The criminal case: Commissioner of Inland Revenue v Parore  NZDC 17946;  NZHC 3405
Mr Parore was charged with 13 offences of deliberately failing to file GST returns with the intention to evade assessment and payment of GST. However, this case did not involve the prosecution of the charges, but an application to stay the whole prosecution. This was on the basis that Mr Parore’s fair trial rights had been put at risk, or actually impugned because the civil tax disputes process under the Tax Administration Act was well underway before the criminal proceedings were launched. Mr Parore said that as a consequence, he necessarily lost his right to silence.
Judge Clarkson allowed Mr Parore’s application, and rapped the Commissioner over the knuckles for attempting to bring the prosecution in the first place.
In her decision, Judge Clarkson goes to some detail setting out the timeline of events, the critical elements of which are the following:
The Judge observed that the civil tax disputes process had proceeded a significant way down its path before the prosecution commenced. Mr Parore argued that through his participation in that process he had either directly or through his advisors disclosed a considerable amount of information including the basis on which he would defend any criminal prosecution. Mr Parore said it was of particular importance that included in the NOPA was his defence as outlined in the subsequent criminal proceeding, that he was not liable for GST during the period when he was an undischarged bankrupt.
In evaluating the argument put by Mr Parore, the Judge referred to the earlier decision of the District Court in R v Safi  NZDC 19698. She noted that it was useful to reflect on the difference between criminal and civil proceedings. In the former, she said, Mr Parore is entitled to a presumption of innocence. Furthermore, because the onus of proof rests with the prosecution, and the standard is beyond reasonable doubt, Mr Parore also enjoyed a right to silence. He, therefore, could not be compelled to disclose a defence.
However, in the civil tax disputes process, the burden of proof is shifted to the taxpayer. In the Safi case the reversed onus compelled disclosure of the defence case which the Court found to be a breach of fair trial rights. The Court concluded that the only proper remedy in the circumstances was a stay of the proceedings.
Notably, Safi referred to a 2016 decision of the Supreme Court in Skinner and Rowley v R  NZSC 101 which dealt with a similar issue. It was noted in that case the Commissioner’s preference was to commence civil proceedings after criminal proceedings had been disposed of in order to avoid the risk of interfering with the fair trial rights of the defendant. It clearly perturbed Judge Clarkson that at the time the default assessments and civil tax disputes process commenced in relation to Mr Parore’s GST, that the issue was well understood by the Commissioner. It further troubled her that charging documents were filed almost a year after the Safi decision had been issued, and that Safi itself followed a consistent line of authorities which must have been well known to the Commissioner.
The Judge highlighted that in 2020 the Commissioner published a policy known as CS20/04 – the Disputes Resolution Process and Fair Trial Rights. This policy reflected the comment by the Supreme Court in 2016 but appears not to have been followed in the present case. Mr Parore pointed out that not only was he not advised of his right to decline to issue a NOPA, but in fact he was compelled to do so despite the Commissioner’s subsequently published policy against such a step.
Although the Judge made no comment as to whether there was any intentional disregard by the Commissioner, she considered the impropriety of her ignoring the warnings given by higher courts as to the order of criminal and civil proceedings in cases such as these to be very significant. In this light, she stayed the prosecution of the charges, rejecting the Commissioner’s argument that stay of proceedings was a disproportionate response to a breach of fair trial rights. The Judge noted that the civil proceedings could continue and the tax dispute be resolved in the ordinary way – the taxpayer would not be able to escape responsibility for the collection of his GST liability and could still receive penalties in the civil proceedings, should they be well founded.
Perhaps surprisingly given Judge Clarkson’s stinging judgment, the Commissioner appealed to matter to the High Court, contending that the Judge had failed to apply the correct legal test for granting a stay. The Commissioner argued that the Judge:
In upholding the decision of Judge Clarkson, Justice Wylie made clear that:
Whether innocently or deliberately, the Commissioner cannot bring about a situation where she is forewarned ahead of trial what defences will be run, what evidence the defence will call and then, being so forewarned, assert that the trial is fair.
Justice Wylie’s decision was based partly on section 25 of the New Zealand Bill of Rights Act 1990 (“NZBORA”), which provides that a person charged with an offence has, among other rights, the right to remain silent, the right not to be compelled to admit guilt, and the right to be presumed innocent until proven guilty according to law.
Justice Wylie considered that requiring the defendant to disclose information as part of the disputes process meant he admitted to doing acts that the Commissioner otherwise would have had to prove to be successful in her prosecution. Thus, the disclosure of information by the defendant necessarily undermined the statutory rights to a fair trial afforded to him by section 25 of the NZBORA.
The alternative remedies proposed by the Commissioner, such as excluding evidence that arose from the defendant’s prior disclosure of information, would, in Justice Wylie’s view, lead to the same result as staying the proceedings. This was because by excluding evidence, the Commissioner’s case would necessarily fail.
Justice Wylie made clear that though Judge Clarkson’s decision did not mention Wilson v R, it did apply the principles of that case in its decision because she applied Safi, which itself considered and applied Wilson.
The civil case: Commissioner of Inland Revenue v Parore  NZHC 488
The Commissioner was required to issue a challenge notice within four years of Mr Parore filing his NOPA. However, by the time the criminal proceedings referred to above were ultimately stayed, it was clear that the Commissioner would not be in a position to issue challenge notice before the four-year period had elapsed. If the Commissioner did not issue challenge notice, then Mr Parore’s NOPA was deemed to be accepted.
In this light, the Commissioner asked the High Court to use its discretionary powers under section 89L(1B) of the Tax Administration Act 1994 to allow the Commissioner to issue a challenge notice after the four-year period. Under section 89L(1B), the High Court may make such an order if an “exceptional circumstance has prevented the Commissioner from issuing a challenge notice within the response period”. An exceptional circumstance is defined in section 89L(3A) as:
An event or circumstance beyond the control of the Commissioner or an officer of the department that provides the Commissioner with a reasonable justification for not rejecting an adjustment proposed by a disputant within the response period.
It was accepted that the relevant authority on the issue was the Court of Appeal’s decision in Commissioner of Inland Revenue v Fuji Xerox NZ Limited (2002) 20 NZTC 17,470. In that case, the Court found that the required evaluation was to be determined in three stages, specifically:
The exceptional circumstance the Commissioner relied on was that she had to allow the criminal prosecution to conclude before continuing with the civil disputes process; and that the statutory timeframes for the civil procedures continued to run, which she had no power to alter and suspend.
These, however, were found by Justice Harvey not to be circumstances beyond the control of the Commissioner. He noted that the act which commenced the four-year period, being the issuance of a default assessment, was undertaken by the Commissioner’s staff and, therefore, was clearly within her control. Further, the decision to pursue criminal proceedings was made by the Commissioner's staff too. If it was the intention of the Commissioner to pursue criminal proceedings, then she should not have issued a default assessment and started the clock on the statutory four-year period.
The Commissioner also argued that she parked the civil proceedings at the commencement of the criminal proceedings to protect Mr Parore’s trial rights. However, Justice Harvey found this to be contrary to the findings of the High Court and District Court in the decisions summarised above. He considered that if the Commissioner wished to protect Mr Parore’s trial rights, she would not have progressed the civil proceedings while intending to commence criminal proceedings.
Accordingly, the Commissioner failed in the first stage of the Fuji Xerox evaluation.
Justice Harvey went on to dismiss the Commissioner's contentions on a hypothetical second stage evaluation. Specifically, he reasoned that even if the Commissioner had successfully sustained that the parking of the civil proceedings was a circumstance beyond her control, there still would not have been any justification for the Commissioner not having concluded matters within the four years. This is because it was found that the Commissioner had not acted promptly following her unsuccessful criminal proceedings in issuing a disclosure notice to Mr Parore. If she had acted promptly, there would have been enough time for the Commissioner to issue a challenge notice before the end of the four-year period.
Accordingly, the Commissioner failed in the second stage of the Fuji Xerox evaluation and in this light Justice Harvey declined to make the order sought by the Commissioner.
A clean sweep
So, after three rounds of hearings, Mr Parore achieved a clean sweep. Despite being subject to both criminal and civil proceedings, he escaped without conviction, penalty or assessment. Inland Revenue made fundamental errors of process and procedure which could not be ignored. These decisions highlight that there is a tension between civil and criminal proceedings in the tax arena and that tension must be managed carefully. A failure by the Commissioner to do that opens the possibility of similar results in other cases.
© G D Clews 2022