Accent Management Ltd v Commissioner of Inland Revenue [2006] NZCA 173; (2006) 22 NZTC 19,992 (21 July 2006)

Last Updated: 21 December 2011

IN THE COURT OF APPEAL OF NEW ZEALAND

CA32/06

BETWEEN ACCENT MANAGEMENT LIMITED AND OTHERS
Appellants

AND THE COMMISSIONER OF INLAND REVENUE
Respondent

Hearing: 21 July 2006

Court: William Young P, O'Regan and Robertson JJ

Counsel: G J Judd QC for Appellants
D J White QC for Respondent

Judgment: 21 July 2006

JUDGMENT OF THE COURT

1. The application for leave for further evidence is dismissed.
2. The appellants are ordered to pay costs of $3,000, together with usual disbursements.
   

REASONS OF THE COURT
(Given by William Young P)

Introduction

[1] We are primarily required to deal with an application made under r 45(1) of the Court of Appeal (Civil) Rules for leave to admit further evidence by way of affidavit sworn by Angus John McPherson on 26 May 2006. Two other incidental issues associated with the appeals were raised and we must address them too.

The incidental issues

[2] A further application associated with the recall appeal was made but not pursued for reasons set out in the appellants’ memorandum of 20 July 2006. Mr White QC commented adversely on remarks made in that memorandum suggesting that, depending on the course events take in September, the application as to further evidence (albeit with perhaps some changes) will be renewed in the substantive (ie this) appeal. The Commissioner does not accept that it would be open to the appellants to renew their application or that it such an application could appropriately be granted. If such an application is made, it will be opposed on grounds which will include the contention that the prosecution of such an application should have been today. Mr Judd QC noted that if the application is to be “renewed” it will be in the other appeal.
[3] The other incidental issue relates to an unopposed application by the Commissioner to file submissions on the cross-appeal which exceed the usual page limit. This application is granted.

Background

[4] The appeal is from a judgment of Venning J, delivered on 20 December 2004 in which he found substantially in favour of the Commissioner of Inland Revenue and against the appellants on the tax consequences of a forestry investment scheme. That judgment followed a six week trial at which the taxpayers were represented by two experienced senior counsel and called a number of expert witnesses, including Dr McPherson who is a forestry consultant.
[5] Material to the Judge’s ultimate conclusions was his assessment of the commerciality of the investment. The primary problem affecting this assessment was that the investment scheme is set to run until 2048 and its profitability or otherwise for investors will not be determined until then.
[6] In assessing the commerciality of the investment scheme, Venning J focused on four issues: relevant stumpage values in 1997; an appropriate allowance for likely log price growth over fifty years; the likely average annual inflation over that fifty year period, and an appropriate discount rate to identify a net present value of the likely costs and receipts which could be expected to arise up to and including 2048.
[7] In para [106] of the judgment, Venning J set out a model prepared by Mr Tony Frankham, a chartered accountant who gave evidence for the Commissioner. The new evidence in issue today is primarily addressed to the accuracy and appropriateness of that model.

Dr McPherson’s affidavit

[8] Paras 4-8 of the affidavit deal with uncontroversial figures which Mr White accepts can go in as a schedule to the submissions for the appellant.
[9] In paras 9-12, Dr McPherson sets out a series of assumptions and calculations based on these assumptions essentially to establish what would have to be received by the investors in 2048 to break even. To a large extent this portion of the affidavit is based on evidence before the Court although there is perhaps an element of new material (albeit probably not very controversial). More significantly, the underlying exercise seems to us to be a subset of, or necessarily subsumed in, the commerciality assessments given in evidence by the various witnesses in the High Court.
[10] In paras 13-29 Dr McPherson, as part of a reworking exercise for Mr Frankham’s model, makes a series of calculations. First, he builds into the model the sale of carbon credits which were not allowed for. He also alleges a mistake as to the discount rate asserting that Mr Frankham had used a real discount rate of 6.2% in his model as opposed to 7.6% as the Judge thought. On this basis, he has produced a series of further figures, including a reworked version of the Frankham model. The overall drift of the affidavit is to indicate that the forestry investment was a more attractive commercial investment than the Judge recognised.

The test of the admission of new evidence

[11] Rule 45(1) of the Court of Appeal (Civil) Rules 2005 is in these terms:

45 Application for leave to adduce further evidence

(1) The Court may, on the application of a party, grant leave for the admission of further evidence on questions of fact by—

(a) oral examination in Court; or

(b) affidavit; or

(c) depositions taken before an examiner or examiners in accordance with rules 369 to 376 of the High Court Rules.

(2) The parties and their counsel are entitled to be present at, and take part in, the examination of a witness.

[12] Earlier versions of this rule have provided that new evidence should not be admitted on appeal without “the special leave of the Court and on special grounds”, see for instance r 24 of the Court of Appeal (Civil) Rules 1997 and r 36 of the Court of Appeal Rules 1955, the English equivalent of which was considered in Langdale v Danby [1982] 3 All ER 129. That case addressed the question whether that rule applied to an appeal against a summary judgment and, in resolving this against the appellant, Lord Bridge observed (at 135):

The primary and most important question for decision by your Lordships’ House is whether, on hearing an appeal against a summary judgment given in favour of a plaintiff ..., the Court of Appeal has an unfettered discretion to receive further evidence or whether it may only do so on special grounds.

[13] Mr Judd contended that the change in rules meant that the discretion in issue meant that we had an “unfettered discretion”. He maintained that such discretion should be exercised in the context of the circumstances of the case and so as to promote the interests of justice.
[14] Mr White accepted that the rule change could not be ignored but maintained that the discretion has to be exercised consistently with the way the Court of Appeal operates and at least broadly in a similar way to that discussed in Rae v International Insurance Brokers Ltd [1998] 3 NZLR 190 (which was decided by reference to r 36 of the 1955 Rules).
[15] The rule change may have had the effect of loosening the discretion. It plainly, however, does not require this Court to retry cases on appeal. The discretion to allow new evidence on appeal must be exercised in the context of the overall way in which the appellate system operates in New Zealand (and indeed in other similar jurisdictions). Parties are expected to deploy their entire case at trial. An appeal court does not provide an opportunity for a new trial. These fundamental principles provide the backdrop to the exercise of any discretion and much, if not all, of what was said in Rae remains applicable; this because those remarks were primarily based on the fundamental principles of appellate practice rather than simply the way in which r 36 of the 1955 Rules was expressed.

The arguments before us

[16] Mr Judd’s argued that the new evidence is “cogent and incontrovertible”. He also contends that the evidence was not available until after the judgment below was delivered essentially because it was not known what approach Venning J would take to the modelling exercises undertaken by the expert witnesses and the inputs. He makes a similar point in relation to some of the carbon credit evidence of Dr McPherson which refers to 2006 figures. He maintained that the likely yield for this investment involved the “application of complicated mathematical formulae” but without affidavit evidence it would be “difficult, if not impossible” for the relevant arguments to be placed before the Court in the course of hearing.
[17] In his submissions Mr White noted that with the limited exception of some figures that were not calculated until 2006 (as to carbon credits) everything in the affidavit could have been led at trial. At trial, none of the experts called on behalf of the appellants (including Dr McPherson) brought carbon credits into account. So in this respect the appellants are seeking to run a new case. The mistake as to discount rate arose because of an error made by an expert called by the appellants who used a discount rate of 6.7% in fact instead of 7.6% and whose model was borrowed by Mr Frankham. This mistake was, in any event, to the advantage of the appellants. To the extent to which the material in the affidavit goes beyond the “uncontroversial” it is not to be admitted in accordance with orthodox principles of the appellate practice.

Evaluation

[18] We are in no doubt that the application must be dismissed.
[19] To the extent to which the material in the affidavit is truly uncontroversial or is based on evidence which was before the High Court, the substance of it can be incorporated in submissions produced by the appellants. Mr White conceded as much in relation to paras 4-8. To that extent the affidavit is unnecessary.
[20] To the extent to which the affidavit advances contentions which go beyond those which are based on the evidence given at trial, it involves in effect an attempt to have a retrial in this Court. It would be open necessarily for the Commissioner to respond to new material and, as well, to challenge the evidence of Mr McPherson in cross-examination. To permit this would be contrary to long standing appellate practice.
[21] As pointed out in the course of argument, it is not appropriate for an appellant through an expert to seek to engage in what is, in a sense, a dialogue with the judgment.

Conclusion

[22] The application for leave for further evidence is dismissed. The appellants are ordered to pay costs of $3,000, together with usual disbursements.

Solicitors:
Wynyard Wood, Auckland for Appellants
Crown Law Office, Wellington for Respondent