Avowal Administrative Attorneys Limited v District Court at North Shore HC Auckland CIV-2006-404-7264

[2007] NZHC 2080

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2006-404-7264

BETWEEN  AVOWAL ADMINISTRATIVE ATTORNEYS LIMITED

First Applicant

ANDJ B LLOYD CHARTERED ACCOUNTANTS LIMITED Second Applicant

ANDPETER JAMES BLOOMFIELD AND NORMA RAE CLARK

Third Applicants

Hearing:         31 August 2007

Counsel:         J L Land for Applicants

P Courtney for Second Respondent

Judgment:      31 August 2007

ORAL JUDGMENT OF BARAGWANATH J

Solicitors:

Kensington Swan, Auckland

Crown Law Office, Wellington

AVOWAL ADMINISTRATIVE ATTORNEYS LIMITED AND ORS V THE DISTRICT COURT AT NORTH SHORE AND ANOR HC AK CIV-2006-404-7264  31 August 2007

ANDAMANDA JANE CHISNALL AND IAN ANDREW FLEMMING

Fourth Applicants

ANDDENISE ANNE CLARK Fifth Applicant

ANDWENDY CAROLINE VOOGHT Sixth Applicant

ANDLISA CHERRIE WATKINS AND WILLIAM DAVID WATKINS Seventh Applicants

ANDNIKYTAS NICHOLAS PETROULIAS Eighth Applicant

ANDTHE DISTRICT COURT AT NORTH SHORE

First Respondent

ANDTHE COMMISSIONER OF INLAND REVENUE

Second Respondent

[1]      This   judgment   deals   only   with   hard   copy   documents   seized   from Commissioner premises and does not deal either with hard copy documents obtained from private premises or with electronic data.

[2]      Following the telephone conference earlier today which was the subject of a minute there has been a hearing in open court with Ms Courtney participating by video-link   from   Wellington.      Ms Courtney   has   called   Ms Edwards,   senior investigator at Inland Revenue at Takapuna, who has been involved with this case for  over  three years  during  which  period  it  has  occupied  the  bulk  of  her  time. She has been cross-examined by Mr Land.

[3]      The issues discussed in today’s minute related to construction of the order of

20 July 2007 and raised the further question which is whether whatever its true construction, the interests of justice require any modification to it at this point.

[4]      The issue is a familiar one identified by Lord Diplock in America Cyanamid Co v Ethicon Ltd [1975] AC 396. It is the applicants’ contention that in the event of their success at substantive hearing there will be a determination that the seizure of the hard copy documents as well as of the electronic information was unlawful. On that premise, should officers of the Department responsible for decision-making gain access to material which it was unlawful for them to receive, there may be irreparable harm caused to the applicants. The harm apprehended is that there may be leakage of information from the Commissioner’s staff outside the Department and, in particular, to the Australian Tax Office over which this Court possesses no jurisdiction. The result would be a wrong of incalculable dimensions.

[5]      For the Commissioner it is contended that, if the true construction of the order of 20 July 2007 is as contended by the applicants, it confers upon them greater rights than Parliament has done in s 16 of the Tax Administration Act 1994 which was discussed in my judgment of 27 July 2007 at an earlier interlocutory stage of this case.  The view which I took, which may well be the subject of challenge in an appellate court, is that, privileged documents aside, in the case of commercial premises the Commissioner has substantially free rein to look at documents to see

whether or not they are relevant to a New Zealand tax liability on the part of a taxpayer.   There is no statutory impediment to the same officers performing the search and later participating in the decision making process as to what should be its consequences.

[6]      The fortuity that in respect of the electronic information there has been put in place an  intermediary,  in  the  form  of  the  Computer  Tax  Audit  Division,  while providing a logical option as to how the hard copy documents might be treated, does not require adoption of that course.  The damage pointed to on the Commissioner’s side is that it is now 6 pm on 31 August 2007 Ms Edwards deposed that, to avoid time bars in respect of potential assessments, analysis of the seized documents must take place before the end of September 2007.  Whatever may have been the case had the point arisen in time for alternative officers to have ascended the learning curve, it is simply unrealistic for the Court to impose a further layer of protection for the applicants when the potential consequence of time bar is a real prospect.

[7]      The quantity of information in this case is simply immense.   Ms Courtney informed me that if reduced to paper the whole of the information held on computer and in hard copy would create a pile some 60 km high.

[8]      Mr Land submitted that it would be practicable for the Commissioner at this point  to  introduce  from  elsewhere  further  officers  to  perform  the  function  of assessing relevance or irrelevance to the New Zealand tax base in respect of the hard copy documents in the same manner (namely by reference to search terms agreed by the parties or ordered by the Court) as the Computer Tax Audit Division is doing in relation to the electronic data.   He put to Ms Edwards that the issue whether a particular document relates to a New Zealand taxpayer depends on whether or not a New Zealand taxpayer is referred to in the document.  Ms Edwards did not accept the proposition, stating that she had seen documents that belong to entities that come from around the globe that actually impact on New Zealand resident taxpayers’ tax positions.

[9]      Mr Land put to her that, given a list of relevant names, a simple judgment could be made and suggested that it could be done at a relatively junior level.

Ms Edwards’  response  was  that  the  position  was not  so  simple.    She  said  that whether a particular document affected a particular taxpayer’s affairs might not be so simply worked out without what I take to be a reference to more substantial background information.   She said that, although she had been working on  the investigation for so long, she did not know even now the full extent of some of the documents and how they affect different parties.

[10]     There is  the further  point  as  to  the injury to  the Commissioner  and  the interests represented by the Commissioner that, if an erroneous judgment is made now against his interests, he risks the absolute detriment of a statute bar.

[11]     Ms Courtney refers to s 81 of the Tax Administration Act and the obligation it imposes on departmental staff to maintain confidentiality.

[12]     As the recent decision in Solicitor-General v Miss Alice [2007] 2 NZLR 783 shows, there can be powerful temptations for a person in a position of confidence to breach that confidence.

[13]     Ms Courtney advises me that the number of departmental personnel working on this project is about half a dozen.  They are readily identifiable and Ms Courtney is prepared to add to the statutory confidentiality protection an undertaking to the Court  in  writing  by  each  of  the  relevant  officers  to  maintain  confidentiality  in relation to the documents in this case.

[14]     I have concluded, whatever the true construction of the order of 20 July, that the balance of convenience favours the Commissioner.   I therefore order that that order (which bears the date stamp of 2 August 2007) is to be construed as not imposing  on  the  Commissioner  the  obligation  to  submit  hard  copy  documents (as distinct from electronic data) to scrutiny by the Computer Tax Audit Division or an equivalent before the officers just mentioned continue their appraisal of the seized information.  But that determination is made subject to the undertaking given orally by Ms Courtney on behalf of the Commissioner, which is to be complied with within three working days.

[15]     Mr  Land  raises  with  me  the  issue  of  the  scope  of  the  Commissioner’s authority in terms of the order of 20 July to review hard copies of documents “for the purpose of enquiries relating to the New Zealand tax base”.  The issue of relevance is one  that  arises  regularly  in  discovery.    My  conclusion  following  a  day  long discussion of the topic last Friday in Melbourne was that the answer is unlikely to differ on the facts of a particular case according to whether a complex or a very simple formula is employed.  It is the obligation of the Commissioner as an element of  the  Crown  to  comply  with  the  obligations  stated  in  the  Miss  Alice  case  at

[42]-[48].  I do not consider it practicable to give more precise direction than that.

W D Baragwanath J