R v Wharton - [2014] WADC 5

JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA
IN CRIMINAL

LOCATION: PERTH

CITATION: R -v- WHARTON [2014] WADC 5

CORAM: O'NEAL DCJ

HEARD: 18 DECEMBER 2013

DELIVERED : 24 JANUARY 2014

FILE NO/S: IND 1435 of 2013

BETWEEN: THE QUEEN
AND
STEPHEN LYNNE WHARTON

Catchwords:

Propensity and relationship evidence - Turns on own facts

Legislation:

Evidence Act 1906 s 31A

Result:

Application allowed in part

Representation:

Counsel:

The Crown: Ms L Black
Accused: Mr S Waters

Solicitors:

The Crown: Commonwealth Director of Public Prosecutions
Accused: Graeme Allan

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

Bennett v The State of Western Australia [2012] WASCA 70
Commonwealth Department of Public Prosecutions v Stephen Wharton [2011] VCC, 29 November 2010
Edwards v the Queen [1993] HCA 63; (1993) 178 CLR 193
Preston v The State of Western Australia [2012] WASCA 64; (2012) 220 A Crim R 347

O'NEAL DCJ: The accused Stephen Wharton, the respondent on this application, is charged on indictment 435 of 2013 that between March 2005 and October 2005 he caused to be prepared and lodged with the Australian Taxation Office (ATO), trust tax returns for Equity Holdings Trust for the financial years 2002, 2003 and 2004, which contained false information, with the intention of dishonestly causing a loss to the Commonwealth, contrary to s 135.1(3) of the Criminal Code (Cth).
By an application dated 2 December 2013 the Crown has applied for leave to adduce certain evidence on the basis that it is admissible as propensity evidence pursuant to s 31A of the Evidence Act 1906 (WA).

Background

I will outline the facts with respect to the alleged offending and the background to it. These facts are taken from the written and oral submissions of the parties and to some extent from the material contained in the prosecution brief. I have relied upon matters that were not the subject of dispute, at least not for the purposes of the directions hearing.
The accused was a qualified accountant.
In 1994 the accused was declared bankrupt and he remained in bankruptcy until early 2009.
At the times under consideration he is said to have controlled an accountancy firm, Wharton Partners Pty Ltd, based in Melbourne and a variety of trusts and trustee companies. These entities were collectively known as 'The Wharton Group'.
As will become apparent, according to the allegations against him and having regard to the prior offending that I will refer to shortly, it does not seem that his bankrupt status prevented the accused from engaging in commercial and corporate activities. In part that was because, on the prosecution case, after his bankruptcy Mr Wharton promoted an associate of his named John Gillies (Gillies) to roles of importance within the Wharton Group. Gillies did not have any relevant professional qualification, but he went from being a bookkeeper engaged by Wharton Partners to the role of accountant responsible for general accounting for clients of Wharton Partners and keeping the books of the Wharton Group entities. The allegation is that with respect to the dealings of the Wharton Group and in particular the matters the subject of the indictment, Gillies at all times acted under the direction of the accused.
Between 1995 and 2002 the accused was associated with a man named Gregory Dunn (Dunn) and a man named Peter Hutchins. On the prosecution case the accused Dunn was a designer and promoter of tax schemes. The accused and Peter Hutchins, it is said, dishonestly facilitated those schemes, whether or not Dunn was aware of their dishonesty, or the extent of their dishonesty. It is clear however that the gist of the prosecution case is that Dunn was probably knowingly involved in dishonest activities with the accused. The Commonwealth will not be calling Dunn as a witness because, as counsel for the Commonwealth told me, he is not regarded as a witness of the truth.
Although the matters which form the basis of the three charges on the indictment relate to tax returns prepared and lodged in 2005 for the financial years 2002 to 2004, the prosecution case is that the history of those matters begins in about 1995.

The 1995 to 2002 Transactions and Arrangements

Between 1995 to about 2002 Dunn controlled a company called Misty Mountain Pty Ltd. That company was the trustee for Jedmore Unit Trust ('Jedmore UT') and Jedmore Discretionary Trust ('Jedmore DT').
The accused is said to have controlled ABC Investment Management Pty Ltd which was the trustee for ABC Investment Trust ('ABC Trust').
Peter Hutchins controlled a company called Lawnwood Pty Ltd which was the trustee for Diversified Investments Unit Trust ('Diversified IUT').
The prosecution alleges that both Dunn and the accused held out to clients of Dunn that the accused had access to legitimate trust tax losses which could be used to off-set the assessable income of Dunn's clients, or rather their trusts. Consequently Jedmore received trust distributions from those clients and then itself resolved to distribute that income to its two unit holders, ABC Trust and Jedmore DT. In some of the years under consideration Jedmore DT also resolved to distribute income to the ABC Trust.
ABC Trust in turn resolved and purported to distribute the whole of the income it received to its sole unit holder, diversified IUT, controlled by Hutchins.
In fact what ABC trust actually received was a payment in the form of a cheque or occasionally cash for 7% or 8% of the value of the income distribution and further issued units of the trust claiming to pass its income to ABC. Dunn is said to have received a payment from his clients equivalent to 10% to 15% of the purported trust distribution. Part of this was passed on to the ABC Trustee and ultimately to the accused. The Crown characterises these payments as 'commission' or 'kickbacks' paid to the accused's company. The use of the term 'kickback' does not seem to me to be properly descriptive of the payment here. In its ordinary sense a kickback is a corrupt refund or rebate. I will refer to these payments as 'commissions'. The companies controlled by Hutchins are also said to have received a commission for the income distributions they purported to receive from the ABC Trust. There is a contention that Hutchins received part of the commission Dunn gave to the accused.
With respect to the commission received by the entities controlled by the accused between 1995 and 2004, that money was allegedly used by the accused for his private purposes.
The ABC Trust was not registered for a tax file number until 18 November 1999 and no income tax return has ever been lodged for it. No tax returns were filed either by the accused or the entities involved in these transactions, that he controlled, until the three returns the subject of the counts on the indictment.
Diversified IUT recorded in its books the receipt of distributions of trust income from ABC Trust. Diversified IUT in turn distributed or purported to distribute its income to its sole unit holder Consolidated Investments Unit Trust ('Consolidated IUT'), another entity controlled by Hutchins. Using a chain of several other trusts and trustees, Hutchins passed the income up the chain until ultimately it was received by Canham Limited (a company incorporated in the British Virgin Islands) for the benefit of, it would seem the Finito Unit Trust. There the 'income distributions' vanished, over the horizon, and out of sight.
Income tax returns were lodged for Diversified IUT and Consolidated IUT each of which declared that no tax was payable because all of the income received was distributed to its beneficiary. The entities controlled by Dunn also reported the onward distribution of the income. Both the Dunn and Hutchins controlled entities reported that the ultimate beneficiary was Finito. No returns were lodged for any trust controlled by the accused until the returns the subject of the charges in the indictment. Those returns were only lodged because in June 2005 the ATO wrote to the accused and demanded that he do so, reminding him of the consequences for failing to do so. No personal returns were lodged for the accused in the periods under consideration.
The effect of these arrangements was that the original taxpayer in fact kept the income claimed to be distributed to the trusts controlled by Dunn, the accused and Hutchins, but for the payment of 10% to 15% that included the 7% or 8% received by the accused, and no tax was paid by anyone on that income as it was purportedly passed along the chain.
The evidence at trial it is said will show communications between the accused and Peter Hutchins about the arrangements with respect to these income distributions up until 2001. The evidence that the Commonwealth proposes to tender with respect to the 1995 to 2001 transactions is summarised in Annexure B to the applicant's submissions.
The submission made on behalf of the Crown is that an examination of the records of the companies and trusts that I have referred to, at least those available within Australia, reveals numerous irregularities quite apart from the failure of the entities controlled by the accused to either register with the ATO or file tax returns. I was told that the money received by ABC Investment Management Pty Ltd, supposedly as a trust distribution to the ABC Trust, was applied at the direction of the accused for purposes inconsistent with its status as trust money, quite apart from the fact that it was not in fact distributed onward as the records that were created purported. The funds were mainly used for the personal purposes of the accused.
In October 2001 an order was made in Victoria Supreme Court winding up ABC Investment Management Pty Ltd.
Following this, in 2002, another series of trust relationships was created and trustee companies incorporated. The structure of these trusts and trustees was such that they also cascaded one into the other. At the far end of the stream was a trust called the 'Victory Trust'. It had as its trustee Lonpac Asia Pty Ltd, a company incorporated, once again, in the British Virgin Islands.
Lonpac owned the units in the Abravo Unit Trust for which the trustee was Tegnico Pty Ltd. Peter Hutchins is said to have controlled this trustee.
The next in the chain was the Aalpha Unit Trust, the units in which were owned by Abravo. I should make it clear when I say 'owned' that the trustee companies held the units of the downstream trust for the benefit of the trust for which they were trustee. The trustee for Aalpha was Galapoint Pty Ltd which was also controlled by Peter Hutchins.
Galapoint in turn held the units in the Equity Holdings Trust. The trustee of this trust was AFS Equity Pty Ltd, previously known as Timemont Pty Ltd. This trust was settled in April 1999. From 1999 the director and secretary of the trustee company was Gillies. The accused Mr Wharton also appeared on the register as a secretary of AFS Equity from April 1999 to September 2002.
In turn, AFS Equity Pty Ltd held all of the units of the Keyrange Unit Trust for the benefit of the Equity Holdings Trust. The trustee of the Keyrange Unit Trust was Keyrange Pty Ltd. Dunn is said to have been in control of Keyrange Pty Ltd and through it the Keyrange Unit Trust. This last trust was settled on 25 June 2002.
The prosecution alleges that around 2002 Dunn and the accused put into action a further scheme to pretend to distribute trust income from third parties back down this chain of trusts. Once again they allegedly held out to clients of Dunn that the accused had access to legitimate tax trust losses that could be used to offset assessable income of Dunn's client's family trusts. The prosecution says that various documents including correspondence between the accused and Dunn show the arrangements they made to settle the structure to be used. There are said to be letters, containing representations of the kind that I have referred to, that the accused is said to have arranged for AFS Equity to send to some of Dunn's wealthy clients.
For the financial years ending June 2002, 2003, 2004 Keyrange purported to receive distributions of trust income from Dunn's clients. It in turn resolved to distribute the entire income so received each year to AFS Equity as trustee for the Equity Holdings Trust. This last step was accomplished, once again, by way of a cheque for 8% of the income allocated and 'additional units' for the remaining 92%. Later the arrangement became a cheque for 7% and units constituting 93% of any income distributed.
In December 2002 however Peter Hutchins died. His son Paul became the executor of his estate. He assumed control of the companies and trusts previously controlled by his father including Galapoint Pty Ltd and the Aalpha Unit Trust. The prosecution says that Paul Hutchins was aware that his father had been involved in various tax minimization or avoidance schemes for many years and did not want anything to do with them. He determined to wind up the entities that his father had used for that purpose.
Paul Hutchins had been told by his father that the accused was involved in his tax minimization schemes. The prosecution says that at a meeting between the accused and Paul Hutchins in February 2003 and in some subsequent telephone conversations in about March or April 2003 Paul Hutchins told the accused of his intentions to wind up these entities and that he would not accept further distributions of income into the trusts that he effectively now controlled. He told the accused 'This is it – it's all over' or words to that effect. The accused asked for access to the financial records of the Hutchins entities, and Paul Hutchins refused this.
Paul Hutchins will say that about a month after this meeting the accused called him and said that he wanted to take over the Peter Hutchins entities, the companies and trusts. Paul Hutchins told him however that the entities were to be wound up. There was then no further contact by the accused or his associate Gillies with Paul Hutchins.

The Servcom Fraud Conviction

In 1998, at the same time that Dunn, the accused and Peter Hutchins were engaged in their purported transfers of trust income, the accused was involved with another group of men in a different scheme with respect to income tax. In 1998 a mass marketed franchise scheme was developed, initially it seems by a Lawrence Aistrope and Terry Wahby, involving a company called Servcom Australia Pty Ltd. The accused and others were involved in this scheme but the accused has been characterised as the ‘financier’ of the arrangements.
In essence the scheme involved the sale of franchises to investors by Servcom for a fee of $39,500. Of this, $29,500 was loaned to the 'franchisee' by Allied Securities Pty Ltd, a company controlled by the accused. I have used the term 'franchisee' as being marginally less disingenuous than 'investor' or 'taxpayer'. The scheme was marketed as one which would result in a tax deduction to the franchisees for the full amount of the franchise fee, to be applied against their other income. For the year ending 30 June 1998 franchisees with income that put them in the top marginal market could receive a deduction of $18,810. Ten thousand dollars of this was paid by the franchisees to the franchisor and that together with the $29,500 loan was said to pay for the franchise fee.
The gist of this scheme was that the $29,500 loan was intended to appear as just that, a loan which in the ordinary course was repayable. There were however some complicated indemnity arrangements by which the franchisee paid a fee, ostensibly for an indemnity against the liability to repay the loan. The company giving the indemnity, a company associated with the accused, was directed to pay the loan funds to the franchisor.
In May and June 1998, as part of the transactions purporting to put these arrangements in place, there were two cheque 'round robins'. The effect of all of this was that, contrary to what the accounting records showed with respect to the loan proceeds, no money in fact changed hands for any franchise other than the initial $10,000.
The arrangements which were set up by the accused gave the $29,500 loan the appearance of a recourse arrangement so far as the ATO was concerned. Had it been otherwise, no tax deduction would have been available for that part of the franchise fee represented by the loan. In truth however the loan was a 'non-recourse' arrangement. The franchisee was never going to be called upon to pay it or be liable to pay. More than 1,100 of these franchises were sold. The loss to the revenue was potentially more than $20 million. It was anticipated that the accused could receive fees of $2.5 million for his involvement.
The fraud however was discovered. The nature of this fraudulent scheme and the role played by each of the conspirators is set out in the sentencing reasons of McKechnie J in his reasons of 13 July 2004. In sentencing the accused his Honour said, among other things, 'You, Stephen Lynne Wharton, I regard as a financial rogue. I am quite persuaded that you additionally deceived the other four conspirators who no doubt thought that the edifice they were constructing, fraudulent though it was, was built on slightly stronger ground. The round robins of 12 May and 3 June 1998 represent, in my view, an additional level of criminality beyond those of your co-conspirators'.
Each of the conspirators was sentenced to a term of 5 years' imprisonment. Each was ordered to be released on certain terms after serving 18 months of the sentence. Consistent with his view as to the accused's greater culpability, it was apparent that but for the serious illness of the accused's wife his Honour would have required the accused to have served a greater period of time before release.
While in prison however the accused was not idle. A statement provided by Gillies to the prosecution says that even while in jail in 2004 and 2005 the accused was contacting Gillies 6 to 10 times a day with directions and instructions in respect of the Wharton Group.

The 2005 Filings

The prosecution case is that in March 2005 the accused instructed Gillies to start preparing the accounts for AFS Equities as trustee for the Equity Holdings Trust for the 2002 to 2004 financial years. Those accounts became the bases for the tax returns that were later filed. The central allegation is that at the directions or instructions of the accused, and despite the conversations the accused had had with Paul Hutchins, those tax returns recorded that in each year the total income of the trust was distributed to Galapoint as trustee for the Aalpha Unit Trust. On each return, in response to the usual question on the tax return 'is any tax payable by the trustee?' The answer given was 'no'. Gillies signed the income tax return for each year as an officer of AFS Equity.
If in fact income received or purportedly received had been distributed to a beneficiary, then no tax would have been payable by the first entity. The prosecution case is that was patently not the fact and that despite the fact that the accused was aware that income had not been so distributed, and, (given the position taken by Paul Hutchins) it could not be so distributed (had it been received at all). Despite that the accused caused the returns to be lodged with the false representations that they contained.
The Commonwealth says that the tax returns were false in three ways simultaneously, with the intention of dishonestly causing a loss to the Commonwealth by the avoidance of tax that was payable. First, the income claimed to have been received by AFS Equities by way of a trust distribution from Keyrange was in fact a sham; that no such distribution was received. Second, the claim by AFS Equity and Equity Holdings Trust that all of the trust income received had been distributed to Galapoint as trustee of the Aalpha Unit Trust was false, quite apart from anything else, in light of what Paul Hutchins had told the accused earlier. Finally, the claim that all of the income received by AFS Equities for the Equity Holdings Trust had been distributed onwards was false because it failed to account for the 7% or 8% commission received as part of the arrangement, which was retained and used by the accused. It seems to me that on the facts alleged at least those matters would be false and there are other potentially false representations implicit in the accounts and tax returns of AFS Equities and the trust.

I am told that the ATO had calculated the loss to the Commonwealth at about $1.23 million for the taxation years 2002 to 2004. That however is a consequence of the fact that when these matters came to light a ruling by the ATO prevented Dunn's clients or at least some of them from taking advantage of the claimed trust distributions. Had that not been the case the loss would have been about $8 million.

ACC Investigation- the Giving of False or Misleading Evidence

In 2006 the Australian Crime Commission was investigating both money laundering and tax fraud. They were interested in the business affairs of certain entities including Dunn. Both the accused and Gillies were required to give evidence in the course of the Commission's ongoing investigation. According to reasons for decision of her Honour Judge Gaynor in the matter of Commonwealth Department of Public Prosecutions v Stephen Wharton [2011] VCC, 29 November 2010, Dunn was the focus of a particular part of the investigation. The Commission however was interested in the fact that trusts associated with Dunn claimed to be distributing income to trusts associated with the accused and that those trusts were in turn distributing income to trusts associated with Peter Hutchins. Gillies has also provided a statement with respect to matters surrounding that investigation. Despite the fact that the accused was said to be aware that Dunn and not the accused was the main focus of the investigation, the accused was nonetheless sensitive about the exact nature of his relationship with Dunn being revealed. In his statement Gillies describes how in January 2006 the accused contacted him and arranged to meet. The accused he says suggested to him that they should both leave their mobile phones in their cars and step out of their cars so they could talk. The accused asked Gillies how many times he had been to the hearings.
From the conversation described by Gillies, the accused did not want to contact Dunn directly. The accused asked Gillies, 'when we would be getting our distribution from Dunn'. He was told that it would not be for another 9 to 12 months. The accused wanted Gillies to call Dunn and ask him if he would be prepared to loan either the accused's company or the accused up to $100,000, 'as a proper business loan'.
The accused asked Gillies how Dunn had called him in the past. Gillies told him that Dunn had called his, Gillies', mobile telephone. The accused observed that Dunn would have used someone else's telephone for that purpose. The accused asked Gillies to ring Dunn using a pay telephone and to get Dunn to call Gillies back on a mobile telephone that the accused had. The accused handed Gillies a Blackberry telephone and gave him a piece of paper with a telephone number on it, telling Gillies that this was, 'a safe phone'. The accused made it plain that he wanted Gillies to use that telephone so that the authorities would not know that he was trying to borrow money from Dunn.
At a subsequent commission hearing in June 2006 the accused was asked if he had ever provided a mobile telephone to any person to make contact with Dunn. The accused said that he did not recall. He was asked if on 20 January he had been picked up by Gillies, travelled with him to the city and whether on the return to the accused's office they stopped in the car park and the accused had provided Gillies with a mobile phone. The accused answered that he did not recall. Those answers were false. That fact was acknowledged by the accused's subsequent plea of guilty in November 2010 to three charges of giving evidence at an examination that was to his knowledge false or misleading in a material particular.

Failure to Lodge Personal Tax Returns

The accused has convictions under s 8C(1)(a) of the Taxation Administration Act 1953 for failing to furnish an approved form to the Commissioner of Taxation when or as required. The accused was convicted for failing to lodge personal tax returns for the financial years 1995 to 1998 and 2002 to 2008.

The Evidence sought to be relied on pursuant to s31A

Counsel for the Commonwealth submits that four categories of the evidence that I have referred to above should be admissible at the trial of the accused and may be relied upon by the Commonwealth as propensity evidence pursuant to s 31A of the Evidence Act. The four categories are:
1.The evidence of the accused's involvement in trust arrangements and distributions with Dunn and Hutchins from 1995 to 2001, encompassed by the matters referred to in Annexure B.
2.The accused's 2004 conviction for conspiracy to defraud the Commonwealth in respect of the Servcom franchise fraud.
3.Evidence with respect to the clandestine arrangements that the accused tried to make to communicate with Dunn in 2006, his lies to the ACC and convictions for giving false and misleading evidence.
4.The accused's convictions for failing to lodge tax returns.

The Law

Section 31A of the Evidence Act:
31A. Propensity and relationship evidence
(1)In this section -
propensity evidence means -
(a)similar fact evidence or other evidence of the conduct of the accused person; or
(b)evidence of the character or reputation of the accused person or of a tendency that the accused person has or had;
relationship evidence means evidence of the attitude or conduct of the accused person towards another person, or a class of persons, over a period of time.
(2)Propensity evidence or relationship evidence is admissible in proceedings for an offence if the court considers -
(a)that the evidence would, either by itself or having regard to other evidence adduced or to be adduced, have significant probative value; and
(b)that the probative value of the evidence compared to the degree of risk of an unfair trial, is such that fair‑minded people would think that the public interest in adducing all relevant evidence of guilt must have priority over the risk of an unfair trial.
(3)In considering the probative value of evidence for the purposes of subsection (2) it is not open to the court to have regard to the possibility that the evidence may be the result of collusion, concoction or suggestion.
The proper construction and application of s 31A of the Evidence Act 1906 has been considered by the Court of Appeal of this State on many occasions – see for example Bennett v The State of Western Australia [2012] WASCA 70 [30] and the cases there cited.
It is not suggested by counsel for the accused that any of the four categories of material which the prosecution wishes to rely upon could not be properly characterised as either propensity evidence or relationship evidence within the meaning of s 31A(1). With respect to propensity evidence it would seem that concession is based at least on the broad definition of, 'Other evidence of the conduct of the accused person'.
It is important to observe however that it is well established that the definition of propensity evidence is 'extraordinary wide' and goes beyond what the common law regarded as falling within that category of evidence. In particular it goes considerably beyond what the common law regarded as admissible as similar fact evidence: Preston v The State of Western Australia [2012] WASCA 64; (2012) 220 A Crim R 347 [36] (Mazza J). The objections on behalf of the accused to the leading of this evidence are based on the grounds that the evidence either lacks significant probative value or that the risk of an unfair trial compared with the probative value of that evidence is such that fair‑minded people would not think that the public interest in adducing all relevant evidence of guilt should have priority over that risk.

Significant probative value – What are the issues?

The first question that must be addressed in assessing the probative value of the evidence is: What is in issue? The short answer to that is, everything. No admissions have been made. It will be necessary for the Commonwealth to establish not merely the misleading nature of the misrepresentations that they rely upon but the accused's knowledge of those facts and his dishonest intention in making the misrepresentations or causing them to be made. Given all of the background circumstances, including the character of Dunn and Hutchins, the fact of the illness of the accused's wife in 2004, the prosecution says that it is concerned to exclude possibilities such as the accused being an innocent dupe of Dunn or others, or a victim of the incompetence of Gillies, or distracted by the illness of his wife, to name just a few anticipated lines of defence. For those reasons the prosecution wishes to establish that the transactions recorded in the tax returns for the years 2002 to 2004 reflected a longstanding pattern of deception, that the accused was a person who was quite prepared to engage with others in organised fraud against the ATO and that his longstanding dealings with Dunn and others reflected that propensity to seek to gain at the expense of the ATO by engaging in dishonest conduct.
I will consider each of the four categories of evidence in the light of those matters.

The transactions for the taxation years prior to 2002

As I told counsel in the course of the hearing of this application my real concern for this category of evidence was the sheer volume of it and the implication of that for the length and conduct of the trial. As it turned out that was not in fact an issue. Counsel for the prosecution anticipated that most of the evidence would be admissible for the purpose of putting into context the subsequent transactions for the taxation years 2002 to 2004. She was concerned that there might be some limitation in that regard, although she was not able to articulate what that limitation would be. In the event, counsel for the accused, properly in my view, accepted that all of the evidence summarised in Annexure B would be admissible to explain and put into context the relationships between the parties and their dealings leading up to the 2002 to 2004 taxation years. The real question ultimately will be the purpose for which the jury may use the evidence of the transactions between 1995 and 2001 in the course of their deliberations.
That the evidence of those earlier arrangements constitutes relationship evidence as to the conduct of the accused towards Dunn and Hutchins in their business dealings is not particularly controversial. The more difficult question is: Could the dealings of the accused with respect to those matters between 1995 and 2001 demonstrate, to use a broad characterisation, a willingness or a tendency on his part to engage in substantial, organised, tax fraud?
It is not realistic to expect that a determination of that kind, inevitably relying on inferential reasoning based on a myriad of primary facts and a number of intermediate conclusions about those facts, could be reached in the course of a half‑day directions hearing. It was suggested that by reviewing a number of the statements contained in the very lengthy Commonwealth brief as well as the supporting documents with respect to those lengthy statements I would be able to answer the question, seemingly without further submissions from counsel. In my view that is not realistic and it does not represent a transparently fair process. It would effectively leave the judge to determine the significance of particular factual matters without counsel being able to address those issues.
In my view however the answer to that question, based on the information I have been provided with at this stage, is that it may well do so. That is, the transactions between 1995 and 2001 may lead the jury to conclude that those transactions in and of themselves were dishonest, that the accused's role with respect to the transactions was equally dishonest, and his repeated involvement in such matters is revealing of his character or a tendency that he had. The real value of the evidence in my view however lies in the context that it provides. The dealings between Dunn, Hutchins and the accused between 1995 and 2001 should demonstrate fairly plainly that it was not by mere accident or inadvertence that the accounts of the Wharton entities and their tax returns for 2002 to 2004 took the form that they did. When that evidence is combined with what Paul Hutchins says that he told the accused, refusing to allow further dealings with the Hutchins entities, in my view the jury is perhaps more likely to reason that the 1995 to 2001 trust distribution arrangements were dishonest because similar arrangements for 2002 to 2004 were proved to be so.
The objection that was taken by counsel for the accused to this category of evidence was that the 'dealings' in 1995 to 2001 'differ from the current alleged offending in that the first involved the respondent effectively failing to lodge tax returns as opposed to actively lodging false ones'. With respect that seems to me to misconceive the nature of the Commonwealth's case. The allegation of the prosecution is that the 2002 to 2004 tax returns were misleading in a variety of ways and the dishonesty that underlay all of that was the same dishonesty and indeed the same method of dishonesty that permeated the 1995 to 2001 transactions.
In any event given the sheer volume of that evidence and the fact that any conclusion that the trust distribution arrangements for 1995 to 2001 were dishonest will necessarily have to be the result of a process of inferential reasoning, the question of what direction the jury should be given as to the use that they can make of that evidence is best left to the trial judge. The trial judge will be best placed to determine whether the jury should be told that the evidence of transactions between 1995 and 2001 may be used as evidence of propensity or is only to be relied on as contextual evidence and evidence that tends to rebut any suggestion of oversight or omission or neglect in the accounts and returns filed in 2005. Ultimately, counsel for both parties agreed that that was the best course. Having said that, and without seeking to bind the trial judge in any way, it seems to me highly likely that as in other cases where the evidence necessarily encompasses what are sometimes described as 'uncharged acts' the trial judge may well choose to direct the jury that they may use that evidence to draw relevant conclusions about the character of the accused or a tendency that he had, subject to the jury being satisfied that those earlier arrangements were in fact dishonest, that the accused was himself aware of that and that his role in those arrangements were similarly dishonest or fraudulent. As I have said, in my view the jury are more likely to reach such a conclusion if they accept Paul Hutchins's evidence. The reason for that is of course that that would tend to establish the falsity of what was said to have been done by the accused in 2005. In other words satisfaction beyond reasonable doubt about the dishonesty of the 2005 returns is likely to lead to a conclusion that the 1995 to 2001 accounts were similarly dishonest, rather than the reverse.
In any event the evidence is admissible with the use to be made of it by the jury ultimately a matter for the trial judge.

The Servcom fraud conspiracy conviction

The prosecution submission with respect to the 2004 conviction for conspiracy to defraud is that it demonstrates the accused's propensity to act unlawfully and dishonestly in relation to financial taxation affairs and his willingness to be involved in substantial schemes and arrangements designed or used to avoid the payment of large amounts of tax. The submission is that it is significantly probative as cogent circumstantial evidence of dishonest intention, particularly with respect to schemes aimed at earning fees by facilitating the tax avoidance of others.
The objection on behalf of the accused is that the 'offences on the indictment are not so similar that evidence of the prior conviction has probative value'. In particular counsel for the accused asserts that the accused:
1.was not the instigator of the Servcom scheme;
2.the Servcom scheme involved making false representations to third parties in order to induce them to make false representations in their tax returns; and
3.the goal of the Servcom scheme was to receive the proceeds of illegally obtained tax rebates.
In contrast (the argument runs) with respect to the charges on the indictment here, the allegation is:
1.the respondent instigated the scheme;
2.the respondent would help clients avoid paying tax on certain income;
3.the respondent was to benefit by way of a percentage on the funds transferred in his control; and
4.the respondent himself lodged misleading tax returns claiming that the relevant funds had been passed on further.
In the circumstances it is argued that the Servcom conspiracy offence, 'has no particular identity, special feature or unique stamp that would help in proving any of the elements of the offences the accused has been charged with'.
Quite apart from the error of assessing the evidence using a test more akin to that for similar fact evidence at common law than that provided by s 31A, there are factual and logical errors in the assertions on behalf of the accused. First with respect to the question as to who was the instigator of 'the scheme' much depends on what is meant by 'the scheme' and which stage of the various transactions one examines. It does not appear that it was the idea of the accused to sell franchises that were nothing much like a true franchise arrangement, but as is obvious in the reasons of McKechnie J the accused was the instigator of fraudulent aspects of the overall transaction that were seemingly unknown even to his co‑conspirators. With respect to the purported trust distributions in the years 2002 to 2004, so far as I am aware, the question of who devised the method for avoiding the payment of tax, whether it was Dunn, the accused, Hutchins, or any combination of them is really irrelevant to the prosecution case.
With respect to the asserted difference in that the Servcom scheme 'involved making false representations to third parties … to induce them to make false representations in their tax returns', as opposed to the tax returns filed in 2005 where 'the respondent himself lodged misleading tax returns', all of that simply ignores the fact that the tax returns lodged in 2005 were simply the means by which the dishonesty connected with the chain of purported trust distributions was revealed. Both schemes involved the respondent helping others to avoid paying tax on certain income and, the respondent was to benefit in both schemes by the receipt of fees in one form or another, whether calculated as a percentage or not, for his assistance in helping others to avoid tax liabilities. The case for the Commonwealth here does not preclude the possibility that there were, '… false representations to third parties … to induce them to make false representations in their tax returns'. At any level of analysis short of one requiring a microscope, the similarity of the conduct of the accused in both cases is patent. In both cases, by acting in concert with others, people with tax obligations were sold means of avoiding those obligations or some of them. Both 'schemes' may be characterised by an apparent willingness of the accused to involve himself at a very high level in an organised fraud against the revenue.
In my view, evidence of the accused's conviction in 2005 is significantly probative as to the accused's intention with respect to the statements contained in the returns lodged in 2005 and the purpose of those statements.
The second submission made on behalf of the accused with respect to this evidence is that the probative value of this evidence is outweighed by the risk of prejudice. In particular it is asserted that 'the complex nature of the previous offending and alleged offending creates a risk that the jury will not be able to sufficiently distinguish the two, in turn increasing the risk that the jury will consider the respondent guilty on the basis of his prior convictions'.

Cases of this kind no doubt require great skill and considerable preparation on the part of counsel in mastering the necessary principles of accounting, and trust and tax law, as well as the considerable volume of material in the brief, so that all of those matters can be explained in a way that the members of the jury will be able to easily understand. I do not underestimate the difficulty of that task. However, compared to the facts that the jury will have to comprehend in order to understand what is alleged in respect of the offences said to have been committed in 2005 and the background to those, the facts with respect to the Servcom fraud conspiracy are relatively straightforward.
In my view there is no merit in the arguments made on behalf of the accused with respect to this evidence. The jury will no doubt be directed to avoid any process of automatic reasoning based on the conviction. However the probative value of this evidence, compared to the modest risk of an unfair trial, mitigated further by appropriate directions, is such that fair‑minded people would think that the public interest in adducing all relevant evidence of guilt must have priority. Evidence of the 2005 conviction is significantly probative and it should be before the jury.

Convictions for giving misleading evidence to the ACC

With respect, the written submissions filed on behalf of the Commonwealth were not particularly helpful to an understanding of what was sought to be achieved by the tendering of this evidence and how it might be said that convictions for giving misleading evidence could be significantly probative in the context of this prosecution. In the course of oral submissions, as a consequence of discussion with counsel, the significance of the convictions became more apparent.
Counsel for the accused accepted that evidence could be lead from Gillies with respect to his discussion with the accused in 2006 about communications with Dunn and the way that was to be achieved with a 'safe' telephone. That evidence in my view is particularly revealing as to the nature of the relationship between the accused and Dunn. If it were to be suggested for example that so far as the accused was concerned his relationship with Dunn was a model of commercial regularity, or that the accused was somehow an innocent dupe of Dunn, evidence of the lengths that the accused was prepared to go to to secretly communicate with Dunn while Dunn was under investigation and the efforts to get money from Dunn put the relationship in quite a different light.
The concern of the prosecution is that, notwithstanding the concession that Gillies may give the evidence described, it is unreasonable to think that the case for the defence will simply accept Gillies' evidence as credible and reliable. Rather, it is anticipated that there will be a challenge to the truthfulness or reliability or both of what Gillies has to say. In the circumstances, proof that the accused was asked the questions that he was, gave the answers that he did, and subsequently admitted that in that respect he had given misleading evidence to the commission bolsters the evidence of Gillies with respect to his meeting with the accused. Moreover, in my view the fact that the accused was prepared to attempt to mislead the commission about the nature of his relationship with Dunn is itself evidence of the attitude or conduct of the accused towards Dunn over a period of time. It is evidence that would tend to refute any suggestion that the accused was an innocent dupe of Dunn, or that their relationship was one of commercial regularity.
In my view the evidence is significantly probative of a matter in issue, that issue being the knowledge of the accused and his intention in offering the information that he did in the tax returns for 2002 to 2005 as well as his knowledge and intention with respect to the underlying accounts.
A concern that I had initially was that evidence of these events, which in fact post‑date the filing of the 2005 tax returns, required consideration of matters like those encompassed by an Edward's direction: Edwards v the Queen [1993] HCA 63; (1993) 178 CLR 193. The answer to that I am satisfied is that the lies told to the commission could not constitute evidence of the specific offences alleged in the indictment. The significance of the accused's discussions with Gillies and his subsequent lies to the ACC in order to conceal that conversation are illustrative of the accused's relationship with Dunn, and indeed Gillies, and will assist the jury in assessing the evidence as to the manner in which the accused conducted himself with respect to both men. It is not however evidence of the commission of any specific offence. I anticipate a direction of that kind would be given to the jury.
On behalf of the accused it was said that the prejudicial effect of the fact of the accused's convictions for giving misleading evidence so outweighed the probative value of the evidence that the risk of an unfair trial should predominate over the public interest in adducing all relevant evidence of guilt.
With respect, in my view the essential parts of the evidence are the conversation with Gillies and the accused's subsequent giving of misleading answers before the commission. The accused's convictions for giving misleading evidence are effectively a post‑script but a necessary post‑script in order to prove the fact of the giving of the misleading evidence. Those convictions seem to me to be of relatively modest significance compared to the evidence that the jury will hear about the accused's conviction for his participation in the Servcom fraud conspiracy. If the particular sensitivity is as to the fact of the 2006 convictions, as opposed to the conduct that resulted in them, then there is probably an obvious means of avoiding the necessity of proving the fact of the conviction. In any event I fully anticipate that the trial judge will give directions about the limited use to be made of this evidence and the relative lack of significance of the fact of the conviction as opposed to the acts that constitute the offence, and the necessity of avoiding any automatic process of reasoning to guilt. In all the circumstances in my view the significant probative value of this evidence outweighs any risk of an unfair trial. In particular in my view the public interest in adducing all relevant evidence of guilt must have priority over whatever slight risk there may be.

Convictions for failing to file tax returns

The jury will inevitably hear that for a number of years, despite the fact that the accused used the 'commission' money for his personal purposes, he did not file any tax returns. His failure to lodge tax returns, thereby concealing the receipt of the commission money is a necessary part of the context. That evidence will be given in any event. However, counsel for the Commonwealth struggled to suggest how the fact that the accused was subsequently prosecuted and convicted for failing to file tax returns added anything of probative value. In my view evidence of the convictions for failing to file returns could not assist the jury with any matter likely to be an issue at the trial.