COMMISSIONER OF POLICE v NABAWI [2021] NZHC 2413

COMMISSIONER OF POLICE v NABAWI [2021] NZHC 2413 [15 September 2021]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYI TE KŌTI MATUA O AOTEAROATĀMAKI MAKAURAU ROHECIV 2020-404-1429[2021] NZHC 2413UNDER Criminal Proceeds (Recovery) Act 2009BETWEEN COMMISSIONER OF POLICEApplicantAND JAMAL NASSER NABAWIRespondentHearing: 11, 12 February 2021, 18 March 2021Appearances: M R Harborow and C A Stubbington for ApplicantJ M Matheson and M Shabani for RespondentJudgment: 15 September 2021JUDGMENT OF DUFFY JThis judgment was delivered by me on 15 September 2021 at 2.15 pursuant toRule 11.5 of the High Court Rules.Registrar/ Deputy RegistrarSolicitors/Counsel:Meredith Connell, AucklandShabani Law Ltd, AucklandJ Matheson, Barrister, Auckland[1] The Commissioner of Police (the Commissioner) applies on notice forrestraining and further orders, under ss 24 and/or 25 of the Criminal Proceeds(Recovery) Act 2009 (CPA), over property belonging to Jamal Nasser Nabawi.1Mr Nabawi opposes the application.[2] The Commissioner alleges Mr Nabawi has unlawfully benefited from taxevasion through his failure to meet obligations under ss 143, 143A and 143B of theTax Administration Act 1994 (TAA). Failure to file tax returns and/or providing theInland Revenue Department (IRD) with false or misleading information constitutesoffences under those provisions.2 The Commissioner contends that this warrants himbringing claims against Mr Nabawi under the CPA for the recovery of those benefits.Further, the Commissioner seeks restraining orders under ss 24 and 25 until the claimsare substantively determined.[3] Mr Nabawi denies he has evaded tax and argues, therefore, that he has notcommitted any offences under the TAA. Further, he says that tax evasion is not thetype of offence for which recovery claims can be brought under the CPA. Accordingly,the present application should be refused.[4] The application raises a novel legal issue as to whether the proceeds of taxevasion are recoverable under the CPA. It is also necessary to determine disputedfactual issues as to whether Mr Nabawi has committed tax offences in terms of ss 143,143A and 143B of the TAA. I propose to address the legal issue first.Recovery of proceeds of tax evasion[5] The disputed legal issues require me to ascertain: (a) whether the allegedevasion of tax obligations can result in Mr Nabawi being seen to have derived propertyand/or benefits that are recoverable under the CPA; and if so, (b) whether ss 24 and 251 An application for without notice restraining orders was granted by Powell J on 2 September 2020.See Commissioner of Police v Nabawi HC Auckland CIV-2020-404-1429, 2 September 2020.These orders remain in place until the determination of the current application.2 Tax Administration Act 1994, s 143: Failure to file a tax return, and/or provide relevantinformation to IR, constitutes an absolute liability offence. However, a respondent who is able toprove that the required information was not within their knowledge, possession or control has astatutory defence under s 143(2)(a). The maximum penalty for a first conviction under s 143(1)is a fine of $4,000.can be engaged to prevent their dissipation until a substantive determination on theirrecovery is made.[6] The Commissioner contends that the proceeds of the alleged tax evasion nowtake the form of Mr Nabawi's property as follows (collectively, the Property):(a) 2017 Toyota Hilux, [redacted], registered to Mr Nabawi (Hilux);(b) $58,450 cash, stored inside the Hilux (Cash); and(c) Credit balance of ANZ Bank account [redacted] in the name ofMr Nabawi (Bank Funds).3[7] Mr Nabawi was the sole director of Premium Plasterboard NZ Limited(Premium Plasterboard) between September 2014 and December 2018. At the timehe attracted the Commissioner's attention he was director of another company PlasterSquad Limited.[8] A financial investigation into Mr Nabawi's affairs by the Commissioner'sAsset Recovery Unit (CARU) revealed Mr Nabawi's only declared income for the2015 and 2016 tax years was from his then employer General Distributors Limited(trading as Countdown supermarket) where he earned a gross income of $11,353. Forthe tax years from 2017 to 2020 his total declared income was $10,360.[9] However, approximately $1,314,161 was deposited into Mr Nabawi's personaland business bank accounts during the relevant time. Tanya Thompson, a forensicaccountant with CARU, has deposed that deposits totalling $1,080,482 inMr Nabawi's personal bank accounts can be attributed to business income for thefinancial years between 16 January 2013 and 15 January 2020. None of those fundswere declared to the IRD. Ms Thompson's assessment is that Mr Nabawi should havepaid $118,072 in Goods and Services Tax (GST) and $250,678 in income tax.Ms Thompson also identified $408,942 in undeclared business income in PremiumPlasterboard's bank accounts between 27 July 2016 and 15 January 2020.3 As at 9 September 2020 these funds stood at $107,486.09.Ms Thompson's assessment is that the company should have paid $53,340 in GST and$99,568 in income tax. The overall total of evaded tax is therefore approximately$521,659.[10] The bulk of the undeclared income appears to have been received from 2015onwards. The CARU investigation showed Mr Nabawi had received the followingsignificant deposits into his personal bank accounts:(a) $140,028 in 2015;(b) $184,234 in 2016;(c) $362,360 in 2017;(d) $159,456 in 2018; and(e) $234,402 in 2019.[11] The Commissioner argues that there has been an intentional and deliberateomission to file accurate tax returns, provide accurate information to the IRD, and paytax. These omissions have enabled Mr Nabawi to purchase the Property. As he has"unlawfully benefited" from the tax evasion in excess of $30,000, the offending fallswithin the s 6 definition of "significant criminal activity" for the purposes of ss 55 and25 of the CPA.4[12] The Commissioner submits that Mr Nabawi's interest in the Property isunambiguous: the Bank Funds are held in his personal bank account, the Hilux isregistered to him, and the Cash was found in the Hilux. When questioned by Police,Mr Nabawi stated that the cash was his and that he intended to purchase anothervehicle with it.4 Section 4(1) of the Criminal Proceeds (Recovery) Act 2009 (CPA) provides for the restraint andforfeiture of property derived as a result of significant criminal activity without the need for aconviction. Section 6(1)(b) of that Act provides that "significant criminal activity" means anactivity engaged in by a person that if proceeded against as a criminal offence would amount tooffending from which property, proceeds or benefits of a value of $30,000 or more have, directlyor indirectly, been acquired or derived.[13] The Commissioner also argues that the Hilux is specific property which is"tainted" for the purpose of s 24 of the CPA as it was acquired, either wholly or in part,with the proceeds of tax evasion.[14] Accordingly, the Commissioner submits that restraining orders under ss 24 and25 of the CPA are warranted, as there are reasonable grounds to believe that:(a) Mr Nabawi has unlawfully benefited from significant criminal activity;(b) Mr Nabawi has an interest in the Property; and(c) The Hilux is tainted property.[15] Mr Nabawi bases his legal opposition to the application on the argument theCPA cannot be applied to tax evasion of the type alleged here because it does notgenerate a "benefit" within the meaning of that term in the CPA. Mr Nabawi arguesthat tax evasion does not result in any gain of property or wealth; all that occurs is theoffender escapes (or seeks to escape) a liability by avoiding the statutory obligation topay a part of his or her lawfully gained income to the Commissioner of InlandRevenue. This circumstance cannot be viewed as analogous to a positive acquisitionor derivation of proceeds or property. Accordingly, any benefits Mr Nabawi may havereceived from the alleged offending cannot properly be defined as "property" for thepurposes of the CPA, and are therefore beyond the scope of this Act.[16] Mr Nabawi acknowledges that some tax offences (excluding his allegedoffending) are within the scope of the CPA. In this regard he distinguishes betweenthe type of tax offence which yields a net increase in wealth (such as a GST refundobtained through fraud) and non-payment of taxes owed under law (as alleged here)which merely avoids or postpones a decrease in a person's net wealth. Thus, a vehiclepurchased with a fraudulently obtained GST refund would be tainted property, and anycash remaining would be criminal proceeds, for the purposes of the CPA. On the otherhand, a vehicle purchased with money lawfully earned, as well as fungible assets(cash) accrued through lawful employment, cannot be classed as criminal proceedssimply because a tax debt to the IRD is owed. Accordingly, Mr Nabawi argues thathis Property is not a "benefit" and the Hilux is not "tainted property" for the purposesof recovery under the CPA.[17] Mr Nabawi also argues that an alternative and better remedy is available, giventhe statutory powers of the Commissioner of Inland Revenue under the TAA, whichspecifically provides for the assessment and collection of evaded tax.Statutory framework[18] Section 3 of the CPA sets out its purposes:3 Purpose(1) The primary purpose of this Act is to establish a regime for theforfeiture of property—(a) that has been derived directly or indirectly from significantcriminal activity; or(b) that represents the value of a person's unlawfully derivedincome.(2) The criminal proceeds and instruments forfeiture regime establishedunder this Act proposes to—(a) eliminate the chance for persons to profit from undertaking orbeing associated with significant criminal activity; and(b) deter significant criminal activity; and(c) reduce the ability of criminals and persons associated withcrime or significant criminal activity to continue or expandcriminal enterprise; and(d) deal with matters associated with foreign restraining ordersand foreign forfeiture orders that arise in New Zealand.[19] Section 4 provides an overview of its provisions:4 Overview(1) In general terms, this Act—(a) provides for the restraint and forfeiture of property derived asa result of significant criminal activity without the need for aconviction; and(b) sets out certain procedural matters relating to the forfeiture ofinstruments of crime if a conviction has been or may beentered. Many aspects of the conviction-based forfeitureregime are included in the Sentencing Act 2002.[20] Under s 5 "benefit" and "property" are broadly defined:benefit includes proceeds and property...property—(a) means real or personal property of any kind—(i) whether situated in New Zealand or a foreign country; and(ii) whether tangible or intangible; and(iii) whether movable or immovable; and(b) includes an interest in real or personal property.[21] Similarly, s 5 gives "tainted property" a broad meaning:tainted property—(a) means any property that has, wholly or in part, been—(i) acquired as a result of significant criminal activity; or(ii) directly or indirectly derived from significant criminalactivity; and(b) includes any property that has been acquired as a result of, or directlyor indirectly derived from, more than 1 activity if at least 1 of thoseactivities is a significant criminal activity.[22] "Significant criminal activity" is defined in s 6 as an activity amounting to acriminal offence which is (a) punishable by 5 or more years' imprisonment or (b)yields, directly or indirectly, property, proceeds or benefits of $30,000 or more.5 Thisdefinition does not require active criminal charges or prior convictions in connectionwith the offending.6[23] Section 7 gives the phrase "unlawfully benefited from significant criminalactivity" a broad meaning:5 Section 6(1).6 Section 6(2).7 Meaning of unlawfully benefited from significant criminalactivityIn this Act, unless the context otherwise requires, a person hasunlawfully benefited from significant criminal activity if theperson has knowingly, directly or indirectly, derived a benefit fromsignificant criminal activity (whether or not that person undertook orwas involved in the significant criminal activity).[24] The broad definitions the CPA provides for "property", "benefits" and "taintedproperty" underscore Parliament's evident intention to ensure that all forms of fiscalbenefit flowing from significant criminal activity are capable of being caught by theAct's provisions.[25] Section 15 of the CPA makes it clear that a criminal conviction is not requiredbefore any significant criminal activity can sustain a civil forfeiture order. Further,there is no requirement in the CPA that the subject who profits from the unlawfulbenefit, or who acquires/derives the tainted property, has undertaken or activelyparticipated in the criminal activity.7 However, the unlawful benefits and/or taintedproperty must be knowingly derived/acquired by the subject.[26] There are two types of forfeiture order under the CPA. Section 50 provides forthe forfeiture of tainted property and s 55 provides for the forfeiture of the profits fromthe significant criminal activity:50 Making assets forfeiture order(1) If, on an application for an assets forfeiture order, the High Court issatisfied on the balance of probabilities that specific property istainted property, the Court must make an assets forfeiture order inrespect of that specific property.(2) Subsection (1) is subject to section 51.(3) The Court must specify in an assets forfeiture order the property towhich the order applies and that the property—(a) vests in the Crown absolutely; and(b) is in the custody and control of the Official Assignee.(4) Despite subsection (1), the Court may not make an assets forfeitureorder in relation to property that no person has claimed an interest in,7 Section 7.unless the Court is satisfied, on the balance of probabilities, of thefollowing additional matters:(a) that a restraining order was earlier made in relation to thesame property; and(b) that the restraining order has been in place for a period of atleast 1 year; and(c) that the Commissioner has contacted or made all reasonableefforts to contact any person the Commissioner believes mayhave an interest in the property.(5) If any property that is land is vested in the Crown absolutely as aconsequence of an assets forfeiture order made under subsection (3),an interest recorded on the title to the land that is not affected by theassets forfeiture order is not extinguished.55 Making profit forfeiture order(1) The High Court must make a profit forfeiture order if it is satisfied onthe balance of probabilities that—(a) the respondent has unlawfully benefited from significantcriminal activity within the relevant period of criminalactivity; and(b) the respondent has interests in property.(2) The order must specify—(a) the value of the benefit determined in accordance with section53; and(b) the maximum recoverable amount determined in accordancewith section 54; and(c) the property that is to be disposed of in accordance withsection 83(1), being property in which the respondent has, oris treated as having, interests.(3) Subsections (1) and (2) are subject to section 56.(4) A profit forfeiture order is enforceable as an order made as a result ofcivil proceedings instituted by the Crown against the person to recovera debt due to it, and the maximum recoverable amount is recoverablefrom the respondent by the Official Assignee on behalf of the Crownas a debt due to the Crown.[27] Where profit forfeiture orders are sought, s 53 creates a rebuttable presumptionthat the value of the unlawful benefit derived from significant criminal activity is thatstated in the Commissioner's application for such order.[28] To ensure the subject proceeds are not dissipated before a forfeiture order canbe obtained, the CPA makes provision for restraining orders in ss 24 and 25. Theseprovide as follows:24 Making restraining order relating to specific property(1) A court hearing an application for a restraining order relating tospecific property may, if the court is satisfied it has reasonablegrounds to believe that any property is tainted property, make an orderthat the property (restrained property)—(a) is not to be disposed of, or dealt with, other than is providedfor in the restraining order; and(b) is to be under the Official Assignee's custody and control.(2) A restraining order may be made under subsection (1) whether or notthere is a respondent in relation to whom the restraining order relates.25 Making restraining order relating to all or part of respondent'sproperty(1) A court hearing an application for a restraining order relating to all orpart of a respondent's property may, if the court is satisfied it hasreasonable grounds to believe that the respondent has unlawfullybenefited from significant criminal activity, make an order that theproperty it specifies in the order (restrained property)—(a) is not to be disposed of, or dealt with, other than is providedfor in the restraining order; and(b) is to be under the Official Assignee's custody and control.(2) A restraining order made under subsection (1) may relate to any of thefollowing:(a) all of a respondent's property (including property acquiredafter the making of the order):(b) specified parts of a respondent's property:(c) all of a respondent's property (including property acquiredafter the making of the order) other than specifically excludedproperty.Discussion[29] Put shortly, the language and structure of the CPA provides a broad scope forthe recovery of criminal proceeds, property and benefits that are derived directly orindirectly from significant criminal activity.8 In particular, the forfeiture regime aimsto "eliminate the chance" of profiting from significant criminal activity, to deter suchactivity, and to restrict the extension or expansion of criminal enterprises.9 Consistentwith such breadth of purpose, Parliament has chosen to provide for the restraint andforfeiture of such property without any need for a prior conviction for the subjectcriminal activity.10 The Court of Appeal has described the CPA's purpose provisionas "strongly expressed".11 Similarly, the Supreme Court has described it as"aspirational" and providing a "clear and emphatic signal as to the legislativepurpose".12 Against this background it seems to me that in principle there is no reasonwhy the CPA should not be applied to tax evasion, providing such offending and theprofits it generates meet the CPA's requirements.[30] There was a time when tax legislation was "construed vigorously in favour ofthe taxpayer against the state: the taxpayer was caught only if the Act on its narrowestinterpretation covered him or her".13 A narrow approach to the application of taxlegislation would not have sat well alongside the broad purposive approach of theCPA. This could have provided a reason for interpreting the CPA in a way thatexcluded tax offending. However, the Supreme Court has determined that taxlegislation must be interpreted on the same basis as any other legislation:14In this country, the general approach to the interpretation of a revenue statuteis much the same as for other statutes. The purpose of a taxing provision maybe a guide to its meaning and intended application. But, as Burrows and Carterpoint out, in most cases the only evidence of that purpose is the detailedwording of the provision and the safest method is to read the words in theirmost natural sense. In construing and applying a taxing provision, a courtleans neither for nor against the taxpayer, but should require that before theprovision is effectual to make the taxpayer amenable to the tax, it uses wordswhich, on a fair construction, must be taken to impose that tax in thecircumstances of the case.8 Section 3(1).9 Section 3(2)(a), (b) and (c).10 Section 4(1)(a).11 Haywood v Commissioner of Police [2014] NZCA 625, at [29].12 Marwood v Commissioner of Police [2016] NZSC 139, [2017] 1 NZLR 260, at [12].13 Ross Carter Burrows and Carter Statute Law in New Zealand (5th ed, LexisNexis, Wellington,2015) at 234.14 Stiassny v Commissioner of Inland Revenue [2012] NZSC 106, [2013] 1 NZLR 453 at [23](footnotes omitted).[31] Accordingly, there is no tension between the interpretation of tax legislationand the CPA. Each requires an approach that seeks to ensure the legislative purposesare fulfilled. It follows that an alleged tax evader is not disadvantaged if he or shefaces recovery proceedings under the CPA rather than proceedings under the TAA.Under either Act, a Court will strive to ensure the legislative purposes are met.Moreover, when it comes to tax evasion and the criminal penalties in Part 9 of theTAA, the purposes of the TAA and the CPA align with each other. Both exist to ensurean offender does not profit from his or her criminal activity.[32] It is against this background that I address the question of whether a knowingomission to discharge income tax obligations that would have led to payment ofincome tax and GST have resulted in Mr Nabawi deriving property, proceeds orbenefits that are recoverable under the CPA, and are therefore susceptible torestraining orders made under ss 24 and/or 25 of that Act.Can tax evasion satisfy the CPA's requirements for orders under ss 55 and 25?[33] The alleged tax evasion meets both arms of the statutory definition of"significant criminal activity" in s 6.15 As to whether Mr Nabawi has profited fromtax evasion, the focus here is on whether Mr Nabawi's alleged failure to meet theobligations imposed on him by ss 143, 143A and 143B has led him to "directly orindirectly derive a benefit" from that activity.[34] Under s 5 of the CPA "benefit" is defined as including "proceeds" and"property". Property is further defined in s 5, but proceeds is not. The ordinarymeaning of "proceeds" is the product of enterprise, an outcome or profit.16 The termsused in the CPA and the inclusive nature of the definition of "benefit" suggest thatParliament intended this term to have the broadest possible meaning.17 The words"directly or indirectly derive a benefit" suggest that Parliament also intended the15 The alleged offending involves property, proceeds or benefits that exceed $30,000. In additionthe penalties for offending under either s 143A(1)(d) or s 143B(1) and (2) carry a maximum of5 years' imprisonment: See ss 143A(8) and 143B(4) respectively.16 Oxford English Dictionary (2021, online ed.) Proceeds n. "That which proceeds, is derived, orresults from something else; that which is obtained or gained by any transaction or process; anoutcome; esp. the money obtained from an event, activity, or enterprise."17 The Court in Commissioner of Police v Snook [2018] NZHC 2537 found that "benefit" meanspecuniary advantage, profit, or gain.broadest scope possible when it came to understanding how a person might come toenjoy such a benefit. With this in mind, the enquiry here is whether the availability ofadditional disposable funds as a result of a failure to meet tax obligations can beregarded as a benefit that is derived either directly or indirectly from the decision notto discharge those obligations.[35] Parliament has chosen to make an omission to file tax returns with the intentionof evading tax payment a criminal offence.18 The practical effect of such an omissionis that Mr Nabawi retains money which he should rightfully have paid to the IRD.[36] I acknowledge that there is no suggestion that the income received byMr Nabawi and Premium Plasterboard was earned illegally. Further, until the relevanttax period for declaring the income and paying tax has passed, any intent not todischarge those tax obligations will be executory and capable of being undone. Butonce that tax period is passed the omission to declare and pay tax on the subjectearnings will be executed.[37] Given the fungible character of money, it will not be possible to distinguishspecific sums of money for which no tax declarations or payments were made at therelevant time from those for which tax was declared and paid. There is also the factthat declaration and payment of tax typically leaves a taxpayer with a net balance oflegitimate disposable earnings that exceed the payable tax.[38] However, the effect of alleged omissions to file tax returns and pay tax is thatMr Nabawi will have retained more legitimately earned funds than he should havedone. In my view, this is capable of being regarded as a benefit derived from theunlawful omission to meet his obligations, and those of Premium Plasterboard, underss 143, 143A and 143B of the TAA. If there is any doubt as to whether the benefit canbe said to be "directly" derived from the omission, then I consider it can certainly beregarded as having been "indirectly" derived. The full extent of the disposable incomethat has been available to Mr Nabawi in the relevant period is due to his omission tomeet his tax obligations. Money that should have been paid as tax by Mr Nabawi andPremium Plasterboard has remained with him for his personal use.18 Sections 143, 143A and 143B.[39] The unlawful benefit must be "knowingly" derived.19 I consider a "knowing"omission requires some degree of intentional activity and deliberation, whichdistinguishes it from an inadvertent omission. The latter can happen without action orthought on the part of the subject. In contrast, a knowing omission requires the subjectto: (a) apply his or her mind to the question of whether or not to carry out the omission;(b) form the intent to do so; and (c) enact that intent. In this context, a deliberatedecision not to file tax returns or pay tax, which is acted upon, can of itself be regardedas a form of unlawful activity. Where, as is the case here, such activity can lead topenalties of up to five years' imprisonment or the acquisition or derivation of financialbenefits of $30,000 or more, the activity qualifies as "significant criminal activity" forthe purpose of s 7 of the CPA.[40] I am reinforced in this view by the fact that s 5(1) of the CPA provides that aperson can be a recipient of an unlawful benefit even though he or she has notundertaken or participated in the criminal activity. Thus, Parliament has cast the netwide. There is no reason to think Parliament would have intended to exclude thosewho criminally offend by knowingly deciding not to perform statutory obligations inorder to obtain a financial benefit.[41] In Commissioner of Police v Dryland,20 Gilbert J found that money belongingto a tax evader who had neither declared nor paid tax on earnings from a firewoodbusiness was not tainted property that was open to restraint under s 24. The Judgeconsidered the money was not acquired through, or directly or indirectly derived from,tax evasion. The requisite statutory linkage to significant criminal activity was foundto be absent because the money had been legitimately earned prior to the tax evasion.This led Gilbert J to reject the proposition that the proceeds of tax evasion could berecovered under the CPA. 21[42] I acknowledge that during the currency of a particular tax year the knowingomission to pay tax is still in the executory phase. Income need not be declared untilthe expiry of the statutory time frames for declaration. It is also possible that the cash19 Section 7.20 Commissioner of Police v Dryland HC Auckland CIV 2012-419-242, 30 August 2012.21 At [21]-[22].funds are profits from a previous year during which tax was declared and paid.However, once the time frame for declaration and payment has passed in any giventax year the offence of tax evasion is completed. Tax evaders will then have reachedthe stage where they have knowingly decided not to pay tax and have enacted thatintention. Once this point is reached such persons will have more disposable funds onhand than they otherwise would have done. If the tax they have evaded paying exceeds$30,000 their offending qualifies as significant criminal activity under s 6 of the CPA.Accordingly, provided tax evasion has reached the point of execution I see theoutcome as being no different from other criminal offending that generates a profit.That profit can be used directly to acquire or derive benefits or property, or it can beused to achieve that outcome indirectly. With the latter the tax evader may be free touse legitimate funds to acquire or derive a particular discretionary benefit or propertysimply because other unavoidable and necessary expenses are met by using the fundsthat should have gone to pay the evader's tax obligations. Put shortly, the subjectwould have had insufficient funds to acquire/derive the benefit/property and meet theexpenses if tax had been declared and paid.[43] Accordingly, I consider omissions by Mr Nabawi to meet his obligations underss 143, 143A and 143B are capable of being regarded as unlawful benefits fromsignificant criminal activity in terms of forfeiture orders under the first limb of s 55(1).[44] The second limb of s 55(1) requires Mr Nabawi to have interests in property towhich a forfeiture order can attach. All that is required here is that at the time the s 55forfeiture order is made there is some property interest vested in Mr Nabawi fromwhich the value of the ascertained profits from his significant criminal activity can besubtracted. Where these conditions are met, the Commissioner would have the legalbasis for applying for a s 25 restraining order to preserve this property until theapplication for the forfeiture order is heard.[45] If the necessary evidential foundation is established, I see no reason whyMr Nabawi's Property should not be subject to a profit forfeiture order under s 55. Itfollows that there is no legal reason why this Property should not be eligible forrestraint under a s 25 restraining order. Whether such order is made or not will turnon whether the Commissioner can establish there are reasonable grounds for the Courtto be satisfied the evidential requirements of s 25 are met.Can tax evasion satisfy the CPA's requirements for orders under ss 50 and 24?[46] Whether the Hilux can be the subject of an assets forfeiture order under s 50and therefore also be subject to a restraining order relating to specific property, unders 24, is a separate question.22 The answer turns on whether this vehicle meets thedescriptions of "specific property" and "tainted property" in s 5. Once again, the CPAdefines the scope of "specific property" and "tainted property" broadly.[47] It is important to note that the "specific property" to which ss 50 and 24 applyis nothing more than property that is identifiable, whether or not there is an identifiableowner.23 The Hilux meets this definition.[48] The Commissioner relies on the broad definition of "tainted property" to arguethat the Hilux is susceptible to forfeiture under s 50 and restraint under s 24. Thedefinition includes property that has been acquired, either wholly or in part, as a resultof significant criminal activity, as well as property that is directly or indirectly derivedfrom such activity. The latter part of this definition reflects the language used in s 7to define an unlawful benefit from significant criminal activity. The only differenceis that "tainted property" is property that is directly or indirectly derived fromsignificant unlawful activity.[49] Accordingly, once the Hilux passes the threshold requirement for beingidentifiable (which it does) the same reasoning process which has led me to concludethat tax evasion can meet the statutory requirements for orders under ss 55 and 25applies here as well. Provided it can be shown that Mr Nabawi paid for the vehicle ata time when his disposable income was enlarged by his tax evasion, then the purchase22 The Commissioner's application on notice for restraining orders sought restraining orders unders 24 for the Toyota Hilux van (Hilux) and $58,450 cash located in the Hilux by police during theexecution of a search warrant on 29 November 2019. In closing submissions at the hearing theCommissioner only sought for the Hilux to be restrained under either s 24 or 25 of the CPA. Therequest to restrain the $58,450 cash located in the Hilux pursuant to s 24 of this Act was no longerpursued.23 Section 5.of the Hilux was derived from significant criminal activity. Therefore, orders underss 50 and 24 can be made.[50] It follows that I reject Mr Nabawi's arguments that tax evasion falls outside thescope of the CPA. Mr Nabawi is essentially arguing for a narrower application of theAct's fundamental concepts than is indicated by the statutory language. His keycontention is that tax evasion results in a "decrease in liability with no correspondingor associated acquisition of property". Mr Nabawi suggests that tax evasion is"unique" in this regard, because the obligation to pay is avoided without the"reciprocal receipt of property". Mr Nabawi concedes that all other criminal activitieswhich involve the avoidance of an obligation to pay, such as credit card fraud, mightbe properly classed as generating a benefit because assets – either tangible or fungible– are acquired in return for the crime. In contrast, Mr Nabawi argues that tax is a one-sided transaction, and the taxpayer receives nothing in return for their payment. Inshort, Mr Nabawi seeks to portray tax evasion as resulting in an "absence of liability",and he argues that such a definition cannot fall within the scope of even the broadestdefinition of "property".[51] However, I do not consider the CPA requires the subject to owe a legallyrecognisable liability before its provisions are engaged. Nor do I understand theCommissioner to be arguing that here Mr Nabawi has unlawfully benefitted simplybecause he has avoided a tax liability. This view of matters is too short sighted. Itoverlooks the fact that by evading the liability to pay tax Mr Nabawi has arguablyenjoyed more disposable income than would otherwise have been available to him. Ifthere is an evidential basis for this proposition, then arguably all or part of the Propertycan be seen as acquired (either directly or indirectly) or derived (either directly orindirectly) from significant criminal activity.Further factors to be considered[52] There are two further factors to be considered; neither was directly touched onby the parties. The first is how to reconcile any statutory liability under the TAA topay tax on undeclared income with the notion that failure to declare and pay tax willincrease disposable income and facilitate either acquiring "tainted property" orderiving "unlawful benefits" from tax evasion. The second is the need to recognisethat undeclared income will comprise a portion that is to be paid in tax and a portionthat the subject is entitled to retain for his or her own benefit.[53] Regarding the first factor, tax evasion does not cause the tax liability under theTAA to evaporate; it merely avoids it. A tax evader will only profit from the offenceif he or she is successful in avoiding detection. Once the offence is detected, absentany statutory bar against recovery, the benefits derived from the offending may becancelled out by actions taken by the IRD under the TAA. The existence of live taxliabilities may mean that profits derived from tax evasion are more notional than real.Whilst a tax evader may have enjoyed the extra disposable income tax evasion hasbrought him or her, such profits will sit alongside the tax liability he or she continuesto owe. When the tax liability is enforced it may expunge what appeared beforehandto be profits from tax evasion. On the other hand, if the additional disposable incomederived from tax evasion is used to acquire assets that rapidly inflate in value, theresulting profits may survive the effect of any tax recovery by the IRD.[54] I was not informed regarding Mr Nabawi's tax situation with the IRD andwhether the IRD was taking steps to recover unpaid tax that he may owe. I considerit would have been helpful if the Commissioner had obtained evidence from the IRDon those matters. If the IRD takes no steps, then for the reasons I have already givenI consider there are reasonable grounds to believe Mr Nabawi has profited from taxevasion. On the other hand, recovery action by the IRD may wipe out any profits theevasion has provided.[55] Premium Plasterboard was liquidated in December 2018 and is nowderegistered. The company's tax liabilities are therefore no longer capable of beingenforced.24 If this is so, undeclared funds earned by Premium Plasterboard butdeposited into bank accounts under Mr Nabawi's control may properly be regarded asunlawful benefits he has derived from tax evasion by Premium Plasterboard.24 The Commissioner of Inland Revenue is a preferential creditor in cases of company insolvency,under the Companies Act 1993, sch 7(1)(1)(5), but payment will depend on available funds.[56] As to the second factor, a taxpayer is entitled to retain a portion of legitimatelyearned funds as his or her personal income. The problem for the Commissioner is howto prove that specific assets or funds have been acquired or derived from funds thateither wholly or in part should have been paid in tax.[57] When the price of the subject assets fall within the realm of the funds a taxpayerhas available to him or her it may be a difficult exercise to prove those assets havebeen acquired by or derived from funds that should have been paid in tax. Where thecosts of everyday living plus the price of the asset exceed the sum to be paid in tax itcould be said that but for the failure to pay tax the offender could not have acquiredthe asset and met necessary general expenditure without the benefit of the tax evasion.The asset would therefore be tainted property for the purpose of ss 50 and 24.[58] Similar reasoning applies with forfeiture orders under s 55 and restrainingorders under s 25. The Commissioner will need to prove that assets were acquiredwith additional disposable income the subject derived from tax evasion, rather thanthe portion of income he or she would have been entitled to retain.[59] However, these exercises would seemingly require the Commissioner toprovide evidence of accounting analyses that assessed the probability of a tax evaderbeing unable to acquire/derive the tainted property/unlawful benefits without usingfunds that should have been applied to meet tax obligations. Without such evidence Ifind it difficult to see how the Commissioner could satisfy a court that the taintedproperty/unlawful benefits in question were acquired by or derived from tax evasionrather than paid for from legitimately earned funds that the taxpayer was entitled toapply for his or her own use.[60] However, neither of the above factors provides good reason to construe theCPA in a way that would exclude its application to the present circumstances. Theneed for the Commissioner to balance tax liabilities against perceived profits/taintedproperty from tax evasion seems to me to be relevant to whether the Commissionercan establish an evidential basis for orders under the CPA rather than being a reasonfor finding tax evasion falls outside the jurisdictional scope of the CPA. The sameapplies for the second factor.Conclusion on application of CPA to tax evasion[61] For the reasons given above, I consider that in principle forfeiture andrestraining orders under the CPA can be applied to tax evasion offending.Is there an evidential basis for restraining orders?[62] The remaining question is whether there is an evidential basis to supportrestraining orders as sought.Relevant legal tests[63] The CPA provides that the Commissioner may apply to the High Court for arestraining order, with or without notice, on specific property items or all/part of therespondent's property.25 The application must identify the proposed restrainedproperty, the respondent (if any) and any other persons with an interest in the relevantproperty.26[64] Where a restraining order is sought in relation to specific property, under s 24,the Court must be satisfied that it has reasonable grounds to believe that the propertyis tainted property.[65] Where the order sought relates to all or part of the respondent's property, unders 25, the Court must be satisfied that it has reasonable grounds to believe that therespondent has unlawfully benefited from significant criminal activity.[66] Under either provision, the Court may make an order that the property is notto be disposed of, or dealt with, other than provided for in the restraining order, andplacing it under the Official Assignee's custody and control.27[67] In relation to issuing a restraining order, the Court of Appeal has said that ajudge "is not required to make a finding that the relevant property is tainted propertyor that the particular person did in fact unlawfully benefit from significant criminal25 Sections 18, 20-25.26 Section 19.27 Sections 24(1)(a), (b) and 25(1)(a),(b).activity". Rather, all that is required of the judge is to find that there are "reasonablegrounds to believe" the allegations. This is because the nature of a restraining orderis a "temporary" measure to enable police to gather further evidence which may ormay not lead to the more permanent consequence of a forfeiture order. The "withoutnotice" applications of the Act reflect the fact that restraining orders are often soughtunder urgency, without the benefit of a full investigation.28 Consequently, this Courthas observed that the "threshold for making restraining orders is therefore relativelylow, consistent with their role as a 'holding' measure".29Submissions on the evidence[68] The Commissioner contends that both Mr Nabawi's declared personal incomeand Premium Plasterboard's declared business income is significantly less than thefunds each is shown to have received into their respective bank accounts. Further,Mr Nabawi lacks a credible explanation for the funds shown in those accounts.[69] Mr Nabawi contends that he did not benefit from, and had no knowledge of,the alleged tax evasion. Specifically, his counsel cites extracts from statements givenin evidence to argue as follows. First, Premium Plasterboard was a family businessand traditional Afghan concepts of family mean a business/company is alwayscontrolled by the oldest male as the head of the family. Secondly, the head of thefamily was Mohammad Fahim Nabawi (Mr Nabawi's uncle) who was referred to byMr Nabawi as Fahim.30 Mr Nabawi said that Fahim and his brother Mustafa HusseinNabawi controlled Premium Plasterboard and the earnings it received, althoughneither were legally directors. Thirdly, Mr Nabawi was only 18 years old when hestarted working for Fahim and Mustafa; Afghan culture required him to follow ordersgiven by his older relatives without question; he was a vulnerable young man who wascontrolled and instructed by his uncles, who treated him as a "messenger" or"middleman". Fourthly, Mr Nabawi did not exercise control over daily operations,governance, or financial matters for the company; he had no knowledge of thecompany's tax obligations; he did not understand why a 50% shareholding in thecompany was transferred to him or why he was appointed as a director.28 Vincent v Commissioner of Police [2013] NZCA 412, at [45] and [47].29 Commissioner of Police v Li [2014] NZHC 479, at [8].30 I shall also refer to this witness as Fahim.[70] In the alternative, Mr Nabawi's counsel submits that even if the Court findsthat he has unlawfully benefited from significant criminal activity, the Court shoulduse its discretion to discontinue the restraining order (or decline to impose a restrainingorder) in the interests of justice. His counsel submits that Mr Nabawi is a bright,capable, hardworking young man who has overcome a troubled childhood inAfghanistan and is attempting to make a new life for himself in New Zealand. Whilehe has made some mistakes, he is not the type of criminal the Act was intended totarget.Analysis[71] Based on the evidence relied on by the Commissioner it is obvious from thefigures referred to earlier that a large part of income received by Mr Nabawi andapproximately half the income received by Premium Plasterboard was not declared.[72] Unusually for interlocutory hearings in civil proceedings, this hearinginvolved cross examination of witnesses called by the Commissioner. These includedFahim Nabawi who denied that he controlled Premium Plasterboard at the relevanttimes or that he was instrumental in that company evading its tax obligations.[73] Mr Nabawi's evidence was materially at odds with the evidence of FahimNabawi. Mr Nabawi gave extensive explanations which sought to place responsibilityfor the tax evasion on Fahim Nabawi. Mr Nabawi portrayed himself as the custodianof the undeclared funds at the direction of Fahim. It was therefore incumbent onMr Nabawi's counsel to cross-examine Fahim on (a) the explanations Mr Nabawi gaveto implicate Fahim as the person responsible for the tax evasion and (b) whether as arule of Afghani culture Mr Nabawi was obliged to defer to Fahim because he was theolder male relative. However, there was no such cross-examination. The failure tocross-examine Fahim on the material differences between his evidence and that ofMr Nabawi breaches s 92 of the Evidence Act 2006 and, in this case, reduces theweight to be given to Mr Nabawi's evidence.31[74] Mr Nabawi essentially attempted to disassociate himself from the businessactivities that had generated the income that is the subject of the tax evasion. Hemaintained that at all relevant times he acted under the direction of Fahim Nabawi.On multiple occasions he was confronted with evidence that pointed to him being adirector of Premium Plasterboard who was in control of that company, and the personwho held control of the bank accounts where large sums of money were deposited. Hedenied he had knowingly failed to meet either his personal tax obligations or those ofPremium Plasterboard.[75] Irrespective of the weakness of Mr Nabawi's evidence resulting from thefailure to discharge cross-examination duties, I did not find Mr Nabawi to be animpressive or persuasive witness. This is the principal reason why I found hisevidence to be neither reliable nor credible. Where his evidence differed from that ofthe Commissioner's witnesses, I found Mr Nabawi's portrayal of the relevant eventsunpersuasive. It did not fit with the documentary evidence and I found theexplanations Mr Nabawi gave to be implausible. I also find it implausible thatMr Nabawi could have managed to live on the total declared income of $10,360 forthe tax years 2017 to 2020.[76] The findings I make on the evidence are made in the context of an interlocutoryhearing for restraining orders where the evidential threshold for making those ordersis relatively low and consistent with their role as a holding measure. The test is that Imust be satisfied there are reasonable grounds to believe the subject Property is eithertainted property or that Mr Nabawi has unlawfully benefitted from tax evasion thatpasses the financial threshold for being significant criminal activity. I am not required31 There was no application for recall of Fahim Nabawi for further cross-examination, nor wouldthat course of action have been appropriate here. For a discussion on the importance of cross-examination where the opposing parties' evidence conflicts see R v S (CA369/01) 19 CRNZ 442at [18] to [19]. Whilst this was an appeal from a criminal trial the obligations s 92 imposes, andthe impact on a fact-finder where there is a failure to discharge those obligations, are equallyapplicable in civil proceedings.to find that that the Property is tainted property or that Mr Nabawi has in factunlawfully benefitted from significant criminal activity in the form of tax evasion. 32[77] The substantive hearing of the application for forfeiture orders under ss 50 and55 will require the Commissioner to separate out the real long-term unlawfulbenefits/profits from those that are counterbalanced by a live, recoverable tax liabilityunder the TAA. The Commissioner will also need to present evidence that provides afactual and counter factual analysis that shows to what extent the Property has beenderived from additional funds that Mr Nabawi would not have had at his disposablebut for the tax evasion.[78] However, for the present: (a) the gross disparity between the incomeMr Nabawi and Premium Plasterboard have declared and the undeclared funds in theirbank accounts; and (b) the implausible explanations given by Mr Nabawi for the fundsdeposited in those bank accounts, satisfies me that there are reasonable grounds tobelieve that the Property has either wholly or in part been either acquired or derivedfrom significant criminal activity. This activity took the form of Mr Nabawi makingand enacting a deliberate and intentional decision to evade paying tax on a substantialportion of the undeclared funds. Whether this conclusion can be countered by anargument that the tax and associated costs/penalties that the IRD will be able to recoverfrom Mr Nabawi exceed the value of the Property to be restrained, and therefore inreality there are no unlawful profits/tainted property to be either forfeited or restrained,is something I cannot determine. Neither party addressed this issue. Without hearingarguments on it I am not prepared to speculate that the relevant tax liabilities remainlive and are recoverable under the TAA.[79] The evidence presented by the Commissioner also gives me reasonablegrounds to believe that Mr Nabawi must have known the income under his control(either personally or in his role as a director of Premium Plasterboard) was subject totax and that it was his responsibility to ensure it was declared and the correct tax paid.[80] It follows from the above that the Commissioner has established a proper basisfor the restraining and ancillary orders sought.32 Vincent v Commissioner of Police [2013] NZCA 412 at [45] to [47].[81] For completeness, I now deal with Mr Nabawi's objections to the admissibilityof evidence in Detective Bree Anderson's two affidavits. First, it is important to saythat the decisions I have reached have not been materially influenced by DetectiveAnderson's affidavit evidence. Instead I have relied on the documentary evidence, theaffidavit evidence of Ms Thompson, the evidence of Fahim Nabawi and the impressionI gained at the hearing of the evidence of Mr Nabawi.[82] Second, as regards the objections to the affidavit sworn on 11 December 2020,which are based on hearsay, I consider that for the purpose of an interlocutory hearingthese objections cannot be maintained. The combination of s 20(1) of theEvidence Act and r 7.30 of the High Court Rules 2016 permits the Court hearing aninterlocutory application for restraining orders to receive affidavits containing hearsaymatter where the cost, delay and inconvenience involved in obtaining the evidencefrom a witness with personal knowledge would be disproportionate to the reasonablenecessities of the case.33[83] Third, Detective Anderson also swore an affidavit dated 28 August 2020,which was initially filed in support of the Commissioner's earlier without noticeapplication for restraining and further orders. Passages in that affidavit refer toMr Nabawi's alleged sexual offending, which originally drew him to the attention ofpolice. Mr Nabawi objects to those passages on the grounds of relevance. I acceptthat the passages are irrelevant to the matters I have to determine. For that reason, Ihave ignored those passages. There are other passages in this affidavit that provideevidence relating to Plaster Squad Limited and its employees. Mr Nabawi contendsthese passages are irrelevant. I agree. The focus has been on tax evasion byMr Nabawi and Premium Plasterboard. The Commissioner did not attempt apropensity analysis to support the admission of evidence on Plaster Squad Limited.Accordingly, I have ignored this evidence.Interests of Justice[84] I reject Mr Nabawi's submission that making restraining orders would becontrary to the interests of justice. I have found there are reasonable grounds to believe33 See Vincent v Commissioner of Police [2013] NZCA 412 at [47].the evidential basis on which the Commissioner relies. Against that background Iconsider the interests of justice warrant making the restraining orders. Without suchorders in place there would be nothing to stop Mr Nabawi from dissipating orotherwise disposing of the Property. Were that to happen the application for forfeitureorders would become academic.Result[85] I make orders under the Criminal Proceeds (Recovery) Act 2009 restrainingthe property set out below, and direct that it is not to be disposed of, or dealt with byany person other than as provided for in this order, and is to be under the OfficialAssignee's custody and control:(a) Restraining orders pursuant to ss 24 and 25 of the Criminal Proceeds(Recovery) Act on the 2017 Toyota Hilux van, registration [redacted].(b) Restraining orders pursuant to s 25 of the Criminal Proceeds(Recovery) Act on $58,450 cash located in the Toyota Hilux van duringthe execution of a search warrant on 29 November 2019; and the creditbalance of ANZ Bank Ltd account [redacted] held in Mr Nabawi'sname.[86] Pursuant to ss 33, 34 & 35 of the Criminal Proceeds (Recovery) Act I makeancillary orders directing the Official Assignee to sell the above Hilux and to retainthe proceeds, after paying all associated costs, in accordance with the restrainingorders.[87] Because it is not clear to me whether orders are still sought by theCommissioner in relation to the 2006 Land Rover Discovery registration [redacted],registered to Mr Nabawi and referred to in the Commissioner's application, leave isreserved to the Commissioner to return to Court on that matter.[88] The parties have leave to file memoranda on costs.Duffy J