"The Crocombe Judgment"
IN THE COURT OF APPEAL OF THE COOK ISLANDS
HELD AT RAROTONGA CA NO. 1/13
TATUROANUI GRAHAM CROCOMBE Appellant
COLLECTOR OF INLAND REVENUE Respondent
Coram: David Williams P, Barker JA & Paterson JA
Hearing: 20 November 2013
Judgment: 22 November 2013
Mr P David for Appellant
Mr M Ruffin & Ms M Henry for Respondent
JUDGMENT (NO. 3) OF THE COURT
 In a judgment given on 3 August 2012 Hugh Williams J determined that the
Respondent, the Collector, was correct in assessing the Appellant, Mr Crocombe, with
amounts credited to Mr Crocombe’s current account by The Rarotongan Beach Resort
and Spa Limited (“The Rarotongan”). The Appellant appealed on various grounds, all
but one of which were determined by this Court in a judgment given on the 11 March
 The remaining point of appeal which is being determined in this judgment is that
in issuing the assessment, there was improper conduct by the Collector amounting to an
abuse of process that vitiates the validity of the assessments.
 The basis of the allegation of improper conduct is that the Collector referred Mr
Crocombe’s tax situation to Mr Trevor Clarke for advice. Mr Clarke is a qualified
lawyer who practised law in the Cook Islands for some years before retiring from his
practice and undertaking a successful business career in the Cook Islands. He was
known to be a business competitor of Mr Crocombe’s and Mr Crocombe submits that it
was an abuse of power for the Collector to engage a business competitor to provide him
with legal advice about how Mr Crocombe’s tax affairs should be treated.
 It is not necessary to set out the detailed history of dealings between Mr
Crocombe and his advisors on the one hand and the Collector prior to the assessments
being issued. Much of this appears in this Court’s earlier judgment. It is sufficient to
say neither Mr Crocombe nor The Rarotongan filed tax returns within the statutory time
limits. A letter written by the Collector to Mr Crocombe on 19 December 2003 referred
to previous correspondent and advised that unless the returns were filed by 23 January
2004 he would prosecute.
 In June 2004 Mr Crocombe and his advisors had advised Mr Haigh, an officer of
the Collector, that it was their wish to reopen the accounts of The Rarotongan and
reclassify some of Mr Crocombe’s director fees which had been credited to his current
account. There were further negotiations between the parties and a formal request to
reopen the accounts was made in a letter from The Rarotongan’s accountants to the
Collector on 7 May 2004. Despite further meetings and representations the Collector
declined to allow the accounts to be reopened.
 The dates that the relevant tax returns were filed with the Collector were:
26/ 4/2002 - The Rarotongan’s tax returns for the 1999 to 2001 years.
4/ 5/2004 - Mr Crocombe’s individual tax return for the 1998 year.
10/11/2005 - Mr Crocombe’s individual tax returns for the 1999 to 2003 years.
17/11/2005 - a further tax return by The Rarotongan for the 2001 year.
 Mr Crocombe became concerned when he discovered preparing for the hearing
before Hugh Williams J that Mr Trevor Clarke had given advice to the Collector in
respect of the tax returns.
 Mr Stoddart as the Collector at the time, advised Mr Crocombe’s accountant on
st July 2004 that he would not allow The Rarotongan’s accounts to be restated. Mr
Haigh, who later became the Collector himself, confirmed the position in a letter to The
Rarotongan’s accountant on 18 August 2004.
 The tax assessments were issued on 31 March 2006 after all returns had been
filed. These assessments confirmed the advice that the Collector had given on 21 July
2004. One of the returns filed before the assessments were issued was The Rarotongan
return for the 2001 year which was filed on 17 November 2005. That return raised the
issue of fundamental error. This Court’s earlier judgment dealt with this issue.
 Mr David for the Appellant relies mainly upon documentary evidence. It is only
necessary to briefly refer to it at this stage although there will be a more detailed
evaluation later. The documentary evidence relied upon is:
(a) a file note prepared by the Collector dated 21 July 2004 which included
words “my legal advice is that you cannot change history.”
(b) a further file note of the Collector dated 29 July 2006 which indicated
that Mr Crocombe’s and The Rarotongan files were with Mr Clarke.
(c) a record of a meeting between the Collector, Mr Crocombe and Mr
Crocombe’s counsel on 15 December 2006 which concluded with the
words “Trevor Clarke – answer please?”
(d) the Collector’s letter to Mr Crocombe’s counsel of 19 December 2006
raising issues from the meeting held a few days earlier. A handwritten
note on that letter said “Don’t sent this, per TC”. It is accepted by the
Collector that the reference to TC was to Mr Clarke.
(e) a letter from one of the Collector’s officials to Mr Clarke dated 29
February 2008 forwarding the Collector’s file for Mr Clarke’s perusal
(f) a letter of 4 April 2008 from one of Mr Stoddart’s officers to Mr Clarke
requesting that he arrange for representation in Auckland to advise the
(g) a letter of 13 June 2012 from the Crown Law Office to Mr Crocombe’s
New Zealand solicitors advising that Mr Clarke had given privileged
 Mr Haigh was cross-examined on the Collector’s legal representation and did
state that to his knowledge Mr Clarke had not been involved in giving advice on the
assessments dated 31 March 2006. However, it was also Mr Haigh’s evidence that Mr
Clarke was the closest thing on the island to a tax lawyer and that during the relevant
period he was the person from whom the Collector would get advice from on draft bills
etcetera. He confirmed that Mr Clarke was the Collector’s legal advisor over the whole
period and could see no reason why he would be replicated.
 There are two issues for this Court to determine:
(a) the factual issue of whether Mr Clarke did give advice to the Collector on
Mr Crocombe’s and The Rarotongan’s tax matters and if so when he
gave that advice; and
(b) if advice was given relating to Mr Crocombe’s and The Rarotongan’s tax
affairs was this an abuse by the Controller of his power as Collector.
 Mr Ruffin for the Controller submitted that there was no evidence that Mr Clarke
gave advice before the battle lines were drawn in this case. He was referring to 31
March 2006, the date on which the assessments were issued. Referring to the file note
of 21 July 2004, it was Mr Ruffin’s submission that the document has no context and
may have merely been a question asked of another lawyer. Even if it was asked by the
Collector of Mr Clarke it may have merely been a telephone query without formal
provision of the accounts and simply asking whether it was possible to rewrite accounts
particularly those that had been audited.
 It was also submitted on behalf of the Collector that this Court should not draw
any inferences from the Collector opposing the late application made by Mr Crocombe
that the Collector and Mr Clarke be called to give evidence in this Court and from the
Collector’s failure to call Mr Stoddart. In this respect Mr Ruffin relied upon the New
Zealand Court of Appeal case of
Russell v Taxation Review Authority  21 NZTC
 The particular references relied upon from
 ... We record, however, that we agree with the view taken by
O’Regan J that there can be no obligation based on the rules of natural
justice requiring a litigant in a civil proceeding, whether or not a public
authority, to identify and make available witnesses considered by the
opposing litigant to be the “correct ones”. We agree also that there is no
breach of natural justice by a litigant opposing successfully an application
for an order for discovery of documents.
 We are not persuaded that the Commissioner stands in a unique
position in objection proceedings so as to be under wider obligations than
other civil litigants. The nature and purpose of this proceeding already
referred to in this judgment makes that unnecessary. The argument for that
unique position is just another attempted justification for the type of
investigation we have held to be inappropriate.”
 In this Court’s view the facts of this case do not fall neatly within the comments
Russell. Here, the witnesses required namely the Collector and Mr Clarke had
been identified, albeit the realisation of their possible importance came on the eve of the
High Court hearing. The Collector was within his legal rights in opposing the
application to have Messrs Stoddart and Clarke called as witnesses and in deciding not
to give evidence. However, in this case there was an allegation of improper behaviour
against the Collector, who had an obligation to act in a high-principled way. There was
some evidence to support that allegation. In the circumstances this Court does not
accept that the Collector’s failure to give evidence which would explain or clarify the
documentary and other evidence, cannot be a factor from which an inference can be
drawn. It is noted that the New Zealand Court of Appeal was not referred to the English
authorities which are referred to later in this judgment.
 However, this Court is satisfied, without having to make any inferences relating
to the Collector’s reluctance to give the information on when he sought legal advice and
from whom, that it can form a view on the factual issue. On the balance of probabilities
it concludes that Mr Clarke did advise the Collector on Mr Crocombe’s and The
Rarotongan’s tax affairs before the assessments were issued and before Mr Crocombe’s
accountant was advised that the Collector would not permit the rewriting of The
Rarotongan’s accounts for tax purposes.
 The evidence given by Mr Haigh, the Collector’s own tax auditor, was that Mr
Clarke was the Collector’s legal tax advisor throughout the relevant period. There was
no other tax advisor on Rarotonga. The issue was an unusual matter of some
complexity. It was being argued by a branch of a recognised international accounting
firm that The Rarotongan was entitled to rewrite its accounts. The submission was that
this could be done because the original accounts contained a fundamental error and that
in accordance with international recognised accounting standards the accounts could
then be rewritten. The issue is one in which the Collector would be expected to take
legal advice before coming to a decision.
 The Collector’s memorandum of 21 July 2004 analysed in a reasonably detailed
manner the issues involved in this case. On one vital point he noted that “his legal
advice was that you cannot change history”. It is difficult to give any other
interpretation to this comment other than that Mr Stoddart took legal advice on the
issues being raised by Mr Crocombe and his advisors.
 There is clear evidence that Mr Clarke advised the Collector after the
assessments were issued. The Collector’s memo of 29 July 2006 raised issues and
concluded that its intended focus was so that the Collector could see the important
aspect. That file noted that the files at that time were with Mr Clarke. They were not
with some other lawyer.
 The record of the meeting on 15 December 2006 detailed the matters discussed
with Mr Crocombe and his counsel and concluded with “Trevor Clarke – answer
please?” Clearly this was seeking legal advice.
 After the meeting of 15 December 2006 the Collector wrote to Mr Crocombe’s
counsel to record two aspects of the meeting. The handwritten note on that letter
indicated that it was not to be sent through Mr Clarke. No explanation has been given as
to the meaning of this comment although a possibility is that the Collector did not want
Mr Crocombe to know of Mr Clarke’s involvement.
 A timetable prepared by the Collector shows that on 29 February 2008 a letter
was written by one of the Collector’s officers to Mr Clarke asking for a draft submission
and enquiring as to his availability to represent the Collector.
 On 4 April 2008 the Collector wrote to Mr Clarke asking him to arrange for
Auckland counsel to represent the Collector.
 On 13 June 2012 Crown Law replied to a letter from Mr Crocombe’s solicitors
in which Crown counsel advised “Mr Clarke was instructed as counsel to provide legal
advice to the Collector and as such his advice is privileged”. The solicitors had sought
information including details of Mr Clarke’s involvement and the information disclosed
to him. While advice given was privileged, the inquiries made were legitimate and the
 Clearly Mr Clarke gave advice to the Collector from at least 29 July 2006,
shortly after the assessments had been issued and the objections filed. By his own
admission on the file note of 21 July 2004 the Collector had taken legal advice before
advising Mr Crocombe that the accounts could not be rewritten. The only evidence of
an involvement of a lawyer was that of Mr Clarke. Mr Haigh’s evidence confirms that
Mr Clarke was the regular legal advisor as there was no one else on the island that the
Collector could turn. On the basis of this evidence, this Court is of the view that the
Collector did, prior to the issue of the assessment, seek legal advice from Mr Clarke on
the tax position of both Mr Crocombe and The Rarotongan. It is unnecessary in the
circumstances to know the topics in which the advice were given. The clear inference
from the facts is that the Collector, prior to the issue of assessments, sought advice from
Mr Clarke on the tax position of both Mr Crocombe and The Rarotongan. To give this
advice it is more likely than not that Mr Clarke would have received the tax files and the
accounts for The Rarotongan.
The Legal Issue
 The legal issue, based on the factual finding that Mr Clarke did give legal advice
to the Collector on The Rarotongan’s tax matters before the assessments were issued, is
whether the request for and the giving of that advice is an abuse of power which leads to
the conclusion that this Court should set aside the assessments.
 Mr David relied on several cases, some from the House of Lords, to support the
submission that there was an abuse of power in this case. It is not necessary to cite
extensively from these cases but reference will be made to some of the principles which
the cases establish.
 The House of Lords considered the abuse of power in
In re Preston  1 AC
835. In that case Lord Templeman said at page 864:
(G) The court can only intervene by judicial review to direct the
commissioners to abstain from performing their statutory duties or from
exercising their statutory powers if the court is satisfied that “the unfairness”
of which the applicant complains renders the insistence by the
commissioners on performing their duties or exercising their powers an
abuse of power by the commissioners.
 Lord Bingham in
The Queen v Commissioners of Inland Revenue ex parte
 68 Tax Cases 205, said at page 228:
I would in general terms accept almost all these points, which reflect high
authority and rest on sound legal principle. But I am very uneasy at the
conclusion which the argument is said to compel in this case. Unilever is, I
think, entitled to make a number of points on the facts of the present case:
(1) The courts have not previously had occasion to consider facts analogous
to those here. The categories of unfairness are not closed, and precedent
should act as a guide not a cage. Each case must be judged on its own facts,
bearing in mind the Revenue’s unqualified acceptance of a duty to act fairly
and in accordance with the highest public standards.
 Simon-Brown LJ, also in the
Unilever case observed at pages 233 and 234:
“Unfairness amounting to an abuse of power” as envisaged in
Preston and the
other Revenue cases is unlawful not because it involves conduct such as
would offend some equivalent private law principle, not principally indeed
because it breaches a legitimate expectation that some different substantive
decision will be taken, but rather because either it is illogical or immoral or
both for a public authority to act with conspicuous unfairness and in that sense
abuse its power.
And there is this too to be said. Public authorities in general and taxing
authorities in particular are required to act in a high-principled way, on
occasions being subject to a stricter duty of fairness that would apply as
between private citizens. This approach is exemplified in cases such as
Regina v Tower Hamlets London Borough Counsel ex parte Chetnik
 AC 858 and Woolwich Equitable Building Society v
Inland Revenue Commissioners
 AC 70, and reflected in Lord Mustill’s
Matrix-Securities to “the spirit of fair dealing which should
inspire the whole of public life”.
 The Court is satisfied that the following principles apply:
(a) a taxing authority has a duty to act fairly and in accordance with the
highest public standards. It is required to act in a high-principled way.
(b) if it acts with conspicuous unfairness it may be abusing a power.
(c) the categories of what may amount to an abuse of power are not closed.
Each case turns on its own facts.
(d) to establish an abuse of power it is not necessary to establish actual bias
or improper motive or that either the Collector or Mr Clarke wished to
disadvantage either Mr Crocombe or The Rarotongan. None of these
elements are alleged by the Apellant to be present.
(e) if there has been an abuse of power a Court may set aside an assessment
even if it believes it to be correct.
 The essence of the submission on behalf of Mr Crocombe is that by taking
advice from a business competitor of Mr Crocombe, the Collector allowed the potential
for bias and favour to become part of the taxation process. It was submitted that even if
Mr Clarke did not actually act with any bias or favour, the reasonable person would see
that having someone in Mr Clarke’s position vis-a-vis Mr Crocombe advise on decisions
determining Mr Crocombe’s taxation liability, as demonstrating that there would be a
real and apparent risk of bias. This is quite apart from the fact that because of the clear
conflict, Mr Clarke should not have accepted the instruction in the first place or
continued with the instruction.
 The Court accepts this submission. It does not suggest that Mr Clarke was
biased but accepts he was in an obvious position of conflict. It is not suggested that Mr
Clarke gave legal advice other than what he believed to be completely impartial legal
 However this Court has come to the conclusion that to ask a business competitor
to advise on a rival’s disputed tax position is unacceptable and improper and amounts to
conspicuous unfairness. A taxpayer is entitled to expect that his financial position will
not be disclosed by the tax authorities to a competitor and that legal advice will not be
sought from a lawyer who is also a business competitor of the taxpayer. These points
are sufficient to allow the appeal. The position is exacerbated in this case because of the
relevant status of Mr Clarke and Mr Crocombe as prominent and leading businessmen
who are competitors in the same small business environment. Thus this Court is of the
view that asking Mr Clarke to give the legal advice and Mr Clarke giving it was
"Tax Haven or Asset Protection" "Secrecy or Privacy"
On Nicky Hager’s recent visit to the Cook Islands he told Matariki FM Trevor Clarke featured in a tax haven client database.
Hager showed Matariki FM details of over 100,000 tax haven clients around the world were made public over the weekend, including many clients of the Cook Islands offshore industry. The client lists, which were leaked and publicised earlier this year, also include Cook Islanders who use other countries as tax havens for their personal business.
A public website called the Offshore Leaks Database was launched that allows the public and journalists to search for names of people using secret trusts and companies. It can be found at http://offshoreleaks.icij.org. The website was created by the Washington DC-based International Consortium of Investigative journalists, which earlier this year began releasing stories based on the leaked tax haven information.
Hager reported the most prominent Cook Islander revealed in the Offshore Leaks Database is businessman Trevor Clarke. He is listed with 30 companies and trusts. Most of these date from when Clarke worked in the offshore industry, acting as director or trustee for foreign people’s companies and trusts. But the list also revealed some of Clarke’s personal offshore activities.
Furthermore Hager told Matariki FM Trevor Clarke’s offshore business is stretched across several countries. This started with a company called Dalvivian Limited he registered in Samoa in 1991. There was no sign of this company ever being disclosed publicly. Dalvivian Limited is then owned by a trust that is located far away in the British Virgin Islands, the Caribbean tax haven. This is the Beaumaris Trust, set up by Clarke in 2004 with himself and his family as beneficiaries said Hager. He added there was no sign of this trust being disclosed publicly either. Prior to 2004, Dalvivian Limited was owned via a different Clarke trust called Classowa Trust.
His Samoan company’s money is then held in another tax haven, Singapore. Dalvivian Limited has its bank account at the Bank of New Zealand Singapore branch said Hager. All this has been set up and administered for him by the offshore company Portcullis TrustNet, a company first established in the Cook Islands in the 1980s that still has an office in Avarua.
Why does a prominent business person spread his business overseas in these ways? The usual reason is to reduce the tax they have to pay to their own government. This does not mean the activities are illegal, but it means at least that they are finding ways to pay less tax. This is a controversial issue around the world, where people are questioning why wealthy people and big corporations pay so little tax compared to ordinary people. Usually offshore companies and trusts are part of the story there as well.
According to Hager Clarke’s use of his offshore company and trust are revealed in detail in leaked TrustNet files. They reveal a money-go-round, with money moving to and from Clarke’s business activities in the Cook Islands through the overseas tax havens.
In 2006, for example, Clarke’s Samoan company Dalvivian had NZ$4 million on loan to a Cook Islands company called Mainbrace Limited. The owner and director of Mainbrace is also Clarke. Hager says according to the leaked documents, Mainbrace in turn loaned this money to the Cook Islands Trading Company (CITC), Clarke’s main company. The document about the loan explained that “CITC is presently engaged in a new project, the construction of a new Building Centre (cost approx $3m).”
Thus the money loaned for the building project in effect went from Clarke’s British Virgin Islands trust, which loaned $4m to Clarke’s Samoan company, which loaned $4m to Clarke’s Cook Islands Company Mainbrace and it went from there to CITC.
Money moved in the other direction too. The documents shown to Matariki FM show that in 2006 Mainbrace paid nearly $500,000 of interest on the loan back to Dalvivian (minus 15% withholding tax). This money added to Dalvivian’s funds which in most years were loaned straight back to Mainbrace again. In fact, in practice, most of the money didn’t move at all, as the Mainbrace interest was retained and became an even larger loan from Dalvivian. Again, in effect, Clarke was lending himself money which was cycled around through the offshore company.
The leaked documents include three sets of annual accounts for Dalvivian. There is no record of the company paying tax on its considerable annual profits. All the business activity and all the money actually remains in the Cook Islands, but the offshore structures mean that the Dalvivian company profits are made in a country where no tax needs to be paid.
The documents show other activities as well. Dalvivian Limited also made an NZ$800,000 loan to a Cook Islands company called Oronga Securities Limited. Clarke was owner and director of Oronga Securities as well. Oronga Securities is part owner of a New Zealand company called Samex Limited which is believed to be the New Zealand supplier for Clarke’s Cook Islands Trading Company in the Cook Islands. Oronga Securities also owns part of the building at 155 Nelson Street, Auckland, where Samex is based. Income from this New Zealand Company was also ending up in tax-free offshore centres in Samoa and the British Virgin Islands according to Hager.
In 2005, Clarke arranged that some of the Beaumaris Trust money would be paid directly to him for another business project. Clarke wrote four pages of directions for the TrustNet staff on how to move that year’s Mainbrace and Oronga Securities interest payments to Dalvivian’s Singapore bank account, and for them to transfer NZ$450,000 from there to his personal ANZ account in the Cook Islands. He explained that “this will help me with a project I have on in Rarotonga for the benefit of my family”.
TrustNet staff was given special instructions about keeping Clarke’s offshore business secret. One document reads: "We are to contact Trevor by phone only unless otherwise instructed . . . No documents are to be kept here. All docs are to be held in our Hong Kong office."
Each of these transactions showed how wealthy individuals can use the companies and trusts located in faraway tax havens. Normally these companies and trusts remain secret year after year. But since this weekend’s launch of the Offshore Leaks Database, tens of thousands of clients will have their activities open for checking by other people, as happens routinely with the public company registers in non-tax haven countries.
There are suggestions that since the first publicity about the tax haven leaks in April, Clarke has been setting up new offshore entities to hold his millions, possibly replacing the ones described here. It is likely he already had other offshore structures as well. The Offshore Leaks Database only includes the business he happened to organise through TrustNet.
Clarke was chair of the Cook Islands' Financial Supervisory Commission, which was set up to oversee the offshore industry, from 2003 until 2010. He was also reportedly a tax department advisor. During these years he was using the offshore trust and company. Clarke responded that he was not "a user of any Cook Islands [offshore] entities" and said his offshore companies and trusts were set up well before his role as FSC chair. However this is not correct in the case of the Beaumaris Trust, as it was formed well after he became FSC chair in 2005. Clarke said there were lots of reasons for people to want to have assets outside the country where they live. He said he had not requested the special secrecy and had disclosed the offshore entities to a number of authorities.
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