Russell v Taxation Review Authority HC Auckland CIV 2005-404-005203
[2008] NZHC 2115
•19 December 2008
IN THE HIGH COURT OF NEW ZEALAND
AUCKLAND REGISTRY
CIV 2005-404-005203
UNDER the Judicature Amendment Act 1972
BETWEEN JOHN GEORGE RUSSELL Plaintiff
ANDTHE TAXATION REVIEW AUTHORITY First Defendant
ANDTHE COMMISSIONER OF INLAND REVENUE
Second Defendant
Hearing: 31 March, 1 and 2 April 2008
Appearances: Plaintiff in Person
M J Ruffin and R Hearn for Second Defendant
Judgment: 19 December 2008
JUDGMENT OF COOPER J
This judgment was delivered by Justice Cooper on
19 December 2008 at 2.00 p.m., pursuant to
r 540(4) of the High Court Rules
Registrar/Deputy Registrar
Date:
Solicitors:
Meredith Connell, Crown Solicitors, PO Box 2213, Upper Shortland Street, Auckland 1140
Copy to:
John George Russell, 1439 Clevedon-Kawakawa Bay Road, RD 5, Papakura 2585
RUSSELL V THE TAXATION REVIEW AUTHORITY AND ANOR HC AK CIV 2005-404-005203 19
December 2008
Introduction
[1] Since November 1989 the plaintiff has been engaged in litigation with the second defendant over the effect of various arrangements designed to reduce or avoid liability for income tax. The litigation has involved numerous parties, and some 82 cases have been pursued through the Taxation Review Authority. Of those 82 cases, 65 have been heard by Judge Barber. Decisions of the Authority have been appealed to the High Court, the Court of Appeal and the Privy Council.
[2] In those cases, Mr Russell has appeared as both a witness and as the advocate
for various third parties who have entered into arrangements which he has essentially designed and marketed on the basis that persons entering into the schemes will secure taxation advantages. Consistently, the Authority and the Courts have rejected what has been described as “the Russell template” holding, essentially, that the arrangements had been entered into for the principal purpose of tax avoidance and were accordingly void against the Commissioner of Inland Revenue under s 99(2) of
the Income Tax Act 1976 and its successors.
[3] Now the Authority is dealing with Mr Russell’s own case. It is not one of the Russell template cases, but it also involves a scheme designed to reduce or avoid the payment of income tax. If he loses the case before the Authority, Mr Russell faces a potential tax liability of many millions of dollars. He received an Income Tax Statement of Account for tax and penalties for the income years from 1985 to 2000 which lists claims in excess of $75 million. The debt has since grown to about $100 million.
[4] He seeks to have his case determined by a different Taxation Review Authority than the Authority which has embarked upon the task, Judge Barber. He made an application to Judge Barber that he recuse himself, and when that application was declined he commenced the present application for review under the Judicature Amendment Act 1972. The claim is based on presumptive bias and alleges that because Judge Barber has consistently held against Mr Russell over the many years in which arrangements designed by Mr Russell have been the subject of
litigation before the Authority, there must be a reasonable apprehension that the
Judge will not bring an impartial mind to the resolution of the case.
[5] Interim relief was refused by Keane J on 29 September 2005. Since then, the Authority has sat from time to time to progress Mr Russell’s objection, but on the basis that its work might have to be repeated depending on the outcome of the substantive application for review. In fact, at the time the matter was argued before me, Judge Barber was the only appointed Taxation Review Authority. That, however, is not a matter that can affect the proper outcome of the present proceeding and if this Court’s decision were to grant Mr Russell the relief he seeks, Mr Russell’s objection could only be progressed by a newly appointed Authority.
The statement of claim
[6] The statement of claim seeks an order prohibiting the first defendant “in the person of His Honour Judge P F Barber” from hearing the plaintiff’s TRA case (referenced by the Authority as TRA 003/03). It seeks an order quashing any decisions already made by the first defendant in the course of dealing with issues in that case.
[7] Key allegations pleaded in support of the plaintiff’s claim for relief are set out in paragraph 11 of the statement of claim, which reads as follows:
11.Over a period of 17 years from November 1989 to date His Honour Judge P F Barber as a Taxation Review Authority has heard 65 cases (“the Template Cases”) in which:
(a) the plaintiff has appeared as advocate for the objectors; and
(b) the plaintiff has been a witness for the objectors; and
(c) the matters in issue have related to financial arrangements devised and implemented by the plaintiff and known as “the Russell Template”; and
(d)Judge Barber has made findings that the plaintiff is a tax avoidance specialist, has an obsession with saving tax and has a mental block, which affects his judgment (TRA Case R25 in particular); and
(e) Allegations have been made that the second defendant and/or his staff have been undertaking a vendetta against the plaintiff; and
(f) Judge Barber has made numerous rulings on applications by the plaintiff, as advocate for objectors, for discovery against the second defendant and to subpoena witnesses relating to the allegations of vendetta; and
(g) Judge Barber has made rulings restricting the scope and duration of the plaintiff’s cross-examination of witnesses; and
(h)Judge Barber has made findings and obiter statements concerning the role of the plaintiff in relation to alleged tax avoidance arrangements in issue in the particular cases; and
(i) Judge Barber has made comments and given directions concerning the vendetta argument; and
(j) Judge Barber has made findings concerning whether or not the financial arrangements devised by the plaintiff in the various cases amounted to tax avoidance; and
(k) Judge Barber has made comments giving his view of the motives of the plaintiff and the plaintiff’s conduct of litigation.
[8] Paragraph 14 of the statement of claim lists issues that will allegedly need to
be considered and determined in the context of the plaintiff’s TRA case, in paragraphs (a) to (l). They are as follows:
(a) the extent of discovery of documents;
(b)who will the plaintiff be allowed to subpoena to give evidence;
(c) the period of time to be allowed for the examination of witnesses;
(d)are the Assessments invalid because those who issued them did not have delegated power from the second defendant or otherwise did not act within statutory powers;
(e) are the Assessments invalid because they were time barred;
(f) are the Assessments invalid because they were issued for improper purposes;
(g) did the second defendant follow his policy statement of 8
February 1990;
(h)was there an arrangement within the meaning of the relevant tax avoidance legislation;
(i) did the arrangement have the purpose or effect of tax avoidance;
(j) did the plaintiff derive any tax advantage from the alleged arrangement;
(k) is the second defendant’s reconstruction of income to the plaintiff correct;
(l) does the BASF principle apply to invalidate the assessments.
[9] It is then alleged, in paragraph 15, that those issues are issues that Judge Barber has considered and determined on a number of occasions in the context of the Template Cases.
[10] Paragraphs 16 to 18 inclusive allege:
16.Although the Plaintiff’s TRA Case is not the same as a Template Case, it will involve consideration and determination of the facts, evidence and issues that have been considered and determined by Judge Barber in Template Cases.
17.There is a real danger or a real possibility that when hearing the Plaintiff’s TRA Case, Judge Barber will, subconsciously or otherwise, take into account the evidence he heard, the views of the plaintiff he formed and the conclusions he reached during the Template Cases.
CAUSE OF ACTION
18.In the circumstances alleged above it would be a breach of the principles of natural justice recognised at common law, under section 27 of the new Zealand Bill of Rights Act 1990 and section 6
of the Tax Administration Act 1994 for His Honour Judge P F Barber to hear the Plaintiff’s TRA Case in that:
(a)a Court personifying the reasonable observer fully informed of the facts and circumstances would perceive a real danger of bias; or
(b)a fair minded and informed observer, having considered the facts, would conclude that there was a real possibility that Judge Barber was biased,
being bias in the sense that there is a real danger or real possibility that Judge Barber, whether subconsciously or otherwise, will have pre-determined many of the issues that he will be called on to determine.
WHEREFORE the plaintiff claims:
AAn order prohibituing the first defendant in the person of His Honour Judge P F Barber from hearing the Plaintiff’s TRA Case; and
BAn order quashing any decisions made by the first defendant in the person of His Honour Judge P F Barber in the course of the Plaintiff’s TRA Case; and
CAn order that the first defendant pay the plaintiff’s costs of and incidental to these proceedings.
The Template Cases
[11] The template cases, to which reference is made at paragraph 11 of the statement of claim have had the very lengthy history referred to at the outset of that paragraph. In his statement of defence the Commissioner records that in the template cases the objectors have been represented by either the late B M Grierson, G J Judd QC or the plaintiff himself, and the plaintiff has also been a witness for the objectors. The matters in issue have concerned arrangements which have been determined to be tax avoidance arrangements, which were devised and implemented
by the plaintiff and known as the “Russell Template”.
[12] The template was summarised by the Court of Appeal in Miller v Commissioner of Inland Revenue; Managed Fashions ltd v Commissioner of Inland Revenue (1998) 18 NZTC 13,961 at p13,964. Blanchard J, writing for the Court, noted that in one of the many judgments of Judge Barber, the TRA, some 76 examples of the application known to the Judge had been mentioned and that Mr Russell regarded the arrangement as a legitimate means of using the tax loss grouping provisions of s 191 of the Income Tax Act 1976 to enable profits of successful trading companies to be accessed by the shareholder, avoiding the payment of tax except by way of off-set against prior losses of other companies.
[13] In the summary of the template which the Court then set out, the successful trading companies referred to were Fiorucci Fashions Ltd previously owned by a Mr and Mrs Miller and Mr and Mrs O’Neil, and Wire Supplies Ltd and Coil Specialists
(1980) Ltd previously owned by Messrs LL and JJ McDougall. The summary of the template arrangement, at pages 13,964-13,965, was as follows:
1. On 10 December 1984 the Millers and the O’Neils sold their shares
in Fiorucci for what has been admitted to be an inflated price of $1,550,000. The purchaser was a company under the control of Mr Russell, Commercial Management Ltd (CML). The shares were not transferred but declarations
of trust of their ownership were made in favour of CML. It declared in turn that it held the Fiorucci shares in trust for Managed Hotels Ltd, a Russell
company whose shares were held in trust for Gainsborough Motor Lodge
Ltd, a tax loss company.
2. No part of the price was paid immediately. The shares in Fiorucci were mortgaged to the Millers and the O’Neils for the price plus stamp duty.
3. The net profits of Fiorucci were thereafter paid to CML each six months as an “administration charge”. It did not, however, reflect any work
or services performed for Fiorucci. That charge was the source of payment
of the amount owed by CML to the Millers and the O’Neils. A proportion of each instalment calculated by reference to the rate of company tax from time
to time (and thus 22.5%, or half the company tax rate, in the first year, but a
lesser percentage in subsequent years as the company tax rate reduced) was retained by CML which accounted for it to the tax loss company. The balance (77.5% in the first year) was paid to the Millers and the O’Neils in reduction of the amount secured. For tax purposes the amount of the profits transferred as administration charges was claimed as an offset against the tax losses available to the tax loss company.
4. At the same time as it made payment of each instalment of administration charge, Fiorucci paid a “business consultancy fee” to another Russell entity. It was calculated at 5% of the administration charge and claimed as a tax deduction by Fiorucci.
5. The Millers and the O’Neils had a right of first refusal of the purchase of Fiorucci’s business and undertaking if at any time CML wished
to sell it (cl 15).
6. They also had an option to purchase all the assets of Fiorucci at a price sufficient to discharge its liabilities plus $13,000. (In other template arrangements this figure was variously $1,000 or $1.) The option was exercisable after five years from 10 December 1984 or when CML had received administration charges from Fiorucci aggregating at least
$2,008,000 (77.5% of that figure being approximately equal to the purchase price plus stamp duty), whichever was the earlier.
7. There was a management contract under which the Millers and the O’Neils were to manage Fiorrucci’s business. They remained as directors. To the outside world nothing appeared to have changed. CML had a right to appoint one director but, subject thereto, the former shareholders' consent was needed to the appointment of any director.
8. On 1 August 1986 the arrangement was varied. By that time, because the profits of Fiorucci had increased considerably, more than
$2,008,000 in administration charges had been paid to CML, so that the
Millers and the O’Neils were already entitled to exercise their option to buy the business of Fiorucci. Fiorucci’s liabilities were $3,051,560. Thus the option price would have been $3,064,560. For that price a purchaser would receive assets worth $3,132,007, only some $67,440 more than the liabilities. The option was cancelled and in return CML agreed to pay the Millers and the O'Neils a further $4,650,000. That sum was to be paid in the same manner as before, as a proportion of administration charges sourced from the net profits (after consulting fees) of Fiorucci. The management contract continued. Noticeably, cl 15, the right of first refusal, remained.
9. On 2 October 1989 a termination agreement was signed. Fiorucci sold its trading assets and its land to a new trading company and a land holding company owned by the Millers and the O’Neils, the former bearing the Fiorucci name. The prices were fixed on the basis of the then book values of the assets without goodwill. The only asset not sold was a loan owing to Fiorucci by the Millers and the O’Neils which they repaid. A small fee equal to 10% of the retained earnings was paid to CML. Fiorucci paid its liabilities, changed its name to Managed Fashions Ltd, and was then a shell. Baragwanath J recorded that "the only assets available for creditors ... would
be the authorised capital and reserves totalling some $93,600". The business was thenceforth carried on by the new O’Neil trading company using the Fiorucci name.
10. The Millers and the O’Neils were at that time creditors of CML for
$2,361,722, which was the balance of the sum due in respect of the cancellation of the option. They assigned this debt to another Russell entity.
In Baragwanath J’s words they “simply walked away from the $2.36m”.
[14] The Court of Appeal’s conclusions about the nature of the template arrangements were expressed in forthright language at 13,979. Blanchard J said:
The Court listened patiently to this argument which may be thought to have been audacious, particularly in view of a letter which Mr Russell circulated
to potential participants in his scheme referring to the tax benefits to be
enjoyed. We have recorded what we understood to be the essence of counsel’s oral submissions. It should not, however, be thought that we were for one moment persuaded that the Commissioner, the Taxation Review Authority and Baragwanath J were wrong to regard the arrangement as a blatant tax avoidance scheme… .If there was any purpose or effect other than tax avoidance it was merely incidental.
[15] The Court of Appeal’s judgment was upheld by the Privy Council. In O’Neill & Ors v Commissioner of Inland Revenue (2001) 20 NZTC 17,051 Lord Hoffman delivered the unanimous judgment of the Board. At [9] he observed:
Given the highly artificial nature of the scheme, their Lordships are not surprised that the Commissioner and every judge who has considered the matter have been of opinion that it amounted to an arrangement which had the purpose or effect of tax avoidance within the meaning of s 99(2). As this
is such a plain case, their Lordships think it unnecessary to examine in any
depth the criteria by which arrangements caught by s 99 may be distinguished from those which are not.
The particular complaints
[16] In his submissions in the present proceeding Mr Russell amplified his concerns by reference to affidavits which he swore on 14 September 2005, and 22 February and 26 March 2008, and to particular rulings and decisions of the Authority.
[17] He began by referring to Case R25 [1994] 16 NZTC 6,120 which was another of the so-called Russell Template Cases. The allegation made at paragraph
11(d) of the statement of claim in the present proceeding was based on statements made by Judge Barber, as the Authority, at p 6,144 of the judgment in that case (the plaintiff being referred to by his initials, JGR):
In my view JGR is a person who is in business substantially as a tax avoidance specialist as well as an accountant and business consultant. Inter alia, he is also a specialist at receiverships and liquidations. In the course of that, he provides experienced commercial advice. Mr Grierson described JGR as “The Great Tax Mitigator”. And “The Old Master of Tax”. Mr Ruffin suggested that “The Master Tax Avoider” is more apt … . Just as I think that JGR’s obsession with saving tax means that he has a mental block over schemes which have gone beyond tax planning into the realm of tax avoidance, so the sense of duty in the respondent’s Department may have become close to an obsession for some officers of the Department who, after
all, are deployed almost full-time on JGR matters. However, I do not think that any unfairness has resulted to JGR, his companies or clients. I see no evidence of any vendetta, or of any improper procedure, towards him or his
companies or clients.
It seems to me that a prime JGR strategy is to use due process for the purposes of delay or confusion. In this case these administrative-law-type issues have already been dealt with by Blanchard J in Miller. The objectors are estopped from attempting to raise them again before me, insofar as they relate to my jurisdiction to deal with the correctness of assessments, and it amounts to an abuse of process to try and re-litigate those issues. Further, I find the objection under this particular head to be frivolous or vexations or made solely for the purposes of delay pursuant to s 39 of the Inland Revenue Department Act 1974, and I hereby dismiss this particular issue for that reason alone.
In any event, I have already found that there is no merit in the objectors’ submissions under this head. There is no evidence of unfairness to JGR, his companies or clients by any officer of the respondent’s Department. I find nothing unfair or of arbitrary conjecture in the assessments.”
[18] Mr Russell next referred to the detailed ruling made by Judge Barber in declining the plaintiff’s application that he should recuse himself from the present case (J G Russell v Commissioner of Inland Revenue TRA 003/03, Decision No.10/2005, July 2005). Mr Russell effectively sought to adopt in this Court some
of the submissions that had been made to Judge Barber in support of that application
by Mr Judd QC on his behalf. Those submissions included inter alia the contention that since Case R25 was decided the Judge had spent many more months (“probably adding up to years”) hearing and deciding the Russell template cases without any indication that the Judge had departed from the views expressed in Case R25. Mr Judd contended that it was likely the Judge considered that the subsequent hearings had reinforced the views earlier expressed and that those views would inevitably be brought to and affect the present proceeding, even though it was a different case involving Mr Russell personally.
[19] Mr Judd emphasised in particular suggestions that Mr Russell had a “mental block” over schemes which had gone beyond tax planning into the realm of tax avoidance, and that one of his prime strategies was “to use due process for the purposes of delay or confusion”. Another complaint that was advanced by Mr Judd was that Mr Russell had been expecting the decision in Case R25 to be issued as an interim decision and that before the final decision was made further witnesses would
be able to be called on the vendetta issue. However, the decision had been issued as
a final one, effectively predetermining the vendetta issue in circumstances where Mr Russell wished to advance the vendetta argument in respect of his own case. In the circumstances, Mr Judd argued that Mr Russell was entitled to take the view that the Judge had made up his mind that there was no vendetta as long ago as 1994, with the consequence that he could not get a fair hearing now on that issue.
[20] In responding to those arguments in Decision 10/2005, Judge Barber recorded (at [12]) his belief that “every nuance in my findings in Case R25 has been consistently upheld in appellate Courts… so that I would be bound to those findings”. He also observed:
While I do not think I could resile from my statement that the disputant has
an obsession with saving tax so that he has a mental block over schemes which have gone beyond tax planning into the realm of tax avoidance, I do
not think I have any particular predetermined views about the present case which, quite frankly, I do not yet quite understand at this early stage.
[21] As to the comments he had made about using due process for the purposes of delay or confusion, he recorded (at [13]) his doubt as to whether that would reflect
on the substantive issue in the present case in any way. He added that he had found
it difficult to confine the “Russell tax avoidance template cases to usual hearing confines” and expressed the view that he had been “most generous to Mr Russell (for the disputants) in terms of procedures consistently sought by him”.
[22] On the issue of vendetta, he asserted that he had an open mind as to whether Mr Russell had suffered any vendetta at the hands of the staff of the Inland Revenue Department. The question however, if there had been such a vendetta, would be how
it would affect the correctness of an assessment.
[23] The Judge responded to criticisms that he had wrongly restricted the scope and duration of the plaintiff’s cross-examination of witnesses at [34] of Decision No.10/2005:
Insofar as there seems to be criticism of me in not allowing a parade of witnesses whose evidence has been foreshadowed by Mr Russell as lacking relevance, I note that R25 involved at least 43 hearing days with about 22 of them being cross-examination of the respondent’s two witnesses. A common thread of these template cases has been very lengthy hearing of evidence with some witnesses being cross-examined by Mr Russell over many many days where the cross-examination often did not get beyond peripheral relevance. I do not see my concern about that as a demonstration
of bias on my part.
[24] Another passage in the decision to which Mr Russell drew my attention was
at [36] where the Judge referred to the practical consequences of him disqualifying himself. They would include the fact that another Judge would need to familiarise himself or herself with a substantial number of documents and possibly transcripts, and hear afresh many witnesses in a “grinding and laborious manner” due to Mr Russell’s refusal to confine cross-examination to relevant questions. He stated that a Judge’s efforts at sensible case management should not be interpreted as bias particularly when, if anything, he had been generous to Mr Russell in these respects. Accepting that the facts of the Russell template cases were different from the tax avoidance arrangement which was now alleged against Mr Russell personally,
nevertheless the Judge thought that he had a “major advantage” in understanding the evidence, including documentary evidence, because of his involvement in the template cases.
[25] Another statement made by the Judge in Decision 10/2005 was brought to my attention by Mr Russell. The Judge had recorded a submission made by Mr Judd in the course of the recusal application hearing that in the numerous cases he had decided the Judge had expressed views unfavourable to Mr Russell, similar to those mentioned in Case R25. The Judge observed:
In fact, I cannot recollect such similar observations but do not disagree with
Mr Judd about that.
[26] Mr Russell also referred to an exchange that had occurred during the hearing
of Case R25. He had requested that the Authority subpoena 19 witnesses to give evidence in an estimated additional 50 hearing days. At p 6,144 of the decision in Case R25 the Judge observed:
I am aware that JGR would like me to hear evidence for about another 40 or
50 hearing days, involving many witnesses to be subpoenaed from the respondent’s Department, to show that the respondent and his Department
had, at material times, and operated a vendetta against JGR, his companies
and his clients. I think that any such further hearing would be a waste of the Authority’s time, because that vendetta issue has been substantially covered before me in this case.
[27] In his affidavit of 22 February 2008, Mr Russell mentioned that counsel acting for the Commissioner had opposed the issue of the subpoenas and had indicated that application would be made to the High Court for an order prohibiting the Authority from issuing them. That stance had drawn a comment from Judge Barber in the hearing that:
I have been sitting on these Russell cases for many years and have to say that the Commissioner has some sort of hang up where Mr Russell is concerned and does funny things and is quite unbalanced really. But that is a long way short of vendetta Mr Russell.
[28] In his affidavit of 22 February 2008, Mr Russell also referred to the submissions that he had made to the Authority about the procedures to be adopted for the conduct of hearings in relation to the objectors Webster, Foster and
Consultant Applications Ltd. The submissions made various complaints about the conduct of the proceedings up to that point including complaints that the Authority had discharged witness summons at the request of the Commissioner, with the result that evidence considered to be crucial had been unable to be adduced. Further, objectors had been permitted insufficient time to deal with those witnesses who had been subpoenaed, and the Authority had sanctioned failure to comply with orders for discovery by the Commissioner. It was claimed that the conduct of the cases over a number of years had resulted in confusion and extensive delays making it difficult
for the objectors and their agent, Mr Russell.
[29] In response to those submissions, in his decision Webster, Foster, and Consultant Applications Ltd Groups of Objectors v The Commissioner of Inland Revenue Decision No.16/2007, 26 November 2007, the Authority referred, at [15] to what he referred to as the “massive latitude” that he had given to Mr Russell and his various counsel. A suggestion made by the objectors that they had not received a full and fair hearing of their grounds of objection was characterised as “preposterous”. The Judge rejected their allegations that they had been prevented from calling the correct witnesses, that they had been given insufficient time over cross-examination and that they had not received sufficient discovery. On the particular issue of delay, he said, at [20]:
In terms of the submissions of the objectors that they have not been permitted sufficient time to deal with some of the subpoenaed and other witnesses, I consider that, at times, Mr Russell has almost created a filibuster situation by prolonging cross-examination in the hope that some favourable item might materialise for objectors. At times, I have needed to confine times for the evidence of a witness called by Mr Russell or his cross- examination of IRD witnesses, but I have signalled that well in advance on what I considered to be a reasonable basis. I have upheld many objections from the Commissioner that Mr Russell has been wasting time. I have frequently noted that Mr Russell is a very experienced, most intelligent, and able advocate and, clearly, has many strategies; and it was up to him to use wisely the very reasonable time provided to him in the conduct of this litigation.
[30] In the same decision, the Authority discussed the implications of the decision
of the Privy Council in Peterson v CIR (2005) 22 NZTC 19,098. Mr Russell had submitted that, as a consequence of the decision in Peterson, the Commissioner was obliged to show that a particular arrangement or particular arrangements, that the
Commissioner was obliged to identify, had the purpose or effect of avoiding tax so
as to be caught by s 99(2) of the Income Tax Act 1976. He argued that, the Commissioner must identify precisely whether the alleged arrangement was a single composite scheme or two or more connected, but distinct arrangements, that the arrangement or arrangements had the purpose or effect of tax avoidance so as to be caught by s 99(2), that the arrangement would have succeeded in achieving tax avoidance were it not for the provisions of s 99 and that the taxpayer assessed, amongst other things, had obtained a tax advantage from the arrangement of the precise amount that had been assessed. He contended that the Commissioner had met none of these obligations.
[31] In the decision of 26 November 2007 the Authority discussed Mr Russell’s submissions based on Peterson. Judge Barber decided that Peterson had not changed the law as to the onus of proof, which remained with the taxpayer provided that, where tax avoidance was in issue, the Commissioner must identify the scheme and must show that the scheme had the purpose or effect of tax avoidance. He held further that the nature of the scheme and its effects had been extensively spelled out
by counsel for the Commissioner in the cases in question.
[32] Mr Russell also made particular complaint about a decision of the Authority
in Mr Russell’s own case, JG Russell v The Commissioner of Inland Revenue (Decision 4/2008, 8 February 2008). His affidavit of 26 March 2008 consists in large part of a discussion of that case in what is effectively a critical commentary by way of submissions masquerading as sworn evidence. The ruling was given after a preliminary hearing on 23 November 2005, and after subsequent hearings extending over eight days in October 2007, December 2007, and February 2008.
[33] In the preliminary part of the ruling, the Authority recorded that Mr Russell had sought a ruling on a substantive issue because he considered there to be a “king hit” which could result in the case being concluded in his favour. The basic issue was summarised at [3]:
Simply put, the disputant submits that there is no evidence that he has ever received any of the monies assessed to him, nor has he received any of such money; and he has received no tax advantage whatsoever at any time with regard to those monies; and they do not flow from his personal exertions.
However, he has recently conceded that all the monies in issue are subject to his exclusive control. The defendant Commissioner asserts to the contrary on all those issues except the admission about control.
[34] In his affidavit of 26 March, and in his submissions before me, Mr Russell complained in particular about the conclusions expressed at [49] to [54] of the decision:
[49] Although it seems to me that the requirements set out by Lord Millett (in Peterson) have already been met in this case because the extent of evidence accepted by the disputant shows a tax avoidance arrangement, and that the disputant is a person affected by it who has obtained a tax advantage from or under it to a clearly quantified amount, nevertheless, I should hear all relevant evidence before so concluding.
[50] The disputant’s tax advantage is that no tax has been paid upon his personal exertion business income which, under the arrangement, was treated as CM Partnership income and diverted to loss companies under agency and management agreements. Surpluses from those untaxed monies were forwarded daily from that partnership to the group finance companies. All entities were controlled by the disputant who has directed the use of those funds. The finance companies acted as bankers to the disputant’s template group of corporates and other entities and all cash in the group was used at the disputant’s direction including the business income of the CM Partnership which has been assessed to the disputant and not to anyone else. The compelling inference is that the arrangement has the purpose or effect of avoiding tax on income earned by the disputant under the CM Partnership name.
[51] At present, it seems [sic] me that the monies reassessed to the disputant under s 99 are entirely derived from the disputant’s personal exertions and that allows for him having employed staff to undertake some
of the work to achieve the consultancy and other fees into the CM Partnership or other entity. I am in no doubt that all the work was performed
by the disputant or at his direction. Also, it seems clear from the evidence before me to date, that there is no other ultimate owner of the monies in
question than the disputant. Also, he is the mind and nett beneficiary of the template group which, at the risk of oversimplification, is a scheme designed
to apply tax losses of (acquired from) third parties against income from trading enterprises organised by the disputant in a manner which does not comply with our laws for offsetting of tax losses.
[52] The disputant asserts that he has not actually received the monies assessed to him. It seems to me that if the extent of a person’s control of monies is so exclusive that there is ownership, then there is receipt of those monies by that person. That is the position of the disputant in this case.
[53] From time to time over the past 20 or so years during which I have been hearing these template cases I have expressed concern, inter alia, that there be no double or multi taxation. As far as I can see at present, the consultancy fee has led to nett [sic] profits controlled by the disputant which have not been assessed to anyone else. If I am wrong on that aspect, no doubt matters will be elucidated for me on the resumption of this case.
[54] For the above reasons the disputant’s application for dismissal of these proceedings is declined.
[35] It will be appropriate to record at this point, as Judge Barber did at [5] of his decision that, the ruling had been sought by Mr Russell at the stage where, although there had been various witnesses relating to issues covered in previous rulings, the substantive case had, to this point, comprised Mr Russell’s evidence in chief and significant cross-examination of him that had lasted for over a week, but with much more cross-examination contemplated, to be followed by probably three or four witnesses from each side. The Authority also noted that Mr Russell accepted much
of the content of witness briefs for the defendant Commissioner, although he did not accept the outcome or effect of the evidence contended for by the Commissioner.
[36] Mr Russell complains that the Authority’s observations at [49] that there was
a demonstrated tax avoidance arrangement, that Mr Russell was affected by it and obtained a tax advantage from or under it, for a clearly qualified amount indicated that he had pre-judged the major issues, notwithstanding the qualification that he made that he should “hear all relevant evidence before so concluding”.
[37] He criticised what was said at [50] on the basis that it amounted to a simple adoption of views advanced by the Commissioner, but with no principled analysis to show why the Commissioner’s view was correct. The finding regarding personal exertion income at [51] was said to be contrary to the evidence and the finding that there is no other ultimate owner of the monies in question other than Mr Russell was said to be contrary to rulings made in other cases.
[38] Moreover, Mr Russell submitted that, at [52], the Authority had made a finding that effectively pre-judged his case before the substantive hearing had even begun. Collectively, the paragraphs in question had determined most of the major issues in the case.
[39] Mr Russell submitted that this showed that:
(a) The Authority had strongly held personal views arising from the more than twenty years of hearing the template cases and that those views would determine the issues in his case.
(b) The Authority will decide the case on the basis of the Commissioner’s submissions and will ignore submissions and evidence that are inconsistent with the Commissioner’s views.
(c) The Authority will ignore Mr Russell’s evidence and submissions or interpret them to support the Commissioner’s or his own views so that effectively Mr Russell’s arguments will not be considered.
(d) The tendency of the Authority to adopt the Commissioner’s viewpoints in the template cases has continued in respect of Mr Russell’s own case, to the extent that it has been advanced to this point.
[40] As a consequence, he submitted that the outcome of the case could be predicted now. For him to obtain natural justice, impartial treatment and a fair hearing, a fresh judicial mind should be brought to bear on the issues. Mr Russell further criticised the Authority on the basis that it had not, in dealing with the template cases required the Commissioner to comply with s 99(4) of the Income Tax Act 1976 to ensure that the same income is not taxed twice. He submitted that a similar approach could be anticipated in the present case, with the result that income properly assessed to others would be treated as Mr Russell’s own. There was an indication that would occur by virtue of the preliminary ruling in the decision of 8
February 2008, that although Mr Russell had not actually received the monies assessed to him, his control over the money was such that he owed the money even if
he had not received it.
[41] On the basis of the various allegations made in his affidavits, Mr Russell submitted that there was a clear basis for the allegations made in paragraphs 16 to 18
of the statement of claim, and he should therefore be entitled to the relief claimed.
Legal Basis of the Claim
[42] As can be seen from paragraph 18 of the statement of claim, which I have set out above, the plaintiff bases his claim on bias alleging a real danger or real possibility that the Judge will have pre-determined many of the issues that he will be called on to determine in hearing the plaintiff’s case. The claim of bias is in turn advanced as a breach of natural justice, a breach of s 27 of the New Zealand Bill of Rights Act and a breach of s 6 of the Tax Administration Act 1994. It will be convenient to consider these claims in reverse order.
Tax Administration Act 1994, s 6
[43] Section 6 of the Tax Administration Act 1994 is headed “Responsibility on
Ministers and Officials to protect integrity of tax system”. 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.
[44] Mr Russell addressed various criticisms about the conduct of the Commissioner which he claimed demonstrated that officials in the Inland Revenue Department had not acted in accordance with the requirement of s 6(1) of the Tax Administration Act to uphold the integrity of the tax system. He referred to the provisions of s 6(2) of the Act, which include within the expression “the integrity of the tax system” the rights of taxpayers to “have their liability determined fairly, impartially, and according to law (s 6(2)(b));” and to have their “individual affairs kept confidential and treated with no greater or lesser favour than the tax affairs of other taxpayers (s 6(2)(c)).” He asserted that taxpayers in the template cases had not been accorded those rights, and contended that would continue if the Authority determined his own case. He then referred to s 6(2)(e) and (f) which again include specific matters within the expression “the integrity of the tax system”. Those matters are:
(e) The responsibilities of those administering the law to maintain the confidentiality of the affairs of taxpayers; and
(f) The responsibilities of those administering the law to do so fairly, impartially, and according to law.
[45] Mr Russell argued that the law had not been administered fairly or impartially or according to law on many different occasions during the hearing of the template cases, and claimed that a fresh judicial mind was required to break the cycle which was already tending towards the same outcome in his own case. He argued that s 6 gave rise to an unavoidable obligation on the Commissioner, the Authority and also, the judiciary to ensure that taxpayers receive fair and impartial treatment and have their cases determined in accordance with the law. He asserted on the basis
of the evidence to which I have referred that that had not happened in the litigation
previously determined by Judge Barber and was unlikely to occur in the present proceeding before him.
[46] The difficulty with Mr Russell’s argument based on s 6 is that it depends upon the Taxation Review Authority falling within s 6(1) which refers to “every Minister and every officer of any government agency…”. It is only those persons who, pursuant to the statute, have the obligation to protect the integrity of the tax system. Particular instances spelling out the detailed meaning of the integrity of the tax system, contained in s 6(2) flesh out the obligation arising under subs(1). But s 6(2) does not extend the obligation to protect the integrity of the tax system to different persons.
[47] I note that s 6 is amongst the provisions in Part 2 of the Tax Administration Act headed “Commissioner and Department”, and the wording of s 6(1) is not in my view apt to cover the role and functions of the Taxation Review Authority. Plainly, the Authority is not to be equated with the Minister, nor are its members from time
to time an “officer of a government agency having responsibilities … in relation to the collection of taxes”. A “government agency” is defined for the purposes of s 6,
in s 3 of the Act. It includes any department or Crown entity (as those terms are defined in the Public Finance Act 1989) and any “public authority” as defined in the Income Tax Act 2007. The Authority is plainly not a “department”, since s 2 of the Public Finance Act relevantly defines that word by reference to a department or instrument of the government or any branch or division of the government, and “government” itself is defined as the “executive government”. The definition of “Crown entity” is now to be found in s 7(1) of the Crown Entities Act 2004. Once again, the definition does not include the Authority.
[48] Taxation Review Authorities are established pursuant to s 5(1) of the
Taxation Review Authorities Act 1994. Each Authority is one person, who must be
a District Court Judge or a barrister or solicitor of the High Court of not less than seven years’ practice. For some years, and when the present proceeding was argued before me, Judge Barber was the only Authority who had been appointed.
[49] The appointment is made by the Governor-General on the recommendation
of the Minister of Justice (s 5(4)). The functions of the Authority are broadly to sit
as a judicial authority to hear and determine objections and challenges to assessments of tax, and to other decisions or determinations by the Commissioner as authorised by the Inland Revenue Act (s 13). There is nothing in the constitution or powers of the Authority that would make it apt to describe the person appointed to be an authority as an officer of any government agency with responsibilities in relation to the collection of taxes. Consequently, the Authority can have no duty under s 6(1) of the Tax Administration Act 1994.
[50] For these reasons, I do not consider that his reliance on s 6(1) of the Tax
Administration Act 1994 can add anything to the plaintiff’s case.
New Zealand Bill of Rights Act, s 27
[51] Section 27 of the New Zealand Bill of Rights Act provides as follows:
27 Right to justice
(1) Every person has the right to the observance of the principles of natural justice by any tribunal or other public authority which has the power
to make a determination in respect of that person's rights, obligations, or
interests protected or recognised by law.
(2) Every person whose rights, obligations, or interests protected or recognised by law have been affected by a determination of any tribunal or other public authority has the right to apply, in accordance with law, for judicial review of that determination.
(3) Every person has the right to bring civil proceedings against, and to defend civil proceedings brought by, the Crown, and to have those proceedings heard, according to law, in the same way as civil proceedings between individuals.
[52] Mr Russell submitted that since the Authority had the power to make a determination in respect of his rights and obligations, then he had the right to the observance by the Authority of the principles of natural justice. In simple terms, he argued that the right set out in s 27(1) entitled him to a fair hearing before an unbiased Judge who would apply lawful and logical analysis and principles in
determining the case. He referred to s 3, which clearly applies the Bill of Rights to acts of the judicial branch of the Government of New Zealand.
[53] Those submissions are undoubtedly correct. However, in a case such as the present, where there is no doubt that the Taxation Review Authority must observe the principles of natural justice in performing its functions in respect of the plaintiff’s proceeding, reference to the rights guaranteed by s 27 does not add in any significant way to the relevant common law principles. It remains necessary to consider the cases on bias to understand the content and consequences of the entitlement to natural justice and to assess whether or not the facts on which Mr Russell relies establish a viable claim that there has been a breach of his rights.
[54] In the circumstances, while s 27 of the New Zealand Bill of Rights Act underlines the importance of what is at stake, it does not really add substance to the common law rights engaged.
Bias at common law
[55] Both parties referred to and relied on the decision of the Court of Appeal in Muir v Commissioner of Inland Revenue [2007] 3 NZLR 495 NZCA334. In that case, the Court discussed different approaches in New Zealand and other Commonwealth jurisdictions noting that in Auckland Casino Ltd v Casino Control Authority [1995] 1 NZLR 142 the Court of Appeal had applied the law as it had been explained by Lord Goff of Chieveley in R v Gough [1993] AC 646, at 670:
Accordingly, having ascertained the relevant circumstances, the court should ask itself whether, having regard to those circumstances, there was a real danger of bias on the part of the relevant member of the tribunal in question,
in the sense that he might unfairly regard (or have unfairly regarded) with favour, or disfavour, the case of a party to the issue under consideration by
him…
[56] In Muir, the Court of Appeal noted subsequently rejection of the test in R v
Gough by the High Court of Australia in Webb v R (1994) 181 CLR 41 and a change
of emphasis in England following Porter v Magill [2002] 1 All ER 465 where it was held at [102] – [103] that the appropriate question to be asked is whether a fair
minded and informed observer, having considered the facts, would conclude that there was a real possibility that the tribunal was biased.
[57] At [62] the Court in Muir said:
In our view, the correct inquiry is a two-stage one. First, it is necessary to establish the actual circumstances which have a direct bearing on a suggestion that the Judge was or may be seen to be biased. This factual inquiry should be rigorous, in the sense that complainant cannot lightly throw the “bias” ball in the air. The second inquiry is to then ask whether those circumstances as established might lead a fair-minded lay observer to reasonably apprehend that the Judge might not bring an impartial mind to the resolution of the instant case. This standard emphasises to the challenged Judge that a belief in her own purity will not do; she must consider how others would view her conduct.
[58] Mr Russell was concerned to place some emphasis on what the Court also said at [64]:
It is not possible or desirable to create a catalogue of disqualifiers for Judges
in which a reasonable apprehension of bias may arise, but some broad principles can be stated. First, a Judge should not decide a case on purely
personal considerations. Secondly, there should not reasonably be room for
a perception that the Judge will decide the case on anything but the evidence
in front of him or her. Thirdly, a Judge must be in a position to consider all potentially relevant arguments. Fourthly, there may conceivably be a series
of events or ruling which reasonably warrant an inference that the challenged
Judge’s perception is warped in some way.
[59] The pleading in paragraph 18 of the statement of claim, which I have earlier
set out may not properly reflect the law as now explained in Muir, in either paragraph (a) or (b). The statement of claim was, of course, filed before Muir was decided and has not been amended since. Sub-paragraph (a) in paragraph 18 at least appears to be no longer appropriate with its reference to a “real danger of bias”. In any event, as I have explained, Mr Russell was content to argue the matter on the basis that the law was as has now been set out in Muir.
[60] Adopting the two-stage approach, he submitted that the objectors in the template cases had not been accorded a fair trial of their cases, that he is now being subject to similar treatment and that on the evidence, the Authority has pre-judged many issues with the consequence that it would be quite impossible for any reasonable person, on an objective analysis, to expect that the Authority would bring
an impartial mind to the resolution of his case. He amplified those concerns by reference to a list containing 12 items based on the experience of the objectors in the template cases. With reference to those cases, he submitted that:
1.The Authority had made a final decision in Case R25, when it had promised an interim decision, and there were about 50 more hearing days of evidence which should have been called.
2. In most cases, wrong witnesses had been put forward by the
Commissioner.
3. In most cases, grounds of objection have been struck out.
4.In most cases witness summonses have been discharged when opposed by the Commissioner.
5.In most cases witness summonses had been refused when opposed by the Commissioner.
6. In some cases the evidence of witnesses had been curtailed.
7. In all cases the Authority had shown a predisposition to accept the
Commissioner’s views.
8.In all cases the Authority had shown a predisposition to reject or ignore taxpayers’ views.
9.In some cases, the Authority had made findings contrary to evidence.
10. In many cases, issues had been determined before hearing evidence.
11.In all cases, the Authority had failed to make objective analyses in the determination of issues.
12.In all cases, the Authority had failed to consider fully the Bill of Rights and/or s 6 of the Tax Administration Act 1994 when making determinations.
[61] It followed, in his submission, that the Authority had not determined the cases fairly, impartially and in accordance with the law and in fact had shown a bias towards the Commissioner’s position to the detriment of the taxpayers involved. This process was being repeated in his own case, as shown in particular by the Authority’s decision of 8 February 2008.
The Commissioner’s position
[62] Mr Ruffin presented a very detailed argument rejecting all of Mr Russell’s contentions. In part, the argument addressed by Mr Ruffin anticipated issues on the basis of what had been argued at the earlier hearing in which interim relief had unsuccessfully been sought before Keane J to prevent the Authority taking further steps in relation to Mr Russell’s case.
[63] In the course of Mr Ruffin’s argument he referred to the numerous decisions
of the Authority in relation to the Template Cases pointing out that in each case where there had been challenges to the rulings made, the Authority had been upheld
by the Higher Courts. Because of the view I take it will not be necessary for me to review Mr Ruffin’s argument in any great detail, but I may summarise his main points as follows.
[64] Mr Ruffin emphasised that the Judge had always considered potentially relevant arguments and the determinations that he had made on the Russell template cases had, almost without exception, been upheld. In particular:
a) the Authority’s findings in the template cases in Case R 25 had been upheld on appeal by Baragwanath J and the Court of Appeal (except
in relation to jurisdiction to consider the vendetta issue).
b)the Authority’s decisions in Case T 52 and Case U 23 involving Wire Supplies Ltd/Slioc Enterprises Ltd and the McDougalls had been upheld by Courtney J (Wire Supplies Ltd and Others v Commissioner
of Inland Revenue (HC AK CIV 2003-404-6401, 1 September 2005) and in the Court of Appeal, (Wire Supplies Ltd and Others v Commissioner of Inland Revenue (2007) 23 NZTC 21,404).
c) The Authority’s decision in the Douglas & Henwood Group of cases, being Case T 59 and Case V 2 had also been upheld by Courtney J and the Court of Appeal (in the decisions just referred to).
[65] The Authority had been upheld not only in respect of the overall result of the cases, but in respect of particular findings of fact. For example, at the interim relief hearing before Keane J criticism had been made of a passage in the decision on Case R25 at page 6,126, in which the Authority referred to a deed of variation of a management contract dated 1 August 1986 which recorded the payment of $4.65 million to the Millers and O’Neils, as managers, in consideration for the deletion of clause 20 of the contract. Under clause 20, the managers had the option to purchase
all the assets of the company at a total price sufficient to discharge the company’s liabilities. In discussing the variation to the contract, the Authority said at page
6,126 of its decision in Case R25 that:
There was much evidence and argument about the need for and commercial reality of the Deed of Variation of Management Contract dated 1 August
1986. However, it seems to me to be simply a device to enable the arrangement to keep going whereby income from the objector company is washed through the group into tax loss companies controlled by JGR. I
cannot find any commercial reality to the figure of $4,650,000 shown as consideration for the variation of the management contract.
[66] In its decision in Miller v Commissioner of Inland Revenue (1998) 18 NZTC
13,961, the Court of Appeal said at 13,979:
Nor was there truly a sale when the shareholders later surrendered the options. That was merely a device to generate more administration charges and thereby convert more income into capital. The sum paid in exchange for the surrender was extravagantly out of proportion to the worth of the options.
[67] On the issue of vendetta, the Commissioner had submitted to the Taxation Review Authority that issues critical of the process followed by the Commissioner could only be dealt with by the High Court by way of judicial review under the provisions of the Judicature Amendment Act, the jurisdiction of the Taxation Review Authority being confined to the correctness or otherwise of the assessment made by the Commissioner. In its decision on Case R25 the Authority upheld that submission. On appeal to the High Court (Miller v Commissioner of Inland Revenue (1997) 18 NZTC 13,001 at 13,005) Baragwanath J pointed out that the Authority’s decision in that respect was incorrect as had been shown by subsequent decisions of the Privy Council in Harley Developments Inc v Commissioner of Inland Revenue
[1996] 1 WLR 727 and of the Court of Appeal in Golden Bay Cement Co. Ltd v
Commissioner of Inland Revenue [1996] 2 NZLR 665.
[68] However, Baragwanath J reviewed the evidence on the issue of the alleged vendetta, stated at 13,046 that he was “satisfied that the Department’s purpose in seeking to “destroy” Mr Russell’s business was:
to terminate what its members were entitled to see as flagrant tax avoidance, which it is their statutory function to deal with. Mr Russell’s template has been in use since 1980. Many millions of dollars which, if the Commissioner is right, should have been paid by way of tax have been received tax free.
[69] His conclusion, expressed at page 13,047 was as follows:
The Departmental files exposed by the Official Information Act and the course of discovery before the Taxation Review Authority contained [sic] lead me to find a belief, honestly held, that Mr Russell’s business structure has led to large scale tax avoidance which is the duty of the Commissioner and his staff to stop. Such opinion is well open to them; I do not find material improper purpose established.
[70] In the Court of Appeal’s decision in Miller v Commissioner of Inland
Revenue a passage at 13,975 states:
In the written submissions of counsel for the appellants it was contended that the Commissioner had an unlawful purpose in issuing the Track B Assessments because he was intent on pursuing a vendetta against Mr Russell. This argument failed on the evidence before Baragwanath J . There is no basis for saying that the Judge was wrong and no appearance of
an improper purpose. The Commissioner was faced with large scale and well organised schemes having the apparent intention of avoiding tax, with the position of the appellants and others involved being vigorously defended. The Commissioner was entitled to adopt an uncompromising approach and,
as already held, it was open to him to conclude that the arrangements fell within s 99.
[71] Notwithstanding those conclusions, the Authority had nevertheless remained open to Mr Russell’s desire to further pursue the vendetta argument in subsequent proceedings. Thus, in Case U24 (1999) 19 NZTC 9,223 at [40] the Authority observed that while he had seen no suggestion of “vendetta conduct” on the part of the respondent to date he had seen “much unhelpful conduct from some of the respondent’s officers”, and “an objector is generally entitled to mount such an issue if it has been covered by the formal objection notice and in terms of general relevance to the facts of a particular case”.
[72] Further, in Case U42 [2000] 19 NZTC 9,384 the Authority observed at [9]:
I appreciate the point made by Mr Ruffin that the allegation of vendetta had been canvassed in Miller v C of IR. However, it has not been canvassed to the extent contemplated by Mr Russell for some years, nor by me. Presently,
I see no reason to strike out a ground of objection based on “vendetta”, if vendetta has been set out as a ground of objection in a particular notice of objection, because that ground has simply not been fully canvassed before the Courts by any manner of means. Having said that, I do not wish to raise false hopes in Mr Russell. I confirm the view I have stated on a number of occasions that I have found no evidence of vendetta or any type of abuse of process which would affect the integrity of template assessments; but I have often felt that there has been quite obstructive and unco-operative conduct towards Mr Russell and his clients by Officers of the IRD. That, of course,
is a quite unacceptable way for the IRD to treat any citizen.
[73] Decisions in three groups of cases are yet to be the subject of a final decision. They were the subject of the interim decision given on 26 November 2007 (Webster, Foster, and Consultant Applications Ltd Groups of Objectors v The Commissioner of Inland Revenue, Decision No.16/2007). In that decision, at [66] the Authority wrote:
By agreement the vendetta ground of objection is to be dealt with in a current Track E case before me. In the present cases, the objectors specifically elected not to pursue the ground of vendetta.
[74] The reference to the Track E case is a reference to Mr Russell’s own personal challenge proceedings in TRA 03/03. Mr Ruffin submitted that the quoted passage makes it clear that Mr Russell had elected not to pursue the vendetta issue in other cases involving the objectors and to save that for argument yet to be advanced.
[75] Mr Ruffin referred me also to passages in the decisions of the Authority which on any view were favourable to Mr Russell and his clients. For example, in Case W 46 (2004) 21 NZTC 11,424 the Authority observed at [63]:
There is no secret that Mr Russell has been assessed with income which, prima facie, could be regarded as the same income stream which has been assessed to the present objectors. However, that matter is arguable and I understand that the respondent argues that the income assessed to Mr Russell, while arising out of the template, relates to a different arrangement
or different level of commerce or business to that assessed to the present objectors. I have indicated on a number of occasions that I am not attracted
to that argument and that, if the JG Russell tax avoidance template is
annihilated for tax purposes as against the Commissioner, there is only one income stream to be taxed and it cannot be taxed over and over again as it permeates through the very extensive template, i.e. as it crosses from genuine trading companies through a labyrinth of JG Russell controlled companies, partnerships, nominees and names to loss owning companies or
to so-called charitable operations regarded as tax exempt.
[76] Mr Ruffin referred in addition to a number of procedural directions that had been criticised by Mr Russell. Thus, in his affidavit of 22 February 2008 Mr Russell complained about limits that had been placed on him in relation to the length of cross-examination. Mr Ruffin maintained that the limits imposed by the Judge had been by no means onerous and only such as any judicial officer conscientiously endeavouring to deal with the business before the Authority might have imposed. In Case W 46, for example Mr Russell had been given a total of nine days in which to cross-examine the respondent’s witness. The Authority noted in its decision that Mr Russell had conducted a cross-examination that was “mainly irrelevant”. At [90] he observed:
I have allowed Mr Russell nine days to cross-examine the respondent’s witness and Mr Russell chose to deal with issues of little relevance to these cases and, in my view, to waste time and not progress the cases for the objectors. I decline to extend that cross-examination further.
[77] Turning to Mr Russell’s submissions in relation to the decision of 8 February
2008 (JG Russell v Commissioner of Inland Revenue TRA 003/03, Decision No.4/2008), Mr Ruffin emphasised that it was Mr Russell as the disputant before the Authority who had asked the Authority to determine the preliminary issue. In that context, the Authority was permitted (even bound) to consider the evidence heard to that point so that it could deal with the application in an appropriate factual setting. Nevertheless, the Authority had properly noted that it would need to hear all the relevant evidence before making a final conclusion (at [49]) and it had made it quite clear that if it could be demonstrated that income had been assessed to others the Authority would be open to evidence about that later in the hearing (at [53]).
[78] As a result of his review of the various decisions of the Authority, Mr Ruffin maintained that a fair-minded lay-observer would not reasonably apprehend that the Judge might not bring an impartial mind to the resolution of Mr Russell’s case. All
of the template decisions had been decided on the basis of the evidence, and on the basis of a proper understanding of the law, and there could be no suggestion that the Authority would depart from that approach in future.
[79] Finally, Mr Ruffin referred to the fact that an argument of bias had not been advanced except in the context of Mr Russell’s own case notwithstanding the many
years over which the Authority had been involved in determining the Russell Template Cases. Further, as the test for the determination of whether an arrangement is a tax avoidance arrangement is an objective one, the Authority has never been called upon in any of the previous cases to make findings of credibility against Mr Russell.
[80] In all the circumstances, Mr Ruffin submitted that the test for presumptive bias set out in Muir v Commissioner of Inland Revenue could not be satisfied.
Evaluation
[81] Although Mr Russell’s submissions came close to alleging actual bias by the Authority the claim, as has been seen, is not pleaded so as to make such an allegation. The contention is, having regard to Mr Russell’s acceptance of the law
set out in Muir, that a fair minded observer would reasonably apprehend that the Authority might not bring an impartial mind to the resolution of the case. Following Muir, the first step that must be undertaken is to decide the actual circumstances which have a direct bearing on the suggestion that the Judge may be seen to be biased.
[82] I have earlier discussed the circumstances upon which Mr Russell relies. There is a fair summary of his contentions in the list of 12 items that he proffered, set out at paragraph [60]. The difficulty is that, except in a few instances, he did not descend into any details which could justify a conclusion that the Authority had acted wrongly when it took any of the steps that he criticises. For example, it is one thing to assert that the Authority has struck out grounds of objection. In order to ascertain if those actions by the Authority should be taken into account in the present context it would be necessary to inquire into whether or not the actions had been justified in the particular circumstances. I have not heard an argument of that kind in relation to either that allegation, or any of the others in the list with the possible exceptions of Mr Russell’s complaint that in Case R25 the Judge made what was a final decision when Mr Russell wished to call further evidence on the issue of vendetta, and the issues that Mr Russell raised about the decision of 8 February 2008.
[83] On the former point, the Judge referred to the criticisms that had been levelled at him for restricting the length of the hearing in Decision No.10/2005, at
[34], which I have set out at [23] above. Mr Russell complained, but presented no argument as to why the Judge had been wrong to curtail the hearing and not allow the additional witnesses to be called. Any judicial officer must be concerned about the length of hearings, and take steps where appropriate to ensure that they are not unduly prolonged. It is not a valid argument, unless there is a good deal more to it,
to assert that “in some cases the evidence of witnesses has been curtailed”. On occasion, that will be a perfectly legitimate step for the judicial officer to have taken.
[84] Nor can it be valid in this context to rely on the fact that witness summonses have been discharged when opposed by the Commissioner or refused when opposed
by the Commissioner. In each case, one would want to inquire into the circumstances to ascertain whether the Authority’s decision was justified in the circumstances, or perverse.
[85] Mr Russell placed particular reliance on the Authority’s decision of 8 February 2008 (Decision No.4/2008), but I am not persuaded that there is anything in that decision which would give rise to a reasonable apprehension of bias. It was Mr Russell’s application that was dealt with in that decision, he being of the view that the preliminary issue that he sought to raise concerning non-receipt of the moneys for which he had been assessed would be determinative. That issue having been raised by Mr Russell to be dealt with as a preliminary issue, it is hardly open to him to criticise the Commissioner for in fact dealing with the issue on the basis of the facts that as they stood at the time the decision was made. He was careful to indicate that he would hear all relevant evidence before finally concluding that there was in fact a tax avoidance arrangement, and that Mr Russell was a person affected
by it, who had obtained a tax advantage as a result in a clearly quantified amount.
[86] Another particular issue that Mr Russell identified was the vendetta issue. However, it appears that that issue, although raised at an early stage by some objectors was effectively postponed to be dealt with as part of Mr Russell’s own case. I have earlier referred to the Authority’s statement at [66] of the decision of 26 November 2007 (Webster, Foster, and Consultant Applications Ltd Groups of
Objectors v The Commissioner of Inland Revenue, Decision No.16/2007) that it was
by agreement that the vendetta issue would be argued in the Track E case, i.e. Mr Russell’s own personal challenge proceedings. I have also mentioned the observations made in U 42 [2000] 19 NZTC 9,384 at [9] which show that the Authority is prepared to confront the issue “to the extent contemplated by Mr Russell”. I do not consider that the Authority’s observations on this issue could contribute to a perception that the Judge might be biased.
[87] As I have said, none of the other allegations made by Mr Russell have been specified to an extent that would allow this Court to form a view on whether individual decisions of the Authority, whether on matters of substance or procedure could give rise to a reasonable apprehension of bias.
[88] This is not a case where there can be any suggestion that the Judge would decide any relevant issue on purely personal considerations. In terms of the specific “disqualifiers” mentioned at [64] in Muir, Mr Russell is effectively left to argue that there could be a perception that the Judge has already made his mind up because of
his past experiences with the template cases or, putting the same matter differently, because of his mind set he would not be in a position to consider all potentially relevant arguments. That in turn might lead to the proposition that his perception had been “warped” in some way, i.e. by past dealings with Mr Russell in the long history of the litigation which has been before the Authority.
[89] Effectively, Mr Russell’s position can be reduced to the contention that there must necessarily be a reasonable apprehension of bias because, over a course of many years, the Judge has consistently held against objectors and in favour of the Commissioner of Inland Revenue. There have been numerous cases and they have extended over many years. In one of the earlier decisions of the Court of Appeal, Mille v Commissioner of Inland Revenue [1995] 3 NZLR 664, Richardson J was already in a position to refer, at 667, to the “turgid history and the continuing saga of the numerous cases involving Mr Russell and his various clients”. The question is, whether by dint of such long association, and the track record of consistent findings
in favour of the Commissioner, a fair minded lay observer might consider that for
those reasons the Judge might not bring an impartial mind to the resolution of
Mr Russell’s case.
[90] In Muir the Court referred at [59] to a decision of the United States Supreme
Court in Liteky v United States 510 US 540. In that case, the Court held, at 564 that:
Disqualification is required if an objective observer would entertain reasonable questions about the Judge’s impartiality. If a Judge’s attitude or state of mind leads a detached observer to conclude that a fair and impartial hearing is unlikely, the Judge must be disqualified.
[91] The Court of Appeal also referred to Flamm, Judicial Disqualification: Recusal and Disqualification of Judges (now in a second edition), 2007, Banks & Jordan Law Publishing company which contains a full discussion of the relevant United States law. In Chapter 16 of that work there is a discussion of the decision in Liteky v Unites States, and subsequent rulings by most of the Circuit Courts of Appeal, and many of the State Courts. On the basis of the summary of the various cases referred to in that chapter, the author concludes at p 443:
It is now generally agreed that, absent facts from which a reasonable person could infer that a challenged judge’s rulings or decision was the product of actual bias, the rulings a judge renders in the same or a related case will almost never support an inference or a presumption of judicial bias – much less establish the bias required to warrant disqualification or reversal.
[92] Further, at p 444 the author observes:
The maxim that adverse rulings, standing alone, do not warrant disqualification applies regardless of whether the motion to disqualify is predicated on the judge’s rulings in the same proceeding, a prior or different proceeding involving one or more of the same parties, or a proceeding that is only factually similar to a pending matter. The rule also applies without regard to the subject matter of the rulings, the type of case in which they were rendered, or whether the rulings were of a legal, factual, or evidentiary nature.
[93] The rationale for this approach is explained on the basis that the subjective perception of a party of a Judge’s perceived tendency to rule against him is “inevitably suspect”. Further, every ruling on an arguable point will necessarily favour one party or the other. In some cases it has been argued in the United States that a disproportionate number of rulings against one party may suggest that something untoward had motivated them. However in Phillips v Joint Legis. Comm.
on Performance and Expend. Review 637 F.2d 1014 (5th circuit 1981) it was held that a Judge must be free to make rulings on the merits without the apprehension that, should she make a disproportionate number of rulings in favour of one party, she would have thereby have created the impression of bias toward that party or against its adversary.
[94] In another case, MSL at Andover, Inc. v The American Bar Association 107
F.3d. 1026,1043 (3rd Circuit 1997) it was said at 1043 that “even-handed justice does not require a Judge to balance numerically the rulings in favour of and against each party”, and that it is quite possible that a Judge’s consistent pattern of ruling against a party could be entirely justified by the fact that the party has consistently taken positions that cannot be supported.
[95] On the basis of these and other cases referred to, the author concludes at
p 449-450:
Thus, the mere fact that a Judge has issued rulings that a party perceives to
be unfavourable to its cause is usually insufficient to establish disqualifying bias, even when the number of such unfavourable rulings is on a statistical
basis extremely high or possibly suggestive of a pattern. The same is true
when the unfavourable rulings are directed toward a party’s counsel rather than the party itself. An Appeals Court is particularly unlikely to find that
rulings are indicative of disqualifying bias when they were upheld on appeal.
[96] The text also discusses cases where it is alleged that a Judge is biased against
a party because of adverse comments made. The author concludes on the basis of the authorities discussed that critical comments will generally not be regarded as disqualifying as long as they do not demonstrate the Judge has formed a fixed opinion with regard to the ultimate merits of a matter pending before the Court. In this setting, I note Mr Ruffin’s submission that although the Authority has made observations in Case R 25 about Mr Russell’s obsession with saving tax leading to a mental block about tax avoidance schemes, there has been no adverse finding about Mr Russell’s credibility as a witness. While the Authority has disagreed with the effect of the various schemes in which Mr Russell has been involved, the difference
of opinion is as to the legal consequences of those arrangements and I have not been referred to any finding of the Judge that Mr Russell was untruthful. In these circumstances, I consider that the adverse comments made about Mr Russell are to
be regarded as legitimate judicial responses to the nature of the litigation with which the Authority has had to deal, and Mr Russell’s part in it. It is also germane to mention at this point Mr Russell’s statement at paragraph 24 of his affidavit of 14 September 2005:
I wish to make clear that by bringing these judicial review proceedings I do not intend any slight on the character of Judge Barber or on his integrity as a Judge. As a lay advocate I have been greatly assisted by Judge Barber in the conduct of the cases and am grateful for such help over many years.
[97] In the context of concerns about the appearance of bias it is the second sentence quoted that is of most significance, stating as it does that the Judge has over
a long period adopted a helpful stance in his dealings with Mr Russell.
[98] Although care is necessary in considering Unites States jurisprudence in this field, and the test set out in Liteky v Unites States is not the same as that which the Court of Appeal has described in Muir, the tests are not in fact far apart. Both are broadly similar too with what is said in the revised Guide to Judicial Conduct (2nd ed 2007) published by the Council of the Chief Justices of Australia and New Zealand, at page 11:
The ultimate issue is whether a fair-minded lay-observer might reasonably apprehend that the Judge might not bring an impartial mind to the resolution
of the case.
[99] The position apparently adopted in the United States is that there cannot be reasonable questions about a Judge’s impartiality arising simply from his or her determination of cases even if there is a consistent pattern of holding against one party. I am persuaded that that is the appropriate conclusion. A different approach, by which it could be inferred from such a pattern alone that the Judge may be biased would sit uncomfortably alongside the judicial oath. Any suggestion that litigants deserve equal treatment in terms of outcome is of course, directly contrary to the core value that cases must be decided in accordance with the law.
[100] In my view, a legal principle that acknowledged that there might be a reasonable apprehension of bias arising from the fact that the Authority had consistently upheld the position of the Commissioner in the various cases that had come before it involving Mr Russell would be fundamentally wrong. I would
summarise my view as being that there cannot be presumptive bias where the rulings
of the Judge, although consistently adverse to a party’s interests, have nevertheless been consistently in accordance with the law. That is effectively the position here.
[101] Put simply, there is a duty to decide cases in accordance with the law, and compliance with that duty cannot give rise to a reasonable apprehension of bias. The notional fair minded lay observer must be assumed to know that much about the role of a Judge.
Result
[102] For the reasons given, I dismiss the plaintiff’s application for review.
[103] The second defendant is entitled to costs, calculated on the basis of Category
2 and Band B. Any dispute as to the quantum of those costs may be resolved by the
Registrar.
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