Director of Public Prosecutions (Cth) v Petroulias

1. [1]

   By summons filed on 1 February 2017, the Commonwealth Director of Public Prosecutions (“the Director”) seeks certain orders under s 19 of the Crimes (Superannuation Benefits) Act 1989 (NSW) (“the Act”) in respect of superannuation benefits that have been paid out to the defendant, Nikytas Nicholas Petroulias (“the defendant”). The defendant was employed as an officer of the Australian Taxation Office (“ATO”) between 1997 and 1999. The effect of the orders would be to require him to repay the relevant superannuation benefits to the Commonwealth. The amount involved is $21,298.36.

2. [2]

   On 20 June 2008, the defendant was sentenced to terms of imprisonment for offences contrary to ss 70 and 73 of the Crimes Act 1914 (NSW) committed at a time when he was employed as an officer of the ATO. For reasons that I set out below, if I am satisfied that those offences can properly be characterised as “corruption offences” within the meaning of the Act then I am required to make the orders sought.

Proceedings heard ex parte

1. [3]

   When this matter came on for hearing before me there was no appearance on behalf of the defendant. The defendant now goes by the name Michael Felson. For abundant caution both of his names were called outside court three times.

2. [4]

   The Director relied upon on affidavits of Angela Viet Huong Vo affirmed 17 February 2017 and 8 March 2017 describing the steps taken to contact the defendant and to effect substituted service on an email address.

3. [5]

   An extract in the name of the defendant obtained from the Australian Financial Security Authority’s National Personal Insolvency Index (“the NPII extract”) was obtained on 5 January 2017. It revealed the defendant’s residential address. On 2 February 2017, personal service of a letter to the defendant, together with the summons and an affidavit of Ms Vo of 31 January 2017, was arranged, with that residential address as the address for service.

4. [6]

   On 9 February 2017, a letter was received by the process server concerning the attempts made by its agent to effect personal service on the defendant. In the letter, the process server outlined the unsuccessful attempts at service made on 3 February at 5:30 pm and 8:02 pm, on 5 February at 9:01 am, on 7 February at 7:56 am and on 8 February at 4:35 pm. The attempt to elicit a response from the premises at 7:31 pm that day also included a phone call to a telephone number provided. That call was answered by a female person who responded that the caller had the wrong number when he asked for Michael Felson.

5. [7]

   A number of unsuccessful attempts were made by Ms Vo to ascertain the defendant’s address from the person named under the heading “Trustee Details” in the NPII extract by calling at that person’s office on 7, 15 and 16 February 2017 and leaving messages. Ms Vo had had no contact with the trustee as at the date of her affidavit sworn on 17 February 2017.

6. [8]

   A CDPP case officer had received a letter from the defendant on 22 July 2011 with respect to his appeal. It was sent using the defendant’s email address. That email was also used in court email correspondence with respect to the appeal.

7. [9]

   An order for substituted service was obtained on 3 March 2017.

8. [10]

   On 6 March 2017 at 8:39am, Ms Vo sent an email to the defendant’s email address informing him of the proceedings on 17 March 2017. She attached a number of documents to that email, including the summons, her affidavit affirmed on 31 January 2017 with exhibit, and orders made for substituted service on 3 March 2017. A “Request a Delivery Receipt” option was chosen prior to the email being sent. Two messages were received at 8:39am informing her that delivery of the email had failed.

9. [11]

   Later on 6 March 2017, Ms Vo arranged for the same documents to be sent to the defendant in a pre-paid Australia Post Express Post envelope. They were posted to the defendant at his residential address by placing the envelope in an Express Post post-box. The tracking number was removed from the Express Post envelope sticker and placed on the file copy of the cover letter.

10. [12]

    On 7 March 2017, a search on the Australia Post tracking webpage revealed that the item with that tracking number was delivered to the defendant’s residential address at 1:45pm on 7 March 2017. Ms Vo had had no contact with the defendant as at the time of affirming her affidavit on 8 March 2017.

11. [13]

    Having had regard to that material, I was satisfied that the defendant had received notice of the application and that it was appropriate to proceed to hear this matter ex parte.

The Director’s summons

1. [14]

   The summons filed by the Director seeks orders:

2. [15]

   Prayers 3 and 4 of the summons were not pressed at the hearing of the application.

Background

1. [16]

   On 18 December 2007, the defendant was convicted following a jury trial before Johnson J of two offences contrary to the Crimes Act 1914 as follows:

   1. (1)

      one count of agreeing to receive a benefit on an understanding that the exercise by him of his duty as a Commonwealth officer would be affected (contrary to the then s 73 of the Crimes Act 1914) (Count 2);

   2. (2)

      one count of publishing to a person to whom he was not authorised to publish documents which came into his possession by virtue of him being a Commonwealth officer, and which it was his duty not to disclose (contrary to s 70 of the Crimes Act 1914) (Count 3).

2. [17]

   The jury was hung in relation to one count of defrauding the Commonwealth contrary to s 29D of the Crimes Act 1914 (Count 1).

3. [18]

   His Honour imposed a sentence of imprisonment of one year and nine months for the s 73 offence (to commence on 20 June 2008 and to expire on 19 March 2010) and imprisonment for one year and eight months for the s 70 offence (to commence on 20 December 2009 and to expire on 19 June 2010): R (Cth) v Petroulias (No. 36) [2008] NSWSC 626.

4. [19]

   Justice Johnson’s reasons for sentence disclose that, on 24 November 1997, the defendant commenced permanent employment with the ATO. On 19 January 1998, the defendant was appointed Acting Assistant Commissioner within the ATO. On 25 September 1998, he was appointed First Assistant Commissioner, Strategic Intelligence Network, within the ATO. The defendant resigned from the ATO effective on 6 April 1999.

5. [20]

   On 24 March 2000, the defendant was arrested and charged following an investigation.

6. [21]

   His Honour summarised his factual findings at [114] of his reasons. I propose to repeat that summary here. His Honour found that:

   1. (1)

      the defendant, an intelligent and highly educated lawyer, took up employment as a consultant, and then permanent employee of the ATO, between 1997 and 1999;

   2. (2)

      the defendant entered employment with the ATO for the purpose of conducting a business with respect to the marketing of employee benefit arrangements outside the ATO, and using his contacts and influence within the ATO to advance his private business interests;

   3. (3)

      throughout the period when the defendant worked as a consultant or employee with the ATO between 1997 and 1999, he did not reveal to anyone the true nature of his associations and his private business interests in areas directly relevant to the exercise of his duties;

   4. (4)

      the defendant did, at the same time, influence favourable outcomes with respect to applications for advance opinions or private rulings in 1997 and 1998 and orchestrate, through his business associate Mr Morgan and others, the use of opinions and rulings (and associated documents) for marketing purposes for his own private financial interests);

   5. (5)

      with respect to the issue of the opinions and rulings, the defendant exercised influence, to varying extents, over Mr Chow, Mr Charles, Mr Targett and Mr Aivaliotes (who were all ATO officers) with respect to the issue of favourable opinions and rulings;

   6. (6)

      in the same period, the defendant used his influence to guide applications made by other interests towards unfavourable outcomes, which were difficult to reconcile with the favourable outcomes for interests associated with the defendant.

   7. (7)

      the defendant agreed to receive a benefit, namely money, and did receive money (about $41,000.00) as proceeds from these private business interests;

   8. (8)

      the defendant provided client lists to Mr Morgan in breach of the secrecy provisions in the tax legislation – the client lists were compiled from information obtained by use of the ATO’s compulsory powers and were provided to Mr Morgan for marketing purposes to gain a commercial advantage over their business competitors;

   9. (9)

      when investigations were underway after October 1998, the defendant withheld ATO documents from investigators which would have revealed the true position, and provided to them a false document (the Memorandum of Understanding), as well as seeking to influence Mr Aivaliotes and to direct others involved in the business arrangement (in particular Mr Panos, Mr McLaren and Mr Strong) as to false accounts which they should give to police, and steps which they should take to frustrate and obstruct the ATO and police investigation; and

   10. (10)

       the actions of the defendant, whilst a consultant and then an employee of the ATO, involved a clear and grave conflict of interest and abuse of trust.

7. [22]

   As to the objective gravity of Count 2, his Honour stated at [196]:

8. [23]

   The defendant sought leave to appeal to the Court of Criminal Appeal (“CCA”) against his convictions and sentences. After some delay on the part of the defendant, his matter came on for hearing before the CCA on 12 June 2014. On 26 June 2014, the Court (Leeming JA, Price and Bellew JJ) refused the applicant leave under r 4 of the Criminal Appeal Rules 1912 (NSW) to appeal his conviction and also refused leave to appeal the sentences imposed by Johnson J: Petroulias v R [2014] NSWCCA 108.

History of payments to the defendant

1. [24]

   Before me on the application was a Superannuation Certificate dated 31 March 2017 issued by the defendant’s superannuation authority, to which was annexed a letter to the Australian Federal Police setting out details of the defendant’s transactional history. It disclosed that the defendant joined the Public Sector Superannuation Scheme (“PPS”) on 24 November 1997. He ceased to be a contributing member on 6 April 1999.

2. [25]

   On 15 August 2011, the defendant received $23,685 from the fund on the grounds of “severe financial hardship”. That figure comprised a $7,055.12 “employer component”, a $4,243.24 productivity component” and a $12,386.64 “employee component”. On 15 August 2014, the defendant received a further $10,000 from the fund, again on the grounds of “severe financial hardship”. That figure was comprised solely of an “employer component”.

3. [26]

   As at 21 June 2016, the defendant still has an amount of $9,335.09 held by the Scheme comprised solely of an “employer component”. The Director did not press the application for a superannuation order in respect of that amount.

The legislative scheme

1. [27]

   Part 2 of the Act governs the application for and making of “superannuation orders” against employees of the Commonwealth who have been convicted of “corruption offences”.

2. [28]

   Section 16 of the Act relevantly provides that where a person who was an “employee” is convicted of an offence and the Minister is of the opinion that the offence is a “corruption offence”, the Minister may, by notice in writing, authorise the DPP to apply to the appropriate court for a superannuation order in respect of the person.

3. [29]

   Although it is ultimately a matter for the Minister whether he or she exercises the discretion under s 16 to authorise the Director to make an application for a superannuation order, the Director must make an application under s 17 if he or she receives such an authorisation. Section 17 of the Act relevantly provides:

4. [30]

   The “appropriate court”, in relation to a person’s conviction for an offence, means the court of the State or Territory before which the person was convicted and, in addition, the Supreme Court of that State or Territory: s 2 of the Act.

5. [31]

   Section 2 defines “superannuation order” as an order made under s 19. Section 19 relevantly provides:

6. [32]

   Section 2(1) of the Act defines “offence” as an offence against the law of the Commonwealth or of a State or Territory that is punishable by imprisonment for life or a term longer than 12 months.

7. [33]

   The same sub-section defines “corruption offence” as:

8. [34]

   The Act does not define the words “abuse” or “corruption”.

9. [35]

   “Employee” is defined in s 7 to mean a person (other than an AFP employee) employed by the Commonwealth or by a Commonwealth authority, whether the person is so employed under a law of the Commonwealth, a State or a Territory, or under a contract of service or apprenticeship.

10. [36]

    Section 18 applies to the evidence in applications for superannuation orders. It relevantly provides:

11. [37]

    Section 21 of the Act provides for the effect of superannuation orders:

Was the Director required to seek leave to commence proceedings?

1. [38]

   During the hearing I was informed that the defendant is an undischarged bankrupt. He was declared bankrupt by a sequestration order made by the Federal Circuit Court on 23 October 2014. His statement of affairs was filed on 10 March 2015. He will thus be eligible to be discharged from bankruptcy on 10 March 2018.

2. [39]

   Section 58(3) of the Bankruptcy Act 1966 (Cth) provides

3. [40]

   I have considered the question of whether the Director required the leave of the Federal Circuit Court to bring this application. Section 58(3) of the Bankruptcy Act relevantly only applies to a “creditor” commencing proceedings in respect of a “provable debt”. A provable debt is defined in s 82(1) of the Bankruptcy Act as follows:

4. [41]

   The defendant was convicted and sentenced in 2008. On 24 June 2014, the CCA refused leave for him to appeal against both his sentence and conviction 2014. It would appear that it was open to the Minister any time after that to exercise his or her discretion as to whether to authorise the Director to bring this application.

5. [42]

   It seems to me that the sum sought to be recovered from the defendant is not a debt provable in the bankruptcy because it is not a debt to which the defendant was subject as at the date of the bankruptcy, nor to which he may become subject before his discharge by reason of an obligation that he incurred prior to the date of his bankruptcy. Nor was it a “contingent” liability to which he was subject as at the date of his bankruptcy. Although the circumstances giving rise to the potential for a superannuation order to be sought existed at the time that the defendant was made bankrupt, no obligation was incurred before that time. The question of whether a superannuation order would be sought under the Act was a purely discretionary one on the part of the Minister. It is not until this Court makes an order under s 19(4) that any relevant judgment debt will arise. For the same reasons, the DPP does not answer the description of a “creditor” for the purposes of s 58(3).

6. [43]

   I am satisfied that the Director did not need to seek the leave of the Federal Circuit Court prior to commencing these proceedings.

The Director’s submissions

1. [44]

   The Director submitted that the procedural requirements under ss 16 and 17 of the Act had been complied with.

2. [45]

   The Director noted that s 19 of the Act is the key provision for the purposes of the application. Section 19 invites consideration of whether the person the subject of the application has been convicted of a “corruption offence”. It was noted that it is not necessary to make a finding that a person acted corruptly in order to satisfy sub-paragraph (a) of the definition of “corruption offence” in s 2(1) of the Act. However, the Director submitted that the offences of which the defendant was convicted fall within the terms of both sub-paragraph (a) and (b) in the definition of “corruption offence”. If the court is satisfied that the defendant has been convicted of a “corruption offence”, the orders sought must be made.

3. [46]

   It was submitted that it was evident from the reasons of Johnson J that, as a consultant and later as a permanent employee with the ATO between 1997 and 1999, the defendant was employed by the Commonwealth under a contract of service and later under a law of the Commonwealth at the time of the commission of the offences. He was therefore an employee within the meaning of s 7(1) of the Act.

4. [47]

   The Director submitted that the defendant’s offending conduct involved abusing his position as a senior ATO employee by using his influence to guide the outcomes of applications for advance opinions or private rulings in return for monetary reward, and disclosing for financial gain confidential information obtained by reason of his employment to a person to whom he was not authorised to disclose that information.

5. [48]

   It was further submitted that, as an ATO employee, the defendant had a duty to disclose conflicts of interest and a duty to maintain the secrecy of material obtained through the ATO’s compulsory powers. The Director submitted that the offending conduct involved breach of those duties for financial gain.

Consideration

1. [49]

   As stated above at [18], the defendant was sentenced in relation to the relevant offences on 20 June 2008. There was considerable delay on the part of the defendant in relation to his appeal to the CCA against his conviction and sentence. That appeal was heard on 12 June 2014 and the defendant’s conviction and sentence were confirmed on 26 June 2014.

2. [50]

   By the time that the defendant’s criminal proceedings had been finalised, he had successfully made two applications to the superannuation scheme for release of his entitlements on the ground of severe financial hardship. Payments were made to him out of the scheme on 15 August 2011 and again on 15 August 2014. The amounts paid on these two occasions totalled $33,685. The second of those two payments was made at a time after the CCA had refused leave to the defendant to appeal against his conviction and sentence.

3. [51]

   No explanation was before me on this application as to why, at a time after the CCA refused the defendant leave to appeal against the relevant offences, a decision was made that the defendant was entitled to early release of $10,000 from the Scheme. That amount of $10,000 was comprised solely of employer contributions. If there were a discretion afforded to the court under s 19 of the Act as to whether such an order should be made, this fact may well have been a relevant factor militating against the making of the order in relation to at least that $10,000. No criticism is made of the Director in the circumstances; she had no discretion but to bring these proceedings after the Minister authorised her to do so. Nonetheless, it needs to be stated that this aspect of the chronology is somewhat unsatisfactory.

4. [52]

   Not only was there no discretion residing with the Director as to whether to bring this application, nor does s 19 of the Act allow for the court to exercise any discretion to decline to make the orders sought once satisfied that the defendant was convicted of a “corruption offence” within the meaning of the Act.

5. [53]

   As stated above at [33], a “corruption offence” for the purposes of the Act is, relevantly, an offence by a person who was an employee at the time that it was committed, being an offence:

   1. (1)

      whose commission involved an abuse by the person of his or her office as such an employee (s 2(1)(a) of the Act); or

   2. (2)

      that, having regard to the powers and duties of such an employee, was committed for a purpose that involved corruption(s 2(1)(b) of the Act);.

6. [54]

   Notwithstanding that the defendant was a “consultant” to the ATO until he commenced full-time employment on 24 November 1997, I am satisfied that the defendant was an employee during the relevant periods of time given that the expansive definition of “employee” in s 7 of the Act includes someone who is employed under a contract of service. In any event, the defendant was employed under a law of the Commonwealth for part of the time during which the conduct the subject of Count 2 occurred in any event.

7. [55]

   I am satisfied that the offences contrary to ss 70 and 73 of the Crimes Act 1914 of which the defendant was convicted were both “corruption offences” within the meaning of s 2(1) of the Act. Section 18 of the Act provides that the findings of Johnson J are prima facie evidence of those facts.

8. [56]

   As the reasons of Johnson J make plain, the defendant entered into his involvement, and later full-time employment, with the ATO having already decided to use his position to advance his own business interests and those of his associates in the marketing of employee benefit arrangements. The defendant’s method of preferring his own interests involved exerting pressure on ATO officers to provide favourable rulings and advance opinions in response to applications made by his associates and either drafting or assisting in the drafting of those same applications. That conduct was the subject of Count 2 on the indictment. His Honour was satisfied that the defendant was aware of the conflict of interest to which he exposed himself. His Honour found that the defendant was motivated by financial gain and that he was in fact paid for his role in the arrangement.

9. [57]

   The defendant’s conduct forming the basis of Count 3 involved the provision of information obtained using the compulsory powers of the ATO to one of the business associates with whom the defendant was involved in the scheme for the marketing of employee benefit arrangements. His Honour found that the defendant intended that the information be used to exploit a marketing advantage.

10. [58]

    In my view, even though I need only find that the defendant’s offending behaviour satisfies either sub-paragraphs (a), (b) or (c) of the definition of “corruption offence” in s 2(1) of the Act, I am satisfied that it satisfies both of sub-paragraphs (a) and (b), in that each offence involved an abuse by the defendant of his office as an employee of the ATO and, having regard to the powers and duties of an employee of the ATO, were committed for a purpose that involved corruption.

11. [59]

    It follows that I am required to make the declarations sought in prayers 1 and 2 of the Director’s summons.

12. [60]

    The only remaining issue is the value of the employer contributions or benefits paid to the defendant under the superannuation scheme as at the date of this judgment. Pursuant to s 19(4)(a) of the Act, that amount is worked out by using formula “AB - EC” where “AB” (amount of benefits) reflects the value of benefits paid to the person under the scheme as at the day on which order is made and “EC” (employee contributions) reflects the value of the contributions that the employee paid under the scheme as at the day on which the order is made plus any interest accrued under the scheme before that day.

13. [61]

    The Superannuation Certificate dated 31 March 2017 specifies that as at 31 March 2017 the defendant had been paid out benefits (i.e. AB) in the amount of $33,685. Out of that sum the amount of $12,386.64 was attributable to the defendant’s employee contributions (i.e. EC).

14. [62]

    Pursuant to s 19(4)(a) and (b) of the Act (i.e. “AB - EC”), the amount of employer benefits paid to the defendant under the scheme is thus $21,298.36. This represents the amount the defendant is to repay to the Commonwealth. I note that although 19(4)(a) of the Act specifies that the amount is to include any interest accrued under the scheme, the Director expressly did not seek that any interest component be included in the final order. Accordingly, I have made no allowance for any interest in the orders that I propose to make.

15. [63]

    I make the following orders:

    1. (1)

       Declare, pursuant to s 19(1)(a) of the Crimes (Superannuation Benefits) Act 1989 (Cth) that Nikytas Nicholas Petroulias (now known as Michael Felson) was convicted in the Supreme Court of New South Wales of one offence contrary to s 73 of the Crimes Act 1914 (Cth) and one offence contrary to s 70 of the Crimes Act, both being corruption offences within the meaning of the Crimes (Superannuation Benefits) Act.

    2. (2)

       Declare, pursuant to s 19(1)(b) of the Crimes (Superannuation Benefits) Act, that Part 2 of that Act applies in relation to the rights of, and benefits paid or payable to or in respect of, the defendant under the superannuation scheme established by the Commonwealth of Australia pursuant to the Superannuation Act 1990 (Cth) and known as the Public Sector Superannuation Scheme.

    3. (3)

       Specify, pursuant to s 19(4)(a) of the Crimes (Superannuation Benefits) Act that the amount which reflects the value of the sum of the employer contributions or benefits made by the Commonwealth in respect of the defendant under the Scheme that have been paid to the defendant by the Scheme as at the date on which this order is made (excluding interest on those contributions or benefits accrued under the Scheme) is $21,298.36.

    4. (4)

       Order that, pursuant to s 19(4)(b) of the Crimes (Superannuation Benefits) Act, the defendant pay $21,298.36 to the Commonwealth.