Knedler v Commissioner of Inland Revenue
[2017] NZHC 2888
•23 November 2017
IN THE HIGH COURT OF NEW ZEALAND TAURANGA REGISTRY
I TE KŌTI MATUA O AOTEAROA TAURANGA MOANA ROHE
CRI-2017-470-000032 [2017] NZHC 2888
BETWEEN KARINA KNEDLER
Appellant
AND
COMMISSIONER OF INLAND REVENUE
Respondent
Hearing: 23 November 2017 Appearances:
D Hall for the Appellant
SJP Davison for the RespondentJudgment:
23 November 2017
JUDGMENT OF WOOLFORD J
Solicitors: Hollister-Jones Lellman (Office of the Crown Solicitor), Tauranga
Counsel: D Hall, Rotorua
KNEDLER v COMMISSIONER OF INLAND REVENUE [2017] NZHC 2888 [23 November 2017]
Introduction
[1] Karina Knedler pleaded guilty to 19 dishonesty related charges, being nine charges (one representative) of using a document with intent to obtain a pecuniary advantage,1 nine charges (eight representative) of using a forged document,2 and one charge of obtaining by deception.3 The amount fraudulently obtained by Mrs Knedler from the IRD totals $1,198,586.58. She repaid $646,548.62. This amounts to a total tax loss of $552,037.96.
[2] Ms Knedler was sentenced by Judge P G Mabey QC in the Tauranga District Court to a sentence of three years and seven months imprisonment in line with an earlier sentence indication.4 She now appeals against that sentence.
[3] Ms Knedler seeks leave to appeal out of time due to a recent change of counsel. Leave to appeal out of time is not opposed and is granted.
Factual background
[4] The summary of facts refers to four sets of offending. The first set encompasses fraudulent claims for Working for Families tax credits. While living with her husband and their children Ms Knedler misrepresented her income and declared multiple times she was not receiving support from her children’s father. She submitted falsified birth certificates in support. As a result she obtained $69,018.35 of tax credits to which she was not entitled.
[5] The second set of offending relates to a company registered by Ms Knedler in December 2013, Fitonez Limited. Ms Knedler was the sole director and 50 per cent shareholder. She filed 21 online returns for the company claiming GST refunds to which it was not entitled. The majority of the claims were paid out by the IRD. However, the IRD commenced investigations into two properties for which GST
refunds were sought. It determined that there were no such purchases. On further
1 Crimes Act 1961, s 228.
2 Crimes Act 1961, s 257.
3 Crimes Act 1961, s 240(2)(a).
investigation it transpired all 21 returns were fraudulent and supported in the main by forged documents. Ms Knedler made a voluntary disclosure to the IRD of filing fraudulent GST returns and admitted the alteration and forgery of documents. However, that disclosure was incomplete. From this set of offending she fraudulently obtained $612,764.45.
[6] The third set of offending occurred in February 2016, while Ms Knedler was cooperating with the IRD enquiry into Fitonez Ltd. Ms Knedler registered a new company, Fitzone 2016 Limited, under her married name. She was the sole director and shareholder. She filed two false GST returns seeking refunds, which were approved and paid out. Through this set of offending she obtained $516,803.78.
[7] The fourth set of offending involved registration of four further companies under false names, three of which became GST registered, but the fourth was rejected. The defendant filed further fraudulent GST returns claiming refunds for the three registered companies. None of the claims were paid out. The IRD investigation established she had used false identities and documents to facilitate the offending, including a forged birth certificate and passport to open a bank account in a false name.
[8] The total value of the refunds sought by all five companies was $2,777,200.59, of which $1,129,558.23 was paid out. A substantial amount has now been repaid (albeit largely from funds fraudulently obtained), and it is agreed that the core tax loss including the Working for Families tax credits is $552,037.96.
District Court judgment
[9] Judge Mabey QC provided a sentence indication on 27 July 2017, which he adopted in full on sentencing on 31 August 2017.5 Counsel referred to a considerable number of cases, which were set out by the Judge in his sentencing indication. These include:
(a) R v Adams, in which the Court of Appeal upheld a starting point of four years where the defendant incorporated a company and made false GST claims over one year resulting in $700,000 of fraudulently obtained benefits.6
(b)R v Marsters, in which the Court of Appeal upheld a four year starting point for 48 counts of fraudulent use of documents to obtain tax refunds of $341,143.09.7
(c) R v Hunter, in which the Court of Appeal upheld a five year starting point for 422 charges of fraudulent use of a document involving tax fraud of approximately $400,000 over a six year period.8
(d)Lindup v IRD, in which the High Court upheld a five and a half year starting point for nine charges involving fraudulent GST returns where
$1,350,000 was claimed and $866,773.82 obtained.9
(e) R v Dhillon, in which Court of Appeal upheld a starting point of seven years for tax fraud exceeding $3,300,000.10
(f) R v Rowley, in which starting points of six and a half years and seven years were adopted for two accountants who conducted a fraudulent tax scheme over a period of five years, obtaining approximately
$3,000,000.11
[10] In setting a starting point the Judge stressed that the value of core tax evaded was only one factor. He considered that the following matters were relevant to the
defendant’s culpability, with reference to the factors listed in R v Varjan:12
6 R v Adams (2006) 22 NZTC 19,872 (CA).
7 R v Marsters (2005) 22 NZTC 19,649 (CA).
8 R v Hunter (2002) 20 NZTC 17,784.
9 Lindup v Inland Revenue Department (2008) 23 NZTC 22,025.
10 R v Dhillon [2009] NZCA 597, (2010) 24 NZTC 24,030.
11 R v Rowley [2012] NZHC 2087.
12 R v Varjan CA97/03, 26 June 2003 at [22]; citing also R v Hunter, above n 9, at [21].
(a) The amount of core tax loss resulting from GST fraud, being
$483,019.61;
(b)The duration of offending, which the Judge referred to in the indication as 17 months, but which was later corrected to two years, seven months;
(c) The nature of the offending, which he considered “sophisticated, persistent, determined and brazen”, highlighting the use of fabricated and forged documents. He also noted that Ms Knedler committed further fraud while simultaneously cooperating with authorities once questions were raised;
(d) Motivation for the offending, which the Judge considered to be
“entirely for personal gain driven by greed”;
(e) Reparation paid, although he noted that the source of the funds to pay reparations was money received from further fraudulent conduct.
[11] He considered that these factors meant that Ms Knedler’s fraud warranted a greater starting point than some other cases which resulted in similar amounts of core loss. He considered a starting point of five years imprisonment appropriate.
[12] In respect of mitigating factors, the Judge did not accept Ms Knedler was remorseful. He considered that Ms Knedler’s actions in making voluntary disclosure while simultaneously planning further fraud were inconsistent with a remorse discount. He allowed, however, a 10 per cent discount for Ms Knedler’s lack of previous convictions, noting his scepticism of her counsel’s claim for good character given Ms Knedler had been committing fraud over a period of five years. He then allowed a 25 per cent discount for guilty pleas, reaching a sentence of three years, four months imprisonment.
[13] In addition, the Judge imposed a cumulative sentence of three months imprisonment for the Working for Families offending. He reached this by taking a
starting point of 12 months, reduced for mitigating factors to eight months, and then to three months for totality.
[14] The Judge noted one further factor at the sentencing hearing that had not been mentioned in his indication. That was that Ms Knedler was pregnant with her fourth child. He did not apply a further discount, stating:13
I know, as I did at the time of the indication, that you are pregnant. You have written to me explaining that there are difficulties with your pregnancy and you have concerns that the prison authorities will not be equipped to deal with any emergencies that might arise. I have raised that today with Mr Weaver indicating to him that I cannot assist you with your fears concerning the adequacy of the prison medical resources. I must sentence you in accordance with the sentence indication.
There is a principle that would allow a Judge to reduce the sentence to take account of circumstances that would render a term of imprisonment more onerous than would otherwise be the case. There is in very extreme circumstances a discretion of mercy which on an appropriate occasion would even avoid a term of imprisonment. Neither of those situations apply to you. You must proceed and I must proceed on the basis that you are a prisoner and that the authorities in charge of the prisons are responsible for your medical well-being.
Approach on appeal
[15] An appeal against sentence will be allowed only if the Court is satisfied there has been an error in the sentence imposed for any reason and that a different sentence should be imposed.14 An error will be established if the sentence is manifestly excessive or wrong in principle, or if there are exceptional circumstances.15
[16] The focus is on the end sentence rather than the process by which the end sentence was reached. If the end sentence is within range, an appeal court will not
tinker with it.16
13 At [5]-[6].
14 Criminal Procedure Act 2011, s 250.
15 Tutakangahau v R [2014] NZCA 279, [2014] 3 NZLR 482 at [31].
16 Ripia v R [2011] NZCA 101 at [15]; Larkin v Ministry of Social Development [2015] NZHC 680 at [26].
Grounds of appeal
[17] The Notice of Appeal and the appellant’s submissions state that the basis of the appeal is that the sentence imposed was manifestly excessive as the sentencing Judge did not take into account or provide a discount at sentencing to reflect Ms Knedler’s pregnancy and associated health concerns.
[18] Written submissions for the appellant and a letter attached from Ms Knedler appear at points to challenge the starting point adopted. This is not specified in the Notice of Appeal. In any event I consider that the Judge’s starting point of five years imprisonment was clearly available given the value of Ms Knedler’s offending, and the fact that her offending was a particularly serious example of such offending. In particular, I concur with Judge Mabey QC that Ms Knedler’s decision to continue to offend while simultaneously cooperating with the IRD was a particular aggravating factor. This, in my view, warranted a starting point higher than other instances of offending of similar value.
Discussion
[19] I now turn to the stated ground of appeal, being whether Judge Mabey QC erred in refusing to allow a discount for Ms Knedler’s pregnancy. On this point both the defence and prosecution have provided further evidence. The Court has received from the defence a letter from Ms Knedler through her solicitor and a letter from Dr Ngaire Ellis, Ms Knedler’s GP. The Crown has provided an affidavit from Ranu Reddy, the Health Centre Manager for Auckland Region Women’s Corrections Facility. She is a registered nurse. Neither party have asked for leave to adduce further evidence on appeal. Given the material largely provides an update on Ms Knedler’s medical condition and treatment since sentencing I consider that leave is appropriate.
[20] It cannot be said that Judge Mabey QC did not take Ms Knedler’s pregnancy and its associated difficulties into account given he explicitly discussed the merits of a discount in his sentencing notes. The question is therefore whether Judge Mabey QC should have allowed a discount in the circumstances.
[21] Judge Mabey QC in his sentencing notes stated that he was bound to sentence
Ms Knedler consistently with his sentence indication. I accept the submission from Mr Hall that the Judge was in fact entitled to allow Ms Knedler an additional discount at sentencing notwithstanding the indication. But his reasoning indicated that he did not refuse a discount simply because of the indication, but because he did not consider a discount appropriate. He went on to note (correctly) that he would be entitled to reduce the sentence to take account of circumstances that would render a term of imprisonment more onerous than would otherwise be the case, but did not consider this appropriate.
[22] Counsel for Ms Knedler submits this was an error. Counsel have each relied on one case. Counsel for the defence refers to James v R, a sentencing decision by Dobson J in June of this year.17 In this decision, Dobson J heard an appeal from a sentence by a woman pregnant with her fourth child. Medical evidence demonstrated that given her history, there was a real risk that her uterus would rupture and she would require emergency surgery; medical evidence considered this a “life threatening situation” and that she would require treatment within 36 minutes should this occur.18
[23] An affidavit was produced by the team leader of health services at the relevant prison. That affidavit stated that an adequate level of care was available, comparable to that available in the community. However, the Judge expressed considerable concern about her treatment on the day before the appeal, when she was transported from Whanganui to a remand centre in New Plymouth for no valid reason, despite her objections and without being permitted to contact her lawyer. The Judge considered that this was “so inconsistent with assurances that those supervising Ms James’ custody at Arohata appreciate her condition and can adequately care for her that such assurances cannot be accepted as reliable”.19 Dobson J accordingly considered that given the urgent need for surgical intervention if complications were to arise, a prison
sentence was disproportionately severe in the circumstances.
17 James v R [2017] NZHC 1186.
18 At [17].
19 At [30].
[24] Dobson J thus approached the sentencing exercise afresh. In his decision he considered that the acute health risk justified a 20 per cent reduction from what would otherwise be the appropriate sentence. With other discounts, the sentence was reduced to 23.5 months imprisonment, justifying Ms James for a sentence of home detention, which Dobson J imposed conditional on the provision of a suitable address.
[25] By contrast, the prosecution relied on a different, but factually similar recent appeal heard by Heath J in August of this year, Ponce-Calderon v Police.20 In that case, the District Court had already allowed a discount of four months for the offender’s difficult pregnancy. Ms Ponce-Calderon submitted that she had been denied adequate medical care, warranting further discounts from her sentence.
[26] Heath J accepted the appellant was experiencing a complicated pregnancy which had the potential to cause difficulties with the health of both mother and child. However, Heath J placed weight on an affidavit provided by prison medical staff about the care available. He accepted that the care given was adequate in terms of the statutory responsibilities of the prison authorities. He concluded that in the circumstances, no further credit should be given to reflect the difficulties the appellant faced while incarcerated.
[27] Pregnancy in and of itself is not a bar to a sentence of imprisonment. However, under the Sentencing Act 2002 it is clear that personal mitigating factors are to be taken into account at sentencing. It is well established that the Court will take into account unusual medical needs that make the sentence disproportionately severe.21
This is encompassed by s 8(h) of the Sentencing Act, which provides that in sentencing
an offender the court:
must take into account any particular circumstances of the offender that mean a sentence or other means of dealing with the offender that would otherwise be appropriate would, in the particular instance, be disproportionately severe.
[28] The authorities on the appropriateness of a discount for pregnancy are mixed. There are conflicting Court of Appeal judgments from prior to the enactment of the
Sentencing Act 2002. One line of authorities suggests that although pregnancy is a
20 Ponce-Calderon v Police [2017] NZHC 1919.
21 R v Verschaffelt [2002] 3 NZLR 772 (CA) at [22]–[31].
personal circumstance relevant to sentence, pregnancy generally does not warrant a discount. Rather, it is best dealt with administratively rather than judicially.22 But I agree with Cooper J’s observation in Tawhiao v Police that this is the kind of factor that may, in certain circumstances, appropriately be taken into account under the Sentencing Act.23
[29] Subsequent High Court cases have frequently proceeded on the basis that pregnancy can be relevant, although I note this is often a factor tipping the balance in favour of home detention or a community-based sentence where one is available rather than necessarily warranting a discrete discount.24 Even in the case cited by the prosecution, Ponce-Calderon, the District Court Judge allowed a discount of four months from a starting point of six years due to the offender’s difficult pregnancy.25
On the other hand, in some cases this Court has found that it is not an error for a District Court Judge to give no discount where the medical assistance provided is adequate even if the pregnancy is difficult.26
[30] Ms Knedler submits that her sentence is disproportionately severe largely due to the care she is receiving while in prison. Ms Knedler has a history of eclampsia and pre-term delivery. She is classified as high risk and requires specialist care. In her letter she refers to her concerns there will not be a sufficiently urgent response to any symptoms of pre-eclampsia. Further, to the prison’s failure to administer an injection of anti-D following bleeding on 24 July, to inadequate dietary allowances leading to weight loss (Ms Knedler has coeliac disease) and to a delay in obtaining blood test results.
[31] Prison authorities are obliged to provide a reasonable standard of medical treatment to prison inmates under s 75 of the Corrections Act 2004, which provides:
22 R v Sylvia CA316/88, 7 December 1988; R v Mayne CA12/88, 18 April 1988; but compare R v
Campbell CA430/97, 27 November 1997; R v Watts CA261/91, 13 September 1991.
23 Tawhiao v Police [2014] NZHC 1142 at [43].
24 Boatwright v Police HC Auckland CRI-2010-404-505, 24 March 2011; Hotene v Police [2012] NZHC 1977; Jeffries v Police [2012] NZHC 2927; R v Aoapaau [2012] NZHC 700.
25 Ponce-Calderon v Police, above n 20, at [7].
26 Haddon v Police HC Gisborne CRI 2009-416-8, 20 May 2009.
75 Medical treatment and standard of health care
(1) A prisoner is entitled to receive medical treatment that is reasonably necessary.
(2) The standard of health care that is available to prisoners in a prison must be reasonably equivalent to the standard of health care available to the public.
[32] In her affidavit, Ms Reddy states that the prison is able to provide Ms Knedler with adequate medical care and is aware of its responsibilities under s 75. She says the appellant is currently under the care of a midwife, the High and Complex Needs Maternity Care Team and a Lead Community Care Provider from the DHB. Ms Reddy explains that for pregnant women, a referral is made to the DHB Community Midwifery Service and the Department has the services of a midwife twice weekly.
[33] As to Ms Knedler’s specific concerns, there is an alarm bell in Ms Knedler’s unit by which she can notify custodial staff of any emergencies. Nursing staff are onsite until 10.00 pm. It is the responsibility of the nursing staff to arrange an immediate transfer of the appellant to hospital for any significant pregnancy-related concerns. After 10.00 pm, it is the responsibility of the custodial staff. The nearest hospital, Middlemore Hospital, is only 7.2 kilometres away. An Advice of Prisoner Health Status Form was sent to staff on 7 November 2017 which directs that if
Ms Knedler shows warning signs of pre-eclamptic toxaemia she is to be sent for a check-up immediately as per the midwife. Ms Reddy accepts that Ms Knedler lost weight following her admission to prison, but this was followed by a larger increase. Her midwife has not raised any concerns in relation to her weight and the Health Centre has advised the kitchen of special dietary needs.
[34] Ms Knedler has also been placed in the Mothers and Babies Unit since early November. This is self-contained, shared accommodation for expecting mothers and mothers with babies. I note that under s 81A of the Corrections Act Ms Knedler may also request the chief executive’s approval to keep her child with her once it is born until the age of two if she meets certain conditions.
[35] I am satisfied from this affidavit evidence that Ms Knedler is receiving adequate medical care, with one reservation. There was a considerable delay in
administering blood tests to Ms Knedler. Ms Reddy explains that appointments were made for blood tests on 8, 9 and 14 August, but these were unable to proceed as laboratory forms were not available. An additional appointment on 17 August was also unable to proceed. The notes in Ms Knedler’s medical history provided by
Ms Reddy show that a note was sent to the midwife to generate the laboratory form on 9 August 2017. The blood tests were not administered until over a month later – on 11 September 2017. Ms Reddy attributes the delay to the absence of laboratory forms from an external provider. She says that this has been followed up by nursing staff employed by Corrections. For myself, I do not consider this to be an adequate explanation. A delay of over a month for what appears to be a straightforward blood test is not acceptable. Although I have not received further evidence on this point, I seriously doubt whether this is reasonably equivalent to the standard of health care available to the public, as required under s 75 of the Corrections Act. Ms Knedler has, however, subsequently received numerous blood tests with nothing like that level of delay.
[36] It is clear from the authorities that a discount for pregnancy is not guaranteed. Pregnancy will not always make a prison sentence disproportionately severe. And pregnancy is certainly no bar to imprisonment. However, I am of the view that
Ms Knedler’s time in prison will be disproportionately severe in the sense that it will be significantly more difficult and more punitive than it would be were she not facing a difficult pregnancy. This is largely due to the difficult nature of Ms Knedler’s previous pregnancies and the commensurate stress she is under. She has reported frequently to medical staff in the hospital that she is concerned about the level of care she is receiving. Although this may be somewhat exaggerated, her repeated requests for further records make it clear her concern is ongoing and genuine. This will only have been exacerbated by the delays in treatment and apparent poor communication that have occurred occasionally thus far, most notably in relation to blood tests, although there also appear to have been inadequacies with addressing her dietary requirements initially.
[37] As a result, I consider that the Judge erred by failing to allow any discount for
Ms Knedler’s difficult pregnancy and the impact it has on the severity of her sentence.
This is perhaps clearer now that Ms Knedler’s pregnancy has advanced than at the time of sentence.
[38] However, I consider that more recently these concerns have been alleviated somewhat, especially with Ms Knedler’s admission to the Mother and Baby Unit. Ms Knedler’s medical history indicates that she is receiving frequent medical visits and access to medical staff promptly when she expresses concerns. And some of her fears are unfounded. She expresses concern in her letter that if anything happened during hours when there are no medical staff onsite, and especially overnight when she is in her cell, nobody would know until it was too late. Ms Reddy has deposed that there is an alert button in her cell. Staff have been told that if there are any concerns she is to be immediately medically assessed. This is no different to the medical treatment she would receive in the community; there would not be medical staff onsite overnight if she were at home. Her concern about the failure of medical staff to administer an Anti-D injection on 24 July 2017 is explained in medical notes on 25 July 2017, in which the doctor has written: “Reports had lots of anti-D this preg, last time had was
6 July 2017 – told lasts 3 weeks”.
[39] Thus while the sentence is disproportionately severe, I do not consider this is a case like James v R. Prison staff appear to be adequately managing Ms Knedler’s health concerns with the exception of some issues of concern in July and August. Accordingly, any discount should not exceed 10 per cent, similar to that allowed in Ponce-Calderon v Police.
[40] I do not take issue with any other aspects of Judge Mabey’s sentence.
Ms Knedler in her letter before the Court suggests she should have received a 25 per cent discount for remorse and lack of previous convictions. The Judge made it clear that he did not consider her to be particularly remorseful and that her lack of previous convictions could only take her so far given she had offended over a long period, and even after the IRD had launched an investigation with which she was cooperating. This finding cannot be criticised, and would not be overcome by the provision of letters of support from the community.
[41] An additional discount of 10 per cent should have been allowed. I reduce the starting point of five years imprisonment for the GST offending by a total of 20 per cent for mitigating factors, and then an additional 25 per cent for guilty plea. This reaches a sentence of three years imprisonment. With the cumulative sentence of three months for the Working for Families offending, which I accept is appropriate in totality, that brings the final sentence to three years and three months imprisonment.
[42] That is four months less than the sentence imposed by Judge Mabey QC. Given this is approximately 10 per cent of Ms Knedler’s sentence I do not consider this to be tinkering. This does not, however, make Ms Knedler eligible for home detention as her sentence is still well over two years. Her offending is serious and must be treated as such notwithstanding her pregnancy.
Result
[43] I allow the appeal and substitute a sentence of imprisonment of three years and three months imprisonment.
Woolford J
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