R v Easton

• Jurisdiction: New Zealand
• Judge: Heath J
• Judgment Date: 19 December 2013
• Neutral Citation: [2013] NZCA 677
• Docket Number: CA595/2013
• Court: Court of Appeal
• Date: 19 December 2013

The Queen

Appellant

and

Stuart David Easton

Respondent

[2013] NZCA 677

Court:

Randerson, Heath and Asher JJ

CA595/2013

IN THE COURT OF APPEAL OF NEW ZEALAND

Solicitor-General's appeal against sentence — the respondent was found guilty on 22 charges of aiding and abetting three companies that knowingly failed to pay PAYE deductions to the Commissioner of Inland Revenue — amount in issue was $200,000 — respondent had used PAYE as short term capital to shore up failing businesses by choosing to pay other creditors over Commissioner — respondent was fined $66,000 and ordered to pay reparation of $140,000 — reparation order was effectively suspended until after liquidation of the three companies — Judge also refused to order sentencing report although Crown indicated it was seeking custodial sentence — whether failure to order a sentencing report removed a custodial sentence and home detention from the suite of options available to Judge — whether by reference to comparator cases a term of imprisonment should have been imposed — whether there had been jurisdiction to suspend the orders under s36 Sentencing Act 2002 (Payment conditions of sentence of reparation).

Counsel:

M F Laracy and A R van Echten for Appellant

C R Carruthers QC and R P Harley for Respondent

• A The Solicitor-General's application for leave to appeal against sentence is granted.

• B The appeal is allowed.

• C The sentences imposed by the High Court are set aside.

• D Sentencing is remitted to the High Court to be reimposed in a manner consistent with this judgment.

• E Mr Easton is remanded at large for sentence on a date to be fixed by the Registrar of the High Court.

JUDGMENT OF THE COURT

REASONS OF THE COURT

(Given by Heath J)

The appeal

1 Following a trial in the High Court at Wellington in early July 2013, Collins J (sitting alone) found Mr Easton guilty on 22 charges of aiding and abetting three companies that knowingly failed to pay PAYE deductions to the Commissioner of Inland Revenue (the Commissioner) 1 The amount in issue was just under $200,000 2 Mr Easton was sentenced on 9 August 2013. He was fined $3000 on each charge (a total of $66,000) and was ordered to pay reparation of $140000to the Commissioner. Execution of the reparation order was effectively suspended until after liquidation of the three companies had been completed, so that the amount of any distributions to be made to the Commissioner could be determined. Leave was reserved to Mr Easton to apply to reduce the amount of reparation ordered, if the Commissioner were to receive more than $60000 by way of dividend 3

2 The Solicitor-General seeks leave to appeal against the sentence imposed 4 On his behalf, Ms Laracy submitted that the sentence was both manifestly inadequate, and wrong in principle. As a result of directions made by French J on 16 October 2013, the application for leave and the appeal itself were heard together.

Background facts 5

3 Mr Easton and his wife owned and managed six companies and entities (the Group). The Commissioner's investigations into the Group began in 2007. Mr Easton, in evidence, described the Group as being in “dire straits” around that time. At a meeting held on 24 April 2008, Ms Lancaster, an employee of the Inland Revenue Department, explained to Mr and Mrs Easton and Mr Taylor, the Group's tax adviser and external accountant, that it was a criminal offence not to pay over PAYE deductions to the Commissioner, that amounts deducted from wages were the

property of the Commissioner and not the employer and that if a prosecution were taken, the maximum penalty was five years imprisonment and/or a fine of $50,000. Collins J found that this was a “very clear warning” about the nature of PAYE deductions and the consequences of non-payment 6 The offending began only one month later, in May 2008 7

4 The PAYE charges related to three of six entities within the Group: East Quip Ltd, Hooked on Rigging Ltd and Napier Equity Ltd. Mr Easton was the sole director and controlling mind of each. The remaining entities are Galvanising (HB) Ltd, Hooked on Transport Ltd and the trustees of the Easton Property Trust 8 Mr Easton is a substantial shareholder in each of these two companies and a trustee of the Trust. The three companies were alleged to have knowingly failed to pay PAYE deductions to the Commissioner.

5 Of the 22 charges brought against Mr Easton 9

The duration of the offending was just over one year and two months, between May 2008 and July 2009.

• (a) Six arose out of the failure of East Quip to pay PAYE on identified dates between 20 June 2008 and 20 September 2008.

• (b) Seven arose out of the failure of Hooked on Rigging to pay PAYE on identified dates between 20 June 2008 and 20 September 2008.

• (c) Nine arose out of the failure of Napier Equity to pay PAYE on dates between 20 May 2008 and 5 July 2009.

6 The Judge found that the companies deducted PAYE from employee wages and salaries on each of the occasions to which the 22 charges related 10 East Quip failed to account for $43,56869; Hooked on Rigging for $83,70481; and Napier

Equity for $61,287. Although the total of those sums is $188,56050 11 the Judge recorded in his sentencing remarks that the Commissioner contended that the total amount of PAYE that remained outstanding was $199,29298. 12

7 In the period between 2007 and 2009 entities within the Group were trading poorly. This led to “a significant escalation in the Group's inability to pay creditors”. By February 2009, the Group’’ indebtedness totalled $105 million, of which $266,5272 had been outstanding for three months or more 13 The Judge found that, to alleviate the Group's financial difficulties, Mr Easton “did his best to generate more income”, “engaged external advisers to assist with restructuring” the Group and injected, by way of unsecured loan, additional capital into entities within the Group. By January 2009, the Easton family (and related entities) had advanced $24 million to the Group. 14

8 Collins J also found that it was “very clear that the Easton Group chose which creditors should be paid in order to keep the businesses afloat for as long as possible”. That was the reason why “the [three relevant companies within] Easton Group paid other creditors in preference to” the Commissioner. By February 2009, entities within the Easton Group owed $1137 million to the Commissioner, of which $638000 was for PAYE arrears 15

9 East Quip and Hooked on Rigging were each put into liquidation on 10 July 2009. Napier Equity suffered the same fate on 6 August 2009.

10 Mr Easton made candid admissions to the Commissioner when interviewed in February and August 2009, but recanted from them in his evidence before the High Court 16 Collins J took the view that the original admissions were “accurate”, going so far as to say that he was “struck by the frankness and candour of the way”

in which Mr Easton answered questions at an interview on 18 August 2009. That interview took place just over one month after the last offending took place. In contrast, the Judge was moved to say: “Unfortunately, I cannot say the same about the way Mr Easton gave his evidence in Court” 17 Plainly, the Judge regarded Mr Easton as an evasive witness

11 Collins J was satisfied beyond reasonable doubt that 18

• (a) Mr Easton made decisions about how the companies allocated payments to creditors.

• (b) The Commissioner did not receive PAYE on the due dates because of a lack of cash-flow; in other words, each company was unable to meet debts as they fell due from its own money.

• (c) Mr Easton used the PAYE deductions as a means to keep the businesses operating as a short term measure.

• (d) The decisions not to pay PAYE were made by Mr Easton personally, and Mr Easton knew that default was being made.

12 The Judge regarded Mr Easton's decision, on behalf of Napier Equity, not to account for PAYE due on 5 July 2009 as “a particularly calculated decision”. At that time, Mr Easton appreciated that East Quip and Hooked on Rigging were likely to be liquidated and saw “little reason why [Napier Equity] should make the last of its PAYE payments” 19 because there was little to be gained by trying to save that company.

13 Collins J also found that Mr Easton: 20

• (a) was the “directing mind and will” and “inspirational driving force” of each of the companies;

• (b) was fully aware of the obligations of each company to account for PAYE, as a result of Ms Lancaster's explanation of 24 April 2008; 21

• (c) made choices to pay other creditors in preference to the Commissioner in order “to keep the wolf from the door”. He did this by using PAYE deductions as short term capital to keep the companies trading; and

• (d) assisted each company's non-payment of PAYE deductions by deciding what creditors were paid and what were not. While it was open to Mr Easton to direct employees to pay PAYE, deliberately, he chose not to.

14 Against that background, we consider the complaints made by the Solicitor-General about the sentence imposed.

The sentencing process

15 The Solicitor-General takes issue with the sentencing process that Collins J adopted. Ms Laracy submitted that there were flaws in the process that resulted in the end sentence being both wrong in principle and manifestly inadequate.

16 Unusually, the Judge delivered reasons for guilty verdicts on 11 July 2013, the day before they were pronounced in open court. Contemporaneously with delivery of the reasons, on 11 July 2013, the Judge issued a Minute indicating a provisional view that a custodial sentence was not warranted and signalling a willingness to impose a fine. The Judge raised the possibility of such a sentence being imposed when the verdicts were to be formally delivered, the following day.

17 The verdicts were duly given in open court on 12 July 2013. At that time, counsel for the Crown...