Faimoa-Magele v Inland Revenue Department

[2024] NZHC 166

IN THE HIGH COURT OF NEW ZEALAND DUNEDIN REGISTRY

I TE KŌTI MATUA O AOTEAROA ŌTEPOTI ROHE

CRI-2023-412-75

[2024] NZHC 166

BETWEEN

RUPERT FAIMOA-MAGELE

Appellant

AND

INLAND REVENUE DEPARTMENT

Respondent

Hearing:	7 February 2024
Appearances:	G D Fletcher for Appellant C J Flatley for Respondent
Judgment:	13 February 2024

JUDGMENT OF MANDER J

This judgment was delivered by me on 13 February at 3.30 pm pursuant to Rule 11.5 of the High Court Rules 2016

Registrar/Deputy Registrar Date:     .

FAIMOA-MAGELE v INLAND REVENUE DEPARTMENT [2024] NZHC 166 [13 February 2024]

[1]    Rupert Faimoa-Magele pleaded guilty in the Alexandra District Court to 47 charges of evading or attempting to evade PAYE, GST and income tax in respect of a company of which he was the sole director and shareholder.1 He was sentenced by Judge Turner to three years and one month’s imprisonment.2 He appeals that sentence on the ground it was manifestly excessive and that an appropriate sentence would have been one of home detention.

Background

[2]    Blade Group Ltd was incorporated in February 2018. The company was required to file PAYE returns monthly and GST returns every two months. Three GST returns were initially filed on behalf of the company by Mr Faimoa-Magele, but none after July 2018. Eleven PAYE returns were filed between March 2018 and January 2021. However, of those, 10 understated employee income and therefore the amount of PAYE that was required to be deducted. During both the 2019 and 2020 tax years, the company derived taxable income but did not furnish an income tax return for either year.

[3]    Mr Faimoa-Magele was the sole person responsible for the wage payments by the company, the deductions from those payments and the accounting and filing of returns for PAYE. Similarly, he was responsible for the accounting of GST and the filing of returns.

[4]    The total amount of unaccounted tax owed to the IRD was $1,057,548.20. This comprised of $431,015.46 owed by the company in GST, $557,380.80 of employee deductions it did not pay to IRD, and $69,151.97 of income tax evaded by the company. Blade Group Ltd went into receivership in January 2021 and was placed into liquidation in March 2021. The company has no assets and the liquidation has now been concluded with no prospect of the outstanding sums being repaid.

1      Tax Administration Act 1994, s 143B(2) — maximum penalty of five years’ imprisonment.

2      Inland Revenue Department v Faimoa-Magele [2023] NZDC 18469.

District Court decision

[5]    In December 2022, Mr Faimoa-Magele, at his request, was provided with a sentence indication. That was declined the following month, but guilty pleas were entered at a case review hearing on 21 April 2023, after two charges relating to the alleged evasion of personal income tax were withdrawn.

[6]    In sentencing Mr Faimoa-Magele, Judge Turner canvassed the appellant’s personal background and the submissions made on his behalf regarding how this offending had come about. Mr Faimoa-Magele was described as having no relevant formal qualifications when he commenced employment as a professional sportsperson. He later joined the New Zealand Navy as an engineer.  When he left, he worked in “security” for a person identified as a Mr S in one of his businesses in Auckland. It was said that this person proposed the establishment of a company to offer security services, of which Mr Faimoa-Magele would be the sole shareholder and director. The company was incorporated on that basis and Mr Faimoa-Magele placed in charge of its operation, including the day to day accounting work.

[7]    Mr Faimoa-Magele initially filed returns with the IRD for the company but these understated the tax position. Monies received which should have been paid to the IRD by way of GST, PAYE or income tax were diverted to Mr S and Mr Faimoa- Magele for their personal use. It was accepted in the District Court that Mr Faimoa- Magele knew that returns were not being filed. However, instead of contacting the IRD or seeking professional advice, he simply ignored IRD’s correspondence and, as his trial counsel described it, “put his head in the sand”.

[8]    During the three-year period of the offending, the business was noted to have been extremely profitable, with a turnover of many millions of dollars. Wages were paid and PAYE deducted, but those funds were not forwarded to the IRD. GST was claimed but not paid to the IRD, nor was income tax. This money was divided between the two men.

[9]    The District Court Judge noted that it was unclear how much each of the two men received. On the information provided by the informant, it was suggested over

$700,000 was paid to Mr S for his own use and Mr Faimoa-Magele received

approximately $979,000. The defence did not accept that was the position, and argued, as it did on the appeal, that Mr Faimoa-Magele did not profit significantly from the fraud. In that regard, it was noted he had no assets such as a house or car, nor were there other indicators of an extravagant lifestyle or income.

[10]   Judge Turner proceeded on the basis that, while it was unclear how much each of the men had received, it was apparent that Mr Faimoa-Magele had legal responsibility for filing the returns and was aware of his obligation to do so. The Judge found he continued to receive money and improperly paid that money either to himself or to Mr S. The Judge stated that, while he was prepared to accept that Mr Faimoa- Magele was inexperienced in business, potentially gullible and open to suggestion by Mr S, he knew the returns had to be filed and had failed to do so. He had received money and paid it out improperly.

[11]   Judge Turner identified a number of aggravating features of the offending. First was the period of the offending, over some three and a half years. Second was the amount of evasion involved, which involved a million dollars of tax money. In that regard it was noted these monies had actually been received by the company but improperly retained and paid to others. No recovery of this money was now possible, which the Judge described as representing a huge loss to the tax base and therefore to the community.

[12]   After referring to a number of sentencing decisions,3 which were described as involving similar amounts of evaded tax, a starting point of four years and five months’ imprisonment (53 months) was adopted. A discount of 18 per cent was applied for the entry of guilty pleas. A five per cent reduction was applied for prior good character, and a further five per cent for remorse and rehabilitative prospects. In the absence of reparation being a realistic prospect, no credit could be afforded for any type of restitution. The combined 28 per cent discount reduced the final sentence to one of 37 months’ imprisonment. Home detention was therefore not an option.

3      Wang v R [2016] NZCA 56; Inland Revenue Department v Lasek [2018] NZDC 7473; Inland Revenue Department v La [2019] NZDC 8075; Commissioner of Inland Revenue v Cree [2019] NZDC 1475; and Pome’e v Inland Revenue Department [2022] NZHC 2354.

Approach to appeal

[13]   An appeal against sentence may only be allowed by this Court if it is satisfied there has been an error in the imposition of the sentence and that a different sentence should be imposed.4 The Court will not intervene where the sentence is found to be within range and is one that can be properly justified on accepted sentencing principles.5 The focus must be on whether the ultimate sentence imposed is manifestly excessive, rather than its component parts.6

The appeal

[14]   On behalf of Mr Faimoa-Magele, his counsel, Mr Fletcher, argued the ultimate sentence imposed was manifestly excessive. He submitted that, while the amount of money involved was large, the focus must be on the criminality of the offender and that the sentencing Judge had failed to have proper regard to the need to impose the least restrictive outcome. Emphasis was placed on Mr Faimoa-Magele being the “patsy” for a more experienced person, in the form of Mr S, who had not been prosecuted, and that a sentence should have been imposed that allowed for home detention. It was argued that a lower starting point, in the region of 24 to 30 months, and a larger discount for mitigating factors, including credit for the guilty pleas and good character, insight, remorse and offers to assist, should have resulted in greater credit being extended to Mr Faimoa-Magele.

[15]   Mr Fletcher argued the cases relied upon in the District Court were distinguishable because the present offending involved a more experienced offender who had set up the scheme and used the appellant to shelter himself from liability. He sought to argue this was not a case of personal gain and profit, and, in that regard, stressed Mr Faimoa-Magele’s lack of business experience and his reliance on Mr S, both in relation to business advice and involvement in setting up the company. While the period of evasion spanned some three and a half years, it was argued the offending essentially involved “only one action” of Mr Faimoa-Magele failing to know what tax returns he needed to file.

4      Criminal Procedure Act 2011, s 250(2) and (3).

5      Tutakangahau v R [2014] NZCA 279, [2014] 3 NZLR 482 at [36]; Ripia v R [2011] NZCA 101 at [15].

6      Islam v R [2020] NZCA 140 at [32]; and Bowring v Police [2021] NZCA 325 at [12].

[16]   Mr Fletcher sought to distinguish the cases referred to by the District Court on the basis that his client was the “puppet” for a more experienced and “intentional tax evasion offender” and what was submitted to be the lack of personal gain by the appellant. In that regard, reference was made to the sum of $800 Mr Faimoa-Magele received each week which he though was a substantial sum.

[17]   Mr Fletcher argued that, unlike most fraud offending, there were no individual victims, with the only loss being to the public purse, and that personal deterrence was not required having regard to the accepted level of remorse Mr Faimoa-Magele had expressed, and what was argued to be a lack of “deliberateness” in his actions. It was submitted Mr Faimoa-Magele’s lack of previous convictions, his willingness to cooperate with the IRD in relation to Mr S, and the entry of his pleas, should have resulted in him receiving greater credit. In regard to the latter mitigating factor, it was argued pleas were entered at the first instance after Mr Faimoa-Magele’s lawyers had completed accounting work to ensure the figures alleged by IRD were correct.

The Crown’s response

[18]   Ms Flatley, on behalf of the Crown, submitted the starting point adopted by the District Court was appropriate and that the credits extended to Mr Faimoa-Magele were generous in the circumstances. The end sentence of 37 months imprisonment was rejected as being manifestly excessive, and it was submitted no less restrictive sentence was able to be imposed in the circumstances.

Analysis

Starting point

[19]   The appropriate starting point for a sentence is to be assessed having regard to the aggravating and mitigating features of the particular offending and the starting levels that have been adopted in comparable cases. In relation to the latter exercise, inevitably circumstances will differ from one case to the next. What is required as an overall evaluation of the appropriate level of sentence that ought to be imposed.

[20]   Mr Fletcher sought to place reliance on the Department of Inland Revenue v Kumar, which distinguished between the lead offender and a secondary party in a tax evasion operation, which resulted in different sentences being imposed. It was suggested this was similar to the circumstances of the present offending.7 In that case, Mr and Mrs Kumar were both involved in the tax evasion of $833,294.99. It was accepted that Mrs Kumar had naively followed the instructions of her husband without questioning the details and, after expressing remorse, was sentenced to home detention. Mr Fletcher submitted Mr Faimoa-Magele was in an analogous position to Mrs Kumar and that he had a comparable level of culpability. I do not consider that is a realistic submission.

[21]   The Kumar case involved a similar level of tax fraud. Mr Kumar, the primary instigator, was convicted of three counts of tax evasion which resulted in a starting point of four years and six months’ imprisonment. Mr Kumar attempted to justify his behaviour by submitting that his businesses were run by other people who he trusted to handle his day to day operations. That submission was rejected. It was noted that “it was the responsibility of all directors to ensure the affairs of their companies were being operated properly and lawfully”.8 On appeal, that starting point was not disturbed.

[22]   I accept Ms Flatley’s submission that Mr Kumar’s position was comparable to that of Mr Faimoa-Magele insofar as he too had sole responsibility as the director of his company for its tax affairs and, moreover, to ensure it was complying with its obligations and that money received as tax, in the form of PAYE and GST, was paid to the IRD and not diverted to himself or third parties. While it was accepted for sentencing purposes that Mr S was involved in the running of the business and directly influenced Mr Faimoa-Magele, as noted by the District Court Judge, he had legal responsibility for ensuring  the  tax  was  paid.  Moreover,  it  is  uncontested  that  Mr Faimoa-Magele filed three GST returns in 2018 and that some PAYE returns were also filed, of which 10 understated employee income.

7      Department of Inland Revenue v Kumar [2018] NZDC 24405.

8 At [3].

[23]   It is therefore apparent there was a level of understanding on Mr Faimoa- Magele’s part of his tax obligations and what was required to be done. He had agency over whether to comply with his responsibilities or, at least, seek assistance, but money that should have been paid to the IRD was distributed to himself and Mr S.

[24]   It was contended on behalf of Mr Faimoa-Magele that he was unaware of any issues regarding the filing of returns until the charges were served on him. However, that submission cannot be reconciled with the factual basis upon which sentencing proceeded in the District Court and is, in any event, not compatible with the known circumstances. It was accepted by the appellant at sentencing, through his counsel, that he was aware of the offending but simply “buried his head in the sand”. This is consistent with the summary of facts which refer to the Commissioner making multiple attempts to contact Mr Faimoa-Magele regarding the outstanding returns. Despite messages being left, no contact was made by him with the IRD. It is simply not feasible to suggest that over a three and a half-year period Mr Faimoa-Magele was not aware of the ongoing breaches. I accept the Crown’s submission that if the appellant had wished to challenge the factual basis upon which he was sentenced, as set out in the accepted summary of facts, the appropriate course would have been to have required a disputed facts hearing. The appeal Court is obliged to proceed on the basis of the facts as agreed for the purpose of sentencing in the District Court.

[25]   As noted, Mr Fletcher sought to liken Mr Faimoa-Magele’s position with that of Mrs Kumar, who was used by her husband and received a reduced starting point of 18 months’ imprisonment, which ultimately resulted in an end sentence of five months’ home detention and 100 hours’ community work. However, Mrs Kumar only faced one charge of evasion which concerned the sum of $127,000. Importantly, her involvement was accepted as having occurred as a result of a traditional Indian marriage in which she lived by a cultural philosophy to “never interfere with a man’s work”.9 It was accepted she had simply signed off on figures provided to her by others without question. She had taken steps to pay the owed tax back.

9      Department of Inland Revenue v Kumar, above n 7, at [23].

[26]   Mr Faimoa-Magele’s business naivete and inexperience was taken into account by the sentencing Court but his position was very different from that of Mrs Kumar. It was suggested he received no significant personal gain from the offending, but that again does not match the known facts which included large payments received by  Mr Faimoa-Magele amounting to, on the analysis undertaken by IRD, some $979,000. There may be no evidence of accumulated wealth but no evidence was tendered, apart from the assertion regarding the amounts paid to Mr S, of what happened to all this money. No analysis of Mr Faimoa-Magele’s bank accounts were made available to demonstrate he did not receive these funds or explain what happened to them, which would be expected if this submission was to be credibly advanced.

[27]   Mr Fletcher also sought to distinguish Wang v R, where a starting point of five years’ imprisonment was upheld by the Court of Appeal.10 Again, it was suggested that Mr Faimoa-Magele had no intention to offend or knowledge he was deliberately conducting fraud. However, that does not correlate with the position as accepted at sentencing, nor from what is apparent from the circumstances of the offending, that he was aware at the time of his ongoing failure to meet his tax and PAYE obligations. Inherently, the failure to file returns and the diversion of sums to himself and Mr S that should have been forwarded to IRD constituted deliberate fraud.

[28]   The amount of that fraud and the length of time over which it occurred are similar to the circumstances in Wang. While it is correct that an aggravating feature of the offending in that case was that some of it occurred while the defendant was on bail, the Court of Appeal observed in upholding the starting point that an even higher starting point could have been adopted to account for this feature. The three other cases referred to by the sentencing Judge, which involved lengthy periods of offending and similar amounts of around $1 million, resulted in starting points respectively of four years and nine months’ imprisonment, four years and six months’ imprisonment, and four years and six months’ imprisonment.11 A further relevant case is Inland Revenue Department v Isherwood,12 where the defendant, who ran a scaffolding business, breached her tax obligations by failing to pay around $603,000 in

10     Wang v R, above n 3.

11     Inland Revenue Department v Lasek, above n 3; Commissioner of Inland Revenue v Cree, above n 3; and Pome’e v Inland Revenue Department, above n 3.

12     Inland Revenue Department v Isherwood [2016] NZDC 21726.

accumulated   tax  over   a  period  of  six  years.     A starting point of five years’ imprisonment was considered appropriate in that case.

Conclusion regarding starting point

[29]   Because of the amount of tax evaded which has not been recovered and, importantly, the long period of three and a half years over which this offending occurred, I do not consider the sentencing Judge erred in his approach to setting the starting point. The Judge was cognisant of Mr Faimoa-Magele’s inexperience in business and how he had been influenced by Mr S, but the fact remains he was aware the returns had to be filed and he paid out monies received from PAYE and GST to either himself or Mr S, which tends to indicate why the returns were not filed. It has not been demonstrated that the starting point was outside the range available to the sentencing Judge in the exercise of his discretion.

Personal mitigating factors

[30]   It was argued on behalf of Mr Faimoa-Magele that a larger discount for his guilty plea, in the region of 20 to 25 per cent should have applied. The Judge adopted a credit of 18 per cent. In so doing, he explained that up to a maximum of 25 per cent credit can be extended to a person who acknowledges their guilt at an early opportunity. It was noted that Mr Faimoa-Magele had sought a sentencing indication which had been provided but was rejected. At that time a 20 per cent credit was offered. The matter proceeded to a case review hearing. While it was argued this delay was necessary for his counsel to undertake work in relation to the financial records, the timing of the sentence indication hearing would suggest that Mr Faimoa- Magele was open to the possibility of pleading guilty at that earlier time.

[31]   I accept the point made by Mr Fletcher, that assessment of the first reasonable opportunity to plead guilty should be made with regard to the nature of the case and that in a complicated tax prosecution there may be accounting matters that have to be worked through with a defendant. However, Mr Faimoa-Magele first appeared on these charges in May 2022 and guilty pleas were not entered until April the following year. I do not consider there is scope to argue the discount applied by the sentencing Judge amounted to an error.

[32]   A further 10 per cent was extended for Mr Faimoa-Magele’s personal circumstances, for prior good character, remorse and rehabilitative prospects. It is suggested that between 15 and 20 per cent should have been granted. However, again, I do not consider the Judge’s approach can support a finding of error. In terms of the issue of previous good character, the Judge noted the period over which the current offending had been occurring — some three and a half years. I accept the fact the offending has occurred over a lengthy period of time does not necessarily extinguish the availability of credit for previous good character, but it can qualify the amount of the discount that may otherwise have been available.

[33]   Ms Flatley submitted the approach now taken by Mr Faimoa-Magele on his appeal, which seeks to suggest he was unaware of his obligations and responsibilities as the director of a business, and that places almost all causal responsibility for the offending onto Mr S, tends to detract from Mr Faimoa-Magele taking full responsibility for his behaviour and that he may not in fact be remorseful at all. However, there is no reason to believe this offending will be repeated and he will not lead a productive lifestyle once released from prison.

[34]   Mr Faimoa-Magele presented as a first offender who had served in the armed forces and otherwise led a constructive life. That background was required to be recognised but I do not consider the five per cent discount that was extended to him for previous good character was insufficient in the circumstances. Similarly, the further five per cent discount for remorse and rehabilitative prospects does not, in my view, give rise to any error.

Conclusion

[35]   I have concluded the starting point adopted by the sentencing Judge was within the range available to the sentencing Judge and that the discounts, while perhaps modest, do not give rise to any appealable error. Because the end sentence is not manifestly excessive, the appeal must be dismissed.

Result

[36]The appeal against sentence is dismissed.

Solicitors:
Crown Solicitor, Dunedin