Avowal Administrative Attorneys Ltd v District Court at North Shore HC Auckland Civ-2006-404-7264

[2008] NZHC 2692

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IN THE HIGH COURT OF NEW ZEALAND  CIV-2006-404-7264

AUCKLAND REGISTRY

BETWEEN                AVOWAL ADMINISTRATIVE

ATTORNEYS LIMITED First Applicant

A N D  J B LLOYD CHARTERED ACCOUNTANTS

LIMITED

Second Applicant

A N D  PETER JAMES BLOOMFIELD AND

NORMA RAE CLARK Third Applicants

AND  AMANDA JANE CHISNALL AND IAN

ANDREW FLEMING Fourth Applicants

A N D  DENISE ANNE CLARK

Fifth Applicant

A N D  WENDY CAROLINE VOOGHT

Sixth Applicant

A N D  LISA CHERRIE WATKINS AND WILLIAM

DAVID WATKINS Seventh Applicants

A N D  NIKYTAS NICHOLAS PETROULIAS

Eighth Applicant

A N D  THE DISTRICT COURT AT NORTH SHORE

First Respondent

A N D  THE COMMISSIONER OF INLAND

REVENUE

Second. Respondent

Date:              26 February 2008

MINUTE OF BARAGWANATH

1. This minute contains comment on some aspects of the entries and searches of
   properties entered. Since its purpose is to give succinct reasons in the interim judgment, it does not seek to cover the wide-ranging evidence and submissions,

2. Because of the wide range of ground covered in argument it was not feasible
   to focus systematically and comprehensively on each premise in turn. Had I maintained the conduct of the case I would have directed that such process be undertaken in all respects, not least as to remedy.

3. While I do not seek to decide the point I would have been minded at least in
   respect of most premises to proceed to final judgment following such process without waiting for the decisions of the District Court as to privilege. But a further, unexplored, option might be for a sampling exercise by the District Court prior to final judgment.

4. Counsel must decide whether there will be any application for leave to
   cross-examine. See for example [141] of judgment.

5. It may be observed that the "spliced version" of the respective summaries of
   evidence for the applicants and the Commissioner is a valuable introduction to the

affidavits.  It effectively supersedes Schedule 1 to Avowal's main typed
submissions. The following references are to that version. It does not contain references to the confidential material.

(1) Avowal (p 1)

1. There is a conflict as to whether there was true consent to removal of
   evidence. It is likely that the arguments on that topic will bear on the exercise of judgment as to relief.

(2) .JB Lloyd (pp 61 ff)

[⁷]      There was a claim for privilege in relation to all documents and computer

information removed. As a result they were all packed, sealed and sent to the District Court where they remain unexamined.

S]      Mr Billington accepts that following entry a cursory keyword search was

performed by the Commissioner's computer analyst to determine relevance. Once some material was identified as relevant a forensic image was made on site of the entire contents of the server. Avowal submits that there was insufficient discrimination: only the relevant documents or directories should have been removed. It cites JMA Accounting Ply v Commissioner of Inland Revenue (2004) 139 FCR 53 where a Full Court of the Federal Court of Australia held that the Commissioner may not copy electronic media in bulk but must give cursory consideration to the nature and content of the material, as by the key-word search, to distinguish between relevant and irrelevant, and remove only the latter.

1. Avowal also relies on the evidence of Mr Sonter that the ATO can work

within those criteria and achieve satisfactory results.

[10] The Commissioner relies upon the review of the topic by the New Zealand Law Commission in its Report 97 Search and Surveillance Powers June 2007 at 7.34 (p 203). The Commission expresses the opinion that where there are a number of hard drives to be searched or the computer contains a large amount of potentially searchable data, previewing can be time-consuming. A search of a forensic copy of the data may be the only practicable search method in the circumstances. Limiting a computer search to keywords may produce an incomplete search (7.59 pp 210-11). The Commission reported:

7.65 The key protection available for search targets remains the ability to challenge evidential material produced in court (either on the basis that the material is beyond the scope of the search power or was obtained unreasonably in terms of section 21 of the Bill of Rights act). Where a law enforcement agency seeks to use evidential material derived from a computer search in prosecuting a particular offence, the defendant will have the opportunity to test the way in which the search was conducted through both discovery and cross-examination at trial.

1. The evidence in this case of two experts, Mr Whale for Avowal and Mr Winter for the Commissioner spells out the difference between on one side .JMA Accounting and Mr Sonter and on the other the Law Commission. The former provides a broad and what may in many cases be a workable practical test; the latter a more precise test. Avowal says with force that the former is consistent with s 16B and the latter is not and that it is for Parliament, not the Court, to make any change in the balance it has struck.

2. 1 have held that the law does not permit removal of a computer, as distinct from the information contained in it. But the consequences of breach are not necessarily self-evident.

3. The law is ultimately a practical vehicle for the delivery of justice. Hence the maxim lex non cogit ad impossibilia: the law does not pretend to require what cannot sensibly be carried out. Hence also the terms of s 30 of the Evidence Act 2006 preserving a relict of the old rule in Kuruma v The King [1955] AC 197 - that some evidence obtained unlawfully may nevertheless be admissible. If in a particular case the only rational decision is technically in breach of the law, relief against that breach may possibly be confined to declaration. The topic has been considered extensively in the criminal law and in search cases in various contexts in the civil law. How it should be approached in the present context may require careful analysis.

4. Mr Hawkins said he found that a file deleting computer software programme was operating. That evidence could on one view strengthen the Commissioner's case for exercise in his favour of discretion as to relief.

5. The immediate question is whether both the lawfulness and the legal consequences of the removal of the forensic copy should be determined at this stage, or rather after examination of what was removed or, at least, further argument in the light of the interim judgment. The advantage of the former course is to give the parties an immediate answer. The disadvantage is that the answer is likely to be wrong because except in clear cases any judgment as to remedy must be fact-specific. The application in civil litigation of the principles which in relation to

criminal proceedings are stated in s 30 is not readily achieved until the facts are known. I have no means of knowing whether any and if so what proportion of the information obtained, measured in either qualitative or quantitative terms, has been obtained in breach of my determination of 27 July 2007. Nor, without such information, can a balanced judgment be made. It might be impracticable to make any judgment without any information about the documents which, because of the privilege claim, the Commissioner has not inspected.

1. I have therefore decided to defer until the next stage consideration of whether in the case of JB Lloyd discretion should be exercised to declare that information obtained by the Commissioner should not be used by him.

(3) Motueka Lodge (p 20)

1. Avowal relies on the evidence of Mr Petroulias, who made an undisclosed tape recording, that no key-word search of the computers was undertaken. Instead, after attempts to copy hard drives and media drives on-site the computers were removed and forensically copied off-site, without consent. Because of claims to privilege hard copy documents were sealed and lodged in Nelson District Court. They have since been transferred to the Auckland District Court. Such conduct, Avowal submits, infringes the determination of 27 July 2007.

2. The Commissioner relies on the evidence of Mr Macredie that Mr Petroulias agreed to the procedures adopted. Crown counsel challenged the authenticity of an audio transcript said to have been transcribed from a recording of what occurred, submitting that the original recording had not been produced. Avowal says that the tapes are available for examination.

3. These are issues of credibility concerning alleged consent to removal of material that may be crucial at the remedies hearing. It is not practicable to deal with them at this stage.

4. Among the possible outcomes is a declaration that the Commissioner ought to return the information obtained, which is said to include notes made by

Mr Petroulias for his criminal case. But because of the large evaluative component it is desirable that all relief decisions be made together. I reserve that question to the further hearing.

(4) Tait Street (p 39)

1. Ms Clark said "we did not feel we could resist the removal of laptops and computers", Mr Peters said that Mr Bloomfield agreed that the records could be reviewed off-site.

2. But Avowal claims that the consent was not true consent because the occupants felt pressured. The topic goes to remedy and is better considered at the next stage.

(5) Ms Voogt 's home in Tauranga. (p 52)

[23] Ms Voogt says that documents were removed without her consent. That is better considered at the remedies hearing.

(6) Ms Watkins' home in Auckland (p 73)

[24] Mrs Watkins said "I did not object as I did not believe I could". Whether she should have been told of the limits on the Commissioner's powers of removal and, if so, how the relief judgment should be exercised are matters for determination at the relief hearing.

(7) Ms Chisnall's home in Brown's Bay (p 48)

1. There may be an issue about the nature of consent to removal of property. Conclusion

2. I have concluded that the importance of the issues warrants a more systematic analysis of the facts relating to each location than has been possible to date. Hence

the limit on the scope of the judgment. All issues which it does not resolve will be reserved to my successor.

W D Baragwanath

Solicitors:

Kensington Swan, [email protected], Private Bag 92101, Auckland

Crown Law Office, [email protected], [email protected]^vt.nz, PO Box 2858, Wellington

Counsel:

J R Billington QC, [email protected], PO Box 4338, Shortland Street, Auckland