Russell v Commissioner of Inland Revenue [2015] NZCA 351 (4 August 2015)

Last Updated: 20 August 2015

IN THE COURT OF APPEAL OF NEW ZEALAND
CA215/2015 [2015] NZCA 351
BETWEEN	JOHN GEORGE RUSSELL Appellant
AND	COMMISSIONER OF INLAND REVENUE Respondent

Hearing:	24 June 2015
Court:	Wild, French and Winkelmann JJ
Counsel:	SRG Judd for the Appellant P H Courtney and KIS Naik-Leong for Respondent
Judgment:	4 August 2015 at 2.30 pm

JUDGMENT OF THE COURT

1. The appeal is dismissed.

2. The appellant is to indemnify the respondent for her costs and any usual disbursements of this appeal.

____________________________________________________________________

REASONS OF THE COURT

(Given by Wild J)

Introduction

[1] Mr Russell challenges decisions by the Commissioner of Inland Revenue not to accept any of three successive offers he made to pay the income tax he owes. The first two offers were to pay by weekly instalment, the third offered a lump sum payment. Each of these offers was to pay only a fraction of the income tax Mr Russell owes.
[2] Mr Russell applied for judicial review of the Commissioner’s decisions not to accept his offers. In a judgment delivered in the High Court at Auckland on 17 April 2015, Asher J dismissed Mr Russell’s application on its merits (or more correctly, the lack of any), and also because the application was an abuse of the process of the High Court.^[1]
[3] It is from that judgment Mr Russell appeals. He argues first that Asher J erred in a number of respects in upholding the Commissioner’s decision. Secondly, Mr Russell contends the Judge was wrong to hold his application for review was an abuse of the Court’s process.
[4] With that introduction, we next chronicle what has happened. It is a long story, the salient parts of which we will summarise in tabular form. Next we will set out the statutory provisions relevant to the Commissioner’s decision. That will enable us to deal, in turn, with each of the grounds upon which Mr Russell challenges Asher J’s judgment. Rather than summarising the judgment, we will refer to it in dealing with each of the grounds of appeal.

What has happened

[5] This appeal must be considered against the background of the key events set out below. We have italicised the critical ones.

Date	Event
6 July 2001	At least by this date Mr Russell was notified by the Commissioner’s statement of position that he may be assessed for tax on $15,458,855.42.
27 November 2002	Adjudication Report in disputes process issued to Mr Russell. Assessment for tax on $15,458,855.42 confirmed.
6 January 2003	Commissioner issues assessments to Mr Russell for $5,690,441.39 of income tax.
26 May 2005	Mr Russell challenges the income tax assessments in the Taxation Review Authority (TRA) and also applies for Judge Barber to recuse himself from hearing the challenge because of his previous involvement with the “Russell template” cases before the TRA.[2]
27 July 2005	Judge Barber declines to recuse himself.[3]
15 September 2005	Mr Russell applies for judicial review of Judge Barber’s decision not to recuse himself.
3 October 2005	Hearing of Mr Russell’s tax challenge proceeding begins in the TRA.
27 September 2006	Mr Russell makes first offer to Commissioner: $1,000 per week for the rest of his life. Commissioner declines.[4]
19 December 2008	Cooper J dismisses Mr Russell’s application for judicial review.[5]
5 February 2009	Mr Russell appeals to Court of Appeal from Cooper J’s dismissal of his application for judicial review.
17 September 2009	TRA decision.[6] Assessments confirmed (as adjusted by agreement between the parties).
3 September 2010	High Court dismisses Mr Russell’s appeal from TRA decision confirming assessment.[7]
19 April 2011	Court of Appeal dismisses Mr Russell’s appeal from Cooper J’s dismissal of application for judicial review.[8]
26 August 2011	Supreme Court declines Mr Russell’s application for leave to appeal from the Court of Appeal’s decision in judicial review proceeding.[9]
3 April 2012	Court of Appeal dismisses Mr Russell’s appeal from High Court judgment dismissing appeal from TRA.[10]
13 August 2012	Supreme Court declines Mr Russell’s application for leave to appeal from Court of Appeal dismissal of High Court’s dismissal of appeal from TRA.[11]
9 December 2012	Mr Russell makes second offer: $1,000 per week until death, bankruptcy or mental incapacity.
26 August 2013	Commissioner declines Mr Russell’s second offer.
2 September 2013	Mr Russell makes third offer: $150,000 “in one lump sum on the basis that the balance of the debt is written off”.
13 September 2013	Commissioner declines third offer.
13 December 2013	Commissioner applies for summary judgment against Mr Russell for his tax debt, now $367,204,207.41.
27 February 2014	Mr Russell files notice of opposition to application for summary judgment on basis Commissioner’s “failure” to accept his offers “was irrational, and/or unreasonable and/or in breach of the [Commissioner’s] statutory duties under [ss 6A, 176, 177, 177B and 183D of] the Tax Administration Act 1994” and “[Mr Russell] will apply for judicial review of the [Commissioner’s] failure to accept [his] proposals”.
3 March 2014	High Court advises Commissioner’s summary judgment application will be heard on 26 May 2014.[12]
23 May 2014	Mr Russell applies for judicial review of the Commissioner’s decisions declining his three successive settlement offers on grounds: the decisions were inconsistent with the Commissioner’s statutory duties; and the Commissioner did not provide “adequate or rational reasons” for not accepting the offers.
26 May 2014	Commissioner’s application for summary judgment heard.
Also 26 May 2014	Mr Russell applies for interim relief under s 8 Judicature Amendment Act. The relief sought is an order prohibiting the Commissioner bringing or continuing any application for summary judgment or any bankruptcy or other enforcement proceeding
9 June 2014	Commissioner files: notice of opposition to Mr Russell’s interim relief application; and application for orders striking out Mr Russell’s application for judicial review.
10 June 2014	High Court gives summary judgment against Mr Russell for $367,204,207.41.[13]
26 June 2014	Mr Russell files amended application for judicial review.
16 July 2014	Commissioner files amended application for orders striking out Mr Russell’s amended application for judicial review.
1 August 2014	Mr Russell files notice of opposition to Commissioner’s strike-out application.
26 August 2014	High Court (Andrews J) grants Mr Russell interim relief: prohibits the Commissioner commencing a bankruptcy proceeding against Mr Russell until determination of the Commissioner’s strike-out application or further order of the Court.[14]
17 April 2015	Judgment of Asher J striking out Mr Russell’s application for judicial review.
24 April 2015	Mr Russell files appeal against judgment of Asher J.
24 April 2015	Commissioner serves bankruptcy notice on Mr Russell (upon expiry of the notice on 8 May 2015 the Commissioner would be able to commence a bankruptcy proceeding).
28 April 2015	Mr Russell applies to Court of Appeal under r 12(3) for urgent interim relief (an order restraining the Commissioner commencing a bankruptcy proceeding).
8 May 2015	Court of Appeal dismisses Mr Russell’s application for urgent interim relief.[15]
8 May 2015	Mr Russell applies to High Court under s 29(1)(b)(iii) Insolvency Act for Court’s approval of a compromise.
18 June 2015	Associate Judge Bell fixes 1 September 2015 to hear Mr Russell’s application for approval of his compromise proposal.

Statutory provisions

[6] It is common ground that the relevant provisions are ss 6, 6A, 176, 177, 177A, 177B and 177C of the Taxation Administration Act, as they stood when the Commissioner made her decision. Paramount amongst these is s 6A(3):

6A Commissioner of Inland Revenue

...

(3) In collecting the taxes committed to the Commissioner’s charge, and notwithstanding anything in the Inland Revenue Acts, it is the duty of the Commissioner to collect over time the highest net revenue that is practicable within the law having regard to—

(a) the resources available to the Commissioner; and

(b) the importance of promoting compliance, especially voluntary compliance, by all taxpayers with the Inland Revenue Acts; and

(c) the compliance costs incurred by taxpayers.

(Our emphasis.)

[7] Perhaps next in importance is s 6:

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

(c) the rights of taxpayers to have their individual affairs kept confidential and treated with no greater or lesser favour than the tax affairs of other taxpayers; and

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

(e) the responsibilities of those administering the law to maintain the confidentiality of the affairs of taxpayers; and

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

[8] Next is s 176:

176 Recovery of tax by Commissioner

(1) The Commissioner must maximise the recovery of outstanding tax from a taxpayer.

(2) Despite subsection (1), the Commissioner may not recover outstanding tax to the extent that—

(a) recovery is an inefficient use of the Commissioner’s resources; or

(b) recovery would place a taxpayer, being a natural person, in serious hardship.

[9] Section 177 allows a taxpayer to apply for financial relief, including by entering into an instalment arrangement with the Commissioner. Section 177B deals specifically with instalment arrangements. It includes:

177B Instalment arrangements

...

(2) The Commissioner may decline to enter into an instalment arrangement if—

(a) to do so would not maximise the recovery of outstanding tax from the taxpayer;

...

[10] Section 177C allows the Commissioner to write off outstanding tax that cannot be recovered, but s 177C(3) provides:

(3) Despite subsection (1), the Commissioner must not write off outstanding tax (inclusive of any shortfall penalties), if a taxpayer is liable to pay, in relation to the outstanding tax, a shortfall penalty for an abusive tax position or evasion or a similar act.

Commissioner’s decisions

[11] As set out in the chronology in [5] above, Mr Russell’s first offer to the Commissioner was made in September 2006. It is common ground that this offer was made in the course of a judicial settlement conference in the TRA, convened by Judge Barber. In an affidavit he swore on 4 June 2014 in support of his application for interim relief, Mr Russell ignores the privileged nature of what took place in that judicial settlement conference. However, in an affidavit sworn on 9 June 2014 in opposition to the interim relief application, Mr Michael Cook of Inland Revenue deposes:

24. I understand that Mr Russell made a settlement offer at that judicial settlement conference in 2006 which was declined by the Commissioner.
25. It is also my understanding that the discussions undertaken in connection with the judicial settlement conference were on a “without prejudice” basis and as litigation was on foot would have been subject also to legal professional privilege and litigation privilege.
26. The Commissioner has not waived privilege in relation to these settlement discussions.

[12] All of that must be correct, and the 2006 offer ought not to have been referred to by Mr Russell, at least not without first obtaining a waiver of privilege from the Commissioner. In particular, the 2006 offer ought not to have been referred to by Mr Russell in his amended statement of claim for judicial review. Accordingly, we say nothing more about it.
[13] The Commissioner’s decision to decline Mr Russell’s second (instalment payments) offer was endorsed on 7 August 2013, at the foot of an internal Inland Revenue memorandum dated 10 July 2013. A background section about Mr Russell in that memorandum includes a summary of information held by Inland Revenue about Mr Russell’s financial circumstances. It sets out the relevant parts of
ss 176–177C and also the Commissioner’s policies on instalment arrangements and the writing off of outstanding tax as set out in Inland Revenue’s Standard Practice Statements. It quotes quite lengthy passages from those statements, which include references to the judgments of the High Court in Clarke & Money v Commissioner of Inland Revenue, Raynel v Commissioner of Inland Revenue and Rogerson v Commissioner of Inland Revenue.^[16]
[14] The reasons for the decline recommendation can be summarised thus:

• (a) Section 177C(3) prohibits Commissioner accepting: Although Mr Russell was not requesting a write-off, acceptance of his offer would not achieve full recovery so would necessitate a write-off. Given that the tax debt included shortfall penalties for the abusive position Mr Russell had taken, s 177C(3) prevented the Commissioner accepting the offer.
• (b) Not a realistic offer: Given Mr Russell’s tax debt of $334 million, even if the arrangement was accepted and incremental penalties stopped, the use-of-money interest accruing on the debt would exceed the repayments. This would not maximise recovery. “It would in fact be irresponsible for the Commissioner to accept an arrangement that would effectively see the debt continue to grow despite [the offered instalment] payments being made”.
• (c) Would not achieve certainty: One of the aims when ss 177–177C were introduced in 1997 was to provide more certainty for both taxpayers and Inland Revenue. Mr Russell’s offer of “$1,000 per week until death” is an open-ended one that provides neither certainty nor finality in a reasonable way for either Inland Revenue or Mr Russell. That uncertainty is exacerbated because the proposed instalment arrangement is not of the usual type, which is either for payment of the full amount or for payment of an agreed amount plus agreement that the balance be written off.
• (d) Will not lead to greater recovery: The proposal does not lead to a greater recovery than other enforcement actions, such as bankruptcy, given interest would continue to accrue at a faster rate than the instalment payments offered.

Relevant to this reason, under headings “Access to other funds” and “Compliance history”, the memorandum then noted these points:

• “[S]ignificant transactions and sums of money” moved between numerous bank accounts in the names of many entities controlled by Mr Russell. Mr Russell had declined Inland Revenue’s requests to supply information about these entities.
• Mr Russell had stated he would fund his instalment payment offer by entering into a contract of services with Commercial Administration Ltd for $100,000 per year. He had explained that $1,000 per week would be paid direct to Inland Revenue and the remaining $50,000 credited to Mr Russell’s current account with that Company. Two things were not clear: why he was not offering the whole of that $100,000 given he did not plan to live off the remaining $50,000; and how the balance could be credited to his current account with that Company when he was not a shareholder.
• The complexity of Mr Russell’s business affairs, the circularity of the shareholdings, the movement of funds and his lack of transparency in the provision of information about the companies and trusts means Inland Revenue does not have the required level of certainty that the proposal is the best option to maximise revenue.
• As stated in Raynel and Rogerson, continuing non-compliance is a relevant factor.^[17] Mr Russell continues to be noncompliant in relation to his wider group affairs.
• “If the debt cannot be written off and the proposal is not accepted the next option is therefore bankruptcy. Given the complexity of the affairs of Mr Russell and the lack of information given it seems a logical conclusion to consider bankruptcy as an alternative as it would allow the Official Assignee to investigate fully Mr Russell’s affairs”.

[15] Those reasons were then summarised in a conclusion section in the memorandum, which finished with the recommendation:

84. That the proposal be declined and we proceed to commence bankruptcy action as to not do so would not maximise recovery and it would be an inefficient use of the Commissioner’s resources.

[16] The Commissioner’s decision to decline Mr Russell’s third (lump sum) offer was endorsed at the end of an internal Inland Revenue memorandum dated 6 September 2013. On 2 September, Mr Russell had written to Inland Revenue stating:

...

Taking into account the criteria you set out in your letter [of 26 August, declining Mr Russell’s second offer] I have been able to restructure the proposal to provide the certainty that the Commissioner requires.

I can arrange to borrow against future earnings an amount of $150,000 which will be paid to the Commissioner in one lump sum on the basis that the balance of the debt is written off.

That will meet the criteria set out in your letter and I trust that the revised proposal is now acceptable to the Commissioner.

[17] Inland Revenue’s 6 September 2013 memorandum made these points:

• The offer was stated to come from Mr Russell’s “future earnings”, but no details of those future earnings were provided.
• A term of the offer was that the balance of Mr Russell’s tax debt be written off.
• Mr Russell had not presented any new facts to the Commissioner with this third offer.
• Accordingly, there remained a lack of certainty around Mr Russell’s true financial position, such that the Commissioner “is unable to evaluate whether the proposal would maximise recovery ...”.
• The offer was no better than the previous one: it was equivalent to three years worth of payments at $1,000 per week and was still insufficient to satisfy the total debt. In fact, it represented a recovery rate of 0.04 cents in the dollar.
• Mr Russell had admitted at an interview with Inland Revenue that he or his associated entities had $6 million owing to them, but had advised he was not pursuing recovery of these loans. If he did, he would clearly be in a position to make a more realistic offer to Inland Revenue.
• Given Mr Russell’s poor compliance history and the fact that the debt arose from tax avoidance schemes, accepting this proposal, which did not satisfy the legislative criteria and policy guidelines governing relief, “would be contrary to the Commissioner’s obligation to protect the integrity of the tax system and uphold taxpayers’ perceptions of that integrity”.

[18] For those reasons, it was recommended the proposal be declined and the Commissioner proceed with legal recovery action “without further delay”, enabling the Official Assignee to pursue the debts owed to Mr Russell from associated entities and business partners. The Commissioner’s rejection of the proposal was conveyed to Mr Russell in a letter dated 13 September 2013.

First issue on appeal: did Asher J err in striking out Mr Russell’s amended statement of claim?

[19] As suggested by Mr Judd, we find it convenient to break this issue down into the series of questions in counsel’s agreed list of issues. We have, however, reordered those questions into a more logical sequence.

Did Asher J err in his interpretation of the relevant law?

[20] Here we deal with the following three questions suggested by counsel:

• (a) Did Asher J err in his interpretation of the relevant statutory provisions?
• (b) Did Asher J err in applying his interpretation of those sections to the circumstances of this case in the way that he did, especially when it was a strike-out application?
• (c) Did Asher J err in relying, to the extent that he did, on Raynel v Commissioner of Inland Revenue and other cases that followed it to support striking out the appellant’s claim?^[18]

Did Asher J err in his interpretation of the relevant statutory provisions?

[21] Asher J made these main points about the statutory provisions we have set out in [6] to [10] above:

• (a) Section 6A(3) imposes an overarching duty on the Commissioner to collect over time the highest net revenue practicable. That duty relates to taxpayers generally and is not specific to a particular taxpayer. Section 6A(3) specifically requires the Commissioner to have regard to the importance of promoting compliance, especially voluntary compliance, by all taxpayers.^[19]
• (b) The s 6A(3) duty overrides consideration of the circumstances particular to the taxpayer, although they are relevant in exercise of the Commissioner’s powers under s 177B. “Acceding to a small offer from an insolvent taxpayer may send the wrong message to tax defaulters generally and not be in the interests of collecting the highest return from taxpayers generally over time”.^[20] It may also be contrary to promoting compliance by all taxpayers. The taxpayerspecific considerations in the legislation are secondary to s 6A(3).^[21]
• (c) Section 177B(2) must be read with the broader public interest purposes set out in ss 6 and 6A(3)(b). Even when a compromise offer may promise a higher return than enforcement, there may be circumstances where, to preserve the integrity of the tax system and promote compliance with other taxpayers, the Commissioner in accordance with her s 6A(3) duty, may be justified in refusing an offer. This is particularly so when what is offered is only a very small portion of the tax owed and when there has been a flagrant and ongoing failure to comply. The paramount obligation to collect the highest net revenue in the long term can be defeated if taxpayers who owe vast amounts can insist that a very small offer, bearing little relation to the real indebtedness, be accepted.^[22]

[22] We consider these points accurately summarise the effect of the statutory provisions.
[23] Mr Judd submitted Asher J had read down s 177B(2) and that Parliament could not have used clearer language to direct the Commissioner when an instalment arrangement is offered. The arrangement should be accepted unless one of s 177B(2)(a)–(d) apply, and here the Commissioner relied only on (a).
[24] We reject this submission. It ignores s 6A(3) and s 6. To adopt Mr Judd’s own words, Parliament “could not have used clearer language” than it did in s 6A(3): “notwithstanding anything in the Inland Revenue Acts”. Mr Judd is advancing to this Court, as he did to Asher J, a patently wrong interpretation of the relevant provisions.
[25] As a fallback position, Mr Judd submitted s 177B was not inconsistent with s 6 and s 6A. He submitted “the connection is subtle and fact-specific and depends on the circumstances of each particular case”. If that is acceptance that the Commissioner cannot, under s 177B, enter into an instalment arrangement with a taxpayer if doing so would breach her ss 6A and 6 duties and functions (but that whether entry into an instalment would in fact breach the Commissioner’s duties under ss 6 and 6A will depend on the individual circumstances of each case), then we agree.
[26] We answer this first appeal question ‘No’.

Did Asher J err in applying his interpretation of those sections to the circumstances of this case in the way he did, especially given it was a strike-out application?

and

Did Asher J err in relying, to the extent he did, on Raynel v Commissioner of Inland Revenue and other cases that followed it to support striking out Mr Russell’s claim?^[23]

[27] Asher J found support for his interpretation of the relevant statutory provisions, in particular ss 6 and 6A(3)(b) in what he termed “the leading High Court decision” in Raynel v Commissioner of Inland Revenue.^[24] Although it is a lengthy citation, we set out the following passage from Raynel cited by Asher J, because it so exactly applies to Mr Russell’s situation:

[54] Sections 6 and 6A(3)(b) emphasise that there is a broader public interest in the integrity of the tax system and in ensuring that taxpayers meet their obligations. Taxpayers who comply with the requirements of the Inland Revenue Acts are entitled to expect that appropriate and (where necessary) firm action is taken against taxpayers who shirk their obligations. If not, complying taxpayers will justifiably perceive there is a lack of integrity in the system and an unfair burden is cast on those who conscientiously comply with their obligations. ... the voluntary compliance scheme which is central to the proper functioning of the Inland Revenue Acts will be placed in jeopardy unless all taxpayers know that the Commissioner will act firmly and resolutely with those who do not meet their obligations and have no reasonable excuse for doing so.

[55] Ordinarily, where a higher net recovery will be achieved through a proposed compromise than by winding up or bankrupting a taxpayer and there are no countervailing considerations, the Commissioner’s duty will be to accept the compromise. But there may be circumstances where, in order to preserve the integrity of the tax system and promote compliance by other taxpayers, the Commissioner will be justified in refusing an offer and, instead, taking enforcement proceedings. Where, for example, there has been a flagrant and on-going failure to comply with the taxpayer’s obligations and where recovery is dubious or is likely to result only in a relatively minor proportion of the overall debt being recovered, the Commissioner may be justified in initiating or continuing enforcement proceedings to secure the wider interests identified by the legislation.

[28] Asher J then pointed out that Raynel had been followed by the High Court in Rogerson, McLean and Clarke, all unsuccessful attempts by taxpayers to challenge by way of judicial review decisions by the Commissioner rejecting proposals similar to those by Mr Russell that the Commissioner rejected.^[25] The Judge then stated:^[26]

The legislative provisions and the weight of case law have settled the approach to be adopted to challenges such as that of Mr Russell. This is of relevance in the context of a strike out. There is not uncertainty in the law, of the type which might make a Court cautious to assume that a cause of action would not succeed. I do not accept Mr Judd’s submission that the Raynel line of cases can be distinguished on the facts because Mr Russell was not guilty of fraud or inadequate or no returns. The moral culpability of the taxpayer can be of only peripheral relevance, and the scale and complexity of Mr Russell’s avoidance places his transgressions in a serious category.

[29] Mr Judd submitted the Judge was wrong to apply Raynel and the decisions following it for these two reasons:

• (a) Those cases involved substantive judicial review applications, not strike-outs.
• (b) The Judge should, instead, have followed the approach taken by the High Court in W v Commissioner of Inland Revenue and Chesterfields Preschools v Commissioner of Inland Revenue, which the Judge mentioned later in his judgment at [46], and determined this case on its own facts.^[27]

[30] As to the first of those two reasons, we endorse the Raynel principles and therefore consider Asher J correctly referred to them in support of his interpretation of the relevant provisions in the legislation. The interpretation of the legislation is not governed by, and does not differ depending on, whether the Judge is dealing with an application to strike out an application for judicial review or with the substantive judicial review application. It follows that we reject Mr Judd’s submission that the Raynel line of cases is inapplicable to Mr Russell’s situation.
[31] As to the second reason, we simply do not follow why Mr Judd contends W and Chesterfields Preschools have any relevance. It seems he is attempting to fasten onto them because the outcome in each case favoured the taxpayer.^[28] But, as Asher J pointed out, each of those cases was “fact specific and involved errors by the Commissioner that are not present in the current case, which concerns the exercise of the Commissioner’s discretion as to whether to accept Mr Russell’s proposals”.^[29]
[32] For those reasons we answer each of these two appeal questions ‘No’.

Did Asher J err in his findings of fact?

[33] In this section we address the following questions from counsels’ list of issues:

• (a) Did Asher J err in relying on the affidavit evidence rather than approaching the strike-out application on the basis that the facts pleaded in the Amended Statement of Claim were true?
• (b) Having decided to place reliance on the affidavit evidence, did Asher J err in making the factual findings that he made based on those affidavits?
• (c) Did Asher J err in finding that there was “factual certainty” and “uncontestable facts” in the light of the affidavit evidence?^[30]

31. Did Asher J err in the way that he dealt with the earlier decision of Andrews J in the same proceedings?^[31]

Did Asher J err in relying on the affidavit evidence rather than approaching the strike-out application on the basis that the facts pleaded in the amended statement of claim were true?

[34] Mr Judd submitted the Judge was wrong to rely on the affidavit evidence filed by the Commissioner and should have restricted himself to the pleadings. First, Mr Judd took issue with Asher J describing the Commissioner’s reasons for her decision as “the undisputed facts of this case”.^[32] Mr Judd was referring to the reasons for the Commissioner’s decision of 26 August 2013 to decline his second (instalment payment) offer, and the Commissioner’s reasons for her decision of 13 September 2013 to decline his third (lump sum payment) offer. These are the reasons we have summarised in [11] to [18] above.
[35] The Judge no doubt described those reasons and decisions as “undisputed facts” because he understood there was no dispute those were the Commissioner’s decisions and her reasons for making them. Mr Judd submitted those decisions and the reasons given for them:

• (a) were not complete. Mr Russell did not accept that what was set out was all that the Commissioner took into account; and
• (b) contained logical inconsistencies.

[36] When he began to elaborate, it immediately became obvious Mr Judd was criticising the merits of the Commissioner’s decisions, and not her decisionmaking process.
[37] Next, Mr Judd complained Asher J had not so much as referred to the affidavit sworn by Mr Russell on 4 June 2014, mentioned in [11] above. That is so, but the Judge probably treated it as irrelevant because it is almost wholly a challenge to the merits of the Commissioner’s decisions — to her rejection of Mr Russell’s instalment and lump sum payment offers. The Court inquired of Mr Judd what, if anything, Mr Russell had deposed about the Commissioner not putting forward the whole of her decisionmaking process. In answer, Mr Judd indicated he had wanted to cross-examine to establish it was not the full record. He also suggested that what was missing from the Commissioner’s decisions was any information as to Inland Revenue’s investigations of Mr Russell over the years. As to cross-examination, it appears Mr Judd was anticipating a “fishing expedition” to see what he might uncover. Such cross-examination would not have been permitted, and certainly not in the judicial review context. We give no weight to the suggestion that information as to Inland Revenue’s investigations was missing. Mr Russell has received numerous tax assessments from Inland Revenue over the years, and the memoranda setting out the Commissioner’s decisions provide an overview of what information Inland Revenue has, and what it lacks, about Mr Russell (for example, see [14](d) above).
[38] Although Mr Judd submitted Asher J ought to have restricted himself to the pleadings, he did not take us to them. The pleadings in themselves do not convey sufficient information to determine Mr Russells’ claim, in any case. In relation, for example, to the Commissioner’s 26 August 2013 decision to decline Mr Russell’s second (instalment payments) offer, the amended statement of claim asserted simply:

20. Since 13 August 2012 [sic] the applicant has again proposed to pay the debt by instalments of $1,000 per week for the rest of his life or until bankruptcy or mental incapacity.
21. By letter of 26 August 2013, the respondent declined the instalment proposal and stated that she would “now proceed to initiate bankruptcy proceedings against you for your unpaid arrears”.

[39] A Judge dealing with an application to strike out that amended statement of claim, or dealing with the substantive application, would always need to look at the decision itself, including the reasons for it. Routinely it is made available to the Court in an affidavit or as an attachment to an affidavit. That occurred here: the Commissioner’s decisions and the reasons for them were annexures to an affidavit sworn by Mr Cook on 9 June 2014. As we have said, there was no suggestion by Mr Russell that those attachments did not place before the Court the whole of the Commissioner’s decision-making process.
[40] We answer this misconceived appeal question ‘No’.

Did Asher J err in making the factual findings he did based on the affidavits?

and

Did Asher J err in finding there was “factual certainty” and “uncontestable facts” in light of the affidavit evidence?

[41] Mr Judd’s submissions on these grounds really came down to a challenge to the merits of the Commissioner’s decisions. He argued they did not make sense, because declining Mr Russell’s offers would not maximise recovery. He pointed out that Mr Russell asserted he had no assets. In stating that accepting Mr Russell’s offer would be an inefficient use of the Commissioner’s resources, Mr Judd claimed the Commissioner failed to understand what the words “inefficient use of resources” mean. As the Commissioner was focusing on Mr Russell’s role as a tax agent, Mr Judd contended the Commissioner’s reliance on Mr Russell’s poor compliance history was a consideration irrelevant to the decision whether or not to accept Mr Russell’s instalment and lump sum proposals, and was thus also irrational.
[42] Asher J considered these were all proper reasons for the Commissioner to reject Mr Russell’s offers, and that the letters to Mr Russell sufficiently summarised the key reasons for rejecting his offers.^[33]
[43] With one qualification, which we address at [50]–[51] below, we agree. Mr Judd’s criticisms are predicated on the incorrect interpretation of the relevant statutory provisions that we rejected in [24] above. In other words, Mr Judd was arguing that the only consideration for the Commissioner was whether accepting Mr Russell’s offers represented maximum recovery of the tax he owed. We reiterate: that is absolutely not the position.
[44] Mr Russell was assessed in January 2003 for $5,690,441.39 in core tax on income he had received of $15,458,855.42. By “core tax” we mean, excluding any interest or penalties. Mr Judd confirmed to us that Mr Russell has not paid a single dollar of that tax. Mr Judd submitted Asher J had focused wrongly on the core tax and ignored the fact the very first notice of assessment Mr Russell received included not just that core tax, but “nearly $70m of interest and penalties”. We address this point further at [62] below, but note that Mr Russell, as a chartered accountant, would have been well aware of the consequences of avoiding paying income tax on the $15.45 million approximately. Given that situation and Mr Russell’s concerted efforts, over the ensuing 12 years, to challenge, in every available way and at every level, his liability to tax, the Commissioner was entitled to place considerable weight on taxpayer perceptions of the integrity of the tax system. What would other, voluntarily complying, taxpayers think if it became widely known that the Commissioner had accepted, in August or September 2013, an offer from Mr Russell of $1,000 a week until he died (he was at the time aged 78), or an all in offer of $150,000? Mr Russell’s third (lump sum) offer represented just 0.04 per cent of his tax debt or 2.63 per cent of the $5,690,441.39 core tax referred to earlier in this paragraph.
[45] For these reasons, we do not consider Mr Russell’s poor compliance history was an irrelevant consideration — quite the opposite.
[46] Mr Judd was particularly critical of the Commissioner’s reliance on Mr Russell’s role as a tax agent. He referred to this passage in Inland Revenue’s 10 July 2013 memorandum:

11. Mr Russell is a tax agent with a long history of litigation with Inland Revenue in relation to tax avoidance schemes that were designed by him for his clients. For more than 30 years Mr Russell has argued against the Commissioner’s reassessment action both for his clients and himself.

[47] Later in the same memorandum there are these passages:

Compliance history

75. It is appropriate to consider also the compliance history of the taxpayer when making a decision in relation to debt proposals. Mr Russell’s aggressive tax avoidance schemes are well documented in numerous court judgments through the past 30 years not only for himself but his clients. The Commissioner has consumed significant resources both in time and money to ensure the correct tax positions were confirmed.
76. As stated in Raynel and Rogerson continuing non-compliance is a relevant factor. Mr Russell continues to be non-compliant in relation to his wider group affairs. For example the failure of entities to file returns and also his own failure to pay himself for services rendered to the company. The Commissioner is still continuing to take reassessment action against a number of “clients” of Mr Russell. In a number of cases the “clients” are controlled by Mr Russell as receiver or liquidator and tax avoidance arrangements continue to be investigated by Inland Revenue.

[48] In the somewhat unusual circumstances here, we do not accept it was irrelevant for the Commissioner to factor in Mr Russell’s status as an agent for other taxpayers. As is clear from the passages quoted in [47], the Commissioner’s concern was that Mr Russell devised the tax avoidance schemes used by a number of his clients (the so-called “Russell template” schemes), as well as the related schemes he used for his own entities. Further, as the Commissioner also pointed out, a number of the “clients” are in fact controlled by Mr Russell, so the division between agent and taxpayer is blurred. In those circumstances, the manner in which the Commissioner deals with Mr Russell has obvious relevance to taxpayer perceptions of the integrity of the tax system.
[49] Mr Judd referred to what Mr Russell had deposed in his affidavit as to his compliance over the years with his tax obligations. He submitted the Commissioner was not entitled to rely on Mr Russell having a bad compliance history when this was “plainly disputed”. He argued Mr Russell’s compliance history and the relevance of his role as a tax agent in other tax disputes involving his clients were not matters that could be determined on a strike-out application. However, what the Commissioner refers to in the paragraphs we have quoted in [46]–[47] above are not matters open to dispute. The Commissioner’s reliance was on what is “well documented in numerous court judgments through the last 30 years not only for [Mr Russell] but his clients”.
[50] The qualification we mentioned in [43] above relates to the Commissioner’s reasoning that accepting Mr Russell’s offers would be an inefficient use of resources. There is some force in Mr Judd’s submission that accepting Mr Russell’s offers would have put an immediate stop to the legal and other costs Inland Revenue was incurring in its enforcement action against Mr Russell. However, the phrase “inefficient use of resources” appears in this paragraph in Inland Revenue’s internal 10 July 2013 memorandum:

10. This arrangement would be an inefficient use of resources given the debt would grow faster than payments made. Given the lack of certainty, the lack of information, the concerns about Mr Russell’s true financial circumstances, the inability to write a portion of the debt off and the compliance history it is recommended that the proposal be declined and the Commissioner’s [sic] moves to bankruptcy proceedings.

[51] Although we accept the meaning attributed to “inefficient use of resources” in that paragraph is not clear, it seems the view was that bankrupting Mr Russell would lead to greater recovery of the unpaid tax because of the Official Assignee’s ability to unravel Mr Russell’s complex finances. Thus, expenditure of the further “resources” necessary to bankrupt Mr Russell would be efficient, as against acceptance of either of Mr Russell’s offers. It was reasonable and rational for the Commissioner to reject Mr Russell’s proposals both because they were so low, but also because there remained the prospect that an unravelling by the Official Assignee of Mr Russell’s complex and opaque affairs would produce a greater recovery of Mr Russell’s tax debt.
[52] We answer each of these two appeal questions ‘No’.

Did Asher J err in the way he dealt with the earlier decision of Andrews J in the same proceeding?

[53] In her judgment of 26 August 2014 Andrews J stated:^[34]

[41] In the light of the fact that the Commissioner has applied to strike out the judicial review application, which has not yet been heard, it is not appropriate that I comment in any detail on the strength or weakness of Mr Russell’s case. However, it can be said that, on the face of the matters put before me, I could not conclude that his case is so hopeless that his application for an interim order should be dismissed, before the application to strike out, where the strength of the case is focussed on, is heard.

[54] Before Asher J Mr Judd submitted that finding constituted an issue estoppel. In other words, the issue of the tenability of the grounds on which Mr Russell sought judicial review could not be relitigated in the strike-out application and consequently the application for judicial review had to go to a full hearing.
[55] Asher J roundly rejected that submission.^[35] We need not elaborate on the Judge’s reasons, because before us Mr Judd accepted there was not an issue estoppel. Rather, he submitted Andrews J was correct to hold Mr Russell’s grounds were tenable, and Asher J was wrong, on the same evidence, to hold they were not.
[56] This is an appeal from Asher J’s judgment and our concern is solely with the correctness of that judgment. We are not concerned with Andrews J’s judgment, which was not binding on Asher J. This point has no force and ought not to have been pursued.
[57] We answer this appeal question ‘No’.
[58] Consistent with our answers to the seven appeal questions, we hold that Asher J did not err in striking out Mr Russell’s amended statement of claim.

Second issue on appeal: was Asher J correct to hold the application for judicial review was an abuse of process?

[59] In his judgment Asher J observed “Mr Russell should have paid the tax when it was due, and can therefore fairly be required to pay the tax now”.^[36] We agree with Asher J that this proceeding is an abuse of process, and that Mr Russell is attempting to relitigate matters already finally determined.
[60] In his submissions Mr Judd made these points:

• (a) The amended statement of claim pleaded:
  • in assessing Mr Russell the Commissioner “reconstructed to the applicant [Mr Russell] income which had been earned and received by companies under the control of the applicant rather than being earned and received by the applicant himself”;
  • at all material times [Mr Russell] had no assets and his offers were based on payments he could make out of income he could earn; and
  • had the Commissioner accepted any one of [Mr Russell’s] instalment proposals, then from that point the Commissioner would have started receiving revenue from [Mr Russell] and would have stopped incurring costs in actions against him.
• (b) For the purposes of the strike-out application, those pleadings should have been taken as correct. The Judge was not entitled to prefer the evidence of the Commissioner over that of the appellant.

[61] Contrary to Mr Judd’s submission, Asher J was not obliged to accept the pleaded factual matters we have set out in [60](a) above. That is because they are demonstrably wrong. The first point is that the $15.45 million approximately of income that led to the assessments issued to Mr Russell in 2003 was Mr Russell’s income. He may well have attributed it to companies under his control, but it is now finally determined that he ought not to have done that, because the attribution was pursuant to unlawful tax avoidance a[37]angements.³⁷ So Mr Russell must now accept he earned that $15 million approximately of income and therefore he was liable to pay the tax on that income.
[62] Secondly, the Judge’s statement set out in [59] above is a correct and proper one. What the Judge was saying is that Mr Russell should have paid income tax on the $15.45 million approximately of income as he earned it over the tax years
1985–2000. It is facile for Mr Judd to submit, as he did:

It was impossible for Mr Russell to pay the tax when it was “due” in
1985–2000 because nobody had assessed the tax to him at that time ... the tax had been returned by other companies and those returns had been accepted by the Commissioner ... It is impossible for a person to pay tax when it was due when he is assessed with it for the first time somewhere between three and 18 years after the event ...

Those submissions seek to lay the blame on the Commissioner for tax avoidance arrangements devised and implemented by Mr Russell over those years. They are also tantamount to an attempt by Mr Russell to take advantage of his own prolonged default — something the law will not allow.

[63] Mr Russell’s challenges to the assessments were exhausted when the Supreme Court on 13 August 2012 declined him leave for a further (it would have been a third) appeal.^[38]
[64] Mr Russell attempted to defend the Commissioner’s application for summary judgment for the amount of tax then due on the same grounds he advanced in support of the application for judicial review that Asher J struck out. Those grounds provided no defence to the application for summary judgment, as Associate Judge Doogue correctly held. Accordingly, summary judgment was entered on 10 June 2014.^[39]
[65] Mr Russell’s only remaining option was to apply under s 29(1)(b)(iii) of the Insolvency Act 2006 for the Court’s approval of terms to compromise the amount owing. He did this on 8 May 2015 after this Court had refused him interim relief pending the hearing of this appeal (and, as noted in the table at [5] above, the matter has been set down for hearing on 1 September 2015).
[66] The application for judicial review that Asher J struck out is patently a tactic to delay the Commissioner commencing a proceeding to have Mr Russell’s adjudicated bankrupt. It was thus not a proper use of the Court’s process, but an abuse of it.
[67] For those reasons we answer this second appeal issue ‘Yes’.

Result

[68] For the reasons we have given in answering the seven questions agreed by counsel, we hold that Asher J correctly struck out Mr Russell’s application for judicial review.
[69] We also hold that the judicial review application the subject of this appeal was an abuse of the process of the High Court, and was properly struck out for that reason as well.
[70] In the result, the appeal is dismissed.

Costs

[71] The Commissioner contended this appeal was hopeless. She also submitted the appeal was brought to cause further unjustified delay in the Commissioner proceeding to bankrupt Mr Russell. The Commissioner seeks indemnity costs.
[72] Mr Judd’s response was to point again to the judgment of Andrews J, in particular the passage we have set out in [53] above.
[73] We agree with the Commissioner’s submissions. In particular, we accept the Commissioner’s submission that this appeal was brought for the improper purpose of further delaying the Commissioner proceeding against Mr Russell in bankruptcy. That brings the appeal squarely within r 53E(3)(a) of the Court of Appeal (Civil) Rules 2005.
[74] Accordingly, we order that Mr Russell is to indemnify the Commissioner for her costs and any usual disbursements of this appeal.

Solicitors:
Ladbrook Law Ltd, Auckland for Appellant
Crown Law Office, Wellington for Respondent

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^[1] Russell v Commissioner of Inland Revenue [2015] NZHC 754, (2015) 27 NZTC 22-003 [Decision under appeal].

^[2] The tax avoidance scheme designed by Mr Russell and used by a number of his clients when he was working as a tax advisor is known as the “Russell template” — see [48] below.

^[3] Russell v Commissioner of Inland Revenue TRA 003/03 Decision No 10/2005, 27 July 2005.

^[4] This offer was made in the course of a judicial settlement conference and was privileged. We refer to it further in [11]–[12] below.

^[5] Russell v Taxation Review Authority [2008] NZHC 2115; (2009) 24 NZTC 23,284 (HC).

^[6] Case Z19 (2009) 24 NZTC 14,217 (TRA).

^[7] Russell v Commissioner of Inland Revenue (No 2) [2010] NZHC 1707; (2010) 24 NZTC 24,463 (HC).

^[8] Russell v Taxation Review Authority [2011] NZCA 158, (2011) 25 NZTC 20-044.

^[9] Russell v Taxation Review Authority [2011] NZSC 96, (2011) 25 NZTC 20-077.

^[10] Russell v Commissioner of Inland Revenue [2012] NZCA 128, (2012) 25 NZTC 20-120.

^[11] Russell v Commission of Inland Revenue [2012] NZSC 73, (2012) 25 NZTC 20-140 [SC leave decision].

^[12] Commissioner of Inland Revenue v Russell HC Auckland CIV-2013-404-5188, 3 March 2014 (Minute of Venning J).

^[13] Russell v Commissioner of Inland Revenue [2014] NZHC 1296, (2014) 26 NZTC 21-074 [Summary judgment].

^[14] Russell v Commissioner of Inland Revenue [2014] NZHC 2034, (2014) 26 NZTC 21-095 [Decision of Andrews J]. We omit references to steps taken by the Commissioner consequent upon the grant of interim relief: an appeal to the Court of Appeal; an application to recall the judgment on the ground the interim relief was not available: Judicature Amendment Act 1972, s 8(2); Crown Proceedings Act 1950, s 17(2).

^[15] Russell v Commissioner of Inland Revenue [2015] NZCA 155, (2015) 27 NZTC 22-006.

^[16] Clarke v Commissioner of Inland Revenue, Money v Commissioner of Inland Revenue (2005) 22 NZTC 19,165 (HC); Raynel v Commissioner of Inland Revenue (2004) 21 NZTC 18,583 (HC); Rogerson v Commissioner of Inland Revenue (2005) 22 NZTC 19,260 (HC).

^[17] Raynel v Commissioner of Inland Revenue, above n 16; Rogerson v Commissioner of Inland Revenue, above n 16.

^[18] Raynel v Commissioner of Inland Revenue, above n 16.

^[19] Decision under appeal, above n 1, at [20].

^[20] At [21].

^[21] Ibid.

^[22] At [23].

^[23] Raynel v Commissioner of Inland Revenue, above n 16.

^[24] Decision under appeal, above n 1, at [22] citing Raynel v Commissioner of Inland Revenue, above n 16.

^[25] Rogerson v Commissioner of Inland Revenue, above n 16; McLean v Commissioner of Inland Revenue (2005) 22 NZTC 19,231 (HC); Clarke v Commissioner of Inland Revenue, above n 16.

^[26] Decision under appeal, above n 1, at [24].

^[27] W v Commissioner of Inland Revenue (2005) 22 NZTC 19,062 (HC); Chesterfields Preschools v Commissioner of Inland Revenue [2006] NZHC 1587; (2007) 23 NZTC 21,125 (HC).

^[28] Although Chesterfields Preschools v Commissioner of Inland Revenue, above n 27, has a rather complex procedural history that includes a number of proceedings in this Court and the Supreme Court, the Commissioner did not appeal against this particular decision (refer Commissioner of Inland Revenue v Chesterfields Preschools Ltd [2010] NZCA 400, (2010) 24 NZTC 24,500 at [3]).

^[29] Decision under appeal, above n 1, at [46].

^[30] At [62].

31. ^[31] Decision of Andrews J, above n 14.

^[32] Decision under appeal, above n 1, at [27].

^[33] Decision under appeal, above n 1, at [49].

^[34] Decision of Andrews J, above n 14.

^[35] Decision under appeal, above n 1, at [60]–[61].

^[36] At [37].

^[37] See [63] below.

^[38] SC leave decision, above n 11.

^[39] Summary judgment, above n 13.