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Commissioner of Inland Revenue v Ti Toki Cabarets (1989) Ltd [2000] NZCA 188; [2001] 1 NZLR 147; (2000) 19 NZTC 15,874 (4 September 2000)

Last Updated: 8 December 2011


IN THE COURT OF APPEAL OF NEW ZEALAND
CA59/00


BETWEEN
THE COMMISSIONER OF INLAND REVENUE


Appellant


AND
TI TOKI CABARETS (1989) LIMITED


First Respondent


AND
KOPITO BUSINESS LIMITED


Second Respondent


AND
RADIATA PROPERTIES LIMITED


Third Respondent


AND
AMBER TRANSPORT AND BUILDING REMOVALS LIMITED


Fourth Respondent


AND
ROBERT DAVID HAINES


Fifth Respondent


AND
TI TOKI CABARETS (1989) LIMITED, KOPITO BUSINESS LIMITED, RADIATA PROPERTIES LIMITED and AMBER TRANSPORT AND BUILDING REMOVALS LIMITED


Sixth Respondent


AND
HAINES HOUSE HAULAGE COMPANY LIMITED, TI TOKI CABARETS (AUCKLAND) LIMITED, TI TOKI FARMS LIMITED, REASON INVESTMENTS LIMITED, SIDESTONE DEVELOPMENTS LIMITED, ALBERON SYSTEMS LIMITED, TRIO PROPERTIES LIMITED, A NEW LOCATABLE HOMES LIMITED, ADVANCE BUILDINGS REMOVAL LIMITED and HIGHWAY HOUSE MOVERS LIMITED


Seventh Respondent


AND
ELIZABETH ANN HAINES


Eighth Respondent

Hearing:
15 August 2000


Coram:
Gault J
Robertson J
Salmon J


Appearances:
J A Eichelbaum and R Vickery for Appellant
G J Judd QC for all Respondents except the eighth


Judgment:
4 September 2000

JUDGMENT OF THE COURT DELIVERED BY GAULT J

[1] This appeal is against a judgment of Nicholson J delivered in the High Court at Auckland on 24 February 2000 declining to grant the Commissioner’s application for stay or dismissal of judicial review proceedings brought by taxpayers and granting their application to consolidate the judicial review proceeding with a prior challenge proceeding.
[2] The facts seemingly not in dispute are that the first four respondents, Ti Toki Cabarets (1989) Ltd, Kopito Business Ltd, Radiata Properties Ltd, and Amber Transport and Building Removals Ltd (collectively referred to as “the assessed companies”) are property development companies in which the fifth respondent Mr Haines and the eighth respondent Mrs Haines had equal shareholding. Mr and Mrs Haines separated in 1993 and resolved a lengthy dispute by entering into a matrimonial property agreement on 2 August 1996. The agreement provided for resolution of property disputes between them by transfers to Mrs Haines of certain properties which were owned by “the Haines Group of Companies” (16 companies were listed in a schedule) against (inter alia) the transfer by Mrs Haines of all her interest in those companies to Mr Haines. In the result, Mr Haines would own all the shares in the companies, while Mrs Haines would own the specified properties.
[3] By an agreement dated 20 August 1996 described as a “Variation of Matrimonial Property Agreement” a new clause was substituted for clause 2 in the earlier agreement to provide that the ownership of the properties would first be transferred by the respective owner companies to Mr Haines and would then be transferred from him to Mrs Haines. The companies listed in the schedule to the original agreement were designated as parties to this variation agreement except for two said to be in liquidation, though only 12 companies executed the document. The amended clause 2 provides:

The members of the Haines Group which are parties to this agreement hereby agree to transfer to the Husband the Wife’s Property, as provided in clause 2 of the MPA (as substituted by this agreement).

[4] Mr Haines arranged for the properties to be transferred by the owner companies to himself in consideration for the payment to the company of $1. He then transferred those properties to Mrs Haines in return for the transfer by her to him of her shares in the companies. Settlement was effected on 20 August 1996.
[5] The schedule of properties designated the “Wife’s Properties” and the schedule of companies in the agreement do not permit comprehensive identification of which companies transferred properties to Mr Haines. It is clear which properties were transferred by the four assessed companies but that leaves some scheduled properties and a greater number of scheduled companies unmatched.
[6] Tax Information Bulletin Vol 1 No 6, December 1989 (the “TIB”) issued by the Commissioner and dealing with the GST implications of matrimonial property agreements stated:

GST - matrimonial property agreements

SUMMARY

This item amends the Department's policy regarding the GST implications of the transfer of ownership of the assets of a taxable activity in terms of a matrimonial property agreement made pursuant to the Matrimonial Property Act 1976.

BACKGROUND

The Department's previous position is set out in Public Information Bulletin No 171 and was that the transfer of ownership of the assets from one spouse to the other was a supply for the purposes of the Goods and Services Tax Act 1985.

RULING

The provisions of the Matrimonial Property Act 1976 establish certain rights for both spouses to the assets of the marriage. In entering into a matrimonial property agreement the spouses are doing no more than formalising those rights. It is arguable that the assets should always have been treated as owned by both (not necessarily in equal shares).

When such an agreement is entered into the Department will accept that a partnership exists between the husband and the wife in respect of the assets covered by the agreement. This means that where the husband and wife continue the taxable activity in partnership with those assets the only action required is to register the partnership for GST purposes. No GST liability will arise in respect of assets covered by the agreement in this situation until they are subsequently supplied. The husband's and/or wife's registration will be cancelled unless another, separate taxable activity is carried on by that person. Any subsequent supply, including assets retained by either party or any assets not covered by the agreement will be treated in the same manner as any other supply by a registered person.

Where the husband and the wife do not carry on the taxable activity in partnership after entering into the agreement the Department still considers that a partnership existed at the time the agreement was entered into. The assets transferred from the partnership to each spouse would be a supply to an associated person. The value of the supply would depend on whether the assets will be used principally in a taxable activity or will be for the private use of either spouse. The net result would be a GST neutral position where the assets continue to be used in a taxable activity and a GST liability (on the open market value of the assets) where they are not. This is consistent with the purpose of the legislation which is to tax consumption.

In this situation the registered person is one of the spouses. As the spouses do not intend carrying on the taxable activity in partnership there is no point in registering the partnership merely to deal with the transfer of the assets to each spouse. The Department will therefore not require the registered person to charge output tax on assets covered by the agreement provided those assets will be used by either spouse principally in a taxable activity. As stated above a GST liability arises in respect of any assets which will no longer be used principally in a taxable activity. It is the responsibility of the spouse who is registered to account for the output tax. Any subsequent supply by the registered person(s), including assets retained or any assets not covered by the agreement will be treated in the same manner as any other supply by a registered person.

The above only applies to assets covered by a matrimonial property agreement and is only for the purposes of the Goods and Services Tax Act 1985.

[7] The Commissioner considered each of the four assessed companies to be liable for GST on the transfer of the properties from the company to Mr Haines and notices of GST assessment were accordingly issued on 24 April 1997. This brought into operation the dispute procedure introduced into the Tax Administration Act 1994 as Part IVA by the Tax Administration Amendment (No2) Act 1996 and applicable to GST assessments from 1 October 1996 pursuant to s31 of the Goods And Services Tax Act 1985 as amended by the 1996 amendment to that Act.
[8] By their solicitors the four assessed companies, on 24 June 1997, gave notices of proposed adjustment pursuant to s89D of the Tax Administration Act claiming (inter alia) that the properties were transferred pursuant to a matrimonial property agreement and that the TIB applied with the result that GST would not be payable until the properties were disposed of by Mrs Haines. A notice of response in each case was issued by the Commissioner on 22 August 1997 (s89G). The adjustments were rejected. The four assessed companies did not accept the Commissioner’s rejection. A conference took place on 11 November 1997 but failed to resolve the dispute.
[9] The Commissioner issued disclosure notices (s89M) dated 28 January 1998. This has the exclusion of further issues and evidence consequences provided for in s138G. The respective parties then provided Statements of Position. The Commissioner’s Statement of Position in respect of each company made in March 1998 included in the reasons for the assessment of GST for the companies:

1.14 Prior to the transfer of the property by the company to Mr Haines the property was owned by the company. It was not matrimonial property. The shares in the company were matrimonial property. Any property owned by the company is an asset of the company, and not the individual shareholders.

1.15 The property was not acquired by Mr Haines as part of his taxable activity as a property developer or for the principal purpose of making taxable supplies. His only intention in acquiring the property was to fulfil an obligation, that was, to transfer the property to Mrs Haines as part of the Matrimonial Property settlement. The property was subsequently transferred to Mrs Haines in consideration for the shares of the company held by her. These shares have now been transferred to Mr Haines.

[10] In accordance with the Commissioner’s notified practice, (Tax Information Bulletin Vol 8 No 3, August 1996), the matter was referred to the Adjudication Unit. Adjudication Reports were issued in each case on 5 October 1998 and concluded that there should be no adjustments to the assessments. That resulted in a Notice of Final Determination (a “disputable decision”) giving rise to entitlement to commence proceedings to challenge the assessment (s138B(3)).
[11] Material conclusions in the Adjudication Report in each case were:

There is no doubt that, under the Haines’ Agreement as varied by the variation to it, [the company] agrees to transfer the [property] to Mr Haines. But is that agreement a matrimonial property agreement made pursuant to the Matrimonial Property Act 1976? (emphasis added)

(d) An alternative view is that the agreement as varied evidences several agreements including one between Mr Haines and each of the companies and that is the agreement pursuant to which the property was transferred to Mr Haines in each case and is not a matrimonial property agreement within the TIB.
(e) The properties were not transferred to Mr Haines as part of a taxable activity for the purpose of making taxable supplies but for the purpose of enabling him to transfer them to Mrs Haines. He therefore is not entitled to input tax credits.
[12] The four assessed companies issued a challenge proceeding in December 1998. The allegations in the statement of claim are material.

The Pleadings in the Challenge Proceeding

[13] The Statement of Claim sets out the circumstances of the acquisition and ownership of the properties by each of the four plaintiffs, the assessed companies, and the transfers to Mr Haines and then to Mrs Haines in accordance with the matrimonial property agreement. There are then the four causes of action by which each of the companies challenges the assessment of GST of the relevant supply of the property or properties to Mr Haines. It is alleged that the adjustment proposed by each company should have been allowed and that the assessment is wrong “because it does not comply with the Ruling [TIB] or the principles underlying it”, the transfer having been made pursuant to a matrimonial property agreement. The relief sought is judgment allowing the adjustment.
[14] The Second Amended Statement of Defence, save in respect of certain details, admits the background facts. In respect of each of the four causes of action there is put in issue whether at the relevant time Mr or Mrs Haines was carrying on a taxable activity or acquired the properties for the principal purpose of making taxable supplies.
[15] It is then alleged that the TIB “does not assist the plaintiffs” because it is distinguishable on a number of grounds and because “The TIB No 6 (1989) item is not binding on the defendant and the defendant cannot be estopped from making the ... assessment by its contents”. This last assertion seems to have been directed to the proposition of law in the company Statements of Position that “our client relied on the Ruling [TIB] and the IRD is estopped from denying the effect of the Ruling in this case”.

The Present Proceeding

[16] In April 1999 the present proceeding for judicial review was commenced. The first plaintiff is Mr Haines, the second plaintiffs are the four assessed companies (the first four and sixth respondents in this appeal). The third plaintiffs are the remaining companies named in the Schedule to the original agreement except for two there said to be in liquidation (the seventh respondents). They, therefore, include two companies that not did not execute the variation agreement and can hardly be said to be parties, contrary to what is alleged in para 3 of the Statement of Claim. The first defendant is Mrs Haines (the eighth respondent) and the Commissioner is the second defendant.
[17] The Second Amended Statement of Claim recites the 2 August 1996 agreement between Mr and Mrs Haines and the Variation Agreement and sets out the effect of their relevant provisions including that requiring Mr Haines to pay any income tax, GST or other taxes resulting from the joint business activities of the parties in the Haines group.
[18] The critical allegations are that the Commissioner has assessed the four assessed companies with GST on property transfers to Mr Haines, and has ruled that the agreement as varied was not a matrimonial property agreement made pursuant to the Matrimonial Property Act 1976 so as to attract the application of the TIB. It is then alleged:

THE questions whether the MPA [matrimonial property agreement] as varied by the variation agreement is a “matrimonial property agreement made pursuant to the Matrimonial Property Act 1976” is one which needs to be determined as between, and to be binding upon, all the parties to the MPA and the variation agreement (that is, all the plaintiffs and the first defendant), and the second defendant.

IN making the rulings the second defendants was exercising statutory powers.

[19] By a first cause of action relief is claimed in the form of a declaration that the agreement as varied is a “matrimonial property agreement made pursuant to the Matrimonial Property Act 1976”.
[20] The second cause of action is pleaded in a single paragraph reading:

THE plaintiffs had a ‘legitimate expectation’ that the TIB would be complied with, and would be applied according to its substantive intention.

There is no pleading of reliance on the TIB by the parties but in view of the assertion to that effect in the four Statements of Position in the tax dispute process, we proceed on the assumption that amendment can be made if necessary to include such an allegation.

[21] The relief sought under the second cause of action is a declaration that the Commissioner is obliged to comply with the TIB and a further declaration that the TIB applied “in accordance with its substantive intention” has the result that output tax should not be charged “on the second plaintiffs and third plaintiffs”.
[22] The third cause of action is not directed to GST issues. It recites sFF6 of the Income Tax Act 1994 dealing with deemed values of land transferred in accordance with a matrimonial agreement with the effect that no profit arises. It is then alleged:

THE second defendant’s decision that the MPA as varied by the variation agreement is not “a matrimonial property agreement made pursuant to the Matrimonial Property Act 1976” potentially affects not just GST positions but the income tax positions of the plaintiffs and the first defendant.

[23] The relief claimed is a declaration that the agreement as varied is a “matrimonial agreement” for the purposes of sFF6.
[24] A statement of defence has been filed by the Commissioner but it is not material for present purposes.
[25] The Commissioner’s application to strike out the Statement of Claim relies on the following grounds:
  1. That the first and second causes of action in the Statement of Claim seek a declaration on questions that must be answered in the second plaintiffs’ challenge to the defendant’s assessment, which proceeding is currently before the High Court in CP647/98 pursuant to a statutory challenge procedure under the Tax Administration Act 1994.
  2. The first and second causes of action constitute a concurrent civil proceeding and are an abuse of process.
  3. The first and second cause of action disclose no “abuse of power” or other “exceptional circumstances” justifying judicial review being pursued separately from the challenge procedure.
  4. The third cause of action in the statement of claim in CP147/99 seeks an answer to an abstract question in anticipation of the actual controversy; the defendant has not proposed or purported to exercise a statutory power of decision in connection with Section FF6 of the Income Tax Act 1994 on any particular basis.
  5. The third cause of action discloses no reasonable cause of action.
  6. The third cause of action is also an abuse of process.

[26] The Notice of Opposition responds with these grounds:
[27] The plaintiffs applied for an order consolidating the review proceeding with the challenge proceeding on the ground that common questions of law and fact arise in both and that the rights to relief claimed are in respect of, or arise out of, the same series of events or transactions. That too was opposed.

The High Court Decision

[28] The two interlocutory applications were heard by Nicholson J on 17 and 27 August 1999. In his judgment he noted that at the heart of the proceedings was the decision that the 2 August agreement as varied by the variation agreement was not a matrimonial property agreement made pursuant to the Matrimonial Property Act, and also the failure of the Commissioner to deal with it as such and apply the TIB. Nicholson J saw the classification of the agreement as being practical and relevant to the GST and income tax position of the plaintiffs. The Judge refused to accept the submission for the Commissioner that judicial review is a collateral process and is directed solely at the validity of the procedure followed by the Commissioner. In relation to the first cause of action, which challenged the decision of the adjudicator that the agreement was not an agreement under the Matrimonial Property Act, Nicholson J was satisfied that there are cogent reasons for arguing that the decision is wrong, and that at least the argument is not so untenable that it could not succeed.
[29] The Judge also held that there was a tenable case for judicial review:

On the issue of whether there had been breach of the plaintiff’s legitimate expectation that the TIB would be applied, Mr Willox argued that legitimate expectation considerations were limited to procedure and not outcome and that in any event the Commissioner was not bound to apply policy stated in a TIB in any particular case. Mr Judd took issue with both of these submissions. He submitted that there could be a legitimate expectation as to outcome and that the decision of Williams J in Lawson v Housing New Zealand [1997] 2 NZLR 474 which Mr Willox relied upon as supporting his submission did not, when read carefully, support it. On the point of whether the Commissioner was bound to apply the TIB, Mr Judd referred to the decision of the House of Lords in Preston v Inland Revenue Commissioners [1985] 2 All ER 327 which he submitted was clear authority for the availability of judicial review where an Inland Revenue Commissioner had disregarded a commitment given in circumstances where it would be unjust, because it would be unfair to the tax payer. Mr Judd also referred to and relied upon the statement of Baragwanath J in Miller & Ors v Commissioner of Inland Revenue; McDougall & Anor v Commissioner of Inland Revenue (No 1) (1997) 18 NZTC 13,001, 13,048:


I do not accept the Crown’s main argument – that Departmental staff could simply ignore the policy statement as not binding. Whether as Mr Grierson argues it provides a fetter on their authority, or whether it should be construed as giving rise to a legitimate expectation which should be given effect by the Courts (R v Board of Inland Revenue, ex parte MFK Underwriting Agencies Ltd [1989] BTC 561; [1990] 1 WLR 1545; [1990] 1 All ER 91 discussed; (1990) 106 LQR 568), the result is the same: the directive must be complied with. It does not impose an improper fetter on the exercise of the s 99(3) and s 23 functions but directs how they are to be performed.


There is in my view a tenable case on the pleadings for judicial review based on breach of legitimate expectation.

[30] The Commissioner had submitted that the joining of Mrs Haines was misconceived, but the Judge held that this was appropriate, since the plaintiffs sought a declaration binding on all parties as to the status of the matrimonial property agreement. The joining of Mrs Haines was therefore appropriate, as she was an affected party. This decision is not the subject of appeal, but it is to be noted that Mrs Haines has taken no part in the proceedings, either before the High Court or this Court.

The Judge ordered that the review proceedings be consolidated with the challenge proceedings:

In my view the particular circumstances of the transfers of the properties made to implement a settlement of matrimonial claims and the consequent issues which the review proceedings raise about GST and income tax liability warrant such a course. The second defendant has failed to satisfy me that there appears to be no reasonable cause of action disclosed or that the review proceedings are an abuse of the process of the Court. I accordingly decline to stay or dismiss the review proceedings and I order that they be consolidated with the challenge proceedings.

The Arguments in this Court

[31] The Commissioner submitted that Nicholson J was wrong to hold that an alleged breach by the Commissioner of a legitimate expectation can give rise to a cause of action, and in particular that he failed to apply the decision of this Court in CIR v New Zealand Wool Board (1999) 19 NZTC 15,476. The Commissioner submitted that the new provisions, ss6 and 6A of the Tax Administration Act as inserted by the 1996 amendment, do not warrant departure from the previous New Zealand position in favour of the English position as set out in Preston, whereby notions of legitimate expectation and estoppel are said to be relevant to the assessment function. These care and management provisions were introduced with a clear appreciation of the statutory differences between New Zealand and England. They do not affect the approach traditionally taken by the courts in both New Zealand and Australia, that in the different statutory regimes, notions of legitimate expectation and estoppel cannot frustrate the assessment function. In particular, the New Zealand legislature introduced at the same time as ss6 and 6A the binding rulings regime, contained in Part VA of the Tax Administration Act, a regime which is absent from the English legislation. A strong inference can be derived from the enactment of this regime that Parliament intended that binding rulings would be the only way in which the Commissioner may be lawfully bound by previous conduct.
[32] The Commissioner relied in particular on the Wool Board decision, which he saw as clearly rejecting the proposition that notions of legitimate expectation can thwart the proper exercise of the Commissioner’s assessment function. In light of the argument that the Commissioner is not bound by any previous ruling or policy statement, short of a binding ruling, the Commissioner submitted that the second cause of action is bound to fail and therefore the first cause of action is irrelevant, as it assumes that the second cause of action is tenable. Further, the Commissioner submitted that the third cause of action is hypothetical, as the Commissioner has made no income tax assessment against any other party connected with the transaction and may never do so.
[33] The abuse of process arguments were briefly set out in the Commissioner’s written submissions. They were to the effect that the review proceeding constitutes a collateral challenge to assessments made by the Commissioner which, by virtue of s109, can be disputed only in challenge proceedings.
[34] The Commissioner’s submissions included that TIB 1(6) is wrong policy and constitutes an incorrect statement of the legal position and should not be allowed to fetter the assessment function. Mr Judd QC for the taxpayers objected that this is a new argument not raised in the application or in argument in the High Court. He accepted, however, that the taxpayers’ insistence on the application of the TIB rather than on the law recognises that the Commissioner’s submission is correct. But in any event he pointed out that it was only in May 2000 that the policy was changed, and that the policy continued in existence for 11 years and even after this dispute arose.
[35] The respondents supported the judgment and the essence of their submissions is contained in the following paragraphs:

3.3 In the present case the Commissioner purported to consider the TIB in relation to the plaintiff’s affairs but in doing so made an error of law when he concluded that the agreement was not a matrimonial property agreement.

3.4 It is submitted that whilst the Commissioner continued to put forward what was contained in the TIB as correctly stating the law, the plaintiffs had a legitimate expectation that the Commissioner would apply it to them as well as to all other taxpayers who were in a situation where property was being transferred pursuant to a matrimonial property agreement. If he had decided to withdraw it, and to say to the plaintiffs: I made a mistake, that’s not the law, I am no longer going to apply the TIB to any taxpayers – then the present plaintiffs might have been unable to dispute his ability to act in that way. But that is not what happened. The TIB remained in effect until 29 May 2000.

[36] The respondents submitted that all the New Zealand authorities recognise that the validity of the process adopted in making a purported assessment may be challenged. It was said that the Commissioner could not simply ignore the TIB, which remained in force. Further, they contended that he did not ignore it, but considered whether it applied to the respondents’ case and mistakenly concluded that it did not. They submitted that because review on the ground of legitimate expectation is not untenable it is a relevant cause of action whether the agreement was a matrimonial property agreement. It was also submitted that it is no reason to strike out the proceedings that similar issues arise in the challenge proceeding, and that it is appropriate that all parties should be bound by the determination of the classification of the agreement which then can be relied on in future GST and income tax issues.

Discussion

[37] While the written and oral arguments ranged widely and included the adoption by each side of positions more extreme than necessary to resolve the present matter, we consider the essential issues are quite narrow.
[38] First, there is the strike out application. That, as the Judge said, is to be acceded to only in a clear case.
[39] Mr Judd accepted, rightly in our view, that all matters his clients seek to advance in the review proceeding can be argued and determined in the challenge proceeding. To seek to have them determined otherwise than in the challenge proceeding confronts s109 which reads:
  1. Except in objection proceedings under Part VIII or a challenge under Part VIIIA, -
    • (a) No disputable decision may be disputed in a court or in any proceedings on any ground whatsoever; and
    • (b) Every disputable decision and, where relevant, all of its particulars are deemed to be, and are to be taken as being, correct in all respects.

[40] Mr Judd relied on the numerous cases which have recognised that review proceedings may be brought, notwithstanding the predecessors to s109, to challenge the procedure as distinct from the outcome (the assessment). He contended that the challenge to the Commissioner’s failure to apply the TIB to the supplies by the assessed companies was a matter of process and not substance. This seems to draw a distinction between the formulation of the assessment and the assessment itself. That is not the distinction contemplated in the authorities. Where the judgments distinguish between the correctness of the assessment and the legitimacy of the process employed (e.g. CIR v Wilson (1996) 17 NZTC 12,512 at 12,520, and Golden Bay Cement Co Ltd v CIR [1996) 2 NZLR 665 at 670), they were merely reiterating that judicial review cannot frustrate the honest discharge by the Commissioner of his statutory duty to assess, yet can be invoked to address procedural error, defects resulting in ultra vires, unlawfulness and such matters as bad faith, abuse of power and errors of law going to the legitimacy of the process rather than to the correctness of the decision. Certainly they do not contemplate that the correctness of every assessment can be challenged in review proceedings on the ground that it was arrived at on an erroneous view of the law – that would be entirely contrary to s109 and its predecessors. The question of whether the Commissioner was wrong not to apply the TIB is not a question of procedure or process in the relevant sense; it is the very substance of the assessment.
[41] This case does not call for determination in any absolute way of whether judicial review on the ground of denial of legitimate expectation can ever be brought in tax matters. What must be determined is whether judicial review on that ground is tenable in the circumstances under consideration in this case. We are satisfied it is not and that the Judge erred in finding the contrary.
[42] The decision which is sought to be reviewed is the ruling of the Commissioner that the TIB does not apply to supply by the companies. That was a substantive decision and an essential plank in the reasoning underpinning the assessment. It can be, and must be, contested in the challenge proceedings and essentially on the same ground – perhaps estoppel which in the circumstances is denial of a legitimate expectation in another guise. This is just what was contemplated when we said in New Zealand Wool Board at p15,492:

It is sufficient for present purposes to emphasise that any scope for invoking legitimate expectation is necessarily limited by the scheme and purpose of the income tax legislation.

[43] Mr Judd argued that this Court has recognised concurrent review and objection proceedings. He referred specifically to Golden Bay in which this Court allowed review proceedings to continue. But there were exceptional circumstances in that case and the Court said (p673):

We have no hesitation in holding that the challenge to the validity of the purported assessment in the present case could and should have been pursued by the objection procedure. The issue of validity was in fact raised by Golden Bay as one of the grounds of its objection. The relevant facts were available in that procedure, and the only reason suggested for not using it was the argument we have rejected, namely that validity could not be challenged by objection. If a similar situation should arise in future, the Courts are unlikely to exercise their discretion to grant a remedy in review proceedings in favour of a taxpayer who chooses not to pursue the objection procedure provided by the legislature.

[44] We were invited to consider as a special circumstance in this case that the Commissioner did not withdraw the TIB until long after the disputable decisions were made. We were, in effect, invited to infer that other taxpayers continued to enjoy the benefits of the application of the TIB which the assessed companies were denied so undermining the integrity of the tax system which, by s6, the Commissioner is bound to protect, and also breached the taxpayers’ rights to natural justice under s27(1) New Zealand Bill of Rights Act 1990. But those are not matters of procedure and they can be put forward in the challenge proceeding. Further, there is no pleading that other companies in the same unusual position as the assessed companies have been treated differently.
[45] There remains then the argument that the parties, other than the assessed companies, are entitled to pursue the review proceeding and obtain declarations in their favour and binding on the Commissioner. This argument confronts insuperable obstacles. There is pleaded no factual foundation for interest in the first and second causes of action by any companies other than the four assessed companies. Nor is there any sufficient basis disclosed for potential amendments to allege such factual foundation. The relevant context is that of transfers of properties pursuant to the agreement as varied from companies in the Haines group to Mr Haines. All but one of the items in the list of properties in the schedule to the agreement are encompassed within transfers from the assessed companies or by acknowledgement in the variation agreement that they already were in the name of Mrs Haines. The one item not encompassed is “81 Woodglen Road (four properties)”. The transfer of those properties to Mr Haines (if it occurred) is not the subject of any pleading. Its inclusion in the schedule, without more, provides no justification for the joinder of 10 companies all claiming to have an interest in the Commissioner’s ruling.
[46] There are references in the Adjudication Reports to transfers of other properties purportedly pursuant to a matrimonial property agreement dated 2 August 1996; see e.g. para 1.7 of the Adjudication Report relating to Radiata Properties Ltd and referring to 14 other properties. That does not correspond with any contractual obligations disclosed in the agreements before us. It follows that if there are other factual circumstances to which the additional companies seek to apply the ruling they have not been pleaded. If those circumstances are in material respects the same as those involving the assessed companies, the decision in the challenge proceeding will have precedential effect. If they are different, they cannot lead to binding determinations applicable to them simply by the joinder of the companies in the present review proceeding with its own factual foundations.
[47] So far as the additional parties are concerned (and we exclude Mrs Haines who was not represented and has taken no part) they seek by the third cause of action to invoke for potential income tax purposes a decision effectively on the interpretation of the TIB which expressly is only for the purposes of the GST Act 1985, again with no disclosure of any factual foundation. In this situation we can but agree with the Commissioner that their claim is entirely hypothetical and speculative, in the absence of any assessment or intention to assess, and not appropriate for a judicial review proceeding.
[48] It was said, and the Judge accepted, that the Court might be prepared to treat the proceeding in this respect as not for judicial review but for a declaration under the Declaratory Judgments Act 1908. The unlikelihood of undisputed facts (indeed the absence of any factual foundation) leaves us unconvinced that this is sufficient reason to allow what is, in effect, an attempt to pre-empt possible assessments of income tax by the Commissioner. If assessments are made, disputes and challenge procedures will be available to the affected taxpayers.
[49] Accordingly, the appeal is allowed. The first and second causes of action mount collateral attacks on the assessments and are to be dealt with under the statutory challenge procedure; there being no prejudice shown for the taxpayers in that course. The third cause of action is speculative and lacks factual foundation. The application to strike out the judicial review proceeding is granted. The order for consolidation no longer can have effect.
[50] The Commissioner is entitled to costs in both Courts. Costs in the High Court can be fixed by that Court. In this Court costs are fixed at $5,000 together with reasonable disbursements, including travel and accommodation expenses of counsel approved, if necessary, by the Registrar.

Solicitors
Crown Law Office, Wellington, for the Commissioner
Brookfields, Auckland, for the First to Seventh Respondents

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