regarding the precise basis upon which the case had been opened. Counsel for Pearce and Tieleman submitted that the case was opened consistently with the particulars, namely, that the appellants were parties to a conspiracy to defraud the Commonwealth by causing taxpayers to make false representations to the ATO.
As outlined by Senior Counsel for the prosecution at the trial, the essence of the Crown case was that the three appellants, Pearce, Tieleman and Wharton, assisted by Wahby and Aistrope:
"… agreed dishonestly to exploit the self‑assessment taxation system of this country on a massive scale to obtain millions of dollars of public funds to which they were not entitled.
The plan was simple in concept. It was designed by the three accused in the early part of 1998 to persuade large numbers of ordinary members of the public who happen to be relatively higher pay as you earn taxpayers during the 1998 financial year to make claims on the Australian Taxation Office for tax refunds, the greater part of which were to be immediately channelled back to the promoters of the scheme and ultimately to be distributed between the promoters and the three accused.
The scheme had the capacity in the space of a few months after 30 June 1998 to net the conspirators more than 14 and a half million dollars in benefits to themselves and it had the capacity to cause losses to the Commonwealth of more than $26,800,000. Each of the three accused is a qualified and apparently experienced practising accountant. Each of them specialises in taxation matters. The accused Pearce and Tieleman practised within the Perth firm of chartered accountants called McKesser Tieleman. The accused Wharton practised under the title of Wharton Partners … accountants and advisers from offices in the inner Melbourne suburb of Toorak."
It was contended by the Crown that each of the three appellants had Aistrope and Wahby as their co‑conspirators. Neither Aistrope nor Wahby were taxation experts. They came from a business background and they enlisted the expertise of the three appellants effectively to create a means of extracting money from the ATO.
Aistrope and Wahby were dependent on the three appellants for that task. The Crown case was that the three appellants each willingly obliged them to create a scheme that had the outward appearance of legality, but was designed to conceal the core of dishonesty and deceit. The three appellants were motivated by the promise of substantial reward. The Crown alleged that Pearce and Tieleman stood potentially to gain more than $500,000 if the scheme had run its course. Mr Wharton stood to gain well in excess of $2.5 million.
The Crown opened the case on the basis that the evidence would show that, between February 1998 and about October 1998, when Pearce and Tieleman terminated their part in the conspiracy, all three of the appellants played their part in putting the agreement into effect. It was alleged that each played vital roles in both constructing the scheme and promoting the successful sale and implementation of the scheme. In particular, the Crown alleged that each of the appellants contributed to crafting and making positive false or misleading assertions of facts. They each contributed to the careful concealment of material facts and to the resultant deceit practised, first, on the taxpayers who were targeted by the scheme and, secondly, on the ATO, as the scheme was designed to achieve the object of defrauding the Commonwealth on a massive scale.
The case was opened on the basis that, in the period between 15 April 1998 and about 30 June 1998, out of a possible maximum of 1430 sales, 1160 sales were made at a "purported cost" of $39,500 per unit sold so that the process was successful.
The jury was told that if the ATO had not got wind of the scheme in early July 1998, the sales were likely to have resulted in claims for taxation deductions being made during July and August of 1998 at the rate of $38,000 per sale. If those claims had been made, the result would likely have been that the ATO would have been induced to pay tax refunds of up to $18,430 per sale. That calculation was made on the basis that the scheme was targeted on taxpayers in the highest tax bracket which would entitle them to a deduction of 48.15 cents in the dollar claimed, which would result in a refund of approximately $18,430 to each taxpayer participating in the scheme. The potential loss of revenue to the Commonwealth was calculated in the sum of $21,378,800.
The scheme required each taxpayer to channel back to the promoters of the scheme a sum of $10,193. The $193 was a payment in respect of stamp duty, so that the net amount channelled back to the promoters of the scheme was $10,000. The individual taxpayers were only required to contribute $150 from their own pockets, which was called an "administration fee". The total amount invested by the taxpayers was $174,000 which was to be compared with the sum of approximately $11.8 million that would be obtained from the ATO. The grand total potential return from the conspiracy on the basis of the sales actually made was $11,997,880. The Crown case was also that, as between Aistrope and Wahby, the promoters of the scheme and the three appellants, the agreement was that the appellants would be paid success fees or commissions in respect of the operation of the scheme. Based on the agreed formula, Pearce and Tieleman would have been entitled to a success fee on top of their ordinary time‑based fees for the services provided to Aistrope and Wahby. The amount of the success fee was $371,250.
Under the originally agreed formula, Aistrope and Wahby would have been entitled to approximately $2.8 million or $3 million, but, as a result of negotiations with the promoters, Aistrope and Wahby agreed to reduce their fee to $2.5 million.
In addition to the fees that Aistrope and Wahby would have had to pay out of the $11.8 million that they obtained from the ATO, Aistrope and Wahby would also have been liable for the commissions payable to the team of sales agents who had been engaged to sell the scheme.
In fact, a team of sales agents was engaged to sell the scheme, not only in Perth, but also in Kalgoorlie and other mining towns where large numbers of relatively high income PAYE wage‑earners were employed who, during the course of the financial year, would have had significant amounts deducted on account of tax and would be potential participants in the scheme. In the result, Aistrope and Wahby were liable to pay sales commissions of a total of $2,182,000, which would have been funded by the ATO.
Aistrope and Wahby would also have been liable for the costs of setting up a business, but the fact was they did not have the capital to do that. In this context, the Crown case was that the scheme was designed to enable them to obtain the capital to go into the Internet business with a view to the cost of setting up that business being met by the funds derived substantially from the ATO. Such costs had been estimated by the promoters at between $1.5 million and $2 million.

The Crown also contended that none of those costs or expenses had anything to do directly with the actual provision of services to the taxpayers. While the setting‑up of the business establishment, buying equipment, etcetera, provided the means or the structure from which those services could emanate, none of those items of expenditure had anything to do with the actual operation of the business and the provision of the services that the taxpayers had effectively purchased with the $38,000 component in the amount which they had been charged for the franchise. The Crown estimated on the basis of "rough calculations" that, had the ATO not intervened, Aistrope and Wahby would have been left with about $5 million from which they were obliged to provide services for which the 1160 taxpayers had produced claims for deductible expenditure totalling $44.08 million.
Counsel for the Crown invited the jury to compare the figures of $5 million as against approximately $44 million on a per unit sale basis that the taxpayer had made a claim for allegedly deductible expenditure, in respect of services to be provided to them under the scheme and each deduction claimed for those services was $38,000 per unit. On the other hand, dividing $5 million by 1160, the promoters were left with no more than about $4300 to provide for the services for which the taxpayers were claiming to have incurred tax-deductible expenditure in obligations to pay for such services. In other words, the role of the taxpayers was to claim deductions for expenditure incurred in the sum of $38,000 to purchase services that were to be provided during the year ended 30 June 1998, but the promoters only had some $4300 per unit to provide those services.
It was calculated that the potential payout by the ATO triggered by the claims totalling $44 million was approximately $21,378 for each taxpayer. Each of the taxpayers stood to receive a refund of $18,430 from which they were required to pay the promoters $10,193. Consequently, the taxpayers stood to make a windfall gain of about $8000 each. All they had to do to obtain that sum was to sign a few documents, put up the initial $150 as an administration fee and later put in a tax return in which they marked the appropriate box, "$38,000 deduction". They would receive the deduction whether or not the business that was supposed to be built with the funds ever got off the ground.
As it transpired, the ATO was alerted to the scheme in early July 1998 and was able to put a stop to the issue of most of the tax refund cheques that would otherwise have been sent out as a result of the operation of the scheme. At the time of the stoppage, deduction cheques totalling some $1,599,540 had been paid to taxpayers.
In the course of the opening, the Crown case was that the three appellants joined in a criminal conspiratorial agreement to defraud the Commonwealth. In other words, the Crown case was that the appellants joined in an agreement with an intent to prejudice the interests of the Commonwealth by dishonest means. The interests of the Commonwealth that were to be prejudiced were those involved in the protection of the national revenue. In particular, it was put to the jury:
"The dishonest means to be employed with intent to cause that prejudice was the use of statements that the Crown says were known to be untrue. Those knowingly untrue statements, the Crown says, were directed in the first instance to the taxpayers targeted under the scheme and then through those taxpayers to the [ATO]."
As the ATO was an office of the Commonwealth, the charge involved defrauding the Commonwealth of taxation revenue to which it was otherwise entitled.
Significantly, it was specifically put to the jury in opening that, in the event that the ATO sought to investigate the basis for the claimed deductions, the untrue facts were designed to induce the taxpayers to rely on those untrue facts to deceive the ATO regarding the true factual basis for the deductions claimed. Further, the prejudice that was intended by such dishonest means involved prejudicially affecting the ability of the ATO to protect the property of the Commonwealth and was designed to prejudicially affect that ability by causing claims to be made by taxpayers for deductions based on false or untrue facts. As it was also put by counsel for the Crown in opening:
"They were designed to prejudicially affect the [ATO's] ability to protect the Commonwealth by putting at risk the ability of the [ATO] properly to determine whether or not the claimed deductions should be disallowed, that is that the untrue facts were designed to deprive the [ATO] of a true factual basis for making that determination.
In short, the Crown case was that by their conduct the appellants caused the relevant taxpayers to provide, albeit innocently, false representations to the ATO in support of their claims for tax deductions in respect of the relevant expenditure. Further, the prejudice that was intended was the putting at risk of the ability of the ATO properly to take action to recover refunds that were paid out again to be achieved by those standing to benefit by depriving the ATO of a true factual basis for taking effective action. In concluding that part of the opening, counsel for the Crown said to the jury:
"Let me make the Crown position absolutely clear. The prosecution is not about proving that the accused have misunderstood or misapplied taxation law. It is about proving that each of the accused knowingly and quite deliberately joined in an agreement to defraud the Commonwealth in the ways that I have outlined."
I have endeavoured to summarise the key points of the Crown opening in the context of the appeal.

Opening Remarks by Counsel for the Appellants at the Trial

At the conclusion of the Crown opening, counsel for each of the appellants was given leave to make some opening remarks. It is apparent from those remarks that counsel for the accused apprehended that the Crown case alleged a conspiracy to use dishonest means by causing third parties, namely, the participating taxpayers to make statements to the ATO that the parties to the conspiracy knew to be false. Counsel for the appellants Pearce and Tieleman said in response to the opening that:
"What is illegal and what the Crown says happened in this case is the entering into an agreement to cause somebody else to make a statement that the parties to the agreement knew to be false. That's the dishonesty. What you must focus upon, I would suggest and hope you will, is the dishonest aspect of the case. Look for an agreement to cause people to say things that the parties to the agreement knew to false.
Because that's the focus it gets me back to my first general point. You have to look carefully at what the state of knowledge of each of the accused was because you will have to [make a] decision whether they knew, each of them knew, a particular statement would be false if made by a taxpayer."
It was maintained on behalf of Mr Tieleman that he was focused upon what ought to be done to make the structure effective so that the tax deduction was allowable, which was inconsistent with an agreement to deceive the Commissioner. It was also put on behalf of Mr Tieleman that he was endeavouring to make sure that the factual basis was correct so that the tax investigation, when it came, would lead to the conclusion that the claims were deductible. Counsel for Mr Tieleman submitted at the trial that this stance was wholly inconsistent with him having agreed with others to cause false statements to be made to the ATO by the taxpayers involved. The context was one in which an investigation by the ATO was inevitable.
It was stressed that the case depended very much on the drawing of inferences from the evidence. Counsel submitted that the fact that a big deduction was claimed by a taxpayer did not mean that lies were told, any more than that the services of Servcom, as franchisor, were sold a lot above cost was relevant to the question whether lies were told. The jury were invited to look carefully at when the business in which the taxpayers were involved started, as well as the evidence about the loans.
Mr Percy QC told the jury that Mr Pearce accepted that he was an accountant in the firm of McKessar Tieleman as an employee until 30 June 1998. Mr Percy was at pains to point out that in relation to MKT Consulting Pty Ltd ("MKT Consulting") the shareholders were Pearce and Tieleman which might give the mistaken impression that Pearce was always one of the beneficiaries of that company. His case was that he only became a shareholder of that company in 1999 after the events the subject of the conspiracy charge had occurred.
The case for Pearce was that he was not at the meeting on 9 February 1998. He subsequently became aware that Tieleman had been approached by Aistrope and Wahby to discuss their proposals for a tax‑effective capital‑raising using a licence or franchise, in the same way as had been used by a firm called Satcom previously in the previous year. He worked on the new scheme under the supervision of Tieleman. His case was that he and Tieleman had very little original input. His case was that from the time the firm was approached, Wahby and Aistrope had a structure that they wanted followed. This was the one which was ultimately adopted, subject to some "fine‑tuning" on advice from Aistrope and Wahby's legal firm, Garton Smith Owen. Aistrope and Wahby also had input from a firm of legal taxation specialists, namely Wilson and Atkinson and from Wharton himself. Pearce did not prepare any of the legal documents. That was done by Garton Smith Owen on instruction from Wahby and Aistrope.
Pearce's position was that Tieleman referred Aistrope and Wahby to Wharton, who was known as a finance provider for tax‑effective arrangements. As the preparation of the scheme progressed, Pearce understood that Wharton, as set out in his brochure, had the capacity through the ABC Group and Allied Finance to make more than $250 million available. Pearce's position was that he always understood that the proceeds of the long‑term loans referred to in the arrangement were to be held to the credit of Servcom in what was called a "securitised deposit".
Pearce prepared the brief to Mr O'Connor QC, a tax specialist. In doing so he acted on information provided by Aistrope, Wahby and Wharton. His case was that neither he nor Tieleman had any reason to investigate the accuracy of any of the information supplied to them, and they acted in good faith.
Pearce denied that any of his actions or his intention in relation to Servcom were dishonest. His case was that he and Tieleman went to great lengths to ensure that the Servcom arrangements were entirely legitimate. The context was that it was inevitable that the arrangements would be investigated by the ATO and Pearce's position was that he structured them so that they would stand that test.
In particular, he denied that he deliberately misled Mr O'Connor or was part of any criminal agreement to defraud the Commonwealth or to prejudice the ATO. He said he had every expectation that Wharton, who was in charge of the project, was in a position to effect the necessary loans and indemnities at the appropriate time and would do so. Pearce's case was that his actions throughout were beyond reproach, that the Servcom project complied with the requirements of the law and would be effective in providing for them the possibility of sharing in an Internet business which could produce results for many years to come, as well as producing a legitimate tax‑effective investment for those involved.
Counsel for Mr Wharton appeared to adopt the submissions of Mr Martin QC and Mr Percy QC. His position was that, while the scheme was complicated, it was lawful.

Grounds of Appeal

As amended on 18 October 2004, ground 1 in Pearce's appeal was that:
"1.The trial judge erred in directing the jury that it was open to find, beyond a reasonable doubt, that the Appellant was guilty having regard to the whole of the evidence, when he should have directed the jury that the evidence of the Crown taken at its highest, was incapable of establishing the guilt of the Appellant beyond a reasonable doubt."
The particulars of that ground were that there was no evidence capable of establishing beyond a reasonable doubt:
"(a)An agreement between Pearce and any other alleged conspirator to cause any taxpayer to make any false statement to the Australian Taxation Office ('ATO');
(b)That claims by taxpayers for a deduction in respect of franchise service fees were not allowable deductions under the provisions of the Income Tax Assessment Act 1936 and the Income Tax Assessment Act 1997 (Cth) (the ITAA);
(c)That the appellant and another alleged conspirator with whom he had agreed each knew that claims by taxpayers for the deduction of franchise service fees were not allowable deductions pursuant to the provisions of the ITAA;
(d)That the appellant and another alleged conspirator each knew and intended and agreed that taxpayers would make any particular representational statement to the ATO other than the claim for the deduction of franchise service fees;
(e)That the appellant and another alleged conspirator each knew and intended and agreed that any particular statement or representation to be made by taxpayers to the ATO would be false when made;
(f)That any particular false statement or representation to be made by taxpayers to the ATO pursuant to an agreement between the appellant and another alleged conspirator would cause the ATO to take some action which it would not otherwise have taken, or to fail to take some action which it would otherwise have taken, which act or omission would imperil the legal rights and financial interests of the Commonwealth of Australia;
(g)That the appellant and another alleged conspirator with whom he had agreed each knew and intended that any particular false statement or representation to be made by taxpayers to the ATO pursuant to their agreement would cause the ATO to take some action which it would not otherwise have taken, or fail to take some action which it would otherwise have taken, which act or omission would imperil the financial interests of the Commonwealth.
B.The Crown case, at its highest, was only capable of establishing beyond a reasonable doubt a failure to disclose to taxpayers and to the ATO the full terms of the arrangement between the lender and the franchisor for the disbursement of funds to be loaned to franchisees to enable them to discharge their obligations to the franchisor, which failure was incapable, at law, of establishing the offence charged, having regard to, inter alia,
(a)The fact that the Crown case was particularised and opened on the basis of an agreement to cause false statements or representations to be made by taxpayers, not of an agreement to cause taxpayers to make disclosures;
(b)The fact that a charge brought on the basis of an agreement to cause taxpayers to fail to make disclosure would not, even if it had been brought, disclose an offence known to the law, given the lack of any obligation to make disclosure (other than disclosure of assessable income) under the ITAA;
(c)The fact that the terms of the arrangement between the lender and the franchisor for the disbursement of the funds to be loaned to franchisees to enable them to discharge their obligations to the franchisor were irrelevant to the deductibility of the franchise service fees under the ITAA; and
(d)The failure of the Crown to adduce any evidence capable of establishing beyond a reasonable doubt that the appellant and another alleged conspirator with whom he agreed knew that terms of the arrangement between the lender and the franchisor for the disbursement of the funds to be loaned to franchisees to enable them to discharge their obligations to the franchisor were relevant to the deductibility of the franchise service fees under the ITAA."
Tieleman's and Wharton's grounds 1 – 3 and 7 ‑ 12 were originally the same, as in the case of Pearce. Pearce and Tieleman subsequently amended their grounds of appeal on 25 November 2004 with the result that the grounds of all three appellants 1 – 15 were identical. The only remaining differences in the grounds were that Wharton did not adopt Pearce and Wharton's ground 16 which contended that his sentence was excessive. Grounds 17 and 18 correspond with Wharton's grounds 16 and 17.
Ground 12 was that:
"The verdict of the jury should be quashed on the ground that it is unsafe and unsatisfactory, because of the lack of evidence capable of establishing beyond a reasonable doubt each or any of the issues referred to in grounds 2, 3, 7 – 11 above, each of which had to be established before the jury could properly convict the appellant."
Ground 2 contended, in essence, that the learned Judge failed to direct the jury adequately or at all that they could not convict the appellant unless satisfied beyond reasonable doubt that there was an agreement between the relevant appellant and another alleged conspirator to cause a false statement or representation to the ATO, and failed to direct them that they must be satisfied what the statement or representation was and that it was in fact made.
Ground 3 contended that the trial Judge erred in failing to direct the jury that in order to convict the appellants they had to be satisfied beyond reasonable doubt that the claimed deductions were not allowable, but erroneously directed the jury that it was sufficient if they were satisfied that there was a risk that the financial interests of the Commonwealth were imperilled pursuant to the alleged agreement, when, if the deductions were allowable, there could have been no such risk and no unlawful conspiracy to defraud the Commonwealth.
Ground 3 contended that:
"The trial judge erred in failing to direct the jury that in order to convict the Appellant they must be satisfied beyond a reasonable doubt that claims by taxpayers for the deduction of franchise service fees were not allowable deductions under the provisions of the ITAA, but instead erroneously directed the jury that it was not necessary that they make such a finding but rather that it was sufficient if they were satisfied that there was a risk that the financial interests of the Commonwealth were imperilled pursuant to the alleged agreement, when if the deductions were in fact and law allowable under the ITAA (and they either were or they weren't), there could not have been any such risk, and therefore no unlawful conspiracy to defraud the Commonwealth."
Ground 4 was that:
"The trial judge erred in failing to direct the jury that on the evidence adduced they should conclude that the claims for the deduction of franchise service fees were allowable deductions pursuant to s 8‑1 of the ITAA (1997)."
Ground 5 was that:
"The trial judge erred in failing to direct the jury that in assessing the dominant purpose to be ascribed to a particular participant in a scheme coming within s 177D of the ITAA having regard to the matters specified therein, they should have regard to and evaluate the other possible purposes of any such participant in order to objectively assess which was the dominant purpose."
Ground 6 was that:
"The trial judge erred in failing to direct the jury as to the proper meaning and application of s 177D of the ITAA to the facts they might find established by the evidence, and in particular failed to direct the jury adequately or at all as to the meaning and application of the provisions of that section concerning the difference between the form and substance of the scheme, and in that context failed to direct them that there was no evidence from which they could be satisfied that any of the agreements in evidence before them were a sham (in the legal sense of not having been intended by the parties to create the rights and obligations specified therein) and in so doing failed to correct the Crown opening in which it was asserted that the loan agreement between lender and franchisee was a sham, and that it was unenforceable at law, when there was no evidence capable of sustaining either conclusion."

The trial Judge, after referring in general terms to the provisions of this section, said of it that it was a wide provision which (transcript page 3153):
"basically says that a taxpayer who would have obtained a deduction but having regard to the eight facts [sic] it is concluded that the person entered into it for a dominant purpose of obtaining a tax benefit for other persons, as you see in that section - that one of the persons entered into it to enable a relevant taxpayer to obtain a benefit - then you go to section 177F which allows the Commissioner in an appropriate case to determine that the deduction shall not be allowable."
By ground 5, the appellants contend that, in considering the potential application of this section, it was necessary for the jury to evaluate the relative significance of the various purposes, objectively assessed, of a particular participant in the scheme in order to enable them to assess which was the dominant purpose. However, they contend that at no point did the trial Judge direct the jury to evaluate the relative significance of the competing purposes (as to which see Federal Commissioner of Taxation v Spotless Services Ltd (1996) 186 CLR 404 at 416). The appellants also contend that he failed to give to the jury any assistance as to the meaning of the word "dominant" in this context.
In my opinion, no directions of the kind contended for were necessary in the circumstances of this case. As I have explained, the Crown case was not that s 177D, read together with s 177F(1), would have seen the claimed deductions disallowed. Rather, it was merely that the conspirators had intended to obtain an advantage for themselves by putting the Commonwealth's property at risk or by depriving it of the opportunity to protect its property. In those circumstances, it was unnecessary for the trial Judge to do more than to refer, in general terms, to those provisions of Pt IVA which were of potential application. That is what he did. Ground 5 consequently fails.

Ground 6

By this ground the appellants complain, once again, of the absence of any directions to the jury as to the proper meaning and application of s 177D, but, this time, with particular emphasis on what is said to have been the trial Judge's failure to direct the jury as regards the difference between form and substance. They contend that he should have given such a direction and that, in the course of doing so, he should have corrected the Crown opening which asserted that the loan agreement was "bogus" or "a sham".
It will be plain from what I have already said that the loan agreement was not said by the Crown to have been a "sham" in the technical sense of that word. Rather, the Crown made it quite plain that its description of the loan agreement as "bogus" or "a sham" (or, as it was also referred to, as a "fiction") was addressed only to the fact that the loan funds were not, in truth, to be available for use by the franchisor. In these circumstances, no direction of the kind contended for was necessary. Nor, for the reasons already given, was any other direction (than that given by the trial Judge) necessary as regards the meaning and application of s 177D.

Grounds 7, 10 and 11

Ground 7 asserts that it was necessary, for a conviction, for the jury to have been satisfied beyond reasonable doubt that the Commissioner would have exercised the powers conferred on him by s 177F of the Act and that the trial Judge should have directed them that there was no evidence to establish that this was so. Grounds 10 and 11 assert that there must have been a false statement or representation by taxpayers to the ATO which would cause that office to take some action which it would not otherwise have taken, or to fail to take some action which it would otherwise have taken, and that such act or omission would imperil the financial interests of the Commonwealth and that the alleged conspirators knew and intended this to be so Those grounds go on to contend that the trial Judge should have directed the jury that there was no evidence upon which any such findings could be made. I have earlier dealt with these propositions. It follows from what I have said, when dealing with ground 1, that these grounds have not been made out.

Ground 12

By ground 12 the appellants contend that the jury's verdict is unsafe and unsatisfactory because of the lack of evidence capable of establishing beyond a reasonable doubt each or any of the issues referred to in grounds 1, 2, 3 and 7 to 11. It follows from what I have said, in respect of those grounds, that this ground, too, fails.

Ground 13

The appellants say, under this ground, that, having summarised the evidence given by the various franchisees, the trial Judge directed the jury that that evidence could be used to establish a conspiracy to defraud "by arming taxpayers with false information under the guise of a legal scheme". This is said to have been a significant departure from the manner in which the Crown had particularised and presented its case, in that the Crown had contended that taxpayers were to be procured to make false representations to the ATO (although there is said to have been no evidence from the franchisees in this respect). I have already rejected the contention that there was any material change of direction by the Crown and I will not repeat what I have said above in that regard.
The appellants also contend, under this ground, that the trial Judge failed to direct the jury adequately as to the use to which this evidence (or perceived shortcomings in it) might be put when evaluating the potential application of the anti‑avoidance provisions of the Act and also s 8‑1 thereof. It follows from what I have already said that there was no need for him to have done so.
Ground 13 has consequently not been made out.

Grounds 14 and 15

By these grounds the appellants complain that, the Crown having called each of O'Connor, Aistrope and Wahby, it was obliged to put to them propositions concerning them upon which it proposed to rely in urging the jury to bring in a conviction. They contend that, because the Crown suggested that the misleading of O'Connor was an essential part of the conspiracy, it should have put to him or elicited from him that he had in fact been misled and that, if he had known the true facts, his opinion would have been different. They contend also that, although each of Aistrope and Wahby was said by the Crown to have been a party to the illegal conspiracy, evidence should have been, but was not, led from each of them that this was so. In these circumstances, the appellants contend, it was not open to the Crown to close on the basis that O'Connor had been misled, or that Aistrope and Wahby were parties to the illegal conspiracy, and the trial Judge should have prevented them from doing so or at least warned the jury that they should be cautious in accepting those propositions. Instead, they contend, he erred by charging the jury in a manner which assumed the propriety of what had been done.
So far as O'Connor is concerned, I am unable to see any basis upon which it would have been proper to ask him whether or not he considered that he had been misled or what, in his opinion, followed from the fact that he had been misled. The Crown did not rely upon any opinion evidence to be adduced from him. It was a question for the jury whether he had, or had not, been misled (in the sense that relevant information had not been provided to him) and to consider, if they concluded that he had been misled (as, in my opinion, they must inevitably have done), what was the significance of that as regards the question whether or not there had been an agreement to use dishonest means to imperil the economic interests of the Commonwealth.
In any event, there was no challenge to evidence which established that O'Connor was not told that the loan funds would not be available to the franchisor in the relevant period and the documents provided to him quite plainly suggested the contrary. O'Connor's characterisation of what had been done was irrelevant.
As to the role which had been played by Aistrope and Wahby, it is true that during the course of their evidence it was never put to either of them (notwithstanding that each had pleaded guilty to the conspiracy charge) that they had been parties to an unlawful agreement resulting in a conspiracy to defraud the Commonwealth. However, it was, in my opinion, open to the Crown to invite the jury to draw what it saw to be rational inferences from the whole of the evidence as regards the part played by them. The evidence of their respective roles and knowledge was largely unchallenged and the inference that each of them was a participant in the conspiracy, despite their denials of that fact in cross‑examination (this, notwithstanding their pleas of guilty), was plainly open. The Crown was not precluded from inviting the jury to draw that inference simply because it had not put this proposition to each of the two men during their evidence‑in‑chief (a course which might have resulted in their revealing the fact of their pleas of guilty) or because it had not sought to have them treated as hostile for the purpose of challenging their denials, if this had been feasible (see, generally, Harman v State of Western Australia [2004] WASCA 230).
In any event, the characterisation, by Aistrope and Wahby, of their respective roles was irrelevant. That was a question for the jury.
Grounds 14 and 15 consequently fail.

Ground 17 (Pearce and Tieleman) and ground 16 (Wharton)

These grounds assume that the Crown closed its case on a basis different from that upon which it opened. I have already rejected that contention. It follows that they have not been made out.

Ground 18 (Pearce and Tieleman) and ground 17 (Wharton)

These grounds rely upon the aggregation of the errors raised by the preceding grounds. None of those errors having been made out, it follows that these grounds, too, fail.

Conclusion - appeals against conviction

It follows that I would dismiss each of the appeals against conviction.

The Appeals Against Sentence

The trial Judge sentenced each of the appellants to a term of 5 years' imprisonment but subject to an order for release, after having served 18 months of that sentence, upon entering into a recognisance release order on payment of security of $10,000. The sentence was, in each case, backdated to take effect from 29 June 2004.

Appeal by Pearce and Tieleman

Each of Pearce and Tieleman appealed upon the ground that the sentence imposed upon him was manifestly excessive, having regard to all of the facts of the case. In each case that ground was particularised as follows:
"AThe trial Judge erred in imposing a sentence based on finding that it was implicit in the jury's verdict that the Appellant had been subjectively dishonest rather than objectively dishonest.
BThe trial Judge erred in sentencing the Appellant on the basis of several factual errors.
CThe trial Judge erred in sentencing the Appellant to a sentence of immediate imprisonment rather than a non‑custodial disposition."
As to the first of those particulars, the trial Judge, in the course of his sentencing remarks, said (of Pearce and Tieleman) the following (transcript page 3284 ‑ 3285):
"While I accept that you yourselves were deceived by Wharton to a degree, consistently with the verdict of the jury you were aware that no loan funds were ever to flow to Servcom, certainly again at least in the 1998‑1999 year. It has been strongly submitted on your behalf, Pearce … and … Tieleman, that it has not been proved that you were subjectively dishonest. The verdict, it is said, is explicable on the basis that you regarded your actions as lawful and honest. You intended to deceive no‑one and your guilt is at the low edge of the scale. By the jury's verdict, your actions can be regarded as objectively dishonest but not deliberately so.
With all respect, this distinction must be emphatically rejected. I am to sentence you in accordance with the verdict of the jury. By that verdict the jury found that each of you entered into an unlawful agreement and that each of you had an intention to defraud. What has been proved beyond reasonable doubt is that each of you well knew that the so‑called long term loan account of each taxpayer would not be available to its intended recipient Servcom at least during the 1998 to 1999 year. This was vital information deliberately concealed from everybody outside the conspiracy."
I am not persuaded that his Honour made any error. A finding of subjective dishonesty was consistent with the verdict of the jury. It was open to the sentencing Judge to regard it as having been proved beyond reasonable doubt that each of Pearce and Tieleman well knew that the proceeds of each loan would not be available to the franchisor in the first year of the operation of the franchise and that the two men deliberately concealed this fact from the franchisees and, hence, from the ATO. The evidence pointed overwhelmingly in that direction.
I should add, in this respect, that the position of the appellants in this case is no different than that of the respondents in R v Rosenthal, Su & Oades (1987) 28 A Crim R 375. There, the respondents were convicted, following pleas of guilty, of conspiring to defraud the Commonwealth. They had been engaged in devising, marketing and promoting a tax evasion scheme. The Victorian Court of Criminal Appeal (Kaye, Gray and Nathan JJ) was satisfied that, by pleading guilty, each respondent admitted that he knew that the scheme was unlawful, or, at least, had no belief that it was lawful. Their Honours said, at 380, that it was consequently not open to the trial Judge to sentence the respondents upon any hypothesis other than the state of subjective dishonesty inherent in a plea of guilty to conspiracy to defraud.
As to particular B, the only factual error identified by counsel for Tieleman and Pearce was one which arose out of the fact that the trial Judge said that, while those two men might not have known the precise details as to how Wharton "would arrange things", they must have been aware that "his provenance was shaky".
It does seem as though there was no evidence to sustain that finding. Rather, the evidence disclosed no more than that Pearce and Tieleman did little to satisfy themselves of Mr Wharton's true financial situation. That said, it does not seem as if this finding featured in any significant way in the trial Judge's consideration of what should be an appropriate sentence. I have already said that the trial Judge accepted that the two men had been deceived by Wharton "to a degree". Also, immediately following the finding of which complaint is made, the trial Judge went on to say that Pearce and Tieleman had "made not the slightest attempt to satisfy … [themselves] that Wharton was a man of substance".
In any event, as I shall explain below, it seems to me that the sentences imposed upon Tieleman and Pearce were entirely appropriate and, even if his Honour's discretion did miscarry as a consequence of this error, I do not consider that any different sentence should have been passed: s 689(3) of the Criminal Code (WA).
As to particular C, Tieleman and Pearce contend that the sentences imposed upon them were manifestly excessive having regard to the strong evidence of their previous good character, the catastrophic effect of conviction upon their business and future occupations and the acknowledged lack of any need for personal deterrence.
It is true that each of these considerations carries weight. However, each was accorded weight by the trial Judge. He said (transcript page 3287) that he fully accepted that both men had "a reputation for honesty and decency" and went on to say that "in the hothouse of the taxation industry … [the two men] lost … [their] moral compass and direction causing … [them] to play this part in this conspiracy". He also referred to the fact that the conviction had caused great hardship to their families and that their economic futures were blighted. Finally, in this respect, he expressly (transcript page 3288) took account of the fact that no personal deterrence was necessary.
In any event, as I have foreshadowed, far from being manifestly excessive, the sentences imposed by the trial Judge seem to me to have been entirely appropriate, given the nature of the offences of which the two men were convicted (and taking into account the various matters which arose in mitigation). Offences such as this raise considerations of the kind mentioned in Director of Public Prosecutions (Commonwealth) v Goldberg (2001) 184 ALR 387 at 394 [32]. There Vincent JA (with whom Winneke P and Batt JA were in agreement) referred, with apparent approval, to what had been said by the sentencing Judge in that case, as follows:
"Tax evasion is not a game, or a victimless crime. It is a form of corruption and is, therefore, insidious. In the face of brazen tax evasion, honest citizens begin to doubt their own values and are tempted to do what they see others do with apparent impunity."
Considerations of that kind strengthen the need for general deterrence.
Counsel for Tieleman and Pearce also offered the submission that, in considering what should be an appropriate sentence, account should be taken of the fact that the Commonwealth was not shown to have lost any money, but only the opportunity of protecting the revenue. In my opinion, this consideration carries little weight. This was a conspiracy to defraud the Commonwealth on what was, by any measure, a comparatively large scale. It is of no great moment whether or not, in the result, the ATO was shown to have lost money.
Finally, in this respect, counsel for Tieleman and Pearce contended that the sentences imposed upon them were "out of parity" with that imposed upon Wharton, having regard, in particular, to the fact that he was described by the sentencing Judge as "a financial rogue", that he was found to have deceived Tieleman and Pearce, that he had wilfully misrepresented to his co‑accused the financial standing of the companies he represented and that, without their knowledge, he had orchestrated two "elaborate cheque 'round robins'" in respect of the loan arrangements to which I have earlier referred.
There can be no doubt that Wharton's conduct was more serious than that of his co‑offenders. However, this was acknowledged by the sentencing Judge. His Honour said that, were it not for the state of Wharton's wife's health (a matter to which I shall come when dealing with Wharton's appeal against sentence), he would have imposed a greater period before conditional release in order to take account of Wharton's greater criminality.
The parity principle is based upon the notion of equal justice, which requires that like should be treated alike: Postiglione v The Queen (1997) 189 CLR 295 at 301, per Dawson and Gaudron JJ. However, if there are relevant differences, then allowance must be made for them. That is precisely what the sentencing Judge did in this case. He recognised that Wharton's greater criminality warranted a greater sentence but, after taking into account Wharton's different circumstances brought about by the fact that he cannot be with his wife at a time when she is in need of him, he concluded that a similar sentence should be imposed upon him as should be imposed upon the other two. In my opinion, there was, in those circumstances, no error in the exercise of his Honour's discretion.
I would consequently dismiss each of Pearce and Tieleman's appeals against sentence.

Appeal against sentence - Wharton

Wharton's appeal against sentence raised, with one exception, the same grounds as had been raised on behalf of Pearce and Tieleman, to the extent that those grounds could be made applicable to him. For the reasons already given, those grounds fail in his case also.

The exception to which I have referred arose when, on the commencement of the hearing of the appeals, senior counsel for Wharton moved, and was allowed, an amendment to his grounds of appeal against sentence in terms raising an additional ground as follows:
"By reason of the worsening of the medical condition of the applicant's wife and her limited life expectancy, this court should intervene to reduce the length of the period the applicant is required to serve in prison prior to his release on a recognisance release order:
Particulars
The applicant relies upon the medical certificates pertaining to the applicant's wife filed in Full Court action No 132 of 2004 in relation to the applicant's appeal against the refusal of bail heard and determined on 15 November 2004."
When he came to sentence Wharton, the trial Judge had before him a medical report from Dr Jeffrey Szer, an associate professor of medicine at Royal Melbourne Hospital. In that report, dated 19 August 2004, Dr Szer said that Mrs Wharton was suffering from advanced multiple myeloma in the form of an incurable malignancy of the bone marrow. He said that her illness was currently at a very advanced stage and that, prognostically, she was unlikely to survive more than a year unless there was a dramatic response to a new therapy which might become available later in the year. It is important to mention that Mrs Wharton has expressed a desire not to be informed of her actual prognosis. This resulted in an order (made, also, in the course of the appeal) that there should be no publication of that prognosis.
I have said that Mrs Wharton's condition, as then known to the sentencing Judge, was taken into account by him. He said that he was aware of the "very real and very sad prospect that … [she] may die while … [Wharton was] in prison". However, Dr Szer has since been asked to provide an updated medical report in respect of Mrs Wharton. He has consequently prepared a report dated 10 November 2004 in which he mentions that trials of new agents for multiple myeloma have not yet been activated at his institution, that Mrs Wharton continues on standard therapy and that her medical condition is stable but serious. He says that her overall clinical state and prognosis are unchanged from that stated by him in his report dated 19 August 2004. It consequently seems probable that Dr Szer's initial prognosis will, sadly, come to pass and that, absent some reduction in the custodial portion of Wharton's sentence, he may well be released after his wife's death.
However, it also follows, from a comparison of Dr Szer's two reports, that little has changed, so far as Mrs Wharton is concerned, other than that the new therapy which was anticipated to be available later in 2004 had not, in early November of that year, yet been "activated". That, in turn, leads me to conclude that the later report offers no basis for upsetting the trial Judge's exercise of discretion which, as I read this ground of appeal, is sought to be overturned solely upon the basis of the fresh evidence in the form of the later medical report.
In any event, I have previously mentioned that there is much to be said for the proposition that the review of a sentence in the light of subsequent events is a matter for the executive government and not one for an appellate court: R v Anderson (1997) 92 A Crim R 348 at 356 ‑ 357 and the cases there cited; and see also R v McMaster (2004) 144 A Crim R 428. There is, in s 19AP of the Crimes Act (Cth) provision for the making of an application to the Attorney‑General to grant a licence under that section for a person to be released from prison where there are exceptional circumstances sufficient to justify the grant of such a licence. While it was contended, on behalf of Mr Wharton, that there were "acute" time factors in this case which might militate against requiring him to rely upon s 19AP, nothing has been said which would lead me to believe that an application of that kind could not quickly be dealt with by the Attorney‑General. It was also said that there is no guarantee that the Attorney‑General would grant such a licence. As to that, I would have thought that, depending upon any developments in the treatment of Mrs Wharton, there are strong grounds to support an application of that kind. However, that is a matter which should, in my opinion, best be left for consideration by the Attorney‑General.
Consequently, while I have a great deal of sympathy for the position in which Mrs Wharton finds herself (and for the additional hardship which that must cause her husband), I would dismiss Wharton's appeal against sentence.

Conclusion - Appeals Against Sentence

It follows that in my opinion each of the appeals against sentence should be dismissed.

Details

AGLC: Pearce v The Queen [2005] WASCA 74
Case: [2005] WASCA 74
Decision Date: 15 APRIL 2005

CaseChat Overview and Summary

The appellant, Pearce, appealed against his conviction and sentence for conspiracy to defraud the Commonwealth, which arose from a scheme where he and others concealed material facts from investors in a franchise scheme. Investors then filed income tax returns containing false claims for deductible expenditure related to their franchise. Part of the tax rebate from the Australian Taxation Office was remitted to the appellants to fund the franchise scheme. The appeal raised questions about the trial judge's directions to the jury regarding the proof of dishonest means and the adequacy of those directions. Additionally, the appellant argued that his sentence was manifestly excessive, and that there was a distinction between subjective and objective dishonesty that should be considered. The appellant also contended that his sentence should be reviewed in light of subsequent events, invoking section 19AP of the Crimes Act 1914 (Cth).

The central legal issues in this appeal were whether the trial judge misdirected or failed adequately to direct the jury on the proof of dishonest means and whether the sentence imposed was manifestly excessive. The appellant argued that the trial judge did not provide a clear direction on the proof of dishonest means, which is a critical element of the offence of conspiracy to defraud. Additionally, the appellant challenged the severity of his sentence, claiming that it was disproportionate to the offence and that it should be reviewed in light of subsequent events. The appeal also questioned whether there is a distinction between subjective and objective dishonesty that should be considered in sentencing.

The court found that the trial judge's directions to the jury were adequate and did not misdirect them on the proof of dishonest means. The court held that the jury was properly directed to consider whether the appellant acted with dishonest means, and that the proof of dishonest means turns on the facts of the case. The court also found that the sentence imposed was not manifestly excessive, and that the appellant's contention that there is a distinction between subjective and objective dishonesty did not warrant a review of the sentence. The court concluded that the appeal against conviction and sentence was without merit and dismissed the appeal.

No additional orders were made by the court. The conviction and sentence of the appellant remained unchanged.

Orders