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Home / New Zealand

$1.1m payout to four cleared of fraud

By Maria Slade
NZ Herald·
11 Jul, 2008 05:00 PM3 mins to read

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KEY POINTS:

The Crown will pay out around $1.1 million in legal costs to four men acquitted following the Digitech tax dodge prosecution, one of the biggest payouts of its kind to date.

However the Crown is appealing against interest charges on the payout.

In 2004 investment banker John Reid
and his colleagues Peter Connolly, John Currie and Peter Russel were each found not guilty on two counts of fraud. Reid, Currie and Russel were also cleared on various money laundering charges.

The Serious Fraud Office had argued that the promoters of the tax avoidance scheme defrauded both investors and Inland Revenue.

But the High Court said investors went into the Digitech scheme for no proper commercial purpose except to lessen their tax bill, so there was no attempt to deceive them.

The Crown is finally now in the process of paying out the four former accused. Reid and Russel have received funds. Connolly is expecting his any day, and Currie's costs are being finalised. Connolly believes the total payout will be $1.1 million.

Another big payout case, following the SFO's failed 2005 prosecution of four men accused of defrauding the Auckland Helicopter and Child Flight Trusts, has yet to be settled. The Herald understands three of the acquitted men are seeking costs in the order of $2 million. A High Court hearing is due in September.

The Crown's appeal over paying interest costs to the Digitech four will be the seventh court hearing in that case.

In December 2005 the High Court awarded the men costs. The Crown appealed and won, but the four successfully took the matter to the Supreme Court late last year.

They went back to the High Court in April to determine the details of the cost payout, including that interest of 7.5 per cent was due on the total from December 2005. This month they gained a decision that GST was payable on the costs settlement.

If the Crown succeeds with the interest appeal, the men will have to pay that portion back, but Connolly said they would go back to the Supreme Court to fight it.

"The judge awarded us costs in 2005 and reconfirmed them in 2008," he said. "These appeals are mere sideshows to withhold payment."

Serious Fraud Office director Grant Liddell said court action over costs was a matter for the Solicitor-General: "He has determined there should be an appeal on that question [the interest payments]. That appeal has been filed."

The four former accused will not get their total legal costs reimbursed. In the December 2005 decision they were awarded costs based on the Crown counsel rate of $188 per hour.

"Crown rates probably wouldn't account for 50-60 per cent of the real cost," Connolly said.

John Currie, who lives in Australia, has also been awarded travel and accommodation costs on top of the payout.

Justice John Fogarty said he never doubted the Digitech scheme was a tax avoidance structure, but he was not persuaded of a conspiracy to defraud investors who had put in $16 million.

THE DIGITECH TAX SCHEME

The convoluted Digitech tax avoidance scheme involved investors using loss-attributing qualifying companies (LACQs) to buy shares, with the bulk of the price deferred for 10 years.

The investors then took out loans to pay for an insurance policy covering their losses if the shares had not reached a certain value by the end of the scheme.

The purpose was for the investors to incur a loss on the insurance premium, so they could offset that against their taxable income.

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