Judges: Phillips CJ

Crockett J

Southwell J

Court of Criminal Appeal of Victoria

Judgment date: Judgment handed down 22 June 1992

Crockett J [delivering the judgment of the Court]: The respondent was indicted for trial in the County Court at Melbourne upon an indictment which charged him with nine counts of imposition on the Commonwealth of Australia contrary to s. 29B of the Crimes Act 1914 (Commonwealth). The imposition alleged in each count was upon the Commissioner of Taxation and was said to be constituted by an untrue representation in the respondent's income tax return that his professional income was less than was the fact for the relevant period with a view to obtaining a benefit by evading the payment of income tax. The nine counts related to each of the successive years ended 30th June from 1980 to 1988 inclusive. The respondent pleaded guilty to each count.

The total understatement of income during those nine years was $473,712. The tax avoided by that understatement was $270,286.47. However, the taxation auditors concerned with the investigation reached an agreement with the respondent as to the sum required to be paid in order to discharge his indebtedness to the Commissioner. Pursuant to that agreement an amended assessment was issued in relation to the nine years whereby the total previously undeclared income was shown as $379,610 upon which the tax payable was $220,362.47. An administrative penalty was fixed at $66,429.75. Thus the total tax evaded together with penalties was $286,792.22. This sum it was agreed was to be payable by 1st September 1989 on which date it was in fact paid.

The result of such a payment was that the revenue has suffered no actual loss. A substantial culpability and interest penalty was waived because the Australian Taxation Office treated the matter as a voluntary disclosure. The settlement reached had the effect of requiring the respondent to pay $16,505.75 more than the sum that would have been payable during the nine year period. Moreover, the result of the compromise was to allow the respondent to have had the use of the unpaid income tax for the relevant year interest free.

The respondent is a barrister. He came to the Bar in 1973. He is 52 years of age. He has no previous convictions. He indicated at the earliest possible stage his intention to plead guilty to the charges. He waived the necessity for a committal hearing.

After hearing a plea for leniency the respondent was sentenced as follows: On each of counts 1 to 8 inclusive to one year's imprisonment to commence on 17th March 1992. On count nine the respondent was sentenced to one year's imprisonment which it was directed should commence on the day following the day upon which the sentences on counts 1 to 8 end. His Honour further directed that pursuant to s. 20(1)(b) of the Crimes Act the respondent be released forthwith upon giving security by recognisance in the sum of $5,000 upon condition that he be of good behaviour for a period of two years. The Judge further ordered that the respondent be fined the sum of $400 on each of the counts 1, 2 and 3 and that on each of the six remaining counts he be fined the sum of $3,000. The respondent was granted a stay of three months for the payment of the fines which totalled $19,200. They have not been paid. The respondent agreed to enter and duly did enter into the stipulated

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recognisance with the consequence that he has at no time been required to serve any time in custody.

The Director of Public Prosecutions has appealed against this sentence. His contention is that the nature, extent and gravity of the offences are such that they can only be met with the imposition upon the offender of some period of actual incarceration. In particular it was submitted that the order for release upon entry into a recognisance for the total period of two years was inappropriate. Alternatively nothing less than release for part only of that period could be considered as an acceptable sentence in all the circumstances.

It is plain from the Judge's elaborate and carefully prepared reasons for sentence that he considered that the matter which was critical to the sentence which he ultimately came to consider it was proper to pass was the assurance given by the Taxation Office's representatives that, because they treated the respondent's case as one of voluntary disclosure, he would not be prosecuted. The respondent did in fact possess such a belief engendered by such assurance. Further, it was a belief that he was permitted to enjoy for about two years when, at the direction of the Director of Public Prosecutions, Federal police officers on 8th August 1991 charged the respondent on summons in respect of his past tax defalcations.

The consequence of this aspect of the Judge's reasons for sentence is that, apart from an assertion that he (the Judge) undervalued the circumstances and gravity of the offences and the need for the penalty to have a substantial deterrent effect, the principal ground to be found in the Director's notice of appeal is in these terms:

``That in determining that the sentence should be fully suspended the learned Judge erred in that he gave undue weight to:

  • (a) The expectation on the part of the respondent that he would not be prosecuted;
  • (b) The finding that the respondent would have been entitled to have a reasonable expectation that he would not actually be imprisoned or that an actual prison sentence would not be sought; and
  • (c) The finding that the purported change in the Australian Taxation Office guidelines was relevant to the sentencing process.''

It was the significance to be attached to the consideration to which this ground gave rise that was central to the argument addressed to the Court by both the Director and counsel for the respondent in relation to the general proposition as to whether the sentence was manifestly inadequate. This is not to say, however, that the Director did not press the Court with the contention that, had no assurance been given or belief in an immunity from prosecution existed, the nature and extent of the offences were such as to demand the imposition of an actual prison sentence.

It thus becomes necessary to make some reference to the circumstances in which the assurance came to be given and the nature and effect of it. However, before we do so we should point out that unfortunately the sentence passed by the Judge is in any event wrong in law. The error arises from the imposition of a fine in addition to a term of imprisonment in respect of each count. The parties agreed before us that the relevant legislation permitted the passing of a sentence of imprisonment or a fine but not both. Regrettably, the various amendments to the Commonwealth Crimes Act were not examined at the hearing before the Judge who was, as a result, allowed to fall into error. The Director accepts the major, but not the entire, responsibility for the omission. However, the result of the error undoubtedly is that the sentence must be set aside. The circumstances are such that the question now is not whether it was permissible within the scope of the sentencing discretion open to him for the Judge to have imposed the sentence that he did. Rather, the question is: what is the sentence which this Court considers is warranted by law as that which it should pass?

We turn, then, to the circumstances of the giving to the respondent of the assurance to which we have referred. They may, we think, be best described by quoting, in extenso, from his Honour's very comprehensive sentencing remarks. His Honour (inter alia) said:

``The defendant is a barrister, aged 52 years, who came to the Bar in 1973. During March 1989 the Australian Taxation Office commenced an audit into barristers and solicitors. Department officers telephoned barristers' clerks requesting details of income of barristers on their lists in respect

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of the years 1983 through to 1988. The clerk for the defendant was telephoned and sent a letter dated 21st March 1989 requesting details. A photocopy of the letter was given by the clerk to the defendant, who on 30th March 1989 arranged with the Australian Tax Office for an interview on 31st March 1989, which he attended and at which he was interviewed by taxation auditors. The defendant stated to the auditors that for years he had been wanting to clear his taxation problems but now it had become imperative. The defendant produced a piece of paper on which was set out his understated gross income for the years ending 30th June 1980 through to 30th June 1988. Thus he disclosed understated income for three years earlier than the years sought by the Australian Tax Office. Discussions took place on that date and on 4th April 1989 about his assets and reasons why he understated his income and other matters, after which a settlement was negotiated. It is common ground that the Australian Taxation Office treated the matter as one of voluntary disclosure and assured the defendant that, in accordance with guidelines then in operation, and which had been formulated with the assistance of the then D.P.P., Mr. Temby, he would not be prosecuted.''

However, in June 1991 the Director initiated enquiries into the matter. He held the view, quite correctly, that, despite whatever ``guidelines'' for the assistance of Tax Office officials there may be, the responsibility for the initiation of criminal process was a matter for him and not for the Australian Taxation Office. In his judgment the public interest required that the prosecution of the respondent be undertaken. He formed that view because he considered, again correctly in our opinion, that the respondent's disclosure was not voluntary. His Honour commented that there ``may be differences of opinion about whether there was strictly a voluntary disclosure'', but that the Australian Tax Office ``believed its actions were appropriate''. After some further discussion of this aspect of the matter the Judge continued:

``The accused paid [the negotiated sum of $286,792.22] by the agreed date of 1st September 1989, and it was not until 31st July 1991, nearly two years later, that he received the unwelcome news of his pending prosecution. The fact that he paid in full and in the end has not got away with his fraud, and the community has not lost the benefit of his taxes, is a significant factor in mitigation of penalty. The taxation guidelines have since been altered so that this situation is unlikely to ever occur again, and the Australian Tax Office will no longer be in a position, if it follows the guidelines, to give a false sense of security to a taxpayer as to non-prosecution, and no fraudulent taxpayer will be in a position to claim a belief or expectation that he will not be prosecuted. I have perhaps set out this history in unnecessary detail, but I have done so as I consider it very important on penalty in this particular case.''

It appears that the reference to the alteration of the guidelines is incorrect. Despite negotiations in relation to the matter no change has yet been effected. However, it is correct to say that no defaulting taxpayer will in the future be given a false assurance as to non- prosecution.

The Judge then proceeded to marshal the various considerations that operated both in mitigation and in aggravation of penalty. With regard to the former, the respondent's financial difficulties arising from the manner in which he was domestically circumstanced were explained. There was also reference to the respondent's previous good character, his contrition, early plea of guilty and co-operation with the authorities. His Honour particularly pointed to the probability of disciplinary action by the respondent's professional body which may lead to suspension or prohibition of his right to practise law. Although any sentence plainly had to serve as a deterrent to others minded to commit like offences, it was recognised that the need for the punishment to act as a specific deterrent was slight.

However his Honour quite correctly characterised the respondent's delinquencies as amounting to a ``massive fraud''.

In this regard the Judge, again we think quite correctly, had this to say:

``However, these are very serious offences committed by a professional person, a barrister. They are brazen frauds, and there was deliberate evasion each year over nine years involving a large understatement of income and large tax evasion. Obviously

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serious criminality was involved and, unless he knew that an audit was contemplated, it may be that the frauds would never have been disclosed. Once an audit was involved, detection was inevitable if the records were intact. There was no devious or sophisticated scheme involved, and it could be said that the accused was stupid and foolish in that he could be so easily detected, as well as being grossly dishonest and a disgrace to his profession.''

Finally we think it may be convenient to set out how it was that his Honour summarised his assessment of the considerations which caused him to reach the sentence he thought appropriate in these terms:

``Notwithstanding the criminality involved in these offences, having regard to the full repayment of tax and penalty made after voluntary disclosure, in the view of the Tax Office, and the Tax Office acting in accordance with its bona fide view of its guidelines, considered that it was not appropriate to prosecute, even if it is acknowledged that the Office had no authority to give such assurances about prosecution, which power was reserved to the DPP or the Attorney-General, and with the accused being of previous good character, disgraced in his profession, and after a substantial delay by the authorities in taking any steps and his fully co-operating with the authorities and pleading guilty, and who was, in my view, after his conversation with the Tax Officers entitled to at least a reasonable expectation or belief that he would not be prosecuted or at least a reasonable expectation that he would not be actually imprisoned or that actual imprisonment would not be sought, this is not a case where I consider that the accused should be required to actually serve a sentence of imprisonment at this time.''

After giving the matter anxious consideration we find ourselves unable to agree that the circumstances permit the imposition of a penalty whereby the respondent is not ``required to actually serve a sentence of imprisonment at this time''. We think there was no basis on the evidence to allow the respondent to consider that, if he were prosecuted, he might entertain a reasonable expectation that he would not be actually imprisoned, or that an actual prison sentence would not be sought. Furthermore, independently of the judge's opinion, we consider that a sentence appropriate in all the circumstances of the case (s. 16A(1)) must be one by which the respondent is required actually to serve a sentence of imprisonment. We have reached that conclusion after taking into account the matters referred to in s. 16A(2) which are relevant and after having reached the conclusion that no other sentence is appropriate in all the circumstances of the case than a sentence of imprisonment (s. 17A(1)).

The offences disclose a serious degree of criminality over a long period of time. They did, as the judge said, amount to a massive fraud on the revenue. The respondent had acted so as to suggest that it was probable that his law breaking would have continued indefinitely but for his imminent detection. Further, the understated amounts represented a significant proportion of the respondent's gross income over the relevant period.

The material makes it plain that the promise of non-prosecution proceeded upon an assumption by the Tax Office authorities that the disclosure was voluntary. It clearly was not. Disclosure is voluntary only if made without knowledge by the taxpayer or his agent that the taxpayer's affairs are to be subject to a taxation audit. A barrister's clerk is the barrister's agent. The respondent's clerk knew of an impending investigation. He communicated that information to the respondent. Then, and only then, did the respondent, aware of the inevitability of the discovery of his defalcations, endeavour to make the best of it by a full and prompt disclosure.

Nevertheless, the promise was broken and the respondent's consequent disappointment, delayed as it was for about two years, must have had a traumatic effect upon him. That is a consideration to which it is proper to have regard in the determination of an appropriate sentence. But it is that sense of disappointment and nothing else in connection with the broken promise which the respondent is entitled to call in aid. It is not to the point that the Taxation Office may find advantage in holding out incentives to taxpayers to make a truly voluntary disclosure. Furthermore, we think, contrary to the respondent's submission, that it is to the point that the disclosure was not in fact voluntary despite the auditors' conclusion that it was.

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In our opinion the critical consideration is that taxpayers cannot be permitted to defraud the revenue in the belief that detection can lead to no more than a requirement merely to make financial reparation and to pay a monetary penalty so as to enable the offender to ``purchase'' immunity from prosecution under the criminal law. We think that the unreported case of
R. v. Blaire (20 November 1987, N.S.W. Court of Criminal Appeal) upon which the respondent placed reliance is distinguishable - if for no other reason than that the sum involved is very much less than the amount of the defalcation in the present case.

There are two other matters which we should notice. The first is this: It is said that the judge's sentencing error was solely due to the neglect of the appellant's counsel to advise the judge as to the correct state of the legislation in relation to sentence when asked by his Honour to do so. That being so this Court ought to exercise its discretion so as to prevent the appellant from gaining the benefit of relief from having otherwise the need to show sentencing error. It was said that the error made was the fault of the appellant who seeks now to employ it (impermissibly so it was said) to the disadvantage of the respondent. There is nothing in the point. It was the responsibility of counsel for each party to be aware of the relevant statutory provisions. The error by the appellant's counsel was one which the respondent's counsel was obliged to correct. He failed to do so. The sentence must be set aside with the usual consequence.

The second matter also is without substance. Primarily it was argued that, although a non- custodial sentence was being sought, the appellant's counsel in the course of the hearing below did not submit that only a custodial disposition was appropriate. It was said that his silence should be interpreted as acquiescence in the passing of a non-custodial sentence and that that acquiescence must now be held to prevent the Director from complaining in this Court that such a sentence was inappropriate. The respondent relied upon
R. v. Jermyn (1985) 2 N.S.W.L.R. 194. The headnote in that case states that upon an appeal against inadequacy of sentence by the Crown it was held that, if the Crown fails to assist the trial court to avoid appealable error by informing the sentencing judge in response to a request for assistance that there could not be seen to be any objection to the accused being granted a bond, the Court of Criminal Appeal should as a matter of discretion decline to exercise its appellate authority to correct inadequacies in the sentencing order. This Court has in the past in unreported decisions adopted a like stance in similar circumstances.

The nature of the submissions made in Jermyn led Street, C.J. in that case to refer to and endorse the proposition in the earlier decision of the Court of Criminal Appeal in
R. v. Gamble; R. v. Moore [1983] 3 N.S.W.L.R. 356 at 359 to the effect that the traditional and proper role of the Crown was one of ``abstention from forensic urging upon the court of considerations adverse to the person standing before it for sentence''. However, the learned Chief Justice pointed out that the Court in Gamble did regard the Crown as being under a duty to assist the Court to avoid appealable error. An observation in these terms which was made by the Full Federal Court in
R. v. Tait & Anor (1979) 46 F.L.R. 386 was adopted in Gamble's Case. The latter case was a clear one. The Crown was not in that case open to legitimate criticism in that the Crown prosecutor had expressly informed the judge that the case could not adequately be dealt with by a non-custodial sentencing order. But in Jermyn the judge sought the Crown's assistance upon whether it would be erroneous to deal with the matter on a non-custodial basis and the Crown specifically informed the judge that it would not be erroneous (p. 198).

It is true that in the present case the prosecutor remained silent whilst the burden of the respondent's plea in mitigation was that a non-custodial sentence should be treated by the judge as appropriate in all the circumstances. Further, counsel for the Crown placed before the judge copies of a number of cases which dealt with the selection of a proper penalty to deal with revenue fraud, some of which cases were met with non-custodial sentence - others with a custodial disposition. But none of this conduct can be described as conduct which permitted the judge to fall into error. Counsel was not asked by the judge to make submissions for his assistance as to nature of the appropriate sentence. Nor did counsel (we think quite properly) elect to make unsolicited submissions adverse to the respondent. The prosecutor's silence on this question was in the circumstances in conformity with the discharge

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of his duties as prosecutor. Accordingly, that silence cannot be employed to found an inference that the Crown's opinion was that a non-custodial sentence alone was appropriate. Were it so the task of prosecutors would, we venture to think, be fraught with, or give rise to, much unnecessary difficulty. See per McHugh, J.A. in Jermyn at pp. 203-204. The reference to the judge of the authorities to which his attention was drawn was accompanied by the observation by counsel that it must, of course, be borne in mind that the circumstances in each case varied greatly. The assistance that counsel sought to give the court was entirely proper. Nothing in what was done could serve to denote Crown acceptance that a non-custodial sentence was a correct disposition.

We have been referred to a number of authorities in which the question arose as to whether a custodial or non-custodial sentence was appropriate in the case of fraud upon the Commonwealth revenue. Many involved social security fraud. It is clear that in recent years the trend has been towards the imposition of custodial sentences even upon first offenders (which most of such offenders seem to be) in the absence of substantial mitigating circumstances.

The appeal is allowed. The sentences are set aside. In lieu the respondent is sentenced to 18 months' imprisonment on each count. It is directed that each such sentence commence on 22nd June 1992. It is ordered that the respondent be released, upon giving security in the sum of $100 by recognisance to the satisfaction of the court that he will be of good behaviour for 12 months, after he has served six months' imprisonment. It is further ordered that an appropriate officer of the Office of Corrections explain to the respondent in language likely to be understood by him the purpose and consequences of making the recognisance release order including an explanation of the matters referred to in the lettered paragraphs of s. 16F(2), and report in writing to the Registrar of Criminal Appeals of this Court that these directions have been carried out.


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