Petroulias v The Queen

[2007] HCATrans 92

[2007] HCATrans 092

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney  No S478 of 2006

B e t w e e n -

NIKYTAS NICHOLAS PETROULIAS

Applicant

and

THE QUEEN

Respondent

Application for special leave to appeal

GLEESON CJ
GUMMOW J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 2 MARCH 2007, AT 9.45 AM

Copyright in the High Court of Australia

MR B.W. WALKER, SC:   If it please the Court, I appear with my learned friend, MR G.K. WALSH, for the applicant.  (instructed by Coadys)

MR P.S. HASTINGS, QC:   I appear with my learned friend, MR C.P. HOY, for the respondent, may it please your Honours.  (instructed by Commonwealth Director of Public Prosecutions)

GLEESON CJ:   What is the position about this trial?

MR WALKER:   It is to start this coming Monday, and as to the role of that in the position we find ourselves, it probably will not much enhance the position if I tell your Honours I am very recently told it will start for an application for adjournment.  I do not think, with respect, that will alter the importance of that imminent fixture.

Your Honours, some of the points that we would wish to ventilate have been the subject of an attempt to do so in this Court beforehand.  That happened, I think, not merely on the eve of a trial but after a hearing had commenced.  That is a circumstance that appeared to play, with respect, understandably a considerable role in the decision of this Court not to grant special leave.  Thereafter, a trial was had.  At that stage that trial was to be had according to what might be called the prescription of the Court of Criminal Appeal.  In the decision that your Honours have seen is at the heart of the difficulties we seek to draw to this Court’s attention on what is, we accept, an exceptional and urgent basis to interrupt what is otherwise the intended course of criminal proceedings. 

That decision in 62 NSWLR 663 was a decision which at the time the last application for special leave was dismissed prescribed a course whereby, among other things, the following were expected to happen. One, the Crown would attempt to prove that the tax position, the loss of which by the preclusive ruling was said to constitute the relevant deprivation for the offence in question, was a position that the Commissioner had some desire to put forward, and I stress the Commissioner, not the DPP. Two, that the question of the extent of there being any real value in anything lost by being precluded from running an argument was to depend upon what it sometimes called the arguability of propositions concerning the ruling being wrong and that that was capable of being the subject of expert evidence before the jury.

Three, that it was going to be the jury which would determine that question of was something of value lost sufficient to create a deprivation for the purposes of the serious offence charged, and that they would do that without being directed as to the taxation law in question.  They would determine the value of the preclusion of the Commissioner from arguing matters of law concerning the incidence of tax under a law of the Commonwealth without being directed by the judge as to what the law of the Commonwealth meant or would produce with respect to the facts covered by the ruling.

Your Honours may recall that the assignment to the jury of that task was a matter which had been ruled on by the majority in the Court of Criminal Appeal, notwithstanding that, as is recorded in paragraph 14 of their reasons for quite different purposes, the parties, that is, prosecution and accused, had taken the common position in the Court of Criminal Appeal that it was a matter for the judge to rule on the availability of the legal outcome with respect to the application of taxation law to the facts posited in the ruling.  That led to what might be called a hint or suggestion of New South Wales defamation practice in the requirement, which is noted by their Honours in the majority in the Court of Criminal Appeal at page 667 of the authorised report, paragraph 12, that:

The arguable case to be put by the Commissioner must first demonstrate the possibility that the Commissioner would win –

I stress “would win” –

a case in which he was allowed to dispute the private rulings.

Their Honours express that as being:

Is the case which the Commissioner wishes to put one which is capable of success?

The possibility that the Commissioner would win being understood as the content of this notion of being capable of success resembles, of course, the question as to whether material is capable of, for example, conveying a pleaded defamation imputation.  That, by the majority constituted by Chief Justice Spigelman, Acting Justice of Appeal Hunt, was held at paragraph 12 of that blueprint for the trial as being a matter for the judge.

GLEESON CJ:   Can you just remind us very shortly what was the nature of the revenue issue.

MR WALKER:   The nature of the revenue issue was the incidence to fringe benefit tax and, in turn, the deductibility flowing from arrangements whereby what have been called incentives for employees to remain and to work hard are created by, in some cases, unit trusts in which they may, as it were, be awarded units or, in other cases, corporations in which they may obtain shares.  The expense and the value of the provision to employees and associateship provisions become important and the expense of funding those arrangements provided the foundation of question, and there was a question, as to the incidence of FBT and, in turn, the deductibility of the expenditure.

Your Honours, as you would have seen from the most recent of the authorities to which we have drawn attention, namely, the Commissioner of Taxation v Indooroopilly Children’s Services (Qld) Pty Ltd [2007] FCAFC 16 handed down on 22 February 2007, the position at law is that, to put it bluntly, the rulings were correct. The rulings that are the basis of the allegation that obtained by dishonest means they brought about the relevant deprivation to produce the offence charged have been held correct. In our submission, that is a matter, as your Honours have seen, which not only raises an important question as to whether one can deprive, put at risk the revenue by being correct that the revenue does not collect on a certain head of claim but, most importantly, differentiating this from the argument which was unsuccessful the last time we applied for special leave, we have, first of all, the way the trial was run, the discharge of the jury, some very telling jury questions during the course of that trial upon which the jury was unable to agree, the determination frankly and plainly put by the prosecution to follow the same course in the trial due to commence on Monday, and throughout all of this the law being, according to the Court of Criminal Appeal, that a jury is to pronounce on whether matters are arguable and the extent to which they are arguable so as to produce something of value, so as to produce a deprivation for the offence charged, notwithstanding that case law has resoundingly vindicated the correctness in law of the ruling, basal propositions in the ruling.

During the course of the reasons given by each of Justices Stone, Allsop and Edmonds delivered on 22 February 2007, as your Honours will have seen in the comments of Justice Allsop commencing in paragraph 3 and concluding in paragraph 7, there is a very plain statement of judicial disapproval joined in by Justice Stone and Justice Edmonds of the apparent determination out of court of the Commissioner to proceed to administer the tax law otherwise than in accordance with the pronouncements of the court.  The spectacle that their Honours regarded as self‑evidently wrong to be occurring in the Commonwealth in relation to what I will call the civil administration and enforcement of the tax law is one which is by no means attenuated when one comes to this criminal context.  If anything, it is sharpened because now it is not simply the possibility that somebody may have the tax law administered against them so as to require the payment of money under cover of official demand but, contrary to what the judges have pronounced the law to require, this is a case where it is said that we have worked a deprivation by putting at risk the revenue by being correct in a ruling. 

Hitherto at least, the subtlety has not been introduced that you may be criminally prescient, but you will not be criminally accurate in reporting previous case law.  No one has yet said that what might be called the declaratory theory of law has some radical departure required by the state of affairs that exists whilesoever in a judicature with this Court at its apex there is always the possibility of a changed judicial ruling.  Your Honours, it is against that context that the special point that is an addition to those that were unsuccessfully urged on the last occasion arises in particular.

GLEESON CJ:   This is an application for special leave to appeal against a refusal of leave to appeal under 5F?

MR WALKER:   Yes, your Honours.

GLEESON CJ:   It is a question of whether there is an error in the discretion?

MR WALKER:   Yes, and it is a discretion which was exercised in accordance with by far the largest consideration that cases of this kind naturally present, namely that the course of the criminal prosecution ought not to be interrupted and, one can add in this case for this Court, particularly when it is on the eve of commencing a rehearing.  Your Honours, we have sought to embrace in our written submissions in the manner you have already seen how that ought to be treated by this Court in a case that, if it is not exceptional, it ought to be rejected.  That is, special leave should not be granted if we cannot show ourselves exceptional in that regard. 

We are exceptional in that regard because, on our researches, this is the only occasion when someone is to be put on his peril in front of a jury which jury is to be asked to explore subtle questions of law.  I say “subtle” because it is not a question of right or wrong.  It is a question of even if wrong, how respectable may an argument be, because that is what the Court of Criminal Appeal has said, that we may be convicted because value is seen in an argument which the jury may well think would fail but has sufficient arguability.  Now, in our submission, that is even more subtle than what a court engages in when it considers, for example, summary dismissal.  

We, so far in our researches, are on the wrong side of the following analogy.  It is as if, to borrow from the criminal jurisdiction, a solicitor was being sued in front of a judge and jury and the jury was going to be asked without any directions from the trial judge, but apparently with the possibility of expert evidence that the Crown has disclaimed they will present, in other words, they will present only the text of the statute, no case law, and then the solicitor is to be held negligent for being correct in advice given to a client, notwithstanding the judge knows it is wrong.  The High Court has said that that is a wrong approach, but nonetheless, that issue of arguability, including the implicit judgment as to possible correctness, has been given to a jury, not to a judge.  That has never happened in civil law.  On our researches it has never happened in criminal law. 

We have gathered some examples which can only be examples of multifarious occasions where, notwithstanding guilt is for the jury, those matters which are components in the charge requiring legal decision are, of course, the subject of direction by the judge to the jury in a compulsory, not facultative, way.  So, in our submission, one looks at the trial that has already been had and asks whether this case becomes exceptional for an interruption in the course of criminal prosecution bearing in mind not only that the jury was unable to agree on the last occasion, but it is the jury that asked the following questions. 

Could I take your Honours to pages 122 and 123 of the application book.  After several days of deliberation the jury asked the questions numbered 1 through 6.  Do your Honours see at the foot of page 122 in paragraph 152 of Justice Johnson’s reasons and at the top of page 123 question 5 indicates, in our submission, the sensible, ordinary and wholly to be expected reaction of non‑lawyers to propositions about whether things are arguable, particularly in relation to something which non‑lawyers might be expected to appreciate ought to be answered yes or no, right or wrong, “I overtax or I don’t”.

GLEESON CJ:   What were the answers that were given to those questions?

MR WALKER:   The answers given were not in sequence 1, 2, 3, 4, 5, 6.  In particular, the protest of Mr Clelland for my client at the failure to answer question 5, the failure is recorded at page 123, line 35:

those questions in the form in which you have asked them seem to me, with respect, to be misconceived because they seem to me to proceed upon the basis that it is part of your task to consider whether the rulings ought to be held to be correct at law.

Then Mr Clelland protested at page 124 at about line 40.  I do not need to read that.  The separation of the two points in our present argument, of course, needs to be appreciated.  We had failed and we failed on the last occasion we sought to stop the criminal trial by an application for special leave.  We have failed so far in the proposition that one cannot be guilty of this offence if the propositions in the ruling were correct.

GLEESON CJ:   The proposition that the prosecution argue, as I understand it, is that the purpose of these rulings was to make it impossible for the Commissioner in relation to the people to whom the rulings were given to argue ‑ ‑ ‑

MR WALKER:   Canvass it, yes, that is right.

GLEESON CJ:   Yes.

MR WALKER:   The preclusive effect put an end to the possibility of argument and our position is, just as careless legal advice if followed puts an end to the possibility of making a different choice if you are the client.  But in a negligence ‑ ‑ ‑

GLEESON CJ:   Can you defraud somebody by removing a risk?

MR WALKER:   Put in those abstract terms, there are unquestionably authorities that give an affirmative answer to that but, in our submission, that is overly abstracted an inquiry.  It will depend upon the nature of the risk.  That, indeed, is the way in which the Court of Criminal Appeal proceeded in the set of rules for the trial about to commence, a trial, I stress, where, notwithstanding the authoritative prescription which Justice Johnson is still faithfully, as of yesterday and making it very plain he will continue he is faithfully applying, as he must and as he should, that prescription talked about expert evidence.  There will be none.  That prescription prevents the trial judge from giving any directions as to matters of law concerning the content or effect of the incidence of taxation according to a law of the Commonwealth. 

That is to be left to the evaluation not only obviously as to correctness because, if it was incorrect, the jury, if they are satisfied of that, they do not get into the question of how arguable, but as to the subtlety within the possibility of correctness, of how well is it arguable.  With the trial judge only, as he has recently ruled yesterday, at the end of the case for the prosecution, only then intending to rule on our argument, preliminary in nature, of the kind referred to by the Court of Criminal Appeal in their paragraph 12, namely is the precluded tax argument which the Commissioner wished to put, assuming he ever proves, as he appears determined not to prove, but he does wish to put it, is that case one which is capable of success?

Your Honours obviously anticipate that in the course of that argument we will be putting, after many, many days and many, many dollars of defence, that it is not capable of success - see the sequence of case law in the Full Court of the Federal Court of Australia usually considered except in very exceptional cases to be practically the last court in this country on Commonwealth tax.  So for those reasons, in our submission, your Honours, this is an exceptional case that lifts it out of what otherwise is an impossible position in relation to seeking special leave from this Court.  We particularly draw to attention that on the last occasion

the jury experienced difficulties of a kind which were inherent and are called up by the apparently novel, so far as we can see, unprecedented ruling of the Court of Criminal Appeal about how the criminal trial should be proceeding. 

In our submission, it is an ideal case for once to arrest rather than to watch a spectacle occur.  In our submission, it will only delay in the event of a conviction an argument that otherwise has to be had.  We have to concede, of course, that it may never happen.

GLEESON CJ:   Thank you, Mr Walker.  Yes, Mr Hastings.

MR HASTINGS:   Your Honours, the fundamental point that my learned friend has put today that the decisions of the Federal Court have established that the rulings issued by the applicant were correct is something with which we join basic issue.  In our submission, that is not the effect of the decisions of the Federal Court at all.  Your Honours, it is a reasonably complex taxation issue, but the thrust of it is that after the introduction of fringe benefits tax the Commissioner of Taxation endeavoured to widen the net by picking up payments that did not go directly to the employee, but went to someone who is defined in the legislation as an associate.  Hence there is, as an undercurrent to this case, a continual issue about the application of what is described as the associate test and when a payment is made, for example, into a trust, whether the trustee of that fund can be said to be a trustee of the employee who will ultimately be the beneficiary of the payment into the trust.

What the Federal Court has said in general is that in cases where an employer, particularly those with a large number employees, sets up a pool from which an unspecified number and unidentified employees may eventually benefit, then the associate test cannot apply.  But from as far back as the Essenbourne decision which is really the fundamental point of Indooroopilly to which you have been taken in that Indooroopilly approves the correctness of that decision, the decisions have always been based on the fact that in the instances coming before the Court it was not possible to identify the employee who is to be the beneficiary from the trust.  Your Honours will see that if you need in paragraphs 35 to 38 of the judgment in Indooroopilly where time and time again reference is made to the fact that, because there is no capacity to identify an employee, then the associate test cannot apply.

But in each of the rulings issued by the accused for the scheme in which he had an interest, there were designated employees by name and by amount.  Your Honours do not have the evidence, but it is simply the case that in at least 50 rulings which were issued at the behest of the accused, the arrangement presented for the ruling specified the particular employees who are to be the beneficiaries in the trust and the amounts that they were to benefit from the trust.  So the general principles of the number of authorities to which reference is made, going back to Essenbourne through to Indooroopilly, simply do not apply in the facts which are available in this case.  So we join issue with that fundamental proposition put to justify the intervention of this Court that there is now a ‑ ‑ ‑

GLEESON CJ:   Which paragraph 7 of the judgment of Justice Allsop are you referring to?

MR HASTINGS:   Your Honour, it does seem, although I have no part in the taxation litigation, that the Commissioner of Taxation has persisted with an argument to the contrary of that first identified by Justice Kiefel in Essenbourne about the application of the associate test in relation to employee benefit trusts.  However, Essenbourne was a decision delivered in 2002.  It has been before the Court of Appeal in relation to this matter.  It has been before the Court of Criminal Appeal and analysed and rationalised and Indooroopilly does not add anything to the way in which this matter has been treated in the past, including the fact that the Court of Criminal Appeal has confirmed that there was an arguable case, as evidenced by these authorities, which the Commissioner could run in relation to these cases because they did not have a ruling but which he was prevented from doing in relation to the cases of taxpayers who were given rulings by the accused.

GLEESON CJ:   It is surprising that a circumstance could arise in which Justice Allsop should feel it necessary to say what he said in his reasons in paragraphs 4 and 7, for example.

MR HASTINGS:   Yes, I am not aware of that, your Honour, but I can say in relation to the ‑ ‑ ‑

GLEESON CJ:   It sounds as though somebody needs some instruction in basic civics.

MR HASTINGS:   I think they have received it as a result of this judgment, your Honour.  But we have never said in the prosecution that Essenbourne was wrong and that for some reason the Court of Criminal Appeal should ignore it because it would be contended in due course that the Full Court of the Federal Court would be persuaded otherwise.  This matter has now proceeded on the basis since 2002 that Essenbourne settled the law in relation to fringe benefits tax and, nevertheless, the Court of Appeal and the Court of Criminal Appeal have said that there was an arguable case which was available to the Commissioner which he was deprived of running in relation to the taxpayers who were given rulings.

Your Honours, the other point is the rulings were issued for two issues.  One was an exemption from fringe benefits tax and the other was as to the deductibility under section 51 of the old Income Tax Assessment Act of the payment by the employer to the trustee.  The whole success of the scheme depended upon the employer being able to deduct the payment and in Essenbourne where the fringe benefits tax issue was resolved, the Commissioner actually won that case because he succeeded on the deductibility issue.  In a way, your Honours, this has been a sort of deliberate distraction because all we hear about is fringe benefits tax, but equally important was the position in relation to deductibility which the Commissioner was able to win in Essenbourne and a couple of cases after that because those taxpayers did not have rulings, whereas he had no chance of recovering the income tax from the taxpayers to whom the rulings were issued because they were protected by the rulings. 

So even though there has been some success for some taxpayers on fringe benefits tax, we say that did not apply to the facts of these matters and, in any event, on the issue of deductibility there is no reason been advanced why the Commissioner did not have an arguable case on that issue but, of course, he was equally prevented from pursuing that by the rulings which were issued by the accused.  So, your Honours, we would simply say that nothing new has emerged by the excitement created by Indooroopilly.  It simply confirms the position which has existed since 2002.  The matter was raised before Justice Johnson yesterday.  He quickly and almost of his own initiative came to the same conclusion because he had referred to the first instance decision in Indooroopilly in his refusal of a stay when he considered the matter last year and in a short period of time refused a further application for a stay which was mounted yesterday.  If one takes those matters out of the equation, your Honours, one is left with the bald facts that all these matters have been raised before this Court before and on a discretional basis leave should not be granted.

GLEESON CJ:   Thank you, Mr Hastings.  Yes, Mr Walker.

MR WALKER:   Your Honours, the arguments that my learned friend has just concluded putting are arguments which, according to the way in which it is recorded in Justice Johnson’s reasons on the position taken by the prosecution, will be addressed with the assistance only of the text of the statutes directly to the jury.  There is no avoiding the proposition that the address will be in terms of the strength of an argument and strength of argument is something which measures the possibility of it being correct.  That is not an issue, namely our objection to that being done by a jury without a direction by a judge.  That is not an argument which has been the subject of any application for special leave to this Court previously.  It is an argument which seeks to challenge the prescription for the imminent trial of a kind which is unparalleled, as far as we can discover, in any of the

learning about the division of function between judge and jury.  That is a constitutional issue under section 80 and, in our submission, one need only ponder the possibility of statutory or legislative allocation of such matters of law to juries to see what a mockery that would make of the protection in section 72.  These are the matters that we have raised in our written submission.  Those are matters of fundamental importance to the legitimacy of the tribunal as to the way in which it is presently fated to conduct itself before whom my client is arraigned.  In our submission, that does make this an exceptional matter and every word of argument by my learned friend as to the tax questions illustrates why it is urgent for this Court to examine whether or not that kind of argument ought to be addressed without judicial direction, without judicial assistance and without even the expert evidence that the Court of Criminal Appeal supposed might be appropriate concerning the correctness, that is, the approach to correctness as a possibility which is at the heart of the Crown’s argument as to deprivation.  May it please the Court.

GLEESON CJ: The Court of Criminal Appeal refused an application for leave to appeal brought under section 5F of the Criminal Appeal Act (NSW). The decision of the Court of Criminal Appeal was a discretionary decision and the substantial reason for that decision is set out in paragraphs 13 and 14 of the reasons for judgment of the Chief Judge at Common Law. No error of principle has been shown in the way in which the Court of Criminal Appeal exercised its discretion and the discretionary conclusion to which it came was well open in the circumstances.

In those circumstances there are insufficient prospects of success of an appeal to warrant a grant of special leave to appeal, and the application is dismissed.

AT 10.16 AM THE MATTER WAS CONCLUDED