Court of Appeal Judgments of Public Interest
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* Question 1: Was the Judge in each case correct to find there had been non-compliance with ss 77(3)(a) and (3A) of the Land Transport Act 1998, by reason of the wording of Block Jon the Police Procedure Sheet POL515 09/19? Answer: No.
*Question 2: If the answer to Question 1 is yes, was the Judge in each case correct to find as a result there had not been reasonable compliance with ss 77(3)(a) and (3A), in terms of s 64(2) of the Act, such that evidence of the Evidential Breath Test (EBT) result was inadmissible? Answer: Not answered.
* Question 3: Was the Judge correct to find that the evidential blood sample obtained following the procedure in Police Procedure Sheet POL515 09/19 was inadmissible by reason only of the wording of Block J? Answer: No, by reason of the answer given to Question 1.
The Solicitor-General was granted leave to refer three questions of law to this Court pursuant to s 313 of the Criminal Procedure Act 2011, arising out of five District Court decisions which ove1turned convictions for excess breath or blood alcohol because the standard wording used by police to advise drivers of their right to elect a blood alcohol test did not comply with ss 77(3) and 77(3A) of the Land Transport Act.
Criminal practice and procedure - Solicitor-General's reference.
Question I: Was the Judgein each case correct to find there had been non-compliance with ss 77(3)(a) and (3A) of the Land Transport Act 1998, by reason of the wording of Block J on the Police Procedure Sheet POLS15 09/19?
Held: no. The absence of the word "conviction" makes no potential difference to the decision-making process ahead because it is implicit in the wording used (in particular, "prosecution"), and therefore the sense and effect of the warning required to be given is conveyed where the motorist is liable to be convicted of an offence (as in all the referred cases). However, where motorists are liable for an infringement offence, the sense and effect of the warning is not conveyed because it does not make clear that the result gives rise only to this less serious offence.
Criminal practice and procedure - Solicitor-General's reference.
Question 2: If the answer to Question l is yes, was the Judge in each case correct to find as a result there had not been reasonable compliance with ss 77(3)(a) and (3A), in terms of s 64(2) of the Act, such that evidence of the Evidential Breath Test (EBT) result was inadmissible?
Held: not answered. This question falls away by reason of the answer to Question 1. It remains relevant in relation to offending giving rise to an infringement offence, but this is reserved for another occasion where the issue arises directly.
Criminal practice and procedure - Solicitor-General 's reference.
Question 3: Was the Judge c01Tect to find that the evidential blood sample obtained following the procedure in Police Procedure Sheet POLS15 09/19 was inadmissible by reason only of the wording of Block J?
Held: no, by reason of the answer given to Question 1. Again, in the case of infringement offending, the answer would tum on Question 2 and cannot be answered in the abstract.
Privacy Act 1993 -Information privacy request - inter-agency transfer - vexatiousness - urgency.
Mr Dotcom's extradition eligibility hearing was due to commence in the District Court on 21 September 2015. In July that year Mr Dotcom sent information privacy requests under the Privacy Act to all Ministers of the Crown and most government departments and agencies asking for all personal information held by them. Per section 37 of the Act, he requested that these be dealt with urgently. The majority of the requests were transferred to the Attorney-General. They were then rejected on the basis they were vexatious on account of their all being required urgently. Mr Dotcom brought proceedings in the Human Rights Review Tribunal alleging an interference with his privacy. The Tribunal ruled that the Act does not permit a transfer for the purpose of obtaining legal advice and an urgency request was not a proper basis for declining the information request itself. The finding of an interference with Mr Dotcom 's privacy was overturned on appeal; the High Court viewing the urgency element as part of the information privacy request itself. Mr Dotcom was granted leave to appeal on two questions of law.
The proper interpretation of the Act
The Attorney-General submitted the Act is open-textured and therefore not intended to create rigid rules or constraints for decision-makers. In the main the privacy principles in the Act do not create enforceable legal rights. However, s 11 says the entitlement to make principle 6 information privacy requests to public sector agencies is an enforceable legal right. This right is not susceptible to a more liberal interpretative treatment. Hence the refusal provisions in pt 4 and the procedural provisions in pt 5 should be construed in accordance with orthodox statutory interpretation. While s 11 only extends to public sector agencies, there is no reason why this interpretation would not extend to such requests to all agencies.
Question 1: Can a request for personal information under the Act be transferred to another agency where the request seeks urgency and the basis for the urgency request is not a matter that the recipient is able to sensibly asses but the agency to which the request is transferred is the only agency able to properly evaluate? Held: no.
The High Court reasoned that the only component of the information request that justified the transfer to the Attorney-General was the request for urgency, and that there was nothing in the Act that would preclude a transfer to properly evaluate the aspect of urgency. However, the transfer provision cited, s 39(b)(ii), provides for a transfer in specific terms. The information sought must be more closely connected with the functions or activities of the transferee. This is a prerequisite to a transfer. The fact that urgency is requested does not comprise a part of the information the subject of the information privacy request.
Question 2: Is a request for urgency under s 37 of the Act a relevant factor for an agency in determining whether to refuse a request for personal information under s 29(1)(j) of the Act? Held: yes, it may be a relevant factor.
A requestor seeking urgency under the Act must give reasons. These reasons could inform the decision-maker on the issue of whether the information privacy request is vexatious, meaning urgency could be a relevant factor. However, the mere fact of a request for urgency would not alone be a proper basis for a refusal on the vexatious ground, although it is not possible to say that it could never be a relevant factor.
Criminal practice and procedure – Sentence appeal – Penalty Commercial law – Fair Trading Act 1986 – Misleading conduct – False representations
Steel & Tube Holdings Ltd pleaded guilty to 24 representative charges of misleading conduct and false representations in connection with its “seismic grade” steel mesh, known as SE62 mesh. It represented that the mesh, which is used to reinforce concrete structures, was 500E grade, meaning that it had been tested and complied with the relevant building standard, AS/NZS 4671:2001 (“the Standard”), and further that it had been tested independently. In the District Court the company pleaded guilty and was fined a total of $1,885,000. Both parties appealed to the High Court, where the fines were increased to a total of $2,009,280.
Both parties were given leave to bring second appeals to this Court. Steel & Tube maintains that the starting point of around $3.8 million set in the High Court was without precedent or statutory support, and was adopted without hearing argument, and that the resulting sentence, far exceeding any previously imposed on a single entity under the Fair Trading Act 1986, was manifestly excessive. The Commerce Commission argues that the decisions below were affected by error. In particular, the High Court Judge wrongly held that the state of mind of the employee responsible for flawed testing processes could not be attributed to the company for sentencing purposes, wrongly allowed too great a discount for totality, and failed to take into account Steel & Tube’s size, resources and financial gain: all of this meaning that the sentence was manifestly inadequate.
Should the state of mind of an employee be attributed to their company at sentencing? Held: Yes.
The Fair Trading Act is a consumer protection statute which regulates conduct in trade. It is common ground that both offences of contravening ss 10 and 13(e) of the Act are strict liability offences. The Act creates special rules of attribution. Attribution of a state of mind is addressed in s 45(1), which provides that where, in proceedings under Part 5 (which includes the offence provision, s 40) in respect of any conduct engaged in by a body corporate, “it is necessary to establish” the state of mind of the body corporate, it is sufficient to show that a director, servant or agent, acting within the scope of that person’s actual or apparent authority, had that state of mind.
We are satisfied that it is necessary to establish the company’s state of mind for sentencing purposes. Section 45(1) does not limit attribution to proof of liability. The state of mind of the defendant is an orthodox consideration for strict liability offences. State of mind may inform the court’s assessment of the gravity and culpability of the offending. If state of mind materially affects sentence, then it is a matter of necessity that the court should establish it. Necessity is also a question of fact in the particular proceeding; here the company’s state of mind is a matter of real significance and controversy. Even if s 45 had not covered the field, we would hold that the employee’s state of mind should be attributed to the company on ordinary common law rules of attribution.
How far is attribution to extend for sentencing purposes?
Held: Where the culpability of an employee and senior management differ, the answer lies in s 45(1), which provides that it is “sufficient” to show a relevant director, employee or agent had a given state of mind. The state of mind of an agent whose misleading conduct is the subject of the charge suffices for sentencing purposes, but that person need not be the only agent whose conduct and state of mind may influence sentencing. The court may inquire further. State of mind may matter at two points in time; when the offence was committed and at sentencing. So far as the offence date is concerned, senior management’s complicity in, or ignorance of, an employee’s actions may aggravate or mitigate culpability, depending on the circumstances. At sentencing, where senior management invariably speaks for a corporate defendant, the court is interested in co-operation with the authorities, assumption of responsibility, and commitment to future compliance.
What are the relevant sentencing considerations when imposing a penalty for Fair Trading Act offending?
Held: We do not establish sentencing bands and those proposed by Duffy J in the High Court should not be used.
The cases recognise that sentencing should begin with the objects of the Fair Trading Act, which pursues a trading environment in which consumer interests are protected, businesses compete effectively, and consumers and businesses participate confidently. To those ends it promotes fair conduct in trade and the safety of goods and services and prohibits certain unfair conduct and practices.
Factors affecting seriousness and culpability of the offending may include: the nature of the good or service and the use to which it is put; the importance, falsity and dissemination of the untrue statement; the extent and duration of any trading relying on it; whether the offending was isolated or systematic; the state of mind of any servants or agents whose conduct is attributed to the defendant; the seniority of those people; any compliance systems and culture and the reasons why they failed; any harm done to consumers and other traders; and any commercial gain or benefit to the defendant.
Factors affecting the circumstances of the offender include: any past history of infringement; guilty pleas; co-operation with the authorities; any compensation or reparation paid; commitment to future compliance and any steps taken to ensure it. The court may also make some allowance for other tangible consequences of the offending that the defendant may face. By tangible we mean to exclude public opprobrium that is an ordinary consequence of conviction. The defendant’s financial resources may justify reducing or increasing the fine. Any other sentencing considerations applicable, such as totality and the treatment of like offenders, will also be taken into account.
What sentence would this Court impose on Steel & Tube Holdings Ltd?
Held: We would adopt a global starting point of $1.5 million for the compliance representations. Steel & Tube’s offending was serious insofar as the product it sold was put to an important use, compliance with the Standard was vital, Steel & Tube lacked an adequate excuse, and the offending was large scale and of a long duration. Against that, the representations were not intended to mislead or deceive. Steel & Tube believed the mesh did comply and that its testing processes were equivalent or superior to those of the Standard. The company did not mislead for gain, and we are not able to estimate what gain it actually made. The company responded by withdrawing the mesh from the market as soon as it was put on notice that its testing processes did not comply.
We would adopt a global starting point of $900,000 for the independent testing representations.
These representations are somewhat less significant than the compliance representations, but they were clearly made and widely disseminated. The offending was deliberate albeit not as culpable as some comparable cases.
In the District Court Judge Cathcart accepted that Steel & Tube took significant remedial steps to ensure future compliance. It engaged independent laboratories to conduct testing; invested in new software to record, store and produce test certificates and monitor long-term quality data; provided additional training for staff; and hired an additional quality manager. Steel & Tube cooperated with the Commission and entered early guilty pleas. The allowance of 35 per cent made by Judge Cathcart is not disputed.
We would impose an overall fine of $1,560,000.
Did the High Court err in the sentence imposed?
Held: Yes. The sentence was manifestly excessive. It should be reduced to $1,560,000.
The appellant was serving a sentence of imprisonment for murder, paedophile offending, aggravated burglary and kidnapping. During a series of short-term releases from prison, the appellant obtained a passport by false pretences, purchased a ticket to Brazil, and then fled New Zealand to Brazil in November 2014. A New Zealand police officer travelled to Brazil and an Interpol Red Notice was sent to Interpol Brazil requesting the provisional arrest of the appellant for the purposes of extradition. Brazilian Federal Police arrested the appellant and applied to the Federal Court at Rio de Janeiro for his detention pending deportation. The Court granted that request. The appellant filed an application for habeus corpus. On 14 November the Brazilian Ministry of Justice issued a notice in the Federal Supreme Court requesting examination and preventive detention for the purpose of extraditing the appellant. However no formal extradition application was made by New Zealand and no such order was made by that court. On 21 November the Brazilian Federal Prosecutor's Office applied to the Federal Court for an order to deport the appellant. That order was granted on the same day. The order directed the appellant be deported within a maximum of 10 days and that the New Zealand police, who had offered to escort the appellant and pay for his flights back to New Zealand, be notified. Two days later an Interpol Brasilia official advised New Zealand police the deportation was not authorised. Following correspondence with the Judge who made the deportation order, the stand-off between the Federal Police in Rio and its Interpol agency in Brasilia abated. Permission was granted for New Zealand police to travel to Brazil. On 27 November the appellant was transported by Brazilian Federal Police to the airport, where he passed into the custody of the New Zealand officers on the plane. The appellant proceeded to New Zealand under escort from the New Zealand police via Chile.
The appellant faced one charge of escaping lawful custody and one charge of obtaining a passport by false pretences. The appellant did not deny the offending but applied for a stay under s 147 of the Criminal Procedure Act 2011 on the grounds that his deportation was a disguised extradition amounting to an abuse of process. Delays in obtaining relevant evidence meant the stay application was never heard in the District Court, nor were any witnesses called or cross-examined. Instead the appellant elected to proceed to trial where he instructed counsel to invite the jury to find him guilty of both charges, which they did. He now appeals against his conviction on the basis that the New Zealand authorities' actions in procuring his deportation from Brazil were an abuse of process.
Criminal Practice and Procedure - Stay of proceedings. Whether the question of the extant stay application based on abuse of process can be left undetermined in the court of trial and then advanced on appeal following conviction.
Held: No. This would create a de facto leapfrog procedure placing the appellate court at a needless disadvantage, having to approach the abuse of process issue as the first instance decision-maker. An issue of abuse of process should be dealt with before trial in the trial court.
Criminal Practice and Procedure - Jurisdiction. Whether this Court had jurisdiction to consider the appeal against conviction on the basis of an abuse of process where the stay application was never determined.
Held: Yes, in the circumstances of this case. The appellant, trial Judge and Crown appeared to have adopted this course of action on the understanding the appellant's appeal rights relating to abuse of process would be preserved. Justice demands this Court deal with the abuse of process argument as an appeal against conviction under s 232 of the Criminal Procedure Act. The appellant must show a miscarriage of justice due to abuse of process.
Criminal Practice and Procedure - Abuse of Process. Whether the convictions should be set aside for abuse of process.
Held: No. The appellant alleges a category 2 abuse of process based on state misconduct. A category 2 abuse of process exists where there has been an abuse of process which amounts to an afront to the public conscience. The hallmark of a category 2 abuse is unlawful conduct by New Zealand authorities in the foreign jurisdiction or want of good faith or a proper motive in subverting the defendant's rights in that jurisdiction. The requesting state must have a knowing appreciation that deportation is unlawful or likely unlawful. It is not incumbent on the requesting state to question or challenge the legality of deportation. A stay or prosecution or the setting aside of convictions is an extreme step and will be granted only in the clearest of cases. The essence of extradition is the making of a formal request by one state for the remission of an individual by another state. New Zealand and Brazil share no extradition agreement. If New Zealand wishes to obtain extradition from Brazil it must make a formal request to the competent authorities in Brazil or to a diplomatic representative. In the absence of a treaty, the choice to pursue extradition from Brazil is one for New Zealand, to be requested through diplomatic channels, but it is to be granted or refused by the Federal Supreme Court of Brazil. The decision to pursue deportation is one for Brazilian authorities to pursue but whether it will be ordered is a decision for the Brazilian courts. Deportation is to the person's country of origin or another state consenting to receive them. Deportation is unavailable where it involves illegal extradition. This Court accepts the possibility the appellant might have challenged his deportation successfully in Brazil. But the deportation order here was a regular order made by a court of competent jurisdiction and it was not for the New Zealand authorities to look behind it in the absence of knowledge it was obtained unlawfully or contrary to natural justice. The New Zealand authorities did not have knowledge of the illegality of the deportation. The New Zealand authorities were aware of disagreements among their Brazilian counterparts as to the availability of deportation. Ultimately those disagreements resolved in favour of deportation. Though Brazilian authorities anticipated New Zealand authorities might initiate a formal extradition request, New Zealand had not done so. The New Zealand authorities did not procure the appellant's deportation to avoid the extradition process. The affidavit of Det Supt Pannett directly rejects any procurement, or influence on the court process. Brazilian authorities would have been aware that their New Zealand counterparts would prefer deportation to extradition and the offer of assistance by the New Zealand authorities was material to the Brazilian authorities' decision to apply for deportation. When uncertainty arose over the propriety of the deportation order, the New Zealand police stood back and allowed the dispute between different branches of the Brazilian Federal government to be resolved by that government. And the record does not show New Zealand authorities had any knowledge of alleged breaches of natural justice in the making or execution of the deportation order. In the absence of cross-examination of Det Supt Pannett, this Court declines to reach a conclusion of impropriety.
The New Zealand authorities did not ensure the appellant's final destination was New Zealand. The terms of the deportation order indicate the appellant was to be deported to New Zealand. The appellant was in the custody of the accompanying New Zealand officers once seated on the place bound for Chile. By this time it was a foregone conclusion that he would have to return to New Zealand: Moti v R distinguished.
The issuing of an emergency travel document in the appellant's name, despite no request for such a document being made by the appellant as contemplated by s 23(1) of the Passports Act 1992 , was not unlawful. The Passports Act supplements but does not prevent the exercise of the power to grant such a document under the Crown's prerogative powers. The New Zealand authorities did not provide false information to Brazilian authorities to procure the appellant's deportation. The officer who told Brazilian authorities that "[the appellant] has previously told his associates that he wants to travel to South America to sexually offend against young boys" deposes that he did not fabricate the statement. Regardless of whether the statement was fabricated, the statement did not influence the decision to order the appellant's deportation. This Court is also unwilling to conclude false information was knowingly provided in bad faith as the relevant officer also was not cross-examined. The New Zealand authorities did not infringe the appellant's rights under the NZBORA. The NZBORA does not apply to officials of overseas countries that detain a person for extradition to New Zealand. Whether the NZBORA applies to acts of the New Zealand state performed abroad has yet to be authoritatively explored. For present purposes it is accepted that the NZBORA may have extraterritorial application. Whether the NZBORA applies turns on whether the New Zealand officials in question perform a New Zealand public function, and whether the NZBORA's application is justifiably limited by the relevant foreign state's domestic laws.
No breaches of ss 23(1)(b) or 27(1) occurred as at the material times the appellant was under the control of Brazilian authorities, subject to the Brazilian legal system. The NZBORA may apply once the appellant entered the custody of the New Zealand officers on board the plane. But the appellant's detention by those officers until his arrival in New Zealand was not in breach of s The officers lawfully detained the appellant pursuant to their arrest powers under ss 31 and 315 of the Crimes Act which may be exercised outside the territorial limits of New Zealand in relation to arrests for offences triable in New Zealand courts.
Moreover the NZBORA argument adds little to the second category of common law abuse of process. Fair trial rights affirmed by the NZBORA info1m the first category. But the second category is concerned with whether an abuse of process affects public confidence in the integrity of the judicial process. It is circular, in deciding whether an abuse of process occurred, to consider whether the detention may be arbitrary in these circumstances if an abuse of process (disguised extradition) has occurred.
Overall the appellant failed to establish misconduct sufficient to take the exceptional step of precluding his conviction on the basis of abuse of process. The return of the appellant and his subsequent convictions are not an affront to the public conscience.
Defamation - Pleadings - Declaration.
On 2 March 2018 an article written by Mr Matthew Hooton was published in the National Business Review (NBR) newspaper in its print and website formats. Fourth Estate Holdings (2012) Ltd is the publisher of NBR, and Mr Todd Scott is the sole director and shareholder of Fourth Estate. At the relevant time, Mr Steven Joyce was a Member of Parliament, a member of the National Party and formerly a Cabinet Minister. Following publication of the article, Mr Joyce brought proceedings against Mr Hooton and Fourth Estate alleging that two passages in the article were defamatory. Mr Joyce claimed a declaration to that effect under s 24 of the Defamation Act 1992 and an award of solicitor and client costs. The claim against Mr Hooton was settled and discontinued. Mr Joyce continued the claim against Fourth Estate. He subsequently added Mr Scott as a defendant, alleging that three tweets published by Mr Scott had the effect of republishing the article and the defamatory statements in it. Mr Joyce was successful in the High Court. The High Court declared Fourth Estate and Mr Scott were each liable to Mr Joyce in defamation. Mr Joyce was awarded solicitor and client costs against each of Fourth Estate and Mr Scott. Fourth Estate and Mr Scott appeal that decision.
Did the first passage convey the meanings pleaded and/or found by the Judge?
Held: No. The first passage, read in context, conveyed neither the pleaded meanings nor the meanings adopted by the Judge. The ordinary and reasonable reader would read the passage referring to Mr Joyce trying to "introduce the so-called copper tax to subsidise his friends at Chorus", in the context of the article as a whole, as an allegation that Mr Joyce was well disposed (friendly) to big businesses such as Chorus and attempted to "pick winners" and channel funds to such businesses in various ways, including in the case of Chorus via the "copper tax". A reasonable reader would not understand this passage as alleging that Mr Joyce had personal connections with Chorus and that in pursuing a "copper tax" he was engaging in unethical behaviour of some kind. The words "his friends", if they meant anything at all, were simply an embellishment of the article's aggressive attack on Mr Joyce's political legacy.
Did the second passage convey the meanings pleaded and/or found by the Judge?
Held: No. The ordinary reader would understand the reference to "blackmail" as a reference to the suggestion earlier in the article that if Mr Bridges demotes Mr Joyce, Mr Joyce might threaten to resign from his party and parliamentary roles. The reader would not consider that Mr Hooton was alleging that Mr Joyce was prepared to engage in actual blackmail; that would be an overly literal, strained and speculative reading of the passage for which the context provides no support. There is nothing improper in the conduct that this passage, properly understood, alleges.
Insurance Law —Earthquake insurance — Liability of insurer.
Mr and Mrs Dodds’ house was insured under a policy with Southern Response Earthquake Services Ltd (Southern Response). The house was damaged beyond repair in the 2010/2011 Canterbury earthquakes. Under their policy, the Dodds chose the Buy Another House option under which they would be paid the cost of buying another house, capped at the cost of rebuilding their house on its present site. The Dodds entered into a Settlement Agreement on the basis of a report (the Abridged DRA) which showed an estimated cost of rebuilding their house of $895,937.78. Later, the Dodds discovered another report had been provided to Southern Response by its advisers (the Complete DRA) in which the full cost of rebuilding their house, including contingencies and certain other items, was estimated to be $1,186,920.75.
In the High Court, the Dodds claimed damages for misrepresentation under s 35 of the Contract and Commercial Law Act 2017 (CCLA), damages for misleading and deceptive conduct under s 43 of the Fair Trading Act 1986 (FTA) , and damages as a result of a breach of a duty of good faith. They sought to recover the difference between the amount they were paid on settlement and the estimated cost of rebuilding in the Complete DRA, and general damages for inconvenience and stress. The Dodds succeeded in their claims under the CCLA and FTA and were awarded approximately $205,000 in damages. Their claim for general damages was unsuccessful. Southern Response appealed to this Court in relation to the findings of misrepresentation and misleading conduct. The Dodds cross-appealed on the issue of general damages.
Did Southern Response make misrepresentations which induced the Dodds to enter into the Settlement Agreement?
Held: Yes — Southern Response made representations of fact to the effect that the cost of rebuilding the Dodds’ house on its present site as assessed by Southern Response’s advisers was $895,937, and that the Abridged DRA was the only relevant estimate of rebuild costs Southern Response had received from those advisers. These were false. Southern Response also made a representation as to policy entitlement — that the Dodds’ maximum entitlement under the Buy Another House option was approximately $895,000. That representation was an unqualified and definite statement about policy entitlement that was incorrect. The Dodds were induced to enter into the Settlement Agreement by these misrepresentations, which were a material factor in their decision.
Did Southern Response engage in misleading and deceptive conduct in breach of s 9 of the FTA?
Held: Yes — Southern Response’s conduct in making those misrepresentations amounted to a breach of s 9 and was an effective cause of the Dodds’ loss when entering into the Settlement Agreement.
Was the High Court correct in its approach to damages under the CCLA and FTA?
Held: Yes — Although the usual approach to assessing compensation under the FTA is the tort measure of damages, and the usual approach under the CCLA is the contractual measure of damages, the amount that should be awarded as damages under both approaches in this case is the difference between the actual value of their entitlement under the policy less the amount the Dodds received. However, the sum awarded in the High Court should be decreased by $10,656.44 as the High Court award was inflated by $10,656.44 due to calculation errors by the parties that were reflected in the judgment.
Are the Dodds entitled to general damages?
Held: No — The evidence does not establish a causal link between the breach complained of and any inconvenience or stress suffered by the Dodds.
Did Southern Response owe the Dodds an implied duty of good faith and, if so, was this duty breached?
Held: Because the Dodds succeeded under the CCLA and FTA, there was no need to consider this basis for claiming the same amount.
Appeal allowed. Orders made in the High Court set aside. Shortfall penalties do not apply.
Frucor Suntory New Zealand Ltd entered into a funding arrangement, whereby Deutsche Bank advanced $204m to Frucor in exchange for a convertible note redeemable at maturity in five years’ time by the issue of 1,025 non-voting shares in Frucor. The $204m advance by Deutsche Bank was funded as to $149m from Frucor’s parent DAP under a forward purchase agreement for the shares and $55m from Deutsche Bank itself. Over the life of the note, Frucor claimed $66m in deductible interest payments.
The Commissioner contends that the funding arrangement was a tax avoidance arrangement and invoked s BG 1 of the Income Tax Act 2004. She claims that, as a matter of commercial and economic reality, the $66m interest payments comprised $55m in repayment of principal to Deutsche Bank and only $11m in legitimate interest expense. The Commissioner reconstructed Frucor’s tax liability under s GB 1, counteracting the tax advantage by reducing the deductible expense accordingly.
Frucor contends the entire deduction is a legitimate interest cost because the full $204m was advanced by Deutsche Bank and interest on that amount totalling $66m was paid over the life of the note. It appealed to the High Court, which found that the funding arrangement was not a tax avoidance arrangement.
The Commissioner now appeals to this Court, arguing that the High Court erred in its assessment.
Issue: Was this a tax avoidance arrangement?
Held: Yes. The primary purpose of the funding arrangement was to provide a tax advantage to Frucor through the interest deductions it claimed. The funding arrangement was in many respects artificial and contrived, the purpose of the arrangement being to dress up a subscription for equity as an interest only loan to achieve this tax advantage. As a matter of commercial and economic reality, the payment of $149m by DAP did not carry any interest liability for Frucor or Deutsche Bank. The only amount that did attract interest was the $55m advanced by Deutsche Bank under the note, for which Frucor paid $11m in deductible interest expenditure.
Issue: Did the Commissioner correctly counteract the tax advantage under s GB 1 of the Act?
Held: Yes. The tax advantage gained under the arrangement was not the entire interest deductions but only those on the principal repayment of $55m. The Commissioner was entitled to reconstruct by allowing the base level of permissible deductions totalling $11m but disallowing the balance. She was not required to consider other arrangements the taxpayer might have entered into had it not chosen the particular funding arrangement.
Issue: Did the High Court err in finding that shortfall penalties should not be imposed in any event?
Held: No. Shortfall penalties only apply if a taxpayer takes an unacceptable tax position that fails to meet the standard of being “about as likely as not to be correct”. Viewed objectively, Frucor’s argument that this was not tax avoidance must be regarded as one capable of being reasonably adopted and having substantial merit given it was found to be correct by the High Court.
Is the evidence of Mr Sullivan admissible on appeal? Held: no. The evidence is fresh, but it is not credible. It has all the hallmarks of a story that has been concocted by the two co-offenders. The account of the alleged later attack is itself inherently implausible. The account is also inconsistent with evidence given at trial.
Should an extension of time be granted to hear the appeal on the alternative grounds? Held: no. The delay was long and has not been sufficiently explained. The proposed grounds of appeal lack merit. Thus, it would not be in the interests of justice to grant an extension of time.
Family First submits on appeal that the Judge erred in finding that its purposes were not charitable in light of Re Greenpeace in which the Supreme Court overturned the political purpose exclusion that had previously operated to prevent political advocacy entities from obtaining charitable status. It contends that, post-Greenpeace, its two charitable purposes qualify for registration under the second head of charity - advancement of education - and the fourth head of charity - supporting families and marriage.
What are Family First’s main purposes?
Held: (Gilbert J dissenting)
Clifford and Stevens JJ
The objects in Family First’s trust deed evidence two main purposes. First, the objects promote the advancement of education: that is education by facilitating research on, and public understanding of, the importance of the roles of marriage and the family in society. Secondly, the objects show a broader purpose of supporting marriage and families as foundational to a strong and enduring society.
Whether or not Family First has an additional object of advancing education, it is clear that at least one of its main purposes is advocacy to promote its views on various social issues pertaining to families. It follows that unless its advocacy is a charitable purpose, it will not be entitled to registration irrespective of whether it has an additional charitable purpose of advancing education.
Did the High Court err in finding that Family First’s purposes were not charitable?
Held: Yes (Gilbert J dissenting)
Clifford and Stevens JJ
Family First’s objects meet the threshold for charitable purpose, thereby allowing it to qualify for registration under the Charities Act. In respect of the second head of charity (the advancement of education), Family First published reports that met the minimum quality threshold required in Re Collier for charitable educational material. There is no evidence to displace the presumption of public benefit under the second head of charity.
Family First is also a charity under the fourth head as regards its purposes of promoting, supporting and advocating for the institutions of family and marriage, which are self-evident public goods. Following Greenpeace, the fact that Family First argues for particular positions within the penumbra of those public goods is not a bar, in itself, to charitable status. That said, it may be difficult to bring issues such as divorce, alternative forms of marriage and abortion within the ambit of family and marriage in the necessary way and Family First will need to bear that in mind as it determines it priorities in the future.
Family First’s cause advocacy is not of self-evident public benefit such that it qualifies under the fourth head of charity. If the Society in Molloy v CIR would not qualify even after Greenpeace, it is hard to see how Family First could do so. Family First’s advocacy on issues of the day cannot be categorised as merely ancillary to some other charitable purpose. Rather, its engagement on these topics forms an important part of its core purpose.