The Queen v Paul William O'Connor Brent John Gilchrist Scott Crawford Anderson

• Jurisdiction: New Zealand
• Judge: Simon France J
• Judgment Date: 26 July 2013
• Neutral Citation: [2013] NZHC 1869
• Docket Number: CRI 2011-085-5660
• Court: High Court
• Date: 26 July 2013

The Queen

and

Paul William O'Connor Brent John Gilchrist Scott Crawford Anderson

[2013] NZHC 1869

Court:

Simon France J

CRI 2011-085-5660

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

Tax evasion prosecution — O'Connor (“O”) charged as party to tax evasion — alleged that over the years, O had been party to aggressive tax avoidance transactions, and fraudulent transactions, with intention of reducing his tax liability — O had been consistently late in filing returns and at the same time, the assets of his trading entities and his own personal assets had been depleted or transferred to other entities, so that should there be any reassessed tax liability, neither the taxpayer nor O personally would have the capacity to pay — Gilchrist (“G”) was tax advisor charged along with O as a party — Anderson (“A”) was charged as party to one specific component of the alleged course of conduct (fictitious invoicing for tax deduction purposes) — whether charges proven beyond reasonable doubt.

Counsel:

D La Hood, M Ferrier and A Instone/S Lukey for Crown

M Lennard and G M Richards for P O

B J Gilchrist in Person

J C Bonifant and S A Pettett for Anderson

JUDGMENT OF Simon France J

Table of Contents

Paragraph No.
Introductio	[1]
Overview of charges	[3]
Charges against Paul O'Connor	[3]
The separate charges against Mr Gilchrist and Mr Anderson	[21]
Approach to judgment	[24]
Matters applying to a criminal trial [25	[25]
Some preliminary conclusions	[31]
First transaction: the Silent Partner charges	[49]
Summary	[49]
Discussion	[50
Restraints of trade	[80]
Summary	[80]
Discussion	[82]
The Debenture	[103]
Summary	[103
Discussion	[104]
The ACTONZ investment [	[108]
Summary	[108]
Discussion	[111]
The sale of MSCL and relocation of personal assets [	[127]
Summary	[127]
Discussion	[128]
MST transactions – the intellectual property	[136]
Summary	[136]
Discussion	[138]
MST transaction – GlobeNet invoices [	[153]
Summary	[153]
Discussion	[156]
Client of One invoices	[209]
Summary	[210]
Discussion	[210]
Asset protection/liquidation of MSCL	[219]
Summary	[219]
Discussion	[220]
Late filing of returns	[256]
Summary	[256]
Discussion	[258]
Conclusions on transactions	[266]
Overview of Dr O'Connor's actions	[268]
Specific charges	[293]
Counts 2 to 7 and 9 to 13	[294]
Counts 14 and 15	[298]
Mr Gilchrist's liability – counts 1D, 1E, 1F, 8D, 8E, 8F	[299]
Dr O'Connor's liability	[326]
Summary
Dr Paul O'Connor
Brent John Gilchrist
Scott Crawford Anderson

Introduction

1 This judgment is the verdict on a tax evasion prosecution brought against Dr Paul O'Connor. Charged along with him as a party to his alleged overall offending is Mr Brent Gilchrist, a tax adviser. Mr Scott Anderson is charged as a party to one specific component of the alleged course of conduct, namely fictitious invoicing for tax deduction purposes.

2 A second judgment is being issued at the same time in relation to charges faced by Messrs Gilchrist and Anderson, but not Dr O'Connor. Those charges were joined to this indictment for propensity reasons. However, it is preferable to issue a separate judgment because of a name suppression issue in relation to Dr O'Connor that cannot be resolved in time for the delivery of verdicts.

of charges

Charges against Paul O'Connor

3 Since 1990 Dr O'Connor has run, in conjunction with his de facto wife, a media clipping business, generically called Media Search. Over the relevant period the business traded through two entities – first, Media Search Corporation Ltd (MSCL), and then subsequently Media Search Trust (MST).

4 Dr O'Connor is charged as a party to tax evasion, it being alleged that both trading entities, which he owned and controlled, have evaded the payment of tax over a number of years. The case has been presented through the lens of three sets of acts:

• (a) transactions during tax years ending 1993–1996 inclusive. These transactions, and the returns filed for those years, are not the subject of charges. The transactions are said to illustrate the commencement of the pattern of tax avoidance activity, and so are to be assessed as propensity evidence;

• (b) transactions during the tax years ending 1997–2002 in relation to MSCL. First, there are six charges of filing late tax returns with the intention of evading the assessment or payment of tax. The allegation is that the delay was deliberate so as to defer inquiry by the Inland Revenue Department (“IRD”), and allow asset depletion. It is said there is a pattern of late filing seen through the whole 16 year period. Second, there is a general overall charge of tax evasion which seeks to bring together all the challenged transactions that occurred over this time, and allege that together they represent a course of conduct amounting to tax evasion. The separately charged late filing of returns is one of these steps relied upon; and

• (c) transactions from the tax years ending 2001–2005, and subsequent, in relation to MST. There is here the same pattern of five specific counts of deliberate late filing for evasion purposes, and a general tax evasion charge. There are also other specific charges relating to certain deductions that are said to be based on fictitious invoices. It is these charges to which Mr Anderson is also alleged to be a party, it being his company that issued the invoices.

5 Mr Gilchrist is charged as a party to the two general evasion charges.

6 In the broadest of terms the case against Dr O'Connor is that over the years he has been party to aggressive tax avoidance transactions, and fraudulent transactions, with the intention of reducing his tax liability. Throughout this period he has consistently been late in filing returns. At the same time the assets of his trading entities and his own personal assets have been depleted or transferred to other entities, so that should there be any reassessed tax liability neither the taxpayer nor Dr O'Connor personally would have the capacity to pay. An overview of the case is best provided by identifying the impugned transactions that will need consideration.

7 The first transaction is a series of deductions claimed by MSCL in relation to invoices issued by a company called Silent Partner. Silent Partner was owned and run by the defendant, Mr Anderson. In the tax years 1993 to 1996 inclusive, deductions amounting to $730,000were claimed for work done by Silent Partner. The Crown contends the work was never done, and the charges were fictitious. A feature of this transaction is that MSCL never paid any of the $730,000 to Silent Partner. If established, these events are relied on by the Crown for their propensity value in relation to a similar scheme alleged to have been run by the two men some years later.

8 The second transaction involves two restraints of trade (ROT) entered into between MSCL on the one hand, and Dr O'Connor and his wife on the other. The first ROT was agreed in 1991. No copy of it is available. It paid Dr O'Connor and his wife $250,000each for agreeing not to go into competition against MSCL for five years from the date of signing. At the time Dr O'Connor and his wife were the sole shareholders and directors of MSCL. The $500,000was credited to the shareholders’ current account, and MSCL amortised the ROT at a rate of $100,000 per annum. Dr O'Connor and his wife treated the withdrawals they made from the shareholder's current account as capital, and therefore not taxable.

9 In 1996 the ROT was renewed, but this time for $5 million. This amount was again credited to Dr O'Connor and his wife's shareholder account, and over the next few years drawn out by them, again as capital payments. Immediately prior to entering into both the 1991 and 1996 ROTs, the shareholders’ current account had been in deficit. After the 1996 ROT, the shareholders stopped paying themselves a shareholder's salary. The Crown says the 1996 ROT has no commercial reality, and was tax avoidance.

10 The third transaction is an investment in a tax avoidance scheme known as ACTONZ. Dr O'Connor, in MSCL's name, acquired from Mr Anderson four units in the scheme. It is said they were allocated as repayment for a $300,000loan Dr O'Connor had made to Mr Anderson. Deductions amounting to $2.2 million were subsequently claimed. When the scheme was held to be avoidance, MSCL settled its tax liability at $1.2 million; however, by then it was in liquidation and had no capacity to meet the settlement.

11 The fourth MSCL “transaction” is the late filing of tax returns. The returns for tax years 1993–1996 were filed on 8 November 1996. There was then no further filing until 6 July 2000, when the 1997–1999 returns were filed together. The Crown alleges this late filing was deliberate, and that the delay was designed to prevent IRD scrutiny, and to allow other actions to occur to prevent recovery of any assessed tax.

12 The last step in relation to MSCL's tax liability was the “sale” of the business in 2000 to a new trading entity, the Media Search Trust (MST). At the same time, another new company was formed to be the corporate trustee of MST. The purchase price paid by MST was, in general terms, the taking over of the Silent Partner debt and a cash payment sufficient to discharge Dr O'Connor and his wife's personal borrowings. At the time of the sale, Dr O'Connor and his wife took a debenture over the current account of MSCL, there being still a credit in their name of around $1 million stemming from the 1996 ROT debt. Following this sale, MSCL...