Commissioner of Inland Revenue v Dempsey HC Auckland CRI 2010-485-89

[2010] NZHC 1778

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

CRI 2010-485-89

THE COMMISSIONER OF INLAND REVENUE

Appellant

v

DUNCAN FRASER DEMPSEY

Respondent

Hearing:         5 October 2010

Counsel:         D La Hood and J Snelson for Appellant

A Hill for Respondent

Judgment:      5 October 2010

JUDGMENT OF RONALD YOUNG J (Appeal against sentence)

Introduction

[1]      The Solicitor General on behalf of the Commissioner of Inland Revenue says a sentence of six months community detention and 200 hours community work was manifestly inadequate and wrong in principle following pleas of guilty to:

a)        five counts of knowingly failing to file an income tax return when intending   to   evade   the   assessment   or  payment   of   tax   (Tax

Administration Act 1994, s 143B(1)(b) and (f));

THE COMMISSIONER OF INLAND REVENUE V DUNCAN FRASER DEMPSEY HC WN CRI 2010-485-

89  5 October 2010

b)three  counts  of  aiding  and  abetting  Inscape  Design  Limited  to knowingly fail to file income tax returns intending to evade the assessment or payment of income tax (Tax Administration Act 1994, s 143B(1) and (f), s 148).

[2]      The respondent was also ordered to pay reparation of $39,300.

[3]      The thrust of the appeal is that the Solicitor General says a sentence of home detention was the least sentence that should have been imposed in the circumstances. The appellant says the Judge erred by failing to articulate a starting point which led in turn to the manifestly inadequate outcome.   The Crown submission is that a starting point in the range of 18 months to two years’ imprisonment was appropriate and  with  the  mitigating  features  a  sentence  of  home  detention  was  the  least restrictive sentence available.

Facts

[4]      Mr Dempsey is an architect/draftsman.  He was the sole director of Inscape Design Limited.  Essentially for practical purposes the company and the respondent were indistinguishable and he had run the business on his own for many years. Between 8 July 2004 and 8 July 2008 he failed to file personal income tax returns and income tax returns on behalf of the company.  The total amount of tax evaded was  $183,349.55.    Of  that  $39,300  was  Mr Dempsey’s  personal  income  tax,

$141,049.55 tax owed by Inscape Design Limited.  No reparation order with respect to the company’s tax arrears has been made.  It appears the company is insolvent. Mr Dempsey did make arrangements for a weekly payment with respect to his own income tax arrears at $250 per week.

[5]      When  discussing  his  offending  with  the  probation  officer  Mr Dempsey accepted he was the author of his own wrong doing, but denied his offending was intentional.  Mr Dempsey said that his company had lost lots of work in recent years and was left with numerous unpaid accounts as a result of other businesses that had failed.

[6]      Further, Mr Dempsey said that as the business failed he simply could not afford to hire an accountant to do his accounts and so had not been in a position to file tax returns.  He accepted he had made no arrangements to put any tax money aside but said this was because the business was failing and he thought he owed no tax.

Judge’s comments

[7]      At sentencing the District Court Judge observed that Mr Dempsey was the third  person  to  be  sentenced  on  “tax  evasion  charges”  and  that  a  number  of comments he had previously made applied to Mr Dempsey.   (I therefore take into account what the Judge said on those occasions in a general sense as relevant to his sentencing remarks here.)

[8]      The Judge noted that the respondent had a poor compliance rate with the filing of income tax returns even before these prosecutions.  The Judge accepted that it was true that the respondent simply did not have the money to pay an accountant and that his company was owed a number of substantial debts which it could not collect.  The Judge noted the respondent had no previous convictions and had since filed the income tax returns for himself and the company.

[9]      As to the respondent’s personal circumstances, he noted that he was 65 years of age and did not appear to have obtained any assets through his offending.  The Judge however noted that the respondent’s actions meant that other tax payers had to carry the burden that was his.  He accepted that there was a low risk of re-offending in the future.   The Judge noted community detention was recommended.   He considered that the appropriate starting place, given the total loss of $180,000, was imprisonment  but  believed  a  community  based  sentence  given  the  mitigation available was appropriate.

[10]     He then said:

[12]      In your case I take into account your personal circumstances and the fact that this was continued bad management and failure to comply, rather than greed or personal gain.  I take into account your age and the effect a

prison sentence would have on you and the effect on your family.  But I take into account that although reparation is to be paid, it has not been paid yet, and that your offending was over several years, not just one year, and that you have aided and abetted the company.  That will all have to be factored into the sentence.

[11]     The  Judge  in  balancing  these  matters  said  he  thought  a  sentence  of community detention for six months with a seven day a week curfew from 8.00 p.m. to  6.00 a.m.,  reparation  of  $39,300  and  200  hours  community  work  would sufficiently meet the respondent’s offending.

Parties’ submissions and discussion

[12]     The appellant says that because the Judge failed to articulate a proper starting point he was led into error when arriving at the appropriate sentence.

[13]     The Judge recognised that the proper starting point was imprisonment but said a community based sentence was finally appropriate.  In that sense the Crown agree  with  the  Judge’s  approach  but  disagree  with  the  actual  community based sentence to be imposed.

[14]     It was preferable for the Judge to adopt the R v Taueki[1] sentencing process if nothing else to assist in assessment of where the appellant’s offending fell in the scale of seriousness.

[1] R v Taueki [2005] 3 NZLR 372, (CA).

[15]     In the circumstances, however, the failure to do so is not pivotal to the outcome of this appeal.   The Crown submissions here are in part based on the proposition that the Judge underestimated the seriousness of the offending when he took into account that this was not a deliberate misleading but rather neglectfullness by the respondent.

[16]     The Crown stress that evasion is the key culpability point here.  Evasion is an ingredient of the charge the respondent pleaded guilty to.   How the respondent, however, came to evade the assessment of income tax by his failure to file the returns is of relevance to his sentencing.  Deliberate misleading compared with what can be seen here as bumbling incompetence does deserve as a general observation a more serious punishment.  The respondent did not use the tax money to support a lavish lifestyle but to keep his head above water in very straightened economic times and difficult personal circumstances.  While this does not excuse his offending again it lessens the impact from a sentencing perspective.

[17]     However, I agree with the appellant that this offending could have justified a start  sentence  of  around  18 months’  imprisonment  given  the  facts  including the circumstances the respondent faced.   There were clear parallels with the facts in R v James.[2]   I also accept the appellant’s submission that a reduction of 33% for the respondent’s early guilty plea and a further 10% for the other personal mitigating features are appropriate.  This would have meant a sentence overall for the offending of about 10 months’ imprisonment.

[2] R v James [2010] NZCA 206.

[18]     Given  the  offending  and  personal  circumstances  a  sentence  of  home detention was available and appropriate.[3]    As I understand it the appellant does not dispute this.   Thus this might typically have resulted in a sentence of around five months’ home detention for the respondent.  However there were legitimate concerns about home detention in this case which I consider justified the Judge’s decision.

[3] Sentencing Act 2002, s 15A.

[19]     The final paragraph of the probation report noted as follows:

As noted in this report, Mr Dempsey has self reported health issues, family responsibilities and work commitments to address.  From discussion with his family/supporters, he appears to be endeavouring to make positive changes for himself and his family, and if afforded the opportunity, will comply with any community based sanction imposed.   A curfew based electronically monitored sentence of Community Detention will permit him to address his responsibilities, but will restrict his liberty during specified times, at huge inconvenience  to  Mr Dempsey  but  considered  necessary  in  view  of  the seriousness of the offences and to deter any chance of re-offending.   The writer recommends seven days’ curfew from 20:00 to 06:00, to be observed

within the dwelling at 40 Messines Road, Karori, Wellington, commencing

Tuesday 13 July 2010.

[20]     Mr Dempsey’s future employment involves him in spending two to three days per week in Wellington and the rest of the time potentially out of Wellington. Further, he has care responsibilities for a grandchild in the Wairarapa which arises from a difficult set of family circumstances not of Mr Dempsey’s making.

[21]     In addition to those factors the probation report noted the difficulties at his residence  of  a  sufficient  cell phone  signal.    A  cell phone  signal  is  required  for electronic monitoring of home detention.  Because of problems with such a signal on the grounds of Mr Dempsey’s residence (at Messines Road, Karori) the proposal was if home detention was to be imposed he would need to be confined to the house itself rather than the grounds at all.  This proposal would have significantly increased the onerousness of any home detention sentence.   I accept it was not absolutely clear nothing could be done to ameliorate the potential harshness of home detention in these circumstances.

[22]     Further,  a  probation  officer  does  have  authority to  allow  a  defendant  to continue employment during his sentence of home detention.[4]   Given Mr Dempsey’s employment and its relationship to the reparation payments it seems probable that he would have been allowed to leave his home detention residence for his employment. That presumably would have meant that during the day he was absent from his residence other than the weekends.

[4] Section 80C(3)(ii).

[23]     In  those  circumstances  other  than  the  theoretical  difference  in  hierarchy between the sentences of home detention and community detention[5] it is difficult to see the practical difference for the respondent in the sentences.   Indeed given the community detention sentence is for six months (compared with the five months’ home detention) and given he has to complete 200 hours community work (s 19(8)) it could be said in a practical sense that the sentence the respondent has received is rather harsher than five months home detention.

[5] Sentencing Act 2002, s 10.

[24]     The decision by the Judge was well within his sentencing discretion.  It did not result in a manifestly inadequate sentence.  The appeal is dismissed.  I want to make this plain: neither the decision in the District Court nor this decision has any precedential value.  It is entirely dependent on its own special facts.  Ordinarily the

appellant could at best have expected a sentence of home detention.

Ronald Young J

Solicitors:

D La Hood, Luke Cunningham & Clere, PO Box 10 357, Wellington, email:  [email protected]

J Snelson, Legal and Technical Services, Inland Revenue, PO Box 1462, Wellington 6140

A Hill, Morrison Kent, PO Box 10 035, Wellington, email:  Aman[email protected]