Commissioner of Inland Revenue Department v Parore

[2021] NZHC 3405

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CRI-2021-404-000474

[2021] NZHC 3405

BETWEEN

COMMISSIONER OF INLAND REVENUE DEPARTMENT

Applicant

AND

RICHARD ALLEN PARORE

Respondent

Hearing:	7 December 2021
Appearances:	D G Johnstone and N B Goodger for Applicant D P Weaver and A F McClelland
Judgment:	13 December 2021
Reissued:	14 February 2022

JUDGMENT OF WYLIE J

This judgment was delivered by Justice Wylie On 13 December 2021 at 11.30am

Pursuant to r 11.5 of the High Court Rules Registrar/Deputy Registrar

Date:…………………………

Solicitors/counsel:

Crown Solicitor, Auckland

Holland Beckett Law, Tauranga DP Weaver, Tauranga

COMMISSIONER OF INLAND REVENUE DEPARTMENT v PARORE [2021] NZHC 3405 [13 December 2021]

Introduction

[1]    The applicant, the Commissioner of Inland Revenue (“the Commissioner”), seeks leave to appeal a decision given by Judge Clarkson in the District Court at Auckland on 14 September 2021.1 The Judge stayed 13 charges brought by the Commissioner against the respondent, Richard Parore, alleging that he evaded or attempted to evade the assessment or payment of goods and services tax (“GST”).

[2]    The Commissioner says that the Judge made errors of law. She seeks an order granting a new trial pursuant to s 300(1)(b)(ii) of the Criminal Procedure Act 2011.

[3]    Mr Parore opposes the appeal. He says that the Judge’s decision was correct and the appropriate response to protect his fair trial rights.

Leave

[4]    The appeal is brought pursuant to s 296(3)(b) of the Criminal Procedure Act. Such appeals are limited to questions of law and leave is required to bring an appeal.

[5]    Mr Parore did not oppose the grant of leave. The issues which the Commissioner wishes to raise involve questions of law and they have arisen in the determination of the charges. They raise matters of general importance and I am satisfied that it is appropriate to grant leave. I order accordingly.

Background

The bankruptcy

[6]    Mr Parore was adjudicated bankrupt in 2009. He had previously been a self- employed real estate agent and, following his bankruptcy, he continued to work as such. He filed GST returns and paid GST during the first two or so years of his bankruptcy.

1      Commissioner of Inland Revenue v Parore [2021] NZDC 17946.

[7]    Under s 290 of the Insolvency Act 2006, the presumptive term of Mr Parore’s bankruptcy was three years from the date he filed a statement of his affairs. Mr Parore did not file his statement of affairs until September 2011.

[8]    Within a few days of receiving Mr Parore’s statement of affairs, the Official Assignee (“the OA”) notified Mr Parore that he was required to obtain the OA’s consent to trade while a bankrupt.

[9]    In late October 2011, Mr Parore applied for the OA’s consent. He advised that he would retain a named accountant to act as his financial supervisor.

[10]   On 24 January 2012, an insolvency officer employed by the OA met Mr Parore and explained that the accountant would need to monitor his finances and pay him a wage. On the same day, Mr Parore was sent a form to sign to confirm that he was aware of the conditions upon which the consent to trade would be granted. The conditions included a requirement that the accountant would be a joint signatory on the bank account into which all monies were to be banked, that the accountant would prepare financial statements, PAYE and GST returns and that no tax obligations were to be in arrears at any time.

[11]   Mr Parore did not sign and return this form. The Commissioner took the view that he instead continued trading without the OA’s consent. The Commissioner also considered that Mr Parore was obliged to but did not file GST returns throughout the remaining period of his bankruptcy nor for the three and a half years following his discharge from bankruptcy on October 2014. In March 2017, the Commissioner commenced an audit of Mr Parore’s tax affairs.

The civil tax dispute

[12]   The Commissioner’s officer in charge of the investigation into Mr Parore’s tax affairs was Clint Tully.

[13]   On 22 January 2018, Mr Tully wrote to Mr Parore notifying him that he was required to be registered for GST and to file GST returns. Mr Tully advised that he would be issuing default GST assessments for the various GST periods ending 31 May

2011 through to 31 March 2017. Mr Tully also advised Mr Parore that the Commissioner was considering bringing a prosecution against him for failing to register for GST. Mr Tully invited Mr Parore to explain why he did not register for GST, why he did not file GST returns and why a prosecution should not occur. The letter also stated that Mr Parore did not have to comment or answer but that if he chose to do so, the information might be used by the Commissioner as evidence if a decision to prosecute was made.

[14]   On the following day, 23 January 2018, the Commissioner issued default GST assessments against Mr Parore. They covered the various GST periods ending 31 May 2011 through to 31 March 2017. They were issued under s 106 of the Tax Administration Act 1994 (the “TAA”) and Mr Parore was advised that if he did not pay the amounts assessed by due date, the Commissioner could start action to collect the debt. The letter included the following paragraph:

If you wish to dispute the assessments you must file a notice of proposed adjustment along with your tax returns within four months of the assessment issue date shown on the notice(s) of assessment. …

[15]   On 2 March 2018, Mr Parore filed a notice of proposed adjustment (“NOPA”) and 13 GST returns for the period from 10 October 2014 (when he was discharged from bankruptcy) through to 30 September 2017. The NOPA also set out what was described as part of Mr Parore’s defence for the various GST tax periods during his bankruptcy. He asserted that he was not liable for GST during these periods because, as a bankrupt, he was an incapacitated person as defined in s 58(1) of the GST Act 1985. He said that the OA was deemed to be carrying on the taxable activity as his personal representative and that the OA was liable for any GST payable as his specified agent. It was asserted that Mr Parore was not a registered person during the period of his bankruptcy and that he was therefore not required to file GST returns until 10 October 2014.

[16]   On 21 March 2018, Mr Tully acknowledged receipt of Mr Parore’s NOPA. The GST adjustments proposed by Mr Parore in the returns he had filed for the GST periods ending 31 March 2015 through to 30 September 2017 were accepted as being correct but Mr Tully rejected the adjustments proposed for the GST periods ending 31 May 2011 to 30 September 2014.

[17]   On 21 March 2018, Mr Tully wrote to Mr Parore’s accountants, requesting comment and explanation in relation to a number of matters and, on 22 March 2018, Mr Parore’s accountants provided a detailed response.

[18]   On 12 April 2018, Mr Tully  issued  a  notice  of  response  (a  “NOR”)  to Mr Parore’s accountants in accordance with s 89G of the TAA. On 26 April 2018, the Commissioner’s NOR was formally rejected by Mr Parore’s accountants pursuant to s 89H(3).

[19]   The civil dispute then moved to the “conference phase” of the statutory tax dispute resolution process put in place by the TAA.

[20]   The conference took place on 19 June 2018. It was facilitated by a Mr Baxter. Mr Tully and Gary Swain (in-house counsel for the Commissioner) attended. So did Mr Parore and two accountants retained by him. There is no record of what took place at the conference, but it is noteworthy that Mr Tully, in an affidavit filed in opposition to the stay application, referred to a meeting held as part of the conference phase and said that during “the meeting” Mr Parore’s advisors voluntarily provided him with a more detailed version of the submission made by Mr Parore in his NOPA which included references to case authorities as well as excerpts from the Commissioner’s policy statements. Further, in a letter to Mr Parore’s accountants thanking them for their attendance Mr Tully noted as follows:

Questions were also raised at the conference in respect of potential criminal charges that may be laid by the Commissioner in respect of alleged offending by Mr Parore.

[21]   On 26 June 2018, Mr Tully made the following entry in the IRD’s computer system under Mr Parore’s case notes:

After discussions with my TL [team leader] it was agreed to park the dispute at the conference stage and proceed with prosecution.

[22]   On 27 June 2018, Mr Parore’s accountants wrote to Mr Tully in relation to various matters which had been raised by Mr Tully at the conference, including the possibility of prosecution. On the same day, Mr Tully made the following file note in the IRD’s computer system:

Gary Swain (LTS) [legal and technical services] and I met with Chris Viljoen Deputy Assignee and Charles Jones (Legal Team) from the Official Assignee’s office. We briefed them on the s 58 GST Act argument being put forth by [Mr Parore’s accountants]. We advised them that a potential prosecution is being considered and that we may require them as a witness.

Chris to check Parore’s file to see of the case officer is still employed by the Trustees and Insolvency Service.

[23]   In his affidavit filed in opposition to the stay application, Mr Tully said that the reason he and Mr Swain met with senior officials from the OA’s office and briefed them on the argument raised by Mr Parore’s advisors was because they wanted to enquire about the OA’s processes relating to their tax treatment of bankrupts. He went on to say that his advice to the OA’s officers that the Commissioner might require representatives as witnesses in a potential prosecution of Mr Parore was not made in the context of any discussion relating to s 58 of the GST Act. He says it was simply notification to the OA that the investigation of Mr Parore had progressed to the stage where prosecution was a possibility and that if it went ahead, the Commissioner would require OA representatives as witnesses.

[24]   On 28 August 2018, Mr Tully wrote to Mr Parore advising him that the Commissioner had decided to commence the prosecution. He advised that the civil prosecutions would be “parked” at the conference stage pending the outcome of the prosecution.

The criminal proceedings

[25]   On 26 August 2019, 13 charges were laid against Mr Parore. It was asserted that he had evaded or attempted to evade the assessment or payment of GST contrary to ss 143B(2), 149B, 150 and 150C of the TAA. Particulars were given identifying various six monthly GST periods, seven during and six after the bankruptcy.

[26]   The Commissioner alleged that Mr Parore had collected $84,226.05 of GST which he failed to report or pay to the Inland Revenue Department (the “IRD”).

[27]   Mr Parore’s trial commenced on 14 July 2020 before Judge Clarkson. Two witnesses from the OA’s office were called by the Commissioner. One of them, a [REDACTED], gave brief evidence relevant to the application of s 58 of the GST Act.

Mr Tully also gave evidence.  At the end of the Crown case, but before  closings,  Mr Parore applied under s 147 of the Criminal Procedure Act to dismiss the seven charges that related to the period of his bankruptcy. He argued, in reliance on s 58 of the GST Act, that there was no case to answer in respect of these charges.

[28]   The trial was then adjourned. On 24 August 2021, Judge Clarkson granted  Mr Parore’s application.2 She dismissed the seven charges relating to the period when Mr Parore was a bankrupt but directed that the trial on the remaining six charges was to continue.

[29]   The Commissioner appealed the Judge’s decision to this Court. The appeal was allowed by Jagose J.3 He ordered a new trial of the dismissed charges in conjunction with the conclusion of the trial on the remaining charges.

[30]   Neither Jagose J nor Judge Clarkson came to any conclusion on the application of s 58 of the GST Act.

[31]Mr Parore sought leave to appeal Jagose J’s decision to the Court of Appeal.

That application was declined.4

[32]   The trial resumed. Counsel for Mr Parore had in the interim become aware of the decision in R v Safi.5 It involved a similar situation and Judge Collins, in the District Court at Auckland, had held that the defendants’ fair trial rights in that case had been impugned as a result of the way the civil tax disputes process had interacted with the criminal proceedings. Judge Collins had stayed the charges laid against the defendants.

[33]   Before the Judge could consider counsel’s closing submissions and deliver her verdicts, Mr Parore applied to stay the further prosecution of all charges against him.

2      Commissioner of Inland Revenue v Parore [2021] NZDC 16363.

3      Commissioner of Inland Revenue v Parore [2021] NZHC 420.

4      Parore v Commissioner of Inland Revenue [2021] NZCA 312.

5      R v Safi [2018] NZDC 19698.

District Court decision

[34]The Judge outlined the issues as follows:

(a)had any of the rights fundamental to a fair trial been breached?

(b)was a stay of the prosecution the only proportionate remedy?

(c)should a stay apply to all 13 charges, or only those where a defence had to be disclosed in advance?

She then set out the background to the application. She next turned to discuss the interplay between the civil tax assessment processes and criminal proceedings. She noted that, in the criminal proceedings, Mr Parore was entitled to the presumption of innocence, that he enjoyed the right to silence, and that he could not be compelled to disclose his defence. The Judge recorded that Mr Parore was however compelled to provide a NOPA to protect his position in relation to the default tax assessments issued by the Commissioner. She cited comments by Judge Collins in Safi to the effect that compelling the provision of a NOPA before the conclusion of a criminal trial effectively compels a defendant to disclose his or her defence in the criminal trial. The Judge also referred to Skinner v R,6 when the Supreme Court noted in the tax context that hearing civil proceedings before a criminal trial carries the risk of interfering with fair trial rights. The Judge considered that the position was thus “well understood” in 2016, well before the civil dispute process was commenced in Mr Parore’s case.7

[35]   The Judge concluded that there had been a breach of Mr Parore’s fair trial rights, that it was an important and fundamental breach and that the risk of breach was known to the Commissioner. She rejected the submission that granting a stay would be disproportionate because there was only a ‘risk’ of prejudice to Mr Parore’s fair trial rights. She referred to Judge Collins’s comments in Safi where he had observed that, in that case, the risk had “move[d] from risk to fact”. She reached the same conclusion. She observed that Mr Parore had been compelled to provide a NOPA, that

6 Skinner v R [2016] NZSC 101, [2017] 1 NZLR 289.

7 Commissioner of Inland Revenue v Parore [2021] NZDC 17946 at [38].

he was not advised of his right not to do so and that did not have an opportunity to consult with counsel in relation to the suggested criminal prosecution.

[36]   The Judge rejected a submission that Mr Parore has not disclosed a ‘defence’ as the s 58 defence was a legal one only. She noted the information Mr Parore had provided in his NOPA, in his further reply to the NOPA, and at the conference and said that it could not be concluded with any certainty that that no information had been provided. She held that a stay was not a disproportionate response because of the impropriety of the Commissioner’s conduct and because that conduct had caused a serious breach of fair trial rights. She considered that the impropriety related to all 13 charges as Mr Parore had been compelled to provide information which concerned all of the charges against him. Consequently, the Judge found that the prosecution of all the charges should be stayed.

Submissions

Appellant’s submissions

[37]Mr Johnstone, for the Commissioner, submitted that the Judge erred by:

(a)failing to apply the correct legal test for granting a stay, in particular by failing to identify any prejudice occasioned to Mr Parore by his disclosure, and/or by failing to consider whether the trial was rendered unfair;

(b)adopting a backward-looking approach which sought to ‘discipline’ the Commissioner for her perceived shortcomings, instead of a forward- looking approach considering the effect of the disclosure on the fairness of the trial and/or the integrity of the justice process; and

(c)failing to consider alternative remedies short of stay.

[38]   Mr Johnstone argued that the Judge should have applied Wilson v R as the leading decision on stay applications in the context of alleged breaches of fair trial rights in criminal proceedings.8 He pointed out that she did not refer to Wilson.

[39]   Mr Johnstone accepted that the Commissioner’s actions might be considered “inadvertent state misconduct”, and that if it was so considered, this case fell into the first category discussed in Wilson, but he put it to me the Judge should have identified the specific prejudice caused to Mr Parore. He argued that the Judge wrongly found that the loss of the right to silence itself constituted a breach of Mr Parore’s right to a fair trial. He contended that Mr Parore did not disclose a factual defence in his NOPA nor any evidence he intended to rely upon. It was suggested that Mr Parore’s provision of a NOPA did not cause prejudice to the fairness of his trial for three reasons – first, his assertion under s 58 of the GST Act was incorrect at law and not a defence to the charges; secondly, the assertions as to the relevance of s 58 could not have been used by him to obtain any tactical advantage at trial; and thirdly, the Commissioner’s evidence at trial only incidentally referred to s 58.

[40]   It was also submitted that the Judge focused on what the Commissioner should have done rather than the effect of the misconduct. Mr Johnstone suggested that the Judge’s criticisms of the Commissioner were misplaced given that there was no actual prejudice to the fairness of Mr Parore’s trial. He submitted that the Judge demonstrated a backward-looking focus and erroneously used the stay to discipline” the Commissioner.

[41]   Finally, Mr Johnstone submitted that as a result of failing to consider whether there was any prejudice to the fairness of Mr Parore’s trial, the Judge failed to consider whether any other remedy short of a stay would have been appropriate. He submitted that, if there was in fact prejudice to Mr Parore, the appropriate remedy would have been to exclude the Commissioner’s evidence concerning s 58 at trial.

8 Wilson v R [2015] NZSC 189, [2016] 1 NZLR 705.

Respondent’s submissions

[42]   Mr Weaver, on behalf of Mr Parore, noted that although the Judge did not specifically refer to Wilson, she cited Safi, which in turn had considered and applied Wilson. He said that the Judge did, in effect, consider the Wilson principles.

[43]   Mr Weaver argued that this case could be considered under the first category discussed in Wilson. He suggested that the facts reveal state misconduct and that this was displayed not only through requiring Mr Parore to provide a NOPA but also through the Commissioner’s subsequent conduct, which required Mr Parore to disclose more information in respect of his defence at every stage. In Mr Weaver’s submission:

(a)the Commissioner engaged in a fact finding process;

(b)Mr Parore was required to respond to protect his position;

(c)as part of Mr Parore’s NOPA, he was compelled to disclose his defence under s 58;

(d)Mr Parore conceded through the civil process elements of some of the charges which the Commissioner was required to prove beyond reasonable doubt.

It was submitted that the Judge correctly found that prejudice was caused to Mr Parore.

[44]   Mr Weaver contended that, contrary to the Commissioner’s submission, the correctness of Mr Parore’s s 58 defence did not govern whether or not he suffered prejudice – rather that is for a Court to determine when and if necessary. He submitted, relying on Skinner, that the risk of prejudice where a defendant is required to disclose his or her defence in advance of a criminal trial to protect their position in a civil proceeding materialised here when Mr Parore provided detail of his defence in his NOPA.

[45]   Mr Weaver submitted in the alternative that this case satisfies the high threshold for a stay as a category two case under Wilson. He argued that the Commissioner ignored the line of authority warning against the commencement of civil processes of this nature prior to the conclusion of a criminal prosecution. He submitted that to allow the criminal trial to proceed where such misconduct has occurred would undermine the integrity of the criminal justice system and leave the door open for this to happen again in future.

[46]   Mr Weaver dealt with the second ground of appeal, namely that the Judge did not adopt a forward-looking approach. He argued that she did not comment on what Commissioner should have done but rather discussed the Commissioner’s conduct in light of the authorities. Even if the Judge had not taken a forward-looking approach, he submitted that the outcome would have been the same due to the obvious prejudice to Mr Parore and the threat to the integrity of the justice system. He accepted that a stay should not be granted for the purpose of disciplining a state agency.

[47]   Mr Weaver also put it to me that a stay was the only appropriate remedy in this case.

Analysis

[48]   A defendant’s right to a fair trial is absolute9 and the right to a fair trial is one to be enjoyed by the guilty as well as the innocent because a defendant is presumed to be innocent until proved to be otherwise in a fairly conducted trial.10

[49]   The right to a fair trial is enshrined in the New Zealand Bill of Rights Act 1990. Relevantly, s 25 of that Act provides as follows:

25 Minimum standards of criminal procedure

Everyone who is charged with an offence has, in relation to the determination of the charge, the following minimum rights:

(a)the right to a fair and public hearing by an independent and impartial court:

9      R v Burns [2002] 1 NZLR 387 (CA) at [10]; Stewart v R [2009] NZSC 53, [2009] 3 NZLR 425.

10     Randall v R [2002] 1 WLR 2237 at [28].

…

(c)the right to be presumed innocent until proved guilty according to law:

(d)the right not to be compelled to be a witness or to confess guilt:

(e)the right to be present at the trial and to present a defence:

…

[50]   The rights set out in s 25 are minimum rights and there are other associated rights which defendants enjoy as part of the right to a fair trial – the right to remain silent, the right not to be compelled to disclose a defence, the right to put the prosecution to proof and the right to require the prosecution to prove its case beyond reasonable doubt.

[51]   A stay of criminal proceedings is a serious step. It does not amount to a dismissal of the charge or an acquittal. Rather, it forbids further steps being taken.11

[52]   The leading decision in this country in respect of stay applications in the context of the infringement of fair trial rights is the decision of the Supreme Court in Wilson v R.12 The Court there stated as follows:

[39]      The power of a court to grant a stay of proceedings has long been recognised as necessary to enable a court to prevent an abuse of its processes. In New Zealand, the existence of this power was confirmed in several decisions of the Court of Appeal, most notably Moevao v Department of Labour, where it was accepted that the power applies in respect of both criminal and civil proceedings.

[40]      In relation to criminal proceedings, a stay may be granted where there is state misconduct that will:

(a)prejudice the fairness of a defendant’s trial (“the first category”); or

(b)undermine public confidence in the integrity of the judicial process if a trial is permitted to proceed (“the second category”).

It follows that the analysis is not backward-looking, in the sense of focussing on the misconduct, but rather forward-looking, in that it relates to the impact of the misconduct on either the fairness of the proposed criminal trial or the integrity of the justice process if the trial proceeds.

11     D v R HC New Plymouth T3/96, 24 September 1997; R v Glover [2010] 2 NZLR 698 (HC) at [23].

12     Wilson v R [2015] NZSC 189, [2016] 1 NZLR 705.

(citations omitted)

[53]   The Court went on to explain that the purpose of terminating the proceedings by way of stay is to uphold the integrity of the criminal justice system, rather than to punish the police or state agency for the misconduct. A stay can also provide a remedy to a defendant in cases where the conduct involves a breach of a defendant’s rights.13

[54]   Where it is alleged that the misconduct has prejudiced a defendant’s right to a fair trial, a connection between the misconduct and the prejudice is required. The Court must also consider whether there is any remedy short of a stay which will enable a defendant to have a fair trial.14

[55]   In the taxation context, the risk of the Commissioner triggering the civil disputes process under the TAA ahead of a prosecution in a criminal trial has been recognised for some years, both in the legislation and in the case law. In Skinner v R, 15 the Supreme Court commented as follows:

[64]      Mr Ebersohn pointed to s 149 of the TAA, which deals with the imposition of civil and criminal penalties. Section 149(1) makes it clear that a taxpayer may be liable for both a civil penalty and a criminal penalty. Section 149(4) empowers the Commissioner to assess and impose civil penalties after a taxpayer has been prosecuted whether or not the prosecution is successful. So it contemplates the possibility that the civil proceedings will follow the criminal proceedings. However, if the Commissioner is forced to reassess prior to the criminal proceedings, a case could then be made for the criminal proceedings to be deferred until after the civil proceedings resolving a defendant’s challenge to the Commissioner’s assessment have been disposed of.

[65]      Hearing the civil proceedings before the criminal trial would carry the risk of interfering with the fair trial rights of the defendant. As he or she would have the burden of proof in the civil proceedings, he or she would be required to disclose information supporting his or her position and, in effect, disclose his or her defence to the criminal charge in advance of the trial. In a different context, these risks led the Court of Appeal to uphold the adjournment of civil proceedings until after criminal proceedings were completed in Commissioner of Police v Wei. In that case, the civil proceedings were applications by the Commissioner of Police for asset forfeiture orders under the Criminal Proceeds (Recovery) Act 2009.

[67] As mentioned earlier, if the Commissioner had reassessed the  appellants before their trial, they would have been prevented from advancing

13     At [43]-[50]. See also Fox v Attorney General [2002] 3 NZLR 62 (CA) at [37].

14 At [62].

15     Skinner v R [2016] NZSC 101, [2017] 1 NZLR 289.

a defence that the actus reus of the offence was not made out because their tax returns correctly stated their incomes and their liability for income tax. Such an outcome would have been inconsistent not only with the burden of proof provided for in s 149A(4) of the TAA,  but also the appellants’ rights  under  s 25 of the Bill of Rights. These include the right to a fair hearing (s 25(a)), the right to be  presumed  innocent  until  proven  guilty  according  to  law (s 25(c)) and the right to present a defence (s 25(e)). The Commissioner’s administrative act in reassessing the appellants would have, in effect, deemed an element of the offence to be met contrary to the Crown’s obligation to prove it.

(citations omitted)

[56]   These risks have been acknowledged and accepted by the Commissioner. In a Statement issued on 22 July 202016 (after the charges in this case were filed) the Commissioner noted as follows:

Introduction

1.Everyone who is charged with an offence (including offences under the Inland Revenue Acts) has the right to a fair trial. A taxpayer also has a number of other related rights in criminal proceedings. For example, a defendant cannot “be compelled to be a witness or to confess guilt” and they are entitled to adequate time to prepare their defence.

2.The Disputes Resolution Process in Part 4A of the TAA (the Disputes Process) contains provisions that potentially compel a taxpayer to disclose his or her defence to criminal proceedings in the course of responding to the civil tax dispute.

3.This Commissioner’s Statement sets out the broad approach that the Commissioner is taking to preserve a taxpayer’s fair trial rights in criminal proceedings when there is a contemporaneous civil dispute.

Disputes Process

4.The Commissioner considers that it is important to ensure that once prosecution has commenced or is contemplated a taxpayer is not compelled to respond to an assessment or disputes document issued by the Commissioner.

5.The general approach is that when criminal proceedings have commenced or are contemplated the taxpayer will be advised of that position before they are next required to issue a disputes document to commence or continue the Disputes Process. For example, by issuing a NOPA in response to an assessment.

6.Under section 89K a taxpayer can issue a response outside the response period in “exceptional circumstances”. They must issue the response

16     The Disputes Resolution Process and Fair Trial Rights (Inland Revenue, Commissioner’s Statement CS 20/04, 22 July 2020).

to the Commissioner as soon as reasonably practicable after becoming aware of the failure to issue the response within the required timeframe.

7.The Commissioner accepts that preserving a taxpayer’s rights in current or potential criminal proceedings is an “exceptional circumstance” which prevents a taxpayer from responding to the assessment or notice within the applicable response period.

8.The Commissioner considers that a taxpayer can elect not to file an outstanding disputes document until the question of prosecution is resolved. This will delay the requirement to respond and therefore either delay the start or pause the Disputes Process.

9.Once the question of prosecution has been resolved then the Disputes Process can resume (or in some cases commence) and the Commissioner will advise the taxpayer of this. The taxpayer will need to issue their outstanding disputes document by the later of 2 months from date of this advice or the original due date for that outstanding disputes document.

10.Another way that taxpayer rights can be protected is by the parties agreeing to pause (sometimes known as “park”) the dispute at the conference stage until after the question of prosecution has been resolved.

[57]   The various risks came to pass in Safi. That case concerned charges alleging the deliberate failure to declare income and consequential tax evasion. The Commissioner also invoked the civil tax disputes process and the defendants argued that as a result, in order to protect their position in the civil litigation, they were compelled to disclose their defence to the criminal charges. Judge Collins reviewed the actions of the Commissioner’s investigator, discussed the procedural history and concluded that the Commissioner had breached various of the defendants’ fair trial rights. He discussed both Skinner and Wilson and found that, whether deliberately or carelessly, the Commissioner’s officers had brought about a situation where the defendants, in order to preserve their position in the civil proceedings, were required to disclose their defence to the criminal proceedings. He considered that the trial was presumptively unfair and that the only appropriate remedy was to stay the proceedings.

[58]Against this background, I turn to consider the present case.

[59]   The Judge did not refer to Wilson. Rather, she referred to the judgment of Judge Collins in Safi. Judge Collins in Safi did however consider the relevant principles set out in Wilson and I accept the submission made by Mr Weaver that it is

clear that the Judge in this case, via her consideration of Safi, also considered the

Wilson principles.

[60]   It was common ground between counsel that this is a first category case and both counsel agreed that there has to be prejudice to Mr Parore’s fair trial rights and a connection between the misconduct and the prejudice.

[61]   It is clear from the factual summary I have set out that the Commissioner was contemplating a criminal prosecution from the outset. Mr Tully made this clear in his letter of 22 January 2018. Nevertheless, the Commissioner went ahead and issued default assessments on 23 January 2021. The Commissioner did not advise Mr Parore that he could postpone any response under the exceptional circumstances provision contained in s 89K of the TAA. Rather, the Commissioner informed Mr Parore that if he wished to dispute the assessments, he had to file a NOPA along with his GST returns within four months of the issue date of the default assessments.

[62]   The Commissioner accepted that the default assessments, issued without a suitable rider indicating that the statutory disputes process could be delayed until after any prosecution was resolved, can be described as state misconduct (albeit, the Commissioner says, inadvertent misconduct).

[63]   Once the default assessments were issued, the onus in the civil proceedings fell on Mr Parore.17 Unless he issued a NOPA, the GST assessed by the Commissioner would crystallise and Mr Parore would have lost the right to dispute the Commissioner’s assessments.18 Had the charges been laid at this point, the effect of the Commissioner’s letter of 23 January 2018 and the default assessments would have been to deprive Mr Parore of his right to remain silent, of his right not to be required to disclose his defence, and to reverse the burden of proof.

[64]   The NOPA had to comply with s 89F of the TAA. Mr Parore had to identify the adjustment or adjustments he proposed to the Commissioner’s assessments and provide a statement of the facts and law in sufficient detail to inform the Commissioner

17     Tax Administration Act 1994, s 149A(2)(b).

18     Sections 89D(2C) and 106(1E).

of the grounds on which he was disputing the Commissioner’s proposed adjustments. He also had to state how the law applied to the facts.

[65]   Mr Parore did provide a NOPA, as well as GST returns for the various GST periods 1 October 2014 to 30 September 2017. He also set out his defence for the period up to 10 October 2014. His NOPA appears to have been complied with s 89F.

[66]   Although Mr Tully denied it, it is hard to escape the conclusion that the Commissioner was engaged in a fact-finding process aimed at obtaining information to determine whether Mr Parore had a reasonable explanation for the Commissioner’s allegations and whether criminal prosecution was appropriate. Mr Tully met with representatives from the OA’s office.  He sought  and  obtained  information  from Mr Parore’s accountants. He commenced the conference phase and in the course of the conference, it seems as though the assertions made in the NOPA were discussed.

[67]   By filing the GST returns, Mr Parore acknowledged the actus reus of the charges that were later laid in relation to the post-bankruptcy period. He thereby acknowledged that he was required to file GST returns and he set out the amounts he said should have been returned. Had the charges then been laid this would have infringed the presumption of innocence, his right to require the Commissioner to prove her case and his right to remain silent.

[68]   Mr Johnson argued that the s 58 defence was an assertion of law, that it was clearly wrong, and that Mr Parore, at least in regard to the offending alleged to have taken place while he was a bankrupt, offered no factual information. He suggests that in these circumstances there can be no prejudice.

[69]   I do not agree. First, it seems reasonably clear from the documents provided and from Mr Tully’s affidavit that the Commissioner was put on a train of enquiry as a result of disclosure of the s 58 defence. Secondly, whether or not the s 58 defence is good or bad falls to be assessed by reference to all of the evidence because, when the Commissioner later charged Mr Parore, she alleged evasion. She had to prove beyond reasonable doubt that Mr Parore intended to evade GST. Mr Parore’s s 58 defence was relevant to his intention and what he intended and why it cannot be judged

in a vacuum. Intention is a question of fact, to be proved just like any other fact, beyond reasonable doubt. Thirdly, were I to rule on the application of the s 58 defence now, hold that it was legally flawed and send the charges back for retrial, the effect could be to deprive Mr Parore of a defence which may be open to him. That would undermine his rights under s 25(c) of the New Zealand Bill of Rights Act. Finally, in this regard I agree with the Judge that it cannot be said with any certainty that no information was provided, or that none was provided that the Commissioner relied on. Mr Parore is entitled to defend this aspect of the charges and to rely on what he understood s 58 to mean.

[70]   I agree with the Judge that the civil tax dispute process proceeded a significant way down its path before the prosecution commenced, and that as a result, as he was obliged to do, Mr Parore had either directly or through his advisors disclosed a considerable amount of information on the basis on which he would defend some of the charges and that he had admitted the actus reus of other of the charges.

[71]   The minimum standards of criminal procedure recognised in s 25 of the New Zealand Bill of Rights Act are available only to a person who has been charged with an offence.

[72]   When the Commissioner was dealing with the civil dispute, she had not charged Mr Parore. However, when she subsequently charged him on 26 August 2019, in my judgement, she put Mr Parore in an impossible position. She had used her statutory powers under the TAA to effectively require Mr Parore to disclose his prospective defence, to deprive him of the right to remain silent, to get him to acknowledge the actus reus of certain of the offences and to disclose his hand in relation to other of the offences. When the charges were laid, a fair trial for Mr Parore was already an impossibility. I agree with observations made by Judge Collins in Safi that, whether innocently or deliberately, the Commissioner cannot bring about a situation where she is forewarned ahead of trial what defences will be run, what evidence the defence will call and then, being so forewarned, assert that the trial is fair.

[73]   In my view, there was prejudice to Mr Parore when the charges were laid because his fair trial rights were then engaged but they had already been compromised.

[74]   Looking forward, any trial was going to be unfair and it would be unfair were the trial allowed to go through to its conclusion because Mr Parore’s fair trial rights were undermined from the outset.

[75]I now turn to consider whether there is an alternative remedy to a stay.

[76]   The Commissioner’s answer is to say that she should not be allowed to call any evidence in regard to the s 58 defence. This solution however does not deal with the GST returns which Mr Parore filed with his NOPA and the acknowledgements inherent in those returns.

[77]   If an order is made that the Commissioner cannot lead any evidence in relation to the s 58 defence, a retrial in relation to those seven charges relating to the bankruptcy period could proceed and Mr Parore could still advance his defence. In contrast, if an order were to be made that the Commissioner cannot lead any evidence in relation to the GST returns for the GST periods post-bankruptcy, then the Commissioner’s case in regard to those returns would necessarily fail. The trial in relation to those charges would become a farce, achieving nothing.

[78]   Nevertheless, in my judgement, in relation to all charges a stay is the only appropriate remedy.

[79]   A stay is warranted because the Commissioner breached Mr Parore’s fair trial rights from the outset. To grant a stay is not to discipline the Commissioner for that breach; rather it serves to recognise the importance of fair trial rights and the administration of criminal justice in this country generally. There is a clear connection between the misconduct that occurred and the prejudice that would be suffered by Mr Parore were the matter sent back for a retrial. The rights breached were important and the intrusion on fair trial rights was serious. Granting a stay upholds the integrity of the criminal justice system and it may well have a deterrent effect, not only on those who committed the misconduct but on others more generally, in the sense that, as a

consequence of the granting of a stay, but they are likely to take greater care in the future.19

[80]   It also has to be borne in mind that Mr Parore has already faced, at least in part, two trials in relation to these charges already. Any retrial would likely be significantly delayed because of its low priority as a tax case and because of the backlog in the Courts arising from the Covid-19 pandemic. The allegations made are not particularly serious. They do not involve any risk to public safety. They involve a relatively small sum. The alleged offending occurred some years ago. Mr Parore is now 78 years old and he has never previously appeared before the Courts. There is an alternative remedy for the Commissioner. She retains the ability to pursue the alleged GST liabilities through the civil disputes process and she can impose penalties if appropriate.

Result

[81]   For the reasons I have set out, I conclude, albeit by a slightly different path, that the Judge did not err when she concluded that the criminal proceedings should be stayed. The appeal is dismissed.

Wylie J

19     ,See Wilson v R, above n 8, at [47].