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High Court of New Zealand Decisions |
Last Updated: 4 April 2012
JUDGEMENT FOR PUBLIC RELEASE: SEE ADDENDUM.
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV 2012-404-1242 [2012] NZHC 447
BETWEEN TERMINALS (NZ) LIMITED Plaintiff
AND COMPTROLLER OF CUSTOMS Defendant
Hearing: 14 March 2012
Appearances: R E Harrison QC and A Sorrell for plaintiff
M Palmer and S Kinsler for defendant
Judgment: 16 March 2012
JUDGMENT OF GILBERT J
This judgment was delivered by me on 16 March 2012 at 2.30 pm pursuant to Rule 11.5 of the High Court Rules. Registrar/Deputy Registrar
Date: ......................
Counsel: R E Harrison QC, Auckland: rehqc@xtra.co.nz
A C Sorrell, Auckland: alan@sorrell.co.nz
Solicitors: Crown Law, Wellington: matthew.palmer@crownlaw.govt.nz sean.kinsler@crownlaw.govt.nz
Jones Young, Auckland: keith@jonesyoung.co.nz
TERMINALS (NZ) LTD V COMPTROLLER OF CUSTOMS HC AK CIV 2012-404-1242 [16 March 2012]
[1] Terminals (NZ) Limited (TNZ) seeks interim orders restraining the Comptroller of Customs (the Comptroller) from making an assessment of excise duty and additional duties under the Customs and Excise Act 1996 (the Act).
Background
[2] TNZ owns and operates a substantial facility at Mount Maunganui for the storage of fuels and associated products, including motor spirit, butane, and denatured ethanol. The products are stored for Gull New Zealand Limited (a company associated with TNZ) and BP New Zealand Limited.
[3] Most of the motor spirit is delivered to the facility through a dedicated pipeline using the on-board pumping systems of a tanker vessel berthed in the Tauranga harbour. Small quantities are occasionally delivered by tanker truck.
[4] All motor spirit received into the facility has had excise duty paid (or excise- equivalent duty in the case of goods manufactured overseas). Excise duty is also paid on butane prior to it being received at the facility. The excise duty on butane is at a significantly lower rate than the duty payable on motor spirit and there is no duty at all on denatured ethanol. These differential rates of duty lie at the heart of the present dispute.
[5] TNZ dispatches the motor spirit as required by Gull or BP. Some of the motor spirit is piped from the facility to the storage tanks of an adjacent Gull service station. Small quantities are also dispatched in drums. Most of the product is delivered by fuel tankers, which are filled by pumping one or more of the separately- stored products (motor spirit, butane, and ethanol) through a gantry building. The process enables TNZ, in accordance with Gull or BP’s specifications, to add precise quantities of butane and/or ethanol to the motor spirit as it is pumped into the tanker. The quantity of butane added is generally less than five per cent. Gull’s premium blend comprises approximately 10 per cent ethanol. TNZ describes the process of
adding butane and ethanol to the motor spirit as “dispatch activity” and I will use that shorthand description when referring to this mixing process.
[6] TNZ has been adding butane to motor spirit in this manner since March 2003. It has also been adding denatured ethanol to motor spirit since July 2007.
[7] Before commencing the dispatch activity in 2003, TNZ made inquiries of a Mr Wakefield, a Client Service Officer in the Tauranga office of the New Zealand Customs Service (Customs), as to the excise duty implications of the proposed process. Mr Mountfort, TNZ’s Terminal Manager, wrote to Mr Wakefield on 4 April
2002 to confirm the details of a telephone discussion between them that day:
Re: “In-to-truck” Fuel Mixing
I write to confirm the details of our telephone conversation today and to ask for written confirmation from your office to insure [sic] I have made the correct interpretation based on our conversations.
Terminals NZ Ltd intends to mix fuel components from storage tanks within it[s] compound into a fuel truck or drums at the point of loading. Each of the components will be Duty/Excise paid at the applicable rate for each component into our store prior to loading either on import or at time of purchase from the local NZ suppliers. The mix will then be sold to our customers at the time of request for the mix. It is not our intention to be blending in our bulk tanks at this stage.
Typical components for the mix are but not limited to: Gull Regular or Premium Motor Spirit (80-90%) Denatured Ethanol (5-10%)
Un-odourised Butane (5-10%)
A variety of combinations of components including but not limited to the above may be used in any combination from time to time depending on customer requirements. Quantities are expected to be substantial but indeterminate at this time for any one combination.
Based on our conversation today we determine that:
1. Each of the individual components has had Duty/Excise paid at the applicable rate at the respective point in the importation/supply/manufacture chain;
2. The mixing of any combination of these components into the truck/drum prior to sale is NOT SUBJECT TO further Duty/Excise.
Thank you for your rapid response to our questions. I look forward to your confirmation and reply.
Should you have any further queries please feel free to contact me at the
Mount Maunganui office.
I am writing in reply to your letter dated 4 April concerning your Company’s proposal to mix fuel components from storage tanks to fuel trucks for the purpose of supplying special needs customers.
I understand that all the individual components to be used will have had
Duty/Excise paid on them prior to mixing.
I can confirm that the mixing of any combination of these components into the truck/drum prior to sale will not be subject to further Duty/Excise liability.
[9] Mr Mountfort telephoned Mr Wakefield on 25 May 2002 to clarify whether the approach confirmed by the 9 April letter was confined to supplies to “special needs customers” or whether it applied to all mixtures referred to in the 4 April letter. Mr Mountfort says in his affidavit that Mr Wakefield confirmed that no further excise duty would be payable on any supplies of such mixtures in consequence of the proposed dispatch activity. He prepared a handwritten note of this telephone conversation which records: “confirmed phone conversation 25/5/02 1:45pm applies to gross petrol station volumes as well”.
[10] Customs commenced a compliance audit of TNZ’s operations on 2 December
2010. In a letter dated 15 September 2011, following completion of the audit, Customs advised TNZ of a number of “findings”, one of which was that the “process of blending motor spirits and butane (LPG) constitutes manufacture”. As a result of this finding Customs advised that it intended to complete an assessment of the duty payable.
[11] The fact of manufacture has a number of consequences under the Act, including a liability to pay excise and/or excise-equivalent duties under ss 73 and 74 of the Act. “Manufacture” is defined in s 2 of the Act as meaning “if the goods are a fuel, any operation, or process involved in the production of the goods”. Customs explained in its letter that it considered that the dispatch activity involved manufacture for the following reasons: “the blending of motor spirit with butane, or blending with ethanol and/or butane results in a greater volume of motor spirit product than what was commenced with” and “the process of blending also leads to
a change of the butane component into a motor spirit product. This is reflected in a change of the Tariff classification of the butane content”.
[12] The Comptroller’s position is that excise duty is payable on the volume of motor spirit dispatched from the facility, such volume having been increased by the addition of butane or ethanol, at the rate applicable for motor spirit. Her position can only be justified if the mixing or dispatch activity is a process involved in the production of the motor spirit and therefore “manufacture” for the purposes of the Act.
[13] TNZ does not accept Customs’ interpretation. It maintains that its dispatch activity does not involve manufacture. It argues that, as motor spirit already contains butane, the addition of further butane does not change the character of the product as motor spirit. The dispatch activity is therefore not a “process involved in the production” of motor spirit.
[14] The dispute is important because, if TNZ is right, less duty will be paid overall because of the lower rate chargeable in respect of butane and the fact that no duty at all is payable in respect of denatured ethanol. If the Comptroller is right, the entire volume of motor spirit dispatched from the facility, including the butane and ethanol components, will attract duty at the motor spirit rate.
[15] The parties have been unable to resolve the issue. Gull has been paying excise duty on motor spirit on the basis contended for by Customs on a without prejudice basis since May 2011, but it is not prepared to pay excise duty on past deliveries going back to April 2003, unless ordered to do so.
[16] On 19 December 2011, TNZ’s solicitors wrote to the Comptroller’s solicitors enclosing a draft statement of claim and proposing that the parties agree on the most constructive way of dealing with the dispute. The Comptroller’s solicitors were receptive to this. They replied to TNZ’s solicitors on 20 December 2011:
...
under the Declaratory Judgments Act 1908 to resolve any uncertainty over the definition of the term “manufacture” in the context. However, the Comptroller remains of the view that the claims for relief by way of judicial review on the basis of legitimate expectation or estoppel foreshadowed in your draft statement of claim are inappropriate. She will oppose any such elements of an application.
3. I can also advise that no assessments will be made prior to the resolution of the application under the Declaratory Judgments Act
1908 as to the meaning of the term “manufacture”. This of course will be dependent on such an application being prosecuted with all due haste. Contingent on the outcome of that application, additional
duty may be payable. In accordance with my letter of 16 December
2011 this will recommence running from 20 January 2012.
4. I note that by delaying issuing an assessment pending the resolution of the application under the Declaratory Judgments Act 1908 the Crown risks forgoing any duty that may have otherwise become payable in accordance with s 90(2). The Comptroller will take that into account as a factor in the exercise of her discretion to remit additional duty.
...
[17] The Comptroller withdrew her support for this approach in a letter to TNZ’s
counsel on 1 March 2012. Her solicitors advised as follows:
...
2. The key point from the Comptroller’s perspective is that excise is levied by Parliament. Although she has the administrative power to settle disputes, the power must be exercised on a principled basis rather than a merely pragmatic or ordinary commercial basis. While factors relevant to settlement would include litigation risk and legal uncertainty, it would appear the parties are presently quite far apart in their respective assessments of the facts (or the weight to be attributed to certain facts) and the law.
3. The scheme of the Customs and Excise Act 1996 provides for an assessment to determine the amount of excise duty payable and the extent of applicable additional duty that has accrued. The Comptroller has a broad discretion to remit additional duty. In exercising that discretion, the Comptroller may, for example, consider the meaning and effect of the 2002 correspondence, and the reasonableness of the reliance TNZ indicates it placed on that correspondence. The assessment would then be appealable to the Customs Appeal Authority, with the power to state a case on a question of law for the High Court (for example, the meaning of the term “manufacture”), and with provision for further rights of appeal to the High Court.
4. In the Comptroller’s view, the appropriate course for resolving this issue is not judicial review. I note that in my letter of 20 December
2011, I indicated a willingness on the part of the Comptroller not to issue an assessment if Declaratory Judgment proceedings dealing
with the meaning of the term “manufacture” were filed expeditiously. The Comptroller continues to recognise the desirability of certainty around that question. Having reviewed the
issues, however, she considers the appropriate forum to resolve that question (on which there is clear disagreement) is by way of the case
stated procedure. She therefore does not consent to engage in the proposed proceedings, encompassing, as you have indicated, claims alleging substantive legitimate expectation and promissory estoppel,
which are directed at stopping her from performing her public duties and sit outside the dispute resolution framework prescribed by the
Act. For the same reasons, she does not agree not to attempt to strike out those causes of action as an abuse of process or as
otherwise incapable of success.
5. For these reasons, the Comptroller gives you notice that she will proceed to make assessments in this matter on Monday 19 March
2012. I provide this forewarning as you have indicated you may seek interim relief directed at stopping the assessments being made.
Any such proceedings will be vigorously defended and costs will be sought. Additional duty will continue to accrue.
6. If, on the other hand, your client wishes to resolve this matter in the manner prescribed by the Act, as noted above the Comptroller has a wide discretion to remit additional duty. You may wish to apply to the Comptroller to exercise her discretion to remit additional duty and provide submissions in support once the assessment has been made.
[18] It emerged after this proceeding was commenced that the Comptroller proposes to issue an assessment of duty amounting to [ ] on 19 March
2012. She tentatively proposes to issue an assessment of additional duty of [ ] on 20 April 2012, but she will invite submissions on remission of such additional duty under s 87(2) of the Act prior to making the formal assessment.
The present proceeding
[19] TNZ commenced this proceeding on 8 March 2012. It pleads three causes of action. In the first it seeks declarations that the dispatch activity does not constitute “manufacturing” in terms of the Act, and that it has no liability to pay excise duty on motor spirit dispatched from its facility. The second cause of action, founded on the assurances given in April 2002 by Mr Wakefield, is for alleged breach of legitimate
expectation. The third cause of action, promissory estoppel, is also based on the correspondence and discussions with Mr Wakefield in April 2002.
[20] TNZ applies for interim orders restraining the Comptroller from treating the dispatch activity as giving rise to a liability to pay excise duty under ss 73, 74, and
76 of the Act or additional duty under s 87. It also seeks an interim order restraining the Comptroller from making an assessment under Part 8 of the Act on the basis of any such alleged liability.
[21] The grounds of the application are that the orders are “in the interests of justice and necessary to preserve the position and interests of the plaintiff in the interim and/or to prevent the plaintiff ’s application for judicial review being rendered nugatory”.
[22] The Comptroller opposes the application for interim relief on the basis that TNZ has no position that it is necessary or in the interests of justice to preserve. She argues that any grant of the interim relief sought would undermine the scheme and policy of the Act and the integrity of the system Parliament has established to levy and collect excise duty and to resolve disputes about assessments. She contends that challenges by way of judicial review should be reserved for “exceptional cases” and unnecessary applications for judicial review should be discouraged given the statutory dispute resolution regime and the desirability of preventing gaming and diversionary tactics by duty payers. Finally, the Comptroller opposes the application on the basis that other factors relevant to the exercise of discretion do not favour the making of the orders sought.
Legal principles
[23] TNZ founds its application for interim relief on s 8 of the Judicature
Amendment Act 1972 (JAA) or, alternatively, on Part 30 of the High Court Rules. [24] Section 8 of the JAA relevantly provides:
8 Interim orders
(1) Subject to subsection (2) of this section, at any time before the final determination of an application for review, and on the application of any party, the Court may, if in its opinion it is necessary to do so for the purpose of preserving the position of the applicant, make an interim order for all or any of the following purposes:
(a) Prohibiting any respondent to the application for review from taking any further action that is or would be consequential on the exercise of the statutory power ...
[25] Rule 30.4(1) of the High Court Rules provides:
30.4 Interim orders
(1) When an application is made for an extraordinary remedy under this Part, the court may make an interim order on whatever terms and conditions the court thinks just.
[26] The order sought in the substantive proceeding is in the nature of prohibition. The proceeding is therefore to be treated and disposed of as an application for review by virtue of s 6 of the JAA. It follows that the Court has power to make interim orders as set out in s 8 if, in its opinion, it is necessary to do so for the purpose of preserving the position of the applicant.
[27] Mr Palmer, for the Comptroller, accepts that the proposed assessment is amenable to judicial review. He also accepts that the Court has jurisdiction under s 8 of the JAA to make the orders sought if it is necessary to do so to preserve TNZ’s position (which he disputes). Mr Palmer accepts that the Court’s review powers are not ousted by the Act, which does not contain any privative provision equivalent to that found, for example, in s 109 of the Tax Administration Act 1994.
[28] Relying on s 6 of the JAA, Mr Palmer submitted that the proper jurisdictional basis for the interim relief sought was pursuant to s 8 of the JAA rather than Part 30 of the High Court Rules. His submission is supported by the commentary in McGechan on Procedure at HR30.4.01.
[29] Mr Harrison QC, for TNZ, advised that Part 30 had been relied on in the alternative to meet any possible argument that no statutory power has yet been exercised and that s 8 of the JAA would not apply because the only available order
under this section would be an order preventing the Comptroller from taking any
action “that is or would be consequential on the exercise of the statutory power”.
[30] Mr Harrison submitted that the Comptroller has made a decision in that she
has made “findings” about manufacture as confirmed in the letter dated
15 September 2011 and the audit report. Mr Palmer disagreed. He characterised these findings as nothing more than an interpretation of the law, not a decision amenable to challenge. However, as noted, he acknowledged that the proposed decision is amenable to judicial review and that the Court has power under s 8 to make the interim orders sought if satisfied that it is necessary to do so to preserve TNZ’s position and after considering the strength of TNZ’s case and weighing other factors, including public and private interests.
[31] I do not consider that the “findings” in the 15 September 2011 letter and audit report can themselves be categorised as the exercise of a statutory power. The proposed assessments could be said to be consequential on the statutory power to conduct the compliance audit. Given that counsel were agreed that I have jurisdiction under s 8 of the JAA, I proceed on that basis. However, for completeness, I note that the ultimate outcome of the present application would have been the same whether I had approached the exercise under s 8 of the JAA or under Part 30 of the High Court Rules.
[32] Following the benchmark decision of the Court of Appeal in Carlton and United Breweries Ltd v Minister of Customs[1] the proper approach to an application for interim relief under s 8 of the JAA is for the Court to consider whether the order is reasonably necessary to preserve the applicant’s position. Once that condition is satisfied, the Court should consider all the circumstances of the case, including the apparent strengths or weaknesses of the claim and the public and private implications of making or withholding the orders sought. These considerations will guide whether the making of the orders will best serve the overall interests of justice
in the particular case.
Does TNZ have a position that it is necessary to protect?
[33] As already noted, TNZ’s application for interim relief is made on the grounds that its application for judicial review will be rendered nugatory unless the orders are granted. This is because the substantive relief seeks an order restraining the Comptroller from purporting to exercise her power to make an assessment of excise duty and additional duty. If no interim order is made, the assessment will proceed and the substantive relief claimed in the proceeding will not be available.
[34] TNZ also claims that it will suffer financial detriment and hardship if the interim orders are not made. TNZ’s position is that it has not been involved in manufacture and has no liability to pay further excise duty or additional duty. Absent manufacture, the Comptroller has no power to make any assessment of duty or additional duty. If the interim orders are not granted, the Comptroller will proceed with the assessments and TNZ’s position will change (assuming it is not liable for the duty). The assessment shall be deemed to be correct and TNZ will be liable to
pay the duty 20 working days after receiving notice of the assessment[2] irrespective
of whether any appeal is lodged.[3] TNZ will not be entitled to any recovery unless and until it has successfully appealed the decision.[4]
[35] TNZ is a trustee for the Terminals New Zealand Trust. Mr Rae, the Chairman of TNZ and Gull, has sworn an affidavit stating that special purpose audited accounts for the period ended 30 June 2011 for the Terminals New Zealand Trust disclose net assets of [ ]. This includes property, plant, and equipment valued at [ ] based on an independent valuation dated 6 May 2011. Mr Rae says that TNZ would not be able to make immediate payment of the amount he understood Customs was proposing to levy at the time the affidavit was sworn, which was a little under [ ]. Mr Rae said that this sum could not be paid
without additional funds being provided by the shareholder or by realising assets.
[36] Mr Harrison submitted that the Court would be entitled to infer that an assessment of excise duty, even at the lower level now proposed, would nevertheless cause TNZ financial hardship.
[37] The Comptroller argued that TNZ has no position that is necessary to preserve and there is therefore no basis to make the interim orders sought. TNZ had neither established that its rights to challenge the assessment would be rendered nugatory nor that it would suffer an irredeemable loss if the orders were not made.
[38] The Comptroller’s position is that TNZ already has an unquantified liability for excise duty. Its financial position will therefore not change adversely by the making of the assessment. Mr Palmer even went as far as to suggest that TNZ’s financial position could improve once the assessment is made because it will clarify the amount due which will be at a level less than TNZ previously expected.
[39] Mr Palmer submitted that there is nothing inherently unfair, unusual, or prejudicial in TNZ being required to follow the disputes procedures provided by Parliament in the Act. He submitted that it is not necessary for the Court to provide TNZ with the special protection of the extraordinary remedies and injunctive relief to restrain the Comptroller from carrying out her statutory duty to quantify and assess the duty payable. Parliament has seen fit to require duty payers to pay assessments of duty as a debt due to the Crown, pending determination of any dispute through the comprehensive appeals processes under the Act. TNZ is in the same position as any other duty payer and the asserted risk of the Comptroller “getting it wrong” cannot be enough to justify interim injunctive relief.
[40] Mr Palmer submitted that the Court should take no account of any claim by TNZ that the injunction should be granted on the grounds of financial hardship. Mr Palmer pointed out that no accounts for TNZ were produced and no reliable conclusion could be made about its financial position based on what he described as the “rather skimpy evidence” of the assets of TNZ in Mr Rae’s affidavit. Mr Palmer submitted that much more detailed evidence would be required to justify interim relief based on an inability to pay.
[41] In my view, TNZ does have a position that is necessary to preserve. For the reasons which I will come to, it has made out a strongly arguable case that the dispatch activity is not a process involved in the production of goods and is therefore not “manufacturing” for the purposes of the Act. If that position is ultimately established, TNZ will have had no liability to pay duty or additional duty. Whether or not, as a matter of fact and law, the dispatch does constitute “manufacture”, and therefore whether there is any current liability for duty or additional duty, TNZ will have a substantial debt to the Crown if the assessment proceeds.
[42] TNZ’s position, that it has no liability for duty or additional duty arising out of the dispatch activity it has been carrying out since March 2003, arguably with Customs’ full knowledge, cannot be preserved without the making of interim orders. Although it does not necessarily follow that interim orders should be made, I am satisfied that the threshold test is satisfied in this case. I therefore turn to consider the other factors relevant to the exercise of the discretion.
Strength of TNZ’s case
[43] As noted above, TNZ advances two grounds of review. The first challenges the legality of the Comptroller’s threatened exercise of the statutory power of assessment. In short, TNZ argues that there is no power to assess because there has been no manufacture. The second ground is based on an alleged breach of TNZ’s legitimate expectation arising from the 2002 assurances given to it by Mr Wakefield. TNZ also pleads an alternative claim of promissory estoppel.
Manufacture
[44] Mr Harrison submitted that even if the dispatch activity was a “process”, it does not substantially or materially contribute to, and is therefore not “involved in”, “the production of goods”. He referred to International Bottling Co Ltd v Collector of Customs,[5] in which Tompkins J cited with approval at 583 the House of Lords
decision in Cinzano (UK) Ltd v Customs and Excise Commissioner.[6] In that case,
Cinzano was proposing to import into the United Kingdom vermouth at two different strengths, attracting different rates of duty. It then proposed to blend the separate consignments at its warehouse in the United Kingdom. The issue was whether the blending process would constitute “production” such that an excise licence would be required and duty would be payable on the blended product. Lord Brightman, with whom the other Law Lords agreed, stated at 488:
I have no doubt whatever that when wine is “obtained” from the alcoholic fermentation of grapes, it is “produced”, and that wine is not again “produced” because two wines previously so obtained are then blended into a single wine.
[45] Mr Harrison submitted that the reasoning of the House of Lords in Cinzano, as adopted in International Bottling, strongly supports TNZ’s position that its dispatch activity does not produce something different; the addition of small quantities of butane and/or denatured ethanol to motor spirit does not change the resulting product, which remains motor spirit.
[46] Mr Harrison submitted that the legislative history also supports TNZ’s position on manufacture. He pointed out that the definition of “manufacture” in the Customs Act 1966, considered in International Bottling, was materially the same as the definition of “manufacture” in the Customs and Excise Act 1996. The definition of manufacture in the 1966 Act was, in relation to goods other than tobacco:
... a process of production, assembly, packaging or other operation or process involved in the production of the goods ...
[47] The Customs and Excise Act 1996, which did not materially amend this definition in the case of motor spirits, received the Royal Assent on 4 June 1996, a year after the decision in International Bottling. There is therefore some force in Mr Harrison’s submission that Parliament intended the International Bottling interpretation of “manufacture” and “production” to apply.
[48] The definition of “manufacture” in the Act was amended by the Customs and Excise Amendment Act (No 2) 2002. This Act provided separate definitions of “manufacture” for tobacco, fuel, and other specified goods which are neither tobacco nor fuel. The definition of “manufacture” in relation to fuel was amended by this
Act to remove the elements of “process of production”, “assembly”, and “packaging”, but otherwise remained unchanged. Significantly, the definition of “manufacturing” was extended in relation to alcohol to include “ancillary processes” including “filtering the goods, diluting the goods, or blending the goods with other goods (whether the other goods are the same as, similar to, or different from the goods)”. It therefore appears that Parliament intended to catch blending within the definition of “manufacture” in the case of alcohol but not in the case of other goods, including fuel.
[49] On the basis of this analysis, Mr Harrison submits that Parliament cannot have intended that the dispatch activity, involving blending butane and/or ethanol with motor spirit, would be caught by the definition of manufacture.
[50] Mr Palmer submitted that TNZ’s case on manufacture was “no more than superficially arguable”. He did not engage directly with TNZ’s analysis, which I have summarised above. He submitted that a purposive interpretation of the Act was required and that the purpose of the Act was that duty should be levied on the goods removed from Customs controlled areas at prescribed rates. Here, the goods removed from the Customs controlled area for home consumption is motor spirit and duty should be paid at the applicable rate for motor spirit on the full volume dispatched. Mr Palmer submitted that TNZ was seeking an advantage to which it was not entitled as a result of the differential rates of duty payable on motor spirit and butane.
[51] It is not necessary for me to decide which interpretation is correct in the context of this interim application. It would not be appropriate for me to pre-judge the outcome of the case. I am, however, satisfied that TNZ has made out a strongly arguable case on the manufacture issue.
Legitimate expectation/estoppel
[52] Mr Palmer described this cause of action and the alternative estoppel claim as “fatally weak”. He submitted that it is not possible to have a legitimate expectation that a public authority will not apply the law. Mr Harrison acknowledged that the
legitimate expectation claim is “not without difficulty” and that there is authority that there is no room for estoppel in public law. However, he maintained that there is a factual basis for these claims and that they are arguable because the law is not yet finally settled in this area.
[53] Clearly, TNZ will confront significant difficulties in attempting to make out its claims under the second and third causes of action, but I do not need to say more about these claims given the conclusion I have already reached about the strength of its first cause of action.
Public interest considerations
[54] There is a clear public interest in upholding the integrity of the customs and excise regime, which is premised on duty payers complying with their obligations in a timely manner. Mr Palmer placed significant emphasis on the statutory dispute resolution procedures under the Act. He submitted that the powers of the Customs Appeal Authority are wider than the Court has in the context of a judicial review. Appeals are heard de novo,[7] the Authority has all the powers of the Comptroller,[8]
cases can be stated for the High Court on questions of law,[9] and appeals to the High
Court and the Court of Appeal are available as of right.[10]
[55] Mr Palmer relied on the Supreme Court decision in Tannadyce Investments Ltd v Commissioner of Inland Revenue[11] in submitting that judicial review is limited to circumstances where statutory dispute resolution mechanisms cannot practically be engaged. He referred to the majority judgment given by Tipping J at [71]:
The earlier case law, both under the 1976 Act and the current 1994 Act, does not take sufficient account of the fact that hearing authorities (whether a Taxation Review Authority or the High Court) both had and have the same powers as the High Court on an application for judicial review. The earlier case law also seems not to have recognised sufficiently that objection and challenge proceedings, which contain the ability to elect to have the matter dealt with by the High Court, give the taxpayer exactly the same forum, and indeed broader rights and remedies than would be available on judicial
review; but with the crucial advantage that all matters at issue can be dealt with at the same time. Requiring the use of the statutory procedures removes the opportunity which the availability of judicial review would present, and has presented, for gaming the system.
[56] Mr Palmer also relied on the Court of Appeal’s decision in Commissioner of
Inland Revenue v Wilson.[12] Richardson P, giving judgment for the Court stated:
The imposition of time limits is a central feature of tax administration in New Zealand, as in other jurisdictions. It is part of the scheme and policy of the legislation. Without time constraints, administrative chaos and uncertainty would ensue. The Commissioner could not close the books. Taxpayers would not know where they stood. The setting of time limits and other constraints throughout the legislation recognises that the correctness and the quantification of tax liability is not an absolute value. It is crucial in the making of an assessment. Once the assessment is made, in the absence of a timely objection the assessment is determinative of liability...
[57] The Court must be vigilant in ensuring that the statutory process contained in the Act is not undermined by inappropriate recourse to judicial review. The Court should not lend its assistance to duty payers who seek to avoid their obligations by gaming the system. That would be contrary to the public interest and unfair to other members of the public who meet their duty payment obligations in a timely manner. But this cannot mean that the discretion should not be exercised in an appropriate case. Mr Palmer acknowledged this but submitted that the discretion should be reserved for exceptional cases.
[58] This is an unusual case because it involves the threatened imposition of very substantial duties on a retrospective basis on activities that have been occurring since March 2003. On TNZ’s case, these activities have been conducted with Customs’ full knowledge over that period and on the basis of assurances given by Customs in April 2002 that duties would not be payable. The amount of duty involved is substantial. TNZ has a genuine and clearly arguable claim that it has no liability at all and there is simply no jurisdiction for the Comptroller to make any assessment or require TNZ to submit to the objection procedures set out in the Act. There can be no suggestion that TNZ is engaged in diversionary behaviour or gaming the system to delay meeting its obligations. Mr Harrison has assured the Court that TNZ wishes
to have the substantive dispute resolved by this Court as soon as practicable. He has
advised that TNZ will make any of its deponents for cross-examination despite the matter proceeding by way of judicial review.
[59] In my view, this is an exceptional case and the public interest in maintaining the integrity of the statutory dispute procedure would not be undermined by granting the relief sought.
Private interests
[60] If relief is not granted, the assessments will be made. As a result, TNZ will owe a debt of approximately [ ] which will be payable in 20 working days. A further assessment will follow on 20 April 2012 for potentially a further [ ], giving a total of some [ ]. This will cause obvious financial detriment to TNZ which it should not have to suffer if it is found that it had no liability in the first place.
[61] On the other hand, if relief is granted, and it is subsequently found that TNZ is liable for the duty, the assessments will issue and TNZ will have to pay. TNZ is already paying duty on current deliveries on the basis contended for by the Comptroller. I understand that TNZ has agreed to continue making these payments whether or not relief is granted until the matter is determined. The Comptroller has indicated that she will take into account any delay in exercising her discretion whether or not to remit additional duty under s 87(2) of the Act.
[62] I consider that the private interests favour the making of the orders in this case on an interim basis and on the basis that TNZ pursues its claim for substantive relief expeditiously. I have indicated to the parties that the Court would be able to accommodate a hearing of the substantive issues in Auckland or in Wellington as early as May 2012.
[63] Taking all of these matters into account, I am persuaded that this is an exceptional case which justifies the exercise of the Court’s discretion to make the orders sought. In my view this is the course that will, overall, best serve the interests of justice.
Result
[64] I make orders in terms of paragraph 1.1 of the plaintiff’s application for
interim relief dated 8 March 2012.
[65] I direct the Registrar to allocate a conference pursuant to s 10 of the JAA
after liaising with counsel as to a suitable date. [66] Costs on this application are reserved.
[67] The confidentiality orders made by Allan J on 12 March 2012 are to continue until further order of the Court.
[68] I reserve leave to the defendant to apply to vary or discharge these interim orders if TNZ fails to prosecute its claims expeditiously.
M A Gilbert J
Addendum
[69] The complete version of this judgment was released only to counsel for the parties on 16 March 2012 to enable them to advise whether there were any parts of the judgment which they sought to have redacted from the public version of the judgment on grounds of confidentiality.
[70] The parties have sought redactions for reasons of confidentiality and commercial sensitivity to aspects of the following paragraphs of the judgment: [18], [35] and [60].
[71] The Court accepts that these redactions should be made to the judgment for reasons of confidentiality and commercial sensitivity.
[72] The judgment with these redactions may now be released and published.
[1] Carlton and
United Breweries Ltd v Minister of Customs [1986] 1 NZLR 429
(CA).
[2]
Customs and Excise Act 1996, s
90(1).
[3]
Ibid, s
91.
[4] Ibid, s
92.
[5]
International Bottling Co Ltd v Collector of Customs [1995] 2NZLR
579 (HC).
[6]
Cinzano (UK) Ltd v Customs and Excise Commissioner [1985] 1 WLR 484
(HL).
[7]
Customs and Excise Act 1996, s
255(1).
[8]
Ibid, s
255(2).
[9]
Ibid, s
274.
[10]
Ibid, ss 272 and 273.
[11] Tannadyce Investments Ltd v Commissioner of Inland Revenue [2011] NZSC 158.
[12] Commissioner of Inland Revenue v Wilson (1996) 17 NZTC 12,512 (CA) at 12,520.
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