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Tax conviction appeal dismissed

December 15, 2016

Although this is a technical article, the issues relating to PAYE payments not made are taken very seriously by IRD as these payments are held ‘in trust’ by you on behalf of IRD and should not be used by you (for anything) and paid directly to IRD on time.

In our experience, payment arrangements for overdue PAYE are not usually successful.

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Venay Nair

The Court of Appeal has dismissed Christchurch property developer David Henderson’s appeal against conviction for tax offences.

The facts

Mr Henderson was the sole director of Dweller Ltd (Dweller), a company that ran hotel accommodation. Dweller agreed to take on staff of a related company in receivership. Dweller became registered for PAYE. Dweller had limited direct sources of income. It paid expenses including PAYE for March 2010, sourced from Sol Management Ltd, another company controlled by Mr Henderson. Dweller filed PAYE returns and monthly schedules to Inland Revenue (IR) from April 2010 onward but substantial amounts of PAYE remained unpaid. IR advised Mr Henderson that PAYE was overdue for April and May. Mr Henderson’s proposal to settle the debt by weekly payments was rejected. On 11 August 2010, IR served a statutory demand on Dweller for payment of outstanding PAYE. Some arrears were recovered by a deduction notice issued on Dweller’s bank account. In response, Dweller stopped using its bank account to pay wages as they would be diverted to IR pursuant to the deduction notice. Dweller paid its staff wages direct from Sol Management’s account. In July and August, Mr Henderson directed Dweller’s payroll operator to pay amounts due to Dweller’s creditors other than IR. Dweller did not pay PAYE on its employees’ wages to IR for the months of April–October 2010.

A Judge-alone trial before Judge MacAskill in the Christchurch District Court commenced on 10 November 2014. Mr Henderson was self-represented in the first phase, represented in the second phase, and self-represented again in the third phase.

There were a number of pre-trial matters. Mr Henderson applied for a discharge under s 347 of the Crimes Act 1961 on the ground that he could not be convicted because charges were not being pursued against Dweller. The Judge declined that application because there was no need for Dweller to be convicted to pursue secondary liability. During phase 1 of the trial, Mr Henderson applied a second time for a s 347 discharge. He argued that he could not be convicted because the indictment alleged he committed an offence on the 21st day of the relevant months but the actual date of any offending was the 20th of the month. The Judge declined the s 347 application. An adjournment was granted to enable Mr Henderson to cross-examine Crown witnesses and adduce evidence.

Phase 2 of the trial commenced in May 2015. Mr Butler was now Mr Henderson’s counsel. The prosecution contended that Mr Henderson made decisions as to which creditors of Dweller would be paid (the creditor preference theory). The prosecution expanded on this by stating that it could rely on Mr Henderson’s acts as director of Dweller to establish both commission of the offence by Dweller and secondary liability by Mr Henderson. The Judge amended the indictment in response to Mr Butler’s submission on dates in the indictment. Mr Butler sought an adjournment to review the Judge’s reasons for amending the indictment. Although the Judge initially refused an adjournment, he subsequently relented and granted a second adjournment. The Judge issued a minute on 8 May 2015 giving written reasons for amending the indictment, commenting on Mr Butler’s opposition to the Judge considering the case on the “heart and mind” theory rather than the “creditor preference” theory, and explaining why he had adjourned the trial once again.

The trial was adjourned to recommence in June 2015 but did not resume in June due to ongoing issues. In a minute dated 29 June, the Judge again noted his provisional view that the Crown case was not confined to a “creditor preference” theory and that he could approach secondary liability on a broader basis. The Judge also dealt in his minute with an application that he recuse himself, holding that nothing he had said would trouble a fair-minded and informed lay observer to suggest he had predetermined the matter. The trial was again adjourned.

The trial entered its final phase on 14 September 2015. Mr Henderson was convicted on seven counts of aiding and abetting Dweller to knowingly apply deemed PAYE deductions for purposes other than payment to IR.

Mr Henderson appealed to the Court of Appeal on the sole ground that Judge MacAskill had acted with apparent bias at the trial, giving rise to an unfair trial.

Mr Henderson’s submission on appeal was that observations made by the Judge during the course of the trial would, taken as a whole, indicate to a fair-minded lay observer that the Judge had predetermined guilt.

The Crown submitted that read in context, the observations did not make out apparent bias. In particular, the Judge had adjourned the trial three times solely to give Mr Henderson an opportunity to refine his defence and thereby bent over backwards to be fair to him. A Judge who had predetermined guilt would not have done that.

The Court of Appeal’s decision

The Court of Appeal dismissed the appeal against conviction and found as follows:

1. A reasonable lay observer observing the whole context would not reasonably apprehend that the Judge had failed to bring an impartial mind to the judicial task before him.

2. Mr Henderson became focussed on technical arguments in his defence and did not really engage with the substance of the prosecution case. The Judge adjourned the trial twice to enable Mr Henderson to refocus on the merits of the prosecution case in cross-examination. As a result, the trial was effectively heard in three main phases over the course of 10 months. The Judge’s observations need to be considered in this context.

3. The reasonable lay observer watching the whole trial and reading the Judge’s minutes would not reasonably apprehend the Judge had become partial or predetermined the overall question of guilt. The Judge’s indications of provisional views were intended to encourage Mr Henderson and, once engaged, his lawyer to focus on the issues as the Judge saw them. It was appropriate for a Judge to guide the parties towards the real and substantive issues, especially in a Judge-alone trial with a lay litigant involved.

4. The Judge’s overall tone towards Mr Henderson’s defence could be concerning. An observer, listening to some of the Judge’s comments, in isolation, might perhaps have taken the view the Judge had predetermined guilt and was granting adjournments unwillingly in an attempt to appeal-proof his decision. However, a notional fair-minded lay observer stays the full course of trial and once the whole hearing was considered and the context was appreciated, the overall tone was very different. The remarks objected to were isolated and in context did not create an impression of real unfairness or unwavering prejudgment.

5. The Judge’s comments were adverse to technical aspects of Mr Henderson’s defence but did not predetermine the ultimate question of guilt.

6. Viewed overall in the context of a difficult trial the narrative perceived by an observer would be that the Judge was concerned with fairness to Mr Henderson, particularly in light of the misconceived defence originally relied on. The Judge adjourned trial on two occasions to let Mr Henderson revise his submissions to respond to the substance of the prosecution allegations.

7. The Judge would have honestly reflected on the evidence presented at the final phase of trial when deliberating and preparing his reasons for the verdicts. At the same time, the Judge tested the respective cases advanced robustly, albeit in a manner which an inadequately informed observer might have thought conclusory.

Henderson v R [2016] NZCA 431, 10 October 2016 Original article from New Zealand Tax Tracker

Image courtesy of digitalart at FreeDigitalPhotos.net

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