The Queen v Gilchrist

[2006] NZCA 221

IN THE COURT OF APPEAL OF NEW ZEALAND

CA29/06

THE QUEEN

v

BRENT JOHN GILCHRIST

Hearing:25 July 2006

Court:O'Regan, Goddard and Gendall JJ

Counsel:C R Carruthers QC and D A Ewen for Appellant

G J Burston and C J Boshier for Crown

Judgment:18 August 2006 at 11 am

JUDGMENT OF THE COURT

The appeal against conviction is dismissed.

REASONS OF THE COURT

(Given by Goddard J)

Introduction

[1]        The appellant was convicted by Judge Mackintosh in the District Court at Wellington on indictment on a charge under the Tax Administration Act 1994:

THE CROWN SOLICITOR AT WELLINGTON CHARGES that BRENT JOHN GILCHRIST on or after 5 August 2003, at Wellington, knowingly did not provide to the Commissioner of Inland Revenue information, being information relating to debtors of e-tax trust, when required to do so pursuant to a Notice to Furnish Information issued on 24 July 2003 under section 17 of the Tax Administration Act 1994, and did so intending to evade the payment of tax by e-tax trust.

[2]        He appellant now appeals against his conviction on two grounds.  The first ground is that the Crown failed to prove that Mr Hutchins, the Senior Investigator who issued the s 17 Notice to Furnish Information on 24 July 2003, was acting under the delegated authority of the Commissioner of Inland Revenue at the time.  The second ground is that Judge Mackintosh erred in law in her interpretation of “evasion” when she found the mental element of the charge proved.  The mental element requiring proof was knowingly failing to provide the required information with the intention of evading the payment of tax owed by E‑Tax Trust.

Background facts

[3]        The background to the charge is well documented. 

[4]        The tax liability in question was for GST arrears owed by E-Tax Trust.  There is no dispute that these arrears were properly assessed and owing.  The Inland Revenue Department had been attempting recovery of the outstanding arrears since April 2002, initially by way of deduction notices issued to the ASB Bank which operated the Trust’s bank accounts.  This method was, however, only partially successful.  In November 2002 the appellant sought to negotiate an instalment arrangement to pay off the arrears, as well as tax arrears owed by other trusts that he was involved with.  He proposed payment of all outstanding GST arrears owed by E‑Tax Trust by 31 March 2003.  In return the Commissioner requested full financial details relating to E-Tax Trust and its trustees, including a list of debtors and the amounts owed to the Trust as at 31 December 2002.  On 23 January 2003 the appellant provided a profit and loss summary and a receivables reconciliation showing the debtors of E-Tax Trust and the amounts outstanding as at 31 December 2002, being $33,157.84.  On 3 March 2003 the Commissioner agreed to payment of E-Tax Trust’s GST arrears being made in full by 31 March 2003.  In the event, however, this arrangement was not honoured.  In April 2003 the Commissioner advised the appellant that if full payment were not made to clear the arrears by 9 April 2003 the Department would proceed to issue third party deduction notices to debtors of E‑Tax.  Deduction notices were subsequently issued to five debtors of E‑Tax Trust on 8 May 2003 and various amounts owing by those debtors were forwarded to the Commissioner in response.  On 9 May 2003 the appellant made a further proposal to resolve payment of the outstanding arrears owed by E-Tax Trust, but his proposal was rejected by the Commissioner on 30 May 2003.  A further settlement offer on 13 June 2003 was also rejected by the Commissioner on 18 June 2003.  On 17 July 2003 the Commissioner issued a second round of deduction notices to debtor clients of E-Tax Trust.  By then the appellant was under considerable financial pressure and involved in a lengthy High Court proceeding.  E Tax Trust was the sole source of income for the him at this time and the cash-flow generated by the business was required to fund his significant monthly expenditure.

[5]        On 23 July 2003 the appellant wrote to an officer of the Department complaining of breaches of “secret information” in the sending of deduction notices to accounting firms that were amongst E-Tax Trust’s clients and threatening injunction proceedings for “continuing offences against the Tax Administration Act and the Privacy Act”.  He copied the letter to Mr Hutchins. 

[6]        On 24 July 2003 Mr Hutchins issued the s 17 Notice to Furnish Information, referring in opening to the appellant’s letter of the previous day, and giving the following response:

The alleged breach of secrecy is denied.  The deduction notices were sent to firms that were known to be regular clients of e-tax trust.  They were selected from the list of debtors that you provided to Inland Revenue in January 2003.

The fact that some of the clients do not currently owe anything to e-tax trust is not relevant as the deduction notice requires them to deduct the outstanding tax from any amount that is, or becomes, payable to e-tax trust.  At the time the deduction notices were issued there was a realistic expectation that the clients owed money to e-tax trust, or would do so in the near future.

[7]        Mr Hutchins then gave notice under s 17 of the Tax Administration Act as follows:

Take notice that pursuant to section 17 of the Tax Administration Act 1994 I require you to furnish in writing an up to date list of all debtors of e-tax trust.  The list should include the full name of the client and the amount owing to e-tax trust as at 28 July 2003.

I point out that failure to comply with this notice may lead to a court order being requested to enforce compliance and/or prosecution action.

….

The information required by this notice, which I consider to be necessary and relevant to the administration or enforcement of the Inland Revenue Acts, must be sent to me at the following address no later than Monday 4^th August 2003.

Corporates Unit
Inland Revenue Department
PO Box 2198
Wellington

If you wish to make other arrangements as to collection please telephone me on [phone].

[8]        The appellant did not, however, seek to make any other arrangement with Mr Hutchins as to collection.  Rather, he queried the lawfulness of Mr Hutchins’ “latest request” but without specifying any reasons for the alleged unlawfulness (inferentially it was the propriety of issuing such a notice whilst High Court proceedings were on foot) and sought Mr Hutchins’ agreement to defer contact with E-Tax Trust’s clients or the enforcement of any related requests “at least until you have considered the effect of not doing so on the High Court case I have referred to”.

[9]        On 25 July 2003 the appellant advised the Department by email that he would be seeking an injunction on action of the request for a debtors’ list.  That email was responded to by Mr Lennard, Director Litigation Management.

[10]     The same day the appellant executed a deed of assignment of the E-Tax Trust debts to E-Tax Trust Ltd for no consideration, signing for both the assignor and the assignee.  The deed included a schedule of E-Tax Trust’s debtors and the amounts outstanding, which totalled $43,600.34.  On the same date the appellant wrote to E‑Tax Trust’s debtors advising them of the assignment of its current and future debtors, asking that any existing automatic payment facilities be cancelled, and stating that the address for cheque payments remained the same and that new bank account details for payment by direct credit would be established the following week. 

[11]     On 1 August 2003 the Commissioner declined to defer action and confirmed that the information sought in the s 17 Notice of 24 July 2003 was required by 4 August 2003. 

[12]     On 4 August 2003 the appellant sent a lengthy email to Mr Hutchins, not disclosing an up-to-date list of debtors and amounts owing as at 28 July, but expressing concern over the Commissioner’s proposal to serve deduction notices on every debtor of E-Tax Trust in relation to work “currently due” and referring to the possible resultant collapse of E-Tax Trust and his likely bankruptcy.  Inter alia he referred to the impossibility of giving the number of clients or accountants who used E-Tax Trust as agents and sought further comments from Mr Hutchins before he said he could comply with the s 17 Notice.  He then posed a list of questions, commencing with an enquiry as to the specific purpose for which the Commissioner required a list of E-Tax Trust’s debtors and ending:

Please consider our comments and respond to our questions 1-8.  We advise that we cannot comply with your latest section 17 notice until we have such a response.  I am attempting to avoid turning our differences into one of a legal dispute over alleged breaches of secrecy and other provisions of TAA but unless we attempt to resolve our differences by negotiation now, you leave little room for anything other than a legal dispute, which will divert significant funds into the pocket of lawyers instead of into payment of our tax arrears.

[13]     Significantly, however, nowhere in his lengthy email did the appellant refer to the assignment of E-Tax Trust’s debtors to E-Tax Trust Ltd which he had effected only four days prior.  On the contrary, his letter deliberately conveyed the impression of on-going negotiation about an existing list of debtors of E-Tax Trust.

[14]     As Judge Mackintosh later recorded, the Commissioner was not advised about the assignment until by chance on 20 August 2003 one of the appellant’s clients telephoned the Inland Revenue Department.  However, the appellant himself did not volunteer any information about the assignment until he was specifically questioned about it at an interview on 24 September 2003.

Did Mr Hutchins have delegated authority?

[15]     During the course of his examination in chief Mr Hutchins was asked to read and produce his letter of 24 July 2003 in which he gave notice to the appellant under s 17 of the Act requiring him to furnish an up-to-date list of all debtors of E-Tax Trust and the amount owing as at 28 July 2003.  Having read and produced the letter as an exhibit, Mr Hutchins was then immediately asked the following by Mr Burston:

QDo you have authority to require information under section 17 of the Tax Administration Act 1994 from persons?

A        Yes, I do.

Q        And the authority comes from?

AIt’s delegated by the Commissioner under section – I think Section 7 of the Tax Administration Act the Commissioner has authority to delegate his powers.

QAnd do you have a warrant of authority to exercise the powers granted under section 17 of the Tax Administration Act?

AYes, I do.

QDo you have that warrant with you?

AI do, yes.

[16]     Mr Hutchins then produced a copy of his warrant of delegated authority from the Commissioner showing an expiry date of 24 April 2008. 

[17]     At the conclusion of the prosecution case Mr Ewen applied for the discharge of the appellant pursuant to s 347 Crimes Act 1961 on the grounds that the prosecution had not proved beyond reasonable doubt that on 24 July 2003 Mr Hutchins had delegated authority to issue a s 17 Notice requiring a list of debtors to be provided. 

[18]     Proceeding on the premise that proof beyond reasonable doubt of such authority was the appropriate standard, the Judge turned to analyse the available evidence.  She noted that Mr Hutchins had not expressly referred to his authorisation in the letter of 24 July 2003 but was satisfied that authorisation did not depend on what was written in the letter because relevant authorisation was capable of proof at trial, a matter accepted by Mr Ewen.

[19]     A subsequent letter written by Mr Hutchins on 6 October 2003 was pointed to by Mr Ewen, in which express reference to Mr Hutchins’ delegated authority was made in the following terms:

Take notice therefore that I, Bruce Malcolm Hutchins, Senior Investigator, being duly authorised by the Commissioner of Inland Revenue pursuant to section 7 of the Tax Administration Act 1994, require you pursuant to section 17 of that Act to furnish in writing the information sought below and to produce for inspection the following books and documents which I consider necessary and relevant for the purposes of administering and enforcing the Inland Revenue Acts

[20]     Mr Ewen submitted that the absence of such express reference from the 24 July letter coupled with the fact that the 6 October 2003 notice was complied with lent force to the argument that the 6 October letter was lawful and the 24 July letter was not.  However, Judge Mackintosh noted that the 6 October letter had not produced compliance with the request for a debtors’ list any more than the 24 July letter had.  She determined that nothing turned on the added detail in the 6 October 2003 letter and that what was relevant was Mr Hutchins affirming that he had authority to require information under s 17 of the Act immediately after producing the letter of 24 July 2003 and before producing his warrant of authority. 

[21]     Drawing the reasonable inference from the facts that were proved and absent any specified or mandatory requirement for a written statement of authority, Judge Mackintosh found that Mr Hutchins had the power to issue the s 17 Notice on 24 July 2003.  Her reasoning was as follows:

[6]       ….  In my view, when I consider the reading of the actual request, which was the letter dated 24 July 2003, the fact that Mr Burston’s questioning, in my view, was directly related to that request specifically, the fact that he then produced a valid warrant and the fact that it is a subsisting warrant and furthermore, in my view, it is relevant that as soon as 6 October there is evidence where he was purporting to act pursuant to the delegated authority, it is a reasonable inference to draw from the circumstances that on 24 July 2003 when he issued the notice he had the requisite delegated authority to do so.  As I say, those facts in my view are sufficient to prove the matter to the required standard.

[22]     She carried this reasoning forward into her substantive judgment, adopting the same standard of proof and confirming her conclusion.

[23]     On appeal the challenge was directed to the propriety of relying on inference as to the existence of authority and as to whether it were open for the Judge to have determined such an issue on a s 347 application.  The submission was that as the issue raised a distinct line of defence it needed to be addressed in the substantive judgment and that the Judge had failed to do this.  Thus, it was argued, a critical element of the charge had not been properly proved.

[24]     We find no substance in this challenge.  The existence of authority is a question of fact and the absence of a formal statement of delegated authority in the 24 July 2003 letter was of no consequence, as Judge Mackintosh correctly found.  The letter purported to be written by an officer of the Department with duly delegated authority, as is clear from both its tone and content.  Section 7(3) of the Act provides for the delegation of powers by the Commissioner to be presumed in the absence of proof to the contrary.  The powers of the Commissioner may be delegated generally to classes of officers as well as particularly to specific officers, and all or any of the Commissioner’s powers may be delegated except the power of delegation.  Within that broad statutory context Mr Hutchins’ omission to expressly refer to his delegated powers in the letter of 24 July was not fatal.  His authority was to be presumed from a reading of the letter.  Furthermore the specifics of any challenge to the lawfulness of the letter were never articulated by the appellant, at the time or in argument on appeal, save to bluntly question whether the delegation was in force at the time the letter was written.  The issue was amply resolved by the Judge in the drawing of reasonable inferences from facts that were proved in evidence before her.

[25]     The Judge was not required to re-traverse the detail of her finding in her substantive judgment.  In some instances, that would be required because of the difference between the test being applied in the s 347 context (case to answer) and that being applied in the context of a determination of guilt or innocence (beyond reasonable doubt).  But in this case, the decision reached by the Judge in the s 347 ruling was that the Crown had proved that Mr Hutchins had the necessary authority, and on a fair reading of her ruling it is clear that she was applying the beyond reasonable doubt standard even though it was not strictly necessary to do so at that stage.  There was therefore nothing more to be discussed in the substantive judgment.  In those circumstances, it was sufficient.

Intent to evade

[26]     Under this head the appellant challenged the standard applied by the Judge in determining intent to evade and also challenged the verdict as insupportable because on the date of the offence (4 October 2003) there was no information to provide. 

[27]     The submission was made that to establish that the appellant had knowingly failed to provide required information with the intention of evading the payment of tax owed by E-Tax Trust required proof of a dishonest or fraudulent intent as defined in R v Firth [1998] 1 NZLR 513 at 519 (CA):

(2)     "Fraudulently" and "with intent to defraud" have the same meaning. The basic notion of dishonesty is common to both.

(3)     As to the element of intent to defraud, the prosecution must prove that the defendant acted deliberately and with knowledge that he was acting in breach of his legal obligation.  ...

[28]     Reference was also made to the following statement of the Privy Council in Challenge Corporation Ltd v CIR [1986] 2 NZLR 513 at 561:

Evasion occurs when the Commissioner is not informed of all the facts relevant to an assessment of tax.  Innocent evasion may lead to a re-assessment.  Fraudulent evasion may lead to a criminal prosecution as well as re-assessment.

[29]     Judge Mackintosh referred to the decision in Challenge Corporation but distinguished it on the facts as a case relating to the assessment of tax and focused on the differentiation between fraudulent and innocent evasion.  The Judge declined to take up Mr Ewen’s invitation to substitute the words “assessment of tax” in Challenge Corporation with the words “payment of tax” for the purposes of the appellant’s case, because, she said, “the circumstances surrounding the actual payment of an undisputed tax debt owed, are quite different from a situation involving the initial assessment of tax and conduct relating to that”.  The Judge preferred to approach determination of the question of evasion in the appellant’s case by reference to the guidance provided by McGregor J in Taylor v Attorney-General [1963] NZLR 261. In a useful discussion at 262, McGregor J traversed various authorities in which the meaning of the word “evade” in fact situations similar to the present had been considered:

In the first place, in my opinion, one must consider what is meant by the term "evasion" used in s. 231 of the Act. The word "evade" may be used in different meanings. In Simms v Registrar of Probates [1900] A.C. 323 the Privy Council considered a similar revenue section "with intent to evade the payment of duty hereunder". Lord Hobhouse (ibid., 334) refers to the two contrasting meanings, "one which suggests underhand dealing and another which means nothing more than the intentional avoidance of something disagreeable". The meaning, however, which to my mind is most consonant with the intention of the Legislature is that adopted in the High Court of Australia in Wilson v Chambers Proprietary Ltd. (1926) 38 C.L.R. 131. In dealing with a section of the Customs Act "No person shall evade payment of any duty which is payable" Higgins J. (ibid., 148) expresses the view "To say the least 'evade' would seem to connote the exercise of will in avoiding; whereas a mere failure to pay may be by accident or mistake". Starke J. adverts to the intentional avoidance of payment and says: "Clearly, in my opinion, the word 'evade' in the Act does not necessarily involve any device or underhand dealing for the purpose of escaping duty; but on the other hand it involves something more than a mere omission or neglect to pay the duty. It involves, in my opinion, the intentional avoidance of payment in circumstances indicating to the party that he is or may be under some obligation to pay duty. The circumstances may consist of knowledge, or neglect of available means of knowledge, that the omission to pay is or may be in contravention of the Customs law" (ibid., 151).

In my view the word "evade" associated with the expressions "attempts to evade" or "does any act with intent to evade" includes an element of intent, an intention to endeavour to avoid payment of tax known to be chargeable. This also seems to be in conformity with the view of Knox C.J. in the same case, when he says: "The distinction in meaning between the words 'evade' and 'avoid' is well established, and a charge of evading payment is not made out by evidence which proves no more than that the person charged failed or omitted to pay an amount payable by him" (ibid., 136).

[30]     Applying the above guidance to the issue of evasion in the circumstances of the appellant’s case, Judge Mackintosh found little difficulty in determining that the assignment of the E-Tax Trust’s debt to the newly formed E-Tax Trust Ltd following receipt of Mr Hutchins’ letter of 24 July 2003 (and before the deadline for answering that letter) was a deliberate manoeuvre to frustrate the Commissioner’s ability to collect the tax arrears that were indisputably owing.  Given the background history of tax arrears, deduction notices and failed negotiations up to that point, the conclusion Judge Mackintosh reached was unavoidable.  As she said, “knowing that the Inland Revenue Department were in recovery mode when they sent that notice on 24 July 2003, he then set about putting in place an alternative structure that would ultimately frustrate any ability of the Inland Revenue Department to collect money that was due and owing”.  The Judge found it of particular relevance that the only asset of E-Tax Trust at that time from which the GST arrears could be paid was the $40,000-worth of debtors.  She said: “He ensured that that debt was moved from the E-Tax Trust into the new entity and into a situation where the funds would no longer be available for deduction, effectively the funds being removed and concealed”.

[31]     The threshold of “underhand dealing” adopted by Judge Mackintosh in reaching her conclusion was an appropriately high threshold.  It is impossible to take issue with her view that the appellant had acted in an underhand manner, and indeed there is no other inference that could be drawn from the history of the correspondence between him and the Department and from his actions following receipt of Mr Hutchins’ letter of 24 July 2003. 

[32]     We see no error in the Judge’s approach, it being clear in the words of McGregor J that the appellant had intentionally endeavoured to avoid payment of a tax he knew to be chargeable.  The fact that the tax remained collectable by other means does not alter the finding that the appellant put the only monies that were available out of the reach of the Commissioner for the purpose of avoiding the Commissioner collecting them in payment of tax the appellant knew to be chargeable.

[33]     The remaining aspect of this ground of appeal can be shortly disposed of.  The submission was made that by 4 October 2003 (the deadline by which the list of E-Tax Trust’s debtors was to be provided) there was no such information to give, the debts having all been assigned to E-Tax Trust Ltd on 31 July 2003.  Judge Mackintosh dealt with this argument succinctly in her judgment when she found:

[46]     ….  I reject any suggestion that because he entered into a deed of assignment, assigning debts on 31 July 2003, that that extinguishes any obligation he may have had to comply with the notice requiring information as at 28 July 2003.  Nor is it correct to say that he complied with the request after, at a meeting, orally, by saying there were no debtors because that is simply not true because as at 28 July 2003 there were debtors.  I am quite satisfied he knew that he had to furnish that information by acknowledging the request on 31 July… by email and then advising on 4 August… that he could not comply with the latest s 17 notice until he had received a response.

[34]     As Judge Mackintosh pointed out, the difficulty with the appellant’s submission in this regard is that the required information existed as at 28 July 2003 and that was the operative date in respect of which he was required to furnish the information.  He failed to do so on 4 October 2003 with the clear intent of concealing his subsequent removal of those debtors from the Commissioner’s reach.

Conclusion

[35]     Both grounds of appeal fail and the appeal is dismissed.

Solicitors:
Crown Law Office, Wellington