Westpac Banking Corporation v Commissioner of Inland Revenue [2009] NZCA 24; [2009] 2 NZLR 99; (2009) 24 NZTC 23,340 (20 February 2009)

Last Updated: 2 February 2018

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IN THE COURT OF APPEAL OF NEW ZEALAND

CA624/07
[2009] NZCA 24

BETWEEN WESTPAC BANKING CORPORATION
Appellant

AND THE COMMISSIONER OF INLAND REVENUE
Respondent

Hearing: 15 and 16 September 2008

Court: William Young P, Chambers and Ellen France JJ

Appearances: J A Farmer QC, R B Lange and R A Green for Appellant
B W F Brown QC and R J Ellis for Respondent

Judgment: 20 February 2009 at 10 am

JUDGMENT OF THE COURT

1. The appeal is dismissed.
2. Westpac must pay the Commissioner costs for a complex appeal on a band B basis with usual disbursements. We certify for second counsel.

____________________________________________________________________

REASONS OF THE COURT

(Given by William Young P)

Table of Contents
Para No

Introduction [1]
The evidence before us and its relevance in strike out proceedings [6]
Background [12]
The Inland Revenue Department [12]
The repo deals [13]
The First Data transaction [17]
Westpac seeks a ruling [18]
The rulings system [20]
The First Data ruling [23]
Corporates takes an interest [25]
The differences in the approaches taken by Rulings
and Corporates [28]
The escalation process established by the Commissioner [31]
The escalation process in this case [34]
The amended assessments [39]
The First Data transaction: subsequent steps taken
by the Commissioner [40]
Judicial review of tax assessments: the legislation and cases [43]
The legislation [43]
The English decisions [48]
The Australian cases [51]
The New Zealand cases [53]
Our approach to the availability of judicial review [59]
Westpac’s core complaints [65]
The allegations [65]
Is there an unacceptable and unresolved (or, alternatively,
an unacceptably resolved) inconsistency between the amended
assessments and approach taken by the Commissioner in
other instances and, most significantly, the First Data ruling? [69]
The contention that the assessments were not an honest
appraisal or a genuine exercise of judgment [76]
The contention that an alleged inconsistency between
the legal approach underpinning the amended assessment
and the “existing law” invalidates the assessment [79]
The contention that the amended assessment breached
Westpac’s legitimate expectations [82] The contention that Corporates was guilty of
conscious maladministration [85]
Is it arguable that there are exceptional circumstances
of a kind, which results in the amended assessment
not engaging ss 109 and 114? [91]
Disposition [96]

Introduction

[1] Westpac is one of a number of banks involved in major litigation with the Commissioner of Inland Revenue over the tax consequences of structured financing transactions known as repo deals.
[2] As is usual in cases of this sort, the ten relevant Westpac transactions are referred to by the name of the counter-party: Koch, First Data, GE, CSFB, Rabo 1, Rabo 2, HSBC, BANA 1, Citibank and BANA 2. In the case of First Data, Westpac took the precaution of seeking a binding ruling from the Commissioner as to its proposed tax treatment and, in particular, as to the non-applicability of s BG 1 of the Income Tax Act 1994 (the general anti-avoidance provision in force at that time and relevant to this proceeding). This ruling was obtained on 21 January 2001. In September 2004, however, the Commissioner issued amended assessments in which he invoked s BG 1 in relation to the other nine transactions.
[3] Westpac has challenged the correctness of the assessments. It also seeks to challenge the validity of the amended assessments on administrative law grounds. These grounds have evolved over time but all arguments come back (one way or another) to the proposition that there is an unacceptable and unresolved (or, alternatively, an unacceptably resolved) inconsistency between the amended assessments and approach taken by the Commissioner in other instances and, most significantly, in the First Data ruling.
[4] There are many separate proceedings dealing with different transactions and tax years but only one of these proceedings is before us. In this proceeding (addressed to an amended assessment of Westpac for the 1999 year), Westpac has pleaded two causes of action, an orthodox statutory challenge to the assessment in issue and a judicial review claim challenging the validity of the assessment (“validity cause of action”). The Commissioner applied to the High Court seeking an order striking out the validity cause of action. On 26 October 2007, Harrison J made such an order: [2007] NZHC 1151; 23 NZTC 21,694.
[5] As we have noted, the basis upon which the validity cause of action is advanced has shifted. The current proposed pleading was lodged with us after the hearing. Because the focus of Westpac’s complaints has shifted since the case was argued before Harrison J, it will not be necessary for us to make extensive reference to his judgment.

The evidence before us and its relevance in strike out proceedings

[6] The case was at an advanced stage (with discovery and inspection completed) when the Commissioner applied to have the validity cause of action struck out. Westpac has thus had access to internal Inland Revenue Department documents. Many of these documents were exhibited to affidavits which were before the High Court and these give what must be a reasonable (although obviously not complete) picture of the relevant internal processes within the Department. When the case on appeal was prepared, the Commissioner signalled a challenge to the admissibility or relevance of these affidavits. But at the hearing both parties referred without objection to the affidavits and the exhibited documents. We propose therefore to do the same.
[7] At this stage of the process, the central issues in the case are not factual disputes but rather legal questions which turn on policy considerations. On the face of it, the validity cause of action is inconsistent with ss 109 and 114 of the Tax Administration Act 1994. As will become apparent, those sections have not been applied in a completely literal way and the courts have held that judicial review of tax assessments is available, despite ss 109 and 114, in exceptional circumstances. As will become apparent, we take the view that circumstances are exceptional for these purposes if they produce a situation in which the assessment can be fairly seen as not within the scope of ss 109 and 114. So the appeal comes down to the question whether Westpac can arguably maintain that the circumstances of this case are exceptional in this sense.
[8] We must, of course, keep steadily in mind the reality that the relief sought by the Commissioner is the striking out of the validity cause of action. This appeal therefore does not provide a forum for the resolution of disputed issues of fact. The extensive evidence, however, is nonetheless relevant when determining whether the circumstances are exceptional.
[9] The necessary evaluative exercise requires a reasonably precise identification of Westpac’s complaints and an assessment of those complaints in the context of what is not in dispute as to the process which was followed. The allegations made against the Commissioner are now closely tied to the internal Inland Revenue Department document obtained on discovery. In order to understand Westpac’s complaints, we have to look at the documents that are central to Westpac’s case. This also involves developing an understanding, at least in broad outline, of what happened in order to delimit what is, and what is not, in issue. We emphasise that this is not for the sake of determining whether Westpac’s factual allegations are true. To remain faithful to the principles which apply to strike out applications, we must rest our eventual conclusions on those aspects of the relevant narrative which are not in dispute.
[10] We accept that a broader approach might be available. There is authority which supports the view that the pleading of a judicial review cause of action is an abuse of process if the circumstances are not exceptional (see [58] below). And we recognise that from the point of view of the Commissioner, the problems with the validity cause of action go beyond what he contends is the reality that the cause of action is doomed to fail: his concern is also that its very prosecution engages a number of the policy considerations. These are discussed in [62], [63] and [64] below. Where abuse of process is in issue, the courts will engage with the facts more freely than in the case of a “simple” strike out application.
[11] We do not propose to do so in this case as this line of argument was not adopted by the Commissioner.

Background

The Inland Revenue Department

[12] The Inland Revenue Department is organised around business units. The two that are most relevant to the present litigation are Adjudications and Rulings (“Rulings”) and Corporates. Rulings is responsible for, inter alia, issuing binding rulings under Part VA of the Tax Administration Act. Corporates has strategic, investigatory and assessment functions associated with the taxation of large companies.

The repo deals

[13] The repo deals were financial transactions which were structured broadly as follows:

(a) A subsidiary of Westpac would acquire from a counter-party (characteristically with a stronger credit rating than that of Westpac) an equity interest in an overseas entity (“the issuer”) on the basis that the counter-party (or an associated party) would repurchase that interest (at the same price, subject to adjustments) at a specified time in the future (usually 5 years). The counter-party’s parent company guaranteed performance. Westpac was thus effectively providing funding to the counter-party. The Westpac subsidiary’s initial return was in the form of distributions from the issuer.

(b) The return to the Westpac group and the overall balance of advantage between Westpac and the counter-party was a function of the agreed distribution to be made by the issuer to the Westpac subsidiary, an interest rate swap arrangement, a guarantee procurement fee (usually at 2.95% of the purchase price) paid by the Westpac subsidiary for procuring the performance guarantee from the counter-party’s parent company (“GPF”) and the bank’s borrowing costs.

[14] Westpac would deduct its cost of borrowing, the GPF and the net cost of the interest rate swap and treat distributions from the issuer as either: (i) exempt from tax under the “conduit” tax relief rules; or (ii) relieved from tax under the foreign tax credit rules.
[15] If it were not for the tax benefits just described, these transactions would have necessarily produced a loss for Westpac. In what we understand to be the standard case where the counter-party had a stronger credit rating, this follows as a matter of commercial logic as Westpac could not “lend” money to such a counter-party at a profit. But once tax benefits have been factored in (and subject to the non-applicability of s BG 1), the transactions become very profitable.
[16] The Commissioner’s case is that the repo deals were devoid of commercial purpose other than the exploitation of the tax asymmetry just discussed and the division between Westpac and its counter-parties of the economic benefits derived. So the Commissioner claims that the transactions are generally subject to s BG 1 of the Income Tax Act. As well, the Commissioner maintains that at least some of the GPF arrangements were shams.

The First Data transaction

[17] The First Data transaction, entered into in March 1999, was structured broadly in the manner just outlined save that the GPF was 2.85% and not 2.95%.

Westpac seeks a ruling

[18] In May 1999, Westpac sought a binding ruling from the Commissioner confirming its proposed tax treatment of the First Data transaction, including the non-applicability of s BG 1.
[19] There had been one other similar ruling (in 1997 in favour of another bank in relation to AIG) and Westpac had earlier sought a ruling in relation to a similar proposed transaction with AIG. In the end, the Westpac/AIG transaction did not proceed, but the rulings process had got to the point where there was a draft ruling (of which Westpac was aware) which supported its proposed tax treatment of that transaction, including the non-applicability of s BG 1.

The rulings system

[20] The binding rulings regime was introduced into the tax system in 1995 by Part VA of the Tax Administration Act. The purpose of this Part is explained by s 91A:

The purpose of this Part is to—

(a) Provide taxpayers with certainty about the way the Commissioner will apply taxation laws; and

(b) Help them to meet their obligations under those laws, —

by enabling the Commissioner to issue rulings that will bind the Commissioner on the application of those laws. The Part also recognises the importance of collecting the taxes imposed by Parliament and the need for full and accurate disclosure by taxpayers who seek to obtain binding rulings.

[21] Section 91E(1) is the empowering provision:

91E Commissioner to make private rulings on request

(1) Subject to section 91EF, the Commissioner must make a private ruling on how a taxation law applies, or would apply, to a person and to the arrangement, whether a single or a recurring arrangement, for which the ruling is sought.

(2) The Commissioner may make a private ruling on how a taxation law applies to the arrangement described in an application whether or not reference was made to that taxation law in the application.

(3) The Commissioner may decline to make a private ruling if—

(a) The Commissioner considers that the correctness of the ruling would depend on which assumptions were made about a future event or other matter; or

...

(4) The Commissioner may not make a private ruling if—

(a) The application for the ruling would require the Commissioner to determine questions of fact; or

(b) At the time the application is made or at any time before the ruling is issued, the Commissioner considers that the person to whom the ruling is to apply is not seriously contemplating the arrangement for which the ruling is sought; or

(c) The application is frivolous or vexatious; or

...

(f) An assessment relating to the person, the arrangement, and a period or a tax year to which the proposed ruling would apply has been made, unless the application is received by the Commissioner before the date an assessment is made; or

(g) The Commissioner is auditing or investigating how the taxation law applies to the person and to the arrangement for a period or a tax year to which the proposed ruling would apply; or

(ga) The application relates to an arrangement that is the subject of a notice of proposed adjustment; or

(h) In the Commissioner's opinion the applicant has not provided sufficient information in relation to the application after the Commissioner has requested further information; or

(i) In the Commissioner's opinion it would be unreasonable to make a ruling in view of the resources available to the Commissioner; or

(j) The application for the ruling would require the Commissioner to form an opinion as to a generally accepted accounting practice or to form an opinion as to a commercially acceptable practice.

[22] As to the effect of a private ruling:

91EA Effect of a private ruling

(1) Notwithstanding anything in any other Act, if—

(a) A private ruling on a taxation law applies to a person in relation to an arrangement; and

(b) The person applies the taxation law in the way stated in the ruling,—

the Commissioner must apply the taxation law in relation to the person and the arrangement in accordance with the ruling.

...

91EB Application of a private ruling

(1) A private ruling on a taxation law applies to a person in relation to an arrangement—

(a) Only if the taxation law is expressly referred to in the ruling; and

(b) Only for the period or tax year for which the ruling applies.

(2) A private ruling does not apply to a person in relation to an arrangement if—

(a) The arrangement is materially different from the arrangement identified in the ruling; or

(b) There was a material omission or misrepresentation in, or in connection with, the application for the ruling; or

(c) The Commissioner makes an assumption about a future event or another matter that is material to the ruling, and the assumption subsequently proves to be incorrect; or

(d) The Commissioner stipulates a condition that is not satisfied.

The First Data ruling

[23] As a part of the binding rulings process, Westpac disclosed to Rulings the First Data transaction documents. Its solicitors were also involved in an extensive dialogue with Rulings, during which they buttressed their arguments with opinions offered by allegedly independent experts. The material which we have seen, however, suggests that Rulings did not have access to secondary documents associated with First Data as to the provenance of the transaction (for instance, board papers and other background documentation, emails, correspondence, notes as to how the deal had been developed and so on).
[24] In the end, a favourable, but reasonably narrow, ruling was issued on 19 January 2001. It gave a very particular description of the transaction including a number of statements as to the underlying commercial drivers and the intentions of the parties. More significantly, perhaps, it is expressed as being subject to a number of conditions associated broadly with the commerciality of the components of the transaction. Some of these conditions were expressed using terms such as “arm’s length basis at market rates”, “stand-alone basis” and “common banking practice”.

Corporates takes an interest

[25] Corporates was given an opportunity to comment on the proposed First Data ruling before it was issued. The internal documents we were shown suggest that it was unenthusiastic about the proposed ruling but did not engage with the exercise in any detail.
[26] Starting in April 2003, however, Corporates began to take an active interest in repo deals. As a result, it initiated an audit of the First Data transaction to ensure that there had been compliance with the conditions. It also began investigating similar transactions entered into by Westpac and other banks.
[27] In the course of these exercises, staff working in Corporates formed the view that s BG 1 might be able to be invoked in relation to the repo deals. Associated with this was a view that the First Data ruling ought not to have been given. During the latter part of 2003, Corporates investigators recognised that there was some apparent inconsistency between, on the one hand, the way in which they proposed to proceed on other repo deals and, on the other, the approach taken by Rulings on First Data (and at least one other similar ruling in respect of another bank). This resulted eventually in resort to what is known as the escalation process, an administrative procedure within the Department for resolving significant differences of opinion.

The differences in the approaches taken by Rulings and Corporates

[28] In the course of the argument, we sought to tease out with counsel specific issues on which it could be said with confidence that Rulings and Corporates had a different view of the law. This was a frustrating exercise.
[29] All in all, attempts to identify discrete legal issues on which Corporates and Rulings held diametrically opposing views were unsuccessful. This is a function of the open-textured, evaluative and fact specific exercise required by s BG 1. On the other hand, there plainly was a difference in approach between the two business units. At a broad level, Corporates staff were generally far more sceptical of the repo deals than Rulings had been in relation to the First Data transaction. As well, Corporates took a more bullish (or perhaps aggressive) approach to the application (and scope) of s BG 1.
[30] In his arguments in support of the appeal, Mr Farmer QC contended that on the Corporates’ approach to tax avoidance, s BG 1 would have applied to the First Data transaction even if it fully complied with the description and met the conditions stipulated in the First Data ruling. Likewise it is at least implicit in his submissions that Rulings’ staff would not have invoked s BG 1 against the other repo deals even on the factual analysis of those deals developed by Corporates. These propositions may be correct, but there has never been a need for Corporates or Rulings to address these questions. In its approach to the audit of the First Data transaction, Corporates had to take the ruling as a given and thus could only invoke s BG 1 against the transaction if s 91EB(2) could also be invoked. Rulings staff have not been required to form a concluded view on the other repo deals.

The escalation process established by the Commissioner

[31] Section 6 of the Tax Administration Act provides:

6 Responsibility on Ministers and officials to protect integrity of tax system

(1) 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.

(2) Without limiting its meaning, the integrity of the tax system includes—

(a) Taxpayer perceptions of that integrity; and

(b) The rights of taxpayers to have their liability determined fairly, impartially, and according to law; and

...

(d) The responsibilities of taxpayers to comply with the law; and

...

(f) The responsibilities of those administering the law to do so fairly, impartially, and according to law.

[32] These provisions were referred to by the Commissioner in his memorandum of 23 November 2001 which established the escalation process. The escalation process is a mechanism for sorting out inconsistencies as between different business units. As explained by the Commissioner in the memorandum:

These [statutory provisions in s 6] in combination mean that it is important that the Department – to the greatest extent possible – does not apply the law inconsistently as between taxpayers, as this can give rise to negative perceptions of the fairness and impartiality of the tax system and can advantage, or disadvantage, some taxpayers over others.

The memorandum also set out a number of general principles, including:

A staff member or unit in a business group should not proceed to action an interpretation or application of the law to a taxpayer’s affairs where it is known to that person or unit that a different interpretation or application has been published by Inland Revenue, or has been or is being applied elsewhere in IRD.

Where a staff member or unit in a business group is aware of an existing interpretation that has been published or adopted elsewhere in IRD, and considers it to be legally incorrect, he or she should bring this to the attention of their reporting officer, with a view to (if considered necessary or desirable) escalating the issue to establish a single correct position within IRD.

...

It should be noted that knowingly adopting a different interpretation or application of the law, includes distinguishing or differentiating the other approach or policy without objective and adequate justification.

(Emphasis in original.)

The memorandum then set out the escalation process. Various steps were identified as prerequisites to an issue being referred, if required, to the Tax Intelligence Group or the National Office for resolution. It was noted that this “will frequently involve liaison and co-operation with the Adjudication & Rulings group”. It also emphasised the importance of keeping taxpayers informed of the progress of issues so referred.

[33] The memorandum recognises that revenue may occasionally be lost in order to preserve consistency:

There may... be instances where the advent of the statute bar date, while the escalation process is being followed, means that it will become impossible for an assessment to be made in relation to one or more taxpayers in connection with [the] technical issue [under consideration]. This is... a consequence which Inland Revenue must be willing to accept in the interests of ensuring its decisions are, as far as possible, consistent and technically correct. Even though this may occasionally mean that some tax revenue is lost, the process must be followed and staff are not to issue an assessment contrary to this process because the statute bar date is approaching.

...

Some cases may well be determined based on an interpretation that is ultimately found to be incorrect. It is preferable that this occurs, rather than taxpayers being treated inconsistently and unfairly, and IRD contributing to uncertainty rather than facilitating the consistent application of the best technical view.

The escalation process in this case

[34] Westpac’s complaint is that the escalation process was not followed particularly closely in the present case.
[35] After the issue was referred to escalation, there was no consultation process with Rulings and Westpac was not informed. Further, the resolution of the issue by Technical Standards, the division of the Inland Revenue Department which was responsible for the escalation process in this case, was perhaps a little unclear.
[36] This resolution is recorded in a memorandum of 23 December 2003, which generally left it open to Corporates to invoke s BG 1 in relation to the repo deals being examined. The basis of this determination was expressed in this way:

4. ... we advise that transactions falling within the generic description provided by you in your 9 October memorandum are not the same as those which were the subject of private rulings [including First Data].

....

6. You advise that Corporates are in the process of preparing NOPAs [notices of proposed adjustment] for several of the structured finance transactions. Accordingly the views expressed in this memorandum should permit Corporates to proceed to instigate the disputes process on those transactions for those taxpayers, provided that Corporates remains of the view that the information which it holds about those transactions support the argument that the transactions would not meet the stringent conditions laid down in the rulings particularly the last of the (First Data Corporation).

...

[37] Mr Miller of Corporates responded by an email on 13 January 2004 containing the following comments:

In paragraph 4, you say that the transactions falling within the generic description in the memo of 9 October are not the same as those which have been the subject of private rulings – the most recent of these being the First Data Ruling (PRi 07/2001). I would like to clarify that by “not the same”, you mean that whilst the transactions contain similar structural features as those which have been the subject of rulings, the information/evidence held about them is different from that held by Rulings at the time that the binding rulings in question were issued.

I can confirm that Corporates remains strongly of the view that the information, which it holds about those transactions, in respect of which NOPA’s are to be issued, supports the argument that the transactions would not meet the stringent conditions laid down in the rulings. We have given careful consideration in the draft NOPA’s to the pricing issues which are the focus of many of the conditions, particularly in the First Data ruling and accordingly do not feel that it is necessary for each transaction to be reviewed separately by Technical Standards.

[38] On the face of it, Technical Standards did not purport to reach a general conclusion as to shades of grey differences in approach to s BG 1 as between Rulings and Corporates. Rather, the resolution proceeded on the basis that there was no relevant inconsistency between the course of action proposed by Corporates and the terms of the relevant private rulings (and particularly that given in relation to First Data). Technical Standards thus appears to have acted on the basis that there was no relevant conflict of interpretation or application of the law as between Rulings and Corporates which required (or warranted) formal resolution through the escalation process.

The amended assessments

[39] Eventually in September 2004, the Commissioner, acting by his delegate, Mr Patrick Goggin, assessed Westpac in relation to the repo deals.

The First Data transaction: subsequent steps taken by the Commissioner

[40] As already indicated, in 2003, Corporates initiated an audit of the First Data transaction with a view to checking compliance with the conditions attached to the ruling and determining whether s 91EB(2) could be invoked to negate the ruling. In June 2004, Corporates provided Westpac with a “Factual Analysis” of the First Data transaction, which appeared to foreshadow an invoking of s 91EB(2). There followed various exchanges with Westpac’s accountants and solicitors which concluded with a letter from the solicitors of 21 December 2004 to which Corporates has yet to respond. Anticipating a point which is later made, we note that the loss of momentum in relation to First Data occurred after the making of the amended assessments.
[41] The upshot of the absence of action since December 2004 is that more than eight years have now elapsed since the ruling was given and the time bar would now preclude amended assessments in relation to the 1999 – 2003 tax years.
[42] Westpac and the Commissioner urge on us starkly conflicting arguments associated with this narrative. Westpac says that the failure of Corporates to invoke s 91EB(2) just goes to show that the First Data ruling is unimpeachable. The Commissioner, on the other hand, says that it all comes down to the need for a sensible allocation of scarce resources. As “only” $29 million in tax is involved in the First Data transaction and allowing for the hurdle provided for by the First Data ruling, the Commissioner has chosen to deploy his investigative and legal resources on other and more significant transactions involving Westpac and the other banks. That the Commissioner has been required to place the First Data investigation on the back burner (despite the now very serious time bar problem) illustrates the potential damage to the public interest of any further diversion of departmental resources to the resolution of collateral issues.

Judicial review of tax assessments: the legislation and cases

The legislation

[43] The Tax Administration Act provides for a disputes procedure which enables taxpayers to challenge assessments. Under Part IVA, the procedure begins prior to assessment, with the Commissioner usually serving a notice of proposed adjustment (“NOPA”): s 89B. The taxpayer may reject the NOPA by filing a response notice within a fixed period: s 89G. Rejecting the NOPA initiates further dispute resolution steps.
[44] Part VIIIA of the Tax Administration Act provides for a challenge process under which the taxpayer may challenge an assessment, either before the Taxation Review Authority or the High Court.
[45] Sitting outside these Parts are ss 109 and 114. Section 109 provides:

Except in... 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.

[46] As well, s 114 provides:

114 Validity of assessments

An assessment made by the Commissioner is not invalidated—

(a) Through a failure to comply with a provision of this Act or another Inland Revenue Act; or

(b) Because the assessment is made wholly or partially in compliance with—

(i) A direction or recommendation made by an authorised officer on matters relating to the assessment:

(ii) A current policy or practice approved by the Commissioner that is applicable to matters relating to the assessment.

[47] These provisions have been described as a code for the resolution of taxation disputes: Ohms “Dispute Resolution” in Harris and others (2004) 1131 at 1134 and provide what might be thought to be a particularly inauspicious statutory context for judicial review (ie outside of the challenge process provided for by the Tax Administration Act).

The English decisions

[48] The arguments advanced on behalf of Westpac rely heavily on decisions from England and Wales. This line of cases starts with HTV Ltd v Price Commission [1976] ICR 170 (CA), which, of course, was not a tax case. More relevant for present purposes are Re Preston [1984] UKHL 5; [1985] 1 AC 835 (HL), R v Board of Inland Revenue, ex parte MFK Underwriting Agencies Ltd [1990] 1 WLR 1545(QB) and R v Commissioners of Inland Revenue, ex parte Unilever Plc (1999) 68 TC 205 (CA).
[49] We accept that the English decisions support the proposition that the Courts may intervene, by judicial review, to direct Inland Revenue authorities to abstain from performing their statutory duties or from exercising their statutory powers on the grounds of substantive fairness or legitimate expectation (see Preston at 864 per Lord Templeman).
[50] In this Court counsel for the Commissioner made three important points about the English cases:

• (a) Only in one case (Unilever) have the English courts in fact held the Commissioner to an extra-statutory concession and this in a context where the legitimate expectation was procedural rather than as to a substantive tax liability;
• (b) The English cases reflect what was described as a “progressive ‘Europeanisation’ of English administrative law” which has given “new life” to “Lord Denning’s legacy of substantive fairness”, see also the discussion in Aronson, Dyer and Groves Judicial Review of Administrative Action (3ed 2004) at 351 – 358; and
• (c) There is nothing in the English legislation corresponding to the Rulings regime that provides for taxpayers to obtain formal rulings from the Revenue.

The Australian cases

[51] The relevant Australian legislative provisions (ss 175, 175A and 177 of the Income Tax Assessment Act 1936) are similar to ss 109 and 114 of the Tax Administration Act. There is an appeal process which is also similar to that available in New Zealand. As well, there is the possibility of judicial review proceedings in the Federal Court.
[52] Australian courts have shown some reluctance about adopting the English cases, see for instance Bellinz Pty Ltd v Federal Commissioner of Taxation (1998) 98 ATC 4,634 at 4,658 and Daihatsu Australia Pty Ltd v Deputy Commissioner of Taxation (2000) 182 ALR 239 at [51] – [54]. And most recently, the High Court has re-emphasised the primacy of the objection and appeal processes, see Commissioner of Taxation v Futuris Corporation Ltd [2008] HCA 32; (2008) 247 ALR 605. There the Court observed:

[24] Section 175 must be read with ss 175A and 177(1). If that be done, the result is that the validity of an assessment is not affected by failure to comply with any provision of the Act, but a dissatisfied taxpayer may object to the assessment in the manner set out in Pt IVC of the Administration Act; in review or appeal proceedings under Pt IVC the amount and all the particulars of the assessment may be challenged by the taxpayer but with the burden of proof provided in ss 14ZZK and 14ZZO of the Administration Act. Where s 175 applies, errors in the process of assessment do not go to jurisdiction and so do not attract the remedy of a constitutional writ under s 75(v) of the Constitution or under s 39B of the Judiciary Act.

[25] But what are the limits beyond which s 175 does not reach? The section operates only where there has been what answers the statutory description of an “assessment”. Reference is made later in these reasons to so-called tentative or provisional assessments which for that reason do not answer the statutory description in s 175 and which may attract a remedy for jurisdictional error. Further, conscious maladministration of the assessment process may be said also not to produce an “assessment” to which s 175 applies. Whether this be so is an important issue for the present appeal.

In effect the Court confined judicial review to two circumstances: first, where what is said to be assessment is not in truth an assessment; and secondly, where there has been conscious maladministration. We note, however, that these concepts were, to some extent, run together as both not producing the sort of assessment which is immune from challenge outside the statutory process.

The New Zealand cases

[53] The New Zealand authorities support the proposition that it is open to a taxpayer to challenge what purports to be an assessment which in fact does not represent the genuine assessment of the Commissioner as to the tax position of the taxpayer, cf Commissioner of Inland Revenue v Canterbury Frozen Meat Co Ltd [1994] 2 NZLR 681 (CA). Generally the courts have accepted that the correctness of a tax assessment can only be challenged in challenge proceedings (see Commissioner of Inland Revenue v Lemmington Holdings Ltd [1982] 1 NZLR 517 (CA) and Miller v Commissioner of Inland Revenue [1995] 3 NZLR 664 (CA)) and that challenge by way of judicial review is reserved for exceptional cases, see Miller v Commissioner of Inland Revenue [2002] NZCA 202; [2001] 3 NZLR 316 at [18] (PC). The cases are not particularly specific as to what circumstances are sufficiently exceptional as to warrant judicial review proceedings.
[54] The New Zealand cases must be read in light of the evolving statutory context and, most relevantly, the introduction in 1995 of both:

• (a) Section 6A of the Tax Administration Act (which vests care and management of the tax system and appropriate associated discretions in the Commissioner); and
• (b) The binding rulings regime.

[55] The English cases which we have discussed proceed on the basis that the care and management provisions in the United Kingdom legislation leave it open to the revenue authorities to act pragmatically in fairly administrating the tax system. Prior to 1995, the prevailing view in New Zealand was that the Commissioner was required to apply the law and was thus unable by contract or the creation of an estoppel (or a legitimate expectation for that matter) to preclude resort to the statutory processes, see for instance Commissioner of Inland Revenue v Lemmington Holdings Ltd and the judgment of Richardson J in Brierley Investments Ltd v Bouzaid [1993] 3 NZLR 655 (CA). Typical of this approach are the remarks of Richardson P in Commissioner of Inland Revenue v New Zealand Wool Board (1999) 19 NZTC 15,476 at [62] (CA):

It is sufficient to say that any scope for invoking legitimate expectations is necessarily limited by the scheme and purpose of income tax legislation. Legitimate expectation cannot frustrate and an honest appraisal by the Commissioner of the income tax liability of the taxpayer by means of an assessment of that liability.

(We note that this case arose out of an assessment which was issued a few days before s 6A came into force.)

[56] The significance of the 1995 introduction of the care and management provisions is discussed by this Court in Accent Management Ltd v Commissioner of Inland Revenue [2007] NZCA 231; (2007) 23 NZTC 21,366. It is right to recognise that the introduction of s 6A, at least if viewed in isolation, has provided a legislative context which is rather more conducive to following the English cases than had earlier been the case. On the other hand, the introduction of a binding rulings regime at the same time as the care and management provisions came into the Tax Administration Act is a pointer in the other direction. That this is so is made clear by the report of the Organisational Review Committee Organisational Review of the Inland Review Department (Report, April 1994), which was the precursor of the 1995 amendments. In its report the Committee said (in appendix D):

[38] In the United Kingdom, where the courts have determined the scope of the duty of care and management, the implication has also been drawn that the Revenue is legally bound by any views it may have expressed to taxpayers about the application of the tax law, on a care and management basis, to their affairs. This may have the undesirable consequence of introducing uncertainty with respect to the future application of tax law to taxpayers and effectively binding the Commissioner on issues where this is not appropriate and where a formal ruling has not been considered or given.

[39] If taxpayers have the option of second binding rulings it is difficult in principle to justify also binding the Commissioner by a process of implication. It seems appropriate to give explicit recognition to this situation in the context of the proposed binding rulings regime. This regime should therefore specifically provide that a formal request for either a general or specific ruling becomes the only basis on which taxpayers can bind the Commissioner.

(Emphasis added)

[57] It is true that an express provision as contemplated in the italicised passage does not appear in the Tax Administration Act. But a clear implication to that effect emerges from the existence of the binding rulings regime and the very restricted provisions as to the effect of a ruling. And the better view is that pre-1995 cases on legitimate expectations still apply, cf the approach taken by this Court in Commissioner of Inland Revenue v Ti Toki Cabarets (1989) Ltd [2000] NZCA 188; [2001] 1 NZLR 147 at [42].
[58] The other important point which arises from the more recent New Zealand cases is a recognition that the commencement of judicial review proceedings in other than exceptional circumstances is an abuse of process, see this Court’s judgment in Commissioner of Inland Revenue v Abbattis Properties Ltd [2002] NZCA 186; [2003] NZAR 155 at [24].

Our approach to the availability of judicial review

[59] We think it appropriate to continue to apply the established principles as to judicial review in tax cases. We accept that judicial review is available where what purports to be an assessment is not an assessment. Associated with this, we accept that judicial review is available in exceptional cases and thus may be available in cases of conscious maladministration (as was recognised in Futuris). We can reconcile this with ss 109 and 114 on the basis that in such cases (ie no genuine assessment or conscious maladministration) what is challenged is either not an assessment, or at the least, not the sort of assessment which the legislature had in mind in enacting those sections. On this basis we see the availability of judicial review as depending on the claimant establishing exceptional circumstances of a kind which results in the amended assessment falling outside the scope of ss 109 and 114 and thereby not engaging those sections.
[60] We see any broader approach to judicial review as inconsistent with the statutory scheme. Despite the repetition, we set out s 109 which provides:

Except in . . . 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.

A taxpayer who seeks judicial review of an assessment might be thought to be disputing it and doing so in flat defiance of s 109(a). Section 109(b) deems an assessment to be “correct in all respects” which might be thought to necessarily extend to its validity. In the context of the present case, we have difficulty with reconciling the statutory requirement that the 1999 amended assessment be taken as “correct in all respects” with the proposition advanced by Westpac that it is nonetheless invalid and ineffective.

[61] We also consider that the broad approach contended for by Westpac places too much emphasis on the assessment as an exercise of a statutory power of decision. An assessment should reflect the correct tax position and a taxpayer’s liability to pay tax exists independently of the assessment. If the assessment is correct, it is hard to see why complaints about process should result in the taxpayer not paying tax on a correct basis. Where there are very large sums of tax at stake (as there are here), this raises fairness considerations in relation to other taxpayers who have met their liabilities for the tax year concerned. If the assessment is wrong, it can be corrected in later challenge proceedings. If it is correct, the tax should be paid. It is frankly difficult to see what is unfair in this approach.
[62] Further, it is perfectly clear that allowing collateral challenge to assessments through judicial review can provide scope for gaming and diversionary behaviour.
[63] In the past taxpayers going down the judicial review route have often sought to delay the statutory processes (whether prior to, or after, assessment) until the judicial review proceedings are completed; this on the ostensibly sensible ground that until the judicial review claim is determined it is premature to proceed with the statutory process. The response of the courts has been to require the review claim to be brought in the same proceedings as the challenge. But this is not necessarily an answer to the potential for judicial review to lead to delay, as illustrated by an unsuccessful attempt by Westpac in this case to have its validity cause of actions heard first.
[64] Collateral challenge involves not just delay but also diversion of effort and resources. The challenge proceedings between Westpac and the Commissioner will be complex and will fully engage the attention and resources of the Commissioner and the Court. The validity cause of action involves an attempt by Westpac to turn the case back onto the Commissioner. If it goes to trial, considerable resources which might otherwise have been devoted to the primary issue between the parties will be diverted to an inquiry into the internal processes of the Inland Revenue Department. This inquiry will throw up questions which are on the one hand difficult and nuanced (as to the subtleties of the differences of approach adopted by Rulings and Corporates) but on the other entirely irrelevant to whether Westpac owes the tax it has been assessed to pay which in the end will turn on the Judge’s approach to s BG 1.

Westpac’s core complaints

The allegations

[65] The pleading alleges that the amended 1999 assessment was “an abuse of power and unlawful” for the following reasons:

• (a) The conclusion of tax avoidance in the amended assessment is based on an interpretation of the law and an application of legal principles which is inconsistent with that adopted by the Commissioner in relation to substantially similar transactions (including First Data) (referred to tendentiously in the pleading as “the existing law”).
• (b) The amendment assessment was issued at a time when the Commissioner was continuing to apply the “existing law”.
• (c) This “contemporaneous inconsistency” is “unfair and unreasonable” and contravenes the right of Westpac and the duties of the Commissioner under s 6 of the Tax Administration Act.
• (d) Westpac entered into other transactions in the legitimate expectation that the existing law would be applied.

[66] In this Court counsel for Westpac also argued that the amended assessments were not an honest appraisal or a genuine exercise of judgment and very late in the piece (in the course of Mr Farmer’s reply) added the further allegation that Corporates had been guilty of conscious maladministration.
[67] We see the arguments of Westpac as involving specific contentions that:

• (a) The assessment was not an honest appraisal or a genuine exercise of judgment.
• (b) The alleged inconsistency between the legal approach underpinning the amended assessment and the “existing law” invalidates the assessment.
• (c) The amended assessment breached Westpac’s legitimate expectations.
• (d) Corporates was guilty of conscious maladministration.

[68] We will, in this section of the judgment, evaluate each of these specific contentions. But it is right to recognise that these contentions are largely subsets of a broader primary complaint that there is an unacceptable and unresolved (or, alternatively, an unacceptably resolved) inconsistency between the amended assessments and approach taken by the Commissioner in other instances and, most significantly, the First Data ruling. Before we discuss the specific contentions we have identified we will confront this primary and general complaint. And once we have discussed the specific complaints we will then address what we see as the decisive issue: is it arguable that there are exceptional circumstances of a kind which results in the amended assessment not engaging ss 109 and 114?

Is there is an unacceptable and unresolved (or, alternatively, an unacceptably resolved) inconsistency between the amended assessments and approach taken by the Commissioner in other instances and, most significantly, the First Data ruling?

[69] It is undeniable (and there is no assertion by Westpac to the contrary) that Corporates believed that the repo deals (including First Data) in which Westpac was involved did not conform to the transaction description and conditions which were incorporated in the First Data ruling. The factual basis upon which Corporates proposed to issue amended assessments in relation to the other repo deals was appreciably different from the factual assumptions which were built into the First Data ruling. For this reason the amended assessments were not in themselves inconsistent with the First Data ruling and did not (in the language of the escalation memorandum) involve:

distinguishing or differentiating the [Ruling’s approach] without objective and adequate justification.

On this basis the approach taken by Technical Standards might be thought to be understandable, as we have already indicated.

[70] It might fairly be said (as Corporates recognised) that this left some differences as between them and Rulings unresolved. But it is difficult to see how those differences, given their nuanced nature, could sensibly have been resolved through the escalation process. Indeed in a sense, Technical Standards resolved the escalation issue by determining that there was no relevant dispute requiring or warranting resolution (see [38]).
[71] It may also be important to recognise that the escalation memorandum is not a statutory text. It is open to the Commissioner to depart from the process or to vary it depending on the circumstances. Those participating in the process can be expected to use it flexibly. It must be open to the Commissioner (or those acting with delegated authority) to conclude that the escalation process is not required or warranted in a particular case. And of course, Mr Goggin, who issued the amended assessment, was acting as the Commissioner’s delegate.
[72] On this basis it might be thought that the Westpac complaints about the escalation process are not particularly cogent. But given the applicable strike out principles, we have reservations whether we could properly determine the case on this basis. Accordingly we will proceed on the assumption that the process miscarried in that it did not conform to what was envisaged by the escalation memorandum and further that the differences of approach between Corporates and Rulings has not been resolved.
[73] On the Westpac argument, the escalation memorandum is the mechanism by which the Commissioner gives effect to ss 6 and 6A of the Tax Administration Act. Accordingly, Westpac has argued that the amended assessment was issued following a process which did not conform to ss 6 and 6A of the Tax Administration Act. But such a contention, even if true, would not usually justify judicial review, this given that s 114 of the Tax Administration Act provides:

114 Validity of assessments

An assessment made by the Commissioner is not invalidated—

(a) Through a failure to comply with a provision of this Act or another Inland Revenue Act; ...

[74] In accordance with the legal principles we have discussed, Westpac can only avoid the effect of s 114 (and s 109 for that matter) if the case involves exceptional circumstances, being circumstances which justify the conclusion that the assessment is not fairly within the scope of ss 109 and 114 and thus does not engage those sections..
[75] We turn now to evaluate the specific contentions made by Westpac.

The contention that the assessments were not an honest appraisal or a genuine exercise of judgment

[76] The proposed pleading alleges (in paragraph 12.5) that the amended assessment in question did not reflect an honest appraisal or a genuine exercise of judgment by the Commissioner. This, of course is an attempt to invoke Canterbury Frozen Meat Co Ltd. This assertion is fleshed out in the proposed pleading in this way:

[The amended assessment] was made in disregard of what the correct view of the law should be and therefore does not constitute an assessment for the purposes of the TA Act. The Commissioner could not form the view that under the law the tax assessed was properly payable because he had not determined what that law was. The fact that the Commissioner’ delegate (Mr Goggin of Corporates) in exercising the power to make amended assessment adhered to the challenged approach did not and could remedy the absence of a decision by the Commissioner to resolve the Commissioner’s inconsistency. Mr Goggin was at no time delegated authority to resolve the Commissioner’s inconsistency.

[77] Two points seem to be relied on:

• (a) The amended assessment was made in disregard of what the “the correct view of the law should be”;
• (b) The Commissioner could not form a view of the relevant law and act on it until the inconsistency of approach between Rulings and Corporates had been resolved.

[78] We are of the view that these particulars do not provide an arguable basis for judicial review:

• (a) Westpac does not seek to argue that that Mr Goggin did not believe that the amended assessment was correct as a matter of law and fact;
• (b) Westpac does not seek to argue that Mr Goggin believed that he was precluded, as a matter of law, from issuing the assessment by reason of any inconsistency of approach between the amended assessment and that adopted in the First Data ruling.

The contention that an alleged inconsistency between the legal approach underpinning the amended assessment and the “existing law” invalidates the assessment

[79] The proposed pleading asserts that the amended assessment is unfair and unreasonable and contravenes Westpac’s rights as a taxpayer and breaches the obligations of the Commissioner including the duty provided for in s 6 of the Tax Administration Act. This is advanced on the basis of flaws in “the Commissioner’s purported escalation process” and the “failure to otherwise resolve the... inconsistency”.
[80] Given the size of the Inland Revenue Department, it is inevitable that there will be inconsistencies of interpretation and application. We do not see how it could be credibly argued that an assessment is invalid merely because some such inconsistency can be identified. In this case the complaint is that such an inconsistency was identified prior to the amended assessment but then not resolved appropriately. But for reasons already indicated, the “flaws” in the escalation process (if any) and any associated failure to comply with a provision of the Tax Administration Act (including s 6) would not usually invalidate an amended assessment.
[81] So in the end, this line of argument is only of assistance to Westpac if it could lead to the conclusion that there are exceptional circumstances of a kind that results in the amended assessment not engaging ss 109 and 114.

The contention that the amended assessment breached Westpac’s legitimate expectations

[82] Paragraph 12.7 of the pleading asserts that Westpac entered into and/or continued with the Koch, GE and CSFB transactions and generally administered its tax affairs based on the legitimate expectation that the existing approach would be applied consistently and in paragraph 12.9 alleges that this legitimate expectation was denied by the amended assessment.
[83] As is apparent, we are satisfied that breach of legitimate expectation does not provide a basis for judicial review in this context.
[84] To the extent to which this argument is based on the First Data ruling, we see it as inconsistent with the very limited effect given to rulings under the binding rulings regime. To the more limited extent to which the pleading relies on other actions by the Commissioner (including views expressed on by the Policy Advice Division on legislative amendments and an exposure draft on the application of s BG 1) the argument is inconsistent with the existence of the binding rulings regime and the general principle which we regard as still applicable in the present context, that the Commissioner cannot estop himself from enforcing the law (see [55]).

The contention that Corporates was guilty of conscious maladministration.

[85] As we have noted, this allegation was not advanced in these terms until Mr Farmer’s reply submissions. In the proposed pleading, formulated only after the hearing before us, the allegation is put this way:

The Commissioner, through Mr Goggin, and other Inland Revenue officers, has acted unfairly, for an improper purpose and in abuse of power with the result that the [Westpac] 1999 assessment is unlawful and invalid. If required to be established, such conduct also amounted to conscious and deliberate maladministration.

[86] In written submissions lodged after the hearing, Mr Farmer contended:

3. It is the very fact that two views of the law were knowingly held at the time the amended assessments were issued that meant that they were not honest and genuine assessments under the statutory provisions and/or were an abuse of power. Westpac does not doubt that view were genuinely and honestly held. Unless they were, the escalation process would not have been invoked. There would have been no inconsistency. However, the inconsistency could not be resolved by the issue of a NOPA or an amended assessment based on one of those view, even if genuinely held, unless the inconsistency had been first resolved.

...

7. ... [Corporates] explicitly recognised and accepted that there was [a difference in approach] – which is why they initiated the escalation process. They equally recognised that it would be improper to issue NOPAs or amended assessments without resolving the inconsistency. That is what the Commissioner’s Memorandum required. The second cause of action is that despite this recognition, they did not do so. Whether or not this is correct can only be determined by a factual inquiry at trial.

[87] The allegation of conscious maladministration is based on the following contention:

The outcome [of the escalation process] was a result of a conscious and deliberate subversion of the escalation process instigated by Corporates for the improper purpose of obtaining approval to issue NOPAs and amended assessments based on its view of the law without resolving [the alleged inconsistency]. Corporates’ actions were motivated by the amount of tax involved and what it perceived as a threat to Corporates tax base, and were undertaken in disregard of the Commissioner’s obligation to use his best endeavours to protect the integrity of the tax system through resolving [the inconsistency] as required by the [escalation memorandum].

[88] The “conscious and deliberate subversion” of the escalation process is said to have involved:

• (a) Corporates telling Technical Standards that it had been able to review documentation not available to Rulings at the time it gave the relevant private rulings, and that there were no material differences between the transactions under consideration by Corporates and those which had been the subject of private rulings.
• (b) Technical Standards nonetheless resolving the escalation process on the basis that the subject transactions were not the same as those which were the subject of the private rulings, and would not meet the conditions laid down in the rulings.
• (c) Corporates resisting a proposal by Technical Standards that each of the transactions should be the subject of the escalation process.
• (d) The material facts of the transactions which were later the subject of the amended assessments being not materially different from those which had been the subject of private rulings.
• (e) During the process, Corporates indicating that the First Data ruling would be avoided under s 91EB(2), where that process has not subsequently been invoked and this because, Corporates allegedly is seeking to avoid Ruling’s view of the law being put before the Court.

[89] We have real reservations as to the cogency of the argument that there was a deliberate subversion of the escalation process and it is right that we explain why:

• (a) We have difficulty understanding the logic of the contention that Corporates has not invoked s 91EB(2) in relation to the First Data transaction because it is seeking to avoid Rulings’ view of the law being put before the Court. It is inevitable that Westpac will be putting Rulings’ view of the law to the Court at trial. In any event the loss of momentum in relation to the application of s 91 EB (2) in relation to First Data came after the amended assessments were issued.
• (b) It is irrelevant that the transactions which were the subject of the binding rulings were, as conceived and implemented, substantially the same as those which were later the subject of amended assessments. This is not the comparison which Technical Standards was making. Technical Standards was comparing the transactions under investigation with transactions which met the descriptions and conditions stipulated in the private rulings. It is obvious that both Technical Standards and Corporates were of the view that, on the facts as they understood them to be, the transactions under investigation were not materially the same as transactions which would have met the conditions stipulated by Rulings. We did not understand Westpac to suggest that such beliefs were not held by the relevant officers. As noted, it was on this basis that Technical Standards seems to have taken the view that there was no relevant difference of interpretation or application which required formal resolution under the escalation process (see [38]).
• (c) Westpac does not suggest that Technical Standards did not act honestly in resolving the escalation process.
• (d) At least on the material which we have seen, there was a transparent process as between Technical Standards and Corporates.
• (e) The states of mind attributed to the relevant Corporates staff are not particularly plausible.

[90] That said, we consider that we must address the case on the basis pleaded (albeit only after the hearing before us!) and thus on the assumption that Corporates set out to and did achieve a resolution of the inconsistencies between its approach and that of Rulings in a way which its staff knew did not conform to the escalation process. And this acceptance brings us to discuss what is the ultimate issue on the appeal.

Is it arguable that there are exceptional circumstances of a kind, which results in the amended assessment not engaging ss 109 and 114?

[91] The only live complaints at this stage of the assessment are the related allegations that there was an inconsistency of approach between Corporates and Rulings, that this was not properly resolved within the escalation process and that this failure was due to conscious maladministration. The question is whether these allegations, if true, would arguably amount to exceptional circumstances of a kind which results in the amended assessment not engaging ss 109 and 114.
[92] From our point of view, the decisive consideration is that, as Westpac accepts, Mr Goggin, in issuing the amended assessment, acted in good faith and with the belief that he was entitled to do so. There is thus no allegation of conscious maladministration which relates directly to the issuing of the amended assessment.
[93] The conscious maladministration asserted by Westpac is of an unusual nature. It is conceded that all Corporates staff, including Mr Goggin, acted in the bona fide belief that the repo deals could be challenged under s BG 1. It is likewise conceded that Mr Goggin was not conscious of any legal obstacle preventing him from issuing the amended assessment. It is not asserted that Corporates ignored any legal requirements other than what is said to be implicit in s 6. The complaint in substance is that Corporates staff deliberately did not comply with or subverted departmental procedures – that they were parties to a course of action which involved departures from what was provided for in the departmental manual.
[94] Although the escalation process and its resolution were causally connected to the amended assessment, we take the view that it would be inconsistent with the policy underlying ss 109 and 114 to allow the associated complaints of Westpac to be relied on in support of a validity challenge. To allow taxpayer litigants to trawl through processes which were antecedent to the issuing of an assessment (and the pre-assessment disputes procedure) with a view to identifying and then relying on perceived departures from internal department procedures is inconsistent with the orderly and efficient resolution of tax disputes. Such breaches could hardly be regarded as exceptional (in the sense of being rare) and to allow them to invalidate later assessments would leave very little scope for s 109 and 114. Common-sense suggests that Inland Revenue Department officers will sometimes take shortcuts, perhaps occasionally with the knowledge that in doing so they are not conforming to, or are departing from, what is provided for in the departmental manual. Advertent departures from departmental procedures can hardly be exceptional (again in the sense of being rare). And in a situation in which the officer issuing an assessment believes that it is well founded on the facts and law, and that there is no legal impediment to it being issued, we take the view that an advertent departure is not conscious maladministration and in any event is not an exceptional circumstance in the relevant sense of excluding the operation of ss 109 and 114. This is all the more so where, as here, the alleged departure from department procedures is entirely collateral to the accuracy or otherwise of the assessment.
[95] In reaching this view we have had regard to a number of overlapping policy considerations:

• (a) First and foremost the statutory policy reflected in ss 109 and 114;
• (b) Secondly, the general undesirability of allowing judicial review in tax litigation (see [62], [63] and [64]);
• (c) Finally, we see it as contrary to the need to treat taxpayers equally to permit a taxpayer to rely on a departure (advertent or otherwise) from a department procedure to defeat an assessment where the departure is irrelevant to the accuracy of the assessment. If this were permitted, it would amount to a judicially conferred dispensation for that taxpayer from the requirement to pay taxes which are owed and thus necessarily unfair to those taxpayers who do meet their obligations.

Disposition

[96] The appeal is dismissed.
[97] Westpac must pay the Commissioner costs for a complex appeal on a band B basis with usual disbursements.

Solicitors:
Simpson Grierson, Auckland for Appellant
Crown Law Office for Respondent