Allen v Commissioner of Inland Revenue
[2004] NZCA 184
•12 August 2004
IN THE COURT OF APPEAL OF NEW ZEALAND
CA82/03
BETWEENDONALD EUGENE ALLEN
First AppellantANDSILVER FERN TRUSTEES LIMITED
Second Appellant
ANDTHE COMMISSIONER OF INLAND REVENUE
Respondent
Hearing:16 and 17 March 2004
Coram:Hammond J
William Young J
Chambers JAppearances: G A Muir and C Fletcher for Appellants
J H Coleman and M J Ruffin for Respondent
Judgment:12 August 2004
JUDGMENT OF THE COURT DELIVERED BY WILLIAM YOUNG J
Table of Contents PARAGRAPH NUMBER INTRODUCTION [1] BACKGROUND AN ALLEGED FRAUDULENT INVESTMENT SCHEME [2] SILVER FERN TRUSTEES LTD AND THE WHENUAPAI HOUSE [7] THE SILVER FERN TRUST [14] THE INVESTIGATIONS INTO THE INVESTMENT SCHEME [18] THE ASSESSMENTS [25] THE COMMISSIONER ISSUES PROCEEDINGS [28] SUBSEQUENT STEPS [31] THE PROCEEDINGS WHICH GIVE RISE TO THE PRESENT APPEAL [39] OUR APPROACH TO THE CASE [41] THE STRIKE OUT ARGUMENTS OVERVIEW [44] THE WRONG SECTION ARGUMENT [45] WAS THE COMMISSIONER REQUIRED TO CANCEL THE EXISTING
ASSESSMENTS WHEN RETURNS WERE FILED?[59] THE CHARGING ORDER ARGUMENTS OVERVIEW [64] THE EVIDENTIAL BASIS FOR THE MAKING OF THE CHARGING ORDER [65] SHOULD THE AMOUNT SECURED BY THE CHARGING ORDER BE REDUCED BY 50% TO ALLOW FOR DEFERRABLE TAX? [70] CHALLENGES TO THE MAREVA INJUNCTION OVERVIEW [83] HAD THE COMMISSIONER ESTABLISHED A GOOD ARGUABLE CASE
SO AS TO WARRANT A MAREVA INJUNCTION?[84] THE ALLEGED NON-DISCLOSURE AT THE TIME OF THE EX PARTE
APPLICATION FOR THE MAREVA INJUNCTION[93] CAN THE PROCEEDS OF SALE OF THE WHENUAPAI PROPERTY BE
MADE SUBJECT TO A MAREVA INJUNCTION?[100] RESULT
[115]
Introduction
[1] This is an appeal from a judgment of O’Regan J delivered on 9 April 2003 (and reported at 21 NZTC 18,137) in which he dismissed applications seeking the striking out of a claim against Donald Eugene Allen on two tax assessments and for the setting-aside or modification of a charging order and Mareva injunction affecting Mr Allen and the second appellant, Silver Fern Trustees Ltd.
Background
An alleged fraudulent investment scheme
[2] This case has its genesis in what the Commissioner alleges is a fraudulent investment scheme promoted by Mr Allen and Paul Eugene Palmer. Both men are Americans.
[3] The scheme involved or purported to involve purchases of off-shore corporate structures through which high yielding investments were to be made. The off-shore structures typically were said to be based in Panama. The cost of these structures was in the order of US$5,500. Investors were told that the money they put up would generate returns in the order of, or up to, 15% compounding per month which would be remitted to New Zealand tax free. It is a sadly familiar story.
[4] This scheme was promoted through word of mouth, some newspaper advertisements and at “education” seminars in Fiji, Bangkok, Penang, Bali and Kuala Lumpur. Tickets to these seminars were sold through what seems to have been a multi-level marketing scheme.
[5] The scheme started in mid-1999.
[6] Between 17 August 1999 and 17 July 2001, approximately $9.5m was received of which approximately $4.35m was returned to investors. The money which came in, at least generally, went into a bank account in the name of Mr Palmer over which both Messrs Palmer and Allen had signing rights and cash flow cards. Much of this money went to Panama. The Commissioner’s case is that, leaving aside what was repaid to investors, the funds which were generated by the scheme were misappropriated in that they were not invested in the manner that was promoted to the investors but rather were used by Messrs Palmer and Allen for their own purposes.
Silver Fern Trustees Ltd and the Whenuapai house
[7] On 30 August 2000, an agreement was entered into by “Mork Allen Palmer and/or nominee” to acquire a property at 46 Puriri Road, Whenuapai, Auckland. The purchase price was $1.9m and the transaction was to be settled on 5 September. A deposit of $200,000 was paid. We assume that “Mork Allen Palmer” is Mr Palmer’s son.
[8] Mr Allen took possession of the property in September 2000 but the agreement for sale and purchase was not settled until 3 May 2001. The purchaser, presumably nominated by “Mork Allen Palmer”, was Silver Fern Trustees Ltd.
[9] Silver Fern Trustees Ltd was formed on 27 April 2001. The original shareholders and directors of the company were Messrs Allen and Palmer but Mr Palmer transferred his shares to Mr Allen in February 2002 and resigned as a director at that time. Since then, Mr Allen has been the sole shareholder and director of the company.
[10] The deposit of $200,000 was paid directly from Mr Palmer’s bank account which was used to receive the funds generated by what the Commissioner alleges was the fraudulent investment scheme. The balance of the purchase price was paid in May 2001 by a Panamanian entity which was referred to as “Fortune Management” in the trust account records of the solicitors acting for Silver Fern Trustees Ltd.
[11] In February 2002 Mr Allen obtained a revolving credit facility from ASB Bank. This facility was secured by mortgage over the Whenuapai property. Between 20 February and 4 March 2002 Mr Allen drew down $668,000.
[12] Mr Allen was requested by the ASB Bank to provide confirmation from Panama in relation to assertions which he had made to the bank as to his financial position, in connection with his application for this facility. As a result, on 11 March 2002, two Panamanian companies called “Fortune Development Systems, Inc” and “Fortune Management Services, Inc” wrote to the ASB Bank. The first of these companies confirmed that it acted for Mr Allen and managed “both his financial affairs and those of a number of related companies”. The letter from the second company provided copies of bank statements for an account which it presumably operated on behalf of Mr Allen or perhaps related entities. A number of those whom the Commissioner alleges to be victims of the fraudulent investment scheme had paid money directly into that account.
[13] Mr Allen has sworn affidavits in the proceedings but he has not, at any time, sought to explain in detail the funding arrangements in relation to the purchase of the house.
The Silver Fern Trust
[14] This trust was apparently settled on 27 April 2001 (ie on the date that Silver Fern Trustees Ltd was formed).
[15] The trust is in a form prepared by a Hamilton law firm, Fletcher Law. The settlor is Mr Allen. The trustee is Silver Fern Trustees Ltd. The “guardian” is “Fletcher Law Trustees Ltd”. The terms of the trust deed indicate that the house at Whenuapai is held by Silver Fern Trustees Ltd in its capacity as trustee of the Silver Fern Trust.
[16] There are some odd, indeed faintly risible, features to the trust. In cl 1.1.2, Mr Allen, as settlor, records that he has no intention of defrauding creditors, a strange contention to see in the trust deed and one which might be thought to “protest too much”. Amongst the purposes of the trust (recorded in cl 1.3) is the protection of “family assets from predators”. “Predators” are not defined but presumably include creditors of Mr Allen. The trust is in very general discretionary form with very broad powers conferred on the trustee (including powers to restructure the trust’s affairs and to vary the deed). The scheme of the trust is to provide benefits for Mr Allen’s family but to distance, as far as possible, the assets of the trust from any contention that Mr Allen personally has any interest in them.
[17] When Mr Allen sought finance from ASB Bank in early 2002, he did not disclose the existence of the trust to the bank. Instead, in his statement of position, he treated the house as his personal asset. When interviewed about the Whenuapai house by the Serious Fraud Office in October 2001, Mr Allen discussed the role of Silver Fern Trustees Ltd but likewise did not mention the trust. For this reason we have used the word “apparently” in para [14], although our impression from the material we have seen is that the trust deed probably was executed on or about 27 April 2001. Interestingly this was two months after a search warrant was executed on the Whenuapai house pursuant to an investigation (which we are about to mention) into the investment scheme.
The investigations into the investment scheme
[18] A Serious Fraud Office investigation commenced on 16 February 2001. A search warrant was executed in that month on the home in Whenuapai to which we have referred. It was then being used by both Messrs Palmer and Allen.
[19] On the incomplete material placed before us, it appears that difficulties with investors began to surface in the middle of 2001 with complaints about non‑payment.
[20] On 17 August 2001, Mr Palmer was arrested in Los Angeles while entering America. This appears to have brought the active, fund-soliciting side of the investment scheme to an end.
[21] In the course of its investigation, the Serious Fraud Office concluded that Mr Allen had been obstructive and he was charged with an offence under s 9 of the Serious Fraud Office Act 1990 associated with failing to answer questions. This seems to have been in late 2001. We do not have before us the particulars of that charge but we have a transcript of an interview between Serious Fraud Office investigators and Mr Allen that took place in October 2001. In the course of that interview Mr Allen undoubtedly behaved in an obstructive and unsatisfactory way.
[22] On 14 February 2002, the Whenuapai house was placed on the market. An auction was proposed for 17 April. Around the same time Mr Allen entered into arrangements for the purchase of another property.
[23] In March 2002, Consumer Magazine published an article about the investment scheme entitled “Busting a $10 Million Scam”. On the same day there was adverse coverage on TV3 news about Mr Allen.
[24] On 20 March 2002, Mr Allen was again interviewed by the Serious Fraud Office. This was also pursuant to s 9 of the Serious Fraud Office Act. On this occasion he was less obstructive and slightly more forthcoming in his answers than he had been in October 2001. He did not, however, provide anything like a comprehensive account of the financial transactions associated with the Whenuapai house.
The assessments
[25] On 4 April 2002, the Serious Fraud Office made contact with the Inland Revenue Department.
[26] Taking the view that Messrs Allen and Palmer were in partnership, the Commissioner concluded that they had derived income as follows:
1. For the year ending 31 March 2000 $1,757,561.39
2. For the year ending 31 March 2001 $4,287,463.41
The Commissioner decided to allocate this income equally between the two men. On that basis assessments were made on 8 April 2002 for the 2000 and 2001 income years. The tax payable by each (including late payment penalties and interest) was $433,479.26 for the 2000 income year and $1,079,654.10 for the 2001 income year. The notices of assessment identified 7 February 2001 and 7 February 2002 as the due dates for payment for the tax payable for the 2000 and 2001 income years respectively.
[27] The basis upon which the Commissioner treated the “profits” apparently made by Messrs Palmer and Allen as assessable is reasonably novel. It is largely (although not entirely) based on s CD6 of the Income Tax Act 1994, which we will be discussing in more detail later in this judgment. At this point it is sufficient to note that this section provides for the assessability of the “profits” of fraudulent schemes notwithstanding the existence of constructive trust obligations on the part of the taxpayer attaching to the fund which represent those “profits”. Assessability of profits in these circumstances has the potential to adversely affect the victims of fraud. This is addressed (perhaps not entirely satisfactorily) in s DJ18 which permits deductions where restitution is made. Exactly how these sections might work in practice was not explored in detail before us and we need make no comment on them other than to say that there was a sense in which the case for the Commissioner was presented on the basis that the Commissioner was perhaps a surrogate for the defrauded investors.
The Commissioner issues proceedings
[28] On 10 April 2002 the Commissioner issued proceedings against Messrs Allen and Palmer. These proceedings were issued on the basis of the assessments which were said to have been made under s 92 of the Tax Administration Act 1994.
[29] At the same time, the Commissioner sought, ex parte, leave to issue charging orders before judgment and a Mareva injunction. The charging orders were sought in relation to any money owed to Messrs Allen and Palmer by Silver Fern Trustees Ltd, shares held by Mr Allen in Silver Fern Trustees Ltd and interests which the Messrs Allen and Palmer had in a number of motor cycles. The Mareva injunction sought was addressed to Silver Fern Trustees Ltd requiring the retention of the net proceeds of sale of the Whenuapai property.
[30] Orders accordingly were made ex parte by Rodney Hansen J on 11 April 2002.
Subsequent steps
[31] When the proceedings were issued, the Commissioner was not aware of the existence of the Silver Fern Trust (or, perhaps to be more accurate, had not associated that entity with Mr Allen). As a result of material which came to light following service of the proceedings and the Mareva injunction, the Commissioner became aware of the trust’s apparent role in the ownership structure associated with the Whenuapai house.
[32] The material which the Commissioner had gathered was placed before Rodney Hansen J but he indicated that he did not see it as making any difference in relation to the orders he had made.
[33] Mr Palmer took no steps in the civil proceedings and accordingly the Commissioner has taken a default judgment against him.
[34] On 12 July 2002, the appellant was arrested and charged with conspiracy to defraud. His trial before a Judge and jury was underway at the time the appeal was heard before us. We are aware from news media publicity that he was found guilty and later sentenced to imprisonment.
[35] On 16 July 2002, Mr Allen filed in the Taxation Review Authority a challenge to the assessments.
[36] On 31 July 2002, Mr Allen filed returns for the 2001 and 2002 income years showing nil income. He has also filed a notice of proposed adjustment (“NOPA”) which is consistent with those returns and the Commissioner has responded with a notice of response which rejects the NOPA as invalid but also reiterates the position that the tax is owing.
[37] The Commissioner applied to strike out Mr Allen’s challenge as out of time. This application had not been determined when O’Regan J delivered the judgment which is currently under appeal. We note that the Commissioner’s application was later dismissed (on 19 May 2003) by Judge Willy sitting as the Taxation Review Authority. An appeal to the High Court against that decision has yet to be determined.
[38] The Whenuapai house was eventually sold in January 2003 and the proceedings of sale are now held subject to the Mareva injunction. Some of the funds held pursuant to the Mareva injunction have been paid out to the benefit of Mr Allen by order of the Court. We were told that the funds remaining subject to the orders made by Rodney Hansen J were in the order of $800,000.
The proceedings which give rise to the present appeal
[39] Mr Allen sought to strike out the Commissioner’s claim and alternatively the setting aside or variation of the charging orders and Mareva injunction.
[40] These applications were heard by O’Regan J and in the judgment now under appeal he dismissed all applications.
Our approach to the case
[41] All the arguments which were put to us were also advanced to O’Regan J although some of the arguments deployed in front of him were not repeated or were eventually abandoned in the course of the hearing of the appeal. Given the nature of the case, the aspects of his judgment which remain relevant are most conveniently considered in the context of the particular arguments which were advanced to us.
[42] We note that there have been changes to the relevant legislation since the events which give rise to the current proceedings. When referring to legislation, we will refer to provisions which were current at the relevant time.
[43] In the succeeding sections of this judgment we will discuss the case by reference to the primary arguments advanced to us in support of the appeal.
The strike out arguments
Overview
[44] Mr Muir’s arguments in support of the contention that the proceedings should be struck out narrowed in the course of the hearing of the appeal. At the conclusion of the hearing the only arguments which remained alive were that the assessments were issued under the wrong section of the Tax Administration Act 1994 and were thus invalid and that the Commissioner was obliged to cancel the assessments when returns were filed in July 2002.
The wrong section argument
[45] Sections 92, 106, 109 and 114 of the Tax Administration Act 1994 relevantly provided:
92 Commissioner to make assessments, determinations of loss, and other determinations
(1) From the returns made under sections 33, 34, 36 to 39, 41 to 44, 63, 79, and 80 and from any other information in the Commissioner's possession the Commissioner shall in and for every year, and from time to time and at any subsequent time as may be necessary, assess the taxable income and income tax liability of the taxpayer and the tax payable by the taxpayer.
106 Assessment where default made in furnishing return
(1) If any person makes default in furnishing any return, or if the Commissioner is not satisfied with the return made by any person, or if the Commissioner has reason to suppose that any person, although the person has not made a return, is a taxpayer, the Commissioner may make an assessment of the amount on which in the Commissioner's judgment tax ought to be imposed and of the amount of that tax, and that person shall be liable to pay the tax so assessed, save so far as the person establishes on objection or in proceedings challenging the assessment that the assessment is excessive or that the person is not chargeable with tax.
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.
114 Validity of assessments not affected by failure to comply with Act
The validity of an assessment shall not be affected by reason that any of the provisions of this Act or any of the other Inland Revenue Acts have not been complied with.
[46] Mr Muir maintains that the assessments in question were made under s 92. The notices of assessment do not say this, but in the statement of claim it is alleged that the assessments were made under s 92 and the same assertion is made in the affidavit of Greg Mark Bruce (an officer of the Inland Revenue Department) which accompanied the applications for leave to issue a charging order and a Mareva injunction.
[47] Mr Muir’s position was that s 92 applies only where a return has been filed. Messrs Allen and Palmer did not, prior to April 2002, file returns. For this reason, said Mr Muir, assessments could only be made under s 106.
[48] Relying on the decision of Judge Willy in Case V4 (2001) 20 NZTC 10,131, Mr Muir contended that the assessments were invalid. In Case V4 the Commissioner had issued an amending assessment in purported reliance on the provisions of the Tax Administration Act 1994 when the relevant empowering provisions were in the Income Tax Act 1976 (albeit in terms identical to those provided for in the Tax Administration Act). Judge Willy held that the invocation of the wrong Act invalidated the amending assessment. Mr Muir sought to argue that the reasoning in Case V4 applied equally to the assessments in the present case.
[49] Mr Muir also contended that the assessments were not saved by s 109. He said that the section simply could not mean what it appears to say. For instance in a prosecution for tax evasion, the prosecutor could obviously not side-step the need to prove that a particular return was false by simply relying on an assessment. There would have to be proof by direct evidence that the return was false. He also relied on Commissioner of Inland Revenue v Canterbury Frozen Meat Co Ltd [1994] 2 NZLR 681 where it was held (in relation to a strike out application) that what purported in that case to be an assessment was amenable to challenge in judicial review proceedings.
[50] For the respondent, Mr Coleman did not accept that assessments were necessarily issued under s 92. He noted that the assertions to that effect were made in the statement of claim and in the affidavit of Mr Bruce but this was at a time when there was no occasion to think that it made any difference whether the section invoked was s 92 or s 106.
[51] Mr Coleman referred to the odd subsequent history of Case V4. The Commissioner appealed to the High Court against the decision of Judge Willy. This appeal survived a strike-out application: Commissioner of Inland Revenue v Liburne Holdings Ltd (2001) 20 NZTC 17,268. In the end the taxpayers capitulated resulting in the assessments in question being upheld: Case V10 (2002) 20 NZTC 10,131.
[52] Mr Coleman accepted that s 106 might be thought to be more closely directed to the circumstances of the present case than s 92. But he contended that if the assessment had been made pursuant to s 92 this did not matter. Both ss 92 and 106 were empowering provisions and each permitted the assessments to be made. There is no reason for regarding s 92 as being available only to the extent to which the situation was not covered by s 106. In any event, on the assumptions that s 92 was the basis of the assessment and had not been available because no returns had been filed, this was of no moment. As a matter of administrative law such an error would not invalidate the assessment. In support of this argument Mr Coleman relied on not only administrative law decisions such as A J Burr Ltd v Blenheim Borough Council [1980] 2 NZLR 1 (CA), but also s 109.
[53] O’Regan J rejected the argument that the proceedings should be struck out on this ground. He said:
[25] Case V4 is not binding on me. I would not be prepared to find that an argument to the opposite effect is untenable. In any event, I do not believe it is on all fours with the present situation. In this case the Commissioner had alternative, valid, statutory provisions dealing with assessments. If the Commissioner made an assessment which s 106 allowed him to do but purported to do it under s 92, it does not follow that the assessment itself is invalid. The Commissioner has done something the legislation empowered him to do. There is nothing in the assessments which indicates the section under which they are made. The fact that the Commissioner thought s 92 was the appropriate provision does not prejudice the assessments if, in fact, what the Commissioner did was within the power given to him under s 106.
…
[32] In my view, the assessments were lawfully made under s 106. I treat them as being correct in all respects for the purposes of s 109 of the Tax Administration Act and leave it to the TRA to determine the dispute as to its effectiveness if the TRA determines it has jurisdiction to do so.
[54] The Judge also noted that cases where s 109 has been held not to be conclusive involved properly constituted claims seeking judicial review of the assessments in question. At no stage has Mr Allen taken judicial review proceedings in relation to the assessments.
[55] We are prepared to assume that the officer of the Inland Revenue Department who made the assessments (whom we take to have been Mr Bruce) thought that he was acting under s 92. That is essentially what Mr Bruce said in his affidavit. Further, the report to Mr Bruce from the investigator which provided the recommendations which were eventually acted on suggested the invoking of s 92.
[56] Mr Muir argued that where the taxpayer lodged a return following the making of an assessment under s 106, the taxpayer’s liability under the original assessment lapsed and the Commissioner was obliged to issue a fresh assessment under s 92. We address and reject that argument in the next section of this judgment: see paras [59] – [63] below. With the rejection of this argument, it is not clear to us what if any legal significance attaches to whether an assessment is made under s 92 or s 106.
[57] On an ordinary English approach to the language of s 92, the power to assess under that section is available to the Commissioner when no returns have been lodged but where there is other information available to the Commissioner which permits an appropriate annual assessment to be made. We see no reason to read down s 92 so that it has no application in cases in which s 106 is available.
[58] In any event, if s 106 was the only relevant empowering provision, mistaken reliance by the Commissioner on s 92 would not invalidate the assessment. In this respect we adopt the reasoning of O’Regan J in para [25] of his judgment (cited above in para [53]). We consider this approach to be in accordance with ordinary principles of administrative law as exemplified by Burr. The assessments are valid until set aside by a court of competent jurisdiction. These ordinary principles of administrative law are strengthened in their application to the facts of this case by the clear policy that underpins s 109. The significance of the policy is not negated merely because it is possible to postulate extreme cases in which literal application of s 109 might be unjust. It would be ludicrous to regard Mr Allen’s claim to have the assessments set aside as so overwhelming in strength as to warrant a strike out of a claim based on the assessments.
Was the Commissioner required to cancel the existing assessments when returns were filed?
[59] Mr Muir’s argument in this respect was based on s 106 of the Tax Administration Act.
[60] Despite the partial repetition (see para [45] above), it is appropriate to set out ss 106(1)-(1C) of that Act as they were in July 2002 and when O’Regan J gave his judgment:
106 Assessment where default made in furnishing return
(1) If any person makes default in furnishing any return, or if the Commissioner is not satisfied with the return made by any person, or if the Commissioner has reason to suppose that any person, although the person has not made a return, is a taxpayer, the Commissioner may make an assessment of the amount on which in the Commissioner's judgment tax ought to be imposed and of the amount of that tax, and that person shall be liable to pay the tax so assessed, save so far as the person establishes on objection or in proceedings challenging the assessment that the assessment is excessive or that the person is not chargeable with tax.
(1A) Despite Part 3A, if the Commissioner considers an income statement incorrectly summarises the particulars required by section 80E(2), the Commissioner may make an assessment of the amount on which the Commissioner considers tax ought to be imposed and of the amount of that tax.
(1B) The tax assessed is payable unless the person to whom an assessment under this subsection relates furnishes a return or an amended income statement under section 89D(2) in respect of that assessment period.
(1C) Subsection (1A) applies if a person to whom an income statement is issued does not inform the Commissioner of the reasons why the person considers the income statement is incorrect and provides the information the person considers necessary to correct the income statement by the date prescribed in section 80F.
(Our emphasis)
[61] The problem with s 106(1B), as it was first enacted, is that the word “subsection” which we have emphasised must be a mistake. It cannot refer to s 106(1B) (which is the literal meaning) because assessments are not made under that subsection. It is this problem which permitted Mr Muir to argue, as he did, that s 106(1B) applies to s 106(1). O’Regan J concluded, however, that the word “subsection” must logically be treated as referring to s 106(1A).
[62] We agree with O’Regan J. Subsections (1A)-(1C) were inserted in 1998 pursuant to s 27 of the optimistically styled Taxation (Simplification and Other Remedial Matters) Act. Section 27(1) provides for the insertion of the new subsections (1A) –(1C). Section 27(2) then provides:
Subsection (1) applies to the 1999-2000 and subsequent income years.
It is perfectly clear that the word “subsection” which appeared in s 106(1B) as inserted by s 27(1) of the 1998 Act was used in the same sense as it was in s 27(2) of that Act and refers solely to the cluster of provisions introduced by subsection (1) of s 27. So s 106(1B) never had application to an assessment under s 106(1) but only to an assessment under s 106(1A).
[63] Interestingly, this point has, since the judgment of O’Regan J, been put beyond doubt by an amendment to s 106(1B) effected by s 125 of the Taxations (GST, Trans-Tasman Imputation and Miscellaneous Provisions) Act 2003. This amendment to s 106(1B), with retrospective effect to the 1999-2000 and 2001-2002 tax years, replaces the phrase “this subsection” with “subsection (1A)”. Although not referred to by counsel, this amendment is plainly decisive of Mr Muir’s argument.
The charging order arguments
Overview
[64] The challenges to the charging order came down to two contentions:
1.There was an inadequate evidential basis for the making of the charging order; and
2.In any event, the amount of the charging order ought to have been reduced by 50% given the provisions of s 138I of the Tax Administration Act 1994. Essentially the same argument was also advanced in relation to the Mareva injunction.
There were other arguments advanced by Mr Muir in relation to the charging order (as to penalty and interest calculations) but they do not arise unless the second of the contentions we have mentioned is correct.
The evidential basis for the making of the charging order
[65] Rule 567 of the High Court Rules provides:
567 Leave to issue charging order
Leave to issue a charging order before judgment shall be granted only on proof that the opposite party, with intent to defeat either his creditors or the party applying or both—
(a) Is making away with his property; or
(b) Is absent from or about to quit New Zealand.
[66] Mr Muir claimed that there was no direct evidence that the appellant was making away with his assets. He also noted that Mr Allen’s passport had been surrendered as a bail condition associated with the charges initially laid by the Serious Fraud Office and that arrangements had been made for the purchase of another property.
[67] Mr Coleman argued that there was ample evidence to believe that there was a risk of dissipation.
[68] On this aspect of the case, O’Regan J observed:
[69] In my view, the affidavit evidence before the Court at the time of the grant of the charging order was sufficient to found a charging order. … The fact that pressure was coming on Mr Allen from disgruntled investors in the schemes referred to in the affidavits of Mr Osborn and Mr Bruce, the publicity generated by the article in Consumer magazine and the TV3 news item, the pending sale of the Whenuapai property which would place Mr Allen and/or the trust in a very liquid cash position, the fact that Mr Allen was the subject of charges by the SFO and had not co-operated at his interview with the SFO, the fact that he did not have an immigration status entitling him to remain in New Zealand, and that the scheme in which he was alleged to have participated involved the transfer of funds through various entities in Panama, provided an adequate basis for concluding the prerequisites of r 567 were satisfied.
[70] Mr Muir argued that, as Mr Allen’s passport had been surrendered as a condition of his District Court bail on the charges laid by the SFO, it was not possible for him to leave New Zealand. I accept that was so, but also accept Mr Ruffin’s response that a guilty plea on the minor charge which he faced at the time of the initial order would have seen his passport returned to him. In addition, there is no guarantee that the terms of his bail would not be changed, or that he would be permitted to leave the country temporarily ‑ indeed, he requested that he be allowed to do so in order to attend a family funeral but this request was denied. Mr Muir also pointed out that Mr Allen had intended to buy another house in New Zealand, though the bank funding for this purchase was withdrawn after the SFO inquiries became known by the bank.
[71] In any event, departure from New Zealand is only one of the two alternatives referred to in r 567 – I am satisfied that the fact that Mr Allen was in the process of turning the major asset of the trust into cash, coupled with the other factors referred to above, was sufficient proof of an intention to make off with his property to avoid creditors generally (principally those said to have been misled by the fraudulent activities of Mr Palmer in which the SFO said Mr Allen was involved).
[69] We agree entirely with O’Regan J on this aspect of the case which we see as too plain for serious argument.
Should the amount secured by the charging order be reduced by 50% to allow for deferrable tax?
[70] Section 138I of the Tax Administration Act 1994 relevantly provided:
138I Payment of disputed tax
(1) A disputant is liable to pay the non-deferrable tax relating to any tax in dispute on the due date for payment of the tax specified in the notice of assessment that is the subject of the challenge.
(2)A disputant is not liable to pay—
(a) The deferrable tax relating to any tax in dispute; or
(b)A shortfall penalty, where the penalty is payable in respect of any tax in dispute; or
(c)The interest accruing under Part 7 on that deferrable tax or that shortfall penalty—
until the due date for payment of that deferrable tax.
[71] The expression “disputant” is defined as meaning:
A person—
(a) Who may issue a notice of proposed adjustment to the Commissioner; or
(b) To whom the Commissioner issues a notice of proposed adjustment or an assessment; or
(c) Who may challenge a disputable decision—
under a tax law:
A “disputable decision” includes an assessment.
[72] Importantly the expression “deferrable tax” was at the relevant date defined as meaning:
50% of—
(a) The amount of tax assessed under a tax law as payable by a taxpayer or disputant …
… that the disputant challenges as payable under Part VIIIA; and ‘non‑deferrable tax’, … means the other 50% of that tax.
[73] We note that there is now s 138I(2B) which became effective on 1 April 2003 and provides:
(2B) Despite subsection (2), the Commissioner may require a disputant to pay all tax in dispute that is the subject of the challenge if the Commissioner considers that there is a significant risk that the tax in dispute will not be paid should the disputant's challenge not be successful.
[74] Mr Muir’s argument is that Mr Allen is entitled not to pay “deferrable tax” representing 50% of the amount assessed on the basis that he has issued challenge proceedings in the Taxation Review Authority. He claimed that s 138I(2B) should not apply as the assessments in issue were issued before 1 April 2003.
[75] Mr Coleman’s position is that there has been no lawful challenge to the assessments; this because Mr Allen’s challenge was lodged out of time and its status has yet to be determined. Further, he noted that, with effect from 1 April 2003, s 138I(2B) permits payment of all tax in dispute to be paid if the Commissioner considers that there is a significant risk that the tax in dispute will not be paid. As well, the orders relate to the taxation liabilities of not only Mr Allen but also those of Mr Palmer (in respect of which the Commissioner has a default judgment). Finally Mr Coleman did not accept that the deferrability of tax under s 138I was necessarily inconsistent with the existence of legal proceedings in the High Court in relation to the entire amount of the tax assessed.
[76] In his judgment, O’Regan J noted that all Mr Allen had done was to seek the leave of the Taxation Review Authority to commence a challenge and he then went on:
[77] I do not accept the argument that the seeking of such leave amounts to the commencement of a challenge. It is clear from the terms of s 138D that the obtaining of leave from the TRA to commence a challenge is a prerequisite before valid challenge proceedings can be commenced. Unless and until the TRA gives the necessary leave and the challenge proceedings are actually commenced, Mr Allen is not entitled to the benefit of s 138I. Accordingly, the full amount of tax remains payable in the absence of valid challenge proceedings, and there is no basis for reducing the amount of tax claimed by the Commissioner and subject to the charging order, by 50%.
[77] Since the judgment of O’Regan J, the Taxation Review Authority has dismissed the Commissioner’s application to strike out Mr Allen’s challenge. If that decision stands, the result will be that Mr Allen will have a live challenge before the Taxation Review Authority and thus a prima facie entitlement to defer 50% of the tax assessed against him. We note that there is still an unresolved appeal against the decision of the Taxation Review Authority, and, at least until that appeal has been resolved, it might be unsatisfactory to proceed on the assumption that the challenge which has been lodged is effective. This, in itself, could be a sufficient basis for dismissing this aspect of the appeal but there is no need to proceed on this basis because there are two other reasons which warrant the rejection of Mr Muir’s contention that the amount secured by the charging order should be reduced to cover only non-deferrable tax payable by Mr Allen under the assessments.
[78] The first of these reasons is that we do not see the invocation of s 138I as making any difference to the amount to be retained by the charging order and Mareva injunction. The funds held are limited (around $800,000) and are potentially subject not only to the claims against Mr Allen but also to the judgment debt against Mr Palmer. In saying this, we recognise that the Mareva injunction was obtained on the footing that the Whenuapai property belonged to Mr Allen. The $200,000 deposit, however, was paid from Mr Palmer’s bank account and the probabilities are that the rest of the money used to settle the purchase was sourced, indirectly, from the same account.
[79] Secondly, we think that the Commissioner is entitled to invoke s 138I(2B). This section was introduced by s 117 of the Taxation (Maori Organisations, Taxpayer Compliance and Miscellaneous Provisions) Act 2003. When that Act was passed, Parliament addressed carefully when its various provisions were to come into effect. There are no transitional provisions associated with s 138I(2B), which we therefore see as conferring on the Commissioner a new power which he can exercise at any time on or after 1 April 2003.
[80] There is one other possible basis upon which the argument advanced by Mr Muir could be rejected.
[81] When the proceedings were issued there were assessments in place which, by reason of s 109 of the Tax Administration Act, established the indebtedness of Mr Allen. If the actions taken by Mr Allen constituted an effective challenge to those assessments with the effect that 50% of the amount assessed was no longer payable, this would fairly warrant the conclusion that judgment should not be entered against him on the assessments. On that basis, the High Court would be entitled to adjourn the civil proceedings until the outcome of the challenge was known. But the full amount assessed would still be claimed by the Commissioner and it is not clear that Mr Allen would be entitled to some form of order which restricts the amount of the claim to 50% of what was being assessed. This is a novel issue in respect of which no authority was cited to us and it therefore falls to be determined on a first principles basis, albeit one which is informed by practical considerations of policy.
[82] It should be borne in mind that there were serious allegations of fraud against Mr Allen and, as at the time the charging order was made, evidence indicating that he was making away with assets. It would be repugnant to commonsense to permit Mr Allen, by filing what might be no more than a tactical challenge, to free up assets for what might be further dissipation. On the other hand, it may be that an argument in favour of Mr Allen is available by way of analogy with the approach taken in Zucker v Tyndall Holdings plc [1992] 1 WLR 1127 and the line of cases discussed by Lawrence Collins in “The Legacy of The Siskina” (1992) 108 LQR 175. Given that this line of argument advanced on behalf of Mr Allen must fail anyway and recognising that s 138I(2B) means that this precise point will not arise again in the future, there seems no point in us setting out to determine this esoteric issue.
Challenges to the Mareva injunction
Overview
[83] Mr Muir challenged the Mareva injunction on grounds which included his s 138I argument which we have just rejected. But he also raised the following points which require particular discussion:
1.The Commissioner had not established a good arguable case so as to warrant a Mareva injunction.
2.There was non-disclosure at the time of the ex parte application for the Mareva injunction.
3.There was no basis for treating the proceeds of sale of the Whenuapai property as subject to the Mareva injunction.
Had the Commissioner established a good arguable case so as to warrant a Mareva injunction?
[84] We start with s CD(6) of the Income Tax Act 1994:
CD 6 Gross income derived from certain property
(1) The gross income of a person is deemed to include an amount equal to the market value of property the possession or control of which that person obtained without colour of right.
(2) Subsection (1) applies notwithstanding the existence of any constructive trust of which the person is the trustee.
[85] Mr Muir sought an evaluation of the strength of the Commissioner’s underlying tax arguments. In part his approach was that if the arguments were weak, then, notwithstanding s 109 of the Tax Administration Act, that supposed weakness would at the least tell against the granting of a Mareva injunction. But he also contended that a Mareva injunction was not available to the Commissioner unless the Court was satisfied that the underlying tax arguments available to the Commissioner constituted a good arguable case.
[86] Mr Coleman, for the Commissioner took his stand on s 109. But in any event he said that the Commissioner’s argument as to liability was sound.
[87] O’Regan J dismissed Mr Muir’s arguments in this way:
[84] I accept that there is a better case in the present context for the Court to go behind the assessments, notwithstanding s 109. But the wording of s 109 is wide, and I interpret it as applying in the present situation. I therefore decline to go behind the assessments, and undertake a review of the legal and factual analysis founding them. That is what challenge proceedings are for. Mr Allen has chosen (as he is entitled to) the TRA as the venue for the determination of the rights and wrongs of the assessments, if the TRA permits the challenges to be commenced out of time. I do not propose to duplicate the exercise which the TRA will undertake if the challenges are permitted.
[88] We agree with O’Regan J and for the reasons he has given.
[89] In any event we are firmly of the view that the Commissioner’s underlying tax argument is of formidable strength, at least on the basis of the material we have seen.
[90] On the material advanced by the Commissioner there was a solid evidential foundation for the view that Messrs Allen and Palmer were in-substance partners engaged in the business of promoting a fraudulent investment scheme. Mr Muir’s detailed arguments to the contrary struck us as too flimsy to warrant repetition in this judgment. Such a partnership of course is not recognisable as a matter of law. As to this, see Everet v Williams (unreported, Court of Exchequer, judgment delivered 6 December 1725), a decision better known as The Highwayman’s case, discussed (1893) 9 LQR 197 and in Lindley on Partnership, 17th ed. at para 8.07. Profits made pursuant to a partnership that is illegal may nonetheless be taxable.
[91] As there is scope for the view that Messrs Allen and Palmer were in the business of marketing a fraudulent investment scheme, it might be thought not inconsistent with taxation principles to treat the “profits” of such a business as taxable. This factor might serve to distinguish the present case from A Taxpayer v Commissioner of Inland Revenue (1997) 18 NZTC 13,350 where the money stolen by a thief was held not to be taxable. The taxpayer in that case had not been carrying on business as a thief, a point made in the judgments. We also recognise, however that much of what was said in that case could be seen as applicable to the present facts. The “profits” generated by Messrs Allen and Palmer would, on the Commissioner’s analysis, probably be regarded as being held on constructive trust for their victims and this in itself very much points away from assessability as the A Taxpayer case shows. Section CD6 (which was enacted in 1998), however, was plainly intended to overcome the impact of that judgment.
[92] Mr Muir’s contended that s CD6 has no application as the investors consented to the payment of the relevant funds into Mr Palmer’s bank account and that accordingly the money was not obtained without colour of right. But this argument is unsound. What happened to the funds after receipt into Mr Palmer’s account can fairly be regarded as misappropriation without colour of right (see for instance the offence created by s 220 of the Crimes Act 1961).
The alleged non-disclosure at the time of the ex parte application for the Mareva injunction
[93] The Mareva injunction was obtained ex parte. Consequently there was a requirement on the part of the Commissioner to make appropriate disclosure: see for instance Brink’s – MAT Ltdv Elcombe [1988] 3 All ER 188. No doubt a plaintiff who fails to make appropriate disclosure is at risk of adverse consequences which may, perhaps, extend to the discharge of the order inappropriately obtained (albeit that if the order was otherwise warranted, a further order is likely to be made, as in the Brinks - MAT case). But, given that there is an entitlement to seek review of orders made ex parte and such review proceeds on a de novo basis, the power to discharge an ex parte order on this ground is likely to be exercised only in egregious cases.
[94] Mr Muir argued that there had been failures on the part of the Commissioner to disclose relevant material at the time of the application for the Mareva injunction, in particular, the possibility that Mr Allen might have the advantage of the United States/New Zealand Double Tax Agreement and possible weaknesses in the Commissioner’s underlying tax arguments. He also complained that the Commissioner put to Rodney Hansen J the transcript of an interview conducted under s 9 of the Serious Fraud Office Act despite what he claims was its inadmissibility under s 28 of that Act.
[95] Mr Coleman denied that there any relevant non-disclosure and asserted that the interview transcripts were admissible.
[96] O’Regan J discussed these arguments in detail. He concluded that the disclosure made was adequate. He was of the view that the interview transcripts were admissible as s 28(1) of the Serious Fraud Office Act applies only to “self‑incriminating statements”.
[97] The arguments raised by Mr Muir were carefully reviewed by O’Regan J and Mr Muir has not come close to persuading us that the Judge was wrong. The Double Tax agreement issue was not seen by Mr Muir as sufficiently strong to be deployed by him in support of his challenges to strength of the Commissioner’s underlying tax case. As is apparent we regard that case as being of substantial weight and are not persuaded that it was over-sold to Rodney Hansen J.
[98] On the admissibility question, the approach taken by the Commissioner was in accordance with what authority there was on point: R v Ross [1998] DCR 690. It would appear to be right at least on a literal approach of the section. Further, if a non-literal approach is taken to s 28, there is something to be said for the view that the admissibility limitation is confined to criminal proceedings against the person who made the statement.
[99] In any event, the case for the Commissioner did not depend on what the appellant said at interview. Indeed, if the Commissioner had not disclosed the existence of the transcripts to Rodney Hansen J this would no doubt have been criticised by Mr Muir on the basis that the Commissioner’s disclosure obligations required that Mr Allen’s explanations be given to the Judge. It is simply untenable to suggest that the use of these transcripts warrants the setting aside of the Mareva injunction even if they were inadmissible.
Can the proceeds of sale of the Whenuapai property be made subject to a Mareva injunction?
[100] Mr Muir claimed that the Commissioner had no entitlement to a Mareva injunction against the Silver Fern Trust which he maintained was a third party distinct legally from Mr Allen. He claimed that it was irrelevant whether the funds used to purchase the Whenuapai property were “the trust’s own funds, or represent funds advanced to it by [Mr Allen]”. He contended that any liabilities of the trust to third parties (amongst whom he presumably included Messrs Allen and Palmer) did not warrant a granting of a Mareva injunction against the trust and thus against Silver Fern Trustees Ltd.
[101] Mr Coleman maintained that the proceeds of sale from the Whenuapai home were properly subject to the Mareva injunction. He maintained that there was solid evidence for the view that the fund is “in truth that of [Mr Allen]”. He noted that the Commissioner might in the future allege that the trust is a sham and that it was appropriate to leave the injunction in place.
[102] O’Regan J thought it reasonable to proceed on the basis that the entity apparently called “Fortune Management” which provided the bulk of the funds for the acquisition of the Whenuapai property was the entity which supplied financial information to ASB Bank. He noted that Mr Allen felt able in his capacity as a director of Silver Fern Trustees Ltd to offer the Whenuapai property as security for a loan which ASB Bank made to Mr Allen and that he had included it in a list of his personal assets in documentation he made available to the bank in support of his application for the loan. Mr Allen has extensive powers of control in relation to the trust.
[103] O’Regan J was prepared to proceed on the basis that the trust was not a sham, albeit that he plainly thought it arguable that the assets of the trust in fact belonged to Mr Allen. He likewise thought that it was at least likely that Fortune Management could be treated as the alter-ego of Mr Allen so that the advance by Fortune Management to Silver Fern Trustees Ltd could be treated as being, in substance, an advance by Mr Allen.
[104] He concluded by saying:
[135] In my view, it is just and convenient in this case that the Mareva injunction should remain in place so that the issue as to the true ownership of the proceeds of sale of the Whenuapai property can be determined by the Court after full evidence and argument, assuming that the Commissioner is successful in the TRA proceedings. It would be wrong to determine the matter on the basis of Mr Allen’s assertion that the proceeds of sale of the Whenuapai property are the assets of the trust, in view of the evidence put forward by the Commissioner as to the source of the funds. If there is a debt owing by the trustee company (as trustee of the trust) to Mr Allen, the debt would be subject to the charging order in any event.
[136] I note there is no evidence put forward by the trustee company as to any prejudice to the interests of the trust or of any of the other beneficiaries of the trust. The amendments made to the Mareva injunction before Christmas were designed to allow for living expenses of the members of Mr Allen’s family who are beneficiaries of the trust.
[137] I conclude that it is just and convenient in this case not to accept Mr Allen’s assertion that the proceeds of sale of the Whenuapai property are the exclusive property of the trust, and therefore determine that it is appropriate that the Mareva injunction continue in respect of those proceeds of sale, pending a full inquiry as to the actual ownership of the proceeds of sale of the Whenuapai property.
[105] The grant of a Mareva injunction is most obviously appropriate in cases where the assets to be frozen unquestionably belong to the defendant. But the availability of a Mareva injunction is not confined to that situation. For instance, there may be disputes as to the beneficial ownership of the property in question. The existence of such a dispute is not in itself an objection to the grant of an injunction.
[106] Does the jurisdiction go beyond situations where the property to be frozen is, or arguably is, owned by the defendant?
[107] In TSB Private Bank International SA v Chabra [1992] 1 WLR 231 assets held by a company in which the defendant was the principal shareholder were subjected to a Mareva injunction; The Judge (Mummery J) proceeded primarily on the basis that it was arguable that the assets ostensibly owned by the company really belonged to the defendant. But his judgment makes it clear that there were other concerns. A disposition of assets by the company would have the potential to diminish indirectly the value of the defendant’s share in the company. Further, there was a risk that the company would aid and abet the defendant in attempts to render himself judgment-proof and in a way which was in breach of orders made against him personally. It may well be that those concerns would have warranted the order against the company irrespective of the plaintiff’s contention that the company’s assets really belonged to the defendant.
[108] What if the third party owes the defendant money and has assets within the jurisdiction against which that debt can be enforced? Is it appropriate to use a Mareva injunction to freeze those assets within the jurisdiction? If the third party is a perfectly reputable bank which is amenable to the jurisdiction of the New Zealand courts, such restraint would be plainly unreasonable. In such a situation all that is required is an injunction freezing the defendant’s bank account. But if the third party is closely associated with the defendant, the position may well be different. In this situation, the defendant may be able to preclude later effective enforcement of any judgment simply by removing the underlying asset from the jurisdiction of the New Zealand courts. In those circumstances it may very well be fair and reasonable to make orders which ensure that the assets which underlie and underpin the value of any debts owed to the defendant remain under the control of the New Zealand courts. This is particularly the case where there are indications that the third party will otherwise co-operate in attempts intended to render the defendant judgment-proof.
[109] Many of the cases involve defendants who have sought judgment-proof status. Assertions of such status often do not withstand scrutiny when all the facts are known. Underpinning that status may be transactions which are intended to defeat creditors and are voidable under s 60 of the Property Law Act 1952 or are able to be set aside under insolvency legislation. There seems to us to be no reason why assets which are potentially subject to such claims should not be the subject of a Mareva injunction. That was broadly the basis upon which this Court proceeded in Shaw v Narain [1992] 2 NZLR 544. A similar approach was taken by Hirst J in Aiglon Ltd v Gua Shan Co Ltd [1993] 1 Lloyd’s Rep 164.
[110] A perhaps more conservative approach was taken by Clarke J in the Supreme Court of New South Wales in Bank of Queensland Ltd v Grant [1984] 1 NSWLR 409. He took the view that a Mareva injunction was simply not available in circumstances in which the defendant had already divested himself of assets unless there was an arguable case against the transferee, perhaps for conspiracy.
[111] The relevant law is helpfully reviewed by Peter Devonshire in two articles to which we have referred, “Mareva Injunctions and Third Parties: Exposing the Subtext” (1999) 62 MLR 539 and “Freezing Orders, Disappearing Assets and the Problem of Enjoining Third Parties” (2002) 118 LQR 124.
[112] Our impression of the authorities is that the Courts have tended to avoid giving a definitive answer to the question we have posed in para [108] and have done so by concluding that apparent attempts to render the defendant judgment-proof mean that there is an arguable case for regarding the assets held by the third party as belonging to the defendant. Third parties who have become mixed up in a defendant’s attempt to defeat execution of any later judgment are likely to receive scant sympathy in the context of a Mareva injunction application: see Mercantile Group (Europe) AG v Aiyela [1994] QB 366. Associated arguments as to sham and perhaps even public policy may be available. Where as here, there is prima facie evidence of fraud on a substantial scale, it is likely that ownership structures apparently associated with the alleged fraud will be simply part of the fraud and in this situation it must be open to the Courts to attribute ownership of the relevant assets to the defendant.
[113] Against that background the case for a Mareva injunction is overwhelming. There is a strong case for the view that Mr Allen was part of a fraudulent scheme which involved the misapplication of funds supplied by New Zealand investors. The deposit of $200,000 was paid from the bank account which received those funds. A significant proportion of what the Commissioner alleges was misappropriated wound up in Panama. A little under $2m was paid by Fortune Management, from Panama, to fund the balance required to complete the purchase of the Whenuapai house. Mr Allen did not give any real explanation for this. There is evidence suggesting that Fortune Management had a role in the underlying frauds (given that some of the victims had paid money direct to it). In any event it is well open to inference on the evidence which we have seen that the money used to the purchase of the Whenuapai house represented the proceeds of frauds committed by Mr Allen. The ownership structure associated with the Whenuapai house very much suggests an attempt by Mr Allen to make himself judgment-proof and Silver Fern Trustees Ltd has undoubtedly become mixed up in that attempt. The whole situation is redolent of fraud. Further, it will be recalled that Mr Allen dealt with ASB Bank on the basis that the house was his. It is profoundly unsatisfactory that he should treat the house as his when dealing with the bank but as belonging to the trust when he is sued by a creditor.
[114] There is one other point we should mention. As we have noted, there is a sense in which the Commissioner might be seen as a surrogate for the apparently defrauded investors. In proceedings by such investors against Mr Allen, it might well be alleged that the Whenuapai house should be regarded as held on constructive trust for them. Where a plaintiff claims an interest in a fund under the control of the defendant, interim injunctive relief is available on the basis of that asserted interest and resort to Mareva principles is unnecessary; this for the reasons explained by Peter Devonshire in 62 MLR at 545 and following. Given the provisions of s CD6 of the Income Tax Act, it seems to us to be appropriate to treat the existence of such a constructive trust as being, at worst for the Commissioner, a neutral factor. In other words, the possibility that the house at Whenuapai belonged in equity to some or all of the apparently defrauded investors is hardly a factor which would warrant refusing Mareva relief (thus providing Mr Allen with the opportunity of dissipating the proceeds of his alleged frauds to the further detriment of the investors).
Result
[115] The appeal is dismissed.
[116] The appellants are to pay (with liability on a joint and several basis) costs to the respondent in the sum of $12,000 together with reasonable disbursements (including the travelling and accommodation expenses of counsel, if any) to be agreed and in default of agreement to be fixed by the Registrar.
Solicitors:
Bradbury & Muir, Auckland for Appellants
Crown Law Office, Wellington for Respondent
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