CIR v Chatfield & Co Limited [2019] NZSC 84

The final episode of the Chatfield saga has been aired in the Supreme Court, which has denied IR leave to appeal the Court of Appeal's decision in favour of Chatfield. The short decision is instructive.

The IR application for leave was based, essentially, on it wanting to run again the arguments it had put to and lost in the lower courts. These were said to meet the threshold tests for access to the Supreme Court, ie to be matters of general or public importance.

First, IR wanted to argue again that the whole issue of its dealing with a foreign tax authority’s treaty requests for information was not justiciable in the NZ courts at all. As an alternative, IR wanted to argue again that any review a NZ court might undertake should be circumscribed. The Supreme Court dealt with these on the basis that the Courts below had seen the relevant issues as involving the interpretation and application of New Zealand law. It did not consider there was sufficient prospect of success to warrant a further appeal. In other words in the circumstances of this case, IR was trying to reprise a stinker of an argument. It is not difficult to detect in the judgments of the High Court and Court of Appeal a real lack of sympathy for a department of state arguing that the Courts either had no jurisdiction to check them against NZ law or should do so with one eye closed when considering the department's performance in relation to treaty obligations that reach into the business of a NZ resident taxpayer. IR’s effort to ring fence from scrutiny its dealings with overseas requests for information has fallen flat, when the matters placed in issue go to the correct interpretation of NZ law.

Next IR wanted to argue various matters related to Double Tax treaty interpretation. Now, the Supreme Court accepts that such arguments could, in the right case, raise issues of public importance (though it declined in Lin to act on that), but in Chatfield the relevant issues of interpretation arose from the evidence of IR’s competent authority, Mr Nash, and so were confined. Again, no joy for IR in being able to re-run its argument.

Thirdly, IR tried to resurrect the argument that, if the Court was to consider its actions, it should do so without disclosure of the request for information from the Korean tax authorities. This is almost as bad as arguing that the whole matter was not justiciable. The Supreme Court put the IR argument in terms that made its rejection virtually inevitable. It said that IR was asking that the “Court should resolve the concerns raised by Chatfield against it without being able to refer to the key document, which was in the Commissioner’s possession.” Again, this was seen to have insufficient prospect of success to justify putting Chatfield to the expense and inconvenience of a further appeal.

The Court was apparently not presented with arguments that might have aligned its approach with that in Lin (as to which see my note here), but it resoundingly rejected the application by IR for a further appeal. The progress of Chatfield to this point allows a few overarching observations on the way New Zealand will deal with international information requests:

1. The secrecy that underpins treaty expectations for the gathering of information will not automatically be accepted in litigation by which a party from whom information is sought in NZ challenges requests from IR for that information.
2. At least some insight into the reasons for an overseas information request will have to be disclosed to a NZ based party from whom IR seeks information on behalf of a foreign tax authority.
3. The extent to which a NZ Court will inquire into IR’s consideration of the validity or scope of a foreign information request will be determined having regard to the fact that IR’s obligations under a DTA form part of NZ law. The fact that they also reflect treaty obligations for which different principles might apply, including expectations of secrecy between treaty partners, will not mean that those expectations prevail, unless the matter being considered goes to the interpretation of a treaty provision. In particular, expectations based on commentary to treaties will not necessarily carry the day.
4. The Court of Appeal has laid out a road map for IR and foreign tax authorities to avoid the criticisms voiced in Chatfield in the High Court and, more mutedly, in the Court of Appeal. It can be expected that this map will be followed in the future.
5. Chatfield involved a foreign tax authority taking an extreme position by refusing to allow any part of its request to be disclosed to the intended target or the NZ Courts, even after the content of that request became relevant. No doubt this was to avoid compromising its investigation but some compromise may be required if information is to be forthcoming.
6. In all events, IR and foreign tax authorities now have other means by which to obtain at least some of the information that was being sought in Chatfield, without necessarily facing the same risks that arose for them in that case. These lie in the regimes for continuous and spontaneous international disclosure.

One final comment is warranted. The IR application for leave to appeal shows that it has been prepared to advance, to the utmost available level, arguments that are essentially antithetical to the concept of open justice. Doubtless it has done so because, not being able to deliver to its treaty partners their expectation that their requests to IR will be kept confidential, it fears that the confidence of those treaty partners will be undermined and its own ability to seek and obtain information overseas may be compromised.

If that has been IR’s motivation, it was a considerable mis-judgement on its part to advance administrative convenience over the just disposition of matters before our courts. The response of the Courts is a welcome reinforcement of the fact that they will prevent our court processes being compromised in favour of such convenience, unless there is an clear reason for that to occur, a possibility which the Supreme Court decision leaves tantalisingly available for another case.

© G D Clews, 2019