The Queen v Adams

[2006] NZCA 65

IN THE COURT OF APPEAL OF NEW ZEALAND

CA313/05

THE QUEEN

v

DAVID CHARLES ADAMS

Hearing:4 April 2006

Court:O'Regan, John Hansen and Harrison JJ

Counsel:J N Bioletti for Appellant

L L Stevens QC and A M Killeen for Crown

Judgment:12 April 2006 

JUDGMENT OF THE COURT

THE APPEALS AGAINST CONVICTION AND SENTENCE ARE BOTH DISMISSED.

____________________________________________________________________

REASONS

(Given by Harrison J)

[1]       On 23 May 2005 in the District Court at Auckland a jury found Mr David Adams guilty following trial of 11 charges of fraudulently using a document, namely a Goods and Services Tax return, for the purposes of obtaining a pecuniary advantage (s 229A(b) of the Crimes Act 1961).

[2]       On 22 July 2005 the trial Judge, Judge Michael Hobbs, convicted and sentenced Mr Adams to concurrent terms of three years nine months imprisonment on all charges.

[3]       Mr Adams has appealed against both his conviction and sentence.  His counsel, Mr Jeremy Bioletti, who did not appear for him earlier, argues that he should not have been found guilty because he had an absolute defence which was not advanced at trial.  Mr Bioletti does not challenge the jury’s findings of fraud or allege an error by the trial Judge or by Mr Adams’ trial counsel in conducting his defence.  

Background

[4]       Mr Adams is an accountant who devised a complex scheme to defraud the Department of Inland Revenue.  It is only necessary for these purposes to outline some of its features.

[5]       In 2001 Mr Adams incorporated Champion People Ltd in New Plymouth.  Its sole shareholder was a trust of which two of Mr Adams’ acquaintances were trustees.  He effectively controlled all Champion’s commercial activities.  It was established to operate a scheme designed to enable participating clients or businesses to reduce their ACC levies by at least 60%.  This activity was its sole source of income.  Its legality is not in issue.

[6]       Champion was registered for GST purposes.  The company collected GST on all accounts to its clients or customers.  Its invoices charged monthly for “Cost of Labour” and conventionally added a GST component at 12.5% (in fact GST was the only amount physically collected by Champion; its customers paid accounts for services directly to the company’s employees). 

[7]       Champion filed monthly GST returns with the Revenue.  The first part or section correctly aggregated total sales and income for the relevant period (including GST).  However, the second part was the vehicle for Mr Adams’ fraud.  That section aggregated total purchases and expenses including GST during the same period and adjusted GST liability depending upon whether expenses were below or exceeded sales.  This section always included a false figure representing bogus insurance premiums charged by another company which Mr Adams also controlled.  Its sole commercial activity was to generate fictitious invoices to Champion.  All invoices contained a GST charge.

[8]       Mr Adams signed each return with the declaration that:

… the information given in this return is true and correct.

[9]       The total GST component of Champion’s sales and income for the 11 month period from 1 February 2001 to 31 December 2001 was $774,519.  The total of the same component for purchases and invoices was $693,209.  Mr Adams was able both to secure a setoff against Champion’s GST liability to account to the Revenue equal to the latter amount and also avoid accounting to it for almost all of the GST collected by the company. 

[10]     The Crown laid 11 charges; one for each monthly GST return.  Each charge nominated the returns as the document capable of being used to obtain a pecuniary advantage.  The jury found Mr Adams guilty on all charges of using them for that purpose. 

Appeal

[11]     Mr Bioletti’s submission fell within a narrow legal compass.  He argued that Champion’s GST returns were not documents capable of being used to obtain a pecuniary advantage because the company was not carrying on a taxable activity within the meaning of s 6 of the Goods and Services Tax Act 1985.  He accepted that if the receipts were legally GST money then Champion had a legal obligation to pay it to the IRD and the dishonest creation and inclusion of those expenses in a GST return would be the fraudulent obtaining of a pecuniary advantage. 

[12]     However, Mr Bioletti argued that if the money collected was not GST because Champion was not conducting a taxable activity, then Mr Adams’ dishonest creation of expenses would have no legal effect unless they were inflated above sales resulting in the Revenue sending a GST refund, which had not happened here; if the GST charges collected were not tax they would be repayable to Champion’s clients without an obligation to return them to the IRD.  Accordingly, Mr Adams could not obtain a pecuniary advantage from the GST returns as there was no liability to the Revenue. 

[13]     Mr Bioletti further submitted that Mr Adams could not be criminally liable for defrauding the Revenue unless the Crown established he illegally collected tax as its agent and failed to account; it is insufficient that Mr Adams believed he was collecting GST when a possibility remains that his belief was mistaken.  Implicit in the jury’s verdict, Mr Bioletti said, is a finding that Mr Adams did collect GST.  In his submission the trial Judge should have determined this legal issue before the case went to the jury.  As he did not, Mr Adams’ convictions should be quashed and a retrial ordered.

Decision

[14]     There is a short answer to the legal question of whether Champion’s GST returns were documents capable of being used to obtain a pecuniary advantage.  Each return contained Mr Adams’ false statement or representation that the company had incurred lawful expenses through payments to creditors.  The statements and Mr Adams’ consequential assessment of Champion’s GST liability were made dishonestly and with the intent of defrauding the IRD.  His purpose was to obtain a GST credit in an amount quantified within the return.  He used them to obtain a pecuniary advantage equal to the sum of the false credit (R v Smith [2002] 1 All ER 366 per Lord Rodger at paras 18-26).

[15]     This brief summary demonstrates the fallacy of an argument that a document which was successfully used to obtain a pecuniary advantage was incapable of such use; the fact of its use must be conclusive evidence of its capability. 

[16]     It is unnecessary to look outside of or behind the GST return to determine its capability.  Each document was whole or entire and its submission to and acceptance by the Revenue was not conditional upon provision of any extra material.  Once completed, the return became capable of being used.  Once submitted, the company obtained the consequential pecuniary advantage of the claimed GST credit.

[17]     Mr Bioletti attempted to found his argument upon the contents of a notice of proposed adjustment issued by the Revenue on 22 April 2002.  The notice included the author’s view that Champion’s GST invoices were legally invalid as the company did not charge a fee (as noted, recipients paid its employees directly) and thus there was no consideration passing.  However, this retrospective opinion was not material to the legal status and effect of returns already completed and submitted by Mr Adams throughout 2001.

[18]     Nevertheless, assuming for the purposes of argument only that Champion was not carrying on a taxable activity under the GST Act in 2001, the return’s legal character was not changed by the existence of an incorrect statement of sales or income.  The return was a self contained assessment of net GST liability based upon receipts and expenses.  Whether or not Champion was ever lawfully entitled to charge GST on receipts was immaterial to the return’s status as the company’s representation of a financial position upon which it intended the IRD to act. 

[19]     The point can be illustrated in this way.  Champion’s first return recorded sales and income of $3024 on which GST was calculated at $336.  However, if Mr Bioletti is correct, it should be excised from the equation and treated as non-existent.  The same return quantified purchases and expenses of $2873, on which GST was calculated at $319.  Champion’s submission of a return with a nil balance for receipts and a GST input credit of $319 would have enabled it to claim an actual refund instead of the credit.  This was the amount of Champion’s pecuniary advantage obtained on its first return.

[20]     Assuming that Mr Bioletti is correct, the GST return remained capable of being used to obtain a pecuniary advantage.  The only difference is that the advantage actually obtainable by Champion without any taxable receipts would have been in the nature of a cash refund instead of a credit.  (An analysis of the 11 returns discloses that Mr Adams was careful to ensure that sales exceeded purchases, albeit by small amounts (total output GST of $774,519 was returned against input GST of $693,209).  As a result, Champion always claimed an offsetting benefit rather than a refund cheque from the IRD which may have aroused suspicions.)

[21]     Significantly, also, Mr Bioletti did not lead any evidence on appeal about Mr Adams’ failure to raise this argument at trial.  He did not provide an affidavit either from Mr Adams or his former counsel.  He was careful to disclaim any criticism of the trial Judge or trial counsel.  He did not explain the constitutional consequences of acceptance of his argument.  He simply submitted that the convictions should be quashed and a retrial ordered.  We would not grant an application of that nature without a carefully reasoned argument in support. 

[22]     In any event, the filing of the GST returns and the assessment which followed them created a liability to account to the IRD for the amount of input tax collected by Champion, as set out in the returns and the assessment.  Mr Adams cannot now say the liability does not exist because of a potential argument which has never been made to the Commissioner of Inland Revenue and in the absence of a challenge to the assessment by Champion.

[23]     For these reasons we dismiss Mr Adams’ appeal against conviction. 

Sentence

[24]     Mr Bioletti submitted that the starting point adopted by Judge Hobbs of four years imprisonment was too high.  It was not a case, he said, of continuing theft to support an extravagant lifestyle; Mr Adams’ criminality had more in common with a situation where fraud is committed simply to fund a person’s lifestyle; his motivation for evading payment of GST money was to use the funds to establish a business.  Mr Bioletti sought to minimise the nature of Mr Adams’ dishonesty by characterising it as ‘holding on to that money [GST]’ rather than actually obtaining the funds dishonestly from Champion’s clients.  He submitted that a term of three years imprisonment would have been more appropriate than the sentence of three years nine months imposed.

[25]     We agree with Mr Lyn Stevens QC for the Crown that the Judge’s starting point of four years was appropriate.  The Judge identified a number of aggravating features relating to the culpability of Mr Adams’ offending including his perpetration of a complex series of frauds; the degree of his premeditation in designing the scheme; the fraudulent benefit obtained of $693,209; and the increasing prevalence of crimes of this kind against the IRD.  As the Judge also noted, Mr Adams’ counsel agreed that four years was the appropriate starting point.

[26]     Within this exercise the Judge considered relevant authorities from this Court, the High Court and the District Court.  He adopted the principle that serious fraud always justifies a significant term of imprisonment.  He had the benefit of knowledge of its severity from conducting the trial.  He relied on the authority of R v Marsters (13 May 2005, CRI-2002-092-030868, HC Auckland, Simon France J), emphasising that defrauding the Revenue is not a victimless crime but a criminal activity which ultimately affects the whole of society and requires a sentence combining accountability and denunciation.  We respectfully endorse his observation that:

… slavish adherence to previous cases and sentences can sometimes lead Judges into error because they have adopted a mechanical and mathematical approach to sentencing which, in my view, is nearly always inappropriate.

[27]     In our view the Judge’s adoption of a four year starting point for the circumstances of these crimes cannot be challenged.  He was unable to identify any mitigating factors except for Mr Adams’ previous good character.  He assessed it as having little weight, allowing for a reduction of three months.  The Judge’s approach was not wrong in principle and nor was the end sentence of three years nine months manifestly excessive.

[28]     Accordingly, we dismiss Mr Adams’ appeal against sentence.

Solicitors:

Crown Law Office, Wellington