PEARCE & ORS v R

Judges: Malcolm CJ
Murray J

Steytler J

Court:
Supreme Court (WA) - Court of Criminal Appeal

MEDIA NEUTRAL CITATION: [2005] WASCA 74

Judgment date: 15 April 2005

Steytler J

228. These appeals are brought by each of the three appellants (respectively Pearce, Tieleman and Wharton) again their convictions on a charge of conspiracy to defraud the Commonwealth and also in respect of the sentences imposed upon them. I propose, first, to deal with the appeals against conviction and then with the applications for leave to appeal against sentence.

The appeals against conviction

The franchise scheme

229. The prosecution of the three men arose out of a mass marketed franchise scheme.

230. A company, Servcom Pty Ltd, owned intellectual property relating to the supply of Internet and advertising services. These (``the Servcom services'') were said to facilitate easy Internet access and professionally marketed and structured Web sites. Servcom Pty Ltd granted to Servcom Australia Pty Ltd (``Servcom Australia''), as trustee for the Servcom Australia Trust, an exclusive licence to market the Servcom services in Australia.

231. In May 1998, Servcom Australia put out an information memorandum in which it invited members of the public to invest in the purchase of franchises relating to the Servcom services. The franchises related to the marketing and promoting of Internet services provided by Servcom Pty Ltd and the use of what was referred to as the Servcom Business System. Each franchise comprised a block of at least 5000 telephone listings in what was described as ``an exclusive territory'', randomly spread in each State of Australia. The term of the franchise was to be 20 years and each franchisee was to be provided with the operating system and training required in order to develop the business and was to have the use of the Servcom name and logo.

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232. The cost of a franchise, if the ``total package'' was taken, was $39,500. This was made up of:

(a) an initial ``Franchise Grant and Establishment Fee'' of $1500, payable by the franchisee for acquisition of the franchise;
(b) an amount of $34,700 in respect of initial franchise fees;
(c) a ``Training Fee'' of $2625; and
(d) an ``Indemnity Fee'' of $675.

233. The initial franchise fees of $34,700 were said to be payable in respect of licensing, administration and advertising services. The licensing related to the Servcom trademark and logo and the use of the Servcom operating system. The administration services comprised accounting and bookkeeping relating to the franchise, franchise guidance and advice and sales support services to the franchisees. The advertising services related to marketing support, such as promotional material, general advertising and marketing literature. Each franchisee was given the opportunity of paying either an amount of $3230 per month during the first year of the 20-year term of the franchise or a discounted single payment fee of $34,700.

234. The training fee (which, of course, related to training services) was payable either at the rate of $245 per month during the first year of the term of the franchise or by way of a discounted sum of $2625 if that fee was paid in advance.

235. Franchisees were given the opportunity of obtaining a ``fully indemnified'' loan of $29,500 to finance the initial costs and fees for each franchise. The loan was said to be totally ``funded'' from net franchise income (the information memorandum contained a number of attractive profit projections) and repayments were limited to 60 per cent of the franchisee's net annual income. The indemnity fee of $675 was payable in the first year, to be followed by payments of $150 per annum thereafter, so as ``to fully indemnify the loan as detailed in... [ an attached] Indemnity Agreement''.

236. Consequently, each applicant for a franchise could either pay the full franchise cost of $38,825 (the total franchise fee, less the indemnity fee) or an initial payment of $10,000 if the balance was to be funded by the fully indemnified loan. In the latter case arrangements were offered whereby the sum of $10,000 could be paid by way of an initial payment of $2,000 with the balance repayable under the terms of a short-term ``Monthly Loan Agreement''.

237. The lender of the loan funds was to be a company controlled by Wharton, Allied Securities Pty Ltd (``Allied Securities''). By a deed of indemnity, a second company, Mortgage and General Indemnity Co Australia Pty Ltd (``MGICA'', also controlled by Wharton), agreed, in consideration of the payment of the indemnity fee, to indemnify each of the borrower and the lender in respect of the amount of the debt. Each loan agreement provided that, if the borrower had entered into an indemnity agreement with the indemnifier, MGICA, then, subject to various provisos which are not presently relevant, the lender, Allied Securities, undertook not to sue to recover the debt from the borrower.

238. Under the heading ``Taxation Implications'', the information memorandum recorded that:

``An independent taxation opinion by Robert O'Connor QC is available to applicants on request, together with an opinion from McKessar Tieleman, Chartered Accountants.

The opinions detail the applicant's entitlement to claiming up to $38,000 tax deduction in the current financial year (being the first year's prepaid initial franchise fees, training and indemnity fees) if the Franchisee is carrying on the business with a view to earning a profit.''

239. The firm, McKessar Tieleman, was the franchisor's accountant. Tieleman was a partner in that firm. Pearce was then a senior manager employed by the firm, but later became a partner in the firm.

240. The information memorandum identified the company directors of Servcom Australia. They were Lawrence Aistrope (who was also a director of Servcom Pty Ltd), Terry Wahby, Paul Wilson and Gary Barber.

241. On the face of what was set out in the information memorandum, there were obvious tax advantages for any investor taking up a franchise. The offer of the loan was also very attractive. If the fully indemnified loan of $29,500 was taken up, a franchisee would have a net cash outlay of only $10,000 and an entitlement to a tax deduction, in the current

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financial year, of up to $38,000. It seemed, from the documents provided, that there was no risk to the franchisee.

242. For reasons which I will shortly develop, this scheme was said by the Crown to have been at the heart of the conspiracy to defraud the Commonwealth with which each of the three appellants was charged.

The indictment

243. The indictment charging the three appellants read as follows:

``Between 1 January 1998 and 30 June 1999, at Perth and elsewhere in the State of Western Australia and Melbourne in the State of Victoria, Sean PEARCE, Walter John TIELEMAN, Stephen Lynne WHARTON, and Lawrence John AISTROPE conspired with each other and with Tarek WAHBY to defraud the Commonwealth, contrary to sections 29D and 86(1) of the Crimes Act 1914.''

244. Prior to the commencement of the trial, each of Aistrope and Wahby pleaded guilty to the charge. The trial consequently proceeded only against Pearce, Tieleman and Wharton.

Particulars of indictment

245. The Crown provided detailed particulars of the indictment. Because these are of considerable significance to the appeals, it is necessary to set them out in full. They read as follows:

``The offence charged is conspiracy contrary to sub-section 86(1) of the Crimes Act 1914 (Cth), as amended, to commit an offence of defrauding the Commonwealth contrary to section 29D of that Act.

The conspiracy charged was to defraud the Commonwealth by depriving the Commonwealth of monies to be paid by the Australian Taxation Office (`ATO') as tax refunds to franchisee participants in what became the `Servcom scheme' (`the scheme') and/or by putting such monies at risk and/or by prejudicially affecting the Commonwealth in relation to its lawful rights concerning the said monies.

The parties agreed that the defrauding would be achieved by procuring taxpayers to enter into franchise agreements and, pursuant to the scheme, (innocently) to file income-tax returns containing false claims for deductible expenditure, totalling (as it transpired) $38,000 per franchise, purportedly incurred in the 1998 financial year in the discharge of genuine obligations under a business franchise agreement thereby to trigger the ATO self assessment system to issue tax refunds of up to $18,810 per franchise, $10,193 [ including $193 by way of stamp duty] of which the taxpayer recipients were then to remit to the franchisor under the scheme. The parties further agreed that the said taxpayers were to be given only such false or misleading information about the scheme (by positive assertion and/or by concealment of material facts) as would cause the said taxpayers to deceive the ATO into accepting the said false claims as properly founded and allowable claims for expenditure actually incurred by the taxpayer in the 1998 financial year in the discharge of genuine obligations under a business franchise agreement and thereby incurred by the taxpayer in gaining assessable income or necessarily incurred in carrying on the franchise business for the purpose of gaining or producing such income.

To that end, the parties agreed to provide the taxpayer franchisees so procured with false or misleading information designed at once:

• to sell the scheme (by convincing them and their advisors that the scheme was lawful and effective), and

• to equip and induce the said franchisees to maintain the said deception in the face of scrutiny from the ATO.

The conspirators agreed to structure the scheme so that PAYE taxpayers, who had earned sufficient taxed income during the 1998 financial year (about $40,000 or more) to generate a refund from the ATO of more than $10,193 by participating in the Servcom scheme as franchisees, were to be procured to make the following false representations:

• That claims in their income-tax returns for deductible expenditure in relation to the Servcom scheme totalling $38,000 per franchise were well founded in fact and law and should properly cause the ATO to allow (and not to disallow) them in full and to refund tax accordingly.

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• That the deductions claimed were in respect of funds that flowed in their entirety to the franchisor to be used by the franchisor solely to perform its obligations under the franchise agreement during the 1998 and 1999 financial years.

• That information contained in documents supplied or to be made available to each such taxpayer, including but not limited to:

a. an Information Memorandum;

b. an opinion from Robert O'Connor QC; and

c. an opinion letter from McKessar Tieleman, Chartered accountants:

was accurate and provided a reliable and proper basis for the ATO to determine whether or not the claims should be disallowed.

In essence, the said representations to be made by the franchisees under the scheme were, to the knowledge of the accused, false or misleading in that:

• $29,500 of the $38,000 to be so claimed (per franchise) was based on ostensible obligations of the franchisee taxpayers under an agreement for a loan of $29,500 that was fictitious and none of the said $29,500 was to be available to the franchisor in the 1998 or 1999 financial years, or at all, to enable the franchisor to discharge its purported obligations under the franchise agreement.

• None of the balance of the $38,000 (per franchise) to be claimed was genuinely to be incurred in the 1998 financial year (or at all) in that the purported obligations of the taxpayer franchisees were not ones to which they were to be definitively committed in the 1998 financial year but were to be conditional upon their receipt (necessarily after 30 June 1998) of a tax refund of at least $10,193 (being the amount they were required to pass on to the franchisor in full discharge of their ostensible financial obligations and risks under the scheme). [ This particular was not pursued by the Crown at the trial.]

• The capacity of the franchisor to honour its purported obligations under the franchise agreement and thereby to generate assessable income as represented in the Information Memorandum was non-existent, speculative and unfunded as at 30 June 1998 and was reliant upon such funding as could be extracted from the ATO after 30 June 1998 through the operation of the scheme pursuant to the conspiracy charged. There was no `business' in existence as at 30 June 1998.

• The $10,193 component of the tax refunds to be generated under the scheme was to be applied by the franchisor to meet expenses inherent in or incidental to the scheme other than and in priority to those arising from its obligations under or disclosed in the franchise agreement (and other than those disclosed, adverted to or implied in the Information Memorandum or otherwise revealed to the franchisees), including substantial commissions to agents for selling the scheme to franchisees (about $2.5 million), fees to the accused Wharton for providing the franchisor with protection from liability to income-tax (depending on projected sales of between 1,000 and 1,430 franchises) of between $15 million and $20.55 million on paper income generated notionally by the scheme of between $38 million and $54.14 million (at the rate of 7% of the income protected but apparently capped later by agreement at $2.5 million) and fees and performance related commissions to the accused Pearce and Tieleman (up to about $599,000).

• Thus, on a projected sales range of between 1,000 and 1,430 franchises, instead of the deductions to be claimed under the scheme as represented in the Information Memorandum producing a cash-flow to the franchisor of between $38 million and $54.14 million, whether or not the said claims for deductions were allowed , as the accused were aware, the franchisor could expect to have available to discharge its obligations under the franchise agreement for the 1998 and 1999 financial years a net cash- flow (sourced from the ATO) of between

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$5.59 million and $8.96 million, but only if the tax refunds were successfully obtained from the ATO in each case.

The basis for the Crown case that the representations were to be (and ultimately were) false is further summarised in the report of Eric Barr, forensic accountant, dated 18 December 2003, a copy of which has previously been provided. On his analysis, the representations were to be (and ultimately were) false in that, to the knowledge of each of the accused, the true basis for the claimed deductions was such that, had the ATO been aware of it, the claims should not properly have been allowed or should properly have been disallowed by the ATO. [ Mr Barr's report, which was objected to by counsel for the appellants, was not tendered in evidence at the trial.]

Furthermore, to the knowledge of each accused, the information in the documents supplied to each franchisee did not provide a true and proper basis for the ATO to determine whether or not the claimed deductions should be disallowed. Rather they were designed by the accused to conceal the true nature of the scheme beneath a gloss of propriety in order prejudicially to affect the rights of the Commonwealth in relation to tax refund monies paid by or claimed from the ATO under the scheme.

Thus, with the intent of each accused, funds belonging to the Commonwealth represented by the refunds claimed under the scheme were to be (and were) put at risk and the rights of the Commonwealth concerning those refunds that would automatically be triggered under the self-assessment system by the lodgement of tax returns containing claims for deductible expenditure, were to be (and were) prejudiced at two levels:

• By causing refunds to [ sic ] made in response to the claims and thereby placing Commonwealth funds outside the control of the ATO.

• By ensuring that, in the event of scrutiny by the ATO, the franchisee taxpayers revealed in response only the false or misleading facts with which they had been fed under the scheme.

The Crown cannot provide full particulars of what false representations may have been made by individual taxpayers as a result of the agreement beyond saying that all of those taxpayers who were induced to lodge tax returns containing claims for deductions in relation to the scheme falsely claimed, by implication, that there was a proper basis, in fact and law, for such claims to be allowed by the ATO and not to be disallowed.

The conspirators agreed to procure any taxpayer with a taxable income of about $40,000 or more in the 1998 financial year who could be induced to purchase a Servcom franchise, up to a maximum of 1430.

The taxpayers so procured were all those that purchased Servcom franchises and submitted claims for deductions in their 1998 income-tax returns.''

The prosecutor's opening

246. Mr Maidment SC, who led the prosecution on behalf of the Crown, opened at some length. It is necessary, for the purposes of the appeals, to set out some of what he said.

247. He said that the Crown contended that each of the appellants had ``contributed to'' the crafting and making of positive false or misleading assertions of facts, careful concealment of material facts and ``the resultant deceit practised first on the taxpayers who were targeted by the scheme and, secondly, on the Australian Taxation Office''. He said that their conduct was ``designed to achieve the object of the conspiracy, that is, to defraud the Commonwealth on a massive scale''. He went on to say that, if all of those who applied for franchises, utilising the loan funds for that purpose, had put in claims for tax deductions of $38,000 in their tax returns, the result would probably have been that the Australian Taxation Office would have been induced to pay tax refunds at a rate of $18,430 per sale.

248. In the course of explaining the indictment to the jury, Mr Maidment said (transcript page 401):

`` [ T]the Crown says that the three accused joined in a criminal agreement with intent to prejudice the interests of the Commonwealth by means that were dishonest. I will say that again. The Crown case is that the three accused joined in an agreement with intent to prejudice the interests of the

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Commonwealth by means that were dishonest.

In this case the particular interests of the Commonwealth that were to be prejudiced were the protection of the national revenue. The dishonest means to be employed with intent to cause that prejudice was the use of statements that the Crown says were known to be untrue. Those knowingly untrue statements, the Crown says, were directed in the first instance to the taxpayers targeted under the scheme and then through those taxpayers to the Australian Taxation Office and here you will appreciate the Australian Taxation Office is an office that operates under the Commonwealth and when one says `defraud the Commonwealth', defrauding the Australian Taxation Office is I guess what is really meant by that and amounts to the same thing.

The untrue facts that were to constitute the dishonest means were designed to do a number of things: firstly, to persuade the taxpayer to sign up to the scheme; secondly, to induce those taxpayers to make claims on the Australian Taxation Office for deductions at the rate of $38,000 per unit purchased; thirdly, they were designed to pass on to the promoters or to induce the taxpayers to pass on to the promoters $10,193 from the refunds received.''

249. He said that, if the Australian Taxation Office sought to investigate the basis for the claimed deductions, the untrue facts were designed to induce the taxpayers to use those untrue facts to deceive the Taxation Office as to the true factual basis for the deductions claimed.

250. He went on to say:

``The prejudice that was intended by the dishonest means involved prejudicially affecting the Australian Taxation Office's ability to protect the property of the Commonwealth and it was designed to prejudicially affect that ability by causing claims to be made by taxpayers for deductions that were based on the false or untrue facts.

They were designed to prejudicially affect the Australian Taxation Office's ability to protect the Commonwealth by putting at risk the ability of the Australian Taxation Office properly to determine whether or not the claimed deductions should be disallowed, that is that the untrue facts were designed to deprive the Australian Taxation Office of a true factual basis for making that determination.

Next, the prejudice that was intended was the putting at risk of the ability of the Australian Taxation Office properly to take action to recover refunds that were paid out, again to be achieved by depriving them of a true factual basis for taking such effective action.

Next, the prejudice intended was the depriving of the Australian Taxation Office of the control of the refunds paid out and, lastly, by putting at risk those funds; that is, putting those funds at risk of being lost before effective recovery action could be taken by the Australian Taxation Office. In other words, if you deprive the Taxation Office of the refunds, you put them in the hands of taxpayers at the rate of $18,430, by the time the Tax Office have sorted out the wheat from the chaff and discovered that facts that they had been given were false or misleading and that they hadn't got the true facts as to the basis of the claims and had taken recovery action, that money could have [ sic] spent, lost in one way or another.

The taxpayer might by then have had no assets and the money would have been totally irrecoverable but, in any event, the money was taken out of the control of the Taxation Office and put at risk and that was part of the prejudice that was intended to be achieved by the scheme, to deprive the Taxation Office of the money, take it out of their control and to prejudice their ability to determine whether the claims were properly based, in fact to prejudice their ability to recover that money because they didn't have the true facts and the money had been taken out of their hands.''

251. A little later in the course of his address, Mr Maidment returned to this theme. He said (transcript page 407) that the first essential ingredient of the scheme involved disguise and dishonesty in its concept and, ultimately, deceit in its operation. He reiterated that the taxpayers were to be provided with untrue facts so as to equip and induce them to present them to the Australian Taxation Office if it ``starting asking awkward questions''. He said that there was

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little point in persuading the taxpayers if they were ultimately ``unable to persuade the ATO to let them hang onto the refunds that had been triggered''.

252. While it was common cause that the loan agreements entered into by the franchisees were not ``shams'' in the technical sense of that word (as to which see
Snook v London and West Riding Investments Ltd (1967) 2 QB 786 at 802 , per Diplock LJ), Mr Maidment, in his opening (transcript page 407), described them as ``utterly and entirely bogus''. He went on to say:

``... [ Each loan agreement] was contrived, it was dishonest in its concept and in its execution. The way the facts concerning the so-called loan were to be and were presented to the taxpayers was to be and was thoroughly misleading. The facts presented were intended to deceive the taxpayers and ultimately the Australian Taxation Office.''

253. He also told the jury that each of the claimed deductions of $38,000 was ``ostensibly in payment for... services provided in... [ the] first year [ of the operation of the franchise]'' in circumstances in which those involved in the conspiracy knew that none of the loan amount of $29,500 was to be available to the franchisor in the 1998 or 1999 financial years so as to enable the franchisor to discharge its obligations under the franchise agreement. However, he said (transcript page 413):

``The three accused... were acutely aware that the taxation system worked in such a way that if pursuant to the scheme a taxpayer franchisee in the targeted taxation bracket could be persuaded to lodge a tax return containing the claim for deductible expenditure promoted by the scheme - $38,000 - the mere lodgment of such a return would without more ordinarily trigger the issue of a tax refund that would be based on the amount of tax that the taxpayer had actually paid during the year up to 30 June 1998.''

254. Mr Maidment described the scheme as ``tricky'' and said that (transcript page 414):

`` [ T]he scheme had to be constructed so that there was a world of difference between the Servcom scheme as it was to be presented to the targeted taxpayers and to the Tax Office and the true underlying scheme as the accused knew it to be. The former was the public face of the scheme.... The latter was to be concealed and particularly concealed from the taxpayers and from the Tax Office, for if the truth was to be discovered by the Tax Office the accused each knew that the scheme would fail.''

255. Mr Maidment then referred to a letter (which he described as ``the McKessar Tieleman'' letter) dated 24 April 1998 which had been written by McKessar Tieleman to a firm of solicitors, Garton-Smith and Owen, and also to an opinion given by a Perth barrister, Mr RK O'Connor QC, which opinion was said to have been based on misleading information provided to him by the conspirators through Garton-Smith and Owen. I have earlier said that the letter and the opinion were mentioned in the information memorandum provided to prospective franchisees and that the promoters of the scheme made them available to potential investors. Mr Maidment said (transcript pages 424 and 425):

``The Crown says that the evidence will prove that the accused Pearce and Tieleman deliberately constructed the McKessar Tieleman letter to mislead the taxpayer franchisees and ultimately the Australian Taxation Office as to facts they knew to be relevant to a proper consideration of whether or not the $38,000 deductions to be claimed under the scheme should be allowed by the Australian Taxation Office. In other words, they stated facts that they knew to be untrue, knew to be misleading, and the documents were constructed in a way that was designed to present the public face of the scheme and to conceal the true underlying nature and purpose of the scheme.

The Crown further says - and we will trace this through the documents in due course - that the accused Pearce and Tieleman, assisted by the accused Wharton, deliberately sought to mislead Mr R.K. O'Connor QC, who was the lawyer who provided what I have terms [ sic] the QC opinion. They deliberately sought to mislead Mr O'Connor as to the facts that they knew to be material to his advice and the object, the Crown says, of the three accused in doing that was to obtain from Mr O'Connor, by fair means or foul, a favourable opinion. There wasn't much point in having a QC opinion if it was going to say, `Look; the scheme might fail,' because sure as eggs are

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eggs the scheme would fail, so they had to get from him an opinion that was capable of, and did, provide comfort to the taxpayer franchisees, particularly those who were concerned about the smell test.

Indeed, the Crown says it was intended by each of the three accused that the effect of the McKessar Tieleman opinion letter and the QC opinion would be to mislead the taxpayers and ultimately the Australian Taxation Office as to facts that were relevant to the ability of the Tax Office properly to determine whether the $38,000 deduction claimed was properly allowable or whether they should disallow it in whole or in part and which were relevant to the ability of the Australian Taxation Office properly to protect the national revenue. The Crown says those expert so-called independent, so-called opinions, were very much part of the architecture of the scheme.''

256. Then (transcript page 426), he said:

``What the Crown does set out to prove is that whether or not individual taxpayers were actually deceived, the real business at hand and overwhelmingly the immediate and dominant purpose of each of the three accused was by means that were dishonest to procure those taxpayers to obtain tax refunds from the Australian Taxation Office and to pass the lion's share of those refunds to Aistrope and Wahby in the first instance for distribution ultimately between those two gentlemen and the three accused.''

257. No objection to any part of this opening was made on behalf of any of the three appellants.

Opening remarks on behalf of the defence

258. The trial Judge gave to each of the counsel for the three appellants the opportunity to make a brief opening statement, once that on behalf of the prosecution had concluded. Each took advantage of the opportunity. Mr Martin QC, who represented Tieleman at the trial, suggested, in the course of his opening statement, that the ``dishonesty'' relied upon by the Crown was ``the entering into an agreement to cause somebody else to make a statement that the parties to the agreement knew to be false''. He suggested that this was the focus of the Crown case. No objection was made to this, or to any other, aspect of his opening statement.

The evidence led by the prosecution

259. The evidence led by the prosecution at the trial, which included that of Wahby and Aistrope, essentially followed the course set by the particulars to the indictment and Mr Maidment's opening address to the jury.

260. That evidence established that each of the appellants knew that none of the loan funds of $29,500 would be available to the franchisor by 30 June 1998 and also that no more than $393.75 of that money would be available to the franchisor during the first 13 months of operation of the franchise (that figure amounts to a percentage, after deduction of the percentage proposed to be paid to the lender, of the projected amount of the first loan repayment).

261. In his evidence, Wahby said that he met with Tieleman and Pearce on a number of occasions during February 1998. It was plain, from his evidence, that each of Tieleman and Pearce then understood that no part of the $29,500 loan funds would be available to the franchisor to meet expenses of the scheme in the first year of its operation and that, when the first repayment was made, only $393.75 of that repayment would be available for that purpose (there was no real dispute as to Wharton's knowledge of this). The evidence established that Tieleman and Pearce believed that the loan funds would be kept in a ``securitised deposit'', that is to say, in an account similar to a trust account, in the name of Servcom Australia, to be held there by way of security for the loan itself in circumstances in which the franchisor would have no ``direct access'' to that money. In fact even this was untrue, as Wharton knew. There was to be no transfer of the amount of the loan funds at all. Wahby's evidence also established that Tieleman (and probably Pearce) also knew that the lender would receive up to 40 per cent of each loan repayment instalment (the figure ultimately negotiated was one of 37.5 per cent).

262. This evidence, supported by a good deal of other evidence, including that of Aistrope and various documents which were tendered at the trial, also established that these facts were never revealed to the franchisees who were led by the conspirators to believe that the whole of the moneys represented by the loan funds was to be available to the franchisor for use in meeting its obligations under the franchise agreement.

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263. The evidence also revealed that the sales agents who marketed the franchises were not told about the arrangement which had been reached with Wharton concerning the so-called ``securitised deposit'', or of the consequence that the franchisor would not have access to the loan funds until such time as the ``franchisee income'' began to come through. Similarly, none of those people was told of the proposed 62.5 per cent/37.5 per cent division of the loan repayments, once these commenced.

264. Mr O'Connor QC, in his evidence, said that he was not told that the loan funds were to be kept in the so-called ``securitised deposit'' or that they would only be made available to the franchisor once the franchisees began repaying the loans from net franchise income.

265. Amongst the many documents tendered at the trial were a number of documents authored by one or other of Pearce and Tieleman which made plain their knowledge of the ``private face'' of the scheme. One example of these is a facsimile transmission sent by Pearce to Aistrope and Wahby on 6 April 1998. In that document Pearce said the following:

``We should consider the gearing ratio in terms of the level of services to be provided and the available cash paid to the manager, ie if 500 [ franchises are] sold services of $17.35 million will be provided in the first 13 months (@ 34,700 each) but only $5 million in cash will be received. Will this be enough cash to perform this level of services?''

266. Plainly, the figure of $5,000,000 is the product of the multiplication of the anticipated number of franchises to be sold (500) by the cash component of each franchise fee, being the figure of $10,000.

267. In the same document Pearce referred to, amongst other things, a ``talk'' which had recently been given by O'Connor QC in the course of which O'Connor had said that statutory powers made available to the Commissioner of Taxation under Pt IVA of the Income Tax Assessment Act 1936 (which Part deals with schemes to reduce income tax) might be made use of not only against investors but also, potentially, against promoters or financiers. Pearce went on to say (to Aistrope and Wahby) that:

`` [ W]e feel that we should steer clear of mentioning too much about the tax benefits and in this regard would propose that rather than openly stating the tax benefits... we be available to personally discuss the tax implications with any financial adviser or potential applicant on a more one to one basis.''

268. The evidence also established that each of Tieleman and Pearce was aware of a recent draft Australian Tax Office (``ATO'') ruling (TR 97/D17) to the effect that Pt IVA of the Income Tax Assessment Act 1936 (Cth) (``the Act'') had potential application to persons other than investors, including promoters and financiers.

269. Pearce and Tieleman were also shown to have been alerted by Wharton to the text of a speech (referred to as the ``Magic Pudding speech'') which had recently been given, on 12 June 1998, by the Commissioner of Taxation. In it, the Commissioner had referred to cases in which particular activities were financed significantly by taxpayers from the tax system. He went on to say:

``Of particular concern to us at the moment are arrangements whereby their practical effect is that the loan funds are simply not capable of ever being invested in the underlying activity. For example the arrangements might involve a round robin of payments under which the investment, to the extent of the loan, is effectively used to repay the loan to the original financier.

In these cases, while there is an underlying activity with the potential for profit, the actual amount going to that activity is a small fraction only of the claimed investment. In some cases you only have to aggregate the claimed investment to realise the underlying activity simply could not sustain the total level of investments claimed.

It will come as no surprise to you that we have concluded that deductions claimed in these particular types of arrangements are not available under the law.

We do not accept that the `investors' in these types of arrangements are carrying on a business and as such do not accept that deductions claimed for the fees funded under the arrangements are available under the general provisions of the law. Even if they could technically pass that hurdle... we believe the tax benefits sought would be

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precluded by the operation of the general anti-avoidance provision - Part IVA.''

270. That Pearce and Tieleman were concerned by what had been said by the Commissioner in his ``Magic Pudding speech'' is evident from the documents tendered at the trial.

271. So, for example, on 19 June 1998 Pearce sent to Wahby and Aistrope a fax in which he said that ``We'' (presumably himself and Tieleman) ``have been discussing with... Wharton the impact of the Commissioner's speech on tax effective investments generally and Servcom specifically''. He identified, as ``an area of potential concern for Servcom'', the ``question of the gearing provided to Servcom and the actual funds required by Servcom in order to provide the services to the Franchisees''. He said that Wharton had ``mentioned that imposition of a third party service provider between Servcom Australia P/ L and the service provider may add some comfort, if only cosmetically, whereby Servcom Australia P/L could pay its marketing company say 75% to 80% of the marketing fees charged, thereby demonstrating to investors that Servcom Australia P/L is expending a major portion of the fees it receives from the Franchisee in providing services to Franchisees''.

272. In a later fax, dated 26 June 1998, sent by Pearce to Wahby and Aistrope, Pearce said that ``we'' (again presumably himself and Tieleman) ``have been considering the use by Servcom Australia of subcontract service providers by which Servcom Aust can contract with those subcontractors to perform some of the services that it is required to perform under the Franchise Agreement''. He went on to say a little later in the fax:

``Whilst the sub-contractors may be nothing more than `cosmetic' given the parties will be related, it nevertheless is commercial for the Franchisor to `farm' out some of the duties whilst taking a profit margin from gaining the business and may therefore strengthen, albeit slightly, your position against the Commissioner arguing that only [ a] small fraction of the investment was used to perform the services.''

273. It is consequently plain that each of Wharton, Pearce and Tieleman was concerned that, if the private face of the scheme was to become known to the Tax Office, there was, at the very least, a realistic prospect of challenge to the claimed deductions. Notwithstanding this, none of them made known to the franchisees the true facts concerning the unavailability of the loan funds to the franchisor for the purpose of meeting its obligations under the franchise agreements.

The ``no case'' submissions

274. At the completion of the Crown case each of the appellants submitted that the Crown had failed to make out a case to answer. They advanced the contention that, in order to succeed, the prosecution had to establish that there had been an agreement between conspirators to cause taxpayers to make a false statement to the ATO; that claims by taxpayers for a deduction in respect of franchise service fees were not allowable deductions under the provisions of the Act; and, inter alia , that any particular false statement or representation to be made by taxpayers to the ATO pursuant to the conspiracy would cause the ATO to take some action which it would not otherwise have taken, or to fail to take some action which it would otherwise have taken, thereby imperilling the financial interests of the Commonwealth. They pointed to the fact that there had been no evidence adduced by the prosecution as regards any representations which were said to have been made by the taxpayer/franchisees to the ATO. Indeed, none of the taxpayer/franchisees who were called by the Crown to give evidence had been asked to tender a copy of the tax return lodged by him or her.

275. The trial Judge ruled in favour of the Crown in respect of the ``no case'' submissions. Evidence was led on behalf of the defence and the parties then made their closing addresses.

Argument prior to the closing addresses

276. Prior to the commencement of closing addresses, a dispute arose between the parties as regards the manner in which the trial Judge should charge the jury. He had invited counsel to put submissions with respect to the issues which ought be addressed by him and these revealed a divergence between the manner in which the Crown proposed to put its case to the jury and that in which the defence considered that it should do so.

277. Mr Martin QC, on behalf of Tieleman, repeated some of what had been said by him in the course of his ``no case'' submission and urged upon the trial Judge ``the need to identify

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with particularity the dishonest means''. He said that these, as opened and particularised, were the ``procuring of taxpayers to make false representations'' to the ATO. Mr Maidment SC thereupon said that Mr Martin had, on a number of occasions, ``endeavoured to put a case different from that which... [ the prosecution had] put''. He went on to say (transcript page 2633):

``My case is not that the Crown is putting its case on the basis that the agreement was to procure taxpayers to make claims that were not allowable and known to be not allowable. The Crown case is that the agreement was to use a false scenario, a false factual scenario, to procure taxpayers to make claims on the Tax Office based on that false scenario and to defend those claims to the extent that the need arose, based on that same factual scenario.

Now, that's the dishonest means that the Crown relies upon and the intent to defraud is the intent that accompanied that to prejudice the ability of the Tax Office properly to protect the revenue. That's in the simplest form. It goes beyond that of course because it's also to actually acquire money from the Tax Office, but at its most basic level and as simply as I can put it that in my respectful submission encapsulates the case I've put in opening and repeated again in response to my learned friend's submissions.''

278. He went on to say, a little later (transcript page 2636):

`` [ H]ere we have a situation, at least on the Crown case, where it is said that the accused have employed means that are dishonest, that is the presentation of a false factual scenario, for the purpose of procuring the franchisees to make deductions or make claims for deductions, based on the false factual scenario. If they have done that, or if they have used those means with the intention of either obtaining the money from the Tax Office or imperilling the Tax Office position by the presentation of those false facts, then in our submission an attempt [ sic , intent] to defraud is satisfied.''

279. Mr Martin complained to the trial Judge that this represented a fundamental shift in the Crown case. He said, in that respect (transcript 2646):

`` [ T]here is a vital distinction between a case put to the effect that taxpayers were making a claim based on false facts, which false facts were not the subject of representations to the Tax Office, and a claim based upon the proposition that there was an agreement to cause false representations to be made to the Tax Office.

I had until this morning always thought that we were dealing with a case in the second category, because that's what the particulars say and that's what my learned friend said in opening, but this morning he puts to your Honour that the case is in the first category; that is to say, he can make the case good simply by saying that taxpayers were induced to make a claim based upon false facts without establishing that those false facts were the subject of representations or to be the subject of representations to the Tax Office.''

280. The trial Judge rejected Mr Martin's contentions. He ruled that there was no material difference as between the manner in which the Crown had opened its case and that in which it proposed to make its closing submissions.

The trial Judge's charge to the jury

281. The trial Judge's charge to the jury was consistent with that ruling. He said (transcript pages 3143-3144):

``The Crown says that the three accused joined in a criminal agreement with intent to prejudice the interests of the Commonwealth by means that were dishonest. The particular interests of the Commonwealth that were to be prejudiced were the protection of the national revenue. The dishonest means to be employed with intent to cause that prejudice was the use of statements that the Crown says were known to be untrue. Those knowingly untrue statements were directed in the first instance to the taxpayers targeted under the scheme and then through those taxpayers to the Australian Tax Office... The untrue facts that there constituted the dishonest means were designed to do a number of things: firstly, to persuade the taxpayers to sign up to the scheme. Secondly, to induce those taxpayers to make claims on the ATO for deductions at the rate of $38,000 per unit purchased. Thirdly, they were designed to pass on to the promoters,

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or to induce the taxpayers to pass onto the promoters, $10,193 of the refunds received. In the event that the ATO sought to investigate the basis of the claimed deductions the untrue facts were designed to induce those same taxpayers to use those untrue facts to deceive the ATO as to the true factual basis for the deductions claimed.

The prejudice that was intended by the dishonest means involved prejudicially affecting the ATO's ability to protect the property of the Commonwealth and it was designed to prejudicially affect that ability by causing claims to be made by taxpayers for deductions that were based on the false or untrue facts.''

282. Also, after referring to s 8-1 of the Income Tax Assessment Act 1997 (Cth) (the ``1997 Act'') (which deals with general deductions), and Pt IVA of the Act thereof, the trial Judge said to the jury (transcript pages 3150-3151):

``As I will explain to you later, when I deal shortly with Part IVA, the purpose of taking you to section 8-1 and the purpose of taking you to Part IVA, is not so that you can absolutely conclude whether or not this deduction would have been allowable or not, or would have been, as you will see, subject to the anti-avoidance provisions, but whether there were false facts and by reason of those false facts the Commissioner was deprived of a real opportunity to examine the arrangements in light of section 8-1 and section 177, as I will come to. Really this aspect has to do with the question of whether there was a risk to the economic interests or the prejudice of the Commonwealth, not whether there was actual prejudice but a real risk of prejudice.''

283. Still later in his charge (transcript page 3154) the trial Judge put to the jury the question whether the accused knew in fact that the provisions to which he referred might apply ``if the dominant purpose of one of the people going into it, perhaps Mr Aistrope or Mr Wahby, was to gain a tax benefit for a taxpayer''. He went on to say:

``Of course the fact that a scheme may gain a tax benefit is itself not unusual; nor is it unlawful - far from being a conspiracy. As Mr O'Connor told you, there are many grey areas and ultimately it's not until a court might decide a matter that anybody will know definitively. Indeed..., even that may not be known definitively until the last court decides the matter; but it is not necessary for you to decide definitively on this arrangement under section 177 or under section 8-1.

It is necessary, however, for the Crown to satisfy you beyond reasonable doubt that in all the circumstances the operation of one or other of those sections may reasonably have been attracted if the Commissioner had been given true facts and the false representations had not been made, so it's not necessary for you to find definitively that it was or was not a scheme under the section but whether there was a real risk that the economic interests of the Commonwealth were prejudiced by false statements designed to obscure aspects under section 177 or section 8-1.''

284. He also said (transcript page 3155):

``The Crown says really that it matters not in the end whether it was because of a round robin or a securitised deposit. It was the false representation which the accused all were party to to suggest that the $29,500 loan was in fact to be a genuine loan which was all important. These facts were withheld from Mr O'Connor, the Crown says, and the sales personnel, the franchisees and through them the Commissioner of Taxation, thereby imperilling the interests of the Commonwealth. As I conclude, it is sufficient if you are satisfied that there is a real risk that the economic interests of the Commonwealth would be imperilled because through the provision of false facts generated by the conspiracy the Commissioner may have failed to act under section 177F or section 8-1.''

285. When his Honour addressed the jury on the terms of s 177 of the Act (and the interpretation provisions of s 177A thereof), he mentioned (transcript page 3152) the provisions of s 177A(5) (to the effect that a reference to a scheme being entered into or carried out for a particular purpose is to be read as including a reference to the scheme being entered into or carried out by the person for two or more purposes of which that particular purpose is the dominant purpose). He said in that regard that, when the jury read about a tax scheme with a

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purpose, it was the dominant purpose which was important.

Grounds of appeal against conviction

286. That brings me to the grounds of appeal against conviction. Each of Pearce and Tieleman has raised 17 identical grounds. These read as follows:

``FIRST GROUND

1. The trial Judge erred in directing the jury that it was open to them to find beyond a reasonable doubt that the Appellant was guilty having regard to the whole of the evidence when he should have directed the jury that the evidence of the Crown, taken at its highest, was incapable of establishing the guilt of the Appellant beyond a reasonable doubt.

Particulars

A There was no evidence capable of establishing beyond a reasonable doubt:

(a) An agreement between the Appellant and any other alleged conspirator to cause any taxpayer to make any false statement to the Australian Taxation Office (`the ATO');

(b) That claims by taxpayers for a deduction in respect of franchise service fees were not allowable deductions under the provisions of the Income Tax Assessment Act 1936 and 1997 (CTH) (`the ITAA');

(c) That the Appellant and another alleged conspirator with whom he had agreed each knew that claims by taxpayers for the deduction of franchise service fees were not allowable deductions pursuant to the provisions of the ITAA;

(d) That the Appellant and another alleged conspirator each knew and intended and agreed that taxpayers would make any particular representation or statement to the ATO other than the claim for the deduction of franchise service fees;

(e) That the Appellant and another alleged conspirator each knew and intended and agreed that any particular statement or representation to be made by taxpayers to the ATO would be false when made;

(f) That any particular false statement or representation to be made by taxpayers to the ATO pursuant to an agreement between the Appellant and another alleged conspirator would cause the ATO to take some action which it would not otherwise have taken, or to fail to take some action which it would otherwise have taken, which act or omission would imperil the financial interests of the Commonwealth of Australia;

(g) That the Appellant and another alleged conspirator with whom he had agreed each knew and intended that any particular false statement or representation to be made by taxpayers to the ATO pursuant to their agreement would cause the ATO to take some action which it would not otherwise have taken, or fail to take some action which it would otherwise have taken, which act or omission would imperil the financial interests of the Commonwealth of Australia.

B The Crown case, put at its highest, was only capable of establishing beyond a reasonable doubt a failure to disclose to taxpayers and to the ATO the full terms of the arrangement between the lender and the franchisor for the disbursement of the funds to be loaned to franchisees to enable them to discharge their obligations to the franchisor, which failure was incapable, at law, of establishing the offence charged, having regard to, inter alia ,

(a) the fact that the Crown case was particularised and opened on the basis of an agreement to cause false statements or representations to be made by taxpayers, not of an agreement to cause taxpayers to omit to make disclosures;

(b) the fact that a charge brought on the basis of an agreement to cause taxpayers to fail to make disclosure would not, even if it had been brought, disclose an offence known to the law, given the lack of any obligation to make disclosure (other than disclosure of assessable income) under the ITAA;

(c) the fact that the terms of the arrangement between the lender and the franchisor for the disbursement of the funds to be loaned to franchisees to

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enable them to discharge their obligations to the franchisor were irrelevant to the deductibility of the franchise service fees under the ITAA;

(d) the failure of the Crown to adduce any evidence capable of establishing beyond a reasonable doubt that the Appellant and another alleged conspirator with whom he agreed knew that terms of the arrangement between the lender and the franchisor for the disbursement of the funds to be loaned to franchisees to enable them to discharge their obligations to the franchisor were relevant to the deductibility of the franchise service fees under the ITAA.

SECOND GROUND

2 The trial judge failed to direct the jury either adequately or at all that in order to convict the Appellant they must be satisfied beyond a reasonable doubt that there was an agreement between the Appellant and another alleged conspirator to cause taxpayers to make a false statement or representation to the ATO, and, in particular, failed to direct them that they must find beyond a reasonable doubt what that statement or representation was, or as to the evidence (or more particularly the complete lack of any evidence) as to the statement or representation that was to be made pursuant to the alleged agreement, or as to the evidence (or more particularly the complete lack of any evidence) as the statements or representations that were in fact made by taxpayers to the ATO (the Crown case having been opened and put on the basis that the alleged conspiracy was carried forward into effect).

THIRD GROUND

3 The trial judge erred in failing to direct the jury that in order to convict the Appellant they must be satisfied beyond a reasonable doubt that claims by taxpayers for the deduction of franchise service fees were not allowable deductions under the provisions of the ITAA, but instead erroneously directed the jury that it was not necessary that they make such a finding but rather that it was sufficient if they were satisfied that there was a risk that the financial interests of the Commonwealth were imperilled pursuant to the alleged agreement, when if the deductions were in fact and law allowable under the ITAA (and they either were or they weren't), there could not have been any such risk, and therefore no unlawful conspiracy to defraud the Commonwealth.

FOURTH GROUND

4 The trial judge erred in failing to direct the jury that on the evidence adduced they should conclude that the claims for the deduction of franchise service fees were allowable deductions pursuant to s 8-1 of the ITAA (1997).

FIFTH GROUND

5 The trial judge erred in failing to direct the jury that in assessing the dominant purpose to be ascribed to a particular participant in a scheme coming within s 177D of the ITAA having regard to the matters specified therein, they should have regard to and evaluate the other possible purposes of any such participant in order to objectively assess which was the dominant purpose.

SIXTH GROUND

6 The trial judge erred in failing to direct the jury as to the proper meaning and application of s 177D of the ITAA to the facts they might find established by the evidence, and in particular failed to direct the jury adequately or at all as to the meaning and application of the provisions of that section concerning the difference between the form and substance of the scheme, and in that context failed to direct them that there was no evidence from which they could be satisfied that any of the agreements in evidence before them were a sham (in the legal sense of not having been intended by the parties to create the rights and obligations specified therein) and in so doing failed to correct the Crown opening in which it was asserted that the loan agreement between lender and franchisee was a sham, and that it was unenforceable at law, when there was no evidence capable of sustaining either conclusion.

SEVENTH GROUND

7 The Trial judge erred in failing to direct the jury that in order to convict the jury would have to be satisfied beyond reasonable doubt that the Federal Commissioner of Taxation would have

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exercised the powers conferred on him by s 177F of ITAA 1936, and failed to direct the jury as to the evidence, or more particularly the complete lack of evidence relating to that issue.

EIGHTH GROUND

8 The trial judge erred in failing to direct the jury that in order to convict they must be satisfied beyond a reasonable doubt that the Appellant and another alleged conspirator with whom he had agreed each knew that claims by taxpayers for the deduction of franchise fees were not allowable deductions pursuant to the provisions of the ITAA, and failed to provide any or any adequate direction as to the evidence relating to that issue (or more particularly the lack of any evidence capable of supporting such a finding and the overwhelming evidence to the contrary).

NINTH GROUND

9 The trial judge erred in failing to direct the jury that in order to convict they must be satisfied beyond a reasonable doubt that the Appellant and another alleged conspirator with whom he had agreed, each knew and intended and agreed that the statement or representation which they had found were to be made by taxpayers to the ATO would be false when made, and failed to give any or any adequate direction as to the evidence (or more particularly the complete lack of any evidence) on that issue.

TENTH GROUND

10 The trial judge erred in failing to direct the jury that in order to convict they must be satisfied beyond a reasonable doubt that the false statement or representation that they were satisfied was to be made by taxpayers to the ATO pursuant to an agreement between the Appellant and another alleged conspirator would cause the ATO to take some action which it would not otherwise have taken, or fail to take some action which it would otherwise have taken, and that such act or omission would imperil the financial interests of the Commonwealth of Australia, and failed to give any direction as to the evidence (or more particularly the complete lack of any evidence) on that issue.

ELEVENTH GROUND

11 The trial judge erred in failing to direct the jury that in order to convict they must be satisfied beyond a reasonable doubt that the Appellant and another alleged conspirator with whom he had agreed each knew and intended that that false statement or representation which the jury had found was to be made by taxpayers to the ATO pursuant to their agreement would cause the ATO to take some action which it would not otherwise have taken, or to fail to take some action it would otherwise have taken, which act or omission would imperil the financial interests of the Commonwealth of Australia, and failed to give any direction as to the evidence on that issue (or more particularly the complete lack of any evidence capable of sustaining such a finding, and the overwhelming evidence to the contrary).

TWELFTH GROUND

12 The verdict of the jury should be quashed on the ground that it is unsafe and unsatisfactory, because of the lack of evidence capable of establishing beyond a reasonable doubt each or any of the issues referred to in Grounds 1, 2, 3, 7-11 above, each of which had to be established before the jury could properly convict the Appellant.

THIRTEENTH GROUND

13 The trial judge erred in directing the jury that it was entitled to consider the evidence of the franchisees to see whether it established a conspiracy to defraud the Commonwealth by arming taxpayers with false information under the guise of a legal scheme, and to use this evidence in evaluating the matters in s 177 of the anti- avoidance provisions, and s 8 as to whether the Commissioner was defrauded, when such evidence was not logically relevant to any of those issues, and further erred in failing to direct the jury with respect to the failure of any franchisee to give any evidence with respect to any representation or statement that either was or was to be made by any such franchisee to the ATO.

FOURTEENTH GROUND

14 The trial judge erred in directing the jury to disregard the Crown's failure to ask its witness Mr O'Connor QC whether the detail about the loan arrangements would have

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been material to his opinion because Mr O'Connor QC's views on that subject were irrelevant, when such views were obviously relevant to the Crown case, which was to the effect that Mr O'Connor QC had in fact been misled in a material respect which was never identified.

FIFTEENTH GROUND

15 The trial judge erred in law in failing to direct the jury that the Crown, having chosen not to lead evidence from its witnesses, may not thereafter affirmatively put the propositions to the jury as being reasonable inferences open to them.

Particulars

A The trial judge failed to direct the jury that it should be cautious before concluding that Mr O'Connor QC had been misled as to any material aspect of the instructions he received concerning his opinion, as Mr O'Connor QC was never asked that question by the Crown, and never gave evidence in that regard.

B In the absence of any evidence from Mr O'Connor QC that he had been misled in respect of any relevant matter, the learned trial judge erred in permitting the jury to draw any adverse inference or to form any opinion adverse to the Appellant in coming to its verdict, in that there was no evidence that the Appellant withheld any relevant matters known to him in providing or settling instructions to Mr O'Connor QC.

C The trial judge failed to direct the jury that they should be cautious before concluding there was any agreement between the Appellant with either Wahby or Aistrope either to commit an unlawful act, to conceal anything from the ATO or to prepare a tax effective investment scheme which did not comply with all the legal requirements applicable to such schemes, where the Crown never put those propositions to those Crown witnesses.

...

SEVENTEENTH GROUND

17 By opening its case on the basis of conspiracy to defraud the Commonwealth by causing taxpayers to make false statements to the ATO in support of their claim for deductions and by closing its case on a different basis, namely on the basis of a conspiracy to defraud by concealing material facts from the taxpayers, the Crown thereby changed and/or split its case, giving rise to a substantial miscarriage of justice.

EIGHTEENTH GROUND

18 As a result of an aggregation of errors that occurred during the trial, the Appellant did not have a fair trial in accordance with law, giving rise to a substantial miscarriage of justice.''

287. Wharton's grounds of appeal are identical to those of Pearce and Tieleman, save that grounds 17 and 18 raised by the latter are numbered 16 and 17 in Wharton's notice of appeal.

Conspiracy to defraud

288. Before dealing with the grounds of appeal it is convenient, first, to make some brief references to the elements of the offence of conspiracy to defraud.

289. The offence ordinarily involves an agreement between two or more people to use dishonest means having the effect of inflicting economic loss on a third party:
Peters v The Queen (1998) 192 CLR 493 at 525 [ 73] , per McHugh J. However, the infliction of economic loss is not an essential element of the offence. It is enough that the conspirators intended to obtain an advantage for themselves by putting another's property at risk or by depriving another of a lawful opportunity to obtain or protect property: Peters ( ibid ) and
Wills v Petroulias (2003) 58 NSWLR 598 at 611 [ 54] , per Spigelman CJ. It is sufficient, for the offence, that the accused be aware that there was a risk of economic loss:
Welham v Director of Public Prosecutions [ 1961] AC 103 at 131 ; Peters at 507 [ 25], per Toohey and Gaudron JJ. Moreover, as Toohey and Gaudron JJ said, in Peters at 507 [ 25] and [ 26]:

``And even where the victim is a private person, there may be cases of fraud which do not involve an intention to put another person's economic interests at risk in any ordinary sense of that term. To take an example given by King CJ in
R v Kastratovic (1985) 42 SASR 59 at 65 , someone who believes that a person is indebted to him and that a defence which that person is genuinely asserting is without merit, nevertheless has an intention to defraud if he intends by dishonest means to

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deprive that other person of the opportunity of having the matter adjudicated.

Another matter which should be noted is that it is misleading to speak in terms of the purpose of a conspiracy to defraud, particularly as the purpose of the conspirators may be quite different from the fraud perpetrated. The purpose of conspirators is usually to obtain some financial advantage; the fraud, on the other hand, is in depriving others of their property or of the opportunity to protect their interests.''

290. Proof of dishonest means for the purposes of a conspiracy to defraud ordinarily involves proof by the Crown:

``that the defendants intended to prejudice another person's right or interest or performance of public duty by:

• making or taking advantage of representations or promises which they knew were false or would not be carried out;

• concealing facts which they had a duty to disclose; or

• engaging in conduct which they had no right to engage in.''

291. Peters at 529 [ 84], per McHugh J and
Spies v The Queen (2000) 201 CLR 603 at 630-631 [ 79]- [ 80] .

Ground 1

292. Ground 1, as particularised in particulars A(a) to (e) and as argued before us, assumes that, in order to establish the guilt of the appellants, the Crown was required to prove an agreement between the alleged conspirators knowingly to cause one or more taxpayers to make a false statement to the ATO and thereby to obtain a deduction or deductions in respect of franchise service fees which would not otherwise have been allowable. On this assumption, the element of ``dishonest means'' in this case necessarily consisted of the causing of the taxpayers to make false statements to the ATO. As will be apparent from what has been said under the previous heading (and particularly the reference to what was said by McHugh J in Peters at 529 [ 84]), ``dishonest means'' do not necessarily consist of false representations. It is enough that the conspirators engage in conduct ``which they had no right to engage in''. In Peters , at page 529 [ 84], McHugh J said that, in that class of case:

`` [ I]t will often be sufficient for the Crown to prove that the defendants used dishonest means merely by the Crown showing that the defendants intended to engage in a particular form of wrongful conduct.''

293. The appellants take no real issue with these principles in their submissions. However, they contend that in this case the particulars to the indictment, and the Crown opening, made it plain that the dishonest means contended for were the causing of taxpayers to make false statements to the ATO. They say that the Crown is constrained by its particulars (as to which, see
Johnson v Miller (1937) 59 CLR 467 at 497 , per Evatt J, and
Interstruct Pty Ltd v Wakelam (1990) 3 WAR 100 at 118 , per Pidgeon J), or, at the very least, by its opening. They go on to contend, in effect, that no false statements of the kind particularised or opened upon were shown to have been made, the modern process of self-assessment by taxpayers requiring no more than the making of a claim for a deduction from assessable income which is either allowed or disallowed by the Commissioner. They say that the taxpayers owed no other duty of disclosure, in that process, than that of disclosing their assessable income in their returns. If a deduction which was made from that assessable income was allowed by the ATO, nothing followed. If it was disallowed, the taxpayer was required to prove that it was properly made.

294. In my opinion, neither the particulars to the indictment nor the Crown opening were restricted in the manner contended for by the appellants and the trial Judge was right to direct the jury that it was open to them to convict the appellants.

295. It sufficiently emerged from the particulars, and the Crown opening, that the dishonest means relied upon by the Crown consisted of the use of knowingly untrue statements to taxpayers, being the proposed franchisees, which were intended to persuade them:

(a) to take up franchises; and
(b) believing that, in each case, the payment of $38,000 in the form of initial fees (partly funded by the $29,500 loan) would flow to the franchisor by 30 June 1998 in order to enable it to provide the services contracted

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for to the franchisee (and hence to enable the franchisee to carry on the franchise business), to claim a deduction accordingly from the ATO.

296. As will be apparent from what I have earlier said, the promotional material provided to the franchisees was calculated to lead them to believe that the full amount charged ($39,500) would actually be received by the franchisor and that $38,000 thereof would be used by it to provide the services contracted for by it within the first 13 months after the expenditure had been incurred. Moreover, these untrue statements were intended to encourage, and enable, each franchisee to claim the whole of the sum of $38,000 as deductible expenditure against assessable income derived in the 1998 financial year. However, as was proved at the trial, each of the appellants well knew that only about $10,393.75 would be available to the franchisor during the first 13 months. Each of them knew that the loan agreements, while not technically ``shams'', would not result in any genuine transfer of funds and were designed solely to facilitate claims for tax deductions which would be artificially inflated to a point at which each franchisee could fund the entire investment from a refund obtained from the ATO. It is plain that the appellants intended that, if the ATO should challenge the deduction, the franchisees would use the false information provided by the appellants in order to defend the claims, in the belief that that information was genuine.

297. There can consequently be no doubt that, in failing to disclose the true circumstances to the taxpayers, and by providing them with information designed to mislead them (in circumstances in which they might well otherwise have declined to acquire a franchise and take up the loan), and hence to mislead the ATO, if that should become necessary, the conspirators acted dishonestly.

298. As I read the particulars of indictment, it was sufficiently spelled out that this was how the Crown proposed to make good its case. It will be remembered that, in these particulars, the Crown said that the conspirators had agreed that the taxpayers ``were to be given only such false or misleading information about the scheme (by positive assertion and/or by concealment of material facts) as would cause... [ them] to deceive the ATO into accepting the... false claims as properly founded and allowable claims for expenditure actually incurred by the taxpayer in the 1998 financial year in the discharge of genuine obligations under a business franchise agreement...''. The particulars also allege that, to that end, the parties agreed:

``to provide the taxpayer franchisee so procured with false or misleading information designed at once:

• to sell the scheme (by convincing them and their advisers that the scheme was lawful and effective), and

• to equip and induce the... franchisees to maintain the... deception in the face of scrutiny from the ATO.''

299. It is in this context that the allegation, also contained in the particulars, that the taxpayers were to be ``procured to make... false representations'' to the ATO should be read.

300. In my opinion, the position was also made plain enough by the Crown in the course of the opening address by Mr Maidment SC. As will be apparent from what I have already said, he told the jury, in simple terms, that (transcript page 401):

``The dishonest means to be employed with intent to cause... prejudice [ to the interests of the Commonwealth] was the use of statements that the Crown says were known to be untrue. Those knowingly untrue statements, the Crown says, were directed in the first instance to the taxpayers targeted under the scheme and then through those taxpayers to the Australian Taxation Office...''

301. As will be apparent from what I have earlier said, Mr Maidment explained to the jury, in some detail, how those dishonest means were employed and what was their consequence.

302. While counsel for the appellants sought to extract from Mr Maidment's opening address a number of comments which, they contended, were consistent with a case to the effect that the dishonest means relied upon by the Crown was the procuring of false representations to the ATO, that, in my opinion, misunderstands those comments in the context of the address, and the particulars, read as a whole. The principal thrust of the case advanced by the Crown, as I read the particulars and the opening, was essentially that to which I have referred and the trial Judge correctly understood it to be so. Moreover, the evidence advanced by the Crown in support of

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its case, and the manner in which it cross- examined those who gave evidence on behalf of the appellants, was entirely consistent with this approach. Indeed, particular B to ground 1 of the grounds of appeal expressly acknowledges that the Crown case was ``capable of establishing beyond a reasonable doubt a failure to disclose to taxpayers and to the ATO the full terms of the arrangement between the lender and the franchisor for the disbursement of the funds to be loaned to franchisees to enable them to discharge their obligations to the franchisor''.

303. It necessarily follows that particulars A(a) to (e) of ground 1, and consequently particular B(a), have not been made out.

304. As to particulars A(f) and (g) and B(b) to (d), the Crown case in this respect was essentially to the effect that the conspiracy was intended to (and, as matters turned out, did) deprive the Commonwealth of the opportunity to protect its interests.

305. As will be apparent from what has earlier been said, each of the appellants must have known that the true facts concerning the very limited amount of money intended to be made available to the franchisor was material to the ATO's consideration of the question whether the claimed deductions of $38,000 per franchise should be allowed or cancelled, whether under the anti-avoidance provisions of Pt IVA of the Act or otherwise. It must have been obvious to the appellants (even if they had not been aware of the contents of the Commissioner's ``Magic Pudding speech'') that this might be thought to affect the very viability, and hence genuineness, of the scheme (and consequently the questions whether the investors were, in truth, carrying on a business for the purpose of producing assessable income: s 8-1 of the 1997 Act; and whether or not the persons who entered into or carried out the scheme did so for the dominant purpose of enabling the taxpayer franchisees to obtain tax benefits in connection with the scheme: s 177D of the Act, set out later in these reasons, read with s 177F thereof), more particularly in circumstances in which such costs as agents' commissions and fees and commissions payable to the appellants were to be deducted from the limited funds available.

306. It was also quite plainly the case, in my opinion, that the misleading of the franchisees was intended to have the result that they would, albeit innocently, in turn claim from the ATO deductions which, if the true facts became known (whether as a result of an audit by the ATO or otherwise) would, as I have said, very likely be challenged, and this regardless of whether or not the taxpayers had, themselves, made any false representations.

307. The Crown case was not confined to reliance upon a false representation as to the allowability of the claimed deductions and nor was it reliant upon proof that the claimed deductions were not, in fact, allowable under s 8-1 of the 1997 Act. The Crown case was not even reliant upon proof that the claims would, if the true facts were known, be disallowed under the anti-avoidance provisions of Pt IVA of the Act. It was enough, for the purposes of the Crown case, that the claims might have been disallowed under that Part: Wills v Petroulias , above, at 613 [ 63], 614 [ 72]- [ 73], per Spigelman CJ, with whom Handley and Santow JJA were in agreement.

308. It is true, as counsel for the appellants pointed out, that no evidence was led to establish that the ATO was in fact deceived or that, if it knew all of the true facts, it would have disallowed the deductions or would otherwise have challenged the scheme. Also, contentions were advanced before us to the effect, inter alia , that, in assessing allowability, it does not matter whether, or how, the taxpayer has financed the outgoing, as long as it has been incurred:
FC of T v Lau 84 ATC 4929 ; (1984) 6 FCR 202 and
FC of T v Emmakell Pty Ltd 90 ATC 4319 at 4324; (1990) 22 FCR 157 at 162 (where it was held that an outgoing did not cease to be deductible if the lease in respect of which it was made was found to be invalid); that the economics or legal efficacy of the payment is irrelevant:
Fletcher & Ors v FC of T 91 ATC 4950 at 4957 and 4958; (1991) 173 CLR 1 at 17 and 19 (a case decided in relation to the predecessor to s 8-1 of the 1997 Act, being s 51 of the 1936 Act, Emmakell Pty Ltd , above, at ATC 4324; FCR 162 and
Ronpibon Tin NL & Tongkan Compound NL v FC of T (1949) 8 ATD 431 at 437-438; (1949) 78 CLR 47 at 60 ; that the character of expenditure is ordinarily determined by reference to the nature of the asset acquired or the liability discharged by the making of the expenditure:
GP International Pipecoaters Pty Ltd v FC of T 90 ATC 4413 at 4419; (1990) 170 CLR 124 at 137 ; and that, once it is concluded that the

ATC 4375

moneys were outlaid for a real or genuine commercial purpose, any inquiry regarding the manner in which the funds were subsequently applied by their recipients is immaterial for the purposes of s 8-1 (or its predecessor, s 51 of the 1936 Act): Lau , above, at ATC 4941-4942; FCR 217-218, per Beaumont J.

309. However, none of this detracts from the proposition that the claims might have been disallowed, or cancelled, under the provisions of Pt IVA of the Act, given, as I have said, that the existence of very limited funds available to the franchisor for the purpose of meeting its obligations to franchisees under the franchise agreements might have been thought to affect the viability (and genuineness) of the whole franchise scheme and hence to bear upon the questions whether the investors were, in reality, carrying on a business for the purpose of producing assessable income and whether or not the persons who entered into or carried out the scheme did so for the dominant purpose of enabling the taxpayer franchisees to obtain tax benefits in connection with the scheme. Moreover, as was submitted by counsel for the respondent, the Crown set out to prove its case upon the basis of inference, properly to be drawn from the whole of the evidence, that each of the elements of the crime charged, including this particular element, was made out beyond reasonable doubt. In my opinion, the circumstances to which I have referred were more than sufficient to enable the jury to infer that, had the true facts been available to the Commissioner, he would have challenged the genuineness of the scheme, and hence the allowability of the deductions.

310. It follows that these particulars, too, have not been made out. Ground 1 consequently fails.

Grounds 2 and 9

311. These grounds, as developed on behalf of the appellants, assume that, in order to convict each appellant, the jury was required to be satisfied that there was an agreement between each appellant and another alleged conspirator to cause taxpayers, when lodging their returns, to make a specific and identifiable false statement or representation to the ATO and that the trial Judge should have directed the jury that there was no evidence that any such statement or representation was, or was intended by any of the appellants to be, made by the taxpayers concerned. For the reasons which I have given in the course of dealing with ground 1, the appellants' contentions misconceive the Crown case as particularised and opened against them. There was no relevant misdirection by the trial Judge. Grounds 2 and 9 have consequently not been made out.

Grounds 3, 4 and 8

312. These grounds assume that, before the appellants could be convicted, the jury was required to be satisfied that claims by taxpayers for the deduction of franchise service fees were not allowable under the provisions of the Act. I have already dealt with that contention in the course of dealing with ground 1. It follows from what I have there said that these grounds, too, fail.

Ground 5

313. Section 177D of the Act reads, so far as it is relevant, as follows:

``This Part applies to any scheme... where:

(a) a taxpayer (in this section referred to as the `relevant taxpayer' ) has obtained, or would but for section 177F [ which makes provision for the disallowance or cancellation of benefits] obtain, a tax benefit in connection with the scheme; and

(b) having regard to:

(i) the manner in which the scheme was entered into or carried out;

(ii) the form and substance of the scheme;

(iii) the time at which the scheme was entered into and the length of the period during which the scheme was carried out;

(iv) the result in relation to the operation of this Act that, but for this Part, would be achieved by the scheme;

(v) any change in the financial position of the relevant taxpayer that has resulted, will result, or may reasonably be expected to result, from the scheme;

(vi) any change in the financial position of any person who has, or has had, any connection (whether of a business, family or other nature) with the relevant taxpayer, being a change that has resulted, will result or may

ATC 4376
reasonably be expected to result, from the scheme;

(vii) any other consequence for the relevant taxpayer, or for any person referred to in subparagraph (vi), of the scheme having been entered into or carried out; and

(viii) the nature of any connection (whether of a business, family or other nature) between the relevant taxpayer and any person referred to in subparagraph (vi);

it would be concluded that the person, or one of the persons, who entered into or carried out the scheme or any part of the scheme did so for the purpose of enabling the relevant taxpayer to obtain a tax benefit in connection with the scheme or of enabling the relevant taxpayer and another taxpayer or other taxpayers each to obtain a tax benefit in connection with the scheme (whether or not that person who entered into or carried out the scheme or any part of the scheme is the relevant taxpayer or is the other taxpayer or one of the other taxpayers).''

314. The trial Judge, after referring in general terms to the provisions of this section, said of it that it was a wide provision which (transcript page 3153):

``basically says that a taxpayer who would have obtained a deduction but having regard to the eight facts [ sic ] it is concluded that the person entered into it for a dominant purpose of obtaining a tax benefit for other persons, as you see in that section - that one of the persons entered into it to enable a relevant taxpayer to obtain a benefit - then you go to section 177F which allows the Commissioner in an appropriate case to determine that the deduction shall not be allowable.''

315. By ground 5, the appellants contend that, in considering the potential application of this section, it was necessary for the jury to evaluate the relative significance of the various purposes, objectively assessed, of a particular participant in the scheme in order to enable them to assess which was the dominant purpose. However, they contend that at no point did the trial Judge direct the jury to evaluate the relative significance of the competing purposes (as to which see
FC of T v Spotless Services Limited & Anor 96 ATC 5201 at 5206; (1996) 186 CLR 404 at 416 ). The appellants also contend that he failed to give to the jury any assistance as to the meaning of the word ``dominant'' in this context.

316. In my opinion, no directions of the kind contended for were necessary in the circumstances of this case. As I have explained, the Crown case was not that s 177D, read together with s 177F(1), would have seen the claimed deductions disallowed. Rather, it was merely that the conspirators had intended to obtain an advantage for themselves by putting the Commonwealth's property at risk or by depriving it of the opportunity to protect its property. In those circumstances, it was unnecessary for the trial Judge to do more than to refer, in general terms, to those provisions of Pt IVA which were of potential application. That is what he did. Ground 5 consequently fails.

Ground 6

317. By this ground the appellants complain, once again, of the absence of any directions to the jury as to the proper meaning and application of s 177D, but, this time, with particular emphasis on what is said to have been the trial Judge's failure to direct the jury as regards the difference between form and substance. They contend that he should have given such a direction and that, in the course of doing so, he should have corrected the Crown opening which asserted that the loan agreement was ``bogus'' or ``a sham''.

318. It will be plain from what I have already said that the loan agreement was not said by the Crown to have been a ``sham'' in the technical sense of that word. Rather, the Crown made it quite plain that its description of the loan agreement as ``bogus'' or ``a sham'' (or, as it was also referred to, as a ``fiction'') was addressed only to the fact that the loan funds were not, in truth, to be available for use by the franchisor. In these circumstances, no direction of the kind contended for was necessary. Nor, for the reasons already given, was any other direction (than that given by the trial Judge) necessary as regards the meaning and application of s 177D.

Grounds 7, 10 and 11

319. Ground 7 asserts that it was necessary, for a conviction, for the jury to have been satisfied beyond reasonable doubt that the

ATC 4377

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

Ground 12

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

Ground 13

321. The appellants say, under this ground, that, having summarised the evidence given by the various franchisees, the trial Judge directed the jury that that evidence could be used to establish a conspiracy to defraud ``by arming taxpayers with false information under the guise of a legal scheme''. This is said to have been a significant departure from the manner in which the Crown had particularised and presented its case, in that the Crown had contended that taxpayers were to be procured to make false representations to the ATO (although there is said to have been no evidence from the franchisees in this respect). I have already rejected the contention that there was any material change of direction by the Crown and I will not repeat what I have said above in that regard.

322. The appellants also contend, under this ground, that the trial Judge failed to direct the jury adequately as to the use to which this evidence (or perceived shortcomings in it) might be put when evaluating the potential application of the anti-avoidance provisions of the Act and also s 8-1 thereof. It follows from what I have already said that there was no need for him to have done so.

323. Ground 13 has consequently not been made out.

Grounds 14 and 15

324. By these grounds the appellants complain that, the Crown having called each of O'Connor, Aistrope and Wahby, it was obliged to put to them propositions concerning them upon which it proposed to rely in urging the jury to bring in a conviction. They contend that, because the Crown suggested that the misleading of O'Connor was an essential part of the conspiracy, it should have put to him or elicited from him that he had in fact been misled and that, if he had known the true facts, his opinion would have been different. They contend also that, although each of Aistrope and Wahby was said by the Crown to have been a party to the illegal conspiracy, evidence should have been, but was not, led from each of them that this was so. In these circumstances, the appellants contend, it was not open to the Crown to close on the basis that O'Connor had been misled, or that Aistrope and Wahby were parties to the illegal conspiracy, and the trial Judge should have prevented them from doing so or at least warned the jury that they should be cautious in accepting those propositions. Instead, they contend, he erred by charging the jury in a manner which assumed the propriety of what had been done.

325. So far as O'Connor is concerned, I am unable to see any basis upon which it would have been proper to ask him whether or not he considered that he had been misled or what, in his opinion, followed from the fact that he had been misled. The Crown did not rely upon any opinion evidence to be adduced from him. It was a question for the jury whether he had, or had not, been misled (in the sense that relevant information had not been provided to him) and to consider, if they concluded that he had been misled (as, in my opinion, they must inevitably have done), what was the significance of that as regards the question whether or not there had been an agreement to use dishonest means to imperil the economic interests of the Commonwealth.

326. In any event, there was no challenge to evidence which established that O'Connor was

ATC 4378

not told that the loan funds would not be available to the franchisor in the relevant period and the documents provided to him quite plainly suggested the contrary. O'Connor's characterisation of what had been done was irrelevant.

327. As to the role which had been played by Aistrope and Wahby, it is true that during the course of their evidence it was never put to either of them (notwithstanding that each had pleaded guilty to the conspiracy charge) that they had been parties to an unlawful agreement resulting in a conspiracy to defraud the Commonwealth. However, it was, in my opinion, open to the Crown to invite the jury to draw what it saw to be rational inferences from the whole of the evidence as regards the part played by them. The evidence of their respective roles and knowledge was largely unchallenged and the inference that each of them was a participant in the conspiracy, despite their denials of that fact in cross- examination (this, notwithstanding their pleas of guilty), was plainly open. The Crown was not precluded from inviting the jury to draw that inference simply because it had not put this proposition to each of the two men during their evidence-in-chief (a course which might have resulted in their revealing the fact of their pleas of guilty) or because it had not sought to have them treated as hostile for the purpose of challenging their denials, if this had been feasible (see, generally,
Harman v State of Western Australia [ 2004] WASCA 230 ).

328. In any event, the characterisation, by Aistrope and Wahby, of their respective roles was irrelevant. That was a question for the jury.

329. Grounds 14 and 15 consequently fail.

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

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

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

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

Conclusion - appeals against conviction

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

The appeals against sentence

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

Appeal by Pearce and Tieleman

334. Each of Pearce and Tieleman appealed upon the ground that the sentence imposed upon him was manifestly excessive, having regard to all of the facts of the case. In each case that ground was particularised as follows:

``A The trial Judge erred in imposing a sentence based on finding that it was implicit in the jury's verdict that the Appellant had been subjectively dishonest rather than objectively dishonest.

B The trial Judge erred in sentencing the Appellant on the basis of several factual errors.

C The trial Judge erred in sentencing the Appellant to a sentence of immediate imprisonment rather than a non-custodial disposition.''

335. As to the first of those particulars, the trial Judge, in the course of his sentencing remarks, said (of Pearce and Tieleman) the following (transcript page 3284-3285):

``While I accept that you yourselves were deceived by Wharton to a degree, consistently with the verdict of the jury you were aware that no loan funds were ever to flow to Servcom, certainly again at least in the 1998-1999 year. It has been strongly submitted on your behalf, Pearce... and... Tieleman, that it has not been proved that you were subjectively dishonest. The verdict, it is said, is explicable on the basis that you regarded your actions as lawful and honest. You intended to deceive no-one and your guilt is at the low edge of the scale. By the jury's verdict, your actions can be regarded as objectively dishonest but not deliberately so.

With all respect, this distinction must be emphatically rejected. I am to sentence you

ATC 4379
in accordance with the verdict of the jury. By that verdict the jury found that each of you entered into an unlawful agreement and that each of you had an intention to defraud. What has been proved beyond reasonable doubt is that each of you well knew that the so-called long term loan account of each taxpayer would not be available to its intended recipient Servcom at least during the 1998 to 1999 year. This was vital information deliberately concealed from everybody outside the conspiracy.''

336. I am not persuaded that his Honour made any error. A finding of subjective dishonesty was consistent with the verdict of the jury. It was open to the sentencing Judge to regard it as having been proved beyond reasonable doubt that each of Pearce and Tieleman well knew that the proceeds of each loan would not be available to the franchisor in the first year of the operation of the franchise and that the two men deliberately concealed this fact from the franchisees and, hence, from the ATO. The evidence pointed overwhelmingly in that direction.

337. I should add, in this respect, that the position of the appellants in this case is no different than that of the respondents in
R v Rosenthal, Su & Oades (1987) 28 A Crim R 375 . There, the respondents were convicted, following pleas of guilty, of conspiring to defraud the Commonwealth. They had been engaged in devising, marketing and promoting a tax evasion scheme. The Victorian Court of Criminal Appeal (Kaye, Gray and Nathan JJ) was satisfied that, by pleading guilty, each respondent admitted that he knew that the scheme was unlawful, or, at least, had no belief that it was lawful. Their Honours said, at 380, that it was consequently not open to the trial Judge to sentence the respondents upon any hypothesis other than the state of subjective dishonesty inherent in a plea of guilty to conspiracy to defraud.

338. As to particular B, the only factual error identified by counsel for Tieleman and Pearce was one which arose out of the fact that the trial Judge said that, while those two men might not have known the precise details as to how Wharton ``would arrange things'', they must have been aware that ``his provenance was shaky''.

339. It does seem as though there was no evidence to sustain that finding. Rather, the evidence disclosed no more than that Pearce and Tieleman did little to satisfy themselves of Mr Wharton's true financial situation. That said, it does not seem as if this finding featured in any significant way in the trial Judge's consideration of what should be an appropriate sentence. I have already said that the trial Judge accepted that the two men had been deceived by Wharton ``to a degree''. Also, immediately following the finding of which complaint is made, the trial Judge went on to say that Pearce and Tieleman had ``made not the slightest attempt to satisfy... [ themselves] that Wharton was a man of substance''.

340. In any event, as I shall explain below, it seems to me that the sentences imposed upon Tieleman and Pearce were entirely appropriate and, even if his Honour's discretion did miscarry as a consequence of this error, I do not consider that any different sentence should have been passed: s 689(3) of the Criminal Code (WA).

341. As to particular C, Tieleman and Pearce contend that the sentences imposed upon them were manifestly excessive having regard to the strong evidence of their previous good character, the catastrophic effect of conviction upon their business and future occupations and the acknowledged lack of any need for personal deterrence.

342. It is true that each of these considerations carries weight. However, each was accorded weight by the trial Judge. He said (transcript page 3287) that he fully accepted that both men had ``a reputation for honesty and decency'' and went on to say that ``in the hothouse of the taxation industry... [ the two men] lost... [ their] moral compass and direction causing... [ them] to play this part in this conspiracy''. He also referred to the fact that the conviction had caused great hardship to their families and that their economic futures were blighted. Finally, in this respect, he expressly (transcript page 3288) took account of the fact that no personal deterrence was necessary.

343. In any event, as I have foreshadowed, far from being manifestly excessive, the sentences imposed by the trial Judge seem to me to have been entirely appropriate, given the nature of the offences of which the two men were convicted (and taking into account the various matters which arose in mitigation). Offences such as this raise considerations of the

ATC 4380

kind mentioned in
Director of Public Prosecutions (Commonwealth) v Goldberg (2001) 184 ALR 387 at 394 [ 32] . There Vincent JA (with whom Winneke P and Batt JA were in agreement) referred, with apparent approval, to what had been said by the sentencing Judge in that case, as follows:

``Tax evasion is not a game, or a victimless crime. It is a form of corruption and is, therefore, insidious. In the face of brazen tax evasion, honest citizens begin to doubt their own values and are tempted to do what they see others do with apparent impunity.''

344. Considerations of that kind strengthen the need for general deterrence.

345. Counsel for Tieleman and Pearce also offered the submission that, in considering what should be an appropriate sentence, account should be taken of the fact that the Commonwealth was not shown to have lost any money, but only the opportunity of protecting the revenue. In my opinion, this consideration carries little weight. This was a conspiracy to defraud the Commonwealth on what was, by any measure, a comparatively large scale. It is of no great moment whether or not, in the result, the ATO was shown to have lost money.

346. Finally, in this respect, counsel for Tieleman and Pearce contended that the sentences imposed upon them were ``out of parity'' with that imposed upon Wharton, having regard, in particular, to the fact that he was described by the sentencing Judge as ``a financial rogue'', that he was found to have deceived Tieleman and Pearce, that he had wilfully misrepresented to his co-accused the financial standing of the companies he represented and that, without their knowledge, he had orchestrated two ``elaborate cheque `round robins''' in respect of the loan arrangements to which I have earlier referred.

347. There can be no doubt that Wharton's conduct was more serious than that of his co- offenders. However, this was acknowledged by the sentencing Judge. His Honour said that, were it not for the state of Wharton's wife's health (a matter to which I shall come when dealing with Wharton's appeal against sentence), he would have imposed a greater period before conditional release in order to take account of Wharton's greater criminality.

348. The parity principle is based upon the notion of equal justice, which requires that like should be treated alike:
Postiglione v The Queen (1997) 189 CLR 295 at 301 , per Dawson and Gaudron JJ. However, if there are relevant differences, then allowance must be made for them. That is precisely what the sentencing Judge did in this case. He recognised that Wharton's greater criminality warranted a greater sentence but, after taking into account Wharton's different circumstances brought about by the fact that he cannot be with his wife at a time when she is in need of him, he concluded that a similar sentence should be imposed upon him as should be imposed upon the other two. In my opinion, there was, in those circumstances, no error in the exercise of his Honour's discretion.

349. I would consequently dismiss each of Pearce and Tieleman's appeals against sentence.

Appeal against sentence - Wharton

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

351. The exception to which I have referred arose when, on the commencement of the hearing of the appeals, senior counsel for Wharton moved, and was allowed, an amendment to his grounds of appeal against sentence in terms raising an additional ground as follows:

``By reason of the worsening of the medical condition of the applicant's wife and her limited life expectancy, this court should intervene to reduce the length of the period the applicant is required to serve in prison prior to his release on a recognisance release order:

Particulars

The applicant relies upon the medical certificates pertaining to the applicant's wife filed in Full Court action No 132 of 2004 in relation to the applicant's appeal against the refusal of bail heard and determined on 15 November 2004.''

352. When he came to sentence Wharton, the trial Judge had before him a medical report from Dr Jeffrey Szer, an associate professor of medicine at Royal Melbourne Hospital. In that

ATC 4381

report, dated 19 August 2004, Dr Szer said that Mrs Wharton was suffering from advanced multiple myeloma in the form of an incurable malignancy of the bone marrow. He said that her illness was currently at a very advanced stage and that, prognostically, she was unlikely to survive more than a year unless there was a dramatic response to a new therapy which might become available later in the year. It is important to mention that Mrs Wharton has expressed a desire not to be informed of her actual prognosis. This resulted in an order (made, also, in the course of the appeal) that there should be no publication of that prognosis.

353. I have said that Mrs Wharton's condition, as then known to the sentencing Judge, was taken into account by him. He said that he was aware of the ``very real and very sad prospect that... [ she] may die while... [ Wharton was] in prison''. However, Dr Szer has since been asked to provide an updated medical report in respect of Mrs Wharton. He has consequently prepared a report dated 10 November 2004 in which he mentions that trials of new agents for multiple myeloma have not yet been activated at his institution, that Mrs Wharton continues on standard therapy and that her medical condition is stable but serious. He says that her overall clinical state and prognosis are unchanged from that stated by him in his report dated 19 August 2004. It consequently seems probable that Dr Szer's initial prognosis will, sadly, come to pass and that, absent some reduction in the custodial portion of Wharton's sentence, he may well be released after his wife's death.

354. However, it also follows, from a comparison of Dr Szer's two reports, that little has changed, so far as Mrs Wharton is concerned, other than that the new therapy which was anticipated to be available later in 2004 had not, in early November of that year, yet been ``activated''. That, in turn, leads me to conclude that the later report offers no basis for upsetting the trial Judge's exercise of discretion which, as I read this ground of appeal, is sought to be overturned solely upon the basis of the fresh evidence in the form of the later medical report.

355. In any event, I have previously mentioned that there is much to be said for the proposition that the review of a sentence in the light of subsequent events is a matter for the executive government and not one for an appellate court:
R v Anderson (1997) 92 A Crim R 348 at 356-357 and the cases there cited; and see also
R v McMaster (2004) 144 A Crim R 428 . There is, in s 19AP of the Crimes Act (Cth) provision for the making of an application to the Attorney-General to grant a licence under that section for a person to be released from prison where there are exceptional circumstances sufficient to justify the grant of such a licence. While it was contended, on behalf of Mr Wharton, that there were ``acute'' time factors in this case which might militate against requiring him to rely upon s 19AP, nothing has been said which would lead me to believe that an application of that kind could not quickly be dealt with by the Attorney- General. It was also said that there is no guarantee that the Attorney-General would grant such a licence. As to that, I would have thought that, depending upon any developments in the treatment of Mrs Wharton, there are strong grounds to support an application of that kind. However, that is a matter which should, in my opinion, best be left for consideration by the Attorney-General.

356. Consequently, while I have a great deal of sympathy for the position in which Mrs Wharton finds herself (and for the additional hardship which that must cause her husband), I would dismiss Wharton's appeal against sentence.

Conclusion - Appeals against sentence

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

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