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High Court of New Zealand Decisions |
Last Updated: 3 July 2019
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IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE
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CRI-2019-435-2
[2019] NZHC 1496 |
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BETWEEN
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DAVID PAUL LONGHURST
Appellant
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AND
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MINISTRY OF SOCIAL DEVELOPMENT
Respondent
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CRI-2019-435-3
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BETWEEN
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STEPHANIE MARY WHITEHEAD
Appellant
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AND
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MINISTRY OF SOCIAL DEVELOPMENT
Respondent
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Hearing:
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18 June 2019
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Appearances:
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A Mobberley for Mr Longhurst C J Tennet for Ms Whitehead
S Carter for Respondent
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Judgment:
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28 June 2019
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JUDGMENT OF COOKE J
Application for leave to apply out of time [22]
Arguments raised by appellants [26]
The MSD’s operational policies/officially included error [30]
Dishonesty element of offences [44]
LONGHURST v MINISTRY OF SOCIAL DEVELOPMENT [2019] NZHC 1496 [28 June 2019]
Broad definition of income [47]
Requirement for challenge [62]
What was raised in cross-examination? [67]
[1] On 13 April 2018 Mr Longhurst and Ms Whitehead were convicted of various charges of benefit fraud before Judge Davidson in a judge alone trial in the District Court at Masterton.1
[2] Mr Longhurst was convicted of one charge of wilful omission with intent to mislead,2 and five charges of using a document with intent to obtain pecuniary advantage without claim of right.3 Ms Whitehead was convicted of one charge of wilful omission with intent to mislead.4
[3] Mr Longhurst applies for an extension of time to file his appeal, and appeals his conviction principally on the grounds the Judge erred by not taking into account Ministry of Social Development policy, and that the Ministry did not have the authority to bring the prosecution. Ms Whitehead applies for an extension of time for leave to appeal, and appeals her conviction on the same grounds as Mr Longhurst, but also that the Judge erred in failing to provide adequate reasons.
[4] For the reasons outlined below I have determined that leave should be granted, and I have also determined that both appeals should be allowed, and the convictions quashed with no order for retrial.
Factual background
[5] Mr Longhurst and Ms Whitehead are husband and wife, and are now retired. For a number of years they jointly applied and received a supported living payment, and later New Zealand Superannuation, from the Ministry of Social Development
1 Ministry of Social Development v Longhurst [2018] NZDC 6555.
2 Social Security Act 1964, s 129, maximum penalty 12 months’ imprisonment or fine not exceeding
$5,000.
3 Crimes Act 1961, s 228(1)(b), maximum penalty seven years’ imprisonment
4 Social Security Act 1964, s 129, maximum penalty 12 months’ imprisonment or fine not exceeding
$5,000.
(MSD). Between 2009 and 2016, the appellants received other payments totalling
$149,265.22, but they did not declare this as income to MSD. As a result, the District Court Judge found that the appellants received an overpayment of benefit entitlements of over $50,000.
[6] Mr Longhurst faced five charges of using a document for pecuniary advantage. These charges relate to five occasions from 2009 to 2013 where Mr Longhurst submitted benefit review applications. The benefit review forms included a section providing for disclosure of “other income”. The form included the question “Did you or your partner...get income apart from benefit or earnings over the last 26 weeks?” In response, Mr Longhurst stated he was not working or receiving income from any other source. This was alleged to be false.
[7] Ms Whitehead’s charge relates to an allegation of wilful omission, whereby she did not advise MSD of income received by her and her husband. Mr Longhurst’s further charge of wilful omission relate to the same set of circumstances.
District Court decision
[8] After briefly outlining the factual background and procedural matters such as the standard of proof, the Judge turned to a discussion of the five elements of the charge under s 127 of the Social Security Act 1964 (the Act) that the prosecution was required to prove beyond reasonable doubt:
(a) The defendant(s) received income that he/she was obliged to disclose; or was aware that his/her partner received income which should be disclosed;
(b) The defendant(s) omitted to disclose this;
(c) The defendant(s) knew that he/she was obliged to disclose and deliberately omitted to do so;
(d) The defendant(s) intended to mislead MSD for the purposes of the continuing to receive unabated benefit;
(e) This resulted in the payment of continued benefit/superannuation to which the defendant was not entitled.
[9] The Judge then examined the evidence before the court: the evidence of Mr Verhoeven, MSD investigator; the MSD benefit review forms; the expert accounting evidence of Mr Grace, MSD accountant; and the defendants’ evidence. Mr Verhoeven’s evidence revealed the defendant’s accounts had deposits from sources including Trade Me and family.
[10] The essential defence raised by both defendants was that first, the money received did not legally constitute income, so no disclosure obligations arose. Second, if disclosure was required, the operational policies were misleading and the defendants were not aware of their disclosure obligations. Third, the prosecution could not prove beyond reasonable doubt that either defendant intended to deceive or mislead.
[11] The Judge first considered whether the defendants either received income that they were obliged to disclose under s 80A of the Act, or became aware of income received by their partner which must be disclosed. Section 80A provides:
80A Duty to advise change of circumstances affecting entitlement to benefit
(1) Every beneficiary shall forthwith advise an officer of the department of any change in circumstances which affects the right of the beneficiary to receive the benefit received by him or which affects the rate of any such benefit.
[12] He accepted Mr Verhoeven’s evidence that Mr Longhurst and Ms Whitehead’s accounts showed deposits during the relevant period totalling $123,521.91 and
$25,743.36 respectively.5 The Judge determined the income was subject to disclosure
requirements after a consideration of the following factors:
(a) The definition of income under the Act is broad, and different from the definition of income for taxation purposes.6
5 Ministry of Social Development v Longhurst, above n 1, at [17]–[20]. The Judge later excluded
$8,200 from Ms Whitehead’s amount at [50] and [65].
6 From [12].
(b) The relevant forms made it clear that income had a broad meaning (both the forms giving rise to the s 228 charges and the original benefit and superannuation applications). The forms made a distinction between employment and other income; provided examples of “other income” demonstrating the breadth of meaning; at least four of the documents specifically referred to “other money” received; and each created a clear and specific disclosure obligation.7
[13] As to the knowledge requirement, the Judge rejected the defendant’s evidence that they were unaware of the obligation to disclose that income.8 He also rejected the evidence that the wording of the forms lacked clarity.9 His key findings in relation to Mr Longhurst were as follows:
[59] I reject the critical parts of Mr Longhurst's evidence where he says he was unaware that he had to tell MSD of money received from the different sources. In my view, his evidence on this critical aspect is completely implausible. There are 3 crucial reasons for this:
7 At [28].
8 At [30].
9 At [31].
[14] The Judge was satisfied that each of the ingredients of the s 127 charge were accordingly proven beyond reasonable doubt:
[61] It follows from [the finding rejecting Mr Longhurst’s evidence] that as far as the charge of wilfully omitting to advise MSD that he had received income is concerned, I am satisfied that each of the 5 essential ingredients have been proved beyond reasonable doubt. Not only did he receive money he knew he should declare, he deliberately did not do so, so that he could, and did, continue to receive unabated benefit.
[15] As to the charges of using a document, the Judge was likewise satisfied that on each occasion, the particular document was used dishonestly and without claim of right.
[16] The Judge was also satisfied the charge in relation to Ms Whitehead was proven beyond reasonable doubt. His reasons were as follows:
[65] Although the amount she received into her bank account is substantially less at $25,700, and although the $8,200 received as payment of small loans to her daughter has been explained, what is inescapable is that she must have been aware of her husband’s trading activities and the ongoing deposits into his account.
[66] They lived together; no evidence was placed before me to suggest that they lived entirely independent and separate lives. She assisted her husband to set up the Trademe account and downloaded photographs to assist with various listings. Her husband’s “doing up” activities could hardly go unnoticed in and around their home.
[67] The regularity of deposits into his account likewise could not go unnoticed.
[68] Her obligation was clear as set out in the form she signed on 16 December 2004 requiring that Work and Income be immediately advised of any change in circumstances, of her or her husband. To my mind it is again simply implausible that she was unaware of the overall level of money received, both by her and particularly her husband. She must have known her disclosure obligation was engaged.
[69] Again, I find she was aware the money was being received, knew she had to disclose it and deliberately chose not to in order to continue to receive unabated benefit.
Approach to appeal
[17] An appeal against conviction in a Judge-alone trial is governed by s 232 of the Criminal Procedure Act 2011. This appeal is brought under s 232(2)(b) (emphasis added):
232 First appeal court to determine appeal
(1) A first appeal court must determine a first appeal under this subpart in accordance with this section.
(2) The first appeal court must allow a first appeal under this subpart if satisfied that,—
- (a) in the case of a jury trial, having regard to the evidence, the
jury’s verdict was unreasonable; or
(b) in the case of a Judge-alone trial, the Judge erred in his or her assessment of the evidence to such an extent that a miscarriage of justice has occurred.
(c) in any case, a miscarriage of justice has occurred for any reason.
...
(4) In subsection (2), miscarriage of justice means any error, irregularity, or occurrence in or in relation to or affecting the trial that—
- (a) has created a real risk that the outcome of the trial was affected; or
- (b) has resulted in an unfair trial or a trial that was a nullity.
[18] The Supreme Court recently re-examined the approach to assessment of evidence for conviction appeals in Sena v New Zealand Police.10 The Court held that appeals in such cases should proceed by way of rehearing in accordance with the well- established principles canvassed in Austin, Nichols & Co Ltd v Stitchting Lodestar.11
Relevant law
[19] Section 127 of the Act provides:12
10 Sena v New Zealand Police [2019] NZSC 55 at [36]–[40].
127 Offences: false statements, misleading, or attempting to mislead, to receive or continue to receive benefits
Every person who makes any statement knowing it to be false in any material particular, or who wilfully does or says anything or omits to do or say anything for the purpose of misleading or attempting to mislead any officer concerned in the administration of this Act or any other person whomsoever, for the purpose of receiving or continuing to receive (for himself or for any other person), or which results in himself or any other person receiving or continuing to receive—
(a) any benefit under this Act or Part 6 of the Veterans’ Support Act 2014 or the New Zealand Superannuation and Retirement Income Act 2001; or
(b) any exemption from any obligation under this Act; or
(c) any payment from a Crown Bank Account in accordance with this Act; or
(d) any entitlement card issued under regulations made pursuant to section 132A; or
(e) a more favourable means assessment under section 69FA than he or she would otherwise have been entitled to; or
(f) a more favourable means assessment under Part 4 than he or she would otherwise have been entitled to—
commits an offence and shall be liable on conviction to imprisonment for a term not exceeding 12 months or to a fine not exceeding $5,000, or to both imprisonment and fine.
[20] Section 228(1)(b) of the Crimes Act 1961 provides:
228 Dishonestly taking or using document
(1) Every one is liable to imprisonment for a term not exceeding 7 years who, with intent to obtain any property, service, pecuniary advantage, or valuable consideration,—
- (a) dishonestly and without claim of right, takes or obtains any document; or
- (b) dishonestly and without claim of right, uses or attempts to use any document.
...
[21] Dishonesty is defined under s 217 as “done or omitted without a belief that there was express or implied consent to, or authority for, the act or omission from a person entitled to give such consent or authority”.
Application for leave to apply out of time
[22] Both appeals applications were made significantly late. The District Court decision was released on 13 April 2018. The notices of appeal were due to be filed on 11 May 2018,13 but were not filed until February and April 2019.
[23] Section 231(3) of the Criminal Procedure Act 2011 provides the first appeal court may “at any time” extend the time allowed for filing a notice of appeal. In determining an application, the touchstone is the interests of justice in a particular case.14 The Crown does not oppose the applications for extensions of time.
[24] As for justification for the lateness of the application, both appellants cite various mental health difficulties and difficulty obtaining counsel. The appellants are both retired, and have had significant demands on their life. Two of their now adult children have disabilities and live with them. Mr Longhurst has provided comprehensive affidavits from both himself and his daughter, Ms Nicola Longhurst. The affidavits describe Mr Longhurst’s significant health difficulties and attest to impaired decision-making. He also describes his considerable difficulty in obtaining replacement counsel after his trial counsel was unable to act for him on appeal. In light of these circumstances, I am satisfied it is appropriate to grant his application.
[25] I am satisfied it is appropriate to grant Ms Whitehead’s application also. Her substantive appeal has merit, and there is no risk of a negative effect on any victims of her offending. Further, if Mr Longhurst’s application is granted, Ms Whitehead should receive similar treatment for consistency.15
Arguments raised by appellants
[26] I will deal first with the grounds of appeal raised by Mr Longhurst, as counsel for Ms Whitehead adopted his submissions to the extent they were relevant to her appeal.
13 Pursuant to s 231(2) of the Criminal Procedure Act 2011.
14 R v Knight [1998] 1 NZLR 583, (1997) 15 CRNZ 332 (CA) at 336, 587; confirmed in R v Lee
[2006] NZCA 60; [2006] 3 NZLR 42, (2006) 22 CRNZ 568 (CA).
15 R v Laird CA154/04, 6 October 2004; and Gillbanks v R [2014] NZCA 567
[27] Ms Mobberley for Mr Longhurst contends that Mr Longhurst’s benefit payments between 1 January 2009 and 31 December 2012 consisted of an invalid’s benefit paid by the Accident Compensation Corporation (ACC), with a supplementary benefit from Work and Income (WINZ). Citing the Cabinet Office Manual, Ms Mobberley argues MSD did not have the authority to bring a prosecution in respect of the portion of Mr Longhurst’s income paid by ACC.
[28] In response Ms Carter for the Ministry simply argues that the prosecution against Mr Longhurst was not brought in respect of the ACC payments. The prosecution’s case was that Mr Longhurst committed an offence against s 127 by wilfully omitting to disclose income for the purpose of continuing to receive a benefit under the Act. In respect of the charges brought under s 228 of the Crimes Act, their case against Mr Longhurst was that he used a document dishonestly to obtain a pecuniary advantage under the Act.
[29] I accept Ms Carter’s submission, particularly in light of the fact that s 127 does not apply in respect of payments made by ACC.16
The MSD’s operational policies/officially included error
[30] Ms Mobberley submits the Judge failed to give adequate consideration to MSD operational policy. According to that policy she says the defendants were not obligated to disclose receipt of money from boarders or Trade Me deposits. It follows that the knowledge requirement either could not be established, or the defence of officially induced error applies.
[31] The operational policy Ms Mobberley refers is not official MSD policy, but what the District Court Judge termed “flexibility in operational interpretation” of income between MSD employers.17 For example, Ms Constable, the MSD case manager explained that board payments from up to three boarders were routinely
17 Ministry of Social Development v Longhurst, above n 1, at [17].
ignored when assessing income. Mr Grace, MSD accountant, agreed with this interpretation, but Mr Verhoeven, a MSD investigator did not. Mr Grace also referred to a different approach employed by case workers when assessing income from self- employed applications, including the relevance of some deductions. Finally, Ms Mobberley points to the evidence of Mr Verhoeven, MSD investigator. Mr Verhoeven in cross-examination admitted that personal Trade Me transactions would not have to be disclosed.
[32] The defence of officially induced has been described in the following terms:18
An officially-induced error typically arises where a public official or agency with responsibility for interpreting, administering or enforcing a particular law, supplies incorrect or misleading advice or information to a person inquiring about that law. Relying in good faith on the advice, the inquirer breaks the law despite having dutifully attempted to ascertain what it provides. As a matter of individual fairness it seems unduly harsh, churlish even, for the state then to hold that person to account for the mistake it induced. The integrity of the criminal justice system is potentially undermined when proceedings are taken against a defendant in such circumstances.
[33] The status of the defence in New Zealand law is uncertain. It has been considered in a number of cases, but has yet to be successfully applied.19 It was discussed in a recent judgment of Collins J, Parkes v R.20 In that case, Mr and Mrs Parkes pled guilty to various charges arising from customs fraud, and appealed the decision to decline their application for discharge without conviction. The appellants claimed they were unaware of their legal obligations due to erroneous legal advice. In discussing the defence as a possible consideration, Collins J noted:21
[33] There has been some discussion in New Zealand case law surrounding the so-called doctrine of “officially induced error of law”. The accepted position is that it is best treated as a relevant consideration in an application for discharge without conviction. However, it seems that where it is made out, it is a highly convincing factor. That is appropriate because underpinning the doctrine is the idea that it would not be just to punish citizens for relying on advice given, or representations made, by an official.
18 Margaret Briggs “Officially-induced error of law” (2009) NZLJ 166 at 166.
19 See Tipple v Police [1994] 2 NZLR 362 (HC); Diriye v Police [2006] NZHC 840; [2007] NZAR 717 (HC); Crafar v Waikato Regional Council HC Hamilton CRI-2009-419-67, 13 September 2010; Wilson v Auckland City Council [2007] NZHC 288; [2007] NZAR 705 (HC); and MacRae v Buller District Council HC Greymouth CRI-2005-418-1, 12 December 2005.
20 Parkes v R [2018] NZHC 2752.
21 Footnotes omitted.
[34] The defence was unsuccessful because, among other reasons, the erroneous advice was given by a privately instructed lawyer and not an official or other representative of the state.22 Here, given the acceptance of the “defence” as a factor relating to discharge without conviction, Mr Tennet asked that the proceeding be remitted to the District Court to consider this question.
[35] In the present case it seems to me that the concept of officially induced error is not truly relevant, however. The offences for which the appellants were convicted have mens rea requirements. For the charge of using a document under s 228 it was necessary to prove that Mr Longhurst used the documents dishonestly, and without believing that the use of the document was lawful. If Mr Longhurst honestly believed he was entitled to the benefit and was not obliged to disclose his income he would not have committed the offence. The charges against both Mr Longhurst and Ms Whitehead under s 127 required the prosecution to establish that the defendant knew that he or she was obliged to disclose, and deliberately omitted not to do so intending to mislead MSD. If the defendants were not aware that they were obliged to disclose the information about the income then the offence would not be established. It would not matter whether the honest beliefs were officially induced or not. The required mens rea elements would not be established.
[36] I am also satisfied that even if treated as a self-standing defence it could not apply to the circumstances of this case. It is essential for any defence of this kind for the error to be officially induced. There is no evidence the defendants were aware of the operational policy at the time of the alleged breach of their disclosure requirements, let alone that they committed any such breach in reliance of the policy. Neither defendant said when giving evidence that they had been advised by MSD employees that they did not need to disclose the money they were receiving.
[37] For the reasons I outline below, however, Ms Mobberley’s submissions criticising MSD’s operational policies, and the Judge’s failure to fully address the relevance of those policies does indirectly raise the concerns I have about the findings
22 At [35].
of the Judge in relation to the mens rea requirements of the alleged offending which I address in greater detail below.
[38] Mr Tennet for Ms Whitehead submits that the Judge erred by providing inadequate reasons for his decision. In particular, he says:
(a) It was necessary for the Judge to articulate exactly how Ms Whitehead was cheating MSD.
(b) It was important to set out why her evidence about repayment of loans was accepted, whereas the other payments were not.
(c) The Judge neglected to deal with the point that her income was within the permissible income threshold.
[39] Ms Mobberley likewise submitted that the decision made failed to grapple with the impact of MSD’s operational practices, particularly in relation to the mens rea requirements.
[40] Judges must give adequate reasons for factual findings. Most recently, in Sena v New Zealand Police, the Supreme Court said:23
[The reasons] should show an engagement with the case, identify the critical issues in the case, explain how and why those issues are resolved, and generally provide a rational and considered basis for the conclusion reached. Reasoning which consists of a conclusory credibility preference is unlikely to suffice. The language of s 232(2)(b) reflects an assumption that the reasons given by a judge will reflect that judge's assessment of the evidence and why that assessment resulted in a conviction.
[41] This obligation is particularly important in relation to the credibility of witnesses. In R v Connell, it was argued on appeal the Judge had failed to address certain factors. Cooke J, delivering the judgment of the Court, said:24
23 Sena v New Zealand Police [2019] NZSC 55 at [36].
24 R v Connell [1985] NZCA 34; [1985] 2 NZLR 233 (CA) at 237–238.
Only in most exceptional cases, if ever, is it likely to be consistent with the judicial role ... to give no reasons for the verdict. ...in general no more can be required than ... a plain statement of the Judge’s essential reasons for finding as he does. There should be enough to show that he has considered the main issues raised at trial and to make clear in simple terms why he finds that the prosecution has proved or failed to prove the necessary ingredients beyond reasonable doubt. When the credibility of witnesses is involved and key evidence is definitely accepted or definitely rejected, it will almost always be advisable to say so explicitly.
[42] I do not accept the submissions of the appellants on this issue. The reasons of the Judge do not need to be elaborate provided that they capture the essence of the relevant findings. I accept Ms Carter’s submission that the judgment does so. The essential reasons for the Judge’s rejection of Mr Longhurst’s evidence on the mens rea requirement is set out in paragraph [59] of the judgment. The Judge sets out the three essential reasons why he rejected Mr Longhurst’s evidence. In the case of Ms Whitehead he captured the essential reasons why he concluded that the mens rea element had been established for her offending at paragraphs [65]–[69]. In those paragraphs he accepted that part of the sum in question relating to $8,200 did not involve offending, on the basis that it was money explicable as the repayment of loans to her daughter. So the findings have a degree of precision.
[43] It seems to me that the reasons why the Judge has made the findings are tolerably clear. The real issue is whether those findings were justified on the evidence the Court received. That is the issue to which I turn.
Dishonesty element of offences
[44] Following the hearing of the appeal, and after reading the notes of evidence, I became concerned in relation to the findings of the Judge in relation to the mens rea elements of the offending. Those concerns had not been directly raised in the appeal, although they were related to Ms Mobberley’s general criticisms arising from MSD’s operational practices and the mens rea elements of the offence.
[45] Accordingly I issued a minute identifying my concerns and inviting the respondents to file further submissions, or request a further hearing. Further written submissions were received from the respondent, which were replied to by the appellants.
[46] Having received those further submissions it seems to me that the findings of the District Court Judge are unsafe, and that the appeals ought to be allowed. I explain the reasons for that view below.
[47] Under the Act there is a long definition of “income” including a number of elements, and a number of exceptions. It may be appropriate to refer to the first part of that definition in s 3 which begins:
Income, in particular in relation to any person,—
(a) Means any money received or the value in money’s worth of any interest acquired, before income tax, by the person which is not capital (except as hereinafter set out): and
...
[48] This has been interpreted to include any monetary receipts, even if they are associated with loss making activities. In Carswell v The Director-General of Social Welfare on behalf of the New Zealand Income Support Service Chisholm J held:25
[12] The s 3 definition is based on “money received” or the value in moneys worth of “any interest acquired”. It is not based on notional concepts. The mode of ascertaining the annual income as described in s 64 does not alter that overall concept. The offsetting of losses, which could give rise to subsidisation, is not compatible with the scheme of the Social Security Act or the definition of “income” included in that Act. In Decision 1/97 the Authority was influenced by the possibility of subsidisation when it rejected a developer beneficiary’s claim that losses could be offset in assessing the level of the benefit. I consider that approach to be sound.
[49] In that case Mr Carswell had a property that he was renting out, but he argued that these receipts were offset by expenses, leading to losses overall. The High Court held this was not relevant.
[50] The position is not without complications. In The Director of Social Security v K & S the High Court accepted that the receipt of a loan was not income because it was matched by an obligation to repay, such that the loan did not add to the persons
resources.26 There is also the slightly unclear reference to “capital” in the definition, but I understood Ms Carter to indicate that the sale of a capital item producing money is treated as income under the definition by MSD.
[51] On this approach it does not matter that the receipt of money is the product of loss-making activities. If someone has incurred expenses of $1,000 in selling something for $800, that person is still regarded as having income of $800. Moreover, if a person buys something for $1,000, and then sells it for $800, the person has still treated has having received income of $800.
[52] I note that it may be possible to adopt a more refined meaning to the definition of income that could address such issues, but that was not advanced before me so I do not consider that possibility. Ms Mobberley accepted that the deposits in Mr Longhurst’s accounts were “income”. I also note that similar definitions are now contained in the Society Security Act 2018.
[53] The broad approach to the meaning of income has capacity to create unfair consequences if literally applied, however. As a consequence MSD has adopted a number of operational policies that involve it accepting that certain monetary receipts will not be considered income. For example, a degree of trading on Trade Me has been ignored, and some income from boarders within the home has also been ignored. One way of describing the position is that the potential overreach of the statutory definition is mitigated by operational policies.
[54] One difficulty with dealing with individual cases in this way is the possibility for uncertainty and confusion. The evidence before the Judge here was that there was uncertainty, and inconsistency in terms of the application of those policies. As the Judge acknowledged, Mr Grace said that in assessing income from self-employment MSD often had regard to standard income tax assessment methods for the deductibility of various expenses. His evidence was that the definition had been written in the legislation before business income was in issue. He was asked by the Judge:
26 The Director of Social Security v K & S HC Wellington, AP 255/95, 7 February 1997.
Q. ... So the reality then is that in order for the Ministry to decide whether the money received should be regarded as income, they need as much information as possible surrounding the receipt of the money?
A. Yes. Well there's an absence of case law in this whole area and as you can read, there is no requirement to deduct from money received. So we sort of consider that as being an effort to make it work and therefore something we allow which is in effect beyond what the legislation seems to require.
[55] As I have indicated above, these operational policies, and any uncertainties flowing from them, does not give rise to questions of officially induced error in the present case. That is because neither appellant received any advice in relation to those matters from MSD. But the existence of such policies, and such uncertainties, is an indication that the rules as to what is permitted, or not permitted, are not self-evident.
[56] This is relevant to the mens rea requirements for the offences. A person who is involved in business activities may receive an amount of money from sales but it is ultimately not a money-making activity. Such a person may well not understand there is any obligation to report the gross proceeds when no profit is made and might honestly state on forms that he or she has not made income from any other source. So the mens rea element involved in the allegation of benefit fraud may be important in particular cases.
[57] This seems to me to be the critical issue in the present case. In effect the case against the appellants was that Mr Longhurst, assisted by his wife, engaged in an operation of buying and selling items to generate significant revenue. Mr Longhurst would often do up those items before they were sold. In evidence Mr Longhurst explained that he had been trained as a transport fitter/welder. He had been employed as a truck driver before his serious accident in 2006. He had kept himself occupied since then by his activities. His father had given him the nick-name “Junkman” as a child, and when he had been in employment as a truck driver that was his “call sign” for radio transmission. This perhaps characterises the nature of the activities he was engaged in. The most significant property involved would be vehicles, but also involved other smaller items of property, such as chainsaws and drum kits. Mr Longhurst was able to use his training to make alterations to vehicles — for
example altering a vehicle that was capable of becoming a light weight towing vehicle. Some of the transactions in question occurred on Trade Me.
[58] The total monies deposited in the appellants’ accounts appears significant, totalling $149,265.22. The significance of this figure is reduced by the fact that this was over a seven and a half year period. The amounts are still material as gross receipts.27 But the appellants called expert accounting evidence at trial from Mr John Scutter to the effect that when the costs associated with Mr Longhurst’s activities were taken into account, it was doubtful that any net income was earned. The Judge quoted the following extract from his report:28
This level of activity in my opinion does not indicate a commercial venture but that of a hobby and the receipts would not be determined as income under the income concepts of taxable income. If the receipts are deemed income, expenditure incurred in generating the receipts is to be deducted. When expenditure is taken into consideration, it is doubtful that any net income has been earned.
[59] In cross-examination he put it in the following way:
To simply say, “If this income was deemed as business income, what costs or deductions could be taken into account to see what the net position would be?” And we’ve done on a very, we’ve done it as a seven year exercise, so each year might be different but overall, we said, “These are the likely deductions that could be argued from an MSD point of view. Has that resulted in any gain?” And from a high level analysis, my conclusion is that there would be little to no gain from this activity, which drew me also to the conclusion it’s more of a hobby rather than a business that’s able to contribute to living costs.
[60] The Judge held, however, that Mr Scutter’s evidence was “something of a red herring”. That was because of the broad definition of income and that was “immaterial that on an accounting and taxation basis that Longhurst’s activities could not be characterised as a business and unlikely to generate any likely profit”.29
[61] That is certainly true in terms of the definition of income under the Act. But it was a very material consideration when it came to establishing dishonesty. A person who is not making any profit from buying and selling activities could honestly form
28 Ministry of Social Development v Longhurst, above n 1, at [35].
29 At [36].
the view that he or she is not making any money from those activities that needed to be declared to MSD. The Judge partially acknowledged that issue, as he noted that Mr Scutter’s evidence had provided a “plank” for the argument that Mr Longhurst said that his activities were a hobby that he never regarded as income generating “and as a result was not aware of his obligation to disclose”.30 But in my view this was a very important aspect of the case that needed to be carefully addressed, particularly when Mr Longhurst gave evidence.
[62] Both Mr Longhurst and Ms Whitehead gave evidence at trial. In effect both said that they did not understand that they were obliged to disclose the deposits from the trading activity. Mr Longhurst said he thought his obligation to make disclosure only arose if there was a change in his circumstances such as obtaining full or part time employment. He said he did not realise he needed to disclose information arising from selling items on Trade Me. Mrs Whitehead gave similar evidence. She also said that she did not understand she had to disclose money received from selling her own personal property. In support of their arguments in that respect, they were able to point to two occasions where they had disclosed the receipt of other funds. One was when Ms Whitehead had received a reasonably significant sum by way of inheritance, and the other was when Mr Longhurst had received a lump sum payment by ACC. On both occasions they had reported this, and MSD had advised that it did not affect the benefits paid.
[63] Given that evidence it seems to me that it was very important for both Mr Longhurst and Ms Whitehead to be challenged in cross-examination, particularly on the key issues identified by the Judge as the reasons why he did not accept their evidence. In Mr Longhurst’s case it seems to me to have been necessary for the forms that he had signed to be put to him, and for the propositions ultimately relied upon by the District Court Judge in paragraph [59] to be squarely raised.
30 At [38].
[64] Such a duty arises under s 92 of the Evidence Act 2006. The duty raised by that section was summarised in the following way in McNaughton v R:31
[32] In summary, counsel is under a duty to cross-examine under s 92 where these four criteria are satisfied: (a) the topic of cross-examination is a significant matter; (b) the matter is both relevant and in issue; (c) the matter contradicts the evidence of the witness; and (d) the witness could reasonably be expected to be in a position to give admissible evidence on it. As this Court has observed, the general purpose of the statutory obligation on counsel is “one of fairness”,32 continuing the common law’s longstanding policy that basic fairness requires that if a fact is going to be relied upon in closing it must be put to the relevant witness in cross-examination.33
[65] As Ms Mobberley submitted in her supplementary submissions, whether and how the duty is engaged, and what is necessary to meet it will depend on the circumstances of the case.34 It is not to be slavishly followed, particularly when it is clear what is in issue in the case.35 In Gutierrez v R the Court of Appeal outlined the position in the following way:36
The decisions referred to lead to the conclusion, which we adopt, that the rule is simply one of fairness. Has a reasonable opportunity been given to enable the evidence in question to be properly assessed? It is the responsibility of prosecuting counsel or a prosecutor who proposes to attack the credibility of defence witnesses, including the defendant, to cross-examine in a way which makes it plain that the relevant evidence is challenged and gives the witness a fair opportunity to answer the challenge. Such cross-examination however may not be necessary if from what has gone before or from the circumstances of the case it is fairly made plain that the truthfulness of particular facts given in evidence is not accepted, and an adequate opportunity to meet the challenge has otherwise been afforded.
If evidence relevant to credibility is not so tested when it ought to be, it is likely to be unreasonable for the trier of fact to make an adverse finding in respect of credibility.
[66] In some cases, including that of R (CA669/97) v R upon which Ms Carter relied on in her supplementary submissions, the absence of challenge may be treated as a factor going to the overall assessment rather than being decisive by itself.37 But in the
31 McNaughton v R [2013] NZCA 657, [2014] 2 NZLR 467.
32 R v Soutar [2009] NZCA 227, at [27]; and R v Dewar [2008] NZCA 344.
33 E (CA727/09) v R [2010] NZCA 202 at [54].
34 Cummings v Police [2018] NZCA 622 at [49].
35 R v Dewar [2008] NZCA 344 at [41]–[46].
36 Gutierrez v r [[1997] 1 NZLR 192 at 199.
37 R (CA669/2017) v R [2018] NZCA 165.
present case, the circumstances described above mean that direct challenge was necessary to fairly establish the mens rea elements of the offending.
What was raised in cross-examination?
[67] Having considered the evidence, I conclude the factors relied upon by the Judge for rejecting Mr Longhurst’s evidence were not fairly put to him in cross- examination. Assessing the evidence in the manner contemplated by the approach to the appeal outlined in Sena v New Zealand Police, in my view the conviction was not justified.38 The issue concerning disclosure of income was touched on on two occasions during Mr Longhurst’s cross-examination. First, he was asked about a significant sum from selling particular cars:
Q. And this is money that you gained by selling those vehicles?
A. No the vehicles were financed and the Nissan Safari was financed to Mike Jacobs by Motor Trade Finance in Napier but to get clear title to it they had to pay out Instant Finance, my finance company, and I didn’t receive $10,850, I got 1500 and something and because they made a mistake I had to reimburse Mike 1100, so I got about 400 and something.
...
Q. And if you sold an asset for such a large figure of money, surely you must have known you had to tell Work and Income?
A. I didn’t sell it for a large of money. The money I received was about 400 and something dollars, no I didn't think that at all. I never gave it any thought.
Q. And $400 is still over the income test that you are required to abide by isn’t it?
A. I didn't know that, I don't know.
[68] It is noteworthy that Mr Longhurst’s answers raise the idea of profit rather than gross proceeds.
[69] The matter was raised in one other exchange. He was asked:
Q. You knew that Work and Income would want to know about money that you received, didn’t you?
38 Sena v New Zealand Police, above n 10.
A. No. Apart from the inheritance.
[70] What was not put to Mr Longhurst was the proposition relied on by the Judge in paragraph [59(1)] — that the total number of transactions, and the total value of deposits over seven and a half years meant that he must have understood that it was income he should disclose.
[71] In her submissions in response to my concerns about this issue Ms Carter suggested there was sufficient evidence from which the adverse inferences could be drawn, and that the cross-examination, including the above cross-examination, was sufficient. But it seems to me that to establish the offending MSD had to demonstrate that Mr Longhurst knew he had to disclose gross proceeds even if no profit was generated, especially given the scale of his activities. But this proposition was not put to Mr Longhurst. Put another way, the key aspects of the prosecution case were not squarely put to the defendant.
[72] Moreover, the convictions depended on the false statements made in the forms Mr Longhurst completed. The Judge said that nine forms were critical, in particular in relation to the five charges of using a document. In paragraph [59(2)] the Judge held that the forms he signed were clear and unambiguous. This was an important reason why the Judge concluded Mr Longhurst’s evidence was implausible. But at no point were the forms themselves, and the statements the Judge said were clear and unambiguous, even put to Mr Longhurst in cross-examination. In my view that was necessary.
[73] In the limited questions asked about his disclosure obligations, Mr Longhurst has appeared to respond by saying that a gross receipt did not result in him making significant net income. The evidence of Mr Scutter was that, overall, it was unlikely there was any such net income supporting living expenses. The Judge concluded, however, that whether the activities were profitable or not was “simply not the point” (at [59(3)]). With respect it was. It may well have been the critical point in deciding
whether Mr Longhurst had acted dishonestly by making the statements he did in the forms that he signed.
[74] I have concluded for this reason that the findings that Mr Longhurst acted dishonestly are unsafe, and the convictions ought to be quashed.
[75] My concerns are even greater in relation to the conviction of Ms Whitehead. That is for two further reasons:
(a) She was not charged with making any dishonest statements in any forms provided to MSD. Rather she was convicted for dishonestly failing to disclose the income she and Mr Longhurst received in accordance with a statutory disclosure obligation under s 80A.
(b) The finding of dishonesty appears to be based on the income received from her husband rather than what she received personally.
[76] Ms Whitehead gave evidence that she had not acted dishonestly. She explained she had a separate bank account from Mr Longhurst, that she did not play a part in his trading activities, and that he had never sat down and worked out what profit was made from those activities. She said she did not know she had to tell WINZ about receiving monies from transactions on Trade Me. She said that when she sold items on Trade Me she did not think she had any disclosure obligation as she was simply selling items of her own personal property.
[77] The obligation under s 92 arises in relation to this evidence. But her cross- examination was quite limited and did not address the two key issues referred to in
[75] above.
[78] I accept Ms Carter’s argument that income received by Mr Longhurst would affect the benefit to which Ms Whitehead was entitled to in the manner contemplated by s 80A. Their entitlements were inextricably interlinked. But the obligation of disclosure under s 80A only arises if there is a “change of circumstances”. That seems
to me to be contemplating the situation when something changes after a claim is made and accepted — for example where someone receiving a benefit gets a job, or enters other income earning activities.
[79] Here there has been no meaningful change in circumstances. Mr Longhurst’s trading activities continued throughout. There does not appear to have been any change in those circumstances qualifying as a triggering event for the purposes of s 80A. No triggering change of circumstances was ever put to Ms Whitehead in cross- examination. In response to that point Ms Carter argued that the “change” was simply that in the forms it had been represented they had earned no income, but they had in fact earned significant income. I see that as an artificial characterisation of the events. This is not what s 80A seem to me to be directed to. Any offending would need to relate to false claims that she had herself made.
[80] More importantly the Judge’s findings at paragraph [65]–[69] involve the conclusion that Ms Whitehead must have acted dishonestly because of the significance of the money received by her husband. It would have been necessary to have put that proposition to her in cross-examination before she could be fairly convicted on that basis, particularly given the obligation in s 92 of the Evidence Act 2006. She had given evidence that they had separate bank accounts, that she had not been involved in his activities, and that he had never sat down to work out what profit was generated. It was never put to her that she must have appreciated that the extent of his activities triggered a disclosure obligation.
[81] Ms Carter argued in response that the amount received in her own bank account was sufficient to establish the offence. After deducting the amount regarded by the Judge as not being income, the amount received in her own account over seven and a half years is $17,520.90. That is about $200 per month, which is less than the $100 per week which is permitted. Ms Carter’s response to that point was that the income would not have been received evenly, and in some weeks would have been greater than the limit. But no such case was ever put to Ms Whitehead. Neither was it put to her that she acted dishonestly because of that factor. Moreover that is simply not the basis that the Judge has entered the conviction — he has referred to her income, but it
is the size of her husband’s income that has given rise to his finding that she acted dishonestly.
[82] For that reason also her conviction is unsafe, and should be quashed.
Conclusion
[83] The Social Security Act 1964 had a very broad definition of “income” capturing any money received into a person’s bank account. It catches monetary receipts even when they arise from loss making activities. As a matter of operational policy, MSD has recognised that they cannot apply that approach literally in all cases, and that some receipts need to be treated as permissible.
[84] That approach creates significant uncertainties. The MSD witnesses gave conflicting evidence on the requirements at the trial. These uncertainties are reflected in the present case. Over a period of seven and a half years Mr Longhurst received amounts in his bank account totalling $123,521.91. Those receipts were generated by him acquiring and doing up vehicles, chainsaws, drum kits etc and on-selling them. Expert accounting evidence indicated that taking into account his expenses it was unlikely that he had made any profit from these activities, however.
[85] The Judge correctly concluded that, strictly, the fact he had not made a profit did not matter given the broad definition of income, as the definition catches gross receipts rather than profits. But this factor was potentially critical to the allegation that Mr Longhurst had failed to declare income he knew he should declare when completing the forms he signed to get his benefit entitlements. He gave evidence that he did not understand that his activities had to be disclosed. He needed to be directly challenged on this in cross-examination, and the essential reasons why the Judge did not accept his evidence should have been raised with him. That did not occur.
[86] For Ms Whitehead, the position is even clearer. She did not receive the relevant income in her own bank account. If she was to be convicted for failing to disclose her husband’s income, it would be necessary to cross-examine her on the basis that she knew he was receiving it, and she knew that it had to be disclosed. It was
never put to her in cross-examination that she knew either of these things. It was unfair for the Judge to find that she was dishonest on that basis.
[87] For these reasons I allow the appeals, and I quash the convictions on the basis there has been a miscarriage of justice. Both the appellants have served their sentence of community detention. They have brought these appeals because of the impact of the convictions. I accept that the findings of dishonesty, and resulting convictions, were unfair. In the circumstances there should be no re-trial.
Cooke J
King Chambers, Masterton for Mr Longhurst Justice Chambers, Petone for Ms Whitehead Crown Solicitor, Wellington for Respondent
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