R v Allan - [2009] NZCA 439

IN THE COURT OF APPEAL OF NEW ZEALAND

CA707/2008
[2009] NZCA 439

THE QUEEN

KARL ANDRE ALLAN

Hearing:9 March 2009
Court:Glazebrook, Rodney Hansen and MacKenzie JJ
Counsel:A Sharko for Appellant

S B Edwards for Crown
Judgment:25 September 2009 at 4.00 pm

JUDGMENT OF THE COURT

A The appeal against conviction is dismissed.

B The application to adduce fresh evidence on the appeal is granted.

C The appeal against sentence is allowed. The reparation figure is reduced to $51,407.70.

____________________________________________________________________

REASONS OF THE COURT

(Given by Glazebrook J)

Table of Contents

Para No

Introduction  [1]
Factual background  [5]
The competing contentions at trial  [12]
Developments at sentencing  [20]
New evidence on appeal  [23]

Summary of the new proposed evidence  [24]
Mr Allan’s submissions on the proposed new evidence  [27]
The Crown’s submissions on the proposed new evidence  [30]

Conviction appeal[31]

The submissions of the parties [31]
Our assessment [33]

Sentence appeal [38]

Issues  [39]
Should the Judge have held a disputed facts hearing?  [41]
What is the relevance of s 109 of the TAA?  [49]
Should s 32(3) of the Sentencing Act have been considered?                 [61]

Should penalties and use of money interest be included in any
reparation figure? [71]

Result [75]
Appendix: Legislative provisions

Introduction

On 21 May 2008, following a trial before Judge Rea and a jury in the Napier District Court, Mr Allan was convicted of nine counts of aiding and abetting a company (Logical Choice Ltd) knowingly to fail to file a GST return, intending to evade the payment of GST.
Mr Allan’s sentencing was originally scheduled to take place on 19 June 2008 but was deferred to give him time to make reparation in reduction of the total GST assessment amount of around $80,000 owed by Logical Choice. This sum included both GST (of some $64,000) plus penalties and interest. Mr Allan had raised only $13,900 by the resumed sentencing hearing on 16 October 2008. At that hearing, he was sentenced to one year’s imprisonment and ordered to pay reparation of $80,000.
Mr Allan appeals against his conviction and sentence. He also seeks leave to adduce new evidence in relation to the appeal which, in his submission, shows that the GST payable by Logical Choice was less than the Crown evidence at trial suggested. He submits that this could have affected the jury’s view at trial. It would also have resulted in a lower reparation figure.
Before examining these contentions, we set out the factual background, the contentions of the parties at trial, the developments at sentencing and summarise the new evidence Mr Allan seeks to have admitted on appeal.

Factual background

Mr Allan ran a small business buying and selling electronic equipment. This included importing electronics from overseas and on-selling them on Trade Me. In December 2003, he incorporated Logical Choice. While initially Mr Allan’s mother was the sole director and shareholder of the company, it was not disputed that it was Mr Allan’s company and that he ran the business.
For the first nine months following incorporation, the requirement for the company to file GST returns every two months was complied with (albeit late at times). On each of these occasions, GST refunds were claimed and paid. Then, during the 18 month period between 1 October 2004 and 31 March 2006, no GST returns were filed.
In January 2005, an officer from the Inland Revenue Department (IRD) visited Mr Allan at his business premises to ensure that he was aware of his obligation to file GST and PAYE returns and knew how to prepare those returns. At that stage, one GST return was overdue. Mr Allan assured the IRD officer that the relevant GST return would be filed within the week. When the IRD officer contacted Mr Allan again in August 2005 (by which time several GST returns were overdue) the officer was referred to a company employee, whom he then visited in person. After a further month of follow-up telephone calls, Mr Allan advised the IRD officer that he had engaged a local firm of accountants and that the outstanding GST returns should be filed within a few weeks.
The evidence of Ms Titter, a chartered accountant with the firm of Gardner Reaney, was that her firm was engaged by Mr Allan on 30 September 2005 to prepare the company’s annual accounts and income tax returns for the 2004, 2005 and upcoming 2006 financial years. The firm was not asked to prepare GST, PAYE or FBT returns as Mr Allan had been preparing these himself. Ms Titter did not receive any financial information from Mr Allan until early 2006 and the information provided then was insufficient to enable her to complete the annual accounts. In the ensuing months, Ms Titter and her assistant made numerous requests to Mr Allan for additional information and records.
Ms Titter said that the first request from Mr Allan for assistance with the GST returns was received on 19 June 2006. Her firm was reluctant to undertake that work because it had not been paid for the work done on the company’s accounts up until that date. More importantly, she did not have sufficient information to complete the GST returns. The necessary information was not received until the end of August. The annual accounts, income tax returns and outstanding GST returns were then finalised. Ms Titter calculated that there was GST owing of just over $64,000 on the nine outstanding returns. The GST returns were signed by Mr Allan on 4 September 2006 and filed.
In the meantime, in July 2006, Mr Allan had filed a GST return himself covering the period 1 April to 31 May 2006. A refund of just over $3,000 was claimed. It should also be noted that an investigator from the IRD had written to the company in March 2006 to advise it of the risk of prosecution if the outstanding GST returns were not filed. The investigator’s first direct contact with Mr Allan was in May 2006. She contacted him again on a weekly or fortnightly basis until the outstanding returns were filed in September. On each occasion she was advised by Mr Allan that his accountants were working on his returns and that they should be filed in the near future.
After the GST returns were filed, the shareholding and directorship of Logical Choice was transferred from Mr Allan’s mother to Mr Allan. On 27 September 2006, the company was put into voluntary liquidation. The evidence showed, however, that Mr Allan continued to operate his business and trade in the same manner as before. In November 2006, Mr Allan set up a new trading company, LCE Ltd, of which he is the sole director and shareholder.

The competing contentions at trial

The only issue at trial was whether Mr Allan intended to evade the payment of GST by Logical Choice. There was no dispute about the other elements of the charges.
The Crown case at trial was that the only possible conclusion was that Mr Allan was deliberately trying to evade GST. As the Judge said in his summing up:
[29] Now of course, from the Crown’s point of view, they’re saying to you here, well you look at all of the circumstances and the only possible inference or conclusion you can come to is this young man was deliberately trying to avoid tax that had to be paid, GST tax. The Crown tells you this is evident because of the fact that he didn’t file the returns until the pressure really came on him and he got someone else to do it, his accountant to do it and that immediately it was known how much tax had to be paid all of a sudden the company goes into liquidation so that the tax does not have to be paid and then he continues trading in his own name and lo and behold, the Crown says, within a couple of months he’s reconstituted another company and away he goes.
On the other hand, the defence case was that Mr Allan had failed to file the returns because of the volume of business he had been involved with and muddlement. As the Judge said:
[31] The defence side of it is quite different. They are saying, if you look at the amount of business he had to do, the circumstances surrounding how he got to the accountant, the previous accountant he had working for him, the giving of the documents to the accountant, the fact that these things were actually filed, in all of the circumstances, lead to a clear indication that it was bumbling rather than intent. That he had no intent at all to defraud the revenue of the money that it was entitled, that that simply hadn’t crossed his mind. In fact he wasn’t even sure that he would have to pay any GST and it was only after these returns came in that he realised the amount that was there.
[32] He signed them off, the defence says, but he now believes that those were wrong in any event, but right throughout, he may have been bumbling but he wasn’t dishonest, he did not intend to deprive the revenue of that money. So that’s both sides of it and I’ll repeat that again in a different way shortly for you, but that’s what you’re faced with here. There’s a lot of conclusions that each side are asking you to draw and you’ll have to decide what, if any, such conclusions you are prepared to draw in this case.
As noted by the Judge, one of the planks of the defence case at trial was that the nine GST returns Ms Titter filed on the company’s behalf were incorrect because she had failed to take into account any customs invoices in preparing those returns.
Mr Sharko explained, in his submissions before us on behalf of Mr Allan, that normally GST is calculated by dividing the GST content by nine, using box 8 of the GST return form for purchases and box 11 for sales. However, if there are credit adjustments, they are entered into box 13. For each of the nine GST returns at issue in this case box 13 for credit adjustments was left blank. Mr Sharko said that the fact that box 13 was left blank appeared at the time of the trial to have left a defence that, once the credit adjustments were entered, there would be little GST owing on some returns and possibly even a credit on others. This was consistent with Mr Allan’s instructions that the business was not operating at a meaningful profit.
At trial, Ms Titter’s evidence was that she had included credit adjustments in box 11. Thus, the customs invoices had in fact been taken into account. Ms Titter also said that there had been extra work involved in dealing with the customs invoice aspects of the GST returns because no payments had been made on the customs account for some time and then random payments had been made.
Mr Sharko said that Ms Titter’s evidence was a surprise to the defence because box 11 is not the appropriate box for credit adjustments. The IRD GST guide states under the heading “Important”: “Don’t include imported goods under Box 11 on your GST return” and the return form itself records in box 11 that imported goods should be excluded. Further, the GST expert called by the Crown at trial stated that box 11 should “definitely not” be used in such circumstances. The expert’s evidence at trial, however, was that the methodology employed by Ms Titter, although unorthodox, would not have made a difference to the end result. It was clear from Ms Titter’s evidence at trial that she had taken into account the customs invoices (or at least some of these).
Despite this, the defence nevertheless closed at trial on the basis that the GST actually owing was less than that returned. The Judge summarised the defence closing argument in this manner:
[57]     Mr Sharko then said that if there was no GST owing or only a small amount, it would be extraordinary if he [Mr Allan] had an intention to evade GST that in the end wasn’t payable, or there was only a very, very minor amount that may have to be paid and effectively Mr Sharko’s saying to you, “Well if the returns have been correct from Mr Allan’s point of view, the amount that was owing was either non-existent or trifling and really could you conclude an intention to evade on that sort of basis?”
[58]     Mr Sharko took you through the background as far as the accused was concerned. He told you, as I’ve already told you, that he doesn’t believe the returns were correct. He emphasised a good deal the difference between box 11 and box 13 on those forms and you will have to obviously decide whether you see that as having the same relevance that Mr Allan and Mr Sharko clearly do.
[59]     Mr Sharko says that we only have Mrs Titter’s word for the fact that she correctly calculated things and I dare say that’s right. You have to decide whether she’s right or whether she’s not, but again I repeat to you, this trial is not a test of whether Mrs Titter’s accountancy skills are accurate, it’s a test of whether, on all of the information, you conclude that the Crown has proved, to a level where you are sure, that at some point between when those returns were originally owing and when they were filed, the accused intended to evade the GST that he had to pay.

Developments at sentencing

Before sentencing, Mr Allan provided to the Judge a letter dated 18 June 2008 from his new accountant, Mr Murphy. In that letter Mr Murphy stated that he agreed that the calculation method employed by Ms Titter would, by itself, have made no difference to the end result. He said, however, that Ms Titter appeared to have overstated the GST by not taking into account all customs invoices.
Mr Murphy said that he had examined one period which showed in his view overstatement in Ms Titter’s calculations of GST by some $2,000. Mr Murphy also said that he had performed a “reasonableness test” on the total GST returns from 1 April 2005 to 31 March 2006, comparing these to the financial statements. He said that he could not reconcile the GST assessments with the financial records and, on the face of it, GST may have been overpaid.
The Judge at the first sentencing hearing on 19 June 2008 (see at [2] above), said that he would not take Mr Murphy’s letter into consideration. He said:
At this stage, Mr Allan, through his counsel, has put material before me disputing the amount of the reparation. I need to make it very clear that the decision on reparation is based on the trial evidence. Both sides had the opportunity of putting material before the Court and I am satisfied that it is proven that $64,000 was evaded.

New evidence on appeal

As noted above, Mr Allan seeks to adduce new evidence from Mr Murphy on appeal. This is an extension of the material provided in Mr Murphy’s letter to the trial Judge of 18 June 2008.

Summary of the new proposed evidence

Mr Murphy deposes that he is a practising accountant who was retained by Mr Sharko to review the amount of GST owed by Logical Choice for the period 1 October 2004 to 31 March 2006. Mr Murphy’s affidavit contains his calculations of the amount of GST owing during the nine GST periods concerned, based on customs invoices made available to him. He deposes that not all the customs invoices that he was provided with were included in the returns as filed by Ms Titter.
Mr Murphy says that he took each customs invoice and identified the GST content of each. The total over the GST nine periods from October 2004 to March 2006 was $32,020.08. He then compared this with the customs entries disclosed in Ms Titter’s working papers. These disclosed that the GST taken into account from customs invoices by Ms Titter was only $7,889.26. There was thus a difference of $24,130.82 of GST which had not been taken into account by her.
Mr Murphy notes the following caveats. First, he acknowledges that invoices that are dated towards the end of a GST period may only be paid at the beginning of the following GST period. Further, he has not determined whether any particular invoice had actually been paid. (Logical Choice operated on a payments basis for GST which meant GST could only be claimed on invoices that had been paid during the return period concerned).

Mr Allan’s submissions on the proposed new evidence

Mr Sharko, for Mr Allan, acknowledged that the incorrect method of filling in the GST returns used by Ms Titter may not have produced an incorrect result. However, Mr Sharko submits that Ms Titter’s methodology did mean that it was not possible before the trial to verify that all customs invoices had been included in the GST returns. This was the case even though Ms Titter’s working sheets were attached to the returns as the working papers did not record the customs invoices separately. Mr Sharko submits that the only way to determine the correct figure was to add up the GST content on all the customs invoices manually as Mr Murphy has now done. The evidence of Mr Murphy is thus, in his submission, fresh.
On the issue of whether the customs invoices were paid, Mr Sharko’s inquiries suggest that the GST content of the customs invoices actually paid may reduce the difference between Mr Murphy’s total and Ms Titter’s total from $24,130.82 to $12,592.30. That would reduce the figure of $64,000 taken by the sentencing Judge as the sum evaded to $51,407.70.
It is submitted by Mr Sharko that the evidence of Mr Murphy is more cogent than of Ms Titter. Apart from being entered into the wrong box of the GST form, Ms Titter’s calculations with regard to the customs invoices are hardly capable of being verified. While the purchases for goods and services within New Zealand are itemised, the goods purchased overseas are not. In contrast, the calculations of Mr Murphy are not only itemised but the supporting documents for each entry are attached. This means that it is possible to be sure not only that the entries are backed up by an invoice, but the GST content of any particular invoice can be verified.

The Crown’s submissions on the proposed new evidence

The Crown notes that Mr Murphy deposes that his calculations are based on disclosed documents. The disclosure process was completed over five months before trial. In any event, Ms Titter had based her calculations on records that had been provided by Mr Allan. The Crown thus submits that there was ample opportunity for Mr Allan to challenge the Crown’s evidence at trial as to the amount of GST and that he simply did not do so. The evidence therefore is not fresh. The Crown also submits that the evidence is not cogent for reasons we discuss in the course of our discussion of the appeal against conviction and sentence below.

Conviction appeal

The submissions of the parties

While the appeal against conviction was not abandoned, Mr Sharko made no oral submissions on the conviction appeal and relied solely on his written submissions. In terms of those written submissions, the appeal against conviction is based on the fact that, if the amount owing in GST was less than the amount shown on the returns, the jury may have been less inclined to accept the other evidence of Ms Titter and could not have been satisfied that the Crown had proved beyond reasonable doubt that, in failing to file the returns, Mr Allan has intended to evade GST.
The Crown’s submission on the conviction appeal is that the amount of GST actually owing was irrelevant at trial. In any event, the fact that Mr Allan, just before trial, seems to have come to the view that the returns (as filed by the company accountant and as signed off by him) were incorrect says nothing about his state of mind at the time the returns had not been filed (which is, after all, the relevant time). Further, the evidence of intent was very strong and there is no real risk that the new evidence could have led to a different verdict.

Our assessment

We accept the Crown’s submission, summarised at [30], that Mr Murphy’s evidence is not fresh for the purposes of the conviction appeal. There was ample opportunity to prepare such evidence before trial.
We do not accept, however, that the amount of GST owing was totally irrelevant at trial. While it is true, as the trial Judge correctly directed the jury, that the Crown did not have to prove that Mr Allan intended that the company would evade any particular amount of GST, the amount of GST owing could be relevant to whether or not Mr Allan had an intention to evade the payment of GST by the company. In this regard, there was nothing improper in Mr Sharko’s submission, recorded at [57] of the Judge’s summing up (set out at [19] above). It was a matter that the jury was entitled to take into account.

We do, however, agree with the Crown’s submission that the force of the defence submission is largely spent by the fact that Mr Allan did not come to the view that the returns as filed were incorrect until just before trial. Mr Murphy’s calculations were not even completed until after the trial. The fact that Mr Allan now considers the returns incorrect has no logical connection to his state of mind at the time the returns are filed. The new evidence is thus not relevant to the conviction appeal.
We also accept the Crown’s submission that the prosecution case on the issue of intent was very strong. There was ample evidence that Mr Allan delayed filing the GST returns for as long as he possibly could, while making promises and excuses about them to the IRD. This was against a background where the GST returns that had been filed and which he had prepared himself (and including the one filed in July 2006: see at [10] above) had all contained claims for refunds. Further, once all the returns were filed and the significant amount owing became payable, the company was put into liquidation. Mr Allan then continued to trade on his own in much the same way as he had been doing through Logical Choice and, within two months, he had incorporated a new company with the similar name of LCE Ltd.
We thus accept the Crown’s submission that, in light of such an overwhelming Crown case and the lack of relevance of Mr Allan’s current view on the correctness or otherwise of the GST returns, there is no risk that the proposed new evidence, when considered alongside the evidence given at trial, could lead to not guilty verdicts. The conviction appeal must be dismissed.

Sentence appeal

Although Mr Allan’s notice of appeal indicated that he was challenging the sentence of one year’s imprisonment, that challenge was abandoned at the hearing of the appeal. He now challenges only the amount of the reparation order, on the basis of Mr Murphy’s evidence. Mr Sharko has indicated that Mr Allan is prepared to accept that the core GST figure is $51,407.70 (ie the $64,000.00 found by Judge Rea less $12,592.30).

Issues

The issues arising are:
(a) Should the Judge have held a disputed facts hearing?
(b)What is the relevance of s 109 of the Tax Administration Act 1994 (TAA)?
(c)Should s 32(2) of the Sentencing Act 2002 have been considered?
(d)Should penalties and use of money interest be included in any reparation figure?
The relevant legislative provisions are set out in the Appendix.

Should the Judge have held a disputed facts hearing?

Mr Sharko submits that a disputed facts hearing should have been conducted by the District Court Judge before sentencing. In his submission, the amount of GST owing was an aggravating fact that affected the amount of reparation. It was clear at trial that the amount of GST was challenged by the defence and the letter from Mr Murphy to the Judge after trial (see at [20] – [21] above) provided good grounds for suggesting that the calculations presented at trial were not accurate. Mr Sharko submits further that the District Court Judge did not explicitly record whether he considered the evidence at trial proved the amount of GST to the requisite standard. Rather, he spoke about both parties having had the opportunity to present evidence on the point.
The Crown conceded that the amount of loss may be an aggravating factor for the purposes of sentencing. The Crown submits, however, that the existence of s 24(1)(a) of the Sentencing Act and the wide discretion afforded to a trial Judge to decide what facts he or she considers were proved at trial, allows a Judge to decline to hold a disputed facts hearing in circumstances where the Judge is satisfied (pursuant to s 24(2)(b)) that sufficient evidence was adduced at trial to prove the fact(s) in issue to the requisite standard. This is the case even if new evidence is tendered after trial: see R v Smith (2009) 24 NZTC 23,004 at [36] (CA). In Mr Allan’s case, evidence was given at trial of the amount of GST owing as well as the penalties incurred and interest accrued. The Crown submits that Mr Allan had ample opportunity before trial to brief another accountant and present evidence of the lower amount of GST owing.
The Crown submits further that the letter from Mr Murphy dated 18 June 2008, discussed above at [20] – [21], which raised the possible overstatement of GST owed, was of little, if any, evidential value. It contained an acknowledgement that the method employed by Mr Allan’s accountant to calculate the GST content on customs invoices in preparing the GST returns (the sole basis on which the accuracy of the GST returns was challenged at trial) made no difference to the end result. At its highest, it suggested that GST may have been overpaid for the 2005‑2006 financial year. Mr Allan’s counsel’s sentencing submissions (to which the letter was attached) simply referred to it as “casting doubt on the amount of reparation”.
We accept Mr Sharko’s submissions on this point. There is no doubt that s 24(2)(b) allows a Judge to conclude that any aggravating or mitigating fact has been proved to the requisite standard at trial, despite it not being an element of the charge. However, it is an absolute right of an accused not to present any evidence at trial and to put the Crown to proof. The Judge may therefore, in the course of the trial, only have heard Crown evidence on the point without any contrary evidence. The Judge therefore risks having a distorted view. This is undesirable. As noted by Megarry J in John v Rees [1970] 1 Ch 345 at 402 (QB), the need to ensure that the principles of natural justice are observed is a fundamental element of our justice system:
It may be that there are some who would decry the importance which the courts attach to the observance of the rules of natural justice. “When something is obvious,” they may say, “why force everybody to go through the tiresome waste of time involved in framing charges and giving an opportunity to be heard? The result is obvious from the start.” Those who take this view do not, I think, do themselves justice. As everybody who has anything to do with the law well knows, the path of the law is strewn with examples of open and shut cases which, somehow, were not; of unanswerable charges which, in the event, were completely answered; of inexplicable conduct which was fully explained; of fixed and unalterable determinations that, by discussion, suffered a change. Nor are those with any knowledge of human nature who pause to think for a moment likely to underestimate the feelings of resentment of those who find that a decision against them has been made without their being afforded any opportunity to influence the course of events.
It cannot be the case that a defendant, despite having no obligation to call evidence, is precluded from putting forward evidence that is relevant to sentencing if that evidence was not led at trial. A rule that all evidence relevant to sentencing had to be called at trial would not only breach the fundamental right not to call evidence but would also risk unnecessarily prolonging trials and even confusing the jury. There may well be a conflict of evidence with regard to matters that are relevant for sentencing but resolution of that conflict may be totally irrelevant with regard to the substantive trial.
We thus consider that a disputed facts hearing should be held where a convicted person indicates that he or she wishes to call evidence that was not called at trial but which is relevant to any aggravating or mitigating facts alleged. It is necessary to emphasise that under s 24(2)(a), the court must indicate to the parties the weight it would be likely to attach to the disputed fact if it were found to exist, and its significance to the sentence or other disposition of the case. While the evidence does not have to be fresh, a judge would be entitled, under s 24(2)(b), to refuse to convene a disputed facts hearing if any proposed evidence is merely repetitive of evidence that was called at trial. Moreover, under s 24(2)(c), the prosecutor is not required to negate beyond reasonable doubt any disputed mitigating fact raised by the defence that is wholly implausible or manifestly false.
In our view, Mr Allan had put sufficient material before the Judge to meet the above test. We do not accept the Crown’s submission at [43] that Mr Murphy’s letter was of little or no evidential value. The letter may have indicated a mistake with regard to one period only but he gave a credible reason (comparison with the financial statements) for suggesting that the mistake was not an isolated one.
In conclusion, a disputed facts hearing should have been convened by the District Court Judge unless Mr Allan was precluded from challenging the amount of GST under s 109 of the TAA, an issue to which we now turn.

What is the relevance of s 109 of the TAA?

Section 109 of the TAA provides that no disputable decision (defined by s 3(1) to include an assessment of tax), may be disputed in a court or in any proceedings on any ground whatsoever and such a decision (except in objection proceedings under Part 8, or a challenge under Part 8A) shall be deemed to be taken as correct in all respects: see below at [77]. By contrast, s 24(2)(c) of the Sentencing Act provides that if a fact that is relevant to the determination of a sentence is asserted by one party and disputed by another, the prosecutor must prove beyond a reasonable doubt the existence of any disputed aggravating fact: see below at [75].
Mr Sharko submits that there is no conflict between s 109 of the TAA and s 24(2)(c) of the Sentencing Act. There must, in Mr Sharko’s submission, be a distinction drawn between civil proceedings and criminal proceedings. The assessment of GST is deemed to be correct for taxation purposes, but the loss to the IRD for reparation purposes must be proved to the criminal standard of proof. This submission is reinforced by the provisions of the New Zealand Bill of Rights Act 1990 (Bill of Rights). In addition, Mr Sharko points out that in this case the assessment was made against the company, Logical Choice, but the reparation order was made against Mr Allan personally.
The Crown accepts that it did not rely on s 109 of the TAA either at trial or sentencing. However, it submits that, on its plain meaning, s 109 of the TAA applies to both criminal and civil proceedings. In support of this proposition, reference is made to this Court’s decision in R v Smith at [19], where it was stated that, regardless of the fact that assessments had been disputed by way of an objection process, the Commissioner’s assessments prevailed by virtue of s 109 of the TAA. Reference is also made to the leave judgment of the Supreme Court in Smith v R (2009) 24 NZTC 23,176 at [4], where the Court stated that there was no justification for giving the words of s 109 anything other than their plain meaning. While the Crown accepts that the general approach in New Zealand is that an accused person is entitled in criminal proceedings to challenge the validity of lawfulness of a public act or decision upon which his or her conviction is based, it is submitted that this presumption is displaced by s 109. The Crown submits that it would defeat the purpose of s 109 and the specialist (civil) procedures provided for under Part 8A of the TAA for determining disputable decisions relating to tax, if assessments were able to be challenged within a disputed facts hearing convened to determine the appropriate sentence.
The Crown submits that the conflict between s 109 of the TAA and s 24(2)(b) and (c) of the Sentencing Act can be reconciled by the requirement to prove beyond reasonable doubt the existence of a valid assessment. Further, the Crown submits that the ordinary meaning of s 109 does not limit or impair a right or freedom under the Bill of Rights. The provision does not impinge upon the Bill of Rights right to a jury trial under s 24(e), the right to be presumed innocent until proven guilty under s 25(c), or the right to present a defence under s 25(e).
The Crown concedes that it is possible to envisage a rare case where the offender being sentenced is not the person to whom the relevant assessment was issued and where he or she did not therefore have the opportunity to challenge the correctness of the assessment through the available statutory objection processes. The Crown submits that this was not the situation here, however, as Mr Allan acknowledged that he was the controlling mind of the company to which the assessments were issued. He could thus have disputed the amount of the assessments under the Part 8A procedures of the TAA. Indeed, it was the Mr Allan’s own actions in liquidating the company that placed him in the position where he was no longer able to cause the tax assessments to be challenged under Part 8A.
We accept the Crown’s submission, set out at [52], that its interpretation of s 109 of the TAA, if applied in the sentencing process, would not impair a right or freedom under the Bill of Rights. The Law Commission, in Proof of Disputed Facts on Sentence (NZLC R76 2001), noted at [97] that the presumption of innocence (as guaranteed by s 25(c) of the Bill of Rights) does not apply in the sentencing process, as the offender’s guilt has been established by process of trial. Similarly the Crown’s interpretation of s 109 of the TAA cannot be seen to infringe the s 24(e) right of persons charged with an offence to the benefit of a trial by jury or (possibly) the right to present a defence under s 25(e).
It would, however, be a very startling proposition if the existence of a valid assessment precludes any challenge in criminal proceedings. This is because:
(a)The issuing of an assessment is an administrative act.
(b)In any assessment dispute proceeding, the onus is on the taxpayer and not the Crown, directly contrary to s 24(2)(c) of the Sentencing Act. The onus of proof that is placed on the prosecution in criminal trials is an essential principle of a fair trial. As outlined by Viscount Sankey LC in Woolmington v The Director of Public Prosecutions [1935] AC 462 at 481 (HL):
[T]hroughout the web of the English Criminal Law one golden thread is always to be seen, that it is the duty of the prosecution to prove the prisoner’s guilt… If, at the end of and the whole of the case, there is a reasonable doubt, created by evidence given by either the prosecution or the prisoner… the prosecution has not made out the case.
As noted by Elias CJ in R v Hansen [2007] 3 NZLR 1 at [27] (SC), the common law rule that the prosecution must prove guilt even where an affirmative defence is put forward has not been in doubt since Woolmington. Moreover, she also noted that, since 1948, the “golden thread” of the common law has been recognised as a human right, in international instruments to which New Zealand is a party.
It has been recognised that this burden of proof should, in certain circumstances, be continued during the sentencing process. It was stated by the New Zealand Law Commission in Proof of Disputed Facts on Sentence that the prosecution’s burden of proof should be carried through to the process of sentencing where the existence of any aggravating fact relating to the offence, or the offender’s part in it, is in dispute: at [101]. The Law Commission noted that the burden of proof currently encapsulated within s 24(2)(c) of the Sentencing Act would strike “the best balance between the public interest and the values inherent in the trial process: the liberty interests of the offender and procedural protections”: at [90].
(c)There are strict time limits for challenging assessments. As noted by this Court in Commissioner of Inland Revenue v Alam and Begum [2009] NZCA 273 at [29], it is necessary for the taxpayer to issue challenge proceedings under the TAA within the appropriate time limit. This raises the spectre of a taxpayer losing the right to challenge, even before the criminal proceeding is instituted.
(d)Criminal proceedings can be determined prior to the outcome of any dispute processes under the TAA: R v Smith at [16] – [18] (CA).
In our view, however, the startling consequences set out above do not arise, as there is no conflict between s 24(2)(b) and (c) of the Sentencing Act and s 109 of the TAA. Reparation is concerned with loss. Mr Allan is thus not challenging the assessment. He is challenging the amount of the loss. The Crown must prove the extent of any loss beyond reasonable doubt under s 24(2)(b) and (c). Reparation is not a tax collecting mechanism. Nor is it necessarily a substitute for civil remedies with regard to insolvent companies, such as s 301 of the Companies Act 1993.
We do not consider this Court’s decision in R v Smith or the Supreme Court decision in Smith v R are authority to the contrary. The Crown accepts that in Smith the amount of tax owing was irrelevant for conviction purposes. There appears to have been no issue of reparation in that case and the specific amount of taxation owing does not appear to have been a particular focus at sentencing. The comments in the Smith decisions as to the effect of s 109 of the TAA, discussed above at [51], are therefore obiter, or at least made in a context where there was no statutory requirement of proof beyond reasonable doubt under s 24(2)(c). We note that the Crown does not suggest that the existence of an assessment was sufficient to prove the existence of employees (the issue in Smith being failure to account for PAYE). Direct evidence of that was called on behalf of the Crown at the trial.
In this case, if the offending had not occurred, then presumably the GST returns would have been filed on their due dates or shortly thereafter. They may well have been filed by Mr Allan personally on behalf of Logical Choice (as happened with those returns that resulted in a refund: see at [36] above). They would not have been filed in bulk long after the GST periods in question and there would presumably have been time for any errors to have been corrected, either by Mr Allan or by a reviewing Revenue officer. It thus cannot be assumed that the assessment amount and the loss would have equated.
If we are wrong and there is a conflict between s 109 of the TAA and s 24(2)(b) and (c) of the Sentencing Act, then we would have held that s 24(2)(b) and (c) requiring proof beyond reasonable doubt, being specific to the sentencing process, prevails over the general provision in s 109 of the TAA. Alternatively, we would have read down s 109 in the way Mr Sharko suggested: that it applies to civil and not criminal proceedings. As Professor Jim Evans notes in “Reading Down Statutes” in Bigwood (ed) The Statute: Making and Meaning (2004) at 123, it is legitimate to read down a statute in certain circumstances. Such reading down of statutes is not unusual. Even Scalia J in Green v Bock Laundry Machine Co (1989) 490 US 504 read in the word “criminal” in the context of the Federal Rules of Evidence regarding the impeachment of witnesses in order to avoid an absurdity.
It can also be noted that a distinction is drawn in the TAA itself between civil and criminal proceedings. While the standard of proof in civil proceedings relating to the imposition of penalties is the balance of probabilities (s 149A(1)), the standard of proof in criminal proceedings relating to the imposition of penalties is beyond reasonable doubt (s 149A(3)). Similarly, the TAA draws a distinction between the onus of proof required in civil and criminal proceedings. While the onus of proof in civil proceedings rests with the taxpayer (with the exception of proceedings of proceedings relating to evasion or a similar act, or obstruction), the onus of proof in criminal proceedings rests with the Commissioner. This can be seen to demonstrate that Parliament intended to draw a distinction between civil and criminal proceedings, even in taxation matters.

Should s 32(3) of the Sentencing Act have been considered?

Mr Sharko submits that s 32(3) of the Sentencing Act should have been considered by the District Court Judge. In his submission, the IRD had the option of making default assessments which would have led to earlier enforcement action. This may have led to mitigation of loss.
The Crown submits that s 32(3) only needed to be considered in relation to whether a sentence of reparation was appropriate, as this case involved actual loss under s 32(1)(a), rather than consequential loss under s 32(1)(c). The purpose of the provision is to ensure that the court takes into account whether the victim has the right to pursue compensation for their loss through any other avenue. However, the fact that such a right exists (or existed) does not preclude a sentence of reparation; it is rather a factor the Court must take into account in determining whether compensation through the mechanism of reparation is the most appropriate remedy.
The Crown submits that it is apparent from the Judge’s sentencing remarks that he was well aware that it was Logical Choice that was liable for the unpaid GST (rather than Mr Allan personally) and that Mr Allan’s actions in liquidating the company effectively nullified any right the Commissioner had to pursue civil remedies in relation to the loss. In the Crown’s submission, it is therefore implicit from his remarks that the Judge did take s 32(3) and (4) into account in determining that reparation was an appropriate remedy. The Crown submits that, if anything, Mr Allan’s actions strengthened the case for a sentence of reparation to be imposed.
We accept the Crown submissions on this point. The responsibility for the evasion of GST rested squarely on Mr Allan. He cannot shift the blame onto the IRD.

Should penalties and use of money interest be included in any reparation figure?

With regard to penalties and use of money interest, Mr Sharko submits that there is no causal link between the offending and the penalties. Penalties are there to encourage compliance rather than to compensate the IRD for loss. As to interest, Mr Sharko concedes that this may be able to be characterised as a consequential loss and in principle could be ordered under s 32(1)(c). However, it should not be ordered under s 32(1)(a), as there are issues whether it can legitimately be seen as a loss caused through an offence. If it is ordered, it should be set at the actual rate of interest the Crown has to pay rather than at the statutory rate provided by s 120E of the TAA. Interest is, however, in Mr Sharko’s experience, rarely sought or added in reparation cases.
The Crown concedes that the loss from Mr Allan’s offending under s 32(1)(a) of the Sentencing Act is limited to the core GST evaded, given that the purpose of reparation is to compensate the victim for loss sustained. The Crown submits that there is sufficient causal nexus between the actions of Mr Allan and the loss of the unpaid GST sustained by the Commissioner (and, through him, the public purse) to meet the requirements of the words used in s 32(1) – “through or by means of the offence”.
The Crown accepts that the position relating to the statutory use of money interest is less clear. Arguably, it is neither a direct loss caused through or by means of the offence, nor a loss consequential on direct loss, but rather an “opportunity cost” to the Commissioner.
The Crown also accepts that penalties should not be included as part of a sentence of reparation. Penalties are imposed by the Commissioner under the TAA both to punish and deter and as an incentive for people to comply with their tax obligations. There is no compensatory purpose to penalties and they do not equate to any loss sustained. The Crown therefore accepts penalties should not have been included in the amount of reparation Mr Allan was ordered to make in this case.
While it is acknowledged that interest and penalties do not fall within the meaning of loss caused through or by means of the offence in cases of this type, the Crown submits there is no barrier to an offender agreeing or offering to pay either or both as part of a reparation sentence in accordance with ss 10 and 32(6) of the Sentencing Act.
We consider the concession made by the Crown as to penalties and statutory use of money interest to be well founded. As the Crown does not seek interest under s 32(1)(c) on the basis suggested by Mr Sharko, we do not need to consider whether reparation could include interest as a consequential loss.

Result

The appeal against conviction is dismissed.
The application to adduce further evidence is granted.
The Crown accepts that, in the event its submissions on s 24(2)(b) of the Sentencing Act and s 109 of the TAA were rejected, the amount of reparation should be the core GST amount accepted by Mr Allan of $51,407.70 (see at [38] above).
The appeal against sentence is allowed but only to reduce the reparation figure to $51,407.70.

Solicitors:
Crown Law Office, Wellington

APPENDIX

Relevant legislative provisions

Section 24 of the Sentencing Act provides:
24     Proof of facts
(1)     In determining a sentence or other disposition of the case, a court—
(a)may accept as proved any fact that was disclosed by evidence at the hearing or trial and any facts agreed on by the prosecutor and the offender; and
(b)must accept as proved all facts, express or implied, that are essential to a plea of guilty or a finding of guilt.
(2)     If a fact that is relevant to the determination of a sentence or other disposition of the case is asserted by one party and disputed by the other,—
(a)the court must indicate to the parties the weight that it would be likely to attach to the disputed fact if it were found to exist, and its significance to the sentence or other disposition of the case:
(b)if a party wishes the court to rely on that fact, the parties may adduce evidence as to its existence unless the court is satisfied that sufficient evidence was adduced at the hearing or trial:
(c)the prosecutor must prove beyond a reasonable doubt the existence of any disputed aggravating fact, and must negate [beyond a reasonable doubt] any disputed mitigating fact raised by the defence (other than a mitigating fact referred to in paragraph (d)) that is not wholly implausible or manifestly false:
(d)the offender must prove on the balance of probabilities the existence of any disputed mitigating fact that is not related to the nature of the offence or to the offender's part in the offence:
(e)either party may cross-examine any witness called by the other party.
(3)     For the purposes of this section,—
aggravating fact means any fact that—
(a)the prosecutor asserts as a fact that justifies a greater penalty or other outcome than might otherwise be appropriate for the offence; and
(b)the court accepts is a fact that may, if established, have that effect on the sentence or other disposition of the case
mitigating fact means any fact that—
(a)the offender asserts as a fact that justifies a lesser penalty or other outcome than might otherwise be appropriate for the offence; and
(b)the court accepts is a fact that may, if established, have that effect on the sentence or other disposition of the case.
Section 32 of the Sentencing Act provides:
32     Sentence of reparation
(1)     A court may impose a sentence of reparation if an offender has, through or by means of an offence of which the offender is convicted, caused a person to suffer—
(a)loss of or damage to property; or
(b)emotional harm; or
(c)loss or damage consequential on any emotional or physical harm or loss of, or damage to, property…
(3)     In determining whether a sentence of reparation is appropriate or the amount of reparation to be made for any consequential loss or damage described in subsection (1)(c), the court must take into account whether there is or may be, under the provisions of any enactment or rule of law, a right available to the person who suffered the loss or damage to bring proceedings or to make any application in relation to that loss or damage.
(4)     Subsection (3) applies whether or not the right to bring proceedings or make the application has been exercised in the particular case, and whether or not any time prescribed for the exercise of that right has expired…
Section 109 of the TAA provides:
109 Disputable decisions deemed correct except in proceedings
Except in objection proceedings under Part 8 or a challenge under Part 8A,—
(a)No disputable decision may be disputed in a court or in any proceedings on any ground whatsoever; and
(b)Every disputable decision and, where relevant, all of its particulars are deemed to be, and are to be taken as being, correct in all respects.
Section 3(1) of the TAA provides the definition of disputable decision as being:
disputable decision means—
(a)     An assessment:
(b)A decision of the Commissioner under a tax law, except for a decision—
(i)     To decline to issue a binding ruling under Part 5A; or
(ii)     That cannot be the subject of an objection under Part 8; or
(iii)    That cannot be challenged under [Part 8A; or]:
(iv)that is left to the Commissioner's discretion under sections 89K, 89L, 89M(8) and (10) and 89N(3).
Section 149A of the TAA provides:
149A Standard of proof and onus of proof
(1)     The standard of proof in civil proceedings relating to the imposition of penalties is the balance of probabilities.
(2)     The onus of proof in civil proceedings—
(a)Relating to evasion or similar act to which section 141E applies or to obstruction rests with the Commissioner:
(b)Relating to any other matter or thing rests with the taxpayer.
(3)     The standard of proof in criminal proceedings relating to the imposition of penalties is beyond reasonable doubt.
(4)     The onus of proof in criminal proceedings relating to any matter or thing rests with the Commissioner.
(5)     The standard of proof for the purposes of an application for a Court order under section 17A is the balance of probabilities.
(6)     The onus of proof for the purposes of an application for a Court order under section 17A rests with the Commissioner.