Li v Commissioner of Police
[2022] NZHC 514
•18 March 2022
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2019-404-002225
[2022] NZHC 514
BETWEEN ZHIWEI LI
First Plaintiff
AA TAXATION & ACCOUNTING SERVICE LIMITED
Second Plaintiff
AND
COMMISSIONER OF POLICE
First Defendant
COMMISSIONER OF INLAND REVENUE
Second Defendant
Hearing: 21 and 22 February 2022 Appearances:
First Plaintiff in person and on behalf of Second Plaintiff (J Bilton as McKenzie Friend)
K Hogan for First Defendant
M Deligiannis and J Angelson for Second Defendant H Lanham and R Langdana as Counsel Assisting
Judgment:
18 March 2022
JUDGMENT OF WYLIE J
This judgment was delivered by Justice Wylie
On at 18 March 2022 at 4.00 pm Pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar
Date:…………………………
Solicitors/counsel:
Crown Law, Wellington/K Hogan, Auckland Meredith Connell, Auckland
Crown Law, Wellington
H Lanham and R Langdana, Auckland Copy to Mr Z Li
LI v COMMISSIONER OF POLICE [2022] NZHC 514 [18 March 2022]
Introduction
[1] This proceeding raises an interesting issue. The first and second plaintiffs are seeking three declarations under s 3 of the Declaratory Judgments Act 1908. One of the issues raised is whether assets vested in the Crown pursuant to an assets forfeiture order made under s 50 of the Criminal Proceeds (Recovery) Act 2009 (the CPRA), where one of the significant criminal activities alleged was tax evasion, should be attributed to offset tax liabilities subsequently assessed for both plaintiffs. The plaintiffs maintain that if the Crown is permitted to retain the assets forfeited and collect the tax assessed, it will be recovering twice. This issue has not previously been before the courts in this country.
Relevant facts
The parties – the conviction
[2] The second plaintiff, AA Taxation & Accounting Service Ltd (AA Taxation), was incorporated under the Companies Act 1993 on 9 August 2006. At all relevant times, its sole shareholder and director was the first plaintiff, Zhiwei Li (Mr Li), using an anglicised version of his name – Tom Lee.
[3]Mr Li is married to Cheng-Lan Wang (Ms Wang).
[4] AA Taxation was involved in the provision of various services ranging from accounting and tax services to job training and placement assistance. It assisted a number of students coming to this country to study; in particular, it assisted students from China.
[5] In April 2015, Mr Li was convicted, following a Judge alone trial before Judge Bergseng in the District Court at Auckland,1 of one charge of obtaining by deception, contrary to s 240(1)(a) of the Crimes Act 1961. It was not a representative charge.
[6] The conviction followed an investigation by an undercover journalist. The journalist enrolled with a private training institute to undertake studies for a
1 R v Li [2015] NZDC 4224.
New Zealand Diploma in Business (Level 6). The journalist did not attend any classes nor complete any work towards obtaining the qualification. Nevertheless, on 2 December 2008, Mr Li obtained a false academic transcript and diploma for the journalist. The transcript recorded that the journalist had completed 12 academic papers, passing each with a C grade, and the diploma certified that the journalist had qualified to be awarded the diploma. The journalist paid Mr Li $12,000 for these papers. Mr Li personally obtained $3,000 from this transaction. The journalist went on to use the false papers to obtain a New Zealand Qualifications Authority certificate certifying that, having completed the prescribed course of study, he had been awarded a diploma.
[7] The journalist’s investigation was aired as part of a television series, “Illegal New Zealand”. The programme involving Mr Li went to air in August 2009. The producer of the programme advised the New Zealand Qualifications Authority of the programme and Mr Li was identified as the provider of the fraudulent documentation.
[8] A complaint was made by the New Zealand Qualifications Authority to the police who undertook their own investigation. Following this investigation, the police charged Mr Li with obtaining a benefit by deception and, as noted above, he was found guilty by Judge Bergseng. Mr Li was subsequently sentenced to four months’ home detention by Judge Bergseng on 15 July 2015.2 An appeal by Mr Li against his conviction was dismissed by the Court of Appeal in May 2016.3
The proceedings under the Criminal Proceeds (Recovery) Act
[9] On 2 September 2015, the first defendant, the Commissioner of Police (the COP) commenced civil proceedings against Mr Li and Ms Wang under the CPRA (the CPRA proceedings) and, on 4 September 2015, Courtney J granted an application made by the COP for a without notice restraining order.4 The order placed the following assets associated with Mr Li and Ms Wang under the custody and control of the Official Assignee:
2 New Zealand Police v Li [2015] NZDC 13893.
3 Li v R [2016] NZCA 237.
4 Commissioner of Police v Li [2015] NZHC 2146.
(a)a residential property in Totara Vale, North Shore, Auckland (excluding the interest of the ANZ Bank New Zealand Ltd (the ANZ) as mortgagee);
(b)three bank accounts with the ANZ;
(c)two bank accounts with ASB Bank Ltd;
(d)two bank accounts with Kiwibank Ltd.
[10]The without notice application was supported by:
(a)an affidavit from Detective Nicholas Davenport. He deposed that enquiry had been made with New Zealand Customs and that there was no record of Mr Li or Ms Wang having brought significant sums of money into this country when they arrived in New Zealand. He also made enquiries with the Inland Revenue Department (the IRD) pursuant to s 98 of the CPRA. For the years 2006 to 1 April 2009, Mr Li’s total declared income was $33,688.52 from employment and
$12,300.30 from bank paid interest. It was however estimated that
$1,798,955.69 had been paid into the various bank accounts in Mr Li’s and Ms Wang’s names. The COP was unable to identify the source of these funds. Detective Davenport deposed to his belief that Mr Li (and Ms Wang indirectly) had unlawfully benefited from significant criminal activity, namely obtaining funds by deception. He also noted that any income earned by Mr Li and Ms Wang, whether legal or illegal, was subject to income tax and that it appeared that Mr Li and Ms Wang had evaded tax by not declaring significant income to the IRD; and
(b)an affidavit from Matthew Lee in support of the without notice application for restraining orders. Mr Lee is a financial analyst employed by the police. He had examined Mr Li and Ms Wang’s financial affairs to identify unexplained sources of funds both inside and outside the banking system. He concluded that the monies in the
various bank accounts operated by Mr Li and Ms Wang, for which there was no explicable source, totalled $1,550,209 in cash deposits and
$248,746.69 in other unidentified deposits. He noted that there had been 705 cash deposits into Mr Li’s private bank accounts and that the average sum deposited was $2,199.
[11] On 9 September 2015, the COP made a further without notice application seeking additional restraining orders in respect of monies in Ms Wang’s bank account with the ANZ and monies in Mr Li’s son’s bank account, also with the ANZ. Orders were also sought in respect of monies withdrawn from Ms Wang’s bank account in breach of the earlier restraining order. This further application was granted by Edwards J on the same day and, two days later, the Judge issued reasons for her decision.5
[12] An on-notice application was made and the various papers were served. On 7 October 2015, Keane J made on-notice restraining orders by consent in respect of the restrained property and also further property associated with Mr Li and Ms Wang, namely:
(a)two additional accounts with the ANZ;
(b)approximately $135,000 in cash seized by the police from the Totara Vale property in the course of a search undertaken on 10 September 2015.
[13] In February and again in June 2016, the Court varied the restraining orders to permit limited payments to Mr Li for his living expenses.
[14] On 28 September 2016, Woolford J extended the on-notice restraining orders for a further year.
[15]On 29 June 2016, the COP applied for civil forfeiture orders, namely:
5 Commissioner of Police v Li [2015] NZHC 2195.
(a)a profit forfeiture order in respect of the restrained assets under s 55 of the CPRA; and/or
(b)an assets forfeiture order under s 50 of the CPRA.
[16] An updated affidavit was filed by Mr Lee. He recorded that, on his analysis, funds totalling $1,855,136.64 had not been declared to the IRD by either Mr Li or Ms Wang and that they were liable for tax on this income. He estimated that the income tax payable by Mr Li was at least $601,206.79, excluding any use of money, interest, late payment penalties or other incremental penalties.
[17] Ms Wang filed her notice of opposition on 9 August 2016 and Mr Li filed his notice of opposition on 10 January 2017. Relevantly, Mr Li:
(a)filed a supporting affidavit in which he described the nature of AA Taxation’s business. He asserted that some of AA Taxation’s business income had been paid into his personal bank account;
(b)filed a further affidavit repeating that payments to AA Taxation were received into his personal account and acknowledging that further tax was due. He did not stipulate who owed that further tax;
(c)retained a chartered accountant, Sara Weaver, to comment on the financial evidence and analysis presented by the COP, and to consider Mr Li’s tax liability. It was Ms Weaver’s view that Mr Li had used the various restrained accounts to receive income and pay expenses relating to the business activity of AA Taxation and that Mr Li used the bank accounts interchangeably to conduct his business affairs. She disagreed with Mr Lee’s assessment of Mr Li’s income tax liability. She calculated that $1,839,736.64 of income had been generated from Mr Li’s business activities. She agreed that this sum had not been declared for tax purposes during the financial years ended 31 March 2009 through to 31 March 2015, but noted that $526,231.37 had been withdrawn for business expenses. She concluded that there was a tax
shortfall for Mr Li of $283,227.38, a GST shortfall for AA Taxation of
$171,326.77, and an income tax shortfall for AA Taxation of
$35,706.18. The core tax debt assessed by Ms Weaver was accordingly
$490,260.33.
[18] Mr Lee provided a further affidavit. He accepted some of the matters raised by Ms Weaver and acknowledged that AA Taxation would have incurred some business expenses although he disagreed with the level of expenses allowed by Ms Weaver. He considered that the tax shortfall for Mr Li and AA Taxation was
$598,858.25, and that interest was owing on the unpaid tax of $180,025.73. He concluded that the tax liability of both Mr Li and AA Taxation was therefore
$778,883.98.
[19] Various other affidavits were filed, notices requiring deponents to attend for cross-examination were issued and other preliminary skirmishes took place. Ultimately, the proceedings were set down for hearing to commence on 17 July 2017.
The settlement memorandum
[20] On 7 July 2017, counsel for Mr Li, Ms Wang and the COP advised the Registry that the CPRA proceedings had settled and that the allocated hearing time would not be required.
[21] On 12 July 2017, a joint memorandum was filed. Counsel recorded that settlement had been achieved between the COP, Mr Li and Ms Wang and they sought the Court’s approval to the settlement under s 95 of the CPRA. The settlement memorandum is discussed in more detail below. Broadly it recorded as follows:
(a)the restrained funds totalled approximately $885,000;
(b)the COP considered that Mr Li and Ms Wang had unlawfully benefited in the sum of $1,855,136.64;
(c)Mr Li maintained that the monies received by him came from the provision of legitimate services;
(d)the COP considered that the funds received by Mr Li and Ms Wang had not been declared to the Commissioner of Inland Revenue (the CIR). The COP estimated that Mr Li’s tax liability was $778,883.98;
(e)Mr Li’s position was that his total tax liability was $490,260.33;
(f)the COP relied on alleged fraudulent offending and tax evasion as the significant criminal activities from which Mr Li had unlawfully benefited;
(g)Mr Li disputed these allegations but acknowledged that monies were owed for the tax identified by Ms Weaver and for the benefit he had received from the proved offending – namely $3,000;
(h)the COP accepted that Ms Wang was likely to be successful in her application for relief from forfeiture;
(i)all parties recognised that they faced litigation risks;
(j)the parties agreed to settle the proceedings. Mr Li and Ms Wang consented to the sum of $575,000 being made subject to an assets forfeiture order. On payment of this sum, the Totara Vale property was to be released from restraint. No profit forfeiture orders were to be pursued by the CIR and costs were to lie where they fell; and
(k)orders were sought from the Court approving the proposed settlement.
[22] On 12 July 2017, Woolford J approved the settlement. Orders were sealed on the same day.
[23] Mr Li made the payments required under the settlement agreement to the Official Assignee. This was confirmed in an email sent by the Official Assignee on 21 August 2017. Following payment, the Totara Vale property was released from the restraining orders.
[24] The forfeited funds were held by the Official Assignee for six months as required by the CPRA and, on 2 March 2018, he distributed $566,017.94 to the Crown and closed his file. The monies were paid into a fund administered by the Ministry of Justice and known as the Proceeds of Crime Fund. The Official Assignee no longer holds any funds in relation to the CPRA proceedings.
The involvement of the CIR
[25] By letter dated 15 May 2017 (before settlement of the CPRA proceedings), a voluntary disclosure was made to the IRD by AA Taxation and Mr Li through their solicitors. They disclosed a total tax shortfall of $294,726.94 for core tax owing from 31 March 2009 to 31 March 2015. They requested the CIR to make the necessary adjustments for the relevant GST and income tax periods. It was recorded that Mr Li had used Ms Weaver to reconstruct the tax shortfalls and parts of her affidavit in the CPRA proceedings were set out in the letter. There was however no express reference to those proceedings.
[26] Mr Wrottesley of the IRD was appointed as the investigating officer. On 26 June 2017, he sent a letter to the solicitors for AA Taxation and Mr Li, requesting further information in relation to various matters raised in the voluntary disclosure. Inter alia, he asked the following:
How did Mr Li become aware that there might be discrepancies in his and the company’s tax affairs?
[27] On 28 August 2017 (after the CPRA proceedings had been settled and the settlement had been approved by the Court) AA Taxation and Mr Li’s solicitors replied to Mr Wrottesley. In response to the question posed in the letter of 26 June 2017, they stated as follows:
Mr Li became aware of the liability when a forensic accountant was used to provide information on an unrelated proceeds of crime matter before the High Court.
The letter went on as follows:
Mr Li has paid $575,000 in lieu of the tax amount owed in a settlement agreement with the Crown. The Crown has acknowledged that this payment has been in lieu of the tax owed.
Mr Wrottesley has deposed that this was when he first became aware of the CPRA proceedings.
[28] In a further letter dated 3 October 2017, AA Taxation and Mr Li’s solicitors wrote to Mr Wrottesley again stating as follows:
Please find attached email confirmation from Official Assignee of the payment of all funds owing to the Crown under the settlement being $575,000, of which
$3,000 related to other criminal offending and the balance paid in lieu of tax owed.
The email from the Official Assignee sent by the solicitors to the CIR did not however confirm this. Rather it attached a copy of the Court order in the CPRA proceedings and went on to record as follows:
I can confirm the Official Assignee has received all funds owing under the attached settlement orders in relation to the above matter.
Mr Wrottesley has deposed that this was the first time he received any documentation generated in the course of the CPRA proceedings.
[29] Mr Wrottesley then contacted the COP’s solicitors. He advised that Mr Li’s solicitors were asserting that any tax payable as a result of any reassessments following on from the voluntary disclosure was covered by the $575,000 assets forfeiture order. Mr Wrottesley’s file note of his discussion with the COP’s solicitors records their advice that the assertion made by Mr Li’s solicitors was incorrect because:
… they were acting on behalf of the [COP] and [the forfeited sum] does not relate to any … tax payable which they did explain to Mr Li.
Subsequently, on 5 October 2017, the COP’s solicitors sent Mr Wrottesley a copy of the joint memorandum which had been provided to the Court on 12 July 2017 in support of the application for approval of the settlement under s 95 of the CPRA.
[30] In July 2018, the CIR completed her review consequent on the voluntary disclosure made by AA Taxation and Mr Li. As a result, on 28 July 2018, AA Taxation and Mr Li entered into separate agreements to amend their respective tax assessments. The agreements were signed by Mr Li for himself and on behalf of AA Taxation.
The effect of the agreements was to amend the assessments which Mr Li and AA Taxation had earlier filed as follows:
(a)for Mr Li, for the income tax years ending 31 March 2009 to 31 March 2016 inclusive, there was additional tax owing of $242,633.19, including then accrued penalties and interest;
(b)for AA Taxation, for the income tax years ending 31 March 2009 to 31 March 2016 inclusive and for the GST periods 31 May 2008 to 30 September 2015, there was additional tax and GST owing of
$211,894.59, including then accrued penalties and interest.
[31] On 10 August 2018, Mr Wrottesley wrote to Mr Li recording the amount he was required to pay by way of additional tax. The letter advised as follows:
I shall now refer this case to our collections section, together with a copy of the [joint settlement memorandum]. Our collections section will consider how your payment of $575,000 to the police is to be treated by Inland Revenue, and they will contact you in due course …
A similar letter was sent to AA Taxation.
[32] Various representations on behalf of Mr Li and AA Taxation were then made to the IRD by an AA Taxation employee. In essence, it was argued that Mr Li’s and AA Taxation’s respective tax liabilities should be set off against the amount forfeited under the assets forfeiture order.
[33] The file was then handed over by Mr Wrottesley to another IRD officer, Trudie Smith. On 25 September 2018, Ms Smith advised Mr Li that his case had been referred for collection. The letter recorded as follows:
In respect to the payment of $575,000 which we understand was made to the Official Assignee as part of the settlement agreement, we now advise the following:
·The settlement allowed for a total of $575,000 to be made subject to an asset forfeiture order, to be paid to the Official Assignee on behalf of the Crown.
·The parties to the settlement agreed that it was a matter for the Inland Revenue Department as to how the Inland Revenue may treat the settlement.
·Inland Revenue was not a party to the settlement, and no settlement funds were paid to Inland Revenue to satisfy the outstanding tax liabilities of yourself and/or the company.
We now advise that the overdue amounts for both yourself and the company remain payable in full. Payment is now overdue. Please find attached statement of accounts detailing the total amounts overdue for payment …
[34] On 31 October 2018, Mr Li’s and AA Taxation’s solicitors wrote to Ms Smith asserting that settlement had been reached under the CPRA but that:
… the Crown had brought the application on behalf of the Crown for fund including the payment of tax.
It was further asserted that the monies forfeited:
… included any possible tax liability that might have been owed to the [IRD] on behalf of both Mr Li and [AA Taxation].
It was claimed that the CIR, by seeking to recover the tax assessed, was in effect:
… seek[ing] for the tax to be paid twice and [should] be seen as the Crown attempting to double dip.
[35]Ms Smith responded by email dated 19 November 2018. She noted as follows:
(a)the IRD had not commenced the forfeiture proceedings;
(b)the IRD and AA Taxation were not parties to the settlement agreement;
(c)the parties to the settlement agreement had acknowledged that the IRD was not a party to the CPRA proceedings, that the settlement had no bearing on any action that might be taken by the CIR, and that it was a matter for the IRD as to how it should treat the settlement; and
(d)the IRD had not received any funds from the settlement.
It was denied that the settlement in any way discharged Mr Li’s or AA Taxation’s tax liabilities.
[36] The tax assessed by the CIR and agreed by Mr Li and AA Taxation was not paid and the CIR issued a statutory demand on AA Taxation on 29 January 2019. The demand sought payment by AA Taxation of $227,882, being the tax agreed together with penalties and interest as at the date of the demand.
[37]AA Taxation applied to set aside the demand.
[38] AA Taxation’s application came on for hearing before Associate Judge Smith on 24 June 2019 and he issued a reserved decision on 13 September 2019.6 He set aside the statutory demand under s 290(4)(c) of the Companies Act, conditional upon AA Taxation filing and serving appropriate proceedings in this Court seeking such declaratory or other relief as it considered appropriate to vindicate its contention that the amount claimed in the statutory demand should be deemed to have been paid or satisfied pursuant to the settlement agreement reached in the CPRA proceedings. The Judge stated as follows:
[82] No doubt there will be CPRA cases where the respondent has obtained money from someone by criminal fraud, and that fraud is the “significant criminal activity” on which an asset forfeiture order is made. The money obtained by the fraud in such a case will presumably be tainted and liable to forfeiture. The complainant in such a case might no longer have any “interest” in the money paid as a result of the fraud, and accordingly might not have participated in the CPRA proceeding. In those circumstances I do not think anyone would suggest that the complainant could not sue the fraudster for recovery of his or her money, and it would be no defence to such a claim for the fraudster to say that the money had been paid (forfeited) to the Crown under the CPRA. But what is different in this case is that the complainant (the Commissioner) is in substance a department of the Crown, and the Crown received sufficient money under the Settlement Agreement to cover the unpaid tax and penalties thereon.
[83] I accept that there are other difficulties facing AA, including the fact that the CPRA is concerned with broader matters, such as deterring criminal behaviour by others. It is not necessarily just concerned with the recovery of the proceeds of criminal activities. And subject to hardship considerations, all of a tainted asset will be forfeited, even if a substantial part of the cost of its acquisition or maintenance came from legitimate funds. But the elephant in the room remains, in the form of a likelihood that no-one involved with the Settlement Agreement expected that the Crown would receive the evaded tax twice, once via the Official Assignee and once via the Commissioner.
6 AA Taxation & Accounting Services Ltd v Commissioner of Inland Revenue [2019] NZHC 2301.
The pleadings
[39] Mr Li and AA Taxation in their statement of claim asserted that Mr Li’s personal accounts and AA Taxation’s business accounts were run “interchangeably and that they needed to be assessed as one”. They acknowledged that AA Taxation was not a party to the CPRA proceedings, but it was nevertheless alleged that “it was clear from the forensic expert evidence that any tax liability was jointly between” AA Taxation and Mr Li. They recited relevant parts of the joint memorandum recording the settlement and claimed that the CIR was aware of the settlement. It was alleged that the settlement agreement acknowledged that outstanding tax was owed and that it relieved Mr Li of any residual debt to the Crown. It was further claimed that:
The parties pursuant to the agreement at all times intended for the payment identified as tax, to be the tax having been identified as owing by the plaintiffs.
[40]Declarations were sought as follows:
(a)… that the funds paid in the [s]ettlement [a]greement and identified as tax are to be attributed to the tax assessments finalised for the plaintiffs;
(b)… that the funds paid to the Official Assignee under the [s]ettlement [a]greement, and identified as tax, are held by the Official Assignee on trust for the [CIR]; and, in the alternative
(c)… that the funds paid, and identified as tax under the [s]ettlement [a]greement [were] not entitled to be collected by the [COP and that] the [s]ettlement [a]greement is therefore void.
[41] The COP in his statement of defence disputed a number of the factual assertions made in the statement of claim. He acknowledged that Ms Weaver considered that there was little distinction between Mr Li’s personal and business accounts and that they were run interchangeably, but noted that this was not the opinion of Mr Lee. The COP claimed that the primary focus of his investigation was suspected multiple fraud offending in which Mr Li sold false qualifications to international students. He accepted that the investigation into this alleged offending revealed that funds received into Mr Li’s and Ms Wang’s personal accounts, regardless of their legitimacy, had not been declared to the IRD. It was nevertheless asserted that the focus of the COP’s investigation under the CPRA was on Mr Li’s criminal conduct
and that it was only in the course of that investigation that the transactions that took place through the bank accounts were brought to light. The COP further asserted that the settlement agreement made it clear that its purpose was not to settle any tax liabilities Mr Li and AA Taxation might have had and he denied that Mr Li is entitled to the relief sought by him.
[42] The CIR in her statement of defence recorded that she was not a party to the CPRA proceedings and that, in any event, the parties to those proceedings recorded in the settlement memorandum that the settlement had no bearing on Mr Li’s tax liability. She denied that Mr Li and AA Taxation are entitled to the declarations sought by them and, by way of counterclaim, she sought declarations in the following terms:
(a)that no assets of AA Taxation were subject to the restraining orders made in the CPRA proceedings;
(b)that the on-notice restraining orders in the CPRA proceedings were not intended to meet the tax debts of Mr Li and Ms Wang or the tax debts of AA Taxation;
(c)that no assets of AA Taxation form part of the assets forfeiture orders in the CPRA proceedings;
(d)that the assets forfeiture orders in the CPRA proceedings do not represent the payment of tax or alternatively, if they do represent the payment of tax, that they only represent the payment of the tax liabilities of the respondents to the CPRA proceedings;
(e)that the effect of the settlement memorandum was not to prohibit the CIR from collecting the tax that was owed by Mr Li and/or AA Taxation or alternatively, if the effect of the settlement memorandum is to prohibit the CIR from collecting any tax, that it is only the tax owed by Mr Li and not by AA Taxation.
Submissions
[43] Mr Li’s position was straightforward. He took the view that the COP at all times knew that he had only been charged with a single offence. Judge Bergseng found that he acted fraudulently on one occasion and that he received $3,000 as a result of that offending. Mr Li said that the COP was aware when he brought the CPRA proceedings that the assets seized could not have been the result of significant criminal activity. Mr Li also asserted that the COP and the CIR were aware that the funds that were received were from legitimate business activities and that both knew that he had intermingled his funds with those of AA Taxation and “got his taxes wrong”. He argued that it is unfair to use a one-off offence, committed in late 2008, to continue to punish him. He said that the punishment he has received is disproportionate to the offence he committed.
[44] Ms Hogan, for the COP, denied that the assets forfeiture order discharged any tax liability that Mr Li and AA Taxation have. She argued that there is no evidential basis for that assertion and that, in agreeing to settle the CPRA proceedings by way of an assets forfeiture order, Mr Li expressly acknowledged that there was an ongoing risk that the IRD might take action against him. She submitted that the assets forfeiture order was lawful and appropriate, that there was no tax collection undertaken by the COP, and that the CIR’s subsequent tax assessment does not result in double recovery by the Crown.
[45] Ms Deligiannis, for the CIR, noted that the CIR was not a party to the settlement agreement and that the agreement records that it did not bind her. It was submitted that no tax credit arose from Mr Li and Ms Wang’s forfeiture of their assets under the settlement agreement and that no issue of double recovery arises. Ms Deligiannis argued that the CPRA and the various Inland Revenue Acts have different purposes and operate independently of each other, and that, unless tax is specifically “paid” through various avenues available under the CPRA, a respondent’s tax liability remains unsatisfied. She argued that it is a matter for the CIR’s discretion as to whether she collects outstanding tax, taking into account her duty to collect over time the highest net revenue practicable within the law, while protecting the integrity of the tax system. Ms Deligiannis submitted that applying ordinary principles of
contractual interpretation, the settlement agreement cannot be construed in such a way that a payment made under it was a payment to satisfy Mr Li’s and AA Taxation’s tax liabilities and that even if it can be so construed, the agreement is unforceable as against the CIR because there is no privity of contract. She put it to me that the forfeited property, on the order being made, vested absolutely in the Crown and that the Official Assignee could not have held the forfeited property on trust for any other person.
[46] Ms Lanham, as counsel assisting, argued that there is a fundamental unfairness, in that Mr Li and AA Taxation, or at least Mr Li, are being denied the benefit of either:
(a)paying the tax and offsetting the amount paid against the benefit said to have been derived from significant criminal activity for the purposes of the CPRA proceedings; or
(b)having the assets forfeited to the Crown under the CPRA for tax evasion credited against their subsequent assessed tax liability.
She argued that, objectively assessed, the settlement agreement records that the COP and Mr Li agreed to forfeiture on the basis that the relevant significant criminal activities were fraud (resulting in a benefit of $3,000) and tax evasion, and that the settlement sum (except for $3,000) represented evaded tax. She submitted that the present situation could have been avoided if the CPRA proceedings had been adjourned pending finalisation of the CIR’s tax assessments and that it is likely that none of the parties contemplated the possibility that the CIR might subsequently seek to enforce the tax assessments. She suggested that the issues now raised might have been better suited to judicial review proceedings, challenging the exercise by the CIR of her discretion to recover in the circumstances that have arisen, but submitted that nevertheless the Court should be concerned by the double recovery she asserted will occur if the CIR is allowed to enforce the tax assessments. She argued that it is plainly wrong for two branches of the Crown to separately seek to recover funds that represent the same amount of unpaid tax.
Analysis
[47] Whether the CIR is precluded by the settlement agreement from recovering the tax assessed against Mr Li and AA Taxation depends on:
(a)the CPRA;
(b)the applications made by the COP under the CPRA; and
(c)the interpretation and effect of the joint memorandum of counsel recording the settlement agreed between the parties to the CPRA proceedings.
[48] I consider each of these matters in turn. I then address the declarations sought and conclude with some more general observations in relation to double recovery.
The Criminal Proceeds (Recovery) Act
[49]The purpose of the CPRA is set out in s 3. It provides as follows:
3 Purpose
(1)The primary purpose of this Act is to establish a regime for the forfeiture of property—
(a)that has been derived directly or indirectly from significant criminal activity; or
(b)that represents the value of a person’s unlawfully derived income.
(2)The criminal proceeds and instruments forfeiture regime established under this Act proposes to—
(a)eliminate the chance for persons to profit from undertaking or being associated with significant criminal activity; and
(b)deter significant criminal activity; and
(c)reduce the ability of criminals and persons associated with crime or significant criminal activity to continue or expand criminal enterprise; and
(d)deal with matters associated with foreign restraining orders and foreign forfeiture orders that arise in New Zealand.
[50] The statutory purpose is “strongly expressed”.7 It is, in part, aspirational and it is clear and emphatic.8 The CPRA seeks to “eliminate the chance for persons to profit from undertaking or being associated with significant criminal activity” and to “deter significant criminal activity”.9
[51] The CPRA puts in place a regime for the restraint and forfeiture of property derived as a result of “significant criminal activity” and without the need for a conviction. Significant criminal activity is activity engaged in by a person that, if proceeded against as a criminal offence, would amount to offending:10
(a)that consists of, or includes, one or more offences punishable by a maximum term of imprisonment of five years or more; or
(b)from which property, proceeds or benefits of a value of $30,000 or more have, directly or indirectly, been acquired or derived.
The significant criminal activity does not need to be, or to have been, the subject of any criminal proceedings in New Zealand or in a foreign country.11
[52] The CPRA provides for temporary restraining orders12 and for permanent civil forfeiture orders. There are two types of civil forfeiture order – an assets forfeiture order and a profit forfeiture order.
[53] The Court must make an assets forfeiture order if it is satisfied, on the balance of probabilities, that specific property in which the respondent has an interest is “tainted property”.13 Tainted property is any property that has, wholly or in part, been either:14
7 Hayward v Commissioner of Police [2014] NZCA 625 at [29(c)].
8 Marwood v Commissioner of Police [2016] NZSC 139, [2017] 1 NZLR 260 at [12].
9 Criminal Proceeds (Recovery) Act 2009, s 3(2)(a)–(b); and see Rodriguez v Commissioner of Police [2020] NZCA 589 at [28]; and Cheah v Commissioner of Police [2020] NZCA 253 at [30].
10 Criminal Proceeds (Recovery) Act, s 6(1).
11 Section 15.
12 Restraining orders are generally made as a precursor to forfeiture orders. They hold the position pending a hearing as to whether the property should be forfeited: Yan v Commissioner of Police [2015] NZCA 576, [2016] 2 NZLR 593 at [7].
13 Criminal Proceeds (Recovery) Act, s 50.
14 Section 5.
(a)acquired as a result of significant criminal activity; or
(b)directly or indirectly derived from significant criminal activity.
If specific property is acquired using in part funds derived from significant criminal activity, the use of the funds derived from significant criminal activity will taint the whole of the property.15
[54] The Court must make a profit forfeiture order if it is satisfied, on the balance of probabilities,16 that the respondent has unlawfully benefited from significant criminal activity within the last seven years and has interests in property.17 A person unlawfully benefits from significant criminal activity if he or she:18
… knowingly, directly or indirectly, derived a benefit from significant criminal activity (whether or not that person undertook or was involved in the significant criminal activity).
If the COP proves on the balance of probabilities that the respondent has unlawfully benefited from significant criminal activity, the value of the benefit is presumed to be the value stated in the application (or any amended application). This presumption can be rebutted by the respondent, also on the balance of probabilities. In calculating the quantum of any unlawful benefit, profit sharing arrangements and costs/outgoings are not taken into account.19
[55] Responsibility for invoking the CPRA is vested solely with the COP.20 He is the only person empowered to enter into a settlement with any person as to the property or any monies to be forfeited to the Crown21 (although any settlement will only bind the parties to the agreement if the High Court approves it, after being satisfied that the
15 Doorman v Commissioner of New Zealand Police [2013] NZCA 476, [2014] 2 NZLR 173; and
Duncan v Commissioner of Police [2013] NZCA 477, (2013) 26 CRNZ 796.
16 Criminal Proceeds (Recovery) Act, s 53; and see s 6(3).
17 Section 55 and see definitions in s 5.
18 Section 7.
19 Section 6(3); and see Solicitor-General of New Zealand v Rhodes HC Auckland CIV-2007-404- 3773, 16 February 2010 at [38]–[40]; Pulman v Commissioner of Police HC Auckland CIV-2010- 404-5666, 27 May 2011; Commissioner of Police v Hayward [2012] NZHC 1097; Commissioner of Police v Tang [2013] NZHC 1750; and Commissioner of Police v C [2018] NZHC 3334. Compare Commissioner of Police v McDonald [2019] NZHC 1089; and The Commissioner, The New Zealand Police v Snook [2018] NZHC 2537 at [62].
20 Criminal Proceeds (Recovery) Act, ss 18 and 43.
21 Section 95.
settlement is consistent with the purposes of the CPRA and the overall interests of justice).22
[56] If the COP obtains a restraining order, the property subject to the order is placed in the custody and control of the Official Assignee.23 If an assets forfeiture order is made, the Official Assignee is required to hold the property for a period of six months after the time for bringing any appeal has expired or six months after all appeals have been withdrawn or finally determined. The Official Assignee must then realise the assets held and apply the proceeds in accordance with s 82(1) of the CPRA. This provides for the payment, first, of costs recoverable by the Official Assignee, secondly of any amount payable to the Legal Services Commissioner as a result of a legal aid payment, thirdly of any outstanding fines and sentences of reparation, and then of any remaining monies to the Crown.
[57] There is no express interface between the CPRA and the various Inland Revenue Acts, other than pursuant to s 98 of the CPRA which permits the disclosure of information held by the CIR to the COP.
[58] While it is not uncommon for the COP in civil forfeiture proceedings to allege tax evasion as a significant criminal activity for the purposes of the application, there is nothing in the CPRA which empowers the COP to collect tax on behalf of the CIR.24 Nor is there anything in the CPRA to suggest that the making of an assets forfeiture order or a profit forfeiture order amounts to a tax or operates to discharge a respondent’s tax liability.
The COP’s applications
[59] In his without notice application for a restraining order filed on 2 September 2015, the COP set out the grounds on which the order was sought – namely that there were reasonable grounds to believe that the specified property was tainted, and that
22 Section 95(2)–(3).
23 Sections 24(1)(b), 25(1)(b), 26(1)(b) and 50(3).
24 The CIR has sole responsibility for the care and management of taxes covered by the Inland Revenue Acts. While she administers those Acts, it is the Acts themselves which create the liability for tax: Commissioner of Inland Revenue v Michael Hill Finance (NZ) Ltd [2016] NZCA 276, [2016] NZLR 303 at [21] and [80]. The CIR is responsible for collecting the taxes committed to her charge: Tax Administration Act 1994, s 6A.
there were reasonable grounds to believe that Mr Li and Ms Wang had interests in the property and had unlawfully benefited from significant criminal activity. The significant criminal activity alleged was obtaining by deception (an offence under the Crimes Act)25 and tax evasion (an offence under the Tax Administration Act 1994).26
[60] These matters were expanded on in the supporting affidavit of Detective Davenport filed in these proceedings. He referred to the investigation undertaken by the undercover journalist leading to the “Illegal New Zealand” television programme and to Judge Bergseng’s decision. He referred to enquiries he had made and he identified the various unexplained deposits into Mr Li’s and Ms Wang’s bank accounts. He concluded his affidavit by recording his belief that Mr Li (and Ms Wang indirectly) had unlawfully benefited from significant criminal activity, namely obtaining by deception. He went on to say that any income earned by Mr Li and Ms Wang, whether legal or illegal, was subject to income tax and that it appeared that Mr Li and Ms Wang had failed to declare significant income to the IRD.
[61] The on-notice application made by the COP on 10 September 2015 again relied on obtaining by deception and tax evasion as the underlying significant criminal activities.
[62] So did the application for civil forfeiture orders dated 29 June 2016. The value of the benefit the subject of the profit forfeiture order sought was $1,855,136 or such other value as Mr Li and Ms Wang might prove in accordance with s 53(2) of the CPRA.
[63] The COP’s case throughout was that Mr Li’s offending was far greater than was revealed by the single offence in respect of which he had been convicted. Detective Senior Sergeant Allan deposed that evidence in the criminal proceedings before Judge Bergseng indicated that Mr Li had not only sold a fake diploma to the
25 Pursuant to ss 240(1)(a) and 241(a) of the Crimes Act, everyone who is guilty of obtaining by deception is liable to imprisonment for a term not exceeding seven years, if the loss caused or the value of what is obtained or sought to be obtained exceeds $1,000.
26 Pursuant to s 143B of the Tax Administration Act, a person who commits an offence under s 143B(1) – broadly tax evasion – is liable to imprisonment for a term not exceeding five years or a fine not exceeding $50,000 or both. Tax evasion is caught by the CPRA: Commissioner of Police v Nabawi [2021] NZHC 2413 at [5]–[61].
undercover journalist but also that Mr Li had actively sought out other international students to whom he could sell false qualifications. He noted that Judge Bergseng recorded that Mr Li had an ongoing business relationship with the private training institute. In his reasons judgment, Judge Bergseng referred to various recorded conversations and observed that it was clear from the nature of these discussions that Mr Li had some knowledge of what was available by way of qualifications. The Judge noted that Mr Li made reference to documents able to be issued by the private training institute, so as to keep overseas parents “happy”.27 He considered that it was clear from those discussions that Mr Li was working with others to provide false certificates.28 He also observed that Mr Li was involved in discussions about obtaining false qualifications for the undercover journalist’s classmate. Mr Li met with the classmate and advised that he might be able to obtain a diploma for him for $6,000.29 It was the COP’s position that it was clear from the evidence adduced at Mr Li’s trial that Mr Li had an established relationship with the private training institute and that as a result he was able to recruit foreign students and offer them fraudulent qualifications.
[64] As also noted by Detective Senior Sergeant Allan, Mr Li (and Ms Wang) had received very large sums of money into their bank accounts – some $1.855 million in total. The vast majority of this sum – $1.552 million – had been received in cash from no obvious source, by way of a large number of relatively small deposits. Mr Li provided little evidence to substantiate his claim that the funds had been received for the provision of legitimate business services. He did provide a number of letters and various individuals swore affidavits that legitimate services had been provided to them, but even if this evidence was accepted, it demonstrated that only $62,660 had been received by Mr Li for legitimate services provided.
[65] In my view, it is clear that the thrust of the COP’s investigation, and the reason for bringing the CPRA proceedings, was Mr Li’s role in the alleged fraud. The allegations against Mr Li relied on inferences, including that he did not declare significant income to the IRD. The alleged tax evasion was nevertheless incidental to
27 R v Li, above n 1, at [58].
28 At [50]–[58].
29 At [43]–[55].
the primary alleged fraud. Indeed, but for the fraud investigation, the discrepancies in Mr Li’s tax affairs would not have come to light.
The joint memorandum of counsel
[66] The settlement memorandum recorded both the parties’ respective positions and the proposed settlement. Relevantly, it provided as follows:
1.1This memorandum is filed jointly by counsel for the [COP], counsel for the first respondent, [Mr] Li and counsel for the second respondent, [Ms] Wang. It relates to a settlement reached as between the [COP] and both respondents regarding the forfeiture of assets. The Court’s approval of the settlement, as required by s 95 of the Criminal Proceeds (Recovery) Act 2009 … is now sought.
…
2.3The [COP’s] case is that the offending for which Mr Li was convicted is but one example of an ongoing scheme via which Mr Li sold fraudulent qualifications to international students. This necessitated dealing with international students only. As is evident from the notes of evidence in Mr Li’s criminal trial, providing fake qualifications to New Zealanders would have increased the risk of coming to the attention of the New Zealand authorities.
…
2.7The [COP’s] case is that Mr Li (and Ms Wang, by virtue of being married to Mr Li) unlawfully benefited to the sum of $1,855,136.64, consisting of the following deposits into their bank accounts.
(a)$1,552,543.45 in cash deposits;
(b)$84,459.00 in unidentified deposits; and
(c)$218,134.19 in non-cash deposits from third parties.
2.8In support of his opposition to the [COP’s] application, Mr Li has sworn an affidavit, and filed 13 supporting affidavits (including one deposed by a financial expert who has analysed Mr Li’s business affairs), which evidence him running various businesses over the relevant period. His position is that the deposits into his bank accounts, as described above, were funds received by him in exchange for legitimate services such as accounting services, barista courses, and English classes.
2.9The funds received by Mr Li and Ms Wang’s personal accounts, regardless of the legitimacy of their source, were not declared to [the IRD]. On that basis, [the COP] also relies on tax evasion. The [COP’s] position is that Mr Li’s total tax liability is $778,883.98. Mr Li’s position, as deposed by the financial expert instructed by him, is that his total tax liability is $490,260.33.
2.10In summary, the [COP] relies on both fraudulent offending and tax evasion as the significant criminal activity from which Mr Li has unlawfully benefited. Mr Li disputes these allegations, however for the purposes of settlement acknowledges that funds would be owed for the tax identified by the forensic accountant (but not for tax evasion) and for the benefit he received from the original offending, being $3,000. The [COP] notes that the [CIR] is not, and has never been, a party to these proceedings. The parties’ proposed settlement has no bearing on any action that may be taken by the [CIR] in the future, and how [the IRD] may treat the present settlement, if approved, would ultimately be a matter for it.
…
3.1The parties have agreed to settle the question of forfeiture of assets, in relation to the property restrained in this proceeding, subject to this Court’s approval under s 95 of the [CPRA]. The essence of the settlement is described below:
(a)Mr Li and Ms Wang consent to a total of $575,000 being made subject to assets forfeiture orders, those funds consisting of:
(i)all remaining restrained funds in these proceedings (approximately $385,000) are to be made subject to an assets forfeiture order;
(ii)the balance (being $575,000 less the funds described at 3.1(a)(i) above) to be paid by Mr Li to the Official Assignee under the following timeframe:
(A)$40,000 to be paid within 10 working days of the orders being made; and
(B)the balance (approximately $150,000) to be paid within one month of the orders being made;
(b)to the extent necessary, the restraining orders made by Keane J on 7 October 2015 in respect of [the Totara Vale property] are varied so that Mr Li and Ms Wang may borrow against the property further for the sole purpose of raising the funds required to make the payments described in 3.1(a)(ii) above to the Official Assignee.
(c)in the event that Mr Li makes the payments described at 3.1(a)(ii) above, upon the Official Assignee confirming in writing to the parties that he holds $575,000 in cleared funds [the Totara Vale property] is to be released from restraint and the Official Assignee is to then arrange for the restraining order to be lifted from the title to the property;
(d)the Commissioner will not pursue enforcement of the costs owed by Mr Li to the Commissioner as per the orders on costs dated 4 February 2016 (a quantum of $6,068) as well as the orders on costs dated 22 March 2017 (a quantum of $4,460);
(e)no profit forfeiture orders will be pursued by the Commissioner;
(f)Mr Li and Ms Wang will not oppose forfeiture or pursue any application for relief from forfeiture; and
(g)costs will lie where they fall in relation to all matters.
…
5.1The parties in this case submit that the settlement is consistent with the purposes of the [CPRA], and is in the overall interests of justice for the following reasons and accordingly invite the Court to approve the settlement:
…
(c)The [COP] considers he has a good case but recognises the following litigation risks:
(i)Albeit there is no requirement for a criminal conviction, the offending for which Mr Li was convicted was one count of obtaining by deception. He was sentenced on the basis that he received $3,000 for supplying one false diploma. The [COP’s] case relies largely on inferential reasoning: that the much larger sum of $1,855,136.64 received by Mr Li and Ms Wang from unknown sources was the proceeds of further fraudulent offending. The [COP] accepts that beyond an inference from conviction and the sum received into the bank accounts, there was little to support this contention.
(ii)Any application for relief filed by Ms Wang on the grounds of undue hardship was likely to be successful. The [COP] considers that there was a significant likelihood that she would in effect be considered an innocent party, ignorant of her husband’s offending. …
(d)In settling upon a figure of $575,000, the [COP] was mindful that the pool of available property was limited to $885,000, and that it appeared to be accepted that Mr Li owed outstanding tax, albeit the sum of that was in dispute: … The [COP] was also mindful that this sum would allow the family home to be retained.
(e)Mr Li recognises that there is litigation risk to him. He was convicted in relation to selling a fake diploma therefore has unlawfully benefited from significant criminal activity.
$1,855,136.64 in income was received by bank accounts controlled by Mr Li, which he did not declare to [the IRD].
(f)Ms Wang also recognises that there is some litigation risk to her, given she assisted Mr Li in dissipating restrained funds
from their bank accounts at the commencement of this proceeding.
(g)The settlement may be seen as representing a pragmatic and reasonable compromise by the parties so as to facilitate the settlement of this litigation, and, especially, to provide security and certainty for Ms Wang and her young child.
(h)The absence of a profit forfeiture order against Mr Li and Ms Wang will relieve them of a residual debt to the Crown in the future. This settlement will bring a degree of finality to the matter.
(i)The parties wish to have control and certainty as to the outcome of these proceedings.
…
(emphasis added)
[67] As can be seen, the COP was asserting that Mr Li had unlawfully benefited from fraudulent offending in the sum of $1,855,166.64. The COP considered that this could be inferred from Mr Li’s conviction for fraud and from the substantial funds that had been received into his and Ms Wang’s bank accounts from unknown sources. This unlawful benefit did not factor in any benefit Mr Li had obtained from the alleged tax evasion. Mr Li did not accept that he had received anything more than $3,000 by way of unlawful benefit from fraud-related offending. However, the settlement memorandum did not confine the COP’s application nor link the proposed assets forfeiture order or its quantum to the alleged tax offending or the unlawful benefit derived from that offending. There was no agreement between the parties that the funds the subject of the proposed assets forfeiture order could later be attributed to discharge Mr Li’s or AA Taxation’s respective tax liabilities.
[68] Traditionally, the Courts in New Zealand applied the “plain meaning” rule – if the words of the contract were plain and unambiguous as they stood, they were treated as speaking for themselves and evidence of context was not admitted to show that the parties intended something different.30 More recently, the Courts have become more willing to receive evidence of surrounding circumstances for the purpose of
30 Matthew Barber “Contents of the Contract” in Jeremy Finn, Stephen Todd and Matthew Barber Burrows, Finn and Todd on the Law of Contract in New Zealand (6th ed, LexisNexis, Wellington, 2018) 177 at [6.3.1].
interpreting written contracts.31 Such evidence can sometimes have the effect that what prima facie seems the most obvious meaning of the words used is displaced by a secondary, less obvious meaning.32 The Courts have held that evidence of the context in which a contract was entered into can be admitted, because it is always possible that what appears to be the plain meaning of the document may, on further examination, turn out not to be.33
[69] This more modern approach was best articulated by Lord Hoffmann in Investors Compensation Scheme Ltd v West Bromwich Building Society.34 He said as follows:35
… I do not think that the fundamental change which has overtaken this branch of the law … is always sufficiently appreciated. The result has been, subject to one important exception, to assimilate the way in which such documents are interpreted by judges to the common sense principles by which any serious utterance would be interpreted in ordinary life. Almost all the old intellectual baggage of “legal” interpretation has been discarded. The principles may be summarised as follows:
(1)Interpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract.
(2)The background was famously referred to by Lord Wilberforce as the “matrix of fact,” but this phrase is, if anything, an understated description of what the background may include. Subject to the requirement that it should have been reasonably available to the parties and to the exception to be mentioned next, it includes absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man.
(3)The law excludes from the admissible background the previous negotiations of the parties and their declarations of subjective intent. They are admissible only in an action for rectification. The law makes this distinction for reasons of practical policy and, in this respect only, legal interpretation differs from the way we would interpret utterances in ordinary life …
(4)The meaning which a document (or any other utterance) would convey to a reasonable man is not the same thing as the meaning of its words. The meaning of words is a matter of dictionaries and
31 At [6.3.1].
32 At [6.3.1].
33 At [6.3.2].
34 Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 (HL).
35 At 912–913.
grammars; the meaning of the document is what the parties using those words against the relevant background would reasonably have been understood to mean. The background may not merely enable the reasonable man to choose between the possible meanings of words which are ambiguous but even (as occasionally happens in ordinary life) to conclude that the parties must, for whatever reason, have used the wrong words or syntax …
(5)The “rule” that words should be given their “natural and ordinary meaning” reflects the common sense proposition that we do not easily accept that people have made linguistic mistakes, particularly in formal documents. On the other hand, if one would nevertheless conclude from the background that something must have gone wrong with the language, the law does not require judges to attribute to the parties an intention which they plainly could not have had …
(citations omitted)
[70] This statement of the law was adopted in New Zealand in Boat Park Ltd v Hutchinson.36 It has been relied on in numerous contractual interpretation cases since. In Firm PI 1 Ltd v Zurich Australian Insurance Ltd, the Supreme Court declined to reconsider the principles of contractual interpretation, and referred again to Lord Hoffmann’s approach as representing the position in New Zealand.37
[71] It follows that the exercise of interpreting a contractual provision involves identifying what the parties meant through the eyes of a reasonable reader. That meaning is most obviously to be gleaned from the language used,38 but the Courts will also look at the contract as a whole and in context, because the words used by the parties must be set in that context. The Courts are prepared to look at the factual matrix, even if the words of the contract seem clear at first sight.39 The context of an agreement will usually operate as a cross-check, but the plain meaning of a provision is provisional, and is always susceptible to being altered by context.40 Pre-contractual negotiations, if they shed an objective light on meaning, can be relevant and admissible, but not if they are simply evidence of subjective intention.41
36 Boat Park Ltd v Hutchinson [1999] 2 NZLR 74 (CA) at 81–82.
37 Firm PI 1 Ltd v Zurich Australian Insurance Ltd [2014] NZSC 147, [2015] 1 NZLR 432 at [60]; and see Bathurst Resources Ltd v L & M Coal Holdings Ltd [2021] NZSC 85, [2021] NZCCLR 17 at [41].
38 Arnold v Britton [2015] UKSC 36, [2015] AC 1619 at [17].
39 Vector Gas Ltd v Bay of Plenty Energy Ltd [2010] NZSC 5, [2010] 2 NZLR 444 at [4] per Blanchard J, at [22] per Tipping J, and at [64] per McGrath J.
40 Vector Gas Ltd v Bay of Plenty Energy Ltd, above n 39, at [24] per Tipping J.
41 At [20] per Tipping J; and see Bathurst Resources Ltd v L & M Coal Holdings Ltd, above n 37.
[72] In my judgment, a reasonable person, having the background knowledge available to the parties, would conclude, on reading the settlement memorandum, that Mr Li was facing allegations that he had unlawfully benefited from two types of significant criminal activity, that Mr Li disputed both of those allegations but acknowledged that funds were owed for tax (albeit that he considered there was no tax evasion). The background disclosed that there was a dispute as to Mr Li’s tax liability. The reasonable reader would not however tie Mr Li’s potential but unascertained tax liability to the sum proposed to be forfeited to the Crown. The final sentence of paragraph 2.10 of the settlement memorandum (emphasised above) would leave the reasonable reader in no doubt the proposed assets forfeiture order was to have no bearing on Mr Li’s position vis-à-vis the CIR, and that the parties were content to leave the CIR to treat the settlement as she saw fit.
[73] The settlement agreement falls to be interpreted as at the time it was made. Mr Li’s and AA Taxation’s tax liability was a live issue at that point. Mr Li knew that the COP considered that he was guilty of tax evasion; he knew what the COP considered his tax liability to be. He had retained Ms Weaver, who had prepared her own assessment of his and AA Taxation’s liabilities. He and AA Taxation had some two months earlier made voluntary disclosure to the IRD, asserting what tax they considered they should pay. Nevertheless, Mr Li, through his solicitor, confirmed the position as set out in the final sentence of paragraph 2.10.
[74] In my view, a reasonable reader of the settlement memorandum would have no hesitation in concluding that the parties:
(a)intended to reach a settlement in respect of the restrained property;
(b)did not accept each other’s contentions as to the source of the funds in Mr Li’s and Ms Wang’s bank accounts;
(c)did not accept each other’s contentions as to whether those funds had been acquired as a result of significant criminal activity;
(d)agreed that settlement would be advantageous given the litigation risks;
(e)were seeking to achieve a pragmatic and sensible compromise;
(f)accepted that the proposed settlement was consistent with the purposes of the CPRA and in the interests of justice; and
(g)agreed to the Court approving an assets forfeiture order in the sum of
$575,000.
[75] A reasonable person reading the settlement memorandum would be unable to find anything in it which supports Mr Li’s claim that the sum of $575,000 which it was proposed should be forfeited would discharge his tax liability, let alone AA Taxation’s tax liability. Rather, the reasonable reader would conclude that the COP was maintaining his case that Mr Li had unlawfully benefited from fraudulent offending and had additionally benefited from tax evasion. The reasonable reader would conclude that the COP had not resiled from these assertions.
[76] There is additional guidance which assists. Subsequent conduct, even if not mutual, can on occasion assist the Court in interpreting what a contract meant as at the time it was made, if it tends to prove something relevant for the notional reasonable person.42
[77] Here, when the voluntary disclosure was made by Mr Li and AA Taxation to the IRD, no mention was made of the CPRA proceedings. When the CIR asked how Mr Li had become aware that there might be discrepancies in his and AA Taxation’s tax affairs, Mr Li and AA Taxation’s solicitors replied that Mr Li became aware of the liability when a forensic accountant was used to provide information on an “unrelated proceeds of crime matter before the High Court” (emphasis added). This was the first time that the CPRA proceedings were mentioned to the IRD. This strongly suggests that Mr Li’s argument that the settlement reached in some way acknowledged his outstanding tax liability, and that it relieved him (and AA Taxation) of any residual debt to the Crown, is very much an afterthought.
42 Gibbons Holdings Ltd v Wholesale Distributors Ltd [2007] NZSC 37, [2008] 1 NZLR 277; and
Bathurst Resources Ltd v L & M Coal Holdings Ltd above n 37, at [84]–[90].
[78] I also note that there are various pathways which can lead to the CIR becoming involved in proceedings under the CPRA and which can result in tax being paid or compromised in the course of such proceedings:
(a)Under s 21 of the CPRA, the COP must serve notice of an application for a restraining order on any person with an interest in the proposed restrained property. While it is doubtful whether the CIR would have an interest in restrained property requiring that she be served, the Court can order service on other persons if it considers it appropriate to do so. The same provisions apply under s 45 when application is being made for a civil forfeiture order. When tax evasion is alleged, service on the CIR might well be wise. Directions as to service can be sought. It would avoid the problems which have arisen in this case.
(b)Proceedings under the CPRA are civil proceedings.43 The High Court Rules 2016 apply.44 If the CIR’s presence before the Court is thought to be necessary to fully determine the issues likely to arise, and she ought to be bound by any orders made, she can be joined. Application in this regard could have been made by any of the parties to the settlement memorandum.
(c)Under s 28(1)(c), the Court can make a restraining order subject to a condition that the restrained property be used to meet the payment of “any specified debt incurred by the respondent in good faith”. In Commissioner of Police v Dotcom, this Court acknowledged this jurisdiction and observed that it might permit Mr Dotcom to apply to vary the restraining order so that he could pay his tax debts out of the restrained property, provided he could provide evidence of his bona fide tax liability.45 Similarly, in Commissioner of Police v Taylor, this Court varied restraining orders to allow the respondent to sell some restrained
43 Criminal Proceeds (Recovery) Act, s 10.
44 See Vincent v Commissioner of Police [2013] NZCA 412 at [19]; Commissioner of Police v Hsu
[2012] NZHC 2092 at [8]; and Li v Commissioner of Police [2016] NZHC 909 at [8(a)].
45 Commissioner of Police v Dotcom [2012] NZHC 2190.
assets to meet his income tax liability.46 The respondent was also given leave to seek further orders under s 33 that any shortfall be paid from other restrained property.47
(d)It is possible for parties to a CPRA settlement to specifically provide for the payment of tax debts out of the proceeds of restrained property. Section 33 permits the COP, a person with an interest in the restrained property, the Official Assignee, or any other person with leave, to apply for further orders in respect of restrained property. Section 35 specifies the further orders the Court can make. They include orders varying the restrained property, varying any conditions to which the restraining order is subject, or the manner in which the Official Assignee is to perform his or her duties under a restraining order. This Court has relied on ss 33 and 35 to order, by consent, that payment be made from restrained property to the IRD as part of a proposed settlement under which the remaining assets are forfeited. By way of example, in Commissioner of Police v Gong, a settlement approved by the Court provided for the Official Assignee to sell a number of restrained properties and use the net proceeds to meet the tax liabilities of the respondent and his partner.48 In approving the settlement, the Court noted that the CIR had confirmed that she would regard the respondent’s tax liabilities as satisfied upon the Official Assignee’s payment. Similarly, in Commissioner of Police v McCarthy, the CIR was made a beneficiary under a settlement approved by the Court (although it was noted that the CPRA did not provide a mechanism for the CIR to be specifically named as a party to the settlement).49
(e)Section 59(1)(b) allows the Court to give directions that may be necessary or convenient to give effect to a civil forfeiture order (including an assets forfeiture order). It is arguable that the Court also
46 Commissioner of Police v Taylor [2013] NZHC 3226 at [30].
47 At [31] and [39].
48 Commissioner of Police v Gong [2018] NZHC 1859.
49 Commissioner of Police v McCarthy [2013] NZHC 3257 at [7].
has implied powers to supplement the manner in which the Official Assignee must dispose of forfeited property.50
[79] None of these various provisions were invoked in this case and Mr Li was represented by solicitors at the time.
[80] In my judgment, the COP, Mr Li and Ms Wang, as the parties to the settlement recorded in the settlement memorandum did not, at the time, intend that the funds they proposed should be forfeited were to be attributed to offset Mr Li’s and AA Taxation’s tax liabilities, once those liabilities were finally determined by the CIR.
[81]I now turn to consider the various declarations sought.
The declarations sought
[82] First, Mr Li and AA Taxation seek a declaration that funds paid under the settlement agreement and identified as tax should be attributed to the tax assessments finalised for each of them.
[83] The declaration sought is poorly framed. It assumes that the settlement agreement identified what part of the funds forfeited were on account of tax. While the settlement memorandum refers to tax and the parties’ competing contentions as to Mr Li’s liability, there is no specific reference in the settlement memorandum to any part of the forfeited funds being attributed to or identified as tax. The declaration sought also assumes that AA Taxation is entitled to the benefit of the settlement. It is not. It was not a party to the CPRA proceedings nor to the settlement. Moreover, the declaration sought is inconsistent with the purpose and effect of the CPRA. Assets forfeiture orders provide for property to be forfeited to the Crown. The words “forfeited to the Crown” are used throughout the Act but they are not defined. It is however clear that property forfeited pursuant to an assets forfeiture order vests in the Crown absolutely.51 The word “vest” means to place a person in full or legal possession; it envisages a one-way transaction, arising consequent on the forfeiture.
50 Heather McKenzie Proceeds of Crime Law in New Zealand (LexisNexis, Wellington, 2015) at 115.
51 Criminal Proceeds (Recovery) Act, s 50(3)(a).
The forfeiture of property to the Crown under the CPRA cannot, in my judgment, be equated with the satisfaction of a liability for tax because, in making a tax payment, nothing is forfeited. Rather, a person who pays tax satisfies a debt owed by that person to the Crown in accordance with his or her statutorily assessed liability under the Inland Revenue Acts. Liability for tax does not arise as a result of forfeiture: it is a debt incurred in the course of earning income. If the plaintiffs’ contentions were to be accepted, the CPRA would become a means of collecting tax. Clearly, it is not a tax collection statute.
[84]Accordingly, I decline to make the first declaration sought by the plaintiffs.
[85] Secondly, the plaintiffs seek a declaration that the Official Assignee is holding the funds paid to him under the settlement agreement and identified as tax on trust for AA Taxation.
[86] Again, there are difficulties with the declaration sought. Again, it assumes that monies comprising part of the funds paid to the Official Assignee pursuant to the assets forfeiture order were identified as tax. As I have already set out, there was no such identification. Secondly, the declaration sought ignores Mr Li’s position. Rather, it assumes that AA Taxation has some rights arising out of the settlement. As I have noted, it has no such rights. It was not a party to the CPRA proceedings nor to the settlement. The declaration sought also ignores the relevant provisions contained in the CPRA. As already noted, under s 82 of that Act, the Official Assignee must hold the forfeited property for six months after the assets forfeiture order has been finally determined. At the expiry of that period, the Official Assignee is obliged to dispose of the forfeited property and apply the proceeds in accordance with the priorities set out in the section. Tax is not one of the specified priority payments. There is simply no basis on which it can be asserted that the Official Assignee holds the funds in trust for AA Taxation. There is no tenable argument that the Official Assignee holds the property on trust for anybody other than the Crown.
[87] Again, I decline to make the declaration sought. It also follows the plaintiffs are not entitled to an order that any part of the forfeited funds be paid to the CIR on account of the tax ultimately assessed for AA Taxation.
[88] The plaintiffs also seek a declaration that the COP was not entitled to collect the funds paid and identified as tax under the settlement agreement and that the settlement agreement is accordingly void.
[89] Again, there is no tenable argument in this regard. No funds were identified as tax. The COP had no authority to collect tax and he did not purport to do so. Rather, the COP acted throughout in accordance with the relevant provisions contained in the CPRA. The plaintiffs have failed to point to any irregularity in the process followed by the COP and there is nothing to impugn the validity of the settlement agreement. In any event the agreement has been approved by the Court and there has been no appeal against that decision.
[90]I now turn to the declarations sought by the CIR.
[91] First, the CIR seeks a declaration that no assets of AA Taxation were the subject of the restraining orders made in the CPRA proceedings.
[92] The on-notice restraining orders made by Keane J extended to the residential property in Totara Vale, to the funds that were held in the various bank accounts in Mr Li’s and Ms Wang’s names and to the cash seized by the police from the Totara Vale property on 10 September 2017. That order was made by consent. AA Taxation had taken no steps to lodge an interest in the restrained property. There is no reference to AA Taxation in the on-notice restraining order and there is no reference in the settlement memorandum to any assets of AA Taxation being the subject of the restraining order.
[93] As against this, it was Mr Li’s case throughout that he intermingled funds belonging to AA Taxation with his and Ms Wang’s funds. That assertion has not been finally resolved by the Court. Rather, there are competing assertions by the COP and Mr Li.
[94] For the purposes of making the restraining order in relation to the bank accounts, these competing assertions made little difference. Even on Mr Li’s argument, part of the funds in the bank accounts was tainted, as a result of the
offending in respect of which he had been convicted. That would suffice to taint the whole of the funds in the bank accounts. The position is not however so clear in regard to the Totara Vale property or the cash seized by the police on 10 September 2017.
[95] Because the ownership of the restrained assets has not been finally resolved, I decline to make the declaration sought by the CIR.
[96] The CIR also seeks a declaration that the on-notice restraining orders in the CPRA proceedings were not intended to meet the tax debts of the respondents to that proceeding or the tax debts of AA Taxation.
[97] There was no provision made in the orders of Keane J or recorded in the settlement memorandum (or in any other document which has been put before me) providing for the tax debts of Mr Li and Ms Wang (or of AA Taxation) to be paid out of the tainted property the subject of the restraining orders. When the on-notice restraining orders were made, Mr Li had not taken any steps in relation to his tax liabilities. He had not even acknowledged any tax liability. There is no evidential foundation for the assertion that he then intended that the restrained property was to be used to meet his, Ms Wang’s or AA Taxation’s tax debts. Accordingly, I grant a declaration in the terms sought by the CIR.
[98] The third declaration sought by the CIR is as follows: that no assets of AA Taxation form part of the assets forfeiture order in the CPRA proceedings.
[99] This mirrors the declaration sought in respect of the restraining orders. For the same reasons, I decline to grant the declaration.
[100] Fourthly, the CIR seeks a declaration that the assets forfeiture order in the CPRA proceedings did not represent the payment of tax.
[101] For the reasons I have set out above, it is appropriate to grant this declaration in the terms sought. I refer in particular to paragraph 2.10 in the settlement memorandum. Neither the settlement memorandum nor the settlement approved by Woolford J provided that the forfeited assets were to be used to discharge the tax
liabilities of Mr Li, Ms Wang and/or AA Taxation. That is not however to say that the CIR should ignore the circumstances which had arisen when she is exercising her discretion whether or not to seek to recover the tax assessments made. I deal with this issue a little more fully below.
[102] Finally, the CIR seeks a declaration that the effect of the settlement memorandum was not to prohibit the CIR from collecting the tax that was owed by Mr Li and/or AA Taxation.
[103] The CIR was not a party to the CPRA proceedings. She was not involved in the settlement and the settlement expressly recorded that it had no bearing on her. Rather, it recorded that it was for her to decide how she would treat the settlement reached between the parties. The settlement agreement does not, in my judgment, prohibit the CIR from collecting the tax owed by Mr Li and/or AA Taxation, and accordingly, I grant the declaration sought. Again, I note that the CIR does however have a discretion whether or not to enforce the assessments made and I now turn to that issue.
Double recovery – the CIR’s discretion
[104] I am alive to the overarching concerns expressed by Ms Lanham. While I do not accept her argument that the property forfeited in this case was based on any agreement as to the quantum of the unlawful benefit, or that the unlawful benefit related primarily to unpaid tax, I am more sympathetic to her submission that there is a fundamental unfairness. As a result of what has occurred, Mr Li has been denied the benefit of either paying the tax and offsetting the amount against the benefit said to have been derived from significant criminal activity for the purposes of the CPRA proceedings, or having the funds the subject of the assets forfeiture order credited against his subsequent assessed tax liability.
[105] I do not consider that there is any corresponding unfairness to AA Taxation. As I have already noted, it was not a party to the CPRA proceedings and it played no part in the settlement.
[106] In a recent judgment of this Court, Duffy J expressed similar concerns.52 She was dealing with an on-notice application for restraining orders under the CPRA in respect of property belonging to the respondent, Mr Nabawi. It was alleged that Mr Nabawi had unlawfully benefited from tax evasion. The Judge accepted that tax evasion falls within the scope of the CPRA. She also commented, obiter, on various factors that were not directly touched on by the parties as follows:
[52] There are two further factors to be considered; neither was directly touched on by the parties. The first is how to reconcile any statutory liability under the [Tax Administration Act] to pay tax on undeclared income with the notion that failure to declare and pay tax will increase disposable income and facilitate either acquiring “tainted property” or deriving “unlawful benefits” from tax evasion. The second is the need to recognise that undeclared income will comprise a portion that is to be paid in tax and a portion that the subject is entitled to retain for his or her own benefit.
[53] Regarding the first factor, tax evasion does not cause the tax liability under the [Tax Administration Act] to evaporate; it merely avoids it. A tax evader will only profit from the offence if he or she is successful in avoiding detection. Once the offence is detected, absent any statutory bar against recovery, the benefits derived from the offending may be cancelled out by actions taken by the IRD under the [Tax Administration Act]. The existence of live tax liabilities may mean that profits derived from tax evasion are more notional than real. Whilst a tax evader may have enjoyed the extra disposable income tax evasion has brought him or her, such profits will sit alongside the tax liability he or she continues to owe. When the tax liability is enforced it may expunge what appeared beforehand to be profits from tax evasion. On the other hand, if the additional disposable income derived from tax evasion is used to acquire assets that rapidly inflate in value, the resulting profits may survive the effect of any tax recovery by the IRD.
[54] I was not informed regarding Mr Nabawi’s tax situation with the IRD and whether the IRD was taking steps to recover unpaid tax that he may owe. I consider it would have been helpful if the Commissioner had obtained evidence from the IRD on those matters. If the IRD takes no steps, then for the reasons I have already given I consider there are reasonable grounds to believe Mr Nabawi has profited from tax evasion. On the other hand, recovery action by the IRD may wipe out any profits the evasion has provided.
[107] Clearly, Nabawi can be distinguished from the present case, because there the COP was only relying on tax evasion to support his on-notice application for restraining orders. In Mr Li’s case, tax evasion is incidental to the principal offending of obtaining by deception, as I have already found. However, I agree with the Judge’s observations at [53] and [54].
52 Commissioner of Police v Nabawi, above n 26; compare Solicitor-General of New Zealand v Rhodes, above 22.
[108] Ms Lanham’s concerns, and those expressed by Duffy J, are implicitly founded in the doctrine that the Crown is a single entity, that the various government departments comprising the Crown are but elements of that entity, and that the Crown is one and indivisible.53 This doctrine, it seems to me, is relevant to the issue of double recovery. The Crown is the ultimate beneficiary of any monies disgorged by Mr Li, Ms Wang and AA Taxation, whether by way of forfeiture under the CPRA or by way of the payment of tax under the various Inland Revenue Acts.
[109] There has been case law in the United Kingdom dealing with the crossover between confiscation orders and the recovery of duty and/or tax. The cases have turned, in large part, on art 1 of Protocol 1 to the European Convention on Human Rights.54 Relevantly it provides as follows:
Every natural or legal person is entitled to the peaceful enjoyment of his possessions. No one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law and by the general principles of international law.
The preceding provisions shall not, however, in any way impair the right of a State to enforce such laws as it deems necessary to control the use of property in accordance with the general interest or to secure the payment of taxes or other contributions or penalties.
[110] In Edwards v R, the appellant pleaded guilty to a charge of being knowingly concerned in the fraudulent evasion of duty chargeable on a quantity of tobacco contrary to relevant provisions in the Customs and Excise Management Act 1979 (UK).55 He was sentenced to imprisonment and, in addition, confiscation proceedings were ordered. As a result of these proceedings, the appellant was required to pay
£30,257.52 to the Customs authorities. The confiscation order represented the totality of the appellant’s assessed realisable assets. The Court of Appeal (Criminal Appeals Division) dismissed the appeal against the quantum of the confiscation order. It had not been argued before the Court that the provisions of the relevant United Kingdom legislation gave rise to the unlawful confiscation of property and a breach of art 1 of
53 Town Investments Ltd v Department of the Environment [1978] AC 359 (HL) at 400; Commissioner of Inland Revenue v Medical Council of New Zealand [1997] 2 NZLR 297 (CA) at 327; and Ministry of Fisheries v Vu [2010] NZCA 469, [2011] NZAR 114 at [38].
54 Convention for the Protection of Human Rights and Fundamental Freedoms 213 UNTS 221 (opened for signature 4 November 1950, entered into force 3 September 1953).
55 Edwards v R [2004] EWCA Crim 2923.
Protocol 1 because they could give rise to double recovery of the duty. Nevertheless, the Court observed as follows:56
In response to enquiry from the court, counsel for the respondent stated that where a confiscation order has been made, based upon a benefit calculated by reference to the unpaid duty, the Customs and Excise authorities do not, as a matter of practice, seek recovery of the unpaid duty by way of civil proceedings. That both civil and criminal remedies are available is not in doubt. Should the Customs and Excise Authorities pursue a civil remedy where a confiscation order had been met, it is clear there would, in effect, be double recovery of the duty.
The firm practice of the Customs and Excise Authorities is, in our judgment, well placed.
[111] In R v Waya, the Supreme Court took a more direct approach to the issue of double recovery.57 The defendant had bought a property, in part using funds obtained pursuant to a mortgage advance. In order to obtain the mortgage, the defendant had made false statements about his employment record and earnings. Eventually the defendant was convicted of obtaining by deception and the prosecution applied for a confiscation order. A confiscation order was made by the High Court and upheld in the Court of Appeal. When the matter was before the Supreme Court, it was argued that the operation of the confiscation regime under the Proceeds of Crime Act 2002 (UK) constituted a violation of the defendant’s right to the peaceful enjoyment of his possessions, guaranteed by art 1 of Protocol 1 set out above. The Supreme Court held that a confiscation order which did not conform to the test of proportionality constituted a violation of the defendant’s rights, as guaranteed by art 1. The Court held that it was appropriate to read down the relevant provisions of the Proceeds of Crime Act, and to treat them as subject to the qualification that a confiscation order should not be made if it was disproportionate and thus in breach of art 1. The Court cited art 1 and observed as follows:58
It is clear law, and was common ground between the parties, that this imports, via the rule of fair balance, the requirement that there must be a reasonable relationship of proportionality between the means employed by the state in, inter alia, the deprivation of property as a form of penalty, and the legitimate aim which is sought to be realised by the deprivation.
56 At [24]–[25]; and see R v Bakewell [2006] EWCA Crim 2 at [19]; Her Majesty’s Revenue and Customs v Crossman [2007] EWHC 1585 (Ch); Martin v The Commissioners for Her Majesty’s Revenue and Customs [2015] UKUT 0161 (TCC) at [41]–[42].
57 R v Waya [2012] UKSC 51, [2013] 1 AC 294.
58 At [12].
The mortgage had been repaid and the mortgagee had been wholly restored to the position it was originally in. The Court noted as follows:59
In such a case a confiscation order which requires [the defendant] to pay the same sum again does not achieve the object of the legislation of removing from the defendant his proceeds of crime, but amounts simply to a further pecuniary penalty—in any ordinary language a fine. It is for that reason disproportionate.
The Court observed that a Judge should, if confronted by an application for a confiscation order which would be disproportionate, refuse to make it but accede only to an application for such sum as would be appropriate.60
[112] Some caution is required in considering these various decisions. They were decided under a rather different statutory regime than that which applies in this country. In particular:
(a)The Proceeds of Crime Act (UK) is a conviction based confiscation regime.61 The CPRA does not require a prior conviction before its provisions can engage.
(b)The revenue authorities have specific functions pursuant to Part 6 of the Proceeds of Crime Act in the United Kingdom, in particular, under s 317(1) and (2). There are no equivalent provisions in New Zealand. The only reference to the CIR in the CPRA is in s 98 and the IRD is not singled out in s 82 for priority payment following the realisation of forfeited assets.
(c)The Proceeds of Crime Act in the United Kingdom does not emphasise deterrence. The CPRA includes deterrence as part of its statutory purpose.
(d)There is no direct equivalent to art 1 of Protocol 1 in New Zealand. The nearest equivalent provisions are ss 9 and 21 of the New Zealand Bill
59 At [29].
60 At [16] and [18].
61 Proceeds of Crime Act 2002 (UK), s 6(2).
of Rights Act 1990, but these provisions are not in the same terms. Ms Lanham touched briefly on s 21. She accepted however that the CIR is not seizing assets when she seeks to recover outstanding tax; rather, she is seeking to enforce a debt. No other counsel dealt with s 21 in any detail. I raised the possible application of s 9 with all counsel. None of them addressed the issue in any detail and it was not fully explored.
[113] Ms Lanham ventured the observation that the issues raised in these proceedings may have been better suited to judicial review proceedings, challenging the exercise by the CIR of her discretion to seek recovery from Mr Li and AA Taxation in the circumstances which have arisen.
[114] I agree with this observation. It is clear that the CIR’s decisions can be judicially reviewed.62 Here, and notwithstanding that Mr Li and AA Taxation were legally represented at the time the statement of claim was filed, no challenge has been made to the exercise by the CIR of her discretion to pursue recovery of the tax assessed. I am confined by the proceedings brought and, in any event, I do not have sufficient information before me on which to venture an opinion, let alone reach any conclusion, as to the legality and/or reasonableness of the exercise by the CIR of the discretions vested in her. Accordingly, I do not take this issue any further.
Costs
[115] The COP and the CIR are the successful parties in these proceedings. They are entitled to orders for their reasonable costs and disbursements as against Mr Li and AA Taxation.
[116]I make the following directions:
(a)any memoranda seeking costs and disbursements are to be filed and served within 10 working days of the date of release of this judgment;
62 Commissioner of Inland Revenue v Canterbury Frozen Meat Co Ltd [1994] 2 NZLR 681 (CA) at 688.
(b)any memorandum in reply is to be filed and served within a further 10 working days;
(c)memoranda are not to exceed five pages.
I will then deal with the issue of costs and disbursements on the papers unless I require the assistance of counsel.
General
[117] I thank all counsel for the comprehensive and helpful submissions. I was very much assisted by them.
Wylie J
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