Commissioner of Inland Revenue v Accent Management Ltd
[2012] NZHC 1430
•22 June 2012
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2011-404-4731 [2012] NZHC 1430
BETWEEN THE COMMISSIONER OF INLAND REVENUE
Applicant
ANDACCENT MANAGEMENT LIMITED First Respondent
ANDBEN NEVIS FORESTRY VENTURES LIMITED
Second Respondent
Cont …
Hearing: 28-29 March 2012; and (on the papers) 5, 17, 20, 24 April 2012
Appearances: B Stewart QC and N Gedye for the 2nd to 4th and 6th Respondents in
CIV-2011-404-4731
M Hinde for the 1st and 7th to 11th Respondents in CIV-2011-404-
4731
G A Muir in person in all proceedingsM Palmer and J D Kerr for the Commissioner of Inland Revenue in all proceedings opposing applications
Judgment: 22 June 2012
JUDGMENT OF WOODHOUSE J
This judgment was delivered by me on 22 June 2012 at 11:00 a.m. pursuant to r 11.5 of the High Court Rules 1985.
Registrar/Deputy Registrar
……………………………………
Counsel / Parties:
Mr B Stewart QC, Barrister, AucklandMrs M Hinde, Barrister, Auckland
Dr G Muir, Muir Law, Auckland
Dr M Palmer, Ms J D Kerr and Mr TGH Smith, Crown Law, Wellington
Instructing SolicitorsMr R G Ewen, Wynyard Wood, Solicitors, Auckland
COMMISSIONER OF INLAND REVENUE V ACCENT MANAGEMENT LIMITED HC AK CIV-2011-404-
4731 [22 June 2012]
Cont …
ANDBRISTOL FORESTRY VENTURE LIMITED
Third Respondent
ANDCLIVE RICHARD BRADBURY Fourth Respondent
ANDGARRY ALBERT MUIR Fifth Respondent
ANDGREGORY ALAN PEEBLES Sixth Respondent
ANDHILLVALE HOLDINGS LIMITED Seventh Respondent
ANDLEXINGTON RESOURCES LIMITED Eighth Respondent
ANDPETER ARNOLD MAUDE Ninth Respondent
ANDREDCLIFFE FORESTRY VENTURES LIMITED
Tenth Respondent
ANDWAIKATO RESIDENTIAL PROPERTIES LIMITED
Eleventh Respondent
CIV-2011-404-1132
CIV-2011-404-4197
BETWEEN GARRY ALBERT MUIR Appellant
ANDTHE COMMISSIONER OF INLAND REVENUE
Respondent
[1] The appellant in two of these proceedings, Dr Muir, and the respondents in the third proceeding, who include Dr Muir, are challenging tax assessments. These are assessments relating to a scheme known as the Trinity scheme. The taxpayers have sought orders that Crown Law cease acting as the solicitors for the Commissioner of Inland Revenue, and that no Crown counsel appear as counsel in proceedings for the Commissioner, in respect of the challenge proceedings, and some related proceedings.
[2] There are three applications: one by four taxpayers, for whom Mr Stewart QC has appeared; one by six taxpayers, for whom Mrs Hinde has appeared; and one by Dr Muir, acting on his own behalf. The grounds advanced in support of the applications varied to an extent, with the widest grounds being those advanced by Dr Muir. However, the essence of the primary ground for all applicants is that it is likely that Crown Law and Crown counsel will not be able to act with the degree of independence required of lawyers, and counsel will not be able to comply with duties to the court. This is said to arise because, it is alleged, critical assessments made by the Commissioner for the 1997 and 1998 income years were made fraudulently, or knowingly contrary to law, and Crown Law and Crown counsel colluded in this, or had relevant knowledge of it, and wrongly maintained this position in tax challenge proceedings already determined. In consequence, it is contended, Crown Law as solicitors, and any Crown counsel, in respect of the ongoing challenge proceedings, will face conflicts or potential conflicts such that the orders sought should be made.
[3] For convenience, in this judgment, I will use the name Crown Law as including Crown counsel, and the taxpayers’ arguments relating to the obligations of counsel will be incorporated within this.
Conclusions in summary
[4] I have concluded that the applications should be dismissed for two reasons. One is that the taxpayers’ allegations can have no relevance in the proceedings in question. As a result there are no relevant issues in respect of the duties of Crown
Law. The second reason is that, in my judgment, the history of past litigation in which most of the taxpayers have been involved, including final determinations of fact of this Court, means that the taxpayers cannot establish an arguable factual foundation to support the applications. It is for this second reason that, in the following section, the litigation history is set out at some length, including a lengthy citation with factual findings from another case between the Commissioner and the taxpayers.
The litigation history
[5] The Trinity scheme was devised by Dr Muir in 1996. Dr Muir and his legal partner, Mr Bradbury, also one of the present respondents, then took steps to establish and implement the scheme. The particulars of the scheme, and details in respect of the legal issues to which it has given rise, do not need to be outlined in this judgment. Particulars may be found in the High Court, Court of Appeal and Supreme Court judgments referred to at [7] below.
[6] The policy advice division of the Inland Revenue Department became aware of the Trinity scheme in October 1998. Over a period to around May 2003 the Commissioner issued assessments and amended assessments to taxpayers in the Trinity scheme for the 1997 and 1998 income years. Again it is unnecessary to go into the details. It is sufficient to note that the end result of the assessments was, in part, that certain deductions claimed by the taxpayers under subpart EG of the Income Tax Act 1994 were disallowed and penalties were imposed under the general anti-avoidance provisions of the Act. It is relevant to add at this point that a central contention of the taxpayers in the present proceedings is that subpart EH of the 1994
Act applied to the deductions in question and the Commissioner was bound by law to have assessed the relevant deductions under subpart EH. The alleged misconduct of the Commissioner and Crown Law is said to have arisen in this regard in particular. The contentions are set out more fully below.
The Ben Nevis proceeding
[7] The taxpayers, on various dates, filed notices of claim in the Taxation Review Authority challenging the amended assessments. These challenge proceedings were transferred to the High Court. These are proceedings which culminated in the Supreme Court’s judgments on tax avoidance in Ben Nevis Forestry Ventures Ltd v Commissioner of Inland Revenue.1 The assessments were upheld. As a matter of convenience I will refer to these proceedings, in the High Court, the Court of Appeal and the Supreme Court, as the “Ben Nevis proceeding”, although the lower court judgments are reported under the name of another taxpayer in the Trinity scheme.2
[8] In the Supreme Court counsel for some of the taxpayers sought leave to argue, for the first time, that deduction and spreading issues should have been determined under subpart EH of the 1994 Act (or subpart EZ of the 2004 Act). These taxpayers, then represented by Mr Gudsell QC, included four of the present respondent applicants, Ben Nevis Forestry Ventures Ltd, Bristol Forestry Ventures Ltd, Mr Bradbury, and Mr Peebles. The Court declined leave to advance the
arguments.3 Other taxpayers before the Supreme Court, with Mr Stewart QC as one
of their counsel, disclaimed any reliance on subpart EH. Those taxpayers are two of the present respondent applicants, Accent Management Ltd and Lexington Resources Ltd. The remaining appellant in the Supreme Court was Redcliffe Forestry Ventures Ltd, another respondent applicant in this proceeding, and represented by Mrs Hinde in the Supreme Court as in these proceedings. There does not appear to have been any contention on behalf of Redcliffe in the Supreme Court that subpart EH should
have been applied by the Commissioner.
1 Ben Nevis Forestry Ventures Ltd v Commissioner of Inland Revenue [2008] NZSC 115; [2009] 2
NZLR 289; (2009) 24 NZTC 23,188 (SC).
2 Accent Management Ltd v Commissioner of Inland Revenue (2004) 22 NZTC 19,027 (HC), Venning
J; Accent Management Ltd v Commissioner of Inland Revenue [2007] NZCA 230; (2007) 23 NZTC
21,323 (CA).
3 Ben Nevis Forestry Ventures Ltd v Commissioner of Inland Revenue [2008] NZSC 115; [2009] 2
NZLR 289; (2009) 24 NZTC 23,188 (SC) at [149]-[155].
The judicial review proceeding
[9] On 23 December 2008, four days after delivery of the Supreme Court Ben Nevis judgment, an application for judicial review by some Trinity scheme taxpayers was filed in the High Court (the judicial review proceeding). The plaintiff was one of the present respondents, Accent Management Ltd, claiming for itself and as representative of all but one of the other plaintiffs in the Ben Nevis proceeding. The claimants in the judicial review proceeding were seven of the eleven taxpayers in the present proceeding.
[10] The judicial review statement of claim may be summarised as follows:
(a) The Commissioner disallowed deductions that had been claimed under subpart EG (and under other provisions for other claimed deductions) for the 1997 and 1998 income years, and in any event assessed the scheme as tax avoidance.
(b)The taxpayers’ contractual arrangements constituted a financial arrangement governed by subpart EH, the application of which was mandatory.
(c) At least from 1999 the Commissioner was of the view that the contractual arrangements constituted a financial arrangement governed by subpart EH because of, amongst other things, an opinion obtained by the Commissioner from Mr Don McKay.
(d) The Commissioner breached a duty owed to the taxpayers to ensure
that the taxpayers’ tax liability was correctly assessed.
(e) The 1997 and 1998 assessments were and are invalid. The particulars of invalidity were pleaded as follows:
(i) [The Commissioner] disregarded known law, that is section EH 8, and in doing so acted arbitrarily and/or capriciously in making [his] decisions in respect of the [taxpayers’] position in 1997 and 1998;
(ii) The decisions do not reflect a genuine attempt to ascertain the liability of the [taxpayers] as imposed by the statute;
(iii) The decisions do not reflect the [Commissioner’s] honest
opinions;
(iv) The [Commissioner’s] exercise of power is not reasonably referable to the subject matter of the Act nor the powers sought to be relied upon;
(v) The [Commissioner], in making the decisions, has misused his powers, in the respects particularised in [the preceding sub-paragraphs].
(f) The taxpayers sought declarations that the Commissioner had no power to make the 1997 and 1998 assessments, that the assessments were invalid and that the Commissioner “should not take any further steps in relation to the 1997 and 1998 decisions”.
[11] The Commissioner applied to strike out the judicial review proceeding. There was a two day hearing on the application, with the judgment reserved. In his reserved judgment4 Keane J noted the following submission for the plaintiff:
[30] … It only appreciated after the decision of the Court of Appeal [in the Ben Nevis proceeding] that, if any aspect of the transaction did constitute a ‘financial arrangement’, sub-part EH8 applied.
The Judge outlined the plaintiff’s contentions as to the legal nature, in tax terms, of the Trinity scheme and then summarised further submissions:
[34] Section EH8, Accent contends, therefore, prohibited the Commissioner from the assessment he made, in which he assumed Accent’s right to a deduction lay only under the depreciation rules in sub-part EG. The Commissioner, Accent says, has yet to make the calculation sub-part EH requires and so he has not made any lawful assessment for the 1997 - 98 years.
[35] Accent goes further. It contends that in the assessments he made the Commissioner was aware that they were irreconcilable with s EH8 and, in making them nevertheless, he consciously misused his power. This is, therefore, one of those rare cases of which Richardson P spoke in Commissioner of Inland Revenue v Wilson (1996) 17 NZTC 12,512 (CA), at
12,520, where the Commissioner in the exercise of his statutory powers has gone beyond the statutory criteria and purposes of the Act, not just
mistakenly but deliberately.
4 Accent Management Limited v Commissioner of Inland Revenue (2010) 24 NZTC 24,126 (HC).
[36] Accent contends that it does not have to go still further and allege that the Commissioner must also have lacked any honest belief in the application of the general anti-avoidance provision to any accrual assessment. The issue is whether he knew, or deliberately closed his eyes to, the unlawfulness of the threshold assessment that he made of the licence premium aspect most especially.
[12] For the reason noted above at [4], I will set out the Judge’s findings at some
length:
[88] Accent contends, firstly, that its case must lie within the two exceptional categories because the Commissioner has to be fixed with knowledge of the pre-emptive effect of s EH8 and his own public determinations under sub-part EH. And clearly, in a sense, that is so. But it does not follow that where s EH8 and the determinations may apply, and the Commissioner assesses on some other basis, he ignored deliberately the one or the other. That begs the very question to be decided.
[89] Section EH8 and those determinations, moreover, are and were at the times material hardly closeted. They were as accessible to the devisers of the Trinity Scheme, and to Accent and its advisers as to the Commissioner. The deductions Accent claimed, to which the Commissioner responded, most materially the licence premium depreciation deduction claim, rest on what can only have been a deliberate feature of the scheme, on which Accent relied to exclude any ‘financial arrangement’ to which s EH8 and those determinations could apply - the promissory notes.
[90] Accent contends, secondly, that the Commissioner ignored deliberately the state of opinion within his own Department. That consensus was, Accent says, that the arrangements were capable of giving rise to one or more ‘financial arrangements’. The only issue was as to how the deductions to which Accent was entitled were to be calculated; as to what was the core acquisition price.
[91] The assessing officer’s answer is that, before she settled the 1997 notice of proposed adjustment, opinions differed within the Department as to how the arrangements were to be assessed. That is reflected, she says, in the notice issued. It set out a series of alternative grounds for disallowing the two forms of deduction claimed. But, she says, the Commissioner’s ultimate position was that the arrangements as a whole constituted a ‘tax avoidance arrangement’. Whether at the threshold that arrangement gave rise to one form of deduction, as opposed to another, was academic.
[92] In this context Accent faces two difficulties. One is that it has to involve an inquiry into the state of debate within the Department before the issue of the notice of proposed adjustment. That is ruled out by Westpac5 as contrary to the policy underpinning the two statutory presumptions. The other is that, even if the assessing officer chose to focus on the grounds for disallowing the deductions Accent claimed, when she had advice that the arrangement could give rise to one or more ‘financial arrangements’, that is
5 Westpac Banking Corporation v Commissioner of Inland Revenue [2009] NZCA 24; [2009] 2 NZLR
99; (2009) 24 NZTC 23,340.
hardly fatal. That, as the Court of Appeal said in Westpac, does not mean that she was dishonest. Nor can it erode the validity of the assessments made.
[93] In his 1997 notice of proposed adjustment, moreover, the Commissioner fully declared his hand. Amongst the grounds he identified for disallowing the licence premium depreciation deduction Accent claimed, his second ground was that it could not be claimed because it involved a
‘financial arrangement’. This was his reason:
Licence: Financial Arrangement. The right created under the transaction documents is not ‘depreciable property’ for the purposes of section EG1 because it is a financial arrangement in terms of the definition in sections OB1/EH14. The definition of ‘depreciable property’ in section OB1 exclude a ‘financial arrangement’ by paragraph b(iii) of that definition.
[94] To this, Accent responds, the Commissioner deliberately omitted to identify other wider ways in which that element of the transaction gave rise to a ‘financial arrangement’. He did not point out that any such ‘financial arrangement’ meant that he had to assess under sub-part EH.
[95] The difficulty Accent faces however, here too, is that in its notice of response it took the position that the promissory note was a ‘financial arrangement’ but the licence was not. Nor did it refer then or later to sub-part EH as applying in any more general way. Its case was that it was entitled to the deduction it had claimed under sub-part EG. In part that goes some way to explaining why the Commissioner elected, as the assessing officer said as a matter of strategy, not to rely on this ground for the 1998 year.
[96] Accent next says that in this Court and on the two appeals the Commissioner deliberately adhered to the occluded ‘financial arrangement’ identified in the 1997 notice of proposed adjustment, without stating its consequence in law. Even when the assessing officer was cross-examined in this Court6 and accepted that the licence premium could have been assessed under sub-part EH, she omitted to say that this was the only way in which it could be assessed; that there was no choice.
[97] Once again, however, Accent’s stance now cannot be reconciled with its stance then. In its challenge to this Court and on its appeals Accent sought to have set aside the Commissioner’s assessments disallowing the two forms of deduction it had claimed. In this Court and on the first appeal it continued to contend for the licence premium depreciation deduction. It was only in the Supreme Court that it sought the lesser deduction it now says it was entitled to; the deduction it says was obligatory. But even then other investors continued to pursue the deduction always claimed. The issue before each Court, then, was whether all taxpayers engaged in the litigation were entitled to the deductions disallowed. It was not whether they were entitled to the lesser and inconsistent deduction Accent now seeks to vindicate. Moreover, the ultimate issue was whether, as the Commissioner had held it to be, the Trinity scheme was nothing more than a ‘tax avoidance arrangement’.
6 That is to say, in the Ben Nevis proceeding: Accent Management Ltd v Commissioner of Inland
Revenue (2004) 22 NZTC 19,027 (HC), Venning J.
[98] Accent’s then counsel contended before this Court on the initial challenge that any ‘financial arrangement’ that arose from the licence premium terms was extinguished immediately by the promissory note. When the Commissioner’s counsel argued that Accent’s counsel had conceded in opening that the licence premium was part of a disqualifying ‘financial arrangement’ Accent’s then counsel disclaimed that. Venning J at [130] expressed Accent’s case in this way:
[T]here was only one relevant financial arrangement in this aspect of the transaction, namely the promissory note which discharged and satisfied SLFJV’s obligation to pay the licence premium.
[99] Accent’s position then was, Venning J said at [132] and [133], that the licence premium payable, independent of the promissory note, was not a
‘financial arrangement’ and not excluded from the definition of depreciable
property. That remained the position of all appellants in the Trinity litigation, even in the Supreme Court, except insofar as Accent then sought to shift stance.
…
[104] For these reasons, on the indisputable record, it cannot begin to be said that the Commissioner made his assessments dishonestly, or defectively, in the ways Accent pleads in its statement of claim. Accent cannot rely on those pleadings, taken as correct, to resist the Commissioner’s application.
Conclusions
[105] Accent’s challenge to the validity of the 1997 - 98 assessments does not lie within the two exceptional categories of case, beyond the reach of the statutory presumptions in ss 109 and 114 of the Tax Administration Act
1994. The sources of any invalidity on which Accent relies in its statement of claim to contend for the one or the other do not begin to found the
conclusion that the Commissioner either made no assessment or was culpable of conscious maladministration.
[106] Accent’s present review challenge relies, moreover, on a proposition that it could easily have advanced from the outset. But that proposition is antithetical to the deduction Accent actually sought and defended until the hearing in the Supreme Court. Accent only advances it now because of the adverse decisions it has suffered in this Court and on appeal. And its challenge now has to be a collateral attack not just on the two assessments, deemed by statute to be correct and valid, but on the three decisions vindicating their correctness. In all of these senses it constitutes an abuse of process and must be struck out.
[13] Following delivery of the judgment the Commissioner sought indemnity costs. Indemnity costs were awarded by Keane J in a judgment delivered on 23
December 2010.7 The Judge succinctly summarised his earlier conclusions as
follows:
7 Accent Management Limited v Commissioner of Inland Revenue (2011) 25 NZTC 20-022 (HC).
[18] The Commissioner’s assessment, and the decisions of this Court and those on appeal, I held essentially, in striking out Accent’s application for review, responded to Accent’s claim on its own behalf and that of the represented parties, to spectacular deductions deriving from the Trinity Scheme. Accent and the participants, I held, were the architects of the debate, not the Commissioner and not the Courts.
[19] Once the Trinity Scheme was held to be void against the revenue and that was upheld in the Court of Appeal, Accent shifted stance radically in the Supreme Court, when it advanced the argument underpinning its application for review. That new stance was rejected by the Supreme Court as unarguable because it was inconsistent with Accent’s case until then. That was my own conclusion.
[20] In striking out Accent’s claim as an abuse of process, I also held that it could not advance the argument that either the Commissioner had made no assessment at all or was culpable of conscious maladministration, the only two bases on which Accent could bypass the statutory presumptions in ss
109 and 114 of the Tax Administration Act 1994.
[21] On the indisputable record, I held, Accent could not begin to say that the Commissioner had made his assessments dishonestly or defectively, as Accent pleaded in its statement of claim. In reality, I held, Accent was launching a collateral attack on the assessments and decisions adverse to it and that was an abuse of process.
[22] Accent’s application for review, I concluded then, and conclude now, most obviously given the fate of its foundational argument in the Supreme Court, was wholly unmeritorious and self evidently so from the outset. The attack made on the Commissioner’s officers, in their assessment of its claims to deduction was, on the record, I consider, equally without substance.
[14] In April 2010 the taxpayers gave notice of appeal against this judgment. It was abandoned over a year later, in May 2011, after allocation of a hearing date and refusal of an application for an adjournment.
The set aside proceeding
[15] On 15 September 2009, before delivery of the judgment in the judicial review proceeding, another proceeding was filed in the High Court by Trinity scheme taxpayers. The plaintiffs were again all but one of the plaintiffs in the Ben Nevis proceeding, together with Dr Muir personally.8 In this proceeding, which I will call “the set aside proceeding”, the plaintiffs sought an order setting aside the High Court
judgment of Venning J in the Ben Nevis proceeding. Two grounds were advanced.
8 Dr Muir is privy to the Ben Nevis proceeding judgments through a loss attributing qualifying company (LAQC) which is a member of one of the companies in the Trinity scheme.
For present purposes these may be taken from the head note in the New Zealand Law
Report:9
The first [ground] was that the judgment had been obtained by fraud on the basis that the Commissioner of Inland Revenue had presented a false case to the High Court. The taxpayers claimed that the Commissioner, having sought independent professional advice from a tax consultant, knowingly assessed the taxpayers under the wrong statutory provision of the Income Tax Act 1994, namely subpart EG, and that the Commissioner had had a duty to refer to the existence, effect and likely application of subpart EH but had not done so, thereby presenting a false case to the High Court. The second ground was that, given that there had therefore been no lawful basis for the assessments confirmed by the High Court, the High Court had acted without jurisdiction. [That is to say, on the second ground, that the judgment was a nullity.]
[16] The statement of claim in the set aside proceeding was summarised in a subsequent decision of the Court of Appeal.10 The circumstances and outcome of the appeal are noted below. The Court of Appeal’s summary is as follows:
[8] The following sufficiently summarises for present purposes the way in which the setting aside proceeding was pleaded:
(a) The CIR allowed the taxpayers’ depreciation deductions
calculated under subpart EG of the Act.
(b) Having allowed those deductions, the CIR then voided the scheme under ss BB9 and BG1 of the Act for the 1997 and
1998 income years respectively.
(c) The Act provides that calculation of expenditure under a financial arrangement can only be made under subpart EH, in particular s EH8(1), and prohibits calculation on any other basis, including under subpart EG (depreciation allowance).
(d) Prior to issuing his assessments of the taxpayers, the CIR obtained independent expert advice from Mr Donald McKay to the effect that subpart EH of the Act was required to be applied to the transactions.
(e) Mr McKay’s advice was not followed by the Commissioner, nor was it discovered by him in the challenge proceeding. The taxpayers became aware of it only in February 2009.
(f) The CIR:
9 Redcliffe Forestry Venture Ltd v Commissioner of Inland Revenue [2011] 1 NZLR 336; (2010) 24
NZTC 24-079 (HC).
10 Redcliffe Forestry Venture Ltd v Commissioner of Inland Revenue [2011] NZCA 638; (2011) 25
NZTC 20-100 (CA).
(i) had and continues to have a statutory duty to refer to the application and effect of s EH8 in the Notices of Proposed Adjustments (NOPAs) on which he based his assessments, a duty which he breached and continues to breach; and
(ii) as a party to the challenge proceeding, had an obligation to refer the Court and the taxpayers’ counsel to the application and effect of s EH8.
(g) Had the CIR discharged his statutory obligations and his obligation to the High Court, the High Court would not have made the order it did confirming the assessments.
(h) As a consequence of (a) to (f), the CIR presented a false case to the High Court which resulted in the High Court making an order which it could not legally make and would not otherwise have made. In particular:
(i) there was “a suppression of the truth so that the evidence and arguments advanced by the [CIR] carried a suggestion or insinuation of something false”; and
(ii) the CIR “presented a false case by deliberately refraining from putting before the [High Court] relevant and material facts and law for the purpose of securing an order which he knew was unlikely to be made if he had made the full disclosure he was required to”; and
(iii) when cross-examined before the High Court, Ms Tracey Lloyd, an officer of Inland Revenue, deposed that she could have applied subpart EH, without disclosing that she had a legal obligation to do so.
[9] The statement of claim sought an order setting aside the 2004 judgment on the basis that, arising from s EH8(1), the assessments were unlawful and as a consequence of the CIR’s failures the High Court acted without jurisdiction.
[17] The Commissioner filed an appearance in the set aside proceeding under protest to jurisdiction and applied under r 5.49 of the High Court Rules for an order that the proceeding be dismissed for want of jurisdiction. The hearing of the Commissioner’s application proceeded before Venning J in February 2010, following a series of applications by the taxpayers, including an appeal, directed to having a different Judge determine the Commissioner’s jurisdiction application. By judgment
delivered on 26 February 2010 Venning J dismissed the set aside proceeding for want of jurisdiction.11
[18] The taxpayers appealed against the judgment of Venning J, as earlier noted. The Court of Appeal allowed the appeal.12 It held that the Commissioner had not been entitled to seek to dismiss the proceedings for want of jurisdiction, under High Court r 5.49, because the substance of the application by the Commissioner was an application to strike out the plaintiff taxpayers’ claim. The plaintiffs, through their counsel Mr Stewart, advised the Court of Appeal that the plaintiffs intended to
amend their pleading, given an opportunity to do so, and the Court concluded that the plaintiffs should have an opportunity to do so. It would then be for the Commissioner in the High Court to consider whether there should be an application to strike out.
[19] In February 2012 the Supreme Court granted the Commissioner leave to appeal.13 The approved questions were: (1) whether the Commissioner’s challenge to the [setting aside] claim was appropriately brought under r 5.49; and (2) whether the judgment of the High Court should in any event have been upheld. This appeal was heard on 19 June 2012, with the decision reserved.
The present proceedings
[20] I will refer to the three proceedings before me as the “extant challenges”. There are two appeals by Dr Muir against decisions of the Taxation Review Authority on 1 February and 16 June 2011.14 The February decision related to a challenge by Dr Muir to tax assessments of his returns, relating to the Trinity scheme, for the 10 financial years ending 31 March 1997 to 31 March 2006. Dr Muir raised a preliminary issue to the effect that the assessments he challenged were
prohibited and the hearing authority had no power to consider whether the
11 Redcliffe Forestry Venture Ltd v Commissioner of Inland Revenue [2011] 1 NZLR 336; (2010) 24
NZTC 24-079 (HC).
12 Redcliffe Forestry Venture Ltd v Commissioner of Inland Revenue [2011] NZCA 638; (2011) 25
NZTC 20-100 (CA).
13 Commissioner of Inland Revenue v Redcliffe Forestry Venture Ltd [2012] NZSC 10; (2012) 25
NZTC 20-109 (SC).
14 Muir v Commissioner of Inland Revenue [2011] NZTRA 2; (2011) 25 NZTC 1-006; Muir v
Commissioner of Inland Revenue [2011] NZTRA 6; (2011) 25 NZTC 1-010.
assessments were correct in accordance with the usual challenge procedures. Judge
Barber identified the essence of at least part of Dr Muir’s contention as follows:
[18] Simply put, the appellant seems to be arguing that, to date, the Trinity Scheme has been incorrectly analysed by all Courts up to and including our Supreme Court in terms of sub-part EG of the Act (Depreciation), whereas it is sub-part EH of the Act (Financial Arrangements) which requires to be applied.
[21] The Commissioner, in response, applied to strike out Dr Muir’s challenge proceedings, essentially on the grounds that Dr Muir’s arguments could not be advanced having regard to the Supreme Court’s determination in Ben Nevis. The Judge reviewed the Ben Nevis judgments. He also reviewed the High Court judgments in the set aside proceeding and the judicial review proceeding. Dr Muir’s application was dismissed and the Commissioner’s application was granted. In the later decision, of 16 June 2011, the Taxation Review Authority dismissed an application by Dr Muir to recall the decision of 1 February 2011.
[22] The third proceeding, with 11 taxpayer respondents, is an originating application by the Commissioner for a number of orders. The most relevant orders sought are: (1) transfer to the High Court from the Taxation Review Authority of 66 challenge proceedings of the taxpayers for various income tax years ranging from the
1999 year to 2009; (2) consolidation of the transferred challenge proceedings with two other challenge proceedings earlier transferred to the High Court; (3) consolidation of all of the challenge proceedings just noted with Dr Muir’s appeals, or orders that all matters be case managed and heard together.
The taxpayers’ allegations on the present applications
[23] The allegations of the taxpayers on the present applications, against the Commissioner and Crown Law, may conveniently be recorded by setting out the part of Mr Stewart’s written submissions in this regard (in his “note of oral argument”). Those were, of course, submissions only for the taxpayers represented by Mr Stewart, but they are nevertheless sufficient for present purposes also to convey the contentions of Mrs Hinde for the taxpayers she represented and of Dr Muir for himself.
[24] In setting out Mr Stewart’s written submission, some of the footnote references to affidavits have been omitted, and some clarification has been added in square brackets. The submission was as follows:
9.The conflict confronting Crown Law arises by virtue of the following sequence of events:
(a) That Crown Law acted for and advised the IRD in relation to the Trinity NOPA’s [sic] [notices of proposed adjustment] for the 1997 tax year. Those NOPA’s were issued by the IRD on
22 March 2002 and the resultant assessments were issued by the Commissioner on 26 March 2002.
(b) Subsequent NOPA’s issued by the IRD for later tax years
specifically included the contents of these earlier NOPAs.
(c) The taxpayers (who included the respondents) had claimed depreciation deductions calculated under subpart EG of the Act.
(d) The IRD was aware from advice provided to it by an external consultant in accruals (Don McKay) that calculation of expenditure under a financial arrangement can only be made under subpart EH, and that subsection prohibits calculation on any other basis, including under subpart EG (the depreciation allowance).
(e) Section EH8(1) of the [Income Tax] Act 1994 (“ITA”)
provides:
“Notwithstanding any other provision of this Act, in an income year in which a person is required to take into account income or expenditure in respect of a financial arrangement under the qualified accrual rules, that income or expenditure shall be calculated under those rules. (Emphasis added)
(f) Mr McKay’s advice was not followed by the Commissioner,
nor was it discovered in the challenge proceeding.
(g) The Commissioner allowed the taxpayers’ depreciation deductions calculated under subpart EG of the Act. The Commissioner, with the advice and knowledge of Crown Law, allowed the taxpayer’s depreciation deduction calculated under subpart EG of the Act as he was aware that tax avoidance would be much more difficult if not impossible to establish if the taxpayer’s depreciation deduction was calculated under subpart EH(8) as mandated by the legislation.
(h) The Commissioner’s decision, on advice from Crown Law, was part of an unlawful strategy which was developed to facilitate the taxpayer’s investment/scheme being voided
under ss BB9 and BG1 of the Act for the 1997 and 1998
Income years.
(i) Mr McKay’s advice was first seen by the respondents in February 2009 and the strategy was referred to by Mr McKay in para 50 in the following terms:
“I understand the current strategy is simply to deny the FLIP deduction and wait for the taxpayer to justify accrual expenditure if they wish to claim it
…”15
(j) By accepting the taxpayers returns and their calculation under subpart EG, the Commissioner and Crown law [sic] were accepting an assessment in respect of a financial arrangement that was expressly prohibited under subpart EH.
(k) As mentioned below, this strategy was maintained in the High Court notwithstanding the statutory obligation on the Commissioner to make assessments in accordance with the law.
(l) The proceedings which the IRD seeks to transfer to this Court and consolidate by this originating application, concern the assessments made by the IRD for the 1999 and subsequent years. Those assessments were, mutatis mutandis, mirror images of the 1997 and 1998 years’ assessments. The same issues concerning Crown Law’s continued involvement on behalf of the IRD apply to all assessments.
(m) Crown Law has sent a clear message in the affidavit of M A Cook dated 3 August 201116 where he says at para 41:
“The Commissioner’s intention to make this application for transfer has been clearly signalled to the respondents since early 2009. The Commissioner has also clearly signalled that, in the event that this application is successful, he proposes to strike out those elements of the respondents’ notices and statements of claim which raise issues which have already been dealt with by the Judgments.”
(n) On numerous occasions Crown law [sic] has characterised the respondents’ setting aside application as an attack on the Supreme Court Judgment in Ben Nevis. In other words, Crown Law is seeking to rely on the Ben Nevis judgment as rendering moot all remaining challenges notwithstanding
15 Mr Stewart’s submission referred to the advice from Mr McKay in a report dated 2 May 2002.
16 Mr Cook is a solicitor and a manager in the litigation management unit of the Inland Revenue Department. Mr Cook has had responsibility for managing the department’s litigation in respect of the Trinity scheme.
that it was obtained through the unlawful strategy pursued by the IRD and Crown Law in the High Court in 2004.
10.It is the IRD’s and Crown Law’s determination to rely on the Ben Nevis judgment to strike out, or alternatively, to defend and dispose of all challenges in the proceedings sought to be transferred to this Court, and consolidated, that gives rise to the conflict for Crown Law given its involvement/advice in the High Court proceedings in
2004.
11. The IRD’s conduct and in particular its unlawful use of the strategy expressly prohibited by Parliament resulted in the respondents issuing proceedings in this Court on 15 September 2009 to set aside the decision of Venning J [in the Ben Nevis proceeding] delivered on
20 December 2004.17
[25] There were further reasonably extensive submissions on discovery, and in particular from Mr Stewart and Dr Muir. Both contended that there had been significant failures on the part of Crown Law to ensure that discovery obligations were met, with particular reference to the disclosure of the reports of Mr McKay. Mr Stewart, towards the end of his submissions, resiled somewhat from the broad thrust of the original written submissions on discovery, which had been that these alleged failures provided substantial grounds for the orders sought that Crown Law no longer act. This responsible review of the position was founded, I apprehend, on a
tacit acknowledgement that discovery errors may have been inadvertent18 and, in any
event, past errors in respect of discovery in other proceedings could not provide a foundation for removal of solicitors and counsel in new proceedings. This latter aspect is noted in the next paragraph at [26] (c) and (h).
The present applications : legal principles
[26] In Clear Communications Ltd v Telecom Corporation of New Zealand Ltd19
Fisher J provided a summary of principles. He said that it was not intended to be
“exhaustive or definitive” but it is, with respect, a useful summary for present
purposes.
17 Accent Management Ltd v Commissioner of Inland Revenue (2004) 22 NZTC 19,027.
18 For example, and in particular, privilege was claimed for Mr McKay’s report on the basis that it contained legal advice. However, Mr McKay was not a lawyer. Litigation privilege may have been claimable. The point does not require consideration in this judgment. Mr McKay’s report was disclosed just before the Supreme Court hearing in the Ben Nevis proceeding.
19 Clear Communications Ltd v Telecom Corporation of New Zealand Ltd (1999) 14 PRNZ 477 (HC)
at 482-483.
(a) The Court has jurisdiction to debar counsel and/or solicitors from acting in a particular case where that step is necessary for the effective and efficient administration of justice: Black v Taylor.20
(b) Although no direct authority was cited on the point, broadly the same jurisdiction and principles seem applicable to lesser orders removing staff solicitors or otherwise dictating the way in which a legal firm is to organise itself internally.
(c) Removal of a lawyer is not a retrospective sanction for past misconduct but a prospective measure to safeguard the future conduct of the particular proceedings: Black v Taylor.21
(d) Where removal has been ordered, it has usually been for conflict of interest (eg Black v Taylor) but there is no limitation upon the conduct which might jeopardise the future conduct of the proceedings. In particular, it is not necessary to show that the lawyer has breached any rules of professional conduct: Black v Taylor.22
(e) A litigant should not be deprived of his or her choice of counsel without good reason: Black v Taylor.23 In particular, the Courts should guard against allowing removal applications to be used as a tactical weapon to disadvantage the opposing party: Black v Taylor;24 Schlaks v Gordon & Ors.25 The danger is illustrated by the apparent prevalence of such applications in the United States: Koller v Richardson-Merrell Inc.26
(f) An application for removal requires that a balance be struck between the injustice of depriving a party of his or her lawyer of choice and the injustice of allowing that lawyer to continue in prejudicial circumstances (Manville Canada Inc v Ladner Downes; Russell McVeagh McKenzie Bartleet & Co v Tower Corporation).27 In a small country the tension between those considerations may be acute, particularly in a specialised field such as competition law (Russell McVeagh).28
(g) In view of lawyers’ obligations of confidentiality and loyalty, care must be taken not to visit upon the lawyer sins which may be essentially those of the client: Young v Young.29
(h) The prima facie sanction for discovery inadequacies is an order under rr 293-317A of the High Court Rules, with particular reference to rr
300 (order for particular discovery) and 317A (contempt of court for non-
compliance). The alternative of removing a party’s lawyer for discovery
20 Black v Taylor [1993] 3 NZLR 403 (CA) at 406.
21 Black v Taylor, ibid, at 412.
22 Black v Taylor, ibid, at 418.
23 Black v Taylor, ibid, at 409.
24 Black v Taylor, ibid, at 420.25 Schlaks v Gordon & Ors HC Auckland, M 636/98, 15 May 1998, Giles J.
26 Koller v Richardson-Merrell Inc (1984) 737 F.dd 1038 at 1055-1056 (DC Circuit) (reversed on jurisdictional grounds at 105 S Ct 290).
27 Manville Canada Inc v Ladner Downes (1992) 88 DLR (4th) 208 at 222-223; Russell McVeagh
McKenzie Bartleet & Co v Tower Corporation [1998] 3 NZLR 641 (CA) at 647.
28 Russell McVeagh McKenzie Bartleet & Co v Tower Corporation, ibid, at 676.
29 Young v Young (1993) 108 DLR (4th) 193 (SCC).
deficiencies could be contemplated in only the most extraordinary of circumstances.
(i) Similarly, the prima facie avenue for policing legal professional conduct is the disciplinary processes of the Law Society. Only if that avenue, in combination with conventional interlocutory remedies, could not safeguard the future integrity of the instant proceedings should the Court itself intervene by removing a lawyer.
(j) Although the jurisdiction is not to be emasculated by setting the threshold so high that it could never be attained, there must be something truly extraordinary before removal could be contemplated. It could be justified only in cases of “truly egregious misconduct likely to infect future proceedings”: Koller v Richardson-Merrell Inc.30
[27] The Judge developed the last point with reference to United States and Ontario Court decisions. The observations recorded there are of direct relevance to the present applications. They bear not only on the principle that “there must be something truly extraordinary before removal could be contemplated”, but also on the need for courts to be alert to applications to debar being used as a tactical weapon
– gaming the system – the fifth point noted by Fisher J.
[28] In Beggs v Attorney-General31 Miller J discussed principles and practical issues arising on an application to debar counsel on the grounds that the opposing party may require counsel to appear as a witness. It is an important part of Dr Muir’s case on his applications that he will call witnesses from Crown Law and, it appears, the Inland Revenue Department, unless a range of concessions are made. The essence of Dr Muir’s submissions in this regard are set out below at [37]. In Beggs, Miller J said:
[40] Accordingly, the ethical obligation to withdraw when it becomes apparent that existing counsel may be required as a witness does not operate inflexibly. Wise counsel would choose to withdraw if possible, and the Law Society might regard the failure to do so as worthy of disciplinary action. But there are sound reasons why the Court should take care when contemplating removal of counsel who is already acting, at the instance of an opposing party that says it may wish to call counsel. It is commonplace for lawyers to become involved in position-taking or attempts at compromise before litigation begins, or when difficulties arise during its course. Such events may become peripherally relevant during trial, but that seldom causes difficulty. ... But in the ordinary way counsel is unlikely to be required as a witness, either because the record speaks for itself or because another witness is equally able to give evidence on what is typically a secondary
30 Koller v Richardson-Merrell Inc, above n 26, at 1056.
31 Beggs v Attorney-General [2006] 2 NZLR 129 (HC).
issue. Counsel also may be a hazardous witness for the opposing party.32 He or she is unlikely to submit to briefing, and in a case such as the present not all of his or her evidence will be helpful. The client’s preference for counsel of choice should not lightly be interfered with. And removing counsel may cause hardship for the client, particularly if it occurs at a late stage. The Court also must be conscious of a risk that such applications may be brought for improper reasons.
[29] I agree with Miller J’s observations.
The Lawyers and Conveyancers Act 2006 and Rules
[30] The taxpayers contended, in different ways, that Crown Law cannot meet obligations imposed under the Lawyers and Conveyancers Act 2006 and rules made under that Act. The fundamental obligations of lawyers, on which the taxpayers rely, are set out in s 4 of the Lawyers and Conveyancers Act, as follows:
4 Fundamental obligations of lawyers
Every lawyer who provides regulated services must, in the course of his or her practice, comply with the following fundamental obligations:
(a) the obligation to uphold the rule of law and to facilitate the administration of justice in New Zealand:
(b) the obligation to be independent in providing regulated services to his or her clients:
(c) the obligation to act in accordance with all fiduciary duties and duties of care owed by lawyers to their clients:
(d) the obligation to protect, subject to his or her overriding duties as an officer of the High Court and to his or her duties under any enactment, the interests of his or her clients.
[31] Reliance was also placed on a number of rules in the Lawyers and Conveyancers Act (Lawyers: Conduct and Client Care) Rules 2008. There was reference to the rules in chapter 2, concerned with a lawyer’s obligation to uphold the rule of law and to facilitate the administration of justice, and chapter 5, which sets out rules directed to a lawyer’s obligation to “be independent and free from compromising influences or loyalties when providing services to” the lawyer’s
clients.
32 In the present proceeding Mr Stewart advised that his clients had no intention of calling witnesses from Crown Law, for this very reason.
[32] Counsel and Dr Muir then referred to more specific duties set out in chapter
13 of the rules. Chapter 13 is headed “Lawyers as officers of court”. Rule 13 is the primary rule. It is as follows:
The overriding duty of a lawyer acting in litigation is to the court concerned. Subject to this, the lawyer has a duty to act in the best interests of his or her client without regard for the personal interests of the lawyer.
I will note further and more specific rules in chapter 13 that were relied on in submissions, but generally without noting differences of emphasis.
[33] Rule 13.5 provides, as the general rule, that “a lawyer engaged in litigation for a client must maintain his or her independence at all times”. This is followed by four more particular rules. Dr Muir contended that independence will not be maintained by Crown Law because: counsel may be required to give evidence; the relationship between Crown Law and the Commissioner is too close; advice given by Crown Law is “the subject matter of the proceeding”; and Crown Law “cannot comply with the rules”. All of this was directed, in factual terms, to Crown Law’s involvement in the Commissioner’s 1997 and 1998 assessments and in the subsequent Ben Nevis proceeding.
[34] Rule 13.9 is concerned with discovery as well as privilege. The obligations of lawyers in this regard are clear and do not need to be recorded in this judgment. The essence of the taxpayers’ contentions were noted earlier, with particular focus on what was said to be a wrongful claim of privilege in respect of Mr McKay’s reports, although the submissions on discovery were not confined to this.
[35] Rule 13.11 was also relied on.
Submissions on law
13.11 The duty to the court includes a duty to put all relevant and significant law known to the lawyer before the court, whether this material supports the client’s case or not. Subject to the procedure required by the practice direction contained in Practice Note [1968] NZLR 608, this duty continues until final judgment is given in the proceeding.
[36] The taxpayers contended, to a greater or lesser extent, that Crown counsel have deliberately suppressed law known to counsel. This was said to arise in particular from a failure to advise the courts in the Ben Nevis proceeding that the provisions of subpart EH had to be applied in the tax assessments for the Trinity scheme taxpayers.
[37] The broadest submissions in this regard were again made by Dr Muir. I will set out part of Dr Muir’s written submissions. These were directed expressly to counsel’s obligation to put the law to the court. The matters referred to in the submissions also record the matters which Dr Muir said he would seek evidence on from Crown counsel unless concessions were made. Dr Muir’s submissions were:
60.The appellant submits counsel will continue to breach those disclosure obligations unless or until he makes following [sic] proper concessions in each court he appears before:
(a) the SC found that there is a wider financial arrangement here;
(b) where there is a financial arrangement EH (and Accrual Determinations issued under s. 90(1)(a) TAA having force of law) must be applied, “notwithstanding” any other provision in the ITA, to determine the core acquisition price of that financial arrangement;
(c) EH binds both the Appellant and the Respondent;
(d) these are relevant issues which should have been disclosed, even if to distinguish them, in the NOPAs;
(e) the Respondent incorrectly advised the SC that he was not bound by EH;
(f) until a deduction is allowed, it cannot be subject to the anti- avoidance provision.
These concessions must be made because a hearing authority needs to know the Respondent’s position in respect of them in order that it can discharge its duty to determine the charge imposed already by Parliament. The Respondent is free to distinguish any other matters, but he must explain to a hearing authority how the law operates, and where he has made previous mistakes in that regard.
61.If these concessions are not made by counsel, the reasons for failing to do so will be the subject of cross examination in proving the existence and extent of the strategy. Everyone who is alleged to have become a party to the strategy (and its maintenance), even if innocently, is properly the subject of inquiry.
[38] I have not set out the full extent of the submissions for and by the taxpayers. By way of example only: submissions arising out of what may be called the special relationship between Crown Law and the Inland Revenue Department, as a government department subject to the Cabinet Directions for the Conduct of Crown Legal Business 1993;33 protocols between the Solicitor-General and the
Commissioner of Inland Revenue recorded in July 2009;34 submissions (of Dr Muir)
that the Taxation Review Authority is “charged by Parliament with both administrative and judicial functions”;35 and submissions (of Mrs Hinde) founded on s 6 of the Tax Administration Act 1994.36 I have concluded that the taxpayers’ application should be dismissed for reasons which mean that it is unnecessary to consider these, and some other, submissions for the taxpayers in support of their applications. The reasons for my conclusion follow.
Discussion
[39] On these applications the Court is asked by the taxpayers to make an assessment of the merit of the allegations against Crown Law in respect of past conduct. Such an assessment would only be necessary, as part of the ultimate enquiry as to whether Crown Law should be ordered not to act, if the alleged past conduct could be relevant to the proceedings in respect of which the taxpayers seek the orders. In my judgment, for the reasons which follow, the allegations of past
conduct are not relevant to the extant challenges.
33 See in this regard Du Claire v Palmer [2012] NZHC 934; HC Wellington, CIV-2009-485-2638, 7
May 2012, Asher J at [110]-[118].
34 Directed to ensuring that “Crown Law and Inland Revenue have in place procedures which will facilitate: (1) the Commissioner … interpreting and applying tax law correctly and consistently; (2) Inland Revenue and Crown Law having consistent positions on the interpretation and application of tax law when the Solicitor-General has expressed his opinion on the relevant law; and (3) the Commissioner making decisions about the affairs of taxpayers that are timely and according to law”.
There is a provision that “the Solicitor-General is ultimately responsible for the conduct of all
litigation in the name of the Commissioner”.
35 Founded on ss 13 and 15 of the Taxation Review Authorities Act 1994 with some emphasis placed on s 15(1) which provides that the Authority is “deemed to be a Commission of Inquiry under the Commissions of Inquiry Act 1908”.
36 Section 6(1) provides: “Every Minister and every officer of any government agency having
responsibilities under this Act or any other Act in relation to the collection of taxes and other functions under the Inland Revenue Acts are at all times to use their best endeavours to protect the integrity of the tax system.” The expression “the integrity of the tax system” is given a wide meaning in s 6(2), and includes “the rights of taxpayers to have their liability determined fairly, impartially, and according to law”.
[40] The extant challenges may give rise to material questions of fact and will give rise to material questions of law. Clarity as to the scope of those two areas of enquiry determines relevance. The submissions for the taxpayers did not address, or adequately address, questions of relevance. Dr Palmer’s submissions for the Commissioner focused squarely on this, and I agree with those submissions.
[41] In the extant challenges, the only factual enquiries that may arise, of any materiality, might be in relation to the Trinity scheme. It may be that factual enquiries of this nature will be limited, or even excluded, because the hearing authority (this Court or the Taxation Review Authority), when it comes to deal with the challenges, will decide as a matter of law that certain questions of fact were conclusively determined in the Ben Nevis proceeding. Whether that will be so is not a matter that requires determination on these applications and it is not a matter which should properly be considered on these applications. The point of importance is that the taxpayers’ allegations of fact relating to the conduct of Crown Law, and the conduct of the Commissioner, are irrelevant.
[42] The remaining questions that will be before the hearing authority will be questions of law. The taxpayers’ allegations against Crown Law are irrelevant in this respect because they are allegations of fact which cannot assist in answering the questions of the law that will arise in the extant challenge. The hearing authority’s determination as to what the law is, in respect of the challenged assessments, cannot be advanced in any way by determining whether or not the Commissioner acted in a particular way in the past and whether or not Crown Law promoted the particular conduct or in some way participated in it.
[43] On the present applications the taxpayers have argued that the conduct of the Commissioner will be relevant, and as a result Crown Law should be debarred (assuming there is a sufficient factual foundation for the allegations of misconduct) because the Ben Nevis decision is critical to determination of the extant challenges. The taxpayers say that the Commissioner and Crown Law have made clear that they will rely on the Ben Nevis decision and that they consider that it is determinative of the extant challenges. The point does not assist the taxpayers on the present application. The question as to whether Ben Nevis has application on an outstanding
tax challenge is a question of law, the answer to which cannot be assisted by an enquiry into the decision making processes leading to the Commissioner’s final tax assessments. It is not open to the taxpayers to seek to persuade the hearing authority that Ben Nevis does not apply by pointing to evidence said to bear on their allegations of misconduct, let alone to seek to persuade the hearing authority that Ben Nevis is not good law because it is the product of the improper conduct.
[44] The conclusions to this point are based on straightforward principles of relevance related to the proceedings in question. These are challenges to tax assessments brought, and required to be brought, in accordance with the challenge procedures prescribed by the Tax Administration Act 1994. The various submissions made for the taxpayers in respect of the duties of Crown Law do not in my judgment give rise to any potential conflict.
[45] The only submissions which pointed to the possibility of a connection between lawyers’ duties and the extant challenges were those relating to counsel’s duty to put all relevant and significant law before the court. However, the submissions had no substance with respect to counsel’s duties. The heart of this was the argument about subpart EH. There is no risk that arguments in respect of these provisions, or any other relevant law, will not be put before the hearing authority. It is disingenuous for the taxpayers to argue to the contrary. The obligation of counsel to ensure that the court has all relevant law before it cannot be converted into an obligation for counsel on one side to concede the legal argument that is being advanced on the other side. This was the effect of Dr Muir’s submissions which have been recorded above at [37]. The submissions are not tenable. This may be illustrated with one example only; the proposition that a lawyer from Crown Law will be questioned as to whether a provision of the Income Tax Act 1994 is
binding.37
37 See paragraph 60(c) and 61 of Dr Muir’s submissions, reproduced at [37]. Dr Muir referred to “cross-examination” of counsel. That could only arise if a lawyer from Crown Law were to be called to give evidence for the Commissioner. Even if that unlikely event occurred, cross-examination of a lawyer for his or her opinion on the law would not be admissible evidence.
[46] In Tannadyce Investments Ltd v Commissioner of Inland Revenue38 the
Supreme Court reviewed the law relating to s 109 of the Tax Administration Act
1994. Section 109 provides:
109 Disputable decisions deemed correct except in proceedings
Except in objection proceedings under Part 8 or a challenge under Part
8A,—
(a) No disputable decision may be disputed in a court or in any proceedings on any ground whatsoever; and
(b) Every disputable decision and, where relevant, all of its particulars are deemed to be, and are to be taken as being, correct in all respects.
[47] The Supreme Court’s decision on the merits was unanimous, but there were some differences as to the scope of s 109 between Blanchard, Tipping and Gault JJ, in the majority, and Elias CJ and McGrath J. The differences do not require consideration. In the majority judgment it was held, in essence, that the scope for challenge to tax assessments outside the procedures prescribed by the Tax Administration Act (primarily Parts 4A and 8A) is very limited, and more limited than had been held by the Court of Appeal in Westpac Banking Corporation Ltd v
Commissioner of Inland Revenue.39 The majority said in Tannadyce:
[54] The words “on any ground whatsoever” [in s 109(a)] must have been designed to emphasise the comprehensive nature of the embargo on bringing proceedings outside the statutory framework. Conversely, Parliament must have contemplated, by the use of those words, that disputable decisions could and should be contested and challenged under the statutory procedures on any ground whatsoever, including the ground that what the Commissioner claimed to be a decision or assessment was not a decision or assessment at all. If that could be established, the hearing authority’s power to cancel on any ground whatsoever would appropriately be invoked.40
[55] The advantage Parliament saw in this approach must have been that, whatever the claimed ground of error, illegality or invalidity, a hearing authority, which will be the High Court if the taxpayer so elects, is empowered to adjudicate upon it. Furthermore, the hearing authority can go on in the same proceeding, as far as necessary or appropriate, to determine
38 Tannadyce Investments Ltd v Commissioner of Inland Revenue [2011] NZSC 158; [2012] 2 NZLR
153; (2011) 25 NZTC 20-103.
39 Westpac Banking Corporation Ltd v Commissioner of Inland Revenue [2009] NZCA 24; [2009] 2
NZLR 99; (2009) 24 NZTC 23,340 (CA).
40 A hearing authority may address issues otherwise apt to be raised on judicial review: Golden Bay Cement Co Ltd v Commissioner of Inland Revenue [1996] 2 NZLR 665 (CA) at 671–672, applying the Privy Council decision from Hong Kong of Harley Development Inc v Commissioner of Inland Revenue [1996] 1 WLR 727 (PC).
whether the Commissioner’s assessment is correct and, if not, what the correct assessment ought to be. There is thereby no potential for separation of matters of legality from matters of correctness. This leads to a much more efficient and satisfactory process overall, particularly when regard is had to the various time limits that apply throughout the tax administration processes.
[48] The observations of the majority on the wide scope for challenge under the statutory procedures do not avail the taxpayers on the present applications. What the taxpayers are seeking to challenge in the extant challenges, so far as presently material, is, to all intents and purposes, the Supreme Court’s decision in Ben Nevis. That decision is not open to attack in the extant challenges. It is not open to a hearing authority, whether the High Court or the Taxation Review Authority, to question the validity of the Supreme Court’s decision in Ben Nevis.
[49] The taxpayers are, of course, seeking to set aside the High Court decision in the Ben Nevis proceeding, through the set aside proceeding. But that is not relevant to these applications. The taxpayers, on all of the present applications, did seek orders that Crown Law cease acting in the set aside proceeding. The application to that extent was not pursued by Mr Stewart and Mrs Hinde on behalf of their clients. The application by Dr Muir to debar in respect of the set aside proceeding is dismissed because it is not open in this proceeding to make a ruling in respect of representation in a different proceeding. If the Commissioner is unsuccessful on the appeal to the Supreme Court in the set aside proceeding, this may have a bearing on the progress of the extant challenges, but this would not have any present bearing on whether Crown Law can continue to act in the extant challenges. Because the matter is before the Supreme Court, it is inappropriate to comment beyond this on the set aside proceeding.
[50] A principle stated in the majority judgment in Tannadyce does have direct application to the question now being considered – whether the past conduct of Crown Law, and the past conduct of the Commissioner, in respect of the 1997 and
1998 assessments dealt with in Ben Nevis, could have any relevance to the extant challenges. The lack of relevance is encapsulated in the observation of the majority in Tannadyce at [55]: “There is … no potential for separation of matters of legality from matters of correctness.”
[51] In my judgment, the reasons discussed to this point are sufficient to dismiss the applications. However, there are further reasons which I consider should be recorded. To a considerable extent these emerge from the history of the litigation.
[52] In Tannadyce41 Tipping J, for himself and for Blanchard and Gault JJ, said:
[71] … Requiring the use of the statutory procedures removes the opportunity which the availability of judicial review would present, and has presented, for gaming the system.
These observations echo, albeit in a slightly different context, the observations cited above of Fisher J in Clear Communications Ltd v Telecom Corporation of New Zealand Ltd42 and Miller J in Beggs v Attorney-General.43
[53] I am satisfied, to the extent that I need to be satisfied on the point, that this application is an attempt to game the system. In this case, unlike the circumstances Tipping J was referring to in Tannadyce, it is an attempt to game the system within the statutory procedures. I am satisfied that the taxpayers have not brought this application because of a sincere and well-founded concern that their tax affairs will not be properly adjudicated on, but in an endeavour to cause unjustified difficulties for the Commissioner and to delay resolution of the tax disputes. The attempt to game the system, through the present applications, may be seen from the litigation history. It is for that reason that I set the history out in some reasonable detail, and in particular a substantial part of the conclusions of Keane J in the judicial review proceeding.
[54] The allegations of the taxpayers in these proceedings, in support of their debar applications, are essentially the same as their allegations in the judicial review proceeding. The only material difference is that, on the present applications, it is alleged that Crown Law participated in various ways in, and promoted, the alleged misconduct of the Commissioner, which misconduct was the foundation of the judicial review proceeding. This is not a material distinction in the present context.
This is because the question whether there is an arguable foundation for the
41 Tannadyce Investments Ltd v Commissioner of Inland Revenue [2011] NZSC 158; [2012] 2 NZLR
153; (2011) 25 NZTC 20-103.
42 Clear Communications Ltd v Telecom Corporation of New Zealand Ltd (1999) 14 PRNZ 477 (HC).
43 Beggs v Attorney-General [2006] 2 NZLR 129 (HC).
allegations against Crown Law is dependent on whether there is an arguable foundation for the allegations against the Commissioner. In the judicial review proceeding, Keane J made important findings of fact which are sufficient for the purposes of these applications to conclude that the taxpayers do not have a reasonably arguable factual foundation to advance the applications to debar. It is not necessary to find that the taxpayers are estopped by the relevant findings of fact in the judicial review proceeding. I am also satisfied that these applications constitute a form of abuse of process. These considerations provide further, and substantial, grounds for dismissing the applications.
Result
[55] The applications of the respondents in CIV-2011-404-4731, and the applications of the appellant in CIV-2011-404-1132 and CIV-2011-404-4197, that Crown Law cease acting, are dismissed.
[56] The Commissioner of Inland Revenue is entitled to costs and reasonable disbursements on all applications. If agreement cannot be reached on costs and disbursements, a memorandum for the Commissioner should be filed within four
weeks, with responses within a further four weeks.
Woodhouse J
3
10
1