Commissioner of Inland Revenue v ANZ National Bank Ltd [2006] NZCA 366; (2007) 23 NZTC 21,167 (20 December 2006)

Last Updated: 20 December 2011

IN THE COURT OF APPEAL OF NEW ZEALAND

CA254/05

BETWEEN COMMISSIONER OF INLAND REVENUE
Appellant

AND ANZ NATIONAL BANK LIMITED
UDC FINANCE LIMITED
TUI ENDEAVOUR LIMITED
Respondents

CA82/06

BETWEEN ANZ NATIONAL BANK LIMITED

UDC FINANCE LIMITED

TUI ENDEAVOUR LIMITED

Appellants

AND COMMISSIONER OF INLAND REVENUE

Respondent

Hearing: 23 November 2006

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

Counsel: D J White QC and E J Norris for Appellant (CA254/05)
L McKay and L J Turner for Respondents (CA254/05)
L McKay and L J Turner for Appellants (CA82/06)
D J White QC and E J Norris for Respondent (CA82/06)

Judgment: 20 December 2006 at 3 pm

JUDGMENT OF THE COURT

A The appeal in CA254/05 is dismissed.

B We make no award of costs in respect of that appeal.

C The appeal in CA82/06 is dismissed.

4. We award costs of $6,000 plus usual disbursements to the respondent in CA82/06.
   

REASONS OF THE COURT

(Given by O’Regan J)

Two appeals

[1] We have two appeals before us. As our conclusion on CA82/06 renders the issue raised by CA254/06 moot, we will deal with CA82/06 first.

CA82/06

The issue

[2] This appeal is ostensibly against the decision of a High Court Judge refusing an adjournment. But the principal issues raised by the appeal are:

(a) Whether the High Court has, or should exercise, power to stay a High Court case involving the Commissioner of Inland Revenue until the Commissioner conducts a pre-assessment dispute resolution process with a taxpayer;

(b) Whether the Court should direct the Commissioner to conduct such a process during the period of the adjournment.

The dispute resolution procedure

[3] The administrative procedures which are the focus of this case form part of the dispute resolution procedure which came into effect on 1 October 1996. That procedure was established following a recommendation of a committee set up to conduct a review of the Inland Revenue Department (IRD) and its activities, which was chaired by the Rt Hon Sir Ivor Richardson: Organisational Review Committee Organisational Review of the Inland Revenue Department (April 1994).
[4] In the present context, one of the key recommendations of the committee appears at [10.6] of its report. That recommendation is that, within the IRD, audit investigation and final quantification of liability should, as far as practicable, be clearly separated. The purpose of this is stated to be the provision of an impartial application of tax law and a greater application of technical expertise to the affairs of individuals prior to the issue of an assessment.
[5] The implementation of the committee’s recommendations consisted partly of legislative processes, and partly of administrative processes.
[6] The legislative processes are contained in Part 4A of the Tax Administration Act 1994 (ss 89A – 89R). That Part provides for a structured method of defining areas of dispute between the Commissioner and the taxpayer, involving (among other things) for the issuing of a notice of proposed adjustment (NOPA) and a notice of response (NOR).
[7] The administrative procedures which complement Part 4A are set out in an Inland Revenue publication, Tax Information Bulletin (Volume 8 No 3, August 1996). We will call this the TIB.
[8] The administrative procedures involve the issue of disclosure notices and statements of position, conferences and, ultimately, adjudication before the adjudication unit of the IRD. Counsel for the appellants described the administrative procedures as a “win/no lose” situation for a taxpayer. If the adjudication unit accepts the taxpayer’s position, the assessment is cancelled and the dispute is at an end. If the adjudication unit confirms the assessment, the taxpayer is no worse off: the option of challenging the assessment in the Taxation Review Authority or the High Court remains intact.
[9] The function of the adjudication unit is described in the TIB at [20] as follows:

If agreement has not been reached on all issues at the end of the conference/disclosure stage, the case will generally be sent to the Adjudication Unit for consideration, regardless of the issue or amount of tax involved.

The Adjudicator is an impartial officer within the Inland Revenue, independent of the audit functions. The Adjudicator is required to take a fresh look at the application of the law to the facts of the case.

[10] It is notable that the TIB says that reference to the adjudication unit will ‘generally’ happen. It is not expressed in mandatory language.

Background

[11] The appellants are parties to structured financing transactions which, in the view of the Commissioner, involve tax avoidance. After an investigation conducted by the corporates unit of the IRD, assessments were issued and the appellants commenced challenge proceedings in the High Court. The High Court proceedings relate to assessments made by the Commissioner for the 2000 income year. However, the financing transactions affect the tax position of the appellants for later tax years as well.
[12] The Commissioner and the appellants followed the process outlined in Part 4A of the Tax Administration Act 1994. The Commissioner issued a NOPA, to which the appellants responded with a NOR. However, the administrative procedures were not followed because the time bar for assessment arose. Instead the Commissioner proceeded directly to the issue of an assessment. The adjudication unit therefore had no role in this case in the issuing of the assessment. Once an assessment was issued, the appellants had to issue challenge proceedings if they wished to continue to dispute the correctness of the assessment. They did this by commencing High Court proceedings.

The appellants’ application

[13] The objective of the appellants’ application for adjournment was to effectively bring to a halt their High Court challenge proceedings relating to the assessment for the 2000 year, so that the administrative procedures could be followed in relation to later tax years. In the event that the adjudication unit were to find in the taxpayer’s favour in relation to those later years, it was anticipated that the assessments for the 2000 year would be treated on the same basis as those for later years, and that this would bring about the end of the challenge proceedings. Although the appellants were seeking an adjournment, the real effect of what they sought was a stay of the High Court proceedings and a direction from the Court in the nature of a mandatory order directing the Commissioner to continue the administrative procedures in relation to later income years. This was sought in the context of a case management hearing, rather than in the more formal setting of judicial review proceedings.

Alpe case

[14] The appellants relied on the decision of the High Court in Alpe v Commissioner of Inland Revenue (2001) 20 NZTC 17,372. Although the nature of the dispute between the Commissioner and the taxpayers in that case bore no resemblance to the present case, the essential features of the case were the same: the Commissioner had proceeded to assess in relation to one income year because of the time bar, but the same issues arose in respect of later income years. The taxpayers had started challenge proceedings. The taxpayers wanted to enter into the administrative procedures with the Commissioner and sought an adjournment of their High Court challenge proceedings to allow this to occur. In that case, Potter J concluded that the taxpayers were entitled to the opportunity to explore alternative dispute resolution, and should be granted the adjournment to enable them to do so: at [35]. She granted an adjournment for one year, and added (at [38]):

In the meantime both the plaintiffs [taxpayers] and the Commissioner should diligently pursue the Dispute Resolution Procedure in relation to income years subsequent to 1996.

[15] Mr McKay said that the practice adopted in taxation disputes since the Alpe decision is that, where the taxpayer wants to undertake the administrative procedures, the Commissioner usually agrees to an adjournment of High Court proceedings to allow this to occur, or, if not, an adjournment is granted and a direction like the one made in Alpe is made. He said this was particularly so in relation to cases affecting multiple income years, where an assessment is made for earlier years but the same issues arise in later years.

High Court decision

[16] In the High Court, MacKenzie J referred to Alpe, but distinguished it. He noted that Potter J had concluded in Alpe that the taxpayers were entitled to the opportunity to explore alternative dispute resolution and should be granted an adjournment to enable that to happen. He said that decision was an assessment of the appropriate exercise of the Court’s discretion in the particular case, rather than a decision that a taxpayer has a legal right in all proceedings to have the administrative procedures carried through to completion.
[17] In considering whether to exercise the discretion to require the administrative procedures to be followed, MacKenzie J reviewed the appropriateness of the administrative procedures in a case involving the complexities of the present litigation. He concluded that the High Court was the appropriate forum for the dispute, and expressed doubt as to whether, even if an adjournment were granted, the rationale for the granting of the adjournment would be achieved. In that regard he noted that the Commissioner had decided he did not wish to refer the matter to the adjudication unit and there was no application for judicial review of that decision. Ultimately the Judge concluded that the appropriate course was to allow the proceedings in the High Court to continue, and refused the adjournment.

Our approach

[18] The issue in this case is whether the High Court, in its case management function, should force the Commissioner to undertake the administrative procedures and deny him access to the Court until he does so. In our view, the answer is no. Parliament made a clear choice that some of the dispute resolution procedures would be provided for by legislation (and therefore amenable to enforcement by the Courts), and that some would be matters of internal administration of the IRD by the Commissioner in the course of his responsibility for the care and management of the taxes covered by the Inland Revenue Acts under s 6A(2) of the Tax Administration Act. In doing so, Parliament placed the responsibility for the implementation of those aspects of the report of the organisational review committee, which were not contained in Part 4A of the Tax Administration Act, on the Commissioner himself. They are, essentially, internal processes of the IRD.
[19] We acknowledge Mr McKay’s submission that the administrative procedures complement Part 4A, and that Parliament appears to have anticipated the implementation of the administrative procedures in enacting Part 4A. But that does not alter the fact that Parliament chose not to impose an obligation to implement the administrative procedures on the Commissioner by way of legislation.
[20] We have reached the clear view that it is not open to a High Court Judge in the context of a case management application for adjournment to direct the Commissioner to implement what are essentially internal administrative procedures. In our view, Alpe was wrongly decided. We doubt that, even in a judicial review proceeding seeking a mandatory order, such an order would be appropriate where the Commissioner’s reason for not pursuing the administrative procedures is that the time bar has intervened, and he has had to issue an assessment to protect his position. In that regard, we note the non-mandatory language of the TIB to which we referred at [10] above. But we do not need to decide that in this case because the appellants did not seek judicial review. What is clear, however, is that it is not appropriate to deny a party access to the Court because that party has not undertaken a pre-litigation process which it is not lawfully obliged to undertake.
[21] Nothing that we have said about the administrative procedures should be taken as an indication that we have any criticism of those procedures, or any particular views about the merits of following them in complex cases. We can understand why MacKenzie J embarked on a review of the procedures because he considered that Alpe applied. We do not need to do so because we do not adopt the position outlined in Alpe. Our view is simply that, once litigation is commenced, the Court’s role is to deal with the litigation in accordance with the High Court Rules and any applicable legislative requirements, not to decline to do so or delay doing so until an administrative process has been followed.

Result

[22] For these reasons we dismiss the appeal.

Costs

[23] We award costs to the Commissioner of $6,000 plus usual disbursements.

CA254/05

[24] This appeal was initiated by the Commissioner against a decision of MacKenzie J made prior to his decision on the adjournment application. In that decision, he determined that affidavit evidence filed by the appellants containing expert evidence on taxation law and procedure was admissible in the context of the adjournment application. It was common ground that, if we determined the appeal in

CA82/06 in favour of the Commissioner, then the appeal in CA254/05 would have no practical implications. In those circumstances, the appropriate step is for us to formally dismiss the latter appeal, without an award of costs. That is what we do.

Solicitors:
Russell McVeagh, Auckland for ANZ National Bank & Ors
Crown Law Office, Wellington for Commissioner of Inland Revenue