Charter Holdings Limited v Commissioner of Inland Revenue
[2015] NZHC 1506
•1 July 2015
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2014-404-003013 [2015] NZHC 1506
BETWEEN CHARTER HOLDINGS LIMITED
Applicant
AND
THE COMMISSIONER OF INLAND REVENUE
Respondent
Hearing: 29 June 2015 Appearances:
John Land and Sam Carey for the Applicant
Pauline Courtney and Polly Higbee for the RespondentJudgment:
1 July 2015
RESERVED JUDGMENT OF MOORE J [Application for leave to cross-examine]
This judgment was delivered by me on 1 July 2015 at 4:00 pm pursuant to Rule 11.5 of the High Court Rules.
Registrar/ Deputy Registrar
Date:
CHARTER HOLDINGS LIMITED v THE COMMISSIONER OF INLAND REVENUE [2015] NZHC 1506 [1 July 2015]
Introduction
[1] Charter Holdings Limited (“Charter”) has applied to judicially review the decision of the Commissioner of Inland Revenue (“the Commissioner”) not to reassess its assessments for the 2006 to 2012 tax years (“the Decision”) pursuant to s
113 of the Tax Administration Act 1994 (“the TAA”).
[2] The Decision was delegated to an employee of the Inland Revenue Department, Ms Stowers. Ms Stowers has made an affidavit explaining her decision and how it was reached. Her affidavit is one of three filed on behalf of the Commissioner.
[3] Charter applies for leave to cross-examine Ms Stowers. The application is opposed by the Commissioner.
[4] Pursuant to a direction of Ellis J1 the preliminary question of leave was argued at the commencement of the hearing on Monday, 29 June 2015. Following argument I advised counsel I would not grant leave to cross-examine and would give my reasons in writing later. This judgment sets out those reasons.
Application
[5] It is plain from the written and oral submissions that Ms Stowers’ affidavit
will assume central significance in this hearing which commenced on Monday,
29 June 2015.
[6] Charter has applied for leave to cross-examine Ms Stowers on certain points contained in or arising from her affidavit. In particular, Mr Land, for Charter, has indicated he wishes to cross-examine Ms Stowers on the following findings:
(a) Charter had not made a “genuine error” in failing to carry forward
losses in its tax returns despite Charter advising that this was the case;
(b) the sale of Charter’s business was not a “true sale”;
1 Minute of 4 June 2015.
(c) Charter failed to disclose sales in its 2005 tax return;2
(d)the director of Charter, Mr Padfield, improperly failed to disclose income from Wizard Homes Loans in his tax returns; and
(e) a report from PricewaterhouseCoopers could not be relied upon because it was compiled from information provided by the management of Charter.
Charter’s submissions
[7] Mr Land submits that leave is necessary to resolve material conflicts of fact including an assessment of Ms Stowers’ credibility. He also submits that Ms Stowers’ affidavit is insufficiently clear on various factual issues. For these reasons, he submits that granting leave is in the interest of justice.
Commissioner’s submissions
[8] The application is opposed by the Commissioner. Ms Higbee, for the Commissioner, observes there is a presumption against granting leave to cross- examine in judicial review proceedings. This is, in part, because permitting cross- examination exposes the Court to a risk it may descend into an examination of the merits of the decision under review which goes beyond the Court’s jurisdiction in such cases.
The substantive claim
[9] Charter seeks to judicially review the Commissioner’s refusal to reassess its tax liability for the 2006 to 2012 tax years so as to allow the carrying forward of tax losses from the 2000 to 2005 tax years.
[10] The Commissioner issued notices of determination for loss for the 2000 to
2003 tax years. Charter sought an amendment to the 2006 to 2012 assessments to reflect the losses claimed. The Commissioner was not satisfied that allowing the
2 The affidavit does not record this as an express finding by Ms Stowers, but Charter argues that such a finding is implicit from statements which she makes in her affidavit.
losses to be carried forward and applied would result in correct assessments and thus declined to make the amendments sought.
[11] The grounds of review relied upon by Charter are:
(a) the Commissioner took into account irrelevant considerations and failed to take into account relevant considerations;
(b) the Commissioner made material mistakes of fact;
(c) there has been a breach of Charter’s legitimate expectation;
(d) the decision was unreasonable and/or substantively unfair.
[12] In relation to the application for leave to cross-examine Mr Land focused on three claimed errors, namely:
(a) the Commissioner’s finding of “no genuine [taxpayer] error”;
(b)the Commissioner’s determination that there had been no true sale of Charter as a company in the 2004 tax year when Charter’s business and assets were in fact sold on 25 July 2003 to another entity;
(c) a finding that the financial records for the year ending 30 March 2005 were not a correct record of Charter’s transactions for the year because the profit and loss account returned no sales when Charter did, in fact, have no sales following the sale of its business on 25 July
2003.
[13] Ms Stowers’ affidavit deals with the following matters:
(a) the processes she followed in responding to a request under s 113 of the TAA;
(b)the processes which Ms Stowers followed in relation to Charter’s request and the processes involved in making the final decision to reject that request;
(c) Ms Stowers’ reasons for rejecting the request and the evidence which
was before her at the time she made that decision;
(d)the correspondence the Commissioner had with Charter after the decision was made;
(e) Ms Stowers’ responses to matters raised by Charter in its statement of
claim.
Legal principles
[14] It is common ground that cross-examination is not permitted as of right in judicial review proceedings. Leave is required.3 An application for leave to cross- examine may be made under s 10(1) of the Judicature Amendment Act 1972.
[15] Cross-examination will be permitted where that course is clearly necessary in order to resolve the matter before the Court.4 In other words cross-examination will only be permitted if there is a potential for prejudice if the evidence is not tested.5
[16] Having referred to the relevant authorities, the Court of Appeal in Commerce
Commission v Powerco Ltd described the test in the following terms:6
“We do not accept the respondents’ submissions that there has been no lowering of the threshold in this case. We consider that the Judge applied the wrong test. We say that because the assessment made by the Judge is expressed in terms of what will ‘assist’ the Court. That is a different analysis from what is ‘necessary’.”
3 Roussel Uclaf Australia Pty Limited v Pharmaceutical Management Agency Ltd [1997] 1 NZLR
650 (CA).
4 New Zealand Fishing Industry Association Inc v Minister of Agriculture and Fisheries [1998] 1
NZLR 544 (CA) at 544; Minister of Energy v Petrocorp Exploration Ltd [1989] 1 NZLR 348 (CA) at 352-354; Rousel Uclaf Australia Pty Ltd above n 3 at 656-658 (CA).
5 Wilson v White [2005] 1 NZLR 189 (CA) at [25].
6 Commerce Commission v Powerco Ltd CA123/06, 9 November 2006 at [38].
[17] Leave to cross-examine in judicial review proceedings will be granted only on rare occasions when required by the interests of justice.7
[18] The policy reasons for this conservative approach are varied but include the following:
(a) If cross-examination was permitted as of right there would be: 8
“… a risk of unwarranted dalliance into factual assessments by the Courts. The rule of practice is a common sense response to the nature of the litigation.”
(b) The objectives expressed in s 10(1) of the Judicature Amendment Act
1972, of convenience, expedition and effective in complete determination of review proceedings are ordinarily best served by refusing or restricting cross-examination of deponents.9
(c) There is a need to maintain judicial review as a relatively simple, non- technical and prompt procedure.10
[19] Duffy J helpfully summarised the relevant principles in Siemer v Official Assignee.11 As her Honour observed, examples of cases where appellate Courts have permitted limited cross-examination are few.12
[20] In Wilson v White13 McGrath J observed that cross-examination will be permitted if there is a potential for prejudice if the evidence is not tested. That case involved an allegation of bias where the factual basis for the claim, which was
denied, required cross-examination.
7 Geary v Psychologists Board [2009] NZSC 67; (2009) 19 PRNZ 415 at [1].
8 Geary v Psychologists Board [2009] NZCA 134; (2009) 19 PRNZ 409 at [22].
9 Roussel Uclaf Australia Pty Limited above n 3 at 656.
10 Minister of Energy v Petrocorp Exploration Ltd above n 3, at 353.
11 Siemer v Official Assignee HC Auckland CIV-2010-404-1709, 4 August 2011.
12 Wilson v White, above n 5; Stratford Racing Club Inc v Adlam [2007] NZCA 92, [2008] NZAR
329.
13 Wilson v White, above n 5.
[21] In Stratford Racing Club Inc v Adlam14 the Court of Appeal commented it was unfortunate there had been no cross-examination on the allegation that committee members were actuated by an improper purpose. However, the Court of Appeal determined that the Judge at first instance was entitled to reach the conclusions he had drawn.
[22] Also of relevance to the presence case are the observations by Duffy J that occasionally in judicial review proceedings before 1997, Courts declined to make adverse findings on the ground there had been no cross-examination of the relevant witness of the opposing party.15
[23] Furthermore, as Duffy J observed, simply through the expedient of applying to cross-examine, the applicant can be protected from any subsequent criticism that he could not argue for adverse inferences to be drawn against the respondent because he did not seek to cross-examine the respondent. By seeking leave to cross-examine
the applicant obviates potential criticism.16
Is the cross-examination of Ms Stowers necessary?
[24] As Ms Higbee submits, another way of posing this question is to ask what Ms Stowers could say in cross-examination that will establish or help to establish one of the grounds of review. Mr Land indicates he wishes to cross-examine Ms Stowers on the reasons for the decisions, what steps, if any, she took to ensure that the facts or assumptions on which the decision were based was correct and whether, and to what extent, the decision was based on or properly took into account the merits of Charter’s tax position.
[25] He submits that these areas of fact are relevant to the various grounds of review advanced by Charter and, in particular, Charter’s claim that the Commissioner failed to take into account Charter ’s consistent requests to the
Commissioner to carry forward its tax losses. He further submits the Commissioner
14 Stratford Racing Club Inc v Adlam, above n 12.
15 Siemer v Official Assignee, above n 11 at [44].
16 Siemer v Official Assignee, above n 11 at [54].
took into account irrelevant considerations and the decision was based on material mistakes of fact.
[26] It is unclear how the resolution of the facts on which Mr Land wishes to cross-examine Ms Stowers is necessary for the determination of the grounds of judicial review identified above.
[27] Furthermore, as I raised with Mr Land in the course of oral argument, if Ms Stowers has failed to explain in her affidavit the reasons for her factual conclusions and her affidavit fails to properly explain or is inadequate in terms of justifying the conclusions she came to Mr Land will be well placed to make submissions that I should draw an adverse inference from her failure or inability to justify the Commissioner’s decision. Mr Land properly conceded that in relation to the three identified areas of proposed cross-examination he can make submissions based on the factual material which is presently before the Court without the need for further evidence admitted through cross-examination.
[28] Indeed, as Mr Land accepted, if the present evidential record provides an insufficient factual basis to justify Ms Stowers’ conclusions there would be little or no tactical advantage to Charter in exploring Ms Stowers’ decision making more fully. Furthermore, Mr Land accepted he did not know what answers Ms Stowers would give to his questions. In that sense the process of cross-examination is likely to involve elements of a fishing expedition which various authorities have
commented should not be permitted.17
[29] Mr Land further submits that issues of credibility arise as to whether
Ms Stowers properly took into account the merits of Charter’s tax position.
[30] Although the notice of application does not identify the area of dispute where issues of credibility will arise, I understand it relates to the contents of a telephone conversation between Mr Padfield, the director of Charter and a Ms Kaur of IRD in
which the latter is claimed to have said the tax losses would be applied to subsequent
17 Roussel Uclaf Australia Pty Limited above n 3 at 658; Lalli v Minister of Immigration HC Auckland CIV-2006-404-435, 27 April 2006.
profits once Charter had filed its 2004 tax return. Ms Kaur denies this claim. Ms Stowers was not a party to this conversation. She did not overhear it. She cannot be cross-examined on it because she has no personal knowledge of it. Furthermore, this issue is of peripheral relevance at best.
[31] This is not a case where there is a dispute as to what a decision maker was
alleged to have said in relation to a material aspect of Charter’s claim.18
Conclusion
[32] I am not satisfied that the cross-examination of Ms Stowers in this matter is required in the overall interests of justice.
[33] Ms Stowers has made an affidavit which explains her decision making process. She has exhibited a voluminous catalogue of the documents she had before her at the time she made her decision. The evidential material is ample and sufficient to enable this Court to make a decision based on the present state of the evidence before it.
[34] I am not satisfied that any useful purpose would be served in permitting the cross-examination of Ms Stowers. More specifically, the interests of justice do not require a departure from the presumption against cross-examination in this case nor is cross-examination necessary in order to resolve the issues in contest in this matter.
Result
[35] The application for leave to cross-examine is dismissed.
Moore J
Solicitors:
Mr Land and Mr Carey, Auckland
Ms Courtney and Ms Higbee, Auckland
18 Commerce Commission above n 6, at [44].
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