Clancy v Inland Revenue Department
[2017] NZHC 2029
•23 August 2017
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
CRI-2017-409-000072 [2017] NZHC 2029
BETWEEN JOHN EDWARD CLANCY
Appellant
AND
INLAND REVENUE DEPARTMENT Respondent
Hearing: 10 August 2017 Appearances:
J E Clancy - Appellant Appears In Person
C J Boshier for RespondentJudgment:
23 August 2017
JUDGMENT OF GENDALL J
CLANCY v INLAND REVENUE DEPARTMENT [2017] NZHC 2029 [23 August 2017]
[1] The appellant pleaded guilty in the District Court to one representative charge of aiding and abetting Hanguk Business Investments One Limited (the company) to knowingly fail to account for PAYE and associated deductions payable to the Commissioner of Inland Revenue (the Commissioner). On 19 May 2017 the appellant was sentenced to 10 months’ home detention and ordered to pay $150,000 in reparation by Judge Garland in the Christchurch District Court. The $150,000 reparation was to be paid at a rate of $225 per week which would mean that the total reparation would be cleared over a period of 13 years.
[2] The appellant now appeals against the reparation order portion of the sentence.
[3] The grounds of appeal set out in the appellant’s Notice of Appeal are that the reparation order is manifestly excessive and wrong in principle. The respondent opposes the appeal and submits that the sentence overall and the reparation order are not manifestly excessive and are within the range appropriate for this type of offending and the offender.
Background facts
[4] The appellant was the sole director of the company effective from 13 August
2013.
[5] The company provided construction services and registered as an employer on 20 June 2014, it operating as part of a group of companies that it appears were run by the appellant. The company was placed into liquidation on 6 November
2015, at the time owing to the Commissioner $785,571.60 including penalties and interest. The company had been required to account to the Commissioner for PAYE and other deductions from its employees’ wages and for deemed deductions in accordance with the requirements of the Income Tax 2017.
[6] The company had failed to account for $456,075.62 to the Commissioner for those PAYE deductions, Kiwisaver employer deductions, student loan employer deductions, Kiwisaver employer contributions and superannuation cash contributions. This failure occurred for 12 periods from August 2014 to July 2015.
[7] The company had made late payments totalling $86,505.66 but this left a core balance due of $369,569.96.
[8] The appellant at all relevant times had been involved in controlling the decision-making of the company and clearly was instrumental in the decisions taken not to make these payments to the Commissioner.
[9] Since 2005 the appellant had been the director of a total of 34 companies. And, over a period of about the last 2 years he had been the director of seven companies that were placed into liquidation owing over $2.2 million to the Commissioner.
[10] The maximum penalty on the charge the appellant faced before the District Court was imprisonment for a term not exceeding five years or a fine not exceeding $50,000 or both.
The law
[11] Section 32 of the Sentencing Act 2002 addresses reparation and provides that a sentence of reparation may be imposed in a situation such as the present. Reparation is specified as one of the purposes of sentencing under s 7(1)(d) of the Sentencing Act. As the Court of Appeal noted in R v O’Rourke,1 reparation is intended to provide:
A simple and speedy means of compensating those who suffer loss from criminal activities. This is in order that those parties who are effectively victims do not need to seek a civil remedy.
[12] Section 12 of the Sentencing Act appears to strengthen the prior presumption in favour of reparation stipulating that only undue hardship or other special circumstances will make it inappropriate to order reparation. In this regard s 12 provides:
12 Reparation
(1) If a court is lawfully entitled under Part 2 to impose a sentence or order of reparation, it must impose it unless it is satisfied that the
1 R v O’Rourke [1991] NZLR 155 (CA) at 158.
sentence or order would result in undue hardship for the offender or the dependants of the offender, or that any other special circumstances would make it inappropriate.
(1A) When considering undue hardship or other special circumstances under subsection (1), a court must not take into account that the offender is required to pay a levy under section 105B.
(2) A sentence of reparation may be imposed, in relation to any particular offence, on its own or in addition to any other sentence.
(3) If a court does not impose a sentence or order of reparation in a case where it is lawfully entitled to do so, it must give reasons for not doing so.
(4) In this section, order of reparation means an order under section
106(3)(b), 108(2)(b), or 110(3)(b).
[13] In considering the nature of the presumption under s 12, Adams on Criminal
Law at para SA12.01 stated in part:
SA12.01 Nature of presumption
This section strengthens the former presumption in favour of reparation in s 11 of the Criminal Justice Act 1985. Section 11 required reparation to be ordered in any case to which it applied unless the Court was satisfied that it would be “clearly inappropriate to do so”. This section now stipulates that only “special circumstances” will make it inappropriate, and that lack of means is not a sufficient reason for refusing to impose reparation unless that would result in undue hardship for the offender or dependants of the offender.
However, broadly speaking, this section is consistent with the judicial approach already taken to reparation, as articulated by the Court of Appeal in R v O’Rourke [1990] 1 NZLR 155 (CA), at 158:
“The provisions are obviously meant to be used. We deprecate any approach which tends to relegate them to the sidelines, as an inferior alternative to civil remedies, or which confines their application to only clear and simple cases … we think the court is now obliged, as part of the sentencing process, to consider reparation and to go into the questions of the amount and the offender’s ability to pay as fully as it can.”
Although the imposition of a sentence of imprisonment will often render a sentence of reparation futile, and therefore displace the presumption, this will still be appropriate in cases of serious offending where the sentencing purposes of deterrence and denunciation dictate such an outcome and therefore outweigh the victim’s interest in receiving reparation. For example, in Montaghue v Police 26/2/09, French J, HC Christchurch CRI-2008-409-
222, a sentence of imprisonment was upheld even though it would lead to the prospect of the victim suffering further loss through the failure of the
proposed reparation scheme which was premised on the offender continuing
to work. However, where the offending is on the cusp of a prison sentence, the benefits of enabling the offender to continue to derive income so that he or she can make reparation may tip the balance in favour of home detention, or a community-based sentence: see, for example, R v Smith [2010] DCR
440.
[14] It is clear too that for a Court to refuse to impose an order for reparation something more than the ordinary consequences of hardship is required, such as excessive hardship or hardship greater than the circumstances warrant. And on this aspect, hardship is to be determined objectively. There is an evidential onus on those seeking to establish hardship as the decision in R v Thompson2 confirms.
[15] It must be accepted too that the quantum of any reparation order imposed ought to be realistic given the financial resources of the offender. Generally, the Sentencing Act directs the Court to take into account the financial means and capacity of an offender in making a reparation order, and allows it to make an order for reparation by way of instalment payments.
Analysis
[16] In the District Court the appellant accepted that an order for reparation was appropriate. His complaint is about the quantum of the reparation and the amounts and extended term for the instalment payments he was ordered to meet. He contends that the total $150,000 quantum is manifestly excessive. He maintains too that insufficient weight was given to his ongoing health problems and his financial, personal and family circumstances when the order was made. No proper consideration he says was given to whether the reparation order and its terms would amount to undue hardship.
[17] The reparation order made by Judge Garland was for less than half the total amount owed to the Commissioner. The appellant’s offending, too, involved a failure to pay a large amount of PAYE and other payments, all of which effectively represented the money of employees. As many authorities have noted, non-payment of these amounts is serious and represents actions in the nature of misappropriation
or theft of third parties’ monies. The obligation to pay PAYE and the other payments
2 R v Thompson CA404/04 19 October 2005.
due to the Commissioner were obligations that the appellant was legally required to undertake which he wilfully failed to comply with.
[18] The order for reparation also had a direct consequence on the principal sentence imposed on the appellant. That reparation order was effectively the difference between imprisonment and home detention. In this regard, in particular at [20] of his 19 May 2017 sentencing notes, Judge Garland stated:
[20] As I said to Mr Clay (counsel for the appellant), this is not a case, in my view, where community detention and community work is appropriate. That would not adequately meet the purposes and principles of sentencing. However, I am persuaded that home detention would be an appropriate alternative to imprisonment. It will allow you to work and it will also allow you to pay a substantial amount in reparation. Obviously, at the moment you are bankrupt, however, you are gainfully employed. I calculate that you have got at least 13 years of employment ahead of you. In my view, you are able to make a substantial payment in reparation. I order you to pay reparation in the sum of $150,000. You are to pay reparation at the rate of
$225 per week. The first payment is to be made in seven days.
[19] There is no doubt here that the reparation order imposed will take a significant period of years to discharge. It must be presumed, nevertheless, that Judge Garland considered it was a realistic order for him to make in the circumstances, given the appellant’s likely earning capacity. To reach this position, it is assumed the Judge might have taken into account what he thought was the appellant’s earning capacity for the next 13 years until likely retirement age at 65. In doing so, he also calculated weekly repayments of that $150,000 reparation amount over those 13 years. Before me, counsel for the respondent suggested that Judge Garland must have considered the order he made was not one beyond the foreseeable means of the appellant.
[20] From the pre-sentence report which was available in the District Court, it is confirmed that the appellant had himself offered to pay reparation to the Inland Revenue Department at the rate of $58 per week, an amount which was described in the report as “something of a token gesture”. Noting this, and also the conclusions reached by Judge Garland in his sentencing notes, it does seem therefore that the present situation should not be seen as one where there is a degree of undue hardship or special circumstances such that it is proper for no order for reparation to be made. And it appears too from Judge Garland’s decision that, given amounts exceeding
$360,000 for PAYE and the like (representing other parties’ monies) were diverted and effectively misappropriated by the appellant, a significant amount for reparation was thought to be appropriate.
[21] An issue remains, however, as to the amount which is appropriate for reparation in the present case.
[22] On that aspect, Adams on Criminal Law at para SA35.01, addressing in some detail the fact that the quantum of any reparation order should be a realistic sum, states:
SA35.01 Quantum of reparation should be realistic
A sentence of reparation may be imposed even where it is uncertain, in the case of an offender also sentenced to imprisonment, that he or she will have the means to meet the order upon release.
The presumption in favour of reparation is only rebutted if there is undue hardship, or special circumstances: see [SA12.02]. However, the amount to be repaid by way of reparation should be realistic given the financial resources of the offender: R v Bailey CA306/03, 10 May 2004. A sentencing judge is required to have a “reasonable measure of confidence” that the payment of reparation is able to be made: R v Creek CA199/06, 17 August
2006; R v Pender [2007] NZCA 465 at [15]. The fact that the present means of the offender are insufficient to make immediate reparation is not in itself
justification for a refusal to impose such a sentence.
The availability of adequate information about the financial capacity of the offender is important in order to establish whether the making of an order would result in undue hardship under s 12(1) for the purpose of determining under s 35(1) the amount of reparation, and for the purpose of determining the conditions of the reparation sentence under s 36(1): R v Wonnacott [2009] NZCA 414; Story v R [2012] NZCA 98. Where there is no realistic prospect of payment being made within a reasonable time an order should not be made for the full amount sought: Rihari v Department of Social Welfare (1991) 7 CRNZ 586 (HC); Ruka v Department of Social Welfare [1997] 1 NZLR 154, (1996) 14 CRNZ 196, 14 FRNZ 622 (CA); Ghulami v Police [2013] NZHC 1055.
The fact that the present means of the offender are insufficient to make immediate reparation is not in itself justification for a refusal to impose such a sentence. Provided that the payment can be made within a reasonable time, the court may impose reparation for less than the full amount of the loss, damage or harm under subs (1); extend the time for payment or direct payment by instalments, or both, under s 36(1)(a); or direct the Registrar to determine the conditions of payment under s 36(1)(c). A sentence of reparation may be imposed even where it is not certain, in the case of an offender also sentenced to imprisonment, that he or she will have the means to meet the order upon release: Creek (above).
Although payment by instalments is envisaged under ss 35 and 36, the authority of the law is not necessarily maintained by making people bonded debtors for very long periods: Ruka (above). Nor do relatively small payments over a long period of time necessarily provide any significant benefit to the victims concerned. The fact that s 86(2) of the Summary Proceedings Act 1957 permits time to pay arrangements to extend for up to five years suggests that payment by instalments for at least this period, at a level that can be afforded by the offender, will generally be reasonable. The payment of instalments for periods in excess of five years are generally regarded as inappropriate: Leighton v Police [2012] NZHC 1925; Crosland v Police [2012] NZHC 1929; Guinness v Police [2015] NZHC 883; Ebdale v Police [2015] NZHC 3154. However, sentences of reparation for longer periods have been upheld in R v Vallily CA251/04, 10 November 2004 (reparation of $40,000 to be paid by quarterly instalments of $1,250 over eight years from the first anniversary of the offender’s release from prison); R v Neketai CA58/05, 8 December 2005 (reparation of $5,000 to be paid at a rate of $20 per week, the first payment being required 20 days after the offender’s release from a four-year prison sentence). In Scanlon v R [2013] NZCA 502, reparation of $138,172 at $50 per week — a payment period of
53 years — was substituted on appeal with an order for reparation of
$13,000 to be paid at $50 per week from the date of the offender’s release
from prison, a five-year payment period. See also Kennett v Police [2014] NZHC 231, where reparation of $17,937.20 was reduced to $2,000 because the offender had no means to pay and had obligations to a young child with a medical condition; there were doubts about his ability to find employment; and a substantial reparation sentence was token and an obstacle to prospects of successful rehabilitation. In Fannin v Police [2016] NZHC 168, an order that would have taken 63 years to meet was replaced by one that reduced the amount by half, payable by increased weekly payments over a seven-year period, which the Court had a “realistic measure of confidence” would be met.
In determining what constitutes a realistic order, the court can take into account future earning capacity. Where it has reason to believe that the offender has access to other assets from either the offence or another source which he or she has not disclosed, it may consider that in determining a realistic amount. See further [SA40.01]. It may also take into account any responsibility which the offender's family is willing to accept in this regard: see the dictum in R v Lepupa (1997) 15 CRNZ 262 (CA), at 266.
[23] Section 33 of the Sentencing Act goes on to state that if a Court considers that reparation should be ordered as part of a sentence then it may direct the preparation of a reparation report in accordance with s 34. Amongst other things, this report is to address the value of the loss or damage incurred, the financial capacity of the offender, the maximum amount the offender is likely to be able to pay by way of reparation, and the frequency and magnitude of any instalment payments that might be required.
[24] In considering this s 33 Adams on Criminal Law at para SA33.02 does state that a reparation report in certain circumstances may not necessarily be required. In this regard SA33.02 relevantly notes:
SA33.02 Dispensing with the reparation report
Under s 12, there is a presumption in favour of reparation, and the court must give reasons for not imposing such a sentence in any case where it is lawfully entitled to do so. A report is not a pre-requisite to the making of a reparation order, and the court is not required to obtain a reparation report in every case where a sentence of reparation is open to it: R v Quayle CA39/03,
3 July 2003. If the court is satisfied on the basis of other available information that a sentence of reparation is inappropriate (for example, because it would result in undue hardship for the dependants of the offender), it may decline such a sentence without obtaining a report. The court may equally impose a sentence of reparation without obtaining a report if it is satisfied as to the appropriate quantum, or the type of information provided through a reparation report is available through other means, or the court considers that a report is unnecessary: subs (2). No particular value below which a court may dispense with a reparation report is specified, although courts are more likely to find reports unnecessary where the quantum sought, or the extent of disagreement between prosecution and defence, is small.
[25] Adams on Criminal Law at para SA33.02 goes on to note however, the purposes of a reparation report and certain other matters in the following way:
One of the purposes of a reparation report is to provide an assessment of the financial capacity of the offender to pay and whether or not payment, if ordered, should be in a lump sum or by instalments. The fact that the offender undertakes to make reparation is not in itself sufficient to absolve the judge of his or her responsibility to determine whether undue hardship will result from the order. In the absence of information as to means, it is an error for the court not to order a reparation report before making a decision on the amount that should be ordered and how it should be paid: Haa v Police HC Rotorua CRI-2005-463-91, 22 November 2005; Alexander v Police [2015] NZHC 2730.
(emphasis added)
[26] In the present case, it appears that no formal reparation report was sought by Judge Garland or provided. Certainly his comments regarding the reparation order in his sentencing notes were brief.
[27] In my judgment, however, in this case not only is the availability of adequate information about Mr Clancy’s financial capacity important to establish whether the making of an order would result in undue hardship under s 12(1), it is also necessary
for the purpose of determining under s 35(1) both the amount of that reparation and instalment payment terms.
[28] Before he made what was the substantial reparation order here, Judge Garland needed to be satisfied that the quantum of this order, and the condition that it be paid by way of instalments over what was a relatively long period of 15 years, were realistic and could be met by the appellant. I have a concern here that, with regard to these matters, in reality Judge Garland lacked the information he needed to be able to make this decision on a proper and informed basis.
[29] Whilst the obtaining of a reparation report in a situation such as the present is not mandatory, in the circumstances here and given the substantial long-term payments required, in my view, a reparation report was needed.
[30] As I note at [22] above, the comments from Adams on Criminal Law at para SA35.01 make clear that payments of reparation instalments for periods in excess of five years are generally regarded in most cases as inappropriate. There are, however, instances where instalment payments over longer periods were seen as appropriate as Adams on Criminal Law notes. A period of as much as 13 years for instalment payments such as would apply in the present case must be seen, however, as exceptional.
[31] Before Judge Garland imposed the reparation order he did, he would first have needed to consider if he had sufficient information before him to enable him to dispense with calling for a reparation report. In my view, there must be some question as to whether the parties to this proceeding ensured that he was fully informed.
[32] I repeat that, whilst it is clear that the obtaining of a reparation report in situations where reparation is ordered will not always be necessary, in a case such as the present, in my view, obtaining a report of this kind was required. I reach this conclusion given the extent and terms of the reparation Judge Garland ordered here. A concern must remain that he has made this order in circumstances where he may not have been properly informed of Mr Clancy’s capacity to realistically pay those
amounts on the basis he ordered. It does not seem that any detailed financial capacity information was available to the District Court. Nor indeed to any significant extent has it been made available to this Court on the present appeal. Thus, I find that this Court is unable to properly assess whether Mr Clancy’s complaint as to both the quantum of the reparation order and the long-term instalment basis for its payment is either sound or without merit.
[33] I conclude therefore that in this case there has been a material departure from what was appropriate under the required statutory process. Whether I am able to determine however that what has occurred in this case has resulted in a sentence that is manifestly excessive is not possible for me to decide. Again, the reason for this is simply because there is not sufficient information before the Court to be able to make an assessment of this nature.
[34] As I see the position, I do not have sufficient information before me to enable me to consider questions as to the quantum and instalment payment arrangements of Judge Garland’s reparation order afresh. I am unable here to do anything which might cure any error which has been seen to have occurred.
[35] What is clear to me in this case however is that a reparation order of some kind is appropriate. Indeed, as I note above at [20], Mr Clancy had himself offered to pay reparation at a rate of $58 per week.
[36] Notwithstanding this, the present appeal must be allowed and the reparation order made by Judge Garland set aside.
[37] On any appeal, this Court has the power to remit the determination appealed against back to the District Court for rehearing. I propose in this case therefore to direct that the entire sentence imposed on Mr Clancy be remitted back to the District Court for a rehearing. This is precisely what occurred in not dissimilar
circumstances in Moshiem v Police3 and Alexander v Police.4 The District Court
will be able to obtain a reparation report so that sentencing can proceed as soon as
3 Moshiem v Police HC Auckland 30 July 2010, CRI-2010-404-160.
4 Alexander v Police [2015] NZHC 2730.
possible. I have chosen to remit the entire sentence back to that Court for re-hearing because it is possible that the remainder of the sentencing package may well have been influenced by the prospect of Mr Clancy paying a significant amount by way of reparation. If it should turn out that he cannot afford to make any or reduced reparation payments then, although this is a matter for the District Court, it could require adjustment to other parts of his sentence.
Result
[38] The appeal against sentence is allowed. The reparation order is set aside. The entire sentence is remitted back to the District Court for rehearing.
...................................................
Gendall J
Solicitors:
Raymond Donnelly & Co, Christchurch
Copy to Appellant
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