|
|
Home
| Databases
| WorldLII
| Search
| Feedback
Court of Appeal of New Zealand |
Last Updated: 23 June 2015
|
IN THE COURT OF APPEAL OF NEW ZEALAND
|
|
|
BETWEEN
|
Appellant |
|
AND
|
Respondent |
|
BETWEEN
|
Appellant |
|
AND
|
Respondent |
JUDGMENT OF THE COURT
____________________________________________________________________
REASONS OF THE COURT
(Given by Harrison J)
Contents
[1] Messrs Barrie Skinner and David Rowley ran a tax consultancy practice in Wellington called Tax Planning Services Ltd (TPS). As a result of an investigation by the Inland Revenue Department (the IRD)[1] into TPS’ affairs, the Crown charged both men with multiple counts of dishonesty offending. It alleged that they had jointly devised and assisted in implementing a fraudulent scheme by providing false invoices to TPS’ clients. Those clients later claimed the payments as expenditure in returns filed for the purpose of reducing income tax and GST liability. In consideration, Messrs Skinner and Rowley retained a fixed share of the false expenses.
[2] Following a trial in the High Court at Wellington,[2] Kós J found Messrs Skinner and Rowley guilty of 80 and 75 counts respectively of a total of 89 counts of dishonestly using a document to obtain a pecuniary advantage;[3] seven joint counts of wilfully attempting to pervert the course of justice;[4] and five separate counts of knowingly providing false information to the IRD in their own income tax returns.[5]
[3] Kós J convicted Messrs Skinner and Rowley and sentenced them to imprisonment for terms of eight and a half years and eight years respectively.[6] Both appeal against their convictions. However, only Mr Rowley appeals against his sentence.
[4] Mr Skinner appeals against conviction on the dishonesty and attempting to pervert the course of justice charges on the ground that the Judge erred by drawing adverse inferences from Mr Skinner’s advice to TPS’ clients during the IRD investigation to make voluntary disclosure statements. He appeals against conviction on the false information charges on the ground that the Judge erred in construing the relevant statutory provisions.
[5] Mr Rowley adopts Mr Skinner’s grounds of appeal. Originally he relied on the additional ground that the Judge erred in finding that the defendants participated in a common enterprise when Mr Rowley was in law and fact Mr Skinner’s innocent agent. However, in argument his counsel, Mr Fairbrother QC withdrew this separate ground.
[6] Mr Skinner also sought leave to adduce new evidence in the nature of affidavits by Michael Lennard, trial counsel for both defendants. While the Crown did not oppose leave the affidavits were ultimately of no moment to the merits. Accordingly, they do not satisfy the requirement of cogency and leave to adduce them is declined.
[7] The Crown’s case was that over a five year period and through a range of different entities Messrs Skinner and Rowley issued a large number of false invoices to at least 27 TPS clients who had significant tax liabilities. The invoices were for goods or services which were never provided. All the documents were either fictitious or grossly inflated and were generated solely for the purpose of evading tax.
[8] The scheme operated according to a standard pattern. On receipt of an invoice the client paid its full face value to TPS or an associated entity. About two thirds was immediately remitted to the client – the scheme would only work if most of the payment was returned in this way. TPS distributed the residual one third to Messrs Skinner and Rowley as their advance shares of the client’s prospective tax benefit.
[9] Messrs Skinner and Rowley then arranged for the client to claim payment of the invoice as a deductible expense in the income tax return and as an input credit in the GST return. In combination the deduction and input credit exceeded the amount returned to the defendants from each invoice payment. That margin was the client’s ultimate benefit. In most cases the defendants prepared and filed the returns. But, even where others acted, the Crown’s case was that the filing of false returns was the natural and intended result of the fraudulent scheme.
[10] At trial the Crown produced without challenge a diagrammatic representation of the money flows and returns to illustrate the essential characteristics of the scheme as they applied to Ms Kathy Ertel. She was a TPS client whose GST and income tax returns were the subject of the first two counts in the indictment. We shall return to those counts when considering a representative example of the Crown’s case and the Judge’s reasoning.
[11] The Judge adopted the Crown’s diagram,[7] which we reproduce with his summary of the effects of each step, overleaf:
1. MTCL issues invoice to Ertel in amount of $56,610
Kathy
Ertel
TPS trust Account
MTCL
3. Receives back $37,700 2. Pays $56,610
|
5. Returns filed claiming GST credits
and income tax deductions |
|
|
GST credit
|
$6,290
|
|
Income tax
|
$16,605
|
|
Received back from TPS
|
$37,700
|
|
Less original payment
|
($56,610)
|
|
|
|
|
Benefit (Ertel)
|
$3,985
|
|
4. Retained amount distributed to accused
|
|
|
|
|
|
Accused Skinner
|
$7,500
|
|
Accused Rowley
|
$2,500
|
|
Left in TPS trust account
|
$8,910
|
|
|
|
|
Benefit (Accused)
|
$18,910
|
In summary:
(a) Kathy Ertel was issued with an invoice by “Mercer Trading Company Limited” dated 31 January 2005 in the amount of $56,610 (GST inclusive);
(b) She paid the face value of that invoice ... into the TPS trust account on 9 September 2005;
(c) Shortly after the payment, she received a distribution back from TPS in the amount of $37,700;
(d) The retained amount ($18,910) was distributed between the accused (Skinner - $7,500 and Rowley - $2,500), with the remainder left in the TPS trust account ($8,910);
(e) A GST return for the period ending 30 November 2005 was filed on or about 14 December 2005, claiming an input credit in the amount of $6,290 for the GST component of that invoice;
(f) An income tax return was filed on or about 3 January 2007, claiming the face value of the invoice (56,610) as deductible expense, reducing her income tax bill by $16,605.
(g) Ms Ertel received the benefit of $3,985, which equates to the combined total of the GST input credits and income tax deductions, less the amount retained in by the accused (($6,290 + $16,605)) - $18,910)).
(h) The total loss to the Revenue, as a result of the transactions, was $22,895 ($6,290 GST + $16,605 income tax). This equates to the combined benefit to the accused and their client ($3,985 + $19,910).
(i) Conspicuous by its absence is the flow of any funds from the TPS trust account to the invoice issuing entity, Mercer Trading Company Limited.
[12] The Crown relied in large part upon the existence of a discernible pattern of offending, reflected over an extended period of time in a large number of transactions featuring a large number of returns. The fictitious invoices were for amounts exceeding $9.5 million. The IRD’s shortfall suffered through allowing unjustified benefits was around $3 million. Its loss was largely offset by recoveries made as a result of voluntary disclosures by clients and reversals of deductions and GST inputs claimed. Messrs Skinner and Rowley’s benefit, the Judge found, exceeded $2.3 million.
[13] The trial was of six and a half weeks duration.[8] The Crown called a number of witnesses. Both Messrs Skinner and Rowley gave evidence. While not disputing the essential facts, their common defence was that the transactions were real or genuine which, they believed, generated the tax effects reflected in the relevant returns. They denied knowingly supplying false information to TPS clients, asserting that the personal tax returns were correct to the best of their knowledge when filed.
[14] Messrs Skinner and Rowley defended 13 of the 89 dishonest use charges on the discrete ground that the taxpayers were clients of their former partner, Shaan Stevens, of whose conduct or advice they had no knowledge. Mr Stevens was originally charged as a party with Messrs Skinner and Rowley on those 13 counts.[9] He pleaded guilty before trial. He was convicted and sentenced to a term of 10 months home detention and 150 hours community work, and ordered to pay reparation of $121,852.[10] He gave evidence for the Crown at trial.
[15] The primary charges were of using a document dishonestly to obtain a pecuniary advantage.[11] The Crown was required to prove three elements. Proof of the first – Messrs Skinner and Rowley’s use of a document – was not in dispute at trial. Defence counsel accepted that: (a) the documents which the defendants used were TPS clients’ income tax and GST returns calculated by reference to invoices issued to and payments made by those clients, whether they were prepared by Messrs Skinner or Rowley or the clients themselves; and (b) where a client or other agency filed the returns, that act constituted use by the defendants because they procured the event.[12]
[16] The two other elements of the charges were in dispute at trial. First, the Crown was required to prove that Messrs Skinner and Rowley intended to obtain and retain a pecuniary advantage – that is, something that enhanced their financial positions – either (a) by filing or arranging to file returns, intending to obtain tax advantages for TPS clients which would otherwise would not have accrued to them or (b) by obtaining a benefit, being the portions of the payments made to TPS and remitted to themselves.[13]
[17] Second, the Crown was required to prove that Messrs Skinner and Rowley acted dishonestly and without claim of right: it had to exclude the existence of a genuine even if unreasonable belief in the appropriateness of the deductions – that is, the legitimacy of the invoices – by establishing that each defendant knew the goods or services for which invoices were issued were never supplied.[14]
[18] The Judge also found that the defendants’ criminal liability could properly be assessed by reliance on the common enterprise extension of liability under s 66(2) of the Crimes Act 1961.[15]
[19] Kós J carefully analysed each transaction and examined each invoice which formed the basis of a false expenses claim. He heard from all the clients, a number of other witnesses including forensic information technology experts, and Messrs Skinner and Rowley. He was satisfied beyond reasonable doubt that all invoices were issued for amounts for which there was no genuine underlying supply. As a result, all returns filed were false.[16]
[20] Neither Mr Skinner nor Mr Rowley challenges Kós J’s cornerstone findings of falsity. That factor is significant because proof that an invoice prepared under the direction of either defendant was not real or genuine inevitably created a strong prima facie inference of dishonesty. The circumstances of each particular charge disclose the nature and extent of the falsity practiced. The first two counts in the indictment, involving Ms Ertel, provide a compelling example.
[21] Ms Ertel and Mr Skinner were introduced by Mr Stevens. They first met at Ms Ertel’s home on or about 9 September 2005 when Mr Skinner advised her to enter into a transaction to buy tax losses.[17] At Mr Skinner’s suggestion, she wrote a cheque in favour of Mercer Trading for $56,600. TPS then direct credited $37,700 to the bank account of Ms Ertel’s partner.
[22] Ms Ertel’s payment correlated to the amount charged in an invoice from Mercer Trading, produced at trial and dated 31 January 2005. She had not seen the invoice when writing the cheque. The document narrated these amorphous services:
... introduction, assessment and viability study of prudential business ventures, advice concerning business structure and potential partnership arrangements including introduction to joint venture partners and potential avenues for finance, together with advice on IT systems.
[23] The defence case, as summarised by Kós J, was as follows:
[33] ... It says that Ms Ertel paid the $56,610 as part-payment for licensed carparks to be built at the St George Hotel site in Wellington. That sum was paid into the TPS trust account. Some $37,700 was repaid to her by way of “distribution/loan under a trust of which she was a beneficiary”. This entitled her to hold those funds until title passed, when she was obliged to return it. In exchange for all this she received entitlement to a 15 year licence for carparks. It is said that the transaction gave rise to a genuine input credit for GST purposes and a genuine income tax deduction. The net cash flow benefit to her was some $3,985. On the other side of the ledger, the balance of $18,910 was retained in the TPS trust account, credited to the Kilbirnie Plymouth Trust which was the intended owner of the land on which the carpark would be sited. Mercer Trading Company Limited (Mercer Trading), said to be head contractor for the carpark project, would return a GST output of $6,290 and income tax of $16,605. ...
[24] The Judge accepted that Ms Ertel had never dealt with Mercer Trading or received from it the services narrated in the invoice.[18] She had never been advised by either Messrs Skinner or Rowley or anyone else that the invoiced amount was in part payment for licences for car park to be constructed in the future. The defence was, nevertheless, that the underlying transactions were genuine.
[25] The Judge referred to Mr Skinner’s evidence in explanation that he:
[73] ... met Ms Ertel in September 2005 at the request of Mr Stevens. He said that Ms Ertel had a large tax liability. Mr Stevens knew that Joyce Group Limited, which was developing the first floor of the St George Hotel was proposing to develop internal carparks in that space. Mr Skinner said that Mr Stevens indicated that he believed the cost of the licence would be a deductible expense, and that she would also benefit from an unspecified timing difference benefit. It was not clear why Mr Skinner’s assistance was being sought, given Mr Stevens was aware of all these facts himself. On Mr Skinner’s evidence his role was a passive one.
[26] Messrs Skinner and Rowley asserted that Ms Ertel entered into an underlying licence agreement with Mercer on 31 January 2005, the same date as the invoice, which was said to be the source of her payment obligations. Ms Ertel was not cross-examined on her alleged participation in the licence agreement despite it being at the heart of the defence case. The Judge, who was required to evaluate an extensive body of documentary and oral evidence, could properly take this omission into account when concluding that Ms Ertel was not in fact a party to such an agreement.
[27] The agreement was produced after Ms Ertel had finished her evidence. It was allegedly found on an external computer hard drive which had only been recently located and analysed.[19] The final page was apparently signed by a Mr Newman. He was nominally the sole director and shareholder of Mercer Trading but the Judge found he took no active part in its management.[20] Ms Ertel had not signed the copy produced at trial.
[28] The Judge found that (a) Ms Ertel did not remember entering into a licence agreement; (b) there was no reason for her to have entered into it on 31 January 2005 given that she did not meet Mr Skinner until September 2005; (c) the agreement did not on its face provide for any proportion of the money paid by Ms Ertel to be remitted; and (d) the deed of appointment of Ms Ertel as a discretionary beneficiary of the Mercer Trust, again produced by the defence, made no sense.[21]
[29] In this respect Mr Skinner had asserted that Ms Ertel had been made a discretionary beneficiary of the Mercer Trust to distribute trust capital to her by way of loan, with a demand for repayment only being made in the event of commencement of construction of the car park project. With a degree of understatement, Kós J described this as a “complicated way to arrange such a transaction”.[22]
[30] Of most damaging effect was the Judge’s acceptance of evidence from Neville Winter, a senior IT investigator in the IRD, that the deed of appointment was apparently worked on (on a hard drive) immediately before trial; and that only Mr Rowley could have done this work.
[31] The Judge found:
[80] Finally and most fundamentally, Mr Rowley’s claim that the licence agreement had been produced and negotiated by Joyce Group in January 2005, and that he had altered not a word of it, appeared to be disproved by a document the Crown located on the portable hard drive. That device was produced by the accused. On it they claimed to have located only PDF copies of the licence and other transactional documents which will be discussed later in these reasons. The hard drive appeared to contain no Word documents, save in some MYOB folders. The absence of those Words documents is consistent either with the defence position that there were none, or with the Crown position that they had been deleted.
[81] But one document had not been fully deleted. That was a copy of the licence agreement with Ms Ertel which Mr Winter found in the deleted items folder when he analysed the hard drive. The metadata attached to the document showed that the author was “Dave & Avelyne” and the Word licensee was “TaiSan Trust”. It is a matter of record that Mr Rowley goes by the name “Dave”, that his wife is Avelyne Rowley, and they have a family trust called the “TaiSan Trust”. It is therefore highly probable that the document was edited when the hard drive was connected to Mr Rowley’s home computer.
[82] The metadata shows that the file was apparently accessed on 8 September 2005 with changes made that same day in the course of an eight minute session. Attached to the document are a series of embedded copyright statements. They appear in white print – so are not normally visible. They state variously that the document is subject to copyrights held by Envision SPS 2007, or Biztree 2006. If the licence agreement was genuinely entered in January or even September 2005, then these 2006/2007 copyright statements have no place in the document. There is, therefore, a very high probability that the document has been worked on the hard drive while connected to Mr Rowley’s home computer with its computer clock altered from a post-2007 date to 8 September 2005. Such alteration is functionally easy. The IT evidence given before me was the metadata [which] would then capture the source computer date as the only available temporal point of reference.
[32] Kós J rejected Mr Rowley’s attempt to explain these events, concluding that his answers under cross-examination were evasive and unsatisfactory.[23] He found that:
[85] ... Mr Rowley, contrary to his earlier evidence, had opened and edited a Word version of the Ertel licence document. I conclude that he altered the computer clock to mask that action and attempted unsuccessfully to delete the document for the same purpose. But I cannot be certain when he undertook those actions.
[33] He reached these further conclusions:
[87] Having considered the evidence of Ms Ertel, Mr Stevens, Mr Newman, Mr Uren, Mr Winter and that of the accused, I reach these conclusions. First, where in conflict, I prefer the evidence of Ms Ertel over the evidence of the accused. Second, I have no reasonable doubt remaining that the transaction entered in September 2005 was in accordance with the terms Ms Ertel described. Third, I do not believe the evidence of the accused that there was a genuine underlying transaction concerning carparking licences (negotiated by Joyce Group rather than themselves or Mr Stevens). Fourth, nor do I have any reasonable doubt that there was no genuine contemporaneous appointment of Ms Ertel as a discretionary beneficiary of the Mercer Trust and distribution to her (on a loan basis only) of the repayments she in fact received in September and November 2005.
[34] Kós J examined in similarly exhaustive detail the evidence on each charge in the 89 count indictment. Every invoice which fell for examination was false. The compelling inference was that both Messrs Skinner and Rowley were responsible for and thus knew of the underlying falsity. When coupled with the number, scale and nature of the false invoices, every adverse finding added incrementally to the evolving picture of a fraudulent scheme designed by Messrs Skinner and Rowley to enable TPS clients to evade liability for payment of tax.
[35] The defendants had only one possible chance of avoiding criminal liability – by offering exculpatory explanations of their participation in the transactions which might raise a reasonable doubt that they were dishonest. However, the Judge’s findings that they had fabricated many documents, on occasions right up to the start of trial, as part of an elaborate ex post facto attempt to legitimise the transactions were fatal. With the benefit of presiding over a long trial and evaluating firsthand the evidence of each witness including the defendants, the Judge made these findings:[24]
- (a) The explanations given to clients by Messrs Skinner and Rowley when entering into the transactions were that they were tax losses, third party debts or as a legitimate scheme to reduce taxation liabilities were unsustainable. Later justifications differed from those given to clients and were unrelated to the face narrative of invoices. Often the invoices were not received at the time of payment but were generated afterwards.
- (b) The agreements and supporting documents were frequently illogical in substance and in form and forensic analysis showed that some were false. Where agreements were produced in support of justifications for the invoices, none were signed by clients.
- (c) Repayment proportions to clients were frequently 76 per cent of the GST exclusive component and distributions were frequently in proportions of 3:1 in Mr Skinner’s favour.
[36] In combination, these findings led inexorably to the Judge’s satisfaction beyond reasonable doubt that neither Mr Skinner nor Mr Rowley had an honest belief that the invoices were genuine and to guilty verdicts on all except a small number of charges.
(a) Voluntary disclosure statements
[37] Mr Lithgow QC’s primary submission for Mr Skinner was that the Judge erred in drawing an adverse inference from failures by the defendants to maintain and repeat to the IRD during its investigation in 2010 that the underlying transactions were genuine.
[38] Mr Lithgow focussed particularly on both defendants’ participation in what are known as voluntary disclosures by TPS clients to the IRD. By s 19 of the Tax Administration Act 1994 the Commissioner has the following powers:
19 Inquiry by Commissioner
(1) The Commissioner may, for the purpose of obtaining any information with respect to the liability of any person for any tax or duty under any of the Inland Revenue Acts or any other information required for the purposes of the administration or enforcement of any of those Acts or for the purpose of carrying out any other function lawfully conferred on the Commissioner, by notice, require any person to attend and give evidence before the Commissioner or before any officer of the department authorised by the Commissioner in that behalf, and to produce all documents in the custody or under the control of that person which contain or which the Commissioner or the authorised officer considers likely to contain any such information.
(2) The Commissioner may require any such evidence to be given on oath and either orally or in writing, and for that purpose the Commissioner or the authorised officer may administer an oath.
[39] As part of its investigation into TPS’ affairs, the IRD issued s 19 notices to a number of its clients. Mr Lithgow stated that Messrs Skinner and Rowley often participated in IRD interviews with clients or advised them to make disclosure and abandon their original tax positions or claims. In all cases the taxpayers, Mr Lithgow observed, did not seek to maintain tax benefits previously claimed on transactions. Instead they agreed to repay those benefits without further investigation.
[40] In Mr Lithgow’s submission:
- (a) The Judge wrongly used the limited purpose and the content of voluntary disclosure statements to infer that because of their advice to TPS clients to make voluntary disclosures and settle disputed tax liabilities Messrs Skinner and Rowley had guilty minds, which was inconsistent with their defence at trial that the underlying transactions were genuine.
- (b) It was irrelevant to TPS clients’ decisions to make voluntary disclosures that the underlying transactions were or were not genuine: the only relevant factor was an acceptance that the transactions were not tax effective. Decisions about taxation liability had to be made promptly and the stakes were high. It was thus unnecessary and inappropriate for Messrs Skinner and Rowley to advise TPS clients to fight the IRD with all the associated risks. In Mr Lithgow’s words, voluntary disclosure is a taxpayer concession and not an advisor selfjustification.
[41] Mr Lithgow relied particularly on the Judge’s statements when considering the counts involving Harding Electrical Ltd:
[123] A few days later Mr Rowley appears to have approached Mr Moloney and said that voluntary disclosure should be made. He said there was a possible concern about tax avoidance, and the better course was to make a voluntary disclosure, reverse the tax position and avoid further problems. Voluntary disclosure documents were prepared by Mr Rowley.
[124] Where voluntary disclosures were entered into at the recommendation of the accused, on terms provided or approved by the accused, I bear that in mind as evidence going to the credibility of any allegedly genuine underlying transaction. This is not a s 35 issue. Rather it is a matter of drawing an inference against the accused’s evidence where it is inconsistent with a disclosure document bearing their own imprimatur.
...
[126] Towards the very end of the trial Mr Rowley gave evidence that he and Mr Skinner had not in fact been involved in the preparation of voluntary disclosures, albeit they had written to clients about them and had supplied them to clients directly on a number of occasions. His evidence was that they had brought in other staff accountants from TPS in the course of one weekend to develop the documents. The wording came from counsel. Mr Rowley said he and Mr Skinner did not review the disclosures and did not prepare them in any form. I do not accept that evidence. It is clear that in many cases the voluntary disclosures were entered into by clients on the written and verbal recommendation of the accused. Although Mr Skinner led that exercise, Mr Rowley accepted that he was aware of the approach being made to clients. In some instances (such as the present one) I accept the evidence of the client that Mr Rowley in fact was the person who provided the disclosure. I do not accept that either Mr Skinner or Mr Rowley did so without awareness that the voluntary disclosure documents threw doubt upon the validity of the underlying transactions as being deductible or claimable by way of GST input credit. If the explanations now given by the accused in evidence held any water at the time, I cannot accept that they would not have featured in some manner within the voluntary disclosures. The disclosure meant each client would face a substantial tax bill. The accused faced serious issues with, and potential liability to, their clients as a consequence.
[42] Mr Lithgow’s submission must be seen in perspective. As he acknowledged, this ground of appeal was against conviction “on most” of the dishonesty charges. To be more precise, this ground of appeal was limited to 62 of the 80 dishonesty counts on which Mr Skinner was found guilty. A submission could not be maintained that the Judge’s findings on the remaining 18 charges might have been influenced by the weight which he gave to the defendants’ silence when advising on s 19 disclosures.
[43] In our judgment Mr Lithgow’s argument fails for a number of reasons. First, its factual premise is directly contrary to the defence case and evidence at trial. Mr Rowley, on behalf of both defendants, denied advising TPS clients to make voluntary disclosure statements, as is shown by the very passage from the Judge’s decision upon which Mr Lithgow relies.[25] The Judge rejected this denial. His finding is unchallenged.
[44] On appeal the defendants through Mr Lithgow offer a different account of the facts: contrary to their denials at trial they now admit advising TPS clients that voluntary disclosures were “the available option” rather than engage in protracted litigation with the IRD. We cannot give any weight to a contradictory factual reconstruction advanced on appeal.
[45] Second, Mr Lithgow’s submission overlooks the context of the Judge’s primary findings about voluntary disclosure. The issue first arose when he was considering the eight counts relating to Harding Electrical Ltd. Mr Rowley had prepared two voluntary disclosure statements signed by Harding’s directors on 1 October 2010, accepting the company’s error in claiming expense payments in the 2006–2009 tax years.
[46] Before signing the statements, the directors took advice from Grant Pearson. He is an experienced tax practitioner and a partner in a Wellington law firm. Mr Pearson’s evidence was that when advising the directors he spoke with Mr Rowley. The latter told him that the transaction underlying the invoice was genuine – for goods supplied – but there may be some issues about journal entries.
[47] At trial, Mr Rowley maintained this explanation of a genuine transaction, giving a specific account of the source of the electrical stock said to be goods for which the invoice was issued: its purpose was to assist Harding’s cash flow problems.[26] Harding’s directors gave the same explanation when interviewed in Mr Pearson’s presence by the IRD. However, a few days later Mr Rowley approached one of the directors directly. He advised him to make a voluntary disclosure because of a possible concern about tax avoidance.
[48] In evidence at trial Mr Pearson said that in October 2010, immediately after Harding’s directors signed the disclosure, Mr Rowley visited him. Mr Pearson remembered and recorded in a letter to the IRD sent 10 days later Mr Rowley’s confession that his explanation given previously about the transaction was false and so were the invoices.[27] Mr Rowley denied this confession. After hearing both participants, the Judge accepted Mr Pearson’s evidence as truthful and correct.[28] Resolution of this conflict was directly relevant to the Judge’s assessment of the credibility of Mr Rowley’s account on all transactions and thus to his honesty.
[49] Third, once the Judge had found as a fact that Messrs Skinner and Rowley advised clients to make voluntary disclosures, he was entitled to take that fact into account when inquiring whether a particular transaction was genuine. Both defendants asserted unequivocally at trial, as they had when originally advising TPS clients to enter into the underlying transactions, that the original claims were lawful and accordingly the expenditure was properly deductible. However, when the IRD investigated the claims the defendants followed a different path: they advised many clients to accept without challenge a revised assessment to pay substantial amounts of tax without ever attempting to justify the validity of the original claim.
[50] The underlying inconsistency between these two lines of advice was telling to the credibility of Messrs Skinner and Rowley’s assertions of an honest belief in the transactions. The Judge had a proper evidential basis for inferring that if the explanations given in evidence “held any water at the time” they would have featured somewhere within a voluntary disclosure statement.[29]
[51] Fourth, the Judge’s findings of inconsistency were just one among a number of factors relevant to his adverse findings on credibility. They did not feature in his summary of conclusions and reasons for returning guilty verdicts.[30] We are satisfied that his verdicts are sustainable without taking into account his inconsistency findings based on the voluntary disclosures.
[52] Accordingly, this ground of appeal must fail.
(b) Section 32 of the Evidence Act 2006
[53] Alternatively, Mr Lithgow submitted that contrary to the prohibition provided by s 32 of the Evidence Act 2006 the Judge inferred guilt from silence by a defendant before trial, in failing to answer questions put or respond to statements made in the course of investigative questioning.
[54] Section 32 provides:
- Fact-finder not to be invited to infer guilt from defendant’s silence before trial
(1) This section applies to a criminal proceeding in which it appears that the defendant failed—
(a) to answer a question put, or respond to a statement made, to the defendant in the course of investigative questioning before the trial; or
(b) to disclose a defence before trial.
(2) If subsection (1) applies,—
(a) no person may invite the fact-finder to draw an inference that the defendant is guilty from a failure of the kind described in subsection (1); and
(b) if the proceeding is with a jury, the Judge must direct the jury that it may not draw that inference from a failure of that kind.
(3) This section does not apply if the fact that the defendant did not answer a question put, or respond to a statement made, before the trial is a fact required to be proved in the proceeding.
[55] In terms of s 32, Mr Lithgow submitted that the Judge erred in drawing an adverse inference of guilt from failures by either Messrs Skinner and Rowley to answer questions put in the course of an investigation before trial to disclose a defence at that stage.
[56] By way of example Mr Lithgow relied on these passages:
[177] In the present case, where there is a multiplicity of invoicing and it is more difficult to trace the invoices in a direct sense to the taxpayer’s financial statements (and thereby to their tax returns), the voluntary disclosures assume particular importance. I have already said that where disclosures were entered at the recommendation of the accused, on terms provided or approved by the accused (both of which apply here), they are relevant to the question of whether there was a genuine underlying transaction or not. My clear conclusion in the present case is that there was no such genuine supply.
...
[200] It is a singular feature of this case that so few of the taxpaying clients of TPS who were said to have entered into agreements to acquire carpark licences or apartments remembered having done so. It is an equally singular feature that their reactions on being told that they had were so pronounced.
...
[201] On 16 September 2010 – just four days before the s 19 interview between Ms Skiffington and the Revenue took place, Mr Skinner wrote to her noting the likelihood of an audit of TPS’s clients. He said that voluntary disclosure would be beneficial because the TAA provided a 75 per cent reduction in penalties otherwise imposed if taxpayers made a full voluntary disclosure before being notified of an audit. ...
[57] In our judgment Mr Lithgow’s argument is misconceived and can be answered shortly. Accepting but without deciding for the purposes of argument that s 32 applies to a Judge alone sitting without a jury, we are satisfied that Kós J was not drawing an adverse inference from failures by the defendants either to answer questions asked in the course of investigative questioning or to disclose a defence before trial. The passages from the High Court decision cited by Mr Lithgow refer unequivocally to Mr Skinner’s advice to TPS clients, not to IRD investigators. Mr Lithgow did not refer to any part of the Judge’s reasoning based upon a failure to answer questions by IRD investigators, who were in any event conducting inquiries for the purpose of obtaining information about the taxation liability of TPS’ clients.
[58] Furthermore, the adverse inference drawn by the Judge was not from failures in the investigative process to answer a question or disclose a defence. It was drawn from the inconsistency of the defendants’ advice to clients during the IRD investigation and explanations for transactions given before and after that event. Section 32 is designed to protect the defendants’ right to silence, described as a failure to disclose something, before and during trial. There can be no suggestion here that the Judge used silence as evidence of guilt. To the contrary, he gave adverse weight to statements made, to parties other than investigators before trial.
[59] It follows that Messrs Skinner and Rowley’s appeals against conviction on the dishonest use charges must fail.
Attempting to pervert the course of justice
[60] Our dismissal of Messrs Skinner and Rowley’s appeal against conviction on the dishonesty charges allows us to deal briefly with the charges of attempting to pervert the course of justice.
[61] Each defendant was charged with seven counts of attempting to pervert the course of justice based upon communications between Messrs Skinner and Rowley and seven clients before they attended compulsory s 19 interviews. As Kós J noted, the Crown was required to prove at the relevant times that each defendant (a) appreciated that an IRD investigation was on foot which might result in criminal charges being brought, either against them or their clients; (b) each knowingly supplied false information to their clients; (c) intended that the information should be used in the course of the IRD investigation; and (d) acted for the purpose of deflecting the IRD from prosecuting a criminal offence or leading evidence of the true facts.[31]
[62] The Judge found that on all seven occasions Messrs Skinner and Rowley spoke to clients before they were due to attend interviews. On each occasion they gave explanations and provided documents which were, as Mr La Hood observed, ex post facto concoctions. Their purpose was to defeat the IRD investigation, by promoting an appearance of substance to what was a false invoice issuing scheme.
[63] In these circumstances the Judge concluded:
[464] The invoicing scheme began to unravel towards the end of 2009. On 12 April 2010 the Revenue raided the accused’s offices. Twelve Revenue officers attended. A room-by-room search of the offices was conducted. It took 12 hours. Material was seized. Computers were forensically imaged. Such action against a registered tax agency was remarkable. At that point the accused, fully cognisant of their fraudulent conduct, could have been in no doubt that the Revenue investigations might result in charges against them (or their clients). The accused then generated the property transactions and other contract documents, and other correspondence, to suggest a genuine basis for the payments – albeit in terms unrelated to the invoices (which mention no such transactions. Those invoices of course could not be altered once they were in the hands of the client.) The accused then jointly set about seeking to persuade certain clients to justify or explain the payments in those new terms, when interviewed by the Revenue. By this time the clients had been summonsed to compulsory interviews with the Revenue under s 19 of the TAA. Unknown to the accused, one of the clients – a former police officer – made a recording of the meeting he had with Mr Skinner before his s 19 interview on his iPhone. That recording was played to the Court and showed Mr Skinner counselling the client to give explanations to the Revenue which are irreconcilable with proven facts.
[465] Contrary to plan, most clients told the truth to the Revenue when interviewed. Those that did not made unconvincing liars. One at least confirmed the true position following the interview. Most clients submitted voluntary disclosures to the Revenue, seeking reversal of the deductions and GST input credits hitherto claimed. The accused encouraged them in that course, on the basis that it reduced the level of penalties clients were potentially exposed to.
[64] Mr Skinner did not challenge this conclusion. The Judge’s reasoning about advice to make voluntary disclosures did not feature in his analysis of the seven charges. But, if it had featured, we would have dismissed the appeals for the same reasons as already given. Both appeals against conviction on the charges of attempting to pervert the course of justice must be dismissed.
Knowing provision of false information
[65] The Crown charged Messrs Skinner and Rowley separately with five counts each of knowingly providing false information to the IRD in their own income tax returns for the years 2006–2010. As the Judge noted, it was common ground that the Crown had to prove five elements: (a) the defendant provided information to the IRD; (b) the information was false; (c) the defendant knew the information was false; (d) the information related to tax law or something related to tax law; and (e) the defendant intended to evade the assessment or payment of tax by himself under a tax law.[32] The defence accepted that the first and fourth elements were established: the second, third and fifth were in issue.[33]
[66] The Judge was satisfied that each defendant intended to evade the assessment or payment of tax. Each knew that his acts or omissions were wrong.[34] Both intentionally avoided payment of tax where they knew they were obliged to pay. As the Judge concluded:
[468] As I have just explained in the reasons above, the invoice-writing and payment scheme in respect of which convictions were entered on counts 1 to 93 was a fraud on the Revenue. The proceeds of that fraud, received into the possession and control of the accused form part of their gross income and were required to be declared. They were not so declared. Their personal tax returns were understated. I am satisfied beyond reasonable doubt that the Crown has established that the accused knew that to be the case, and that the accused intended to evade the assessment or payment of tax.
(a) Section 109 Tax Administration Act 1994
[67] Ms Levy advanced two grounds in support of Mr Skinner’s appeal against conviction on these counts. First, she relied on s 109 of the Tax Administration 1994 which provides as follows:
109 Disputable decisions deemed correct except in proceedings
Except in objection proceedings under Part 8 or a challenge under Part 8A,—
(a) no disputable decision may be disputed in a court or in any proceedings on any ground whatsoever; and
(b) every disputable decision and, where relevant, all of its particulars are deemed to be, and are to be taken as being, correct in all respects.
[68] In Ms Levy’s submission the effect of s 109 is that Messrs Skinner and Rowley’s returns are conclusive proof that their relevant contents were correct. As the Crown accepted, a return is an assessment; and an assessment is a “disputable decision” within s 109. In this case the IRD neither challenged nor amended the defendants’ returns prior to trial.
[69] In the result, Ms Levy submitted, the Crown is bound in a criminal trial by an assessment with which it disagrees, regardless of who made the assessment. Thus, if the Crown intended to charge the defendants with submitting false returns, it was required to first undergo the pt 4A process of issuing a notice of proposed adjustment or invoking another statutory exception sufficient to raise an amended assessment. In support Ms Levy referred to this Court’s decision in R v Smith.[35]
[70] There is also a short answer to this ground of appeal. Messrs Skinner and Rowley were charged with knowingly providing false information to the IRD. The information was the amount quantified as income in various returns. Section 109 prevents a party in any proceeding, other than those specifically excepted, from calling into question or disputing the return and its particulars. The return is deemed to be a certificate of accuracy.
[71] The purpose of s 109 is plain. It is designed to ensure that all disputes and challenges capable of being brought under the statutory procedure are pursued in that way and not by some other legal means.[36] The reference to the dispute being “on any ground whatsoever” emphasises that the provision is directed to a challenge to the decision giving rise to liability to pay tax.
[72] However, the Crown’s purpose in producing the returns at trial was not to call into question or challenge their accuracy. To the contrary, it was relying on the returns as evidence that the defendants had falsely declared income in a particular year. The returns were the tangible or objective benchmark against which falsity was to be measured – that is of a failure to declare what each defendant knew was assessable income. The Crown proved that the defendants’ income was in fact much greater than that returned, as a table included in the judgment shows.[37] The Crown’s decision not to dispute the returns does not have the effect of foreclosing later reliance upon them as the appropriate basis for measuring falsity. As Mr La Hood submitted, proof of the charge of supplying false information did not require Kós J to determine whether the defendants’ returns were correct.
[73] This Court’s decision in Smith, where the appeal was against conviction on a charge of failing to account for PAYE, does not assist the defendants’ appeal. Mr Smith’s submission on appeal was that the trial Judge erred in directing the jury that the PAYE assessments were to be treated as correct.[38] This Court upheld the Judge’s direction that by virtue of s 109 the jury was bound to use the IRD’s assessments as the benchmark for determining whether there had been a misapplication of PAYE deductions.[39] However, the Court’s observation to this effect in Smith was strictly obiter, in answer to an argument raised on appeal which was not in issue on the facts. The defence focus was on showing that Mr Smith did not in fact have employees and was thus not obliged to deduct PAYE from their wages.[40]
(b) Defendants’ liability to tax
[74] Second, Ms Levy submitted that the Judge erred in concluding that the proceeds of the fraud were properly to be treated as the defendants’ income; and that they knew the proceeds were properly treated for that purpose. Ms Levy accepted that tax was payable on the monies retained from payments by TPS clients – not because it was obtained by fraud but because it was income in the hands of the receiving entities. However, the defence was that those parts of the retained funds paid to them personally were by way of redemption of prior advances. Accordingly, the repayments were not income and the returns were correct. In Ms Levy’s submission the Judge erred because even if the defendants knew they were committing fraud “the substantial portions of the net benefit of those frauds” which their companies received was returned as assessable income by those entities.
[75] We do not accept this submission. Messrs Skinner and Rowley mounted an elaborate defence to these charges on the ground that the funds were applied in repayment of inter-entity obligations. Various trusts and companies associated with them were involved.[41] Kós J rejected this defence, noting that the evidence “shows rather that the [defendants] simply helped themselves to distributions from the TPS trust account without bothering with the niceties of advance and repayment, or any formal documentation. In some cases appearance is in fact reality”.[42] He found that none of the entities which declared invoice receipts as income ever paid tax of any substance: income was inconsistently defrayed by deducting substantial corresponding expenses, the legitimacy of which could not be examined in the trial.[43] His rejection of these explanations is unsurprising, and consistent with his general rejection of the defendants’ evidence as lacking credibility.
[76] Ms Levy also submitted that it was unnecessary for the Judge to refer to the deeming provision found in s CB 32 of the Income Tax Act 2007. That provision, as the Judge noted, has a grouping effect where a number of entities are involved in fraud, requiring the perpetrators to declare the proceeds as income at the point of its receipt into their control prior to redistribution among other entities they are using to effect the fraud. In applying that section, the Judge found that its effect was to make the retained payment proceeds part of the gross income of the defendants; which they were required to declare regardless of the entity issuing the invoice or receiving the payment.[44] That is because all entities were within the defendants’ control and power.[45]
[77] We are satisfied that the Judge had a proper factual basis for applying s CB 32. His conclusion that the defendants were bound to declare as income the sums retained from payments by TPS clients was available. In terms of s CB 32(1), there was ample evidence that the money initially retained by TPS from the invoice payments was property obtained without claim of right and was within their possession or control. The amount retained was the defendants’ income.
[78] Plainly, Messrs Skinner and Rowley implemented and operated the scheme through third party entities which they directed or controlled. Once the proceeds were received by those entities, Messrs Rowley and Skinner had “obtain[ed] possession or control of property”. They were then personally obliged under s CB 32 to account for the funds as their income. It is irrelevant to performance of this obligation that the third party recipients might in fact have returned the proceeds separately as income. As the Judge observed, they were not entitled to “wash” the proceeds of their fraud through their own scheme, so that the money found its way to entities which were indebted to them personally. They could not avoid payment of tax by treating receipts as repayments of advances.[46]
[79] Ms Levy also submitted that Kós J erred in finding that Messrs Skinner and Rowley knew that the returns were false. She challenged the following conclusion:
[455] Fifthly, I am satisfied beyond a reasonable doubt that the Crown has shown that the accused knew that the returns were false. That knowledge can be inferred, as the Crown submitted, from the fact that the accused must have known that they were committing frauds (from which they received benefits), that they received substantial portions of the net benefit of those frauds into their personal accounts (or other associated accounts), that they applied the money to their own personal interests (or those of their associated trusts) and, because, given their knowledge as accountants and tax agents (with a speciality in tax planning), they must have known that income, even if the proceeds of fraud, must be declared to the Commissioner for tax purposes.
[80] Ms Levy made a related rhetorical submission to this effect: how were the defendants to know that their liability for those substantial portions of the net benefits of the frauds was to be imposed through a novel application of s CB 32? In the normal course the defendants would be expected to appreciate the elementary tax proposition that the income of a company under their control is not their personal income. Provided it is returned by the company, then that is all that is required.
[81] Ms Levy’s submission is answered by the last of the Judge’s own findings, cited above, and his immediately succeeding conclusion that: “I do not accept that [the defendants] were (as they sought to characterise themselves) somewhat dull witted or out of touch with the fundamentals of tax law”.[47]
[82] Messrs Skinner and Rowley’s appeal against conviction on the charges of providing false information fails.
[83] As noted, Mr Rowley but not Mr Skinner appeals against his sentence of eight years imprisonment.
[84] In fixing this term, Kós J adopted starting points (a) of six and a half years imprisonment for Mr Rowley (against seven years imprisonment for Mr Skinner, to reflect his marginally greater culpability) on the dishonest use charges;[48] and (b) of 18 months imprisonment for the attempted perversion charges.[49] Cumulative sentences were imposed for these two groups of offences: the cumulative starting point of eight years represented the sentence eventually imposed on Mr Rowley. While an additional starting point of two and a half years imprisonment for the false information charges was adopted, the Judge imposed sentences on these charges concurrently because he accepted that the offending did not add materially to the defendants’ overall criminality.[50]
[85] In support of Mr Rowley’s appeal, Mr Fairbrother submitted that the Judge erred by imposing cumulative sentences for the dishonest use and attempted perversion charges. He said that the latter were a progressive consequence of the former. In his submission, the advice which Mr Rowley gave to taxpayers who were summoned to s 19 interviews by the IRD was an act while perhaps misguided of support for TPS clients: it was said to show a commendable character trait. The opportunity to commit these offences was less Mr Rowley’s creation than a continued expression of a scheme which was found to have no substance. On this basis, all sentences should have been concurrent.
[86] We can answer this submission shortly. Our focus is on the end sentence imposed for the totality of Mr Rowley’s offending, not with its individual elements. It was well within range on that approach.[51]
[87] However, even if the sentence is approached according to its discrete components we are satisfied that the Judge could properly have adopted a starting point of eight years alone for the dishonest use charges.[52] In this case the revenue originally lost was around $3 million, although most was later recovered. The personal benefit for Messrs Skinner and Rowley was about $2.3 million.
[88] While the scheme was crude, it was nevertheless elaborate. Also, as Mr La Hood emphasised, it involved an abuse of the defendants’ status as tax agents with the IRD by virtue of which they enjoyed special privileges and dispensations; and the impact of their offending was profound and widespread, exposing TPS clients to statutory investigations with penal consequences and financial hardship as they were required to rearrange their affairs to satisfy income reassessments. It was fraud practiced on a cynical and widespread scale which merited a very substantial term of imprisonment.
[89] That conclusion is sufficient to answer Mr Rowley’s appeal. However, we add that when his associated offending is taken into account the sentence may be seen as generous. We add our rejection of Mr Fairbrother’s portrayal of Mr Rowley’s involvement in or motivation to commit the perversion of justice offences. While his conduct may be seen as a progression of his fraud, his actions were a separate and deliberate attempt to interfere with the course of justice. If viewed in isolation, we agree with Mr La Hood that this offending would have attracted a starting point of no less than three years imprisonment. Mr Rowley is fortunate that his sentences on these and the false information charges were effectively subsumed within what we would regard as an appropriate starting point of eight years imprisonment for the dishonest use charges.
[90] The appeals by Messrs Skinner and Rowley against conviction are dismissed.
[91] Mr Rowley’s appeal against sentence is dismissed.
Solicitors:
Crown Law Office, Wellington for
Respondent
[1] In this judgment the IRD is used collectively to refer both to the Inland Revenue Department and to the Commissioner of Inland Revenue wherever the relevant statutory provisions differentiate between the two entities.
[2] R v Rowley and Skinner (No 2) [2012] NZHC 1778, (2012) 25 NZTC 20-133.
[3] Crimes Act 1961, s 228(b). Four further counts, numbered 13, and 46–48, were dismissed during the course of the trial.
[4] Crimes Act, ss 117(e) and 66.
[5] Tax Administration Act 1994, s 143B(1)(c) and (f). See also R v Rowley and Skinner [2012] NZHC 1198, (2012) 25 NZTC 20-127 [Discharge application] for the High Court’s dismissal of the s 347 discharge application for these charges.
[6] R v Rowley and Skinner [2012] NZHC 2087 [Sentencing notes].
[7] At [26].
[8] At [8], n 3.
[9] Being counts 1–2, 33–34, 58–61, 88–90, 92–93.
[10] R v Stevens DC Wellington CRI-2011-085-3477, 7 November 2011.
[11] Crimes Act, s 228(b).
[12] At [41]. See R v Thompson [2005] NZSC 58; [2005] 3 NZLR 577 (CA) at [12]; R v Gunthorpe [2003] 2 NZLR 433 at [134]. See also R v Paterson [1976] 2 NZLR 394 (CA).
[13] At [47]. See Crimes Act, s 217 (definition of “obtain”) and Hayes v R [2008] NZSC 3, [2008] 2 NZLR 321 at [16].
[14] At [48].
[15] At [49].
[16] At [267].
[17] At [54]. Financial and other details of the transaction are set out in diagrammatic form at [11] above.
[18] At [58].
[19] At [72].
[20] At [64]–[67].
[21] At [78].
[22] At [78].
[23] At [83].
[24] At [267].
[25] At [126].
[26] At [107].
[27] At [128]–[130].
[28] At [130]–[132].
[29] At [126]
[30] At [458]–[461].
[31] At [398]; Crimes Act, ss 117(e) and 66.
[32] At [436], citing the Discharge application, above n 5, at [23]–[26]; Tax Administration Act 1994, s 143B(1)(c).
[33] At [437].
[34] At [457]; Babington v Commissioner of Inland Revenue (No 2) [1958] NZLR 152 (SC) at 156–157; Abraham v District Court at Auckland [2007] NZCA 598 at [39(b)].
[35] R v Smith [2008] NZCA 371, (2009) 24 NZTC 23,004; leave to appeal refused in Smith v R [2008] NZSC 110, (2009) 24 NZTC 23,176.
[36] Tannadyce Investments Ltd v Commissioner of Inland Revenue [2011] NZSC 158, [2012] 2 NZLR 153 at [53].
[37] At [440].
[38] At [12].
[39] At [19].
[40] At [5]–[7] and [19]. See also R v Allan [2009] NZCA 439, (2009) 24 NZTC 23-815 at [49]–[60].
[41] See [445].
[42] See [449].
[43] At [450].
[44] At [449].
[45] At [449].
[46] At [451]–[452].
[47] At [456].
[48] Sentencing notes, above n 6, at [41]–[42].
[49] At [47].
[50] At [48]–[49].
[51] See for example R v Dhillon [2009] NZCA 597, (2010) 24 NZTC 24,030.
[52] See R v Patterson [2008] NZCA 75 at [14]–[23], leave to appeal refused in Patterson v R [2008] NZSC 70; see at [3].
NZLII:
Copyright Policy
|
Disclaimers
|
Privacy Policy
|
Feedback
URL: http://www.nzlii.org/nz/cases/NZCA/2015/233.html