The Queen v Dhillon [2009] NZCA 597; (2010) 24 NZTC 24,030 (16 December 2009)

Last Updated: 6 January 2012

IN THE COURT OF APPEAL OF NEW ZEALAND

CA319/2009 [2009] NZCA 597THE QUEEN

v

RAJPAL SINGH DHILLON

Hearing: 15 October 2009

Court: Hammond, Ronald Young and Fogarty JJ

Counsel: E R Fairbrother and G M Fairbrother for Appellant
S B Edwards for Crown

Judgment: 16 December 2009 at 10 am

JUDGMENT OF THE COURT

A The appeal is allowed in part.

B The minimum period of imprisonment is quashed.

____________________________________________________________________

REASONS OF THE COURT

(Given by Fogarty J)

[1] This is an appeal against sentence. Mr Dhillon was convicted by a jury of 50 counts of tax evasion. He was sentenced by Judge B M Mackintosh to six years and six months imprisonment with a minimum period of imprisonment of three years and three months.
[2] In oral argument Mr Fairbrother pursued two grounds of appeal:

• That the sentence was manifestly excessive; and
• That by fixing cumulative sentences for PAYE and GST offending the Judge was acting contrary to the legislative direction contained in s 84 of the Sentencing Act 2002.

[3] To understand these two grounds of appeal it is necessary to explain the pairing of the 50 counts into 25 pairs and the way the Judge reached the sentence.
[4] All the counts were brought under the Tax Administration Act 1994. Section 143B(2) provides:

143B Evasion or similar offence

...

(2) A person who evades or attempts to evade the assessment or payment of tax by the person or another person under a tax law commits an offence against this Act.

[5] All the counts were in the same format except for different dates and names. Counts 1 and 2 provided:

1. THE CROWN SOLICITOR at Napier charges RAJPAL SINGH DHILLON from 5 December 1998 at Hastings did evade the payment of GST by himself or C K Kaushal under the Goods and Services Tax Act 1985, namely by purporting to use C K Kaushal as a subcontractor.
2. THE SAID CROWN SOLICITOR further charges that RAJPAL SINGH DHILLON from 5 December 1998 at Hastings did evade the payment of PAYE by himself or C K Kaushal under the Income Tax Act 1994, namely by purporting to use C K Kaushal as a subcontractor.

[6] Thereafter each pair of counts were first for evasion of GST and then for evasion of PAYE but with the names of different entities evading PAYE and the names of different subcontractors.
[7] Essentially the charges differentiate one from another by reason of the allegation that Mr Dhillon purported to use a particular person as a subcontractor.
[8] Mr Dhillon was in the business of providing labour for kiwifruit and other horticultural growers. He would provide the grower with pickers for harvest and sometimes help with the pruning. Mr Dhillon would invoice, through one of his companies, the grower for the work including in the invoice the GST tax. The grower would pay that invoice. On payment of that invoice Mr Dhillon would receive the amount he charged for the services he provided plus the GST that the grower had paid. This tax was payable by Mr Dhillon to the Inland Revenue Department (IRD) subject to being set off against the GST he had paid in the same period when acquiring services or goods for his businesses. If Mr Dhillon as contractor was directly employing the labour he provided the grower then he should have paid the labourers wages net of PAYE tax, and paid the PAYE tax to the IRD.
[9] The tax returns Mr Dhillon made to the IRD presented a false picture whereby he was not employing the labour he provided to the growers. Rather, he was using subcontractors to provide that labour. These subcontractors were in turn charging him for the work that their labourers had done on a piece rate basis. For example, if they were picking apples there would be a price per bin and a total number of bins picked with a resultant sum, say $4,000, on top of which was added GST. The case for the Crown was that these subcontractor invoices were false yet Mr Dhillon was netting off the GST component of the subcontractor invoices, paying a reduced amount of GST thereby to the Inland Revenue, and on top of that not paying any PAYE.
[10] For example (and this is an example taken from the red folder at trial, tab 2, GST example 2), the grower would receive an invoice from Mr Dhillon or one of his companies for $12,937.50 for the provision of labour. The grower pays that sum to Mr Dhillon. That sum includes a GST component of $1,437.50. The purported subcontractor’s invoice of $11,137.50, for the same labour, contains GST of $1,237.50. Mr Dhillon (or his entity) nets off those two sums and pays $200 GST to the Inland Revenue. Because the invoice from the purported contractor is false the shortfall of GST not paid to the IRD on that transaction is $1,237.50.
[11] The essential question for the jury was whether or not Mr Dhillon or his companies had been employing the labour directly so that the subcontractor invoices were false. The jury convicted Mr Dhillon on all of the charges. It is obvious that they found in every instance that the subcontractor invoices were false, and he was employing the labour directly. To reach the verdicts, the jury did not have to make any findings as to the amount of tax evaded.

The sentence

[12] Judge Mackintosh sentenced Mr Dhillon on the basis that the evasions resulted in a total tax fraud of $3,311,848.47, as to approximately $2 m of PAYE and $1.3 m of GST. She sentenced him to a term of imprisonment for four and a half years in respect of each of the PAYE offences (concurrent) and two years cumulative in respect of each of the GST charges (otherwise concurrent).
[13] The sums used by the Judge were placed in evidence at the trial in schedules prepared by IRD officers (red folder tab 8). As will be apparent from the explanations already given, calculation of the GST avoided is a straight-forward exercise of eliminating the sham GST deductions from the real GST receipts.
[14] The estimated PAYE has nowhere near the certainty suggested by the figure in the schedule of $2,011,562.93. It would appear from the evidence at the trial that the the Commissioner of Inland Revenue does not know how much the pickers were paid by Mr Dhillon. There was some evidence of witnesses sighting Mr Dhillon paying the workers, but no evidence of how much.
[15] There was some evidence coming out by way of cross-examination as to how the PAYE was estimated. It was derived by the IRD assuming that 100 per cent of the false invoices reflected payments made to labour. These invoices were sometimes for labour. For example, Mr Kaushal on 18 January 1999 sent a false invoice for 1,254.25 hours of summer pruning at $9 an hour ($11,287.35 plus GST of $1,410.91, giving a total of $12,698.26). However, he also sent an invoice on 27 February 1999 which was partly for pruning by the hour, but in the case of picking was by quantity. For example, it went on to charge for picked apples at $17 a bin for 141 bins and so on. It also includes a charge for use of a tractor.
[16] It may be that these false tax invoices mirrored the invoicing of Mr Dhillon or his entities to the growers. But that is not clear from the evidence, and so was not proved.
[17] However, the IRD officers took 100 per cent of the false invoices excluding GST, and treated that sum wholly as a labour cost. They then calculated PAYE from that sum taking a tax rate of 19.5 cents as the tax rate. They then treated that resultant sum as “estimated PAYE not returned to IRD”.

Appellant’s submissions on appeal

[18] Mr Fairbrother (who was not counsel at the trial) submitted that the criminality was not realistically divisible. He submitted that the correct view of the facts is that there were 25 events (relationships between Mr Dhillon and his entities on the one part and invoice writers on the other). Mr Fairbrother acknowledged that each of these events (relationships) necessarily had to attract two charges, PAYE non payment and GST. He noted there was some dispute as to the amount of loss actually occasioned by the consolidated fund. He then divided his submissions into three parts: the totality of offending, the cumulative issue, and the minimum period of imprisonment issue.

Totality of offending

[19] First, he submitted that the Judge was wrong to make a simple and direct comparison between the quantum of fraud involved in sentences for convictions under the Crimes Act 1961 for fraud and the quantum and duration of offending under the Tax Administration Act. He submitted that culpability for a conviction under s 143B of the Tax Administration Act should not be equated necessarily with the culpability required for convictions under ss 228 and 240 of the Crimes Act for dishonestly taking or using a document or obtaining by deception or causing loss by deception respectively. He relied on the decision of Taylor v Attorney-General [1963] NZLR 261 (SC). As Taylor shows the mental element in evasion can vary. There is always, however, at minimum a deliberate intent not to pay tax. As McGregor J said (at 262):

In my view the word "evade" associated with the expressions "attempts to evade" or "does any act with intent to evade" includes an element of intent, an intention to endeavour to avoid payment of tax known to be chargeable.

[20] In this case, as Mr Fairbrother stresses, there is evidence that Mr Dhillon was naive, to the point of maybe deluding himself that he was simply following a clever tax minimisation scheme. Mr Fairbrother relies on the Judge herself noting (at [9] of the sentencing notes):

... I am not really sure that you actually realise the magnitude of what you had been doing and the seriousness of it.

[21] The scheme in this case involved false invoices written by invoice writers. Mr Dhillon must have known they were false. That follows from the jury verdict. In that sense he knew he was engaged in a fraud.
[22] Comparison can be made, as the Judge did, with frauds charged under other statutes, particularly the Crimes Act. As always, care has to be taken to note the different maximum penalties when comparing one case with another.
[23] The Judge was specifically mindful, however, of the lesser maximum penalties available for tax evasion offences, compared with four provisions under the Crimes Act such as ss 228 and 240. She said (at [14]):

I have to be careful, too, because in some of these cases other charges under the Crimes Act were laid which have a higher maximum penalty and I do, of course, bear that in mind. ...

[24] Mr Fairbrother argued that the Judge placed too much weight on the actus reus, that is the extent of the evasion rather than on his level of actual dishonesty.
[25] The Judge reasoned:

[17] So far as the starting point is concerned, after assessing the aggravating features and, as was said in the case of Wassim, given the nature of the offending in this case, a simple evaluation against the five year maximum for each individual charge is inappropriate because of the sheer volume of offending. So what I intend to do, is take an overall starting point for the offending of seven years. I will reduce that down to a period of six and a half years, taking into account the mitigating features that have been referred to. I intend to deal with this by way of cumulative sentences, obviously, because the maximum penalty is only five years imprisonment. I am conscious, of course, of s 84 and 85 of the Sentencing Act, where it is provided that “cumulative sentences of imprisonment are generally appropriate if you are being sentenced for offending different in kind and concurrent sentences are generally appropriate for if the offences are similar in mind and are connected”. Well, the offending is similar in kind and connected. But the reality is that given the magnitude of the offending that I am dealing with, it would be completely inappropriate in my view to simply impose concurrent sentences and be limited by the five year maximum penalty that applies in relation to each of them. So, I think the simplest way to deal with this and reflect the overall nature and ongoing aspect of the offending, is to sentence you to a term of imprisonment for four and a half years in respect of each of the PAYE offences and two years cumulative in respect of each of the GST charges.

[26] Mr Fairbrother submitted that the totality principle in the circumstances of this case would be met with a starting point of the maximum available in any individual count (five years). He submitted this is required by ss 84 and 85 of the Sentencing Act.
[27] Section 84 provides:

84. Guidance on use of cumulative and concurrent sentences of imprisonment

(1) Cumulative sentences of imprisonment are generally appropriate if the offences for which an offender is being sentenced are different in kind, whether or not they are a connected series of offences.

(2) Concurrent sentences of imprisonment are generally appropriate if the offences for which an offender is being sentenced are of a similar kind and are a connected series of offences.

(3) In determining for the purpose of this section whether 2 or more offences committed by 1 offender are a connected series of offences, the court may consider—

(a) the time at which they occurred; or

(b) the overall nature of the offending; or

(c) any other relationship between the offences that the court considers relevant.

[28] Section 85 requires the court to consider the totality of offending. Given the sustained nature of this offending over several years, some of which continued after the IRD officers began investigating, we see no reason why the Judge should not have imposed a total sentence in excess of five years by way of cumulative sentencing. It is true that the scheme was the same throughout but there were a series of decisions, inevitably over time, to pursue the scheme. There were separate offences in substance as well as in form.
[29] The power to impose cumulative sentences is contained in s 83 in broad terms. See s 83(1):

83 Cumulative and concurrent sentences of imprisonment

(1) A determinate sentence of imprisonment may be imposed cumulatively on any other determinate sentence of imprisonment that the court directs, whether then imposed or to which the offender is already subject, including any sentence in respect of which a direction of that kind is or has been given.

[30] Section 85 provides:

85 Court to consider totality of offending

(1) Subject to this section, if a court is considering imposing sentences of imprisonment for 2 or more offences, the individual sentences must reflect the seriousness of each offence.

(2) If cumulative sentences of imprisonment are imposed, whether individually or in combination with concurrent sentences, they must not result in a total period of imprisonment wholly out of proportion to the gravity of the overall offending.

(3) If, because of the need to ensure that the total term of cumulative sentences is not disproportionately long, the imposition of cumulative sentences would result in a series of short sentences that individually fail to reflect the seriousness of each offence, then longer concurrent sentences, or a combination of concurrent and cumulative sentences, must be preferred.

(4) If only concurrent sentences are to be imposed,—

(a) the most serious offence must, subject to any maximum penalty provided for that offence, receive the penalty that is appropriate for the totality of the offending; and

(b) each of the lesser offences must receive the penalty appropriate to that offence.

[31] Mr Fairbrother argued that the approach “required by law” is to address first the appropriate term of imprisonment for the lead offence of the 50 charges, then to determine the aggravating and mitigating factors connected with the offending (as a whole) and then to determine the aggravating and mitigating factors associated with the appellant. This was part of his argument to identify the starting point before aggravation at five years.
[32] The Judge separated the PAYE offending from the GST offending. That separation is justified as the “simplest way”: see [17] of the sentencing notes at [25] above.
[33] Against that, Mr Fairbrother had submitted:

2. Although convicted on all 50 counts, each was part of a single pattern over a total of 25 events. Each event necessarily had to attract two charges, PAYE non-payment and GST refund applications consistent with the PAYE non-payment. The criminality was not realistically divisible.

[34] And later:

14. The appellant’s offending was the outcome of the consistent implementation of what may be characterised as the appellant’s business plan. There was just one business plan built around a system of tax evasion. ...

[35] As we have already indicated, we do not think that the offending in this case can be reduced to offending according to one business plan and thereby avoid the prolonged nature of this offending as an aggravating feature. However, two of us consider that the culpability of the conduct is not realistically divisible between PAYE evasion and GST evasion, as one would not occur without the other. To ensure there is no double punishment in breach of s 10(3) and (4) of the Crimes Act and s 26(2) of the New Zealand Bill of Rights Act 1990 two of us think it is more appropriate to sentence as charged, against periods of offending, treating the GST and PAYE evasion as arising from the one scheme, with subsequent decisions to pursue the evasion scheme.

Application of totality principle on alternative cumulative basis

[36] Mr Fairbrother did not proffer any sentencing decisions under the taxation legislation which would have suggested a lower end sentence of six and a half years. As we have already had occasion to notice, the Judge looked at some fraud comparables: R v Patterson [2008] NZCA 75; Serious Fraud Office v Fitzsimons DC NAP CRI 2008-441-33 3 October 2008; and the sentencing of one of the invoice writers in this case in R v Wasim DC TAU CRI 2007-070-4171 27 November 2007. The Judge reasoned:

[13] I have also been referred to cases involving invoice writers from the Tauranga Court, R v Mohammed Wassim (sic) (DC Tauranga, 27 November 2007). This man featured as an invoice writer in this case, particularly in count seven and eight. He was an invoice writer on a large scale, effectively providing a professional service to that effect to contractors who wished to evade tax. The actual tax evaded was some $15 million. The Judge, although not knowing the exact figure that Mr Wassim (sic) received, assessed that as being approximately $1 million in kickbacks. In that case, a starting point of eight years imprisonment was taken with a minimum non-parole period of three years, and an ultimate sentence of five years nine months. Also, R v Balwinder Singh (DC Tauranga, 10 May 2006), another invoice writer case, where the total loss to the Inland Revenue Department in that case was $654,427. Again, it was unknown how much he himself received. In that case, a starting point of four years and nine months was taken.

[37] Mr Fairbrother submitted that had the sentencing been compiled around the offending events then of the 25 transactions each had an average evasion value of around about $132,000 ($3.3 m divided by 25 transactions) or $114,000 (the same sum less $419,935). This latter figure is the only reference made by Mr Fairbrother to the first pleaded ground of appeal that the sentencing had failed to take into account that the IRD had the benefit of $419,935.12 of Dahiya Enterprises Limited money, as per an attached spreadsheet. He agreed in oral argument that no credits were available.
[38] We have the difficulty on this appeal that we have some unease that the appellant was sentenced on the basis of an assumed very high figure of $2 m loss to the taxpayer. There is a danger that the IRD will make assumptions as to the relevant figures which are at the highest possible level. Counsel did not raise this at the sentencing before the District Court, which may well explain why the Judge did not address the issue. Mr Fairbrother has not challenged the estimate of PAYE evaded on the appeal. As with drug cases where substantial sums of money can be involved, so with tax avoidance cases where the “loss” to the taxpayer can be quite significant, it is important to grapple with this issue. This is less difficult where there is a summary of facts, which can often be agreed. But if there is not a summary of facts the Judge should pay some attention to the matter, even if counsel do not. As a matter of fairness, in this instance we have endeavoured to do a short cross-check. We acknowledge at once that we have not had the benefit of argument from counsel on this. But we do not wish to delay this judgment further since, in any event, we are agreed on what the outcome of the case should be. To put this another way, on any view, the loss is we think serious enough that it does not ultimately affect the outcome.
[39] We have already referred to how the $2 m figure was estimated rather than being proved. What has never been confronted is that liability for PAYE operates by way of deeming provision. Where employees are paid wages, the employer is deemed to have withheld PAYE. See R v Fepuleai (2008) 23 NZTC 22,083 (CA). “Harm” in s 7 of the Sentencing Act has its usual meaning of injury or damage suffered by the victim.
[40] If one were to do a counter factual it may well be that Mr Dhillon did not receive sufficient from the growers to pay the pickers an acceptable rate per hour, net of PAYE. In any event there should be no presumption that the amount he received from the growers on a piece work basis was sufficient to properly pay the workers, including remitting their PAYE to the IRD.
[41] We do not think it is necessary, however, to identify by means of the disputed facts procedure of s 24(2), a sum proved to have been lost by the Inland Revenue. The assessment of GST lost is a reliable figure of approximately $1.3 m. That can be accepted by the sentencing Judge as a fact proved pursuant to s 24(1)(a). Secondly, the Judge can accept as proved that Mr Dhillon or his entities had at the relevant time directly employed the labour, paid the employees’ wages and not deducted any PAYE, again by way of s 24(1)(a). The sentencing Judge cannot accept as proved as a fact that the Inland Revenue lost approximately $2 m of PAYE revenue. It does not follow, however, that Mr Dhillon cannot be sentenced for the culpability of evading PAYE over a sustained period, accompanying his evasion of GST.
[42] Section 85 addresses the mechanisms by which a sentencing Judge determines an effective sentence appropriate for the totality of the unlawful conduct and yet ensures that the individual sentence reflects the seriousness of each offence. See also R v Bradley [1979] 2 NZLR 262 (CA). Effectively the section directs, in this case, a combination of cumulative and concurrent sentences, avoiding a short sentence for any one offence which individually fails to reflect the seriousness of that offence, but allows cumulative sentences to reach an effective sentence appropriate for the totality of the conduct.
[43] We do not think that the Judge was wrong in determining that the total should be six and a half years. The co-offender, Mr Wasim, was engaged in more tax evasion than Mr Dhillon (an estimate of $15 m evaded) but obtained a lower personal benefit ($1 m). In his case a starting point of eight years imprisonment was taken. In Mr Dhillon’s case the extent of the offending in terms of likely total tax evasion was much less than $15 m but his personal benefit was higher than that of Mr Wasim.
[44] We think that the Judge was entitled to take her overall starting point for the offending of seven years, which she reduced down to six and a half years for mitigating features.
[45] Of the 25 sets of offending the least culpable was the first set. All subsequent offending was aggravated by the persistence of offending in this fashion.
[46] Accordingly, we set aside the existing sentences and impose a sentence of two and a half years on Counts 1 and 2 concurrently, and then impose concurrent sentences on Counts 3 through to 50 of four years, those sentences to be cumulative on the concurrent sentences for the first two charges, resulting in a total term of imprisonment of six and a half years.

Minimum period of imprisonment

[47] Judge Mackintosh addressed this subject in her sentencing remarks as follows:

[18] The issue now that I need to consider is whether or not I ought to impose a minimum non-parole period. I am entitled by the Sentencing Act to impose a minimum period of imprisonment. The bulk of this offending occurred prior to the amendment in 2004 of s 86 of the Sentencing Act. Therefore, in fairness to you. I will consider the minimum non-parole period under that section. The section specifies that the Court may impose a minimum period of imprisonment if it is satisfied that the circumstances of the offending are sufficiently serious to justify a minimum period of imprisonment that is longer than the period otherwise applicable under s 84(1) of the Parole Act. For the purposes of that section, an offence may be regarded as sufficiently serious if the Court is satisfied that the circumstances take the offence out of the ordinary range of offending for that particular kind. I am quite satisfied in this particular4 case, that given the extensive nature of the offending and particularly given that whilst subject to charge there was continued offending and also whilst subject to investigation by the Inland Revenue there was continued offending, that this takes it out of the ordinary range of offending. Therefore a minimum period of imprisonment would be warranted. So that being the case, I intend to impose a minimum period of imprisonment of not less that (sic) half the sentence to be apportioned between both periods, that is four and a half years, the minimum will be half of that two years three months and then the minimum will be half of two years being one year. Those terms being cumulative.

[48] Mr Fairbrother submitted that the Judge had already taken into account the extensive nature of the offending, including offending while the subject of investigation and further offending after being first charged, and so was applying the criteria twice.
[49] He also repeated the submission that the appellant’s naivety, minimal personal gain, and lack of understanding of the ramifications of his actions, counted against the appropriateness of applying the provisions of the pre-2004 amendment of s 86 of the Sentencing Act.
[50] Ms Edwards for the Crown supported a minimum period of imprisonment (MPI) of around 50 per cent of the total term, but not the way the Judge did it. She noted that a MPI could only be imposed in relation to the four and a half year period because under s 86(1) of the Sentencing Act the sentence has to be more than two years. Secondly, that a MPI could not be imposed on offences prior to the commencement of the date of the Sentencing Act which excludes Counts 1-14 in the indictment (spanning the time period from December 1998 to July 2001).
[51] Ms Edwards also submitted that the Judge was obliged by the decision of the Supreme Court in Morgan v Superintendent Rimutaka Prison [2005] 3 NZLR 1 and the decision of this Court in R v Te Huia CA327/06 21 December 2006 at [34] that the amended s 86(2) post 2004 does not offend the principle against retrospectivity and is to be applied.
[52] Ms Edwards invited the Court to consider the MPI afresh. She submitted that a MPI of around about 50 per cent of the total sentence is warranted in this case to meet the punitive deterrent and denunciatory purposes. Fifty per cent of six and a half years is three years three months. Two-thirds of four years is two years eight months. The MPI cannot exceed that by reason of s 86(4). That period is longer by six months than the minimum period otherwise applicable under s 84(1) of the Parole Act 2002 (two years two months).
[53] We think there is some merit in Mr Fairbrother’s submission that the term of imprisonment has already adequately held the offender accountable to the community and denounced the conduct and deterred the offender and other persons. While we have effectively not disturbed the term of imprisonment, we think the term of imprisonment is a reasonably severe one, particularly by comparison to the involvement of Mr Wasim in a much larger number of tax evasion events. We do not think there is a need to lift the minimum period under the Parole Act of two years two months by an additional six months.
[54] The minimum period of imprisonment is quashed.

Solicitors:
Leo Lafferty, Napier for Appellant
Crown Law Office, Wellington