Vadasz v Director of Public Prosecutions (Cth) No. Scgrg-97-640 Judgment No. S255

VADASZ v DPP
[1999] SASC 255

Full Court: Prior, Perry and Mullighan JJ

PRIOR J I concur in the orders of Justice Mullighan for the reasons he gives.
PERRY J I agree that the appeals be dismissed for the reasons given by Mullighan J.
MULLIGHAN J There are two appeals before the court which have been heard together.
On 20th March 1997 the appellant pleaded guilty before a learned Magistrate to eight offences of one type charged on one complaint and seven offences of another type charged on another complaint under the Income Tax Assessment Act 1936 (Cth). The complaints were laid on 6th September 1996.
The first type of offences were the failure to pay to the Commissioner of Taxation income tax deducted from salary and wages of employees of a company of which he was a director (“PAYE offences”). These offences occurred over the period from 8th April 1992 until 8th January 1993. He was convicted of each offence. One sentence was imposed which was imprisonment for a term of four months which sentence was suspended upon his entering into a recognizance in the sum of $1,000 to be of good behaviour for a period of twelve months.
The second type of offences were the failure to pay to the Commissioner of Taxation prescribed payments under the Act deducted from amounts due to sub-contractors (the “PPS offences”). These offences occurred over the period from 15th July 1992 to 15th January 1993. One sentence was imposed which was imprisonment for two months which sentence was also suspended upon his entering into a recognizance in the sum of $500 to be of good behaviour for a period of twelve months. It was ordered that if the sentences had to be served, they be served cumulatively. Reparation orders were also made in the sum of $265,368.08 with respect to the PAYE offences and $17,915.00 with respect to the PPS offences. These sentences were imposed on 20th March 1997.
On 17th April 1997 the appellant lodged a notice of appeal against those sentences and the reparation orders. The appeal came on for hearing before a Judge of this Court on 16th June 1997. On 2nd July 1997 the Judge dismissed the appeal. On 17th July 1997 the appellant applied to the learned Judge for leave to appeal against his decision to the Full Court. On 4th September 1997 the Judge refused leave to appeal. On 18th September 1997 the appellant made an application to the Full Court for leave to appeal against the decision of the learned Judge. On 22nd October 1997 the Full Court granted leave to appeal and the Notice of Appeal was filed on 19th March 1998.
This appeal was not set down for hearing. On 24th December 1998 the appellant applied for an extension of time to do so. That application came on for hearing before the learned Master on 9th March 1999. He dismissed the application on 18th March 1999 and he also dismissed the appeal as being incompetent because the appellant had not complied with procedural obligations. In doing so, he was not, of course, pronouncing on the merits of the appeal.
The appellant appeals against those orders of the Master and seeks an order that the extension of time which was sought be allowed so that the appeal from the decision of the learned Judge may, in effect, be reinstated and heard.
When the two matters came on for hearing, it was accepted that they should be heard together and no point was taken about the competency of an appeal to the Full Court from the order of the Master.
It may be seen that the appeal against the sentence and the reparation orders depends upon the success of the appeal against the order of the Master. Nonetheless, I think it is convenient to first consider the appeal against the order of the Judge dismissing the appeal from the Magistrate and to do so as if it had been set down. Whether there is merit in the appeal is a relevant matter when considering the appeal against the refusal to grant an extension of time. The appellant persists in the appeal against sentence even though the term of the bonds have expired and the appellant is no longer at risk of serving the sentences.

The Appeal against Sentence

The appellant was a director of Vadipile Pty Ltd which engaged in piling work. The company had employees who were paid on a salaried basis or pay as you earn (“PAYE”) basis. Also the company engaged sub-contractors. Under the Income Tax Assessment Act the company was obliged to deduct income tax instalments from the salaries of employees and remit them to the Commissioner of Taxation by the 7th day of the month following the deductions: S221F(5)(a). It was an offence under the Act to fail to do so: s221F(14). The company also had an obligation with respect to the amounts paid to sub-contractors. Under what is referred to as “the prescribed payments scheme” (“PPS”), the company had to make deductions of a prescribed amount from each payment to a sub-contractor and forward that amount to the Commissioner of Taxation by the 14th day of the month following the deduction: s221 YHD(1)(b)(v)(A). It was an offence under the Act not to do so: s221 YHD(3)(b).
In early 1992 the company had begun to default in relation to the PAYE payments. The default had been with respect to the months of January, February and March and caused an investigation by the Australian Taxation Office. The officer engaged in that investigation was a Ms Easterbrook and she commenced her work in April 1992. She had contact with Ms Horrigan, an employee of the Company, over the ensuing 6 months. In about April of that year, a tentative extension of time agreement had been reached between the Australian Taxation Office and the Company regarding the PAYE deductions upon certain conditions being met. However, the Company again defaulted in the following months. By June 1992 deductions over 4 months had not been paid to the Australian Taxation Office. Consequently, the extension of time was not approved. A notice was then issued by the Australian Taxation Office to the Company which had the effect of the entire debt being deemed to be payable to the Australian Taxation Office and if not paid could lead to the winding up of the Company. The deductions due for the month of June were then paid by the Company, although 9 days late, and for the month of July, although 26 days late. These payments were PAYE deductions. There was no payment of PPS deductions.
Ms Easterbrook had informed the employee of the Company of the need of the Company to pay current deductions on time and did so on many occasions during the 6 months following May 1992. In July 1992 Ms Easterbrook made it plain to the Company that detailed financial records would be required if it persisted in its application for an extension of time. All of these communications were made to either Ms Horrigan or the appellant. A financial statement was provided in December 1992 but the information provided was inadequate and the extension of time was formally refused.
The deductions for August were paid 29 days late. The deductions for September, October and December were never paid and the deductions for November were paid 9 days late but that default is not the subject of a charge. The first mention of prosecution was made in a letter of July 1992 from Ms Easterbrook to the Company and was mentioned again in September 1992. Two meetings between officers of the Australian Taxation Office and the appellant were held with regard to the extension of time application. No mention was made of the failure to make payment of the PPS deductions. It was alleged before the Magistrate and the Judge that the total amount of unpaid PAYE deductions during the period in question was $265,368.08. The default in the PPS occurred in much the same circumstances and came to the attention of Ms Easterbrook in about October 1992. There was an audit of the Company in early 1993 and the unremitted amount was calculated at $17,915.
The appellant was interviewed by investigators from the Australian Taxation Office in April 1994. The appellant admitted, inter alia, that he was involved in the management of the Company and that he was responsible for the PAYE and PPS deductions and payments. He admitted that the PAYE deductions had been made. His explanation for the failure to remit them was due to financial difficulties, bad debts and difficulty in trading. He told the investigators he wanted to continue trading through the problems but the winter of 1992 had been particularly poor for the work of the Company due to the heavy rainfall.
The Magistrate accepted that the company had conducted a successful business until 1992 when significant problems in undertaking work arose due to heavy winter rains.
The appellant had no prior convictions. He is married with four children and at the time of his appearance before the Magistrate was not in a sound financial position. He had a half interest in a house with a mortgage and other debts. The Magistrate was told that the appellant had placed all his savings and superannuation amounting to about $47,000, together with the proceeds of the sale of some property and about $90,000 borrowed from his mother into the company. The company had gone into liquidation. The appellant was a sole trader in the same business and drawings from this business were about $450 per week. His wife was employed as a nurse. The appellant asserted that it was not a case of fraud on the revenue. The payments had not been made due to financial difficulties of the company.
The Magistrate, in her remarks on sentencing, said that there had not been an application for an extension of time for payment and no financial information had been given to the Australian Taxation Office and no payments had been made with respect to the deduction referred to in the various charges. Also, he accepted that the appellant was a hard worker and had a good reputation. The Magistrate characterised the offending as a continued flouting of the obligations of the appellant under the legislation and not blatant fraud but “financial blindness”. She said that he did not receive any professional advice. However, she said that his offending had been “a deliberate and long term defalcation of [his] obligations under the [Act]” and a breach of trust imposed upon him by the Australian Taxation Office. She said she regarded it as serious offending against the revenue.
Furthermore, the Magistrate said that it was necessary to have regard to a “great degree” of general deterrence.
The Judge found no error in the approach or conclusions of the Magistrate. He upheld the sentences and the reparation order.
The decisions of the Magistrate, as confirmed by the Judge, are challenged on three main grounds which may be summarised. First, the Magistrate made errors of fact and had she not done so, the sentence would not have been less severe. Those matters were agitated on the appeal before the Judge but most were not mentioned in his reasons for judgment. Secondly, it is contended that the factual basis upon which the reparation order was made was incorrect and all factual errors pervaded the exercise of the discretion as to whether to make a reparation order and, if so, in what amount. Thirdly, the reparation order should not have been made given the financial position of the appellant. There are other grounds but they are ancillary to those three main grounds.
There is a contest as to whether the Magistrate and the Judge did, in fact, make errors of fact. I mention each of them in turn. As has been seen, the Magistrate said that the appellant had not sought an extension of time in which to pay the deductions to the Commissioner of Taxation. It is acknowledged by the respondent that the appellant had sought such an extension with respect to the unpaid deductions for the months of January, February and March 1992, but the Australian Taxation Office insisted that all deductions for the months thereafter be paid on time. It follows that there had been no extension of time sought with respect to the deductions which are the subject of the charges. In a sense, the Magistrate misunderstood the true position but not as to any relevant matter. There was no extension sought for the period embraced by the charges, probably because it was likely that none would be granted, although negotiation did continue. This is not a matter which could impugn the exercise of the sentencing discretion.
The next matter is that the Magistrate said that there was no financial information provided to the Australian Taxation Office As has been seen, a financial statement was provided in December 1992 but it was considered by the Australian Taxation Office to be insufficient to justify an extension of time. The company was wound up early in the following year and so it may be said that the information was provided at the last minute. The Magistrate was not entirely accurate in her observation in this regard, but it is not a matter of significance.
The observation by the Magistrate that no payments of the deductions made had been made to the Australian Taxation Office is incorrect. As has been mentioned, the payments for the months of June 1992 and July 1992 were paid, albeit late, but there is no charge with respect to the month of June 1992. The deductions for the month of August 1992 were also paid although late by 29 days. The deductions for November 1992 were paid late by nine days but there is no charge relating to that month. The respondent acknowledges the error. A consequence is that the total amount of deductions for PAYE tax not paid is substantially less than the amount initially alleged. The Magistrate, therefore, also erred in accepting that the total of the unpaid deductions was the higher figure. This is a matter of significance, but it does not mean that the categorisation of the offending as serious by the Magistrate was wrong or inappropriate.
It is contended that there was no factual basis for the Magistrate to conclude that the appellant had continued to flout his obligations under the legislation and failed to pay the deductions that were required. In fact the appellant made the two payments which have been mentioned but also paid, by way of arrears, $4,000 in each of August, September, October and December 1992. It was submitted that he was genuinely trying to pay the arrears. Also, as has been mentioned, he made the payments in June 1992 and November 1992. For these reasons it is a little too strong to say that the appellant continued to flout his obligations, but the fact remains that the deductions were made through the relevant period and with the exception of those deducted in three months, were not paid to the Australian Taxation Office. Even though the appellant caused some arrears to be paid, he did not pass on deductions made in most of the months despite his well knowing of the obligation to do so. Any inaccuracy in the categorisation of the conduct by the Magistrate is a matter of no significance.
In her remarks on sentencing, the Magistrate said that the appellant had failed to seek any professional advice which it is submitted carries the implication that he was reckless in causing the company to continue to trade, and in so doing was incurring debt. It was submitted that the appellant’s counsel informed the Magistrate that the appellant sought advice from his bank and also from his accountant. According to his affidavit, what he said was that the appellant “was doing his best to keep the Company trading, dealing with Westpac and his accountant and the creditors ...” which may or may not be the same thing, but given the submission made to her, the Magistrate was entitled to reach the conclusion which she expressed.
The last matter is that the observation by the learned Magistrate that the actions of the appellant had been a deliberate and long term defalcation of his obligations under the Act. She had earlier accepted the submission that his conduct was not a blatant fraud and it is contended that it is not clear what was meant by defalcation. I think the meaning of the Magistrate is clear. She was acknowledging that the monies were not paid to the Commissioner as was required by the Act, but were used for the purposes of the Company. The appellant permitted the Company to use the money due to the Commissioner of Taxation and in that sense the Magistrate used the expression “defalcation”. These monies were not impressed with a trust in favour of the Commissioner of Taxation: see McMillan v Bierwirth (1988) 49 SASR 403 per Johnston J at p419 and so there was no defalcation in the usual sense.
For the reasons given, I do not think any of these matters justify review of the sentence. The overstatement of the amount due is of no consequence as the amount actually due is also a substantial sum.
The penalty on each of the PAYE offences was a fine of $5,000 or imprisonment for twelve months or both. So the maximum penalty, if sentenced on each count and the sentences were made cumulative, was total fines of $40,000 and imprisonment for eight years. The penalty on each of the PPS offences was the same with the exception of count seven which carried a maximum fine of $6,000 or imprisonment for twelve months or both. The maximum penalty for those offences was therefore $36,000 or imprisonment for seven years.
Personal criminal responsibility attached to the appellant by reason of s8Y(1) of the Taxation Administration Act 1953 (Cth) which provides, inter alia, that where a corporation does, or omits to do, an act, the doing or omission of which constitutes a taxation offence, a person who is concerned in, or takes part in, the management of the corporation shall be deemed to have committed the taxation offence and is punishable accordingly. So, the appellant faced the maximum penalties.
Before the Judge, the appellant contended that he should have been fined rather than imprisoned and that no order for reparation should have been made. He pointed to the social stigma of a term of imprisonment even though suspended. It was submitted that the appellant may have lost some work in his new business because of the sentence of imprisonment.
The Judge dismissed the appeal against the sentence. He expressed the view that a suspended sentence of imprisonment, especially for a person like the appellant whom he said was unlikely to offend again during the currency of the bond or at all, “is the lightest form of punishment there can be”. The Judge went on to say that the appellant could not have paid a substantial fine in any event because of his financial position.
I do not think those observations establish an error on the part of the Judge as to the correct approach to sentencing. The correct approach is, of course, to consider each sentencing option in turn and only to impose a sentence of imprisonment if that is the correct sentence in all the circumstances: R v O’Keefe [1969] 2 QB 29 per Lord Parker LCJ at p32 and Wood v Samuels (1974) 8 SASR 465 at p469. Having reached that conclusion, the next task is to decide if the sentence should be suspended and, in the case of a Commonwealth offence, as here, to decide if all of the sentences should be suspended or only part of them. A sentence of imprisonment could not be imposed if a fine, even a substantial fine, was appropriate and the offender could not afford to pay it. The inability to pay must be considered when fixing the amount of the fine. It could never be the reason to impose a sentence of imprisonment. A suspended sentence is a very significant sentence. It is a sentence of imprisonment which has serious implications for the offender, including as to reputation. Also, it may have to be served. See Elliott v Harris (No 2) (1976) 13 SASR 516 per Bray CJ at p527.
The Judge had to determine whether the sentencing discretion had been erroneously exercised by the Magistrate. He decided that it had not, without expressing reasons in any detail. I agree with his decision. These were very serious crimes committed over a long period of time and involving substantial sums of money. The money had been deducted from salaries and amounts due to the contractors. It was withheld from the Australian Taxation Office for the benefit of the Company. The offences were not due to incompetence or mistake. They were not committed by an employee but by the appellant who was well aware of his obligations and that he was in continuing breach of them. There was a need for both general and personal deterrence in the sentencing exercise of the sentencing discretion and significant punishment. Imprisonment was justified. In McMillan v Bierwirth (1988) 49 SASR 403 Johnston J, with whom Jacobs and Millhouse JJ agreed, said at pp419-420:
“The obligation on the employer is to pay the moneys deducted during the month on or before the seventh day of the next month. What he does with the money deducted in any week is his own affair, subject to the obligation to pay. But, nevertheless, it seems to me, that that is a serious aspect of the offence as between employer, taxman and employee. The employees have qualified for their full periodic payment without abatement; the statute requires the employer to pay an amount equal to the sums deducted to the Commissioner by due date; if the group employer fails to do so by reason of inability to do so, it follows that he has used the money for another purpose, without regard to or insufficient regard to whether he will be able to meet his statutory obligation. I think the section itself makes clear that Parliament regards that aspect of the matter seriously.”

He went on to say that the sentence should reflect general deterrence. Under s221F(12) Income Tax Assessment Act 1936 (Cth), a statutory, sometimes called an administrative, penalty may be imposed which is payable unless a prosecution is instituted. Such a penalty, in the present case, with respect to the first type of offence, was calculated to be $230,603.99 and, with the second type of offence, was calculated to be $18,549.59. It is unnecessary for present purposes to set out the basis of the calculations, but they are made having regard to each offence. The purpose of mentioning them is to illustrate the seriousness of the offending.

In McMillan v Bierwirth the Court held that a statutory penalty provides the appropriate starting point for penalty on conviction. In Federal Commissioner of Taxation v Manos Breeder Farms Pty Ltd & Ors (1988) 88 ATC 4,946, von Doussa J accepted those principles and acknowledged that with revenue offences of the kind in the present case, good character is likely to play a less important role than in the general criminal law. I respectfully agree, although it cannot be disregarded. Emphasis must be given to general deterrence which will usually also be given prominence over other matters personal to the offender. In Manos, von Doussa J also said at p4,956:
“It should also be recognised that if the statutory penalties in the case of a contravention by an individual far exceeded the maximum of $5,000, that could be a factor pointing to imprisonment as a fine might not adequately reflect the seriousness of the offence.”
These observations support the conclusions that there was no error in the exercise of the sentencing discretion.
The errors of fact made by the learned Magistrate, such as they are, do not afford a reason to set aside the sentences. If she had not mistaken these factual matters, the sentences imposed by her would have been a just sentence in all the circumstances. Also, it was submitted that the Magistrate and the Judge had not had regard to the pleas of guilty of the appellant. It is true that neither of them mentioned that matter but there is no reason to suppose that such an important consideration was disregarded.
If the appeal against sentence is to be regarded as properly before us, I would dismiss it.

The Reparation Order

The Magistrate made the order for reparation pursuant to s21B(1) of the Crimes Act 1914 (Cth). That section provides, inter alia, that where a person is convicted of an offence against a law of the Commonwealth, the Court may, in addition to the penalty, if any, imposed upon the person, order the offender:
“(c).. to make reparation to the Commonwealth or to a public authority under the Commonwealth by way of money payment or otherwise, in respect of any loss suffered, or any expense incurred, by the Commonwealth or the authority, as the case may be, by reason of the offence.”
It is now well established that the court has a discretion as to whether to make a reparation order pursuant to s21B of the Crimes Act: Murphy v HF Trading Co Pty Ltd & Anor (1973) 47 ALJR 198, Hookham v R (1994) 181 CLR 450, Vlahov v Federal Commissioner of Taxation 93 ATC 4501 and Davies v Taylor (Full Court of the Supreme Court of Tasmania, 6.11.97, unreported). Also, it has been accepted by the Full Courts of the Supreme Court of Western Australia, Vlakov, New South Wales, R v Hookham (1993) 31 NSWLR 381, and Tasmania, Davies v Taylor, that in the exercise of that discretion the court may have regard to the personal circumstances of the offender.
All that was said by the Magistrate in the present case about the application for the reparation orders is that she had considered the matters put by both parties and that the orders were appropriate.
Before the Judge, it was contended that no order should have been made and the Commissioner of Taxation should have been left to pursue a civil remedy. It had been put to the Judge by counsel for the respondent that the effect of the order was merely to convert the civil debt of the company into the civil debt of the appellant.
The Judge referred to Vlahov and Hookham and said that he did not regard either case as laying down the principle that no order for reparation should be made unless it could be met. He concluded that those decisions were authority only for the proposition that means to pay is a factor to be taken into account in exercising the discretion whether or not to make an order. He went on to say that the decision of the Magistrate to make the reparation order was a proper exercise of discretion and no error had been established.
The appellant contended before us that the amount of the reparation order is wrong. The Magistrate ordered him to pay the total amount of the unpaid tax. In fact, it was alleged that the amounts for July 1992 ($39,795.83) and August 1992 ($21,691.74) were paid, albeit late, and could not be included in the reparation order. These allegations are true except that there is some doubt as to whether all of the deductions for the month of August were paid. The appellant submitted that these amounts were paid and should be deducted from the amount of the order which would leave an amount of $221,795.51.
The respondent concedes that the amount of the order is incorrect but opposes the variation of the amount either by the Magistrate upon application of a slip rule, or by this Court. The respondent has assured the Court and the appellant that upon enforcement of the order, the amount already paid will be treated as a partial payment. That approach is not accepted by the appellant. It seems that the respondent is concerned that if the amount is corrected on this appeal, that may open up the appeal on the merits and deprive him of the arguments against allowing the appeal from the decision of the Master refusing an extension of time in which to set the appeal down for hearing.
The appellant contends that this error may not be overlooked as it goes to the heart of the approach of the learned Magistrate. Further, the appellant contends that the factual errors, already mentioned in the context of sentencing, were not considered by the Judge which justifies reconsideration of the discretion to make the reparation order on this appeal. It was argued that the reparation order should be quashed and the Commissioner of Taxation could then pursue a civil remedy. However, it was conceded by the appellant that at the time of these offences, there was no civil remedy which the Commissioner of Taxation could pursue against the appellant. His only remedy was a reparation order.
There has been a substantial loss to the revenue. The deductions were made and not paid to the Australian Taxation Office with the consequence that the Company had the direct benefit of the use of that money and the appellant had that benefit indirectly. It had not been established that the appellant was impecunious in the relevant sense. The Magistrate was informed that there was “equity” in the family house of about $450,000 which the appellant owns jointly with his wife. He has been running the new business and taking drawings. He contributes $450 per week to his family and his wife contributed $400 per week. All of this information was placed before the Magistrate and the Judge. There is no reason to suppose that it was not considered when the reparation order was made and upon appeal. Also, it was submitted to the Magistrate that if the reparation order was made, bankruptcy of the appellant was virtually inevitable, with the consequence that he could not hold a builder’s licence which would affect his ability to earn an income.
The Judge said he would not accept that the financial position of the appellant was as parlous as claimed by him and that he would need evidence before he could accept what was put to him. It was argued that the Judge erred in that approach because the poor state of the financial position of the appellant was not in dispute. I do not think that is so. The information about the interest in the family home, and its value, and the drawings of the appellant from his new business were before both the Magistrate and the Judge and indicate that the appellant was snot without means.
The Judge dismissed the appeal against the reparation orders because he could detect no error in the exercise of the discretion by the Magistrate and went on to say that, in his view, the discretion had been exercised properly.
I agree that error in the exercise of the discretion by the Magistrate has not been established. There is no basis to allow an appeal against the reparation order.

Appeal against the Decision of the Master

There had been much delay in advancing the appeal. We heard considerable argument in support of, and against, this appeal but I think the matter can be resolved shortly.
It would be a serious matter to deprive a person of the hearing of a meritorious appeal involving a sentence of imprisonment and a reparation order in a substantial sum merely because there had not been compliance with time limits imposed by the Supreme Court Rules even though the reason is not entirely satisfactory. Justice should always be the objective and usually the court will allow such an appeal to be heard and determined. However, there is no purpose in correcting procedural default by extension of time and the like when it may be seen that there is no merit in the appeal. Having heard the appeal on its merits, that question has now been determined. Consequently, it is pointless to consider the arguments on the appeal against the orders of the Master.
I would dismiss that appeal. The consequence is that the appeal against sentence and the reparation order remains dismissed as incompetent.

[1999] SASC 255

17 June 1999