Commissioner of Inland Revenue v Kensington Developments Limited
[2013] NZHC 3537
•20 December 2013
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV 2013-404-2200 [2013] NZHC 3537
BETWEEN COMMISSIONER OF INLAND REVENUE
Plaintiff
ANDKENSINGTON DEVELOPMENTS LIMITED
Defendant
Hearing: 13 November 2013
Appearances: M Deligiannis and K Naik-Leong for the applicant
S Judd for the respondent
Judgment: 20 December 2013
JUDGMENT OF ALLAN J
In accordance with r 11.5 I direct that the Registrar endorse this judgment with the delivery time of 12 pm on Friday 20 December 2013
Solicitors:
Crown Law, Wellington
Ladbrook Law Ltd AucklandS Judd, Auckland
COMMISSIONER OF INLAND REVENUE v KENSINGTON DEVELOPMENTS LIMITED [2013] NZHC
3537 [20 December 2013]
Introduction
[1] The respondent (Kensington) commenced a challenge proceeding in the
Taxation Review Authority (TRA) by way of a notice of claim dated 12 August
2011.1
[2] The applicant (the Commissioner) applies for orders:
[3] Granting leave to commence this proceeding by way of originating application under Part 19 of the High Court Rules;
[4] Transferring the challenge proceeding from the TRA to the High
Court;
[5] Directing that the provisions of rr 5.64 to 5.68 apply to the transferred proceeding as if it had been an action transferred from the District Court to this Court; and
[6] Directing the respondent to pay the costs of and incidental to this application, which is opposed by the respondent.
Background
[7] It is unnecessary to set out the background to the dispute in anything more than the briefest detail. A central figure in the challenge proceeding before the TRA is Mr J G Russell, who for more than 30 years has been engaged in litigation of one sort or another against the Commissioner.
[8] The Commissioner’s position is that, as a consequence of a number of transactions involving inter-related companies controlled by Mr Russell to which Kensington was a party, it and other parties controlled by Mr Russell have accumulated substantial losses following the deduction of interest expenses. The Commissioner says that those interest expenses have not actually been suffered in an
economic sense by the various debtor companies (including Kensington), nor were
1 Kensington Developments Ltd (in receivership) v Commissioner of Inland Revenue (TRA 28/11)
[9] the sums concerned returned as interest income by various companies holding debentures pursuant to which the interest was said to be payable.
[10] The Commissioner alleges that losses totalling $15,756,946.76 accumulated by Kensington should be disallowed as part of a tax avoidance arrangement under s BG1 of the Income Tax Act 2004, or the corresponding provisions of the Income Tax Acts of 1994 and 2007.
Procedural matters
[11] Mr Russell, acting on behalf of Kensington, filed a notice of claim in the TRA on 12 August 2011. On 20 September 2011, the Commissioner filed a notice of defence. A statement of agreed facts was filed in the TRA on 13 November 2012. On 26 November 2012, the Commissioner and Kensington exchanged affidavits of documents.
[12] The proceeding in the TRA has been ready for hearing for some time, but the allocation of a fixture there has been deferred pending the outcome of the present application.
[13] Rule 19.5 empowers the Court to permit any proceeding not specifically mentioned in rr 19.2 to 19.4 to be commenced by originating application where it is in the interests of justice to do so.
[14] The substantive application is made in reliance on s 138N(2) of the Tax Administration Act 1994, which provides that the Commissioner “ …may apply to the High Court to have the challenge transferred to the High Court”. The precise procedure is not stipulated. But this Court has acknowledged in a number of s 138N(2) transfer cases that the procedure in Part 19 of the High Court Rules is appropriate.
[15] Kensington does not oppose the grant of leave under Part 19. There will accordingly be leave to commence the proceeding by way of originating application under Part 19 of the High Court Rules.
Transfer principles
[16] Section 138N(2) of the Tax Administration Act provides:
If a disputant commences a challenge in a Taxation Review Authority, the Commissioner may apply to the High Court to have the challenge transferred to the High Court.
[17] There is no statutory guidance as to when a transfer application should be granted.
[18] In Commissioner of Inland Revenue v Erris Promotions,2 the Court of Appeal discussed the proper approach to transfer applications. Although its discussion was strictly obiter, the approach mandated in that case has been followed on a number of subsequent occasions. I gratefully adopt the summary of Erris appearing in the judgment of Randerson J in Commissioner of Inland Revenue v McIlraith.3
(a) Although there are no statutory criteria set out for transfer applications to the High Court under s 138N(2)(a)(ii), there is no legislative intent to change the role of the TRA and the High Court in taxation matters.
(b) The criteria set out in s 136(4) or s 138O may still considered if relevant in the circumstances of the case.
(c) The taxpayer has the initial choice of forum and the onus is on the Commissioner in seeking a transfer to provide reasons why that should occur.
(d) The Court is required to consider the factors relied upon by the Commissioner and the reasons for the taxpayer’s choice of forum against the background of the scheme of the legislation and the role of the TRA and the High Court in taxation disputes.
(e) The TRA was designed to provide a more informal and less complex forum as evidenced by the anonymity provisions, and the fact that costs cannot be awarded in favour of any party. Although it is a specialist in taxation disputes, there is no presumption in the legislation that taxation disputes should normally be dealt with in the TRA at first instance.
(f) The High Court is the Court of first instance jurisdiction for major litigation and, in particular, where matters are complex and involve matters of major legal significance. That is also the case for taxation litigation.
(g) The amount of money involved does not necessarily equate with complexity but it does bear upon the issue of significance, both for the Commissioner
2 Commissioner of Inland Revenue v Erris Promotions [2003] 1 NZLR 506 (CA).
3 Commissioner of Inland Revenue v McIlraith (2003) 21 NZTC 18,112 (HC) at [18].
and the taxpayers involved.
[19] A factor of particular significance in McIlraith was the fact that a concerted attack had been made by the taxpayer on the integrity of the departmental officer or officers concerned; there were serious allegations of bias, bad faith and abuse of power. Randerson J held that it was not appropriate for the TRA to engage in
extensive investigations into matters of that kind.4
[20] To the factors listed by Randerson J in McIlraith may be added two more. First, if an appeal seems likely, that may favour a High Court proceeding given the additional appeal level if the proceeding is commenced in the TRA.5
[21] Second, the highly structured case management system available to this Court under the High Court Rules may sometimes be of advantage in managing the interlocutory stages of complex cases.6
[22] Ms Deligiannis submits that a number of the factors identified in earlier cases support the Commissioner’s application in the present case. I will deal in sequence with the factors so relied upon. Most are the subject of vigorous challenge by Mr Judd.
Relevant factors discussed
Kensington’s Notice of Claim
[23] The competing arguments can best be understood in the context of the Notice of Claim filed by Kensington in the TRA. Kensington challenges the assessments and seeks that they be declared invalid and of no effect, or alternatively that they be cancelled.
[24] The grounds set out in the Notice of Claim in the TRA are as follows:
1. The assessments are invalid for administrative reasons.
4 See also Dandelion Investments Ltd v Commissioner of Inland Revenue [2003] 1 NZLR 600 (CA) at
[90]-[94].
5 Commissioner of Inland Revenue v Deepsea Sea Foods (No 1) (2004) 21 NZTC 18,469 (HC) at
[18], and Commissioner of Inland Revenue v Taxpayers X (2005) 22 NZTC 19,226 (HC) at [10].
6 Commissioner of Inland Revenue v Taxpayers X at [29].
2.The assessments are statute barred in the case of the 1997 to 2006 years.
3.The assessments are invalid due to a vendetta practised by the defendant against John George Russell who is associated with the disputant.
4. The assessments have been made contrary to the provisions of s 6
Tax Administration Act 1990.
5. The assessments have been made contrary to the provisions of the
New Zealand Bill of Rights Act 1990.
6.The assessments were made in reliance upon the alleged existence of a tax avoidance arrangement when there is no such arrangement to which the relevant sections can be applied. The assessments have been made contrary to the provisions of s GB(1)(2) Income Tax Act
1994 and s BG(1) Income Tax Act 2007.
7.The assessments assess shortfall penalties to the disputant when there has been no shortfall of tax paid in any of the years assessed.
8.The assessments assess total shortfall penalties of $2,459,343.26 to the disputant when the defendant knows it has no significant income or assets and that there is no prospect of collecting any of amounts assessed.
9.The assessments claim that the disputant was party to an arrangement to which it was the only party. It is not possible to have an arrangement with only one party in it.
10.The disputable decision was made to issue these assessments because it was realised by the defendant that he could not be successful in maintaining his Track C assessments the subject of joint venture proceedings before the High Court. Such conduct is unlawful and an abuse of legal process and an abuse of power and amounts to a fraud on the taxpayer.
11. The disputable decision is made without consideration of the evidence upon which the disputant relies and which the defendant has refused to disclose to the disputant. Such conduct denies natural justice to the disputant and is also partial and unfair.
12. The interest disallowed is a deductible expense.
13.The losses as returned are lawfully available to be carried forward each year.
Complexity
[25] Ms Deligiannis submits that, as will be seen from the Notice of Claim set out above, Kensington raises a number of matters which are of considerable significance, both factually and legally.
[26] The Commissioner will contend that the arrangement that lies at the heart of the dispute had a purpose or effect of tax avoidance. Although the relevant law on tax avoidance is now relatively settled, adjudication will require a complex analysis of a series of transactions involving debentures issued by 14 separate companies acquired by Kensington from Glen Eden Holdings Ltd, a company also controlled by Mr Russell.
[27] As Ms Deligiannis submits, a wiring diagram annexed to the affidavit of Mr Michael Cook, an officer of the Commissioner, tends to demonstrates that the inter-relationship of the participant companies and their shareholdings is intricate and complex. She submits further that the factual matrix bears some similarity to the well-known template scheme designed by Mr Russell which has in earlier litigation
been described as of “labyrinthine complexity”.7 Moreover, she submits, the
legitimacy and even the very existence of various debentures underpinning the transactions are at issue. There will also be a need to consider the commerciality of Mr Russell’s role as receiver of Kensington. The Commissioner will be calling evidence that his conduct as receiver has not been “commercial” and that he may have acted in breach of his duties as a receiver.8 Of particular importance is the fact that Mr Russell has been both receiver of Kensington for more than 15 years, and a director as well since 2008. Given that Kensington is in receivership and has engaged in little if any business activity in recent years, there is a question,
Ms Deligiannis submits, as to whether it should have been allowed to continue to trade while effectively insolvent. That requires an examination of the role of Mr Russell as receiver. Receivership and insolvency issues are generally within the general jurisdiction of this Court. Accordingly, she submits, the High Court is the appropriate forum.
[28] Mr Judd maintains that the importance of these factors has been overstated on behalf of the Commissioner. He says that there is no factual dispute over what happened. The real question is as to whether this was a tax avoidance scheme that ought to be struck down. Moreover, there will be no need to consider Mr Russell’s
actions as receiver, except to the extent that they may go to the question of overall
7 Russell v Commissioner of Inland Revenue (2010) 24 NZTC 24,463 (HC) at [7].
8 Pursuant to s 18 of the Receiverships Act 1993.
commerciality. If they do, then they can be considered as part of an ordinary tax avoidance assessment.
[29] Mr Judd refers to the Adjudication Report prepared by the Office of the Chief Tax Counsel, dated 17 June 2011, from which it is clear, he submits, that the factual and legal issues in this case are uncomplicated and fall squarely within the kinds of issues that one would expect the TRA as a specialist Tribunal to deal with.
[30] There is nothing especially complex about the factual matrix. Kensington claimed yearly interest deductions between 1997 and 2008 in respect of loans from the Bank of New Zealand and Downsview Finance Ltd. Kensington did not actually make interest payments over those years, but accrued its interest liability in its financial statements and tax returns. The effect was that the taxpayer carried forward losses over those years.
[31] Mr Judd submits that no tax has actually been avoided, because the taxpayer did not receive any income in the relevant years that could have been offset against the losses. As to that, I observe that although Kensington itself may have received no income against which to offset the losses, the accumulated losses nevertheless remain available for later use. Tax loss companies may have considerable commercial value. The fact that Kensington has not offset the losses against income in recent years is only part of the overall picture.
[32] Mr Judd submits that the primary issues to be determined by the TRA are: (a) Did the BNZ loan exist?
(b) If it did, has the debt been remitted?
(c) Were the various debentures part of a tax avoidance arrangement? (d) Are the Commissioner’s assessments correct?
(e) Were the shortfall penalties imposed by the Commissioner appropriate?
[33] He submits that there is nothing complex or beyond the competence of the
TRA arising out of those issues.
[34] In my view this is a moderately complex case of less intricacy than Ms Deligiannis suggests, but with rather more to it than Mr Judd claims. It is difficult to see how the Court would be required to make binding determinations on the lawfulness of Mr Russell’s actions as a receiver but it may well need to consider those actions as part and parcel of its determination of commerciality issues. I regard the complexity of the case as relevant, but by no means determinative.
Novel issues
[35] Ms Deligiannis submits that as a separate factor the Court ought to take into account the allegedly “ … novel situation that Mr Russell is the only natural person in the whole arrangement”. She submits that in this novel situation Mr Russell is effectively required under the Receiverships Act to exercise his powers as receiver in his own best interests.
[36] Mr Judd responds by submitting that this is not a novel situation at all, and in fact it has been common in cases involving Mr Russell determined by the TRA over the last 30 years or so. In any event, he submits, there is nothing novel in this case that cannot be determined by the TRA.
[37] In truth, this is a factor that is subsumed by Ms Deligiannis’ complexity
argument. I do not consider that questions of novelty are of compelling significance.
Precedential value
[38] Among the factors relevant to a transfer application is the likelihood of the matter in dispute arising again in future assessments.9
[39] Mr Cook says that there are other disputes and active investigations in progress involving different taxpayers which raise identical issues to those in the
9 Commissioner of Inland Revenue v Deepsea Seafoods (No.1), above n 5, at [18].
present case, and that indeed they have already arisen in respect of some assessments and are likely to arise in respect of future assessments.
[40] Mr Judd notes that Mr Russell has agreed to desist from his practice of accruing interest in similar cases, and that the issues in this case are likely to arise only in respect of other companies controlled by him. That may be so, but it is common ground that there are other taxpayers whose position is similar to that of Kensington, and further, the fact that Mr Russell has continued his practice of accruing interest can have no impact on the relevance of what has occurred in the past.
Vendetta allegations
[41] In Kensington’s notice of claim in the TRA, the grounds of challenge include reference to invalidity for administrative law reasons, to a vendetta allegedly practised by the Commissioner against Mr Russell, to alleged breaches of the New Zealand Bill of Rights Act 1990, to abuse of power, to actions of the Commissioner which amount to a fraud on the taxpayer, and to reliance by the Commissioner on evidence which she has refused to disclose.
[42] These are wide-ranging allegations of impropriety on the part of the Commissioner. The TRA’s function is to conduct a hearing in respect of matters raised in the challenge in which questions of validity, as well as correctness of the assessment, can be considered. But the Authority’s role does not extend to what would in effect be a broad based investigation of the process leading up to the Commissioner’s assessment in a case where bias, abuse of process, breach of s 27 of
the New Zealand Bill of Rights Act and like complaints are advanced.10
[43] In McIlraith, Randerson J considered a case in which there had been “ … a concerted attack … on the integrity of the departmental officer or officers concerned with serious allegations of bias, bad faith, and abuse of power”. He said:11
I accept Mrs Corbett's submission on behalf of the Commissioner that it is not appropriate for the TRA to engage in extensive investigations into
10 Dandelion Investments Ltd v Commissioner of Inland Revenue, above n 4, at [90].
matters of this kind. The point was strongly made recently by the Court of Appeal in Dandelion Investments Ltd v C of IR McGrath J, speaking for the Court, examined the respective roles of the High Court on judicial review and the TRA at paras [90] to [94]. The Court determined that the TRA had exceeded the scope of its statutory powers. Its role was concerned with the correctness of the assessment and “did not extend to conducting what was effectively a broad based judicial review of the process leading up to the Commissioner's assessment and disallowance of the objection and subsequent conduct of the proceeding before the Authority”.
[44] It is to be noted that in McIlraith Randerson J considered the High Court to be the appropriate forum, even though the extent to which allegations of bias and abuse of power might actually be raised in the TRA was not yet clear.12
[45] Ms Deligiannis submits that, consistently with Dandelion and McIlraith, this Court ought to be determined to be the more appropriate forum in the light of the allegations made by Kensington against the Commissioner of vendetta, unlawfulness, abuse of legal process, abuse of power, partiality, unfairness and fraud upon the taxpayer.
[46] As to that, Mr Judd notes that Mr Russell has been making vendetta allegations in every case involving him or his companies heard in the TRA since the mid-1990s. He observes that the TRA has been quite capable of considering the vendetta issue in all of those cases, and there is no reason to believe that it will not be able to do so in this case.
[47] In J M Webster Ltd v Commissioner of Inland Revenue,13 this Court refused an application by the Commissioner for transfer to the High Court, even though Mr Russell had made vendetta allegations in that case. That was a Russell template case, but Mr Judd submits there is no difference in so far as vendetta issues are concerned.
[48] A reading of Webster indicates that the principal issue motivating
Baragwanath J to refuse transfer was the extraordinarily extensive experience of
Judge Barber in the TRA in dealing with Russell template cases, and indeed, tax
12 At [23].
cases involving Mr Russell generally. Judge Barber was steeped in factual and legal matters arising in Mr Russell’s various tax cases, and Baragwanath J held that that fund of knowledge and experience outweighed the force of more general considerations.
[49] In my view, this case is different from Webster. It stands on its own feet, because there is no connection with the Russell template cases. The TRA therefore has no particular advantage in that respect. Moreover, Judge Barber having retired, the TRA enjoys no particular advantage over this Court in cases involving Mr Russell.
[50] Mr Judd maintains that this Court has no identifiable advantage over the TRA
even where, as here, there are serious allegations of public law abuses. He submits:
If an administrative law type ground is not permitted under tax legislation as a ground of challenge, then it would not be permitted in either hearing authority, whether the hearing authority is the TRA or the High Court, because in either forum the challenge proceedings are governed by the tax legislation. The High Court does not have additional jurisdiction in respect of a tax challenge simply because it is the High Court. The jurisdiction of the TRA and the High Court are the same, because the jurisdiction is conferred by Parliament under the tax legislation.
[51] At a basic level Mr Judd’s submission is no doubt correct. But his submission simply ignores the line of authority that strongly suggests that this Court will be the appropriate forum where there are vendetta allegations against the Commissioner.14
[52] I consider that Kensington’s multi-faceted challenge to the assessment on administrative law grounds must inevitably be taken into account as a factor in the
overall assessment of the appropriate forum.
14 Dandelion Investments Ltd v Commissioner of Inland Revenue; Commissioner of Inland Revenue v McIlraith, above n 3; Commissioner of Inland Revenue v Deepsea Seafoods (No.1) Ltd at [18] and [22] (where it was said that even implied criticism of the Commissioner may be relevant); Commissioner of Inland Revenue v Skudder (No.2) (2008) 23 NZTC 21,846 (HC) at [14].
Section 6 of the Tax Administration Act 1994
[53] As a further discretionary matter, Mr Judd refers to s 6 of the Tax Administration Act which requires every Minister and every officer of any government agency having responsibilities in the collection of tax and other functions under the Inland Revenue Acts, to use at all times their best endeavours to protect the integrity of the tax system.
[54] Section 6(2) sets out certain matters which are included within the concept of “the integrity of the tax system” including taxpayer perceptions of that integrity, the rights of taxpayers to have their liability determined fairly, impartially and according to law, and the responsibilities of those administering the law to do so fairly, impartially and according to law.
[55] Mr Judd submits that in enacting s 6:
Parliament has created a specialist Tribunal that is accessible to taxpayers without requiring lawyers, confidential and does not require the payment of hearing fees and other expensive Court costs. Protecting the integrity of the tax system requires the Commissioner to have confidence in, and respect for the TRA, and to respect the right of taxpayers to bring a challenge in the TRA. It should only be in exceptional cases where the Commissioner can genuinely and reasonably believe that the TRA is not competent to deal with a case that application should be made to transfer to the High Court. Otherwise, the Commissioner is sending a message to society as a whole that she does not have confidence in the TRA. This must undermine the integrity of the tax system.
[56] I do not accept Mr Judd’s argument that s 6 is not only relevant to the question of transfer, but that in effect, it must be accorded primacy. Section 6 does not create rights enforceable by taxpayers.15 Further, the provisions of s 6 must be read against the legislative scheme devised by Parliament in respect of the hearing of challenges to assessments made by the Commissioner, and in particular the choice afforded the Commissioner pursuant to s 138N(2) under which the present application is made. Moreover, Mr Judd’s approach conflicts with Erris Promotions and the cases that have followed it.
New Zealand Bill of Rights Act 1990
[57] Mr Judd invokes s 27 of the New Zealand Bill of Rights Act, maintaining that the right to justice affirmed by that section includes the right not to be subjected to excessive costs in order to secure a fair trial, and the related right to equal treatment before the law.
[58] I accept that practical issues such as the relative cost of proceedings before the TRA and in this Court can be relevant to the overall assessment as one of a number of factors, but in my view to elevate considerations of that sort to primacy in reliance on ss 6 and 27 of the New Zealand Bill of Rights Act is to take the matter altogether too far.
[59] Mr Judd submits that the present application entails an element of discrimination against Mr Russell, simply by reason of his history. If the application is justified by reference to relevant factors, it will be granted. If it is not so justified, it will fail. Although Mr Russell must of course be treated in the same way as any other taxpayer, it must not be overlooked that he is not a party to the proceedings, either before the TRA or in this Court. Moreover, there is nothing before the Court to suggest that he is in any way being discriminated against by reason of his long history of disputes with the Commissioner.
Practical issues
[60] In proceedings before the TRA, taxpayers are entitled to appear without legal representation and to be heard through lay advocates. In the present case Kensington proposes to have Mr Russell appear on its behalf. Although Ms Deligiannis refers to authority to the effect that it is improper for the same person to appear as advocate
and also to give evidence, it seems that such a course is permissible in the TRA.16 In
this Court, a corporate party must be represented by counsel. Costs are therefore likely to be higher in this Court than in the TRA. Party and party costs are not generally awarded before the TRA as they are in this Court. So if an order for transfer is made and Kensington is unsuccessful in this Court, it runs a significant
risk of an adverse costs award. Moreover, proceedings before the TRA are confidential, whereas in this Court the starting point is that hearings are conducted in public.
[61] Mr Judd submits that ease of access to justice is a fundamental right affirmed by the New Zealand Bill of Rights Act, 17 and also by the International Convention on Civil and Political Rights.
[62] Again, I accept that in a broad sense questions of convenience and cost must be relevant to the exercise of the Court’s discretion under s 138N(2), but I do not accept that they somehow must be accorded determinative weight. They are to be simply factored into the overall assessment.
[63] Ms Deligiannis submits that any practical saving in time and cost before the TRA would be illusory because if Mr Russell appears there for Kensington, history and experience suggests that the hearing will be attenuated because his record as advocate involves a number of instances in which cases have been unnecessarily drawn out. Mr Russell vigorously denies the Commissioner’s assertion, claiming that it was usually the Commissioner who caused delays in prior cases.
[64] I do not propose to analyse these competing contentions. It seems to me that if there is any truth in the Commissioner’s complaint, then a lengthy hearing is just as likely in this Court with counsel instructed by Mr Russell, as it would be in the TRA with Mr Russell himself appearing.
Likely appeal
[65] Ms Deligiannis informs the Court that if the Commissioner were unsuccessful in the proceeding:
She would most likely appeal because of the implications of such a decision to like-positioned taxpayers and also because of the on-going risk to the revenue of loss companies such as the respondent retaining their losses.
17 New Zealand Bill of Rights Act, s 6.
[66] She submits that although there are some instances in which Mr Russell has not lodged an appeal from the TRA, such instances are rare rather than common. That submission is supported by affidavit evidence from Mr Cook. So an appeal is likely, whoever wins.
[67] Mr Judd is highly indignant at the submissions for the Commissioner on this
point. He maintains that it is not appropriate “… and may be an abuse of process
…” for any party to make a submission that it would be likely to appeal against an adverse decision before the decision had been delivered. To advance that submission at this point is, Mr Judd submits, to exert improper pressure on the Tribunal at first instance. It also undermines the importance and integrity of that Tribunal.
[68] I do not accept Mr Judd’s submission. It is well established that the likelihood of an appeal from a first instance decision is a highly relevant factor to the determination of an application under s 138N(2).18 The prospect of an appeal is
routinely discussed pre-trial in a variety of situations.19 In the present case I consider
that the prospect of an appeal is high. A relatively large sum is involved and any judgment is likely to carry precedential value. The Commissioner says she is likely to appeal against an adverse judgment. For his part Mr Russell (and therefore Kensington) is well familiar with the legal process and greatly experienced in exercising rights of appeal. I draw the inference that an appeal may be expected if the challenge does not succeed.
Case management advantages
[69] It has been said on occasion that the prescriptive approach in this Court to case management may confer advantages over the procedures of the TRA, although as pointed out by Keane J in Skudder, the Authority has the repertoire of District Court Rules at its command. It has not been suggested in this case that there are case
management advantages because it appears most, if not all, of the interlocutory steps
18 See Commissioner of Inland Revenue v Deepsea Seafoods (No 1) Ltd, above n 5, at [18].
19 For example on an application to transfer a proceeding from the High Court to the Court of Appeal pursuant to s 64 of the Judicature Act 1908, see Vector Ltd v Transpower NZ Ltd (2000) 14
PRNZ 240 (HC).
have already been taken. The comparative likelihood of an early fixture in either forum may well be relevant, but there is no evidence about that.
Delay
[70] The application for transfer was made by the Commissioner only after some
18 months had elapsed following filing of the challenge application in the TRA. In his affidavit, Mr Cook explains that it was only more recently that the Commissioner became aware of the extent of commonality between the positions of various taxpayers under assessment by her. It seems that the relevant files were dispersed among a number of officers. Mere delay by the Commissioner has not been regarded in the cases as a relevant factor. It seems that the substantive hearing has been delayed in the TRA pending the determination of the present application, but Mr Judd does not claim that his client has been prejudiced thereby.
[71] Indeed, having regard to the subject matter of the challenge and the very long history of the case, it is difficult to see how any significant disadvantage could have been suffered. I regard delay as a neutral factor.
Conclusion
[72] Having considered all of the relevant factors, I have concluded that the Commissioner is entitled to an order for transfer. In my opinion the cumulative weight of four particular factors outweighs the advantages inherent in a hearing before the TRA. The first of those factors is complexity. While perhaps not of the same order as the scheme known as the “Russell template”, the interlocking transactions that underpin Kensington’s asserted tax position are by no means simple. I earlier characterised this as a moderately complex case.
[73] So too, Kensington’s claimed losses, which exceed $15m, are moderately high, but they do not approach in significance those cases in which tax of hundreds of millions of dollars is in issue. By the same token, the amount of tax at stake is by no means negligible.
[74] The second factor is related to the first. It concerns the precedential effect of any judgment. It is common ground that a number of companies, all associated with Mr Russell, have accumulated losses on much the same basis as Kensington. The Commissioner has in train a number of investigations into the tax affairs of the entities concerned, so any judgment in the present case will be likely to serve as a precedent for a number of other cases also, it is to be inferred, affecting the tax treatment of substantial claimed losses.
[75] Against that background the third factor, the likelihood of an appeal, assumes some significance. Given the likely precedential effect of any judgment and the substantial sums at stake, it is understandable that the Commissioner might well appeal against an adverse decision as is foreshadowed in Ms Deligiannis’s submissions. For the same reasons and given Mr Russell’s long experience in taxation disputes, it is likely in my view that Kensington would appeal against an unfavourable decision. As discussed earlier, that is usually a factor taken into account in the overall assessment.
[76] Finally, there is the question of the so-called vendetta. Mr Judd urges the Court not to make too much of the serious complaints about the behaviour of the Commissioner and her staff in the challenge proceeding before the TRA. He says that Mr Russell has been making such allegations for many years without discernible impact on the ability of the TRA to discharge her functions. In effect, as I understand him, Mr Judd is suggesting that Mr Russell’s bark is worse than his bite.
[77] But in my view, the contents of Kensington’s notice of claim in the TRA cannot be so easily dismissed. Grounds 1, 3, 5, 10 and 11 in Kensington’s notice of claim all raise administrative law issues; some of them contain outright allegations of bad faith on the part of the Commissioner. The authorities very strongly suggest that where allegations such as these are made, the proper forum is this Court rather than the TRA. If Kensington had wished to reduce the likelihood of a transfer to this Court, then it could easily have framed its points of claim in a less strident fashion.
[78] The combined effect of these four factors persuades me that the proper course is to order the transfer of the proceeding to this Court.
[79] There is no opposition to the making of orders directing that the provisions of rr 5.64-5.68 should apply. There will be orders accordingly.
Result
[80] For the foregoing reasons, there will be orders:
(a) Granting to the applicant leave to commence this proceeding by way of originating application under Part 19 of the High Court Rules;
(b) Transferring this proceeding to the High Court pursuant to s 138N(2)
of the Tax Administration Act 1994;
(c) Directing that the provisions of rr 5.64-5.68 apply to the transferred proceeding as if it had been a proceeding transferred from the District Court to this Court.
Costs
[81] The applicant seeks costs under category 2B with certification for second counsel. The respondent indicated that it opposed the making of an order for costs, but Mr Judd did not address the question either in his written synopsis or orally. He is entitled to respond.
[82] Any memorandum in opposition to an order for costs is to be filed and served on or before Friday 7 February 2014. Any reply is to be filed and served on or before 21 February 2014.
[83] Counsel should note that I retire from office with effect from the end of the year, so that the application for costs will ultimately require to be determined by another Judge.
C J Allan J
1
1