R v Rowley
[2012] NZHC 1778
•20 July 2012
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
CRI 2010-085-006205 [2012] NZHC 1778
THE QUEEN
v
DAVID INGRAM ROWLEY BARRIE JAMES SKINNER
Hearing: 30 April,1-4, 7-11, 14-18, 21-25, 28-31 May, 1, 5-8, 11, 13-15, 18-20
June 2012
Counsel: D R La Hood with M J Ferrier and A Instone for Crown
M T Lennard with M R Keating (15-18 May) for Accused
Verdicts: 20 July 2012
REASONS FOR VERDICTS OF THE HON JUSTICE KÓS
Note: A schedule of the verdicts returned appears at the end of these written reasons. A summary of reasons is also given, beginning at [459] below.
Index
A. Introduction .....................................................................................................[1] Charges...................................................................................................................[1] Verdicts ..................................................................................................................[7] Judge-alone trial .....................................................................................................[8] Crown case – outline ............................................................................................[18] Defence case – outline .........................................................................................[30] B. Dishonest Use – Background and Legal Elements .....................................[39] Background ..........................................................................................................[39] Legal elements .....................................................................................................[41] C. Dishonest Use – Earlier Period Clients .......................................................[50] Introduction ..........................................................................................................[50] Kathy Ertel – tax and GST returns – counts 1 & 2 ..............................................[52] Jamie Wilson – tax and GST returns – counts 3 & 4 ...........................................[89]
R v ROWLEY & SKINNER HC WN CRI 2010-085-006205 [20 July 2012]
Harding Electrical Limited – tax and GST returns – counts 5 to 12 ..................[104] Country Theme Franchise Limited – tax and GST returns – counts 30 to 32 ...[134] Esk Contractors Limited – tax and GST returns – counts 14 to 19....................[152] Esk Group Limited – tax and GST returns – counts 20 to 29 ............................[152] Pipitea Street Developments Limited – tax returns – counts 33 to 34 ...............[180] Lorraine Skiffington – tax returns – counts 35 to 38 .........................................[180] Strategic Directionz Limited – tax and GST returns – counts 81 to 84 .............[180] Sharon Skinner – tax returns – counts 65 to 69 .................................................[211] Leyser Enterprises Limited – tax returns – counts 39 to 40...............................[222] Sharpay Holdings Limited – tax returns – counts 41 to 42 ................................[234] Nigel Hall Decorators Limited – tax and GST returns – counts 43 to 45 ..........[252] Overall evaluation of period up to June 2007 ....................................................[265] D. Dishonest Use – Later Period Clients ........................................................[269] Topline Tailors Limited – tax and GST returns – counts 49 to 52 ....................[270] Mangiare Foods Limited – tax and GST returns – counts 75 to 77 ...................[270] AAA Finance Limited – tax returns – counts 53 to 55 ......................................[284] Sunshine State Finance Limited – tax returns – counts 63 and 64.....................[284] SS Transport Limited – tax returns – counts 56 & 57........................................[293] Vicki Breen – tax returns – counts 58 to 61 .......................................................[300] MQ Property Services Limited – tax return – count 62 .....................................[307] Scotty’s Construction Limited – tax returns – counts 70 to 74 ..........................[317] Steven Godfrey – tax returns – counts 78 to 80 .................................................[329] Quik’n’Tuff Holdings Limited – GST returns – count 85 .................................[341] BRMVR Holdings Limited – GST returns – counts 86 to 87 ............................[350] Conaghan Consulting Limited – tax and GST returns – counts 88 to 90 ..........[360] Kilbirnie Plymouth Investments Limited – GST returns – count 91 .................[374] AGI Motor Sport Limited – tax and GST returns – counts 92 to 93 .................[382] E. Perversion of Course of Justice ..................................................................[394] Legal elements ...................................................................................................[395] Overarching considerations................................................................................[402] Aaron Gotlieb - count 94....................................................................................[413] Lorraine Skiffington - count 95..........................................................................[416] Stefan Sirota - count 96 ......................................................................................[419] Steven Godfrey - count 97 .................................................................................[422] Douglas Leyser - count 98 .................................................................................[425] Scott Feasey - count 99 ......................................................................................[428] Aashish Patel - count 100...................................................................................[431] F. Knowing Provision of False Information ..................................................[434] Section 347 application ......................................................................................[435] Legal elements ...................................................................................................[437] Crown case .........................................................................................................[438] Defence case.......................................................................................................[443] Analysis ..............................................................................................................[447] G. Conclusion and Summary of Reasons .......................................................[458] Schedule: Verdicts returned....................................................................................
A. INTRODUCTION Charges
Dishonest use
[1] The accused, Barrie James Skinner and David Ingram Rowley, are charged with 89 counts of using a document dishonestly to obtain a pecuniary advantage, under s 228(b) of the Crimes Act 1961. The accused were accountants and tax agents. The documents said to have been used dishonestly are clients’ GST and income tax returns. The Crown says the accused devised a scheme to issue false invoices, which they supplied to their clients. That enabled the clients to claim the invoice payments as deductible expenses in their income tax returns, and to claim input credits in GST returns. The benefit gained by clients is part of the alleged unlawful pecuniary advantage. But the accused are alleged to have benefited personally too. Evidence showed that around two-thirds of the invoice payment was returned to clients. The balance was retained to the accused’s practice, Tax Planning Services Limited (TPS). Much of that was then disbursed to the accused personally. There is however an argument as to the legal basis on which they received that money.
[2] The Crown says that fictitious invoices total in excess of $9,500,000. The resultant shortfall to the Revenue (i.e. benefit to clients) was the order of $3,100,000. Most of that has been retrieved as a result of clients’ voluntary disclosure and reversal of deductions and GST inputs claimed. The personal benefit to the accused is said to exceed $2,300,000.
Perverting the course of justice
[3] In addition the accused face, jointly, seven counts of wilfully attempting to pervert the course of justice, laid pursuant to ss 117(e) and 66 of the Crimes Act
1961. These charges relate to meetings with, and documents given to, clients in advance of compulsory interviews those clients were to attend with the Revenue under s 19 of the Tax Administration Act 1994 (TAA).
Knowing provision of false information
[4] Finally, each accused faces five individual counts of knowingly providing false information to the Commissioner, laid pursuant to s 143B(1)(c) and (f) of the TAA. These charges relate to the personal tax returns of each accused.
Counts discharged
[5] During the course of trial, at the Crown’s application and by consent, four
counts (counts 13, 46, 47 and 48) were discharged.
Counts amended
[6] Without opposition five counts concerning the tax affairs of Mr Skinner’s
sister, Sharon Skinner, were amended during trial.1
Verdicts
[7] Annexed at the end of these reasons is a schedule of the verdicts returned this morning. That schedule is cross-referenced to the relevant paragraphs within these written reasons.
Judge-alone trial
2011 ruling
[8] This is a Judge-alone trial. That is a consequence of an order made by me last November. The Crown had applied for that order under s 361D of the Crimes
1 Counts 65–69.
Act. In my judgment2 I noted that the trial was likely to take four to six weeks, with
48 Crown witnesses and some 45 lever arch files of exhibits. Given the expected duration of trial, the number and nature of charges and issues, the volume of evidence and the likely imposition on jurors (my conclusion being that some would cope but it was very likely that a number would simply become almost inextricably lost in the detail, thereby creating a greater imposition on those jurors who did cope) I ruled that the trial take place on a Judge-alone basis.3
[9] As this is a Judge-alone trial, it is proper that I remind myself of the following matters on which I would have directed a jury. It is important that I too bear them in mind.
Presumption of innocence
[10] The first of these is that the starting point is a presumption of innocence. The Crown, and the Crown alone, must prove the accused are guilty beyond reasonable doubt. The Crown must prove each element of each count against the accused beyond reasonable doubt before I may enter a verdict of guilty on that count.
Burden of proof
[11] Proof beyond reasonable doubt is a very high standard to meet. I must be sure the accused is guilty. If I have an honest and reasonable uncertainty left in my mind about the guilt of the accused on a count, after thorough and impartial consideration given to all the evidence, I must enter a verdict of not guilty on that count.
[12] The Crown is not bound to prove each factual contention beyond reasonable doubt. But it must prove each formal element of the charge to that standard. This Court, as with any jury, is entitled to draw inferences from individual parts of the evidence. Those individual items of evidence need not be proved to any particular standard. It is the cumulative weight that must prove the elements to the required
standard of beyond reasonable doubt. As the Court of Appeal has said in R v
2 R v Rowley & Skinner (No 2) HC Wellington CRI 2010-085-6205, 11 November 2011.
3 Ultimately the trial took 6½ weeks and involved some 60 folders of exhibits.
Thomas,4 a series of coincidences which might on their own prove little may cumulatively carry significant weight.
Lies
[13] Where I consider that an accused has lied, that is something I may take into account like other evidence. I remind myself that it is important not to think that just because an accused may have lied on some point or other, he is necessarily guilty of any or all charges before the Court. People lie for reasons other than because they are guilty. It is for me to assess the weight I place on the lie. The fact that an accused has lied is just one piece of evidence to consider in deciding whether the Crown has proved the relevant element of each charge against the accused beyond reasonable doubt.
[14] Having said that, and as will become apparent through the course of the reasons that follow, I regret to say that I find that each accused lied repeatedly in the course of giving evidence before me. Where I have rejected explanations given in evidence by the accused, I say so in the context of each count.
Co-accused: Mr Stevens
[15] In thirteen counts in the indictment5 the accused are charged on the basis that they acted together also with a Mr Shaan Stevens. Mr Stevens is a former chartered accountant and principal of Guinness Gallagher Accounting Limited. The charges relate to former clients of Mr Stevens, referred by him to the accused on the basis that they would participate in the alleged fraudulent scheme. In the case of those counts, the returns were filed by Mr Stevens on behalf of his clients. The accused are said to have supplied the false invoices and handled payments thereof. Mr Stevens is said to have received cash from the accused totalling $8,500 for his assistance.
[16] Mr Stevens pleaded guilty to those charges (and others) following a pre- committal sentence indication. He was sentenced in the Wellington District Court
4 R v Thomas [1972] NZLR 34 (CA).
5 Being counts 1, 2, 33, 34, 58, 59, 60, 61, 88, 89, 90, 92 and 93.
by Judge Barry on 7 November 2011 to ten months’ home detention and 150 hours’
community work. He was also ordered to pay reparation of $121,852.
[17] Mr Stevens gave evidence for the Crown. I will have more to say about that evidence, and Mr Stevens’ credibility, later.6 However for present purposes Mr Stevens’ guilty pleas are irrelevant to the position of the accused in this trial. I disregard them accordingly.
Crown case – outline
[18] The Crown says that the accused defrauded the Revenue by involvement in a false invoice writing scheme. The Crown alleges that over a five year period the accused issued a number of false invoices to 27 clients. The invoices were typically (although not always) expressed to relate to “consultancy” or “sub-contracting” work. There were a number of different invoicing entities:
Corporate Entity Director Shareholder
Momentum Consulting Kinetics Ltd (formerly, until May 2008 MCK Holdings Ltd)
Miize Madondo Miize Madondo
Sunshine Group Investments Limited (formerly He & She Limited)
Miize Madondo (until 15
February 2010)
Miize Madondo (until 15
February 2010)
Case Marlow Limited (formerly Showcase Limited)
Kam Chai Law Waikari Kohine Ltd (for Patero Trust. Peter Uren?)
Merc Trading Limited (formerly Mercer Trading Co Limited)
Frank Newman (until 29
May 2006), thereafter Barrie
Skinner
Frank Newman for
Mercer Trust
P & L Sharp Limited Barrie Skinner Barrie Skinner
MMBD Limited Barrie Skinner Skinner & Rowley Trusts
Urban Consultants
Limited
Barrie Skinner Skinner & Rowley Trusts
Trust Entity Trustee Beneficiaries Marsden No 2 Trust Peter Uren Peter Uren & others High Street Trust ? Kevin Armstrong
6 At [60]–[63].
[19] The Crown says that the accused’s accounting practice, TPS was, at one time
or another, the registered tax agent for each of those entities.
[20] In addition to the invoicing entities, other companies and trusts assume some importance in the course of the case. The more important are these:
Corporate Entity Director Shareholder
Kilbirnie Plymouth
Investments Ltd
Barrie Skinner & David
Rowley
Barrie Skinner & David Rowley for (Kilbirnie Plymouth Trust?)
Waikari Kohine Ltd Kam Chai Law
(from May 2006)
Kam Chai Law (for Patero Trust? Peter Uren?)
Trust Entity Trustee Beneficiaries
Kilbirnie Plymouth
Trust
Barrie Skinner, David
Rowley & Peter Uren
Accused discretionary beneficiaries; Peter Uren final beneficiary
Mercer Trust Frank Newman Kilbirnie Plymouth Trust final beneficiary
Patero Trust Waikari Kohine Ltd ? Various discretionary; Kilbirnie Plymouth Trust final beneficiary?
[21] In their distinct capacity as tax agents for the majority of the clients concerned, the accused are then said to have procured claims for invoice payments as deductible expenses in income tax returns, and as input credits in GST returns. The Crown says the invoices were false, and relate to services (or goods) never provided
- and never intended to be provided. Even where the accused were not a client’s tax agent, the Crown says that the filing of the returns was the intended and natural outcome of the invoice and payment system orchestrated by the accused.
Typical case
[22] Typically, the alleged offending is said to have been achieved in this way: a client with tax to pay was identified by the accused. The accused would explain that they could assist by entering into a transaction which would reduce the client’s indebtedness to the Revenue. The client would be assured that the transaction was a legitimate method of tax reduction. In some cases clients were told they were purchasing a tax loss from another business. An invoice was supplied to the client, but for goods and services never provided, and never intended to be provided. The client then paid the face value of the invoice into an account held or controlled by the
accused, usually the TPS trust account. On the same day (or within the next 48 hours) a large portion of the payment was transferred back to the client by the accused. Typically the amount was some two-thirds the original payment. The remaining one-third or so retained in the TPS trust account would then be distributed, usually to an account in one of the accused’s names, or to an associated trust or company.
[23] The full value of the invoice was then claimed by clients for income tax and GST purposes. The payment of the invoice was typically coded in the client’s accounts as “sub-contracting” or “(project) consultancy”.
[24] The scheme benefited clients of TPS because the combined effect of the income tax deduction and GST input credit exceeded the amount that the accused retained.
[25] The following example was given in opening by the Crown. It involves a client called Kathy Ertel.
[26] One of the transactions underlying counts 1 and 2 is a typical example of the alleged fraud. The key elements of the scheme can be illustrated diagrammatically, as follows:
1. MTCL issues invoice to Ertel in amount of $56,610
MTCL
Kathy Ertel
3. Receives back $37,700 2. Pays $56,610
TPS trust
Account
5. Returns filed claiming GST credits and income tax deductions
GST credit $6,290
Income tax $16,605
4. Retained amount distributed to accused
Received back from
TPS
$37,700
Accused Skinner $7,500
Accused Rowley $2,500
Less original payment ($56,610)
Left in TPS trust account $8,910
Benefit (Ertel) $3,985
Benefit (Accused) $18,910
In summary:
(a) Kathy Ertel was issued with an invoice by “Mercer Trading Company Limited”
dated 31 January 2005 in the amount of $56,610 (GST inclusive);
(b) She paid the face value of that invoices into the TPS trust account on
9 September 2005;
(c) Shortly after the payment, she received a distribution back from TPS in the amount of $37,700;
(d) The retained amount ($18,910) was distributed between the accused (Skinner -
$7,500 and Rowley - $2,500), with the remainder left in the TPS trust account
($8,910);
(e) A GST return for the period ending 30 November 2005 was filed on or about 14
December 2005, claiming an input credit in the amount of $6,290 for the GST
component of that invoice;
(f) A income tax return was filed on or about 3 January 2007, claiming the face value of the invoice (56,610) as deductible expense, reducing her income tax bill by $16,605.
(g) Ms Ertel received the benefit of $3,985, which equates to the combined total of the GST input credits and income tax deductions, less the amount retained in by the accused (($6,290 + $16,605)) - $18,910)).
(h) The total loss to the Revenue, as a result of the transactions, was $22,895 ($6,290 GST + $16,605 income tax). This equates to the combined benefit to the accused and their client ($3,985 + $19,910).
(i) Conspicuous by its absence is the flow of any funds from the TPS trust account to the invoice issuing entity, Mercer Trading Company Limited.
[27] That is the Crown’s version. The defence offer a different explanation of this sample transaction, as I note at [33].
[28] While most of the invoices related to sub-contracting or consultancy work, other codes were management fees, loan procurement fees and the supply of electrical goods (in the case of a client in that line of work). On other occasions:
(a) clients were asked to make a payment, but without the issue of an invoice;
(b) clients made payment of the invoice in two or three tranches (with the intervening return of the refund portion funding each subsequent payment);
(c) in some instances only the refund portion was actually paid, rather than the full face value.
[29] The Crown says all this was “simply a false invoice-writing scheme; a
‘merry-go-round’ with the chief objective of defrauding the Revenue.”
Defence case – outline
[30] The accused put the Crown to the proof on the using document charges (being counts 1 to 93). They submit that the Crown must show, beyond reasonable doubt:
(a) that there was no genuine transaction – and that the accused knew that; or
(b) that the tax effect of the transaction was not as claimed – and the accused knew that; and
(c) (in either case) that the accused was knowingly involved in the filing of the relevant returns.
[31] The accused say in respect of some counts (1, 2, 33 to 36, 58 to 63 and 88 to
93) the clients were Mr Stevens, and not theirs. They say there is no evidence that they had knowledge of what Mr Stevens told his clients, what tax position he advised them to take, and what position they took. In the case of any in which they did have involvement, they did not believe that false tax returns would be filed.
[32] In respect of the other charges, they say there were real transactions which they believed generated the tax effects reflected in the relevant returns.
[33] As to the Ertel transactions described at [26] above, the defence offers a very different explanation. It says that Ms Ertel paid the $56,610 as part-payment for licensed carparks to be built at the St George Hotel site in Wellington. That sum was paid into the TPS trust account. Some $37,700 was repaid to her by way of “distribution/loan under a trust of which she was a beneficiary”. This entitled her to hold those funds until title passed, when she was obliged to return it. In exchange for all this she received entitlement to a 15 year licence for carparks. It is said that the transaction gave rise to a genuine input credit for GST purposes and a genuine income tax deduction. The net cash flow benefit to her was some $3,985. On the other side of the ledger, the balance of $18,910 was retained in the TPS trust
account, credited to the Kilbirnie Plymouth Trust7 which was the intended owner of
the land on which the carpark would be sited. Mercer Trading Company Limited (Mercer Trading), said to be head contractor for the carpark project, would return a GST output of $6,290 and income tax of $16,605. This too may be depicted
diagrammatically:
7 The ultimate beneficiary of which was said to be Mr Peter Uren.
MTCL
1. MTCL issues invoice to Ertel in amount of $56,610
3. Ertel receives $37,700 by way of distribution/loan under trust of which she was a beneficiary. Entitled to hold until title passed. Receives entitlement to 15 year licence for carparks
Kathy Ertel
TPS trust
Account
2. MTCL pays $56,610 as part (half of licence for carparks to be built at St George Hotel site (Boulcott/Willis St)
5. Ertel returns filed claiming GST credits and income tax deductions GST credit $6,290
Income tax $16,605
Loan back $37,700
Less original
Payment $56,610
Cashflow Benefit $3,985
Plus eventual Licence for carpark
4. MTCL retained amounts distributed via Accused/TPS trust account to Kilbirnie Plymouth Trust (intended owner of land on which carpark would be sited) on account of (head contractor for carpark licences)
6. MTCL returns
GST output Dec 05 $6,290
Income Tax Mar 06$16,605
[34] The accused say that to the extent they received personal benefits from invoices rendered by Mercer Trading or Case Marlow Limited (Case Marlow), those payments are properly to be regarded as repayment to them of advances made by them personally to Kilbirnie Plymouth Investments Limited (KPIL). That company is beneficially owned by Kilbirnie Plymouth Trust. Certainly there is evidence that substantial advances were made by the accused and their trusts to KPIL. The defence argument is that as payments were received in the TPS trust account on account of Mercer Trading and Case Marlow (entities ultimately owned beneficially by the Kilbirnie Plymouth Trust), payments were made direct to the accused in reduction of KPIL’s indebtedness to the accused and their trusts.
[35] In the case of payments received by the TPS trust account for Momentum
Consulting Kinetics Limited (MCK) and He & She Limited (entities associated with
Ms Miize Madondo)8 the accused say that some $1.55 million was paid to Ms Madondo. A variety of mechanisms were used, including payments by cash transfer and payments into bank accounts. They say these were payments they were obliged to make because moneys were genuinely payable to Ms Madondo pursuant to the MCK and He & She invoices.
[36] On counts 94 to 100 (attempting to pervert the course of justice) they submit that the Crown must show:
(a) the accused knowingly supplied false information to their clients;
(b) they did so with the intention that that information would be used in the course of the Revenue investigation (which, Mr Lennard conceded at the outset of trial was a “fairly available inference”); and
(c) that their purpose was to deflect the Revenue from prosecuting a criminal offence or adducing evidence as to true facts and thereby avoid a Crown prosecution.
[37] The accused’s case on these counts is that their clients were summoned by the Revenue to attend compulsory interviews under s 19 of the TAA, and to produce all relevant documents in their custody and control. The clients asked their accountants (including the accused) for documents in the course of responding to that requirement. They say they supplied the clients with the documents “and with an explanation as to how the transaction in question worked so as to enable their clients to comply with their obligations under s 19”. The accused say they believe the information they supplied was correct. They say they had no apprehension at the relevant time that criminal charges were a possibility. And they say that their actions were therefore not influenced or motivated by that consideration. Otherwise they put
the Crown to proof.
8 See at [159].
[38] Finally, on counts 101 to 110 (filing false personal tax returns) they submit that their personal tax returns were, to the best of their knowledge at the time of filing, correct.
B. DISHONEST USE – BACKGROUND AND LEGAL ELEMENTS
Background
[39] Counts 1 to 93 are laid under s 228(b) of the Crimes Act 1961. It provides:
228 Dishonestly taking or using document
Every one is liable to imprisonment for a term not exceeding 7 years who, with intent to obtain any property, service, pecuniary advantage, or valuable consideration,—
(a) ...
(b) dishonestly and without claim of right, uses or attempts to use any document.
[40] There are three essential elements for the Crown to prove on each count:
(a) the accused used a document (the indictment pleads that the relevant documents are the income tax and GST returns filed by the clients);
(b) they intended to obtain (and retain) a pecuniary advantage; (c) they did so dishonestly and without claim of right.
Legal Elements
(1) Accused “used a document”:
[41] The documents the accused are charged with “using” are the various income tax and GST returns that were calculated by reference to the invoices issued to, and payments made by, clients. There is scant evidence that the accused directly prepared or filed these returns. Some indeed were prepared and filed by the clients
themselves, or by other accountants (including Mr Stevens). Despite that fact, there was no controversy and argument about this element of the charges.
[42] The document in the Act means “a document in any form”.9 The defence accepted the filing of returns by clients or other agencies as innocent agents will amount to “use” by the accused if they procured that event. As the Court of Appeal said in R v Thompson10:
The actus reus used by the accused of the document. Such use need not be by the accused in person: R v Paterson where this Court confirmed that where an offender deliberately uses its agent to perform the actus reus of the crime the offender will generally be treated as principal in terms of s 66(1)(a) of the Crimes Act.
[43] The Court of Appeal also said, in R v Gunthorpe:11
It was not disputed that a person may “use” a document without directly handling it (cf R v Paterson [1976] 2 NZLR 394). An instruction or direction to deal with the document in a particular way will suffice. Counsel submitted that nothing less than that will do. This is too narrow an approach. An instruction to carry out a particular transaction necessarily carries with it an instruction to do what is normally and reasonably necessary for the purpose. That was the Judge’s approach. He concluded that it was “inconceivable” that the whole transaction would have taken place without express instructions from Mr Hawkins. He spoke in terms of Mr Curtayne giving the immediate directions to the accounting staff concerning the cheques and the journal entries. The evidence did not go quite as far as that, and there was certainly none that Mr Hawkins had first instructed Mr Curtayne. There was evidence that Mr Curtayne frequently acted on Mr Hawkins’ behalf, but none that he had done so on this occasion. Nonetheless, for the reasons that follow, we consider the Judge entitled to draw the inference that, whoever was the intermediary, the instruction to effect the transaction must have come from Mr Hawkins.
[44] As the Court of Appeal has said in R v Ngamu,12 “use” is an “elastic term”. A proximate case to the present one is Down v R.13 In that case the accused was charged with dishonest use of documents (invoices) with intent to obtain a pecuniary advantage. She was convicted, and appealed to the Court of Appeal. The evidence
showed that Ms Down had not helped create the invoices, and nor had she handled
them. As a director she had, however, signed loan applications to purchase business
9 Crimes Act 1961 s 217.
10 R v Thompson [2005] 3 NZLR 577 at [12].
11 R v Gunthorpe [2003] 2 NZLR 433 at [134].
12 R v Ngamu [2010] NZCA 256, [2010] 3 NZLR 547 at [12].
13 Down v R [2011] NZCA 138.
equipment, and the false invoices supported the loan applications. The Court of Appeal observed that the Crown could have approached the case in a more straightforward manner, simply relying on the loan documents which Ms Down certainly had signed. But on the case advanced by the Crown it had to be proved that Ms Down had used the invoices. It had to be proved, therefore, that Ms Down had knowledge of the invoices, knew they were false and used them in at least some indirect way. The appeal was dismissed because her actions in executing the loan documents amounted to indirect use of the supporting false invoices. Without the loan documents, the invoices would have had no effect. And vice versa.
[45] Many of these cases involve a chain of documentation. It is helpful to examine the cases in that way. In the present case the chain is as follows:
(a) primary/initiating document: invoices;
(b) secondary documentation (relying on the primary): financial accounts and
GST returns;
(c) tertiary documentation (relying on the secondary): tax returns.
An accused may be found guilty of using a document later in the chain, even if they had not themselves prepared or handled the document, if that later document is nonetheless the intended or natural consequence of the earlier documentation with which they are associated. And Down shows culpability may occur even in reverse order (the invoices were primary, the loan documents secondary).
(2) Intending to obtain (or retain) pecuniary advantage
[46] It is important to note that the Act defines “obtain” for the purposes of s 228 as meaning to “obtain or retain for himself or herself or for any other person”.14
Secondly, in Hayes v R15 the Supreme Court defined “pecuniary advantage” as
“anything that enhances [a person’s] financial position”. It noted that “it is that
14 Crimes Act 1961, s 217.
15 Hayes v R [2008] NZSC 3.
enhancement which constitutes the element of advantage”.16 The Supreme Court held that there is a pecuniary advantage when a payment or benefit is received, and there is no need for the prosecution to prove the accused was not entitled to the payment or benefit.17
[47] Two points then. First, if the accused filed returns (or caused to be filed returns) intending to obtain tax advantages for their clients which would not otherwise have accrued to them (i.e. a deduction from income tax, or an input credit for GST, that they were not entitled to) that may be the unlawful obtaining of a pecuniary advantage, because “obtain” includes “for any other person”. Secondly, if by the filing of the returns the accused intended to obtain for themselves a benefit (being the unremitted portion of the payments made to TPS) that also may be the “obtaining” of an unlawful pecuniary advantage.
(3) Accused dishonest and have no claim of right
[48] The Crown concedes that if it cannot exclude a genuine, even if unreasonable, belief in the appropriateness of deductions (i.e. the legitimacy of the invoices), its case would fail. It relies on proving beyond reasonable doubt that the invoices used to justify the deductions claimed were fictitious, generated by or under the control of the accused, and did not in fact relate to real goods and services provided or to be provided. It accepts the face description of the invoice is not determinative. It needs to exclude the existence of any genuine supply for the amount billed, whether in accordance with description or not.
(4) Common enterprise
[49] At an early stage in the case it was submitted for the accused that the Crown could not rely on the “common enterprise” extension of liability in s 66(2) of the Crimes Act 1961. That argument, however, fell away after the accused had given evidence. In the course of that each of the accused associated themselves with the
impugned transactions which are the subject of the charges, which of course they
16 At [16].
17 See at [12], [16] and [25].
maintained were legitimate. There was one exception: the transactions involving the accused Barrie Skinner’s sister, Sharon Skinner. The evidence was that Mr Rowley had had no involvement with those transactions.
C. DISHONEST USE – EARLIER PERIOD CLIENTS Introduction
[50] It is useful to apply a chronological approach to analysis of the dishonest use counts. By and large the indictment follows that course, but there are some exceptions which I note later. My focus in this part of the written reasons is on clients with whom impugned transactions commenced prior to June 2007. As they arise, I will describe key events and players once, rather than repetitiously. An example is my discussion of the witness Mr Peter Uren.18 Another is
Ms Madondo.19
[51] At the end of this section of my written reasons I will sum up the state of the evidence viewed as at June 2007.20
Kathy Ertel – tax and GST returns – counts 1 & 2
[52] Counts 1 and 2 are as follows:21
THE CROWN SOLICITOR AT WELLINGTON CHARGES that BARRIE JAMES SKINNER and DAVID INGRAM ROWLEY (together with Shaan Winiata Stevens) on or about 14 December 2005, at Wellington, with intent to obtain a pecuniary advantage, dishonestly and without claim of right, did use a document, namely a GST return for the period ending 30 November
2005 for “Kathy Ertel”.
THE CROWN SOLICITOR FURTHER CHARGES that BARRIE JAMES SKINNER and DAVID INGRAM ROWLEY (together with Shaan Winiata Stevens) on or about 3 January 2007, at Wellington, with intent to obtain a pecuniary advantage, dishonestly and without claim of right, did use a
18 At [68].
19 At [159].
20 Starting at [265].
21 I set these out as examples. I will not repeat the exercise for the subsequent 87 dishonest use counts.
document, namely an Income Tax return for the period ending 31 March
2006 for “Kathy Ertel”.
Background
[53] Ms Ertel is a Wellington solicitor. She practises on her own account. A close friend (and her accountant) was the co-accused, Mr Stevens. His firm, Guinness Gallagher Accounting Limited, was her tax agent. It filed her tax returns.
[54] Ms Ertel gave evidence of a single dealing with Mr Skinner. The exact date of the meeting is not clear, but it appears likely to have been on 9 September 2005. It is therefore the first of the transactions impugned in this trial. Mr Skinner was introduced to Ms Ertel by Mr Stevens as a taxation expert. He and Mr Stevens came to Ms Ertel’s home. At that meeting Ms Ertel wrote a cheque for $56,610 in favour of Mercer Trading. A repayment of $37,700 was then made back to Ms Ertel’s partner, a Ms Stewart, by direct credit from TPS’s trust account.
[55] This first transaction has features in common with later ones. First, Ms Ertel understood the purpose of the transaction involved her buying tax losses. She was clear in evidence that Mr Skinner had given her that explanation. Secondly, the repayment was not made back to the paying party (Ms Ertel) but to an entity associated with her (Ms Stewart). These two features are not invariably present, but often occur.
[56] The amount paid by Ms Ertel correlates to a Mercer Trading invoice dated
31 January 2005. The invoice therefore appears long to pre-date the meeting. The invoice is said to relate to “introduction, assessment and viability study of prudential business ventures, advice concerning business structure and potential partnership arrangements including introduction to joint venture partners and potential avenues for finance, together with advice on IT systems”. Ms Ertel said she had not seen the invoice when she wrote the cheque.
[57] A second Mercer Trading invoice, dated 28 March 2005, is for the same amount and in the same terms. Forensic evidence produced by Crown witness Simon Heard, an investigator in the Revenue’s Digital Forensic Unit, suggests that
this invoice was produced by Mr Rowley editing an earlier Mercer Trading invoice.22 This invoice appears to have been paid on 30 November 2005. Ms Ertel received back $37,700 – this time directly rather than indirectly.
[58] Ms Ertel gave evidence that she had never dealt with Mercer Trading, and had never received such services from it.
[59] It is necessary now to pause and consider the evidence of three other witnesses. Mr Stevens is the co-accused who assisted in establishing the transaction. The other two (Messrs Newman and Uren) are connected to Mercer Trading.
Mr Stevens
[60] I have referred earlier to Mr Stevens’ background, the fact that he is a co- accused on 13 counts, and that he pleaded guilty to those charges and others in
2011.23 While Mr Stevens has already been sentenced, and had nothing to achieve
by lying in evidence before me, it is proper that I approach his evidence as a co- offender with reserve. Mr Stevens was formerly a prominent Wellington accountant. He was prominent also in Māori and university circles. His fall from grace has been profound. He was quite emotional in evidence about what has happened to him. He was evidently dismayed that he had pleaded guilty, and taken his medicine, but that the accused had not done so. However, it is of course their right to test the Crown’s evidence by pleading not guilty. I find Mr Stevens’ evidence tainted to the extent he was motivated to a moderate (but not extreme) degree to secure the conviction of the accused.
[61] Mr Stevens’ evidence tended to play up the role taken by the accused in the establishment of the impugned transactions. He did not deny his own offending, but tended to diminish it by reference to the role played by the accused. My approach to Mr Stevens’ evidence is not to rely upon it in the absence of independent
corroborating evidence.
22 Mr Rowley suggested in evidence that external users such as Mr Newman had access to the network using Mr Rowley’s name. I will discuss his evidence in a moment. It is unfortunate that Mr Newman was not cross-examined on the basis that he had external computer access in the manner suggested later by Mr Rowley.
23 See [15]–[17].
[62] There is a trenchant dispute between the accused and Mr Stevens as to who initiated the transactions impugned by the Revenue. Mr Stevens’ evidence was that the scheme had been devised by Mr Skinner. Mr Skinner’s evidence was that the originator of the scheme was Mr Stevens, that the accused recognised its illegality, but modified it so that the transactions with which they were associated had real substance through genuine underlying supply of real property, goods or services. That is a dispute I do not need to resolve. It is immaterial for present purposes who originated the scheme. The only question that matters is whether the accused acted dishonestly in relation to the transactions with which they were associated and are here charged. It is not a case where the accused were acting under Mr Stevens’ dictation. Nor were they acting on his advice, because on their version of events they disapproved of his methods.
[63] Mr Stevens’ evidence on the Ertel transaction was that at the time of the discussion he had with Mr Skinner (whether it was at Ms Ertel’s house or after) there was no substance to the transaction. Nor was there any discussion about the existence of a property deal involving carparking licences. That evidence is consistent with the evidence of Ms Ertel.
Mr Newman
[64] The sole director and shareholder at the relevant time of Mercer Trading, a Mr Frank Newman, gave evidence. Mercer Trading was formerly called Joyce Group TA Services Limited. Ownership of that company appears to have transferred to Mr Newman on behalf of Mercer Trust (and ultimately Kilbirnie Plymouth Trust) in March 2004. Mr Newman became a director of Mercer Trading in 2004. He ceased as a director in May 2006 and does not appear to have been aware that its name then changed to Merc Trading Limited. He was also sole trustee of the Mercer Trust.
[65] Mr Newman was a longstanding employee of, and contractor to, TPS. At the time of the two invoices issued to Ms Ertel in 2005 he was based in Nelson. The invoices feature his Nelson PO Box address. In 2006, however, he was arrested. He
served a term of imprisonment from July 2007 to November 2009 for sexual violation of a child. He remains on parole.
[66] His evidence was that he did not do much as a director of Mercer Trading – “nothing really”. He did not actively manage the company. He did not issue invoices. He did not undertake any of the work referred to in the Mercer invoices. He accepted he may have had bank signing authority for the company. Notably he was directed in evidence-in-chief to an email sent to him by Mr Rowley on
19 January 2007. The email sent Mr Newman the account numbers for Mercer Trading and the Mercer Trust. In the email Mr Rowley asked Mr Newman to close the accounts, and keep what was left in the accounts for himself. Some $350. When asked by Mr La Hood why he needed Mr Rowley’s permission to take the money from the accounts if he was the sole shareholder, director and trustee, Mr Newman was unable to say.
[67] Regardless of the offending for which he was convicted and imprisoned, Mr Newman appeared to me to be a genuine witness, attempting to assist the Court where he could. His memory was not especially good, but my clear impression is that as far as Mercer Trading and the Mercer Trust were concerned, Mr Newman was simply a nominee for the accused.
Mr Peter Uren
[68] Mr Peter Uren is said by the accused to be the ultimate entity behind three other key invoicing entities: Case Marlow, Mercer Trading and Marsden No 2 Trust. Mr Uren is an Australian. He lived in New Zealand for a number of years, but did not take to life here. After that he returned to Australia, and then moved on to the Philippines. He lives there now. He gave evidence in this trial by video conference facility. He is a large man. He has a larger personality.24 I do not find him to have a strong grasp of detail. He is prone to occasional hyperbole. But on the essentials I
believe his evidence was intended to be truthful.
24 This proved unexpectedly useful at trial. Faced with the Manila video-conference suite manager’s attempt to bring the conference to a premature end (so another client could use the facility), I invited Mr Uren to hold the fort and refuse to leave. He did so and we were able to complete his evidence.
[69] I approach his evidence with a degree of reserve for the reasons just given. The essence of his evidence was to deny that he had any direct control over the issuing of invoices for the entities listed above. I accept that evidence. He also denied that he was either actively or actually a beneficiary for the trust behind these entities, Kilbirnie Plymouth Trust and Patero Trust. That evidence is not entirely right. It is clear he has received a number of payments from the former trust, as a beneficiary in some capacity. But I do accept his evidence that he was in no sense an active participant in their affairs. That view is supported by a number of considerations.
[70] First, I am satisfied that Mr Skinner was responsible for the sending of a “briefing paper” to Mr Uren in March 2012 (via a process including the setting up of a separate email account). The form of the paper is that of a script, for him to use in speaking with the Revenue and, potentially, at this trial. Second, I am very doubtful that the shareholding in the operational entity of Kilbirnie Plymouth Trust, KPIL, is held by the accused as trustees for Mr Uren’s ultimate benefit. That entity is said to be held by Messrs Skinner and Rowley in 3:1 proportions via separate trusts. Why KPIL would need to be held in that way, if ultimately for Mr Uren’s benefit, is unclear. There are however a number of entities jointly owned by Messrs Skinner and Rowley that are held in that proportion. That, for instance, was the ratio of their holdings in TPS for some of the time. Third, there is an email dated 1 August 2007 from Mr Rowley to a Mr Matthew Brown at Equitable Group, a moneylender, seeking funding for the development of a new apartment block to be built between the St George Hotel and O’Reilly Avenue. That property was known at trial as the “St George O’Reilly” development. The email does not refer to Mr Uren’s interest at all. The only overseas investor referred to is a Mr Borg, whom I will discuss in a moment. It refers to Mr Skinner’s development experience. It offers the personal guarantees of both accused. There is no reference to pre-sales, which would have been relevant to obtaining finance from Equitable Group. Fourth, there is an email from Mr Skinner to a Mr Erne Joyce on 21 June 2007. That concerned the development of the St George O’Reilly project as a joint venture. Again it does not refer to Mr Uren. Nor does it refer to the Kilbirnie Plymouth Trust. Rather, and for reasons unclear to me, it suggests the joint venture partner would be MCK – a company said to be beneficially owned by Ms Madondo. Finally, Mr Borg was said
to have been the purchaser of the St George O’Reilly land from Mr Uren. In evidence he had limited recall of the details of that event. But it was Mr Skinner, he said, who was servicing the $4 million loan over that property. I conclude that the St George O’Reilly land was beneficially owned at least in large part by the accused, and that they (or at least Mr Skinner) may continue to retain a beneficial interest in it.
Carpark licences?
[71] In cross-examination Ms Ertel confirmed that she had never been told (i.e. either by Mr Stevens, the accused or anyone else) that the Mercer Trading invoices involved licences over carparks. She had never seen or executed an agreement for sale and purchase for such a purchase.
[72] Ms Ertel was not taken to a specific licence agreement in cross-examination. But shortly after her evidence concluded the defence produced through Mr Newman a licence agreement between Mercer Trading and Ms Ertel dated 31 January 2005. This was said to have been found on an external computer hard drive only recently located and analysed. The final page of the agreement appeared to have been signed by Mr Newman. But not by Ms Ertel. Mr Newman initially said that he would have signed it on the date stated on the face of the agreement. But under re-examination he admitted he could not recall the licence agreement at all. He had had no discussions with Ms Ertel. He did not know her.
[73] Mr Skinner gave evidence of having met Ms Ertel in September 2005 at the request of Mr Stevens. He said that Ms Ertel had a large tax liability. Mr Stevens knew that Joyce Group Limited, which was developing the first floor of the St George Hotel was proposing to develop internal carparks in that space. Mr Skinner said that Mr Stevens indicated that he believed the cost of the licence would be a deductible expense, and that she would also benefit from an unspecified timing difference benefit. It was not clear why Mr Skinner’s assistance was being sought, given Mr Stevens was aware of all these facts himself. On Mr Skinner’s evidence his role was a passive one.
[74] Mr Rowley gave evidence that Mercer Trading, although nominally directed and owned by Mr Newman, was in effect still under the control of Joyce Group Limited, the owner and developer of the St George Hotel building, in 2005. It will be remembered that until March 2004 it was called Joyce Group TA Services Limited.25 It had formerly provided territorial authority services for the Papakura District Council. It had been taken under Kilbirnie Plymouth’s wing in 2004 “as a favour” because of potential leaky home liabilities. It then engaged in commercial ventures under the limited oversight of Mr Newman, and of Mr Rowley.
[75] Mr Rowley’s evidence was that the licence agreement had been produced and negotiated by Joyce Group back in January 2005. He had, he said, altered not a word on its face. It is clear that the document in its original form was a template. Mr Rowley was cross-examined as to his subscription to a website that provided contract document templates, biztree.com. He admitted that he was a subscriber. He could not recall for how long he had been so. I am satisfied from the form and content of the licence Ms Ertel is supposed to have entered that the origin of that document was a biztree template.
[76] There are then three possibilities:
(a) Joyce Group Limited prepared and negotiated the contract with Ms Ertel on 31 January 2005;
(b) Joyce Group provided Mr Rowley with the template and he filled in the name of Ms Ertel;
(c) Mr Rowley did the whole thing (at what point being unclear).
[77] Mr Rowley was insistent that the position was (a) above. He told me he had not altered a word of the document himself. There are some difficulties with those propositions which in the end I find compelling. The first is that Ms Ertel herself has
no recollection of entering into such a licence agreement. Second, it is unclear why
25 See [64].
she would have entered into a licence agreement in January 2005 when she only consulted Mr Skinner in September 2005, and the payments flowed thereafter.
[78] A third problem is that the licence agreement provides on its face for no return of any proportion of the moneys paid by Ms Ertel. To explain the two repayments of $37,700 to Ms Ertel, Mr Skinner gave evidence that Ms Ertel had been made a discretionary beneficiary of the Mercer Trust (which was the intermediate owner of Mercer Trading). A document purporting to be a resolution of the “trustees” of the Mercer Trust (in fact only Mr Newman was a trustee) dated
9 September 2005 was produced by the defence. So too a deed of appointment the previous day signed by Messrs Skinner and Rowley appointing Ms Ertel a discretionary beneficiary. The deed records that the reason for the appointment is to distribute trust capital by way of loan to Ms Ertel, with demand for repayment being made only in the event of commencement of construction of the carpark project. Thus put together the scheme worked on the basis that Ms Ertel paid some $56,000 per carpark, but then received $37,700 of it back by way of loan, to be repaid on the commencement of construction. A complicated way to arrange such a transaction. Of course, Ms Ertel’s evidence was that she knew nothing whatever of any of that. Forensic evidence given by Mr Neville Winter, a senior IT investigator in the Revenue’s Digital Forensics Unit, shows a document appointing Ms Ertel a discretionary beneficiary appears to have been worked on (on the hard drive) in the days immediately prior to trial. That could only have been done by Mr Rowley.
[79] A fourth difficulty with the defence explanation is that if the licence agreement was prepared by Joyce Group, and Mr Rowley had no hand in it, forensic evidence produced by Mr Winter shows clearly that the portable hard drive in Mr Rowley’s possession bore a Word (rather than PDF) version of the licence agreement. It is unclear why, if the agreement was negotiated by Joyce Group, they would have provided Mr Rowley with a Word version of it. He was unable to provide a cogent explanation.
[80] Finally and most fundamentally, Mr Rowley’s claim that the licence agreement had been produced and negotiated by Joyce Group in January 2005, and that he had altered not a word of it, appeared to be disproved by a document the
Crown located on the portable hard drive. That device was produced by the accused. On it they claimed to have located only PDF copies of the licence and other transactional documents which will be discussed later in these reasons. The hard drive appeared to contain no Word documents, save in some MYOB folders. The absence of those Words documents is consistent either with the defence position that there were none, or with the Crown position that they had been deleted.
[81] But one document had not been fully deleted. That was a copy of the licence agreement with Ms Ertel which Mr Winter found in the deleted items folder when he analysed the hard drive.26 The metadata attached to the document showed that the author was “Dave & Avelyne” and the Word licensee was “TaiSan Trust”. It is a matter of record that Mr Rowley goes by the name “Dave”, that his wife is Avelyne Rowley, and they have a family trust called the “TaiSan Trust”. It is therefore highly probable that the document was edited when the hard drive was connected to Mr Rowley’s home computer.
[82] The metadata shows that the file was apparently accessed on 8 September
2005 with changes made that same day in the course of an eight minute session. Attached to the document are a series of embedded copyright statements. They appear in white print – so are not normally visible. They state variously that the document is subject to copyrights held by Envision SPS 2007, or Biztree 2006. If the licence agreement was genuinely entered in January or even September 2005, then these 2006/2007 copyright statements have no place in the document. There is, therefore, a very high probability that the document has been worked on the hard drive while connected to Mr Rowley’s home computer with its computer clock altered from a post-2007 date to 8 September 2005. Such alteration is functionally easy. The IT evidence given before me was the metadata would then capture the source computer date as the only available temporal point of reference.
[83] Faced with this development, Mr Rowley attempted to parry. He said that his evidence had been that he did in fact change document formats. But his evidence to
me had been that he had not touched the licence agreements, and they had simply
26 Interestingly the reason for that is that, absent the use of forensic tools, the recycle bin will only be visible to the specific author originally connected. If the recycle bin is filled using the home computer, it may only be seen and emptied using the same computer.
come from Joyce Group. When reminded by Mr La Hood of that answer, he said it was possible (although he could not remember it) that he had been asked in September 2005 to provide a copy of the document. But the problem with that answer is that the document contained the 2006/2007 copyright statements. He then suggested that perhaps he was asked to provide a copy at a later stage. Mr La Hood then put to him that in that event it looked as if he had deliberately changed the date on his home computer to suggest access at an earlier, rather than the true, date. In the end Mr Rowley had no satisfactory answer to the evidence with which he was confronted that long Monday afternoon. His answers were evasive and unsatisfactory.
[84] Mr Winter was recalled by the Crown to give further evidence. In cross- examination Mr Lennard showed Mr Winter the current version of the licence agreement on the biztree.com website with the embedded copyright statement highlighted. That shows a 2010 copyright notice. Mr Winter accepted that it was likely, therefore, that the document located in the deleted items folder on the hard drive was a version of the biztree template created before 2010. This could mean either two things. First, that Mr Rowley had worked on the document before 2010. Secondly and alternatively, that Mr Rowley had downloaded a version of the licence agreement before 2010 (recalling that he had been a subscriber for some years) but had worked on the document at any time thereafter.
[85] I conclude that Mr Rowley, contrary to his earlier evidence, had opened and edited a Word version of the Ertel licence document. I conclude that he altered the computer clock to mask that action and attempted unsuccessfully to delete the document for the same purpose. But I cannot be certain when he undertook those actions.
Distribution of retained money
[86] Following the payment of $56,610 paid on 9 September 2005, and repayment of $37,700, a balance of $18,910 was left in the TPS trust account. Allowing for other amounts in the trust account it stood at that date at some $10,000 more –
$28,662. Other payments were made over the course of the next week, but on
16 September the trust account is shown as being debited $7,500 for “B Skinner Mercer Trust distribution” and $2,500 to the D Rowley Mercer Trust for “D Rowley Mercer Trust distribution”. Those amounts in due course were received by each of the accused in their personal bank accounts that same day. A similar outcome occurred in relation to the second payment. But this time the distribution to the accused occurred the following day, again in the same 3:1 proportions. A distribution of $5,850 to Mr Skinner was made and received in his personal bank account, and to Mr Rowley of $1,950 (similarly received).
Conclusions on counts 1 and 2
[87] Having considered the evidence of Ms Ertel, Mr Stevens, Mr Newman, Mr Uren, Mr Winter and that of the accused, I reach these conclusions. First, where in conflict, I prefer the evidence of Ms Ertel over the evidence of the accused. Second, I have no reasonable doubt remaining that the transaction entered in September 2005 was in accordance with the terms Ms Ertel described. Third, I do not believe the evidence of the accused that there was a genuine underlying transaction concerning carparking licences (negotiated by Joyce Group rather than themselves or Mr Stevens). Fourth, nor do I have any reasonable doubt that there was no genuine contemporaneous appointment of Ms Ertel as a discretionary beneficiary of the Mercer Trust and distribution to her (on a loan basis only) of the repayments she in fact received in September and November 2005.
[88] I am satisfied beyond a reasonable doubt that counts 1 and 2 have been proved by the Crown. Specifically:
(a) the invoices described above were generated by the accused in the course of a common enterprise;
(b) there was no genuine underlying supply for the invoices;
(c) the accused knew that the invoices would be used by Ms Ertel to justify income tax deductions and a claim for GST input credits, and thereby obtain a pecuniary advantage;
(d) the accused acted dishonestly in facilitating the deductions and credits claimed by Ms Ertel, and the pecuniary advantage thereby obtained.
Jamie Wilson – tax and GST returns – counts 3 & 4
[89] The Wilson transactions occurred in March 2006. They are therefore second in chronological order after Ms Ertel. Counts 3 and 4 are in similar terms to counts 1 and 2, save that Mr Stevens is not charged jointly. Count 3 concerns Mr Wilson’s March 2006 GST return, and count 4 his 2006 tax return.
Background
[90] Mr Wilson is English. He has been a New Zealand tax resident since 2003. He is a consultant to the film industry. He specialises in organising events such as the premieres of the Lord of the Rings – Return of the King and King Kong. As the result of a busy and profitable year 2005/06 he found himself facing a substantial tax bill. TPS were Mr Wilson’s accountants. Ms Margaret Chapman, a staff member, did his work. He did not appear to have any contact with either of the accused. Nor did he have anything to do with Mr Stevens. He has never been a client of Mr Stevens.
[91] In 2006 he met Ms Chapman to discuss his tax issues. She told him that she might have a solution to his problems. He went to a meeting at the offices of TPS. Attending with Ms Chapman was a man whose identity Mr Wilson does not now recall. He cannot identify that person as one of the accused. Mr Wilson says the male attendee advised him that he could buy third party debts at a discounted price to alleviate his tax problems.
Invoices
[92] Following the meeting Mr Wilson received two invoices. The first was from a company called Showcase Limited (now Case Marlow), the address of which was shown as “C/- Tax Planning Services, PO Box 2106, Wellington”. It was dated
24 March 2004 and was for “consultancy”. The amount was $60,000 plus GST (in
total $67,500). A second invoice, this time dated 31 March 2004, was provided by Mercer Trading. It was also for “consultancy”, and was for an amount of $54,000 plus GST (in total $60,750). It is a mystery as to why the invoices were dated 2004. There is no question that Mr Wilson received the invoices in or about March 2006. Both are annotated in his hand as having been paid on 31 March 2006. The TPS trust account was credited with payments from him that same day.
[93] Under cross-examination, Mr Rowley accepted that he had probably prepared the Mercer Trading invoice. Certainly, there was forensic evidence from Mr Simon Heard, an IRD forensic IT analyst, that someone using Mr Rowley’s user ID created the Mercer Trading invoice by editing an earlier Mercer Trading invoice prepared for Ms Ertel. Forensic analysis cannot say when he did so, but it is logical to assume that it occurred in March 2006. He was not prepared to accept that he had prepared the Showcase invoice, although he accepted that it was prepared at about the same time, addressed to the same billing address, for the same narrative item in the case of each invoice (“consultancy”) and the address given for Showcase Limited was TPS’s. I have no doubt that Mr Rowley did in fact create both invoices, although probably in 2006 rather than 2004.
Payments and repayments
[94] Mr Wilson paid the full amount of both invoices (in total $128,250) on
31 March 2006. They were banked into TPS’s trust account. He received back, the same day and directly, two amounts of $45,000 and $40,500. That is, exactly two- thirds the amounts he had paid. The GST-exclusive amount for the two invoices then appeared in Mr Wilson’s year end accounts for the year ended 31 March 2006, as “Sub-contractor – $114,000”. Those accounts were prepared by Ms Chapman of TPS.
What was Showcase/Case Marlow?
[95] The director of Case Marlow (formerly Showcase Limited) and its sole shareholder, Mr Kam Chai Law, gave evidence. He is Mr Rowley’s brother-in-law (Mr Rowley having married his elder sister).
[96] In May 2006 Mr Law became the sole director of the company. Mr Law does not appear to have been well qualified for that appointment. He had been a chef. Currently he runs a cleaning and painting business. He gave his evidence under translation. His English is vestigial. He came across as a nice man, but utterly bewildered as to his involvement in Case Marlow, and in the present Court process. He did not know what Case Marlow did. He was asked to be its director by his brother-in-law, Mr Rowley. He had not heard of the clients that Case Marlow issued invoices to after May 2006. He could not remember ever issuing an invoice for goods or services from Case Marlow. He had never done any consulting or planning work for anyone through Case Marlow (those services commonly being the subject matter of invoices issued by Case Marlow, as we will see). He did not believe he had ever provided goods and services to Harding Electrical Limited, which company
is the subject of the next series of counts.27 What he now knows about Case Marlow
appears to be the result of a discussion with a Chinese female accountant working for TPS (whose name he could not recall). That discussion took place after he was interviewed by the Revenue in September 2010.
What were the invoices for?
[97] Mr Wilson said that he had no knowledge of a company called Showcase (or Case Marlow) and that he did not receive any products or services from either. In other words, the invoices were fictitious. Nor did Mr Wilson have any recollection of entering into a transaction for purchase of a carpark licence at the St George Hotel development, which he could rent to others. He was clear that he would have remembered had he done so, but it was never suggested. He had no interest in any such investment. Nor did he recall receiving any advice that he had become a discretionary beneficiary of a trust. He says that he sought assurance that the transaction was legal, understood it to relate to acquisition of debts of other clients of TPS at a discount (hence the return payment), and generally trusted TPS as his accounting advisers to act lawfully.
[98] The accused say the invoices actually related to carpark licences. As with
Ms Ertel they have produced two licence agreements, each for two carparks in the St
27 See at [104].
George level 1 internal carparks project. These too were produced from the hard drive discussed earlier.28 Mr Skinner’s evidence was that he was aware of these transactions, if not directly involved in negotiating them. (He accepted he had negotiated Ms Ertel’s licence). There are several curious features about these transactions. The first is that all four carparks originate with Mercer Trading Company. One of the licences (dated 31 March 2006) is by Mercer Trading
Company Limited direct to Jamie Wilson. The second licence is also dated 31
March 2006, but comes from Showcase Limited. This was explained by Mr Rowley as Showcase attempting to assist Mercer Trading to place the carpark licences. But I have difficulty accepting that explanation when a document was also produced by the defendants that shows that the day before, 30 March 2006, Mercer Trading licensed those carparks to Showcase Limited in the first place. There was no logic for such a transaction, as opposed to Mr Wilson directly taking all carpark licences from Mercer Trading. All transactions were done within the space of 48 hours. The alternative, and more likely, explanation is that the licences have been devised to fit with the invoicing entities.
[99] The licence agreements have an apparent date of 31 March 2006 in the metadata extracted from the hard drive. But Mr Neville Winter, the forensic analyst called by the Crown, established to my satisfaction that the metadata date had been altered by adjusting the clock on the source computer when downloading the agreements to the external hard drive. In particular, Mr Winter was able to take me to the update sequence numbered (USN) log for the hard drive. As items are added, deleted and modified on the drive they are recorded in strict chronological order on the USN log. The time stamp shown in the log may be altered, because it shows the clock for the connected source computer. But the sequence will remain chronological. Mr Winter’s analysis demonstrates that a regularly dated computer had been connected to the external hard drive on 12-13, and 21-24 April 2012. But after that someone (and that person could only be Mr Rowley) had connected a computer with an altered time clock to the external hard drive. That is shown because on page 23 of the 368-page USN log produced by Mr Winter the time stamp
date sequence runs regularly up to 24 April 2012 (08.04 am) and then jumps to 7
28 See at [80].
September 2005 (09.22 am). Within a minute of that event a document called “Deed of Appointment of Discretionary Beneficiary Template.doc” is created on the hard drive. Some ten minutes later a document which appears to be an appointment of discretionary beneficiary by the Mercer Trust to Ms Ertel is worked on.29
Mr Wilson’s licences from Mercer Trading and from Showcase are worked on later in the sequence. It is not possible, because of the way in which the altered time stamps jump around, to identify precisely when that was. However because for a brief period in the middle of the log the date jumps back to 27 April 2012, and that is likely to be a genuine date, it can be inferred that the work was done on these documents between 24 and 27 April 2012. That is, in the days immediately prior to the commencement of trial.
[100] Neither licence agreement was in fact signed by Mr Wilson. He of course said he had never seen any such licences, or had anything to do with them. The licences are, however, signed by Frank Newman. We have met Mr Newman before, in the context of counts 1 and 2.30 It is not clear why Mr Newman was signing a licence on behalf of Showcase. He had never been a director of Showcase/Case Marlow. Mr Newman could not remember signing either licence, or ever dealing with Mr Wilson. Even more curious, as Mr Rowley accepted, the two execution pages are exactly identical facsimiles. Mr Rowley suggested that somehow the
pages must have been muddled up. That is, I suppose, possible. A difficulty lying in the way of that proposition, however, is that other but identical facsimile signature pages have also been used in two other licences: that involving Ms Ertel and another involving Harding Electrical Limited (see below).
[101] In Ms Ertel’s case the repayments were justified by reference to a supposed advance from the Mercer Trust. In the case of Mr Wilson, the accused produced resolutions, correspondence and deeds of appointment from two trusts, the Mercer Trust (in respect of the Mercer Trading licence) and the Patero Trust (in respect of the Showcase licence) the contents of which are very similar to those produced in respect of Ms Ertel. In each case the deeds of appointment have been signed by both
accused. Mr Wilson, of course, said he had seen none of that.
29 See at [78].
30 At [64].
Conclusions on counts 3 and 4
[102] As was the case with Ms Ertel, so too in the case of Mr Wilson I prefer his evidence wherever in conflict with that of the accused. I accept Mr Wilson’s evidence that all he thought he was doing was buying third party debts at a discounted price. I accept that that was the explanation given to him at that time. I do not accept, and I do not believe, that the carpark licences were discussed with Mr Wilson, or that any such transaction was entered. Nor do I accept that the repayments made to Mr Wilson were repayable advances from the Mercer or Patero Trusts.
[103] I am satisfied beyond a reasonable doubt that counts 3 and 4 have been proved by the Crown. Specifically:
(a) the invoices described above were generated by the accused in the course of a common enterprise;
(b) there was no genuine underlying supply for the invoices;
(c) the accused knew that the invoices would be used by Mr Wilson to justify income tax deductions and a claim for GST input credits, and thereby obtain a pecuniary advantage;
(d) the accused acted dishonestly in facilitating the deductions and credits claimed by Mr Wilson, and the pecuniary advantage thereby obtained.
Harding Electrical Limited – tax and GST returns – counts 5 to 12
[104] The third set of transactions in date order, after Ms Ertel and Mr Wilson, involved Harding Electrical Limited. These transactions began in about June 2006.
[105] The accused faced eight counts in relation to the tax affairs of Harding
Electrical. Counts 5, 6, 7, 9, 10 and 12 concern Harding Electrical’s GST returns for
July and September 2006, January and July 2007 and March and September 2008.
Counts 8 and 11 concern Harding Electrical’s income tax returns for 2007 and 2008.
Background
[106] As its name suggests, Harding Electrical is an electrical contracting company. Its principal directors and shareholders are Messrs Damian Moloney and Mark Lavery. Mr Moloney is Mr Skinner’s brother in law. Messrs Moloney and Lavery own 70 per cent of the company. The remaining 30 per cent is owned by a company called Black Elton Limited. It was described as a “silent partner”. Harding Electrical has around 40 employees. Neither Mr Moloney nor Mr Lavery are particularly focused on the accounting side of the business. They have an “accounts lady” who seems to do all that for them. In addition, TPS (Mr Rowley) provided accounting services. This started in about 2005. TPS prepared Harding Electrical’s monthly and annual accounts. GST returns were undertaken by the accounts lady. She and Mr Rowley did the tax returns together. TPS also did Mr Moloney and Mr Lavery’s personal tax returns.
[107] In 2006, Harding was in financial difficulties. It had cash flow difficulties. Its debtors were paying too slowly. Mr Moloney told Mr Rowley this. Mr Rowley suggested a scheme which might assist their cash flow difficulties. It involved the raising of invoices, a significant proportion of which would be paid back to them. Mr Lavery and Mr Moloney both professed not to understand how the scheme improved their cash flow. They could not answer Mr Lennard’s pointed question in cross-examination. “If you pay $10, and only get $8 back, how is your cash flow improved?” The reality of course is that it was improved by Harding also claiming GST input credits and tax deductions for the GST exclusive portion. In that way $10
could become $12.31 But neither Mr Moloney nor Mr Lavery said they understood
that at the time. Indeed it is not clear that they understand it even now. They are electricians, not accountants.
[108] Were the invoices fictitious? As to that, I am left in no doubt.
31 Even allowing for the $2 said to be kept by TPS. The exact net result to the client is $12.04.
Mercer Trading invoices
[109] Three invoices were raised by Mercer Trading in April-June 2006. They total
$60,000 plus GST of $7,500. Forensic evidence suggests the three invoices were created by an unknown author at TPS on 19 June 2006. It is however likely to have been Mr Rowley or someone at TPS acting under his direction. The invoices were provided to Harding Electrical by Mr Rowley. They are said to relate to “project consultancy work”. Harding Electrical did not receive any such project consultancy work from Mercer Trading. It never dealt with anyone from Mercer Trading. On
29 June 2006 Mr Moloney received back $48,750 from the TPS trust account into his personal bank account.
[110] The accused said in evidence that these invoices relate, again, to a carpark licence. Mr Skinner did not say much on that score. He recalled speaking to his brother in law Mr Moloney about his cash flow problems. In the course of that there was a discussion about obtaining a carpark licence “for the purposes of ... the jobs he was doing in town”. It was said to be a very short discussion and Mr Skinner did not negotiate the licence. Mr Rowley gave more detailed evidence of the transaction. He said that a carpark licence had been sold to Harding Electrical, at a discounted rate, for its use while performing jobs in the city. Why an electrical contracting business with cash flows problems would wish to pay good money to buy a fixed location carpark was not apparent.
[111] A copy of a licence agreement between Mercer Trading and Harding Electrical was produced by the accused through Mr Newman. It was not signed by Harding Electrical. This was a document Mr Newman could not specifically recall, although it bore his signature. It was also a document which curiously had an exact facsimile of the signature Mr Newman had used on the licence supposedly entered by Ms Ertel.
[112] A copy of the licence agreement was located on the hard drive with an apparent creation date in the metadata of 31 March 2006. But this was another instance – as we have just seen with Mr Wilson’s licence agreement – where Mr Winter’s forensic evidence showed that the time stamp had been altered via the
[446] Finally, the accused submit that the deeming provision s CB32 of Income Tax Act 2007 is not needed – even if it applied, which they deny. That is because the client payments had always been treated as income, and the receiving entities had returned them as such.
Analysis
[447] I am satisfied that the Crown has proved counts 101 to 110 beyond a reasonable doubt. My reasons for reaching that conclusion are as follows.
[448] First, the scheme in respect of which I have entered convictions on counts 1 to 93, was a fraud on the Revenue. It appears likely to have constituted also a fraud on clients who paid the money on the basis that they were doing so pursuant to a legitimate means of reducing their tax exposure. Only then to find it was nothing of the sort and that they had been reassessed with substantial tax to pay and penalties. However the fraud on the Revenue suffices in itself.
[449] Secondly, the effect of s CB32 of the Income Tax Act 2007 was to make the unremitted retained payment proceeds part of the gross income of the accused. It was required to be declared by them regardless of the entity invoicing (MCK, Mercer Trading etc) or the entity receiving (TPS Trust Limited). All of these were entities within the power and control of the accused. It is immaterial, therefore, whether the accused then directed payment of those funds out of the TPS Trust Limited bank account by way of advance from (say) Mercer Trading to KPIL (which I find to be substantially owned and directed by the accused). The accused say that KPIL was indebted to the accused, so that the money then looped back to the accused by way of repayment of prior advances and was now not income in their hands. All that of course assumes that that in law is what occurred. The evidence shows rather that the accused simply helped themselves to distributions from the TPS trust account without bothering with the niceties of advance and repayment, or any formal documentation. In some cases appearance is in fact reality.
[450] The one bright spot, however, is that the invoicing entities did declare invoice receipts as income. The brightness quickly clouds over, however, when we see that none of these entities actually paid tax of any substance in any of the years concerned. That was because that income was defrayed by the deduction of substantial corresponding expenses. The legitimacy of those expenses could not be weighed in this trial. In the circumstances of this case there must be grave reason to doubt it. Mr Lennard does not suggest, and nor could he suggest, that the short answer to these charges is that the invoicing entities are independent legal persons that have declared their fee income for tax purposes. Were that the case, the s 347 application might have been presented instead on that basis.
[451] There is here no question but the accused gained the possession and control of property (money, which they have spent) which they obtained without claim of right. To take the approach urged by the accused is to enable a fraudster to wash proceeds of a fraud via a further scheme of their own devising so that it ends up with an entity indebted to them, and they avoid payment of tax on the proceeds of that fraud. That would be entirely contrary to the purpose and effect of s CB32, albeit that as proceeds of crime they may eventually be recovered in their entirety under other legislation. Confining myself however to the taxing statute, my view is that s CB32 has a grouping effect. It requires the perpetrators of fraud to declare the proceeds of fraud as income at the point of its receipt into their control, and before redistribution amongst the entities they are using to effect the fraud.
[452] I note that s CB32 was introduced in 1998 to reverse the consequence of a decision of the Court of Appeal in A Taxpayer v Commissioner of Inland Revenue.64
The Court had concluded that an embezzling accountant had no taxable gain, because he had no beneficial interest in the moneys received. The explanatory note to the then Taxation (Tax Credits, Trading Stock and Other Remedial Matters) Bill
1998 said:
The proposed amendments will ensure money and property obtained through fraud, embezzlement, misappropriation or theft is gross income and therefore taxable.
That thrust was retained throughout the passage of the Bill through Parliament. At its second reading the Minister of Revenue, the Rt Hon W F Birch, said:65
This Bill also contains an important tax base protection measure. It ensures that wrongfully obtained money will continue to be taxable. The proposed legislation will apply to money and property that have been stolen or gained through fraud, embezzlement and misappropriation ...
[453] Thirdly, and apart from the above, I find that the accused cannot point to receipts of moneys ostensibly on account of MCK and He & She as money neither in their power and control nor to which they were not entitled by reason of trusteeship
to Ms Madondo. I have found as a matter of fact there was no obligation to pay any
64 Taxpayer v Commissioner of inland Revenue [1997] 18 NZTC 13, 350 (CA). See Chan & Sinester “Tax, Equity and the Priority of Property Law” (2000) 8 NZJTLP 24 and Gupta “Taxation of Illegal Profits in New Zealand” (2008) 14 NZBLQ 168.
65 (2 April 1998) 567 NZPD 8119.
sum to Ms Madondo. To the extent the accused did so, that was their own free choice. Those moneys were first required to be declared by the accused as gross income under s CB32.
[454] Fourthly, it follows that I find that the personal tax returns of the accused in the years 2006 to 2010 were false in as much they did not declare the moneys obtained by them as a consequence of their fraudulent conduct. The word “false” is not defined in the Act. However in R v Gill66 Richardson P said:67
We are satisfied that in the context of s 416(1) “false” simply means “inaccurate” or “incorrect”. There is no need to give the word any mens rea element because the mental element demanded of the offender is determined by the preceding words, “wilfully” and “negligently”.
That approach applies also in relation to s 143B(1)(c).
[455] Fifthly, I am satisfied beyond a reasonable doubt that the Crown has shown that the accused knew that the returns were false. That knowledge can be inferred, as the Crown submitted, from the fact that the accused must have known that they were committing frauds (from which they received benefits), that they received substantial portions of the net benefit of those frauds into their personal accounts (or other associated accounts), that they applied the money to their own personal interests (or those of their associated trusts) and, because, given their knowledge as accountants and tax agents (with a speciality in tax planning), they must have known that income, even if the proceeds of fraud, must be declared to the Commissioner for tax purposes.
[456] In reaching the last of these conclusions I do not accept that the accused were (as they sought to characterise themselves) somewhat dull-witted or out of touch with the fundamentals of tax law. That was a characterisation of convenience, but it is inconsistent with the evidence before me and the tax-focused nature of the practice they engaged in on behalf of clients. As they were at pains to point out, in relation to the great majority of their clients, no problems had emerged. The frauds in this case
were focused rather than an endemic feature of their practice.
66 R v Gill (1999) 19 NZTC 15, 526 (CA).
67 At [20].
[457] Sixthly and finally, I am also satisfied that the accused intended to evade the assessment or payment of tax. “Evade” denotes an element of intent. In Babbington v CIR (No 2)68 Turner J held that an evasive intent involves knowing that the act or omission intended is wrong or acting deliberately or recklessly as to whether or not the act or omission is wrong.69 In Abraham v District Court at Auckland70 the Court of Appeal said:71
The appellant does not appear to have any viable defence to the charges. The appellant accepts that the company filed false GST returns, prepared and signed by him, but says that there was no intention to evade GST as he always intended to rectify the position with the IRD at some future point. But even if this account were to be accepted as credible or possibly credible (which on the facts must be very unlikely), it would not constitute a defence to the charges. Given a taxpayer’s obligations in this context (see R v Gilchrist [2007] 1 NZLR 499 (SC), especially at [9] and [15] – [20]) we consider that the company and the appellant would have had the necessary intention even on the appellant’s version of events. This was not a case of error or oversight in the completion of a return. Rather, at the appellant’s instigation, the company’s income was deliberately under-stated in its returns so that the company did not have to meet its GST obligations as they fell due. There was an intentional avoidance of payment in circumstances where the company knew it was under an obligation to pay. This constitutes an intent to evade - see Wilson v Chambers and Co Pty Ltd (1926) 38 CLR
131, especially at 141 – 142 per Isaac J, and Taylor v Attorney-General
[1963] NZLR 261 at 262 (SC). [Emphasis added].
I accept the submission by the Crown that where the accused knew they were deliberately understating their income in the relevant tax returns (as I have found), then the “only available inference” is that they intended to evade the assessment or payment of tax.
G. CONCLUSION AND SUMMARY OF REASONS
[458] It is for these reasons that I have returned the verdicts set out above. [459] I now summarise my reasons briefly.
68 Babbington v CIR (No 2) [1958] NZLR 152 (HC).
69 At p 156.
70 Abraham v District Court at Auckland [2007] NZCA 598.
71 At [39(b)].
Dishonest use charges
[460] The accused were charged with 89 counts of dishonest use of a document to obtain a pecuniary advantage. I have convicted the accused Barrie Skinner of 80 of those charges and acquitted him of nine. I have convicted David Rowley of 75 of those charges, and acquitted him of 14.
[461] I am satisfied beyond reasonable doubt that, beginning in September 2005, the accused together devised (in conjunction with the co-accused Shaan Stevens) a scheme to invoice clients for services (generally “planning”, “consultancy” or “subcontracting” services) – or in rare instances goods – where there was no underlying supply at all (or in rare instances a supply, but nothing like the face value of the invoice). This scheme was sold to willing and in many (but not all cases) credulous clients of the accused’s accounting and tax planning practice as a means of reducing the amount of tax payable by them. Various explanations for the transactions were offered. The purchase of “tax losses”, for instance. None of those explanations were true. The scheme worked by repaying to clients approximately two-thirds of the face value of the invoices (or payments made in the absence of invoices). But in exchange for that net one-third cost, the clients could claim income tax deductions and GST input credits. The scheme did not work from the clients’ perspective unless they did so. The payments were then accounted for as expenditure in the clients’ financial statements (most of which were prepared by the accused’s accounting practice). A tax deduction followed. The result was a reduction in assessable income returned in the clients’ income tax returns. GST input credits were also claimed, as intended. Various invoicing entities were used. The accused in evidence sought to distance themselves from those entities. They sought to place them instead under the control of Ms Madondo (a Zimbabwean citizen, who lived in New Zealand until December 2007) and another client of theirs, Mr Peter Uren. I find that at all times all the invoicing entities were under the direct control of the accused.
[462] When the scheme started to unravel, new explanations for the transactions were offered. Instead of the services described in the invoices, it seemed clients had instead acquired various real property interests (carpark licences and apartments in
the Wellington CBD) or other contractual obligations necessitating payments. This came as news to all but two clients. The evidence of those two on that aspect I find unreliable. None of these agreements had been signed (apart from one, and I find that occurred in late 2010 after the Revenue investigation was in full swing). I find the new explanations have no foundation in fact. Most notably, the accused tendered in evidence a portable computer hard drive which seemed to show that the property agreements had indeed been created at about their apparent dates. Forensic evidence tendered by the Crown however showed convincingly that the time stamps in the metadata on the portable hard drive had been altered in the period between 24 and 27
April 2012. That is, in the days immediately prior to the commencement of the trial.
Perversion of course of justice verdicts
[463] The accused were each charged jointly with seven counts of wilfully attempting to pervert the course of justice. I have convicted each accused on each and every such charge.
[464] The invoicing scheme began to unravel towards the end of 2009. On
12 April 2010 the Revenue raided the accused’s offices. Twelve Revenue officers attended. A room-by-room search of the offices was conducted. It took 12 hours. Material was seized. Computers were forensically imaged. Such action against a registered tax agency was remarkable. At that point the accused, fully cognisant of their fraudulent conduct, could have been in no doubt that the Revenue investigations might result in charges against them (or their clients). The accused then generated the property transactions and other contract documents, and other correspondence, to suggest a genuine basis for the payments – albeit in terms unrelated to the invoices (which mention no such transactions. Those invoices of course could not be altered once they were in the hands of the client.) The accused then jointly set about seeking to persuade certain clients to justify or explain the payments in those new terms, when interviewed by the Revenue. By this time the clients had been summonsed to compulsory interviews with the Revenue under s 19 of the TAA. Unknown to the accused, one of the clients – a former police officer – made a recording of the meeting he had with Mr Skinner before his s 19 interview on
his iPhone. That recording was played to the Court and showed Mr Skinner counselling the client to give explanations to the Revenue which are irreconcilable with proven facts.
[465] Contrary to plan, most clients told the truth to the Revenue when interviewed. Those that did not made unconvincing liars. One at least confirmed the true position following the interview. Most clients submitted voluntary disclosures to the Revenue, seeking reversal of the deductions and GST input credits hitherto claimed. The accused encouraged them in that course, on the basis that it reduced the level of penalties clients were potentially exposed to.
[466] I am satisfied beyond reasonable doubt in each case that the accused supplied false information (explanations and documents) to their clients with the purpose of deflecting the Revenue from adducing evidence of the true facts regarding those clients’ tax affairs and thereby avoiding criminal prosecution.
False information charges
[467] The accused are charged individually with five counts each of knowingly providing false information to the Commissioner of Inland Revenue in their 2006 to
2010 income tax returns.
[468] As I have just explained in the reasons above, the invoice-writing and payment scheme in respect of which convictions were entered on counts 1 to 93 was a fraud on the Revenue. The proceeds of that fraud, received into the possession and control of the accused form part of their gross income and were required to be declared. They were not so declared. Their personal tax returns were understated. I am satisfied beyond reasonable doubt that the Crown has established that the accused knew that to be the case, and that the accused intended to evade the assessment or payment of tax.
An appreciation
[469] I conclude by thanking counsel. I do not intend to diminish the fine work done by junior counsel if I single out the two leaders. Sadly Mr La Hood, who led for the prosecution, lost his father on the third day of the trial. He returned as soon as he could. His exacting cross-examination of the accused sealed the result in this case. Mr Lennard, although he had past acquaintance with the case, was re-retained for the defence only shortly before trial began. All that could sensibly be said for the accused has been said. The Crown case has been tested vigorously and intelligently.
I repeat my appreciation to all counsel for their assistance during this lengthy trial.
Solicitors:
Crown Solicitor, Wellington
Macalister Mazengarb, Wellington for Accused
Stephen Kós J
R v Rowley & Skinner
Schedule of Verdicts
Counts Client Mr Rowley Mr Skinner Paragraph
Dishonest
use charges
1 Kathy Ertel
2 Kathy Ertel
3 Jamie Wilson
4 Jamie Wilson
5 Harding Electricial Ltd
6 Harding Electricial Ltd
7 Harding Electricial Ltd
8 Harding Electricial Ltd
9 Harding Electricial Ltd
10 Harding Electricial Ltd
11 Harding Electricial Ltd
12 Harding Electricial Ltd
14 Esk Contractors Ltd
15 Esk Contractors Ltd
16 Esk Contractors Ltd
17 Esk Contractors Ltd18 Esk Contractors Ltd
19 Esk Contractors Ltd
20 Esk Group Ltd
21 Esk Group Ltd
22 Esk Group Ltd23 Esk Group Ltd
24 Esk Group Ltd
25 Esk Group Ltd
26 Esk Group Ltd
27 Esk Group Ltd
28 Esk Group Ltd29 Esk Group Ltd
30 Country Theme Franchise Ltd
31 Country Theme Franchise Ltd
32 Country Theme Franchise Ltd33 Pipitea Street Developments Ltd
34 Pipitea Street Developments Ltd
35 Lorraine Skiffington
36 Lorraine Skiffington
37 Lorraine Skiffington38 Lorraine Skiffington
39 Leyser Enterprises Ltd
40 Leyser Enterprises Ltd
41 Sharpay Holdings Ltd
42 Sharpay Holdings Ltd
43 Nigel Hall Decorators Ltd44 Nigel Hall Decorators Ltd
45 Nigel Hall Decorators Ltd
49 Topline Tailors Ltd
50 Topline Tailors Ltd
Guilty Guilty Guilty Guilty Guilty Guilty Guilty Guilty Guilty Guilty
Guilty Guilty Guilty Guilty Guilty
Not Guilty Guilty Guilty Guilty
Guilty Guilty Guilty Guilty Guilty Guilty Guilty Guilty Guilty Guilty
Guilty Guilty Guilty Guilty Guilty Guilty Guilty Guilty Guilty Guilty
Guilty
Guilty
Not Guilty
Guilty
Not Guilty Not Guilty Not Guilty
Guilty Guilty Guilty Guilty Guilty Guilty Guilty Guilty Guilty Guilty
Guilty Guilty Guilty Guilty Guilty
Not Guilty Guilty Guilty Guilty
Guilty Guilty Guilty Guilty Guilty Guilty Guilty Guilty Guilty Guilty
Guilty Guilty Guilty Guilty Guilty Guilty Guilty Guilty Guilty Guilty
Guilty
Guilty
Not Guilty
Guilty
Not Guilty Not Guilty Not Guilty
[52] [52] [89] [89] [104] [104] [104] [104] [104] [104]
[104] [104] [152] [152] [152] [152] [152] [152] [152]
[152] [152] [152] [152] [152] [152] [152] [152] [152] [134]
[134] [134] [180] [180] [180] [180] [180] [180] [222] [222]
[234] [234] [252] [252] [252] [270] [270]
Counts
51
52
53
54
55
56
5758
59
60
61
6263
64
65
66
67
6869
70
71
7273
74
75
76
7778
79
80
81
82
8384
85
86
87
8889
90
91
92
93
Client
Topline Tailors Ltd Topline Tailors Ltd AAA Finance Ltd AAA Finance Ltd AAA Finance Ltd SS Transport Ltd
SS Transport Ltd Vicki Breen Vicki Breen Vicki Breen
Vicki Breen
MQ Property Services Ltd Sunshine State Finance Ltd Sunshine State Finance Ltd Sharon Skinner
Sharon Skinner Sharon Skinner Sharon Skinner Sharon Skinner
Scotty’s Construction Ltd
Scotty’s Construction Ltd Scotty’s Construction Ltd Scotty’s Construction Ltd Scotty’s Construction Ltd Mangiare Foods Ltd Mangiare Foods Ltd Mangiare Foods Ltd Steven Godfrey
Steven Godfrey
Steven Godfrey
Strategic Directionz Ltd Strategic Directionz Ltd Strategic Directionz Ltd Strategic Directionz Ltd Quik’n’Tuff Holdings Ltd BRMVR Holdings Ltd BRMVR Holdings Ltd Conaghan Consulting Ltd Conaghan Consulting Ltd Conaghan Consulting Ltd
Kilbirnie Plymouth Investments Ltd
AGI Motor Sport Ltd
AGI Motor Sport Ltd
Mr Rowley
Guilty Guilty Guilty Guilty Guilty Guilty Guilty Guilty Guilty Guilty
Guilty Guilty Guilty Guilty
Not Guilty Not Guilty Not Guilty Not Guilty Not Guilty Guilty
Guilty Guilty Guilty Guilty
Not Guilty Not Guilty Not Guilty Guilty Guilty Guilty
Guilty Guilty Guilty Guilty Guilty Guilty
Not Guilty Guilty Guilty Guilty
Guilty Guilty Guilty
Mr Skinner
Guilty Guilty Guilty Guilty Guilty Guilty Guilty Guilty Guilty Guilty
Guilty Guilty Guilty Guilty Guilty Guilty Guilty Guilty Guilty Guilty
Guilty Guilty Guilty Guilty
Not Guilty Not Guilty Not Guilty Guilty Guilty Guilty
Guilty Guilty Guilty Guilty Guilty Guilty
Not Guilty Guilty Guilty Guilty
Guilty Guilty Guilty
Paragraph
[270] [270] [284] [284] [284] [293] [293] [300] [300] [300]
[300] [307] [284] [284] [211] [211] [211] [211] [211] [317]
[317] [317] [317] [317] [270] [270] [270] [329] [329] [329]
[180] [180] [180] [180] [341] [350] [350] [360] [360] [360]
[374] [382] [382]
Perversion
of course of justice charges
94
95
96
9798
99
100
Aaron Gotlieb Lorraine Skiffington Stefan Sirota
Steven Godfrey Douglas Leyser Scott Feasey Aashish Patel
Guilty Guilty Guilty Guilty Guilty Guilty Guilty
Guilty Guilty Guilty Guilty Guilty Guilty Guilty
[413] [416] [419] [422] [425] [428] [431]
Knowing provision of false information charges
101
102
103
104
105
106
107108
109
110
N/A N/A N/A N/A N/A Guilty Guilty Guilty Guilty Guilty
Guilty Guilty Guilty Guilty Guilty N/A N/A N/A N/A N/A
[447] [447] [447] [447] [447] [447] [447] [447] [447] [447]