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Governance group fails to nail MSD for ‘pay and walk away’ approach to covid-19 wage subsidy payments

17 Nov 2023

| Author: Andrea Hilton

Judicial Review Procedure Act 2016 – Crimes Act 1961 ss 220(1), 228, 240 & 246 – definition of fraud – actual practice – reviewability of resource allocation decisions – scope of judicial review – reviewability of decisions not to prosecute – judicial restraint and review of prosecutorial decisions –audit-like process and judicial review

The Gama Foundation v The Chief Executive of the Ministry of Social Development [2023] NZHC 3098.


An unsuccessful application for judicial review by Gama Foundation (Gama) claiming the Ministry of Social Development (MSD) failed to properly exercise its discretion to prosecute by adopting “an unlawful policy or practice not to prosecute certain classes of cases”. Gama is a philanthropic organisation concerned, among other things, with good governance.

MSD was tasked with establishing and operating the covid-19 wage subsidy in just over a week. The subsidy was created by a cabinet decision rather than by legislation, so MSD did not have the enforcement powers it would have had under the Social Security Act 2018 to investigate and prosecute fraud. MSD continued to refine its practices during the period of the subsidy and did the following to enforce repayment of funds:

  • Required applicants to declare they were eligible;
  • developed policy to recover funds based on existing policy, including the option of prosecution;
  • tasked Client Service Integrity (CSI) staff to investigate complaints and complete post-payment checks;
  • involved in a cross-agency approach;
  • obtained legal advice on the viability of criminal prosecutions;
  • established the Recovery Response Panel to make decision on action;
  • complied with the Solicitor-General’s prosecution policy;
  • trained CSI staff to work under the Crimes Act and Search and Surveillance Act 2012;
  • reported to ministers quarterly from April 2020 on audit and complaints work;
  • referred 1,464 cases for investigation;
  • worked with NZ Police;
  • applied for 136 production orders;
  • took 24 cases for civil recovery; and
  • took 32 prosecutions involving 39 individuals.

As of February 2023, investigation and recovery actions were continuing.

Gama claimed MSD had adopted a “pay and walk away” approach to the covid-19 wage subsidy scheme – specifically, that MSD had paid the subsidy to ineligible applicants and did not hold them to account due to two errors of law:

  • An unduly narrow interpretation of ss 228 and 240 of the Crimes Act 1961; and
  • an unlawful fettering of its prosecutorial discretion.

MSD did not accept it had a practice of non-prosecution. It said Gama had not identified a policy or decision to review so there was no established or accepted practice to prosecute. Since MSD had provided evidence of its practices and policies, what Gama wanted was an audit exercise, which was not the purpose of judicial review. Gama disagreed that the allocation of resources and resourcing decisions were not reviewable.

Gama’s claim was based on publicly available information, macro-economics and an Auditor-General’s report.

The judgment addresses the issue of the errors of law and how they led to an unlawful practice of failing to prosecute. The issues were:

  • Whether Gama’s application was justiciable;
  • if so, was there sufficient evidence to show the alleged practice existed?
  • if so, was the alleged practice unlawful in that it:
    1. adopted an unruly definition of fraud; and/or
    2. unlawfully fettered MSD’ prosecutorial discretion
  • what relief was appropriate.


Applicable principles: whether judicial review application justiciable – whether there is evidence that the practice exists – whether the practice is unlawful – whether definition of fraud unduly narrow – whether MSD’s prosecutorial discretion was unlawfully fettered – whether power to review prosecution decision should be exercised – whether an error of law in the decision not to prosecute – whether audit-like process appropriate in judicial review – Marshall v Director of Public Prosecutions [2007] UKPC 4, [2007] 4 LRC – Osborne v WorkSafe New Zealand [2017] NZSC 175, [2018] 1 NZLR 447 – whether there was an error of law.


Held: The application for review is justiciable but the evidence did not show a practice by MSD not to prosecute. Therefore, it is not necessary to address the errors of law.

An error of law in a prosecutorial decision is reviewable but there were no errors of law in the interpretation of ss 228 and 240 of the Crimes Act. Therefore, it is not possible to conclude MSD unlawfully fettered its discretion to prosecute when there is no unlawful practice to not prosecute and there is no unduly narrow interpretation of fraud.

While the court may infer a practice, it was not possible in this case because unlike the cited cases, there was not an “identifiable set of decisions made in accordance with an avowed practice”.


After 14 years as general counsel for a local authority, Andrea Hilton is now a sole practitioner practicing local government law.

The Gama Foundation v The Chief Executive of the Ministry of Social Development [2023] NZHC 3098.

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