The Richardson Years
AN OVERVIEW OF CASE LAW AFFECTING THE COMMISSIONER’S STATUTORY POWERS
G D CLEWS
1.1 Determining the availability and extent of administrative remedies against the Commissioner of Inland Revenue has given rise to significant litigation between him and taxpayers. It is fair to say that during the 1990's the Commissioner harboured the suspicion that some tax practitioners were intent on mounting a concerted campaign to subvert the primacy of the then case stated procedure by which tax disputes were litigated. The suspected subversion was in favour of judicial review and the administrative relief it afforded. Recourse to administrative law was often styled by the Commissioner as a pre-emptive strike by the taxpayer.
1.2 It is true that the 1990's, especially from 1996 onwards, spawned a good many cases in which the Court of Appeal was asked to consider the availability of administrative remedies against the Commissioner. These cases were fought strenuously on both sides. They often involved large sums of money. At stake in seeking to attack the Commissioner on the validity of his assessment, or in anticipation of assessment, was the reality that, upon an assessment being made, half the tax in dispute became payable. That is a reality that His Honour Richardson J was not slow to recognise in Canterbury Frozen Meat , although it was overborne as the result of the Privy Council's decision in Harley Developments , which shaped the Courts subsequent approach in Golden Bay Cement .
1.3 Along the way there have been a number of tilts at the process of making assessments. We now know that this process is not to be constrained in the sense that the Commissioner cannot lawfully be prevented from making an assessment that he is enjoined to make by statute. His process may, however, be flawed and in appropriate cases that has been regarded as amenable to review, although now it seems such flaws are more likely to have to be dealt with in challenge proceedings with non deferrable tax payable in the meantime.
1.4 There have been outright attacks on the Commissioner's investigation powers in cases such as NZ Stock Exchange and Green v Housden . There have also been back door attacks on them in the context of applications for discovery in cases such as E R Squibb and to a lesser extent Knight . There have been attempts to limit the exercise of those powers on the basis of fairness or abuse of power in Brierley Investments .
1.5 There have been further attempts ahead of an assessment to have the Courts review a possible unlawful exercise of the assessment power in BNZ Finance and New Zealand Wool Board . The worth of such attempts is debatable, however, given the Commissioner's ability to proceed to assessment anyway when interim relief to prevent that may not be given.
1.6 Against that background, as we come to the end of His Honour's watch on the Court of Appeal, perhaps the most interesting question is whether and to what extent there is a place for administrative remedies in tax matters given the breadth of the present statutory tax dispute process. The concept of that process sprang from His Honour's work on the Organisational Review of Inland Revenue in the mid 1990's. The process is likely to have as much of an influence on the availability of administrative remedies in tax matters as the case law that he has helped to develop in his time on the Bench.
1.7 I understand that during the work of the Organisational Review Inland Revenue advocated strongly that recourse to administrative remedies in tax matters should be written out of the law. That was resisted and His Honour showed, post Organisational Review, that the activities of the Commissioner before he assesses can be amenable to judicial review. However, we now have a statute in the Tax Administration Act 1994 that recognises challengeable disputable decisions that are not assessments. Combined with the injunction of the Privy Council in Harley Developments that available statutory dispute processes should be preferred over recourse to administrative remedies, that suggests that the circumstances in which such remedies might be available, circumstances that had become quite focussed as a result of case law, may have been narrowed even further.
1.8 This paper reviews a number of cases that mark out a progress in the application of the law to the functions of the Commissioner. It cannot be an exhaustive analysis and the choice of cases is necessarily an editorial exercise with which readers may disagree. It begins with the exposition of the importance of the Commissioners statutory functions in Reckitt & Colman . It considers the cases dealing with the issues referred to in paragraphs 1.2 to 1.5 above, starting in 1982 with Lemmington and ending with the Wool Board case. Finally it takes a view of the future, drawn from some of his Honours most recent comments in Simunovich Fisheries15.
2. THE MANTRA - 1966, RECKITT & COLMAN
2.1 Understanding the approach taken by the Courts to administrative remedies against the Commissioner during the time His Honour has been on the Bench starts, as he has often stated, with a careful consideration of the functions of the Commissioner as conferred upon him by statute. Those functions have their origin in the scheme of the Income Tax Act and its predecessors, that itself imposes the charge for tax, in relation to which the Commissioner’s role is one of quantification, the exercise of limited discretions, and, in an overriding sense, the obligation to ensure that each assessment rendered by him is his honest judgement of the amount of tax due from a taxpayer.
2.2 A recital of this statutory scheme (in slightly different forms to suit the case in point) has become something of a mantra in His Honour's judgments and those to which he has contributed. It is a mantra that, for the purposes of this review, can be seen to originate well before His Honour’s elevation to the bench, in Reckitt & Colman16 in 1966.
2.3 In that case ILM Richardson appeared before the Court of Appeal for the respondent Taxation Board of Review in an appeal against the High Court’s decision that the Commissioner of Inland Revenue had no power to waive the lateness of a notice of appeal. The notice had to be lodged within 30 days after date of a determination by the Taxation Board of Review. Opposing him was one Maurice Casey (later Casey J and himself a member of the Court of Appeal). In some respects echoes of their respective positions concerning the Commissioner’s functions resonated through the years to find voice again in their respective judgments in Brierley Investments in 1993, particularly on the extent to which the Commissioner was vested with a general power of management.
2.4 In Reckitt & Colman the submissions of counsel for the respondent were based upon the premise that, in the context of the scheme of income tax legislation, a public interest was involved with the question whether time limits ought to be waived. It was argued that the Commissioner had no power to dispense with the obligation as one solely between him and the taxpayer. The reported summary of counsel’s argument notes points that were to be repeated in case after case in the years following:
(a) Liability for tax is imposed by the charging provisions of the Act;
2.5 Those sentiments struck home with the Court, nowhere clearer than in the judgment of His Honour Turner J who noted first the comments of Lord Hewart in Elmhirst about the existence of so-called “hidden parties” to a tax appeal, namely the general body of taxpayers of the country. Following from that the Judge concluded that due and impartial administration of a revenue statute is a matter in which every citizen has an interest and, insofar as the rights of the Commissioner and taxpayer are prescribed in a revenue statute, they form a code for such impartial and identical treatment from which the Commissioner is not entitled to depart.
2.6 Again, there are echoes of His Honour Richardson J’s decisions to come in the approach urged upon the Court of Appeal by him as counsel. These echoes are found in later conclusions that a failure by the Commissioner to act as he is required to creates no rights in a taxpayer19 that the Commissioner is enjoined by statute to carry out imperative duties imposed upon him20, and of course, in a reprise of the time limit issue, the conclusion that statutory time limits for the filing of a case stated are mandatory21.
3 1982 AND 1983 - LEMMINGTON
3.1 The initial foray in Lemmington22 was based upon fairness and sought to prevent the Commissioner from withdrawing his approval to special tax codes granted to investors in Lemmington promoted investments. Before the High Court the issue was whether the Commissioner’s prior approval of those certificates led to unfairness and a right on the part of the Court to restrain him from withdrawing his approval. In the High Court Chilwell J considered that section 4(1) of the Judicature Amendment Act 1972 gave the Court power to grant relief in relation to a proposed or purported exercise of a statutory power and that inevitably the Commissioner’s actions would affect the rights, duties and liabilities of taxpayers and their employers. On that basis it was considered that the Court had jurisdiction to make an interim order restraining the Commissioner from taking any further action and extending the special tax code certificates, even though they were of limited annual duration.
3.2 The matter came before a Court of Appeal comprising Sir Owen Woodhouse as President and Richardson and Cooke JJ. The judgment of the majority comprising the President and Richardson J was delivered by the latter. In it he set out the position he had advanced as counsel in Reckitt & Colman to the effect that the charge for tax is imposed by the statute itself and tax is payable independently of assessment, though the Commissioner acts in the quantification of the amount due and in various situations is vested with a discretion to exercise as to particular items. Section 19 of the then legislation23 imposed on the Commissioner an obligation that:
“The Commissioner shall in and for every year, and from time to time and at any time thereafter as may be necessary, make assessments in respect of every taxpayer of the amount of which tax is payable and the amount of that tax.”
3.3 In the majority’s view that imposed an imperative statutory duty that was not amenable to judicial restraint under section 4 of the Judicature Amendment Act. The Court noted that estoppel cannot be raised against the operation of a statute imposing a duty of a positive kind, citing Maritime Electric Co Limited24. It concluded that the jurisdiction under the Judicature Amendment Act could not be invoked as a prior restraint on the Commissioner carrying out of a statutory obligation. The majority held that in carrying out the imperative statutory duty the Commissioner was required to exercise his judgment from time to time and at any time thereafter as may be necessary. That was an obligation unfettered by any views he may have previously expressed or assessments he may previously have made.
3.4 Given the primacy afforded the assessment by what was then section 27 of the Income Tax Act 1976 and a concession from counsel that because of it had an assessment been raised by the Commissioner it could not have been the subject of review, the majority concluded that the applicant’s celerity in bring proceedings ought not to advance its position so as to allow a challenge to the intended making of an assessment.
3.5 At this point, however, His Honour noted the distinction between challenging the correctness of an assessment and impugning the legitimacy or validity of the process adopted in making a purported assessment. Richardson J contemplated the ability to challenge on traditional administrative law grounds the legitimacy of the process by which a purported assessment was arrived at or a proposed assessment is to be made, but chose not to decide the point. It was unnecessary for the Court to do so because the case had been framed essentially as a challenge to the correctness of the Commissioner’s judgment. Because he had to be allowed to exercise that in an unfettered way, subject only to the then objection procedures, there was no need for the Judge to go further. His observations were a crack in the door to administrative relief that was to attract a concerted effort at widening.
3.6 Lemmington was referred back to the High Court and in to the hands of Eichelbaum J25 who, nine months after the Court of Appeal decision, addressed a case that had by then been framed in different terms. The Judge noted that when the case first came before Chilwell J the pleadings had focused on the Commissioner’s initial approval of special tax code certificates and their subsequent withdrawal, but had twice been reframed. Seeking to push open the door the majority of the Court of Appeal had left ajar in its decision, the case was now advanced as an attack on the Commissioner’s decision-making process. That seems to have been an opportunity attractive both to counsel for the taxpayer and to Eichelbaum J who, it appears, had difficulty accepting the thrust of the majority’s decision in the Court of Appeal.
3.7 Eichelbaum J seems to have been prepared to “talk the talk” of the Court of Appeal in accepting that the obligation to pay income tax arises under the Act itself and that the Commissioner’s role was to quantify the liability. However, he considered that most people would say the Commissioner’s assessment function affected their liabilities so as to attract the application of the Judicature Amendment Act. He saw the assessment as superimposing upon a general liability to pay tax a more specific obligation arising directly from the assessment itself. From that he concluded that the act of the Commissioner issuing an assessment is the exercise of a power that affects the liability of the taxpayer.
3.8 From this point it seems, with respect, that the Judge had difficulty “walking the talk” for although he acknowledged that the majority in the Court of Appeal had concluded it was implicit that an imperative statutory duty was not amenable to judicial restraint, he was not prepared to conclude that the primacy of an assessment under section 27 of the Income Tax Act 1976 should be read as prohibiting judicial review prior to the issue of the assessment. He considered that the imperative nature of the Commissioner’s duty was not of itself sufficient to exclude the possibility of prior restraint in some cases.
3.9 Seizing upon the Court of Appeal having left open the possibility that the process by which the Commissioner proposes to assess could be open to review, Eichelbaum J proceeded to consider a number of issues relevant to traditional administrative law remedies including the issue of unfairness. The Judge noted that there may be situations where a taxpayer, having ordered his affairs on the basis of past assessments, would regard it as unfair if in a subsequent year the Commissioner, now taking a fresh view, could proceed on a different basis. That issue of fairness was to surface again in a case very close to that postulated by Eichelbaum J. In Brierley Investments26 the argument was based on expectations arising from the Commissioner’s past conduct. It was roundly rejected by the Court of Appeal on the basis that the Commissioner cannot create “no-go zones”.
3.10 Eichelbaum J opined that a review on grounds of alleged unfairness was not an intervention preventing the Commissioner from performing his statutory duty, rather an insistence that the Commissioner perform his duty according to the obligations cast upon him. In the Judge’s view the fairness issue really came down to the information upon which the Commissioner proceeded. If he had no new or different information from that upon which he had arrived at one conclusion, it would be unfair for him to arrive at another to the disadvantage of the taxpayer. In the event an examination of the facts available to the Commissioner persuaded the Judge that there was no unfairness.
3.11 The Court of Appeal’s later approach in Brierley Investments suggests that an absence of new information would not in fact allow the Commissioner to be restrained. It says as much in the Wool Board case in which Richardson P cast a disapproving glance27 back to Eichelbaum J’s judgment in Lemmington (No 2).
3.12 In ER Squibb28 Eichelbaum (by then Chief Justice) noted again the majority’s decision in Lemmington which drew the distinction between challenging the correctness of an assessment and impugning the legitimacy or validity of the process leading to it. He held fast to the view that he had developed that theme in Lemmington (No 2) to the extent that a Court may grant relief against a proposed exercise of the assessment function if the Commissioner proposes to act either on a fundamentally wrong legal basis or contrary to some binding requirement of natural justice and fairness. As a general proposition the first part of this seems to have survived but the issue of fairness is perhaps less clear.
4 JULY 1990 – HAWKES BAY HIDE PROCESSORS
4.1 In this case His Honour Richardson J had the opportunity of expressing the sentiments first conveyed in the submissions in Reckitt & Colman as a judgment of his own on a similar issue. The issue related to section 43 of the Inland Revenue Department Act 1974, which required a case on appeal to be sent to the Registrar of the High Court within 14 days after the appellant received the case from the Taxation Review Authority. The case was in fact filed 34 days after it was received, due to inadvertence. The question was whether the Commissioner was able to waive compliance with the time limit.
3.1 His Honour first canvassed the New Zealand authorities, including Reckitt & Colman, then considered English and Australian cases. He then turned to consider the role and powers of the Commissioner in what are now very familiar terms. The Commissioner’s role as a statutory functionary meant that a very close consideration of his powers and discretions was required. His Honour noted Patsy Reddy’s 1981 article29 listing 470 examples of the discretions available to the Commissioner under the legislation and 70 sections of the Income Tax Act 1976 which imposed time limits on taxpayers. He noted that most contained a power to extend the time limit, but others did not (including section 27).
3.2 He examined then the way in which the Commissioner’s powers in relation to time limits were constrained, concluding that where the legislation intended the Commissioner to be able to allow extra time, it provided for that. The absence of a general dispensing power was noted and the view taken that considerations of prejudice or hardship were for the Executive Council by which, under the statute, it was possible for a timeframe to be relaxed by order in Council.
3.3 The interests of the “hidden litigants” required, as Cooke P noted in his judgment30 that the Commissioner not put the Crown in jeopardy once more when, after the time limit had expired, no appeal could be brought against the Crown.
4. JULY 1990 - NEW ZEALAND STOCK EXCHANGE
4.1 On the same day as the decision in Hawkes Bay Hide Processors was rendered, the Court considered the Commissioner’s information gathering powers under section 17(1) of the Inland Revenue Department Act 1974. The facts of the NZ Stock Exchange case31 are well known and need not be repeated at length. The Commissioner sought information from members of the New Zealand Stock Exchange and from National Bank of New Zealand Limited. It was aimed at identifying parties who might be subject to taxation in respect of transactions they had undertaken. No specific taxpayers were named. The approach by the Commissioner was generally regarded at the time as the classic “fishing expedition”. As a result action was taken to obtain certain declaratory orders as to the validity of the Commissioner’s information requisitions.
4.2 There was no dispute in the case that the Commissioner’s investigative function was amenable to review. Indeed, the New Zealand Stock Exchange case heralded the start of several attacks on the Commissioner’s recourse to section 17 of the Inland Revenue Department Act. However, the extent to which the Commissioner could be constrained was resolved by having regard first to a careful analysis of his functions in the context of the Revenue Acts and, in particular, the terms in which investigative powers were conferred upon him under the relevant section itself.
4.3 The attack on the Commissioner’s inquiries of the Stock Exchange and the National Bank was based largely upon the argument that a balancing of various interests is required to determine the extent to which the Commissioner could investigate matters. The analysis of the nature and extent of the Commissioner’s functions made it clear to His Honour, however, that it was sufficient for the Commissioner simply to reach an opinion as to the necessity or relevance of certain information for him to be able to require its production. In other words he concluded that the statutory formulation of the Commissioner’s responsibilities, the expression of the statutory criteria by which he was to operate, already balanced the various interests and so precluded the intervention of the Court in other than extreme cases.
4.4 The Privy Council considered the issue32 and, but for the arguments of George Barton QC on behalf of the appellants, noted that they would have been content simply to adopt Richardson J’s “comprehensive judgment”. Their Lordships made it clear that given the expression of the Commissioner’s powers to investigate and their operation against the background of his function in quantifying liability imposed under the Act, it could only be where the Commissioner failed honestly to arrive at his opinion as to the necessity and relevance of the information sought by him, or when he acted in a manner that was abusive in the Wednesbury sense, that the Court could interfere.
4.5 Again, therefore, function was dictated by statute. The expression of the statutory function constrained the extent to which a Court could interfere by undertaking a balancing exercise. Consideration of competing interests had been pre-empted by the statute. That left only the possibility of intervention if it was clear that there had been a step beyond the statutory expression of investigative powers.
5. DECEMBER 1990 - KNIGHT & ANOR v BARNETT
5.1 Later in 1990 a Court of Appeal of five including His Honour considered again, in a tangential way, those investigative powers. The scope of the powers was not directly in focus. Knights case33 dealt with the situation where particularly zealous Revenue officials had clandestinely sought to bug a conversation between Mr Knight and another. This was ostensibly (and some might say ironically) with a view to identifying corrupt practice within the Department.
5.2 The case came to the Court of Appeal as a dispute on discovery in proceedings against the Commissioner for damages, alleging abuse of his investigative function. The Commissioner resisted disclosure of documents, citing his secrecy obligations in terms of section 13 of the Inland Revenue Department Act. The case proceeded on the basis that the documents that were sought from the Commissioner were indeed relevant to the plaintiff’s action and ought to be produced unless they were immune from disclosure in terms of section 13.
5.3 His Honour Richardson J’s analysis focused upon the purpose of the secrecy provisions in the scheme of the Commissioner’s statutory powers and emphasised a close analysis of the terms of section 13 itself. In that he noted that none of the exceptions to secrecy was concerned with litigation to which the Commissioner was a party. He concluded that the general exception relating to carrying into effect the Revenue Acts must be directed to that subject, so as to exclude the requirement for a specific exemption. His Honour analysed again the administrative process for which the Commissioner is responsible and concluded that litigation was an almost inevitable adjunct to that. Indeed, in conducting such litigation the Commissioner was discharging his statutory functions so that compliance with the rules of Court as to discovery and production of relevant documents was necessary for the purpose of carrying the Revenue Acts into effect.
5.4 In Knight the Commissioner had relied in a way on prior judicial expressions of his function as going to the quantification and collection of tax. Thus the Solicitor General submitted that the exception to section 13 of the Inland Revenue Department Act applied only where the purpose for which information was disclosed was the collection of revenue. The Court recognised, however, a much broader range of statutory functions and intervened to ensure that the Commissioner’s conduct in relation to those functions was appropriate to their real breadth. The statutory limitation on disclosure of information was thus read down.
6 OCTOBER 1992 – E R SQUIBB
6.1 In a similar way the Commissioner’s investigative functions came before the Court of Appeal in Squibb34, though the Court deals with the case as one involving confidentiality obligations and their effect on pre-trial discovery in much the same way as discovery had promoted the consideration of function in Knight.
6.2 In Squibb the Commissioner had issued an amended assessment against the New Zealand affiliate of a multi-national pharmaceutical company. He purported to make the assessment based upon comparative industry material. Subsequently the Commissioner issued an information requisition and then made an amended assessment for a later year.
6.3 Judicial review proceedings were brought asserting the invalidity of assessments made by the Commissioner and seeking a declaration of invalidity of the Commissioner’s requisition. The appropriateness or not of such proceedings in relation to an assessment purportedly made by the Commissioner was not commented on by the Court of five Judges that considered the matter. In the High Court in 199135 the Commissioner’s application to strike the judicial review proceedings out had failed on the basis that Lemmington permitted judicial review to be undertaken to impugn the validity or legitimacy of the process followed in making an assessment. The Court concluded then that there was sufficient factual material to found an argument that the Commissioner was at least heavily influenced by material from a source whose motivation could be suspect.
6.4 Squibb’s object in obtaining information from the Commissioner was to be able to attack the appropriateness of the comparisons made by him and impugn the credibility of an informant from whom that information had emanated. Access to the information was resisted by the Commissioner on three bases, namely:
(a) The obligations of confidentiality imposed upon him under relevant double tax agreements;
6.5 As to the first of these, His Honour Richardson J considered the functions of the Commissioner and also those of the High Court and Taxation Review Authority. The Commissioner’s functions were constrained by the primacy given to a double tax agreement under section 294(5) of the Income Tax Act 1976. He then considered the scope of the relevant article under the New Zealand/Australia double tax agreement and in particular the extent to which the Commissioner was enjoined from disclosing information because it related to the administration of statutory provisions against tax avoidance. The relevant provisions of the treaty provided that information exchanged should be treated as secret and not disclosed to any person other than those, including a Court or review authority concerned with the assessment or collection of the taxes to which the DTA applied, or the determination of appeals in relation thereto.
6.6 The Court of Appeal concluded, contrary to the view taken by the High Court, that the provision under which the Commissioner was acting36 was an anti-avoidance provision directed at the mischief of transfer pricing. The more difficult issue was whether under the exception to the secrecy requirement Squibb was entitled to receive the information on the basis that it was a person concerned with the assessment or collection “of the taxes” to which the DTA applied.
6.7 His Honour resolved with issue on the basis that the focus was not so much on a single taxpayer concerned with its own tax liability but on those administering the taxes to which the agreement applies in a broader sense. The ability to disclose information was therefore limited to the Commissioner or, importantly, to judicial bodies standing in the shoes of the Commissioner and entitled by statute to make any assessment the Commissioner could, to which an objection was taken.
6.8 The role of the High Court and the Taxation Review Authority meant that they were concerned with the assessment of taxes and had a similar role in relation to judicial review proceedings. That did not permit, however, the release of confidential information to a litigant in pre-trial discovery.
6.9 As to the disclosure of other taxpayers’ affairs, His Honour began with the Knight case noting that litigation is an activity in the carrying into effect of the Revenue Acts. That requires the Commissioner to comply with ordinary obligations to make discovery. Having reviewed, however, the Privy Council’s decision in the Gamini Bus37 case, His Honour concluded that a balancing of public interests was required to determine the extent to which the Commissioner was obliged to disclose information. The two public interests were:
(a) The Commissioner’s continuing ability to resort to third party taxpayer information as an independent source of objective material; and
6.10 His Honour emphasised the Commissioner’s function in quantifying the liability for income tax imposed under the Act but did not regard this case as one in which the expression of that function pre-empted a balancing of interests, as had been so in NZ Stock Exchange. In sentiments reminiscent of those expressed in that Stock Exchange case, he noted the Commissioner cannot always simply rely on taxpayers’ returns and must have regard to other sources of information, including that derived from the records of other taxpayers and other information obtained from other taxpayers or third parties. Subject to the practical difficulty of separating out information that identified another taxpayer, the Commissioner was obliged, however, to make available information that he was relying upon in litigation. In this regard the requirement for disclosure did not require production in existing form of original, raw or abstracted data. However, he held the identification and excision or exclusion of information should be to the absolute minimum extent required to prevent identification of the taxpayer.
6.11 As to the identity of informants, His Honour founded his approach firmly in sentiments that echo those of the Lemmington imperative duty and the Hawkes Bay Hide Processors/Reckitt & Colman public interest. No balancing of interests here! The Commissioner’s duty of non-disclosure of an informant was a public interest responsibility owed to the general body of taxpayers and the whole community and not simply to a particular informant. It was therefore not something that he was in a position to waive or compromise even in circumstances where it was a fair bet as to the identity of the informant. It is noteworthy that that approach has been dealt with recently in Hieber38 where an effort to chip away at the Commissioner’s obligations in relation to informants was rebuffed by the High Court.
6.12 Again, His Honour’s approach was characterised by close analysis of the relevant statutory function, the identification of parameters within which the Commissioner is obliged to operate, and a determination not to impose fetters or restraint upon him fulfilling that obligation when the result will be to compromise the very function imposed upon him by statute.
7. DECEMBER 1992 – GREEN v HOUSDEN
7.1 This case involved a direct attack on the validity of notices issued by the Commissioner under section 17 of the Inland Revenue Department Act 1974. It arose from the investigation of a taxpayer at the hands of an Inland Revenue officer whose work qualified him for the understated judicial description of “obviously determined”. The challenge to the validity of the notices arose out of the apparent reversal of a decision made by the then Regional Controller of Inland Revenue and the question was whether, in the circumstances of her decision-making, the Commissioner could have recourse to his investigative powers.
7.2 The key questions were whether the objection in issue had been disallowed. If it had been, could section 17 of the Inland Revenue Department Act still be used by the Commissioner to obtain documents for anticipated litigation? It was also argued that the section 17 notice was insufficiently clear to allow certain documents to be severed from the scope of the notice, if in fact they were outside the Commissioner’s entitlement. Lastly, the challenge proceeded on the basis that the notices were invalid in that they required production of the requested information at a nominated Inland Revenue office.
7.3 At the heart of the case was a concern that Inland Revenue wanted to obtain copies of opinions and advice given to the taxpayer on the tax dispute itself.
7.4 In the High Court39 Henry J took a view of the Commissioner’s functions that led to a wide application of section 17. Citing NZ Stock Exchange he noted that the information requisition could only be interfered with if a particular requirement amounted to an abuse of power. No general principle of confidentiality survived section 17 and unless legal professional privilege applied, opinion material created by a chartered accountant had to be disclosed to the Commissioner. Indeed, the Judge at first instance held that the existence of a statutory privilege for legal advice showed that advice or opinion was not excluded from the general purview of section 17.
7.5 While it was acknowledged in the High Court that the requirement to produce documents at an Inland Revenue office exceeded the Commissioner’s powers, that did not render the information requisitions invalid or ineffective.
7.6 In the Court of Appeal His Honour Richardson J delivered the judgment of the Court and identified the real purpose of the information requisition as eliciting material for use in expected litigation. He reiterated his prior view that the scheme of the Revenue Acts makes litigation a proper function of the Commissioner and amplified the position taken in Squibb by concluding that the investigative function vested in the Commissioner under section 17 of the Inland Revenue Department Act was addressed to the fulfilment of all his statutory functions. Citing McDougall’s Holdings40, His Honour held that if it was within the Commissioner’s functions to exercise his investigative powers to obtain information with which to prepare a case stated, it was reasonable also for that power to be exercised to obtain documents in anticipation of litigation.
7.7 That said, His Honour proceeded to deal with the breadth of the Commissioner’s investigative powers in somewhat more restricting terms than Henry J at first instance. The taxpayer’s advisers, to whom the relevant notices were directed, had complained that the notices sought production of all manner of documents, even though only some were actually sought. The Crown argued that breadth of its demand had been motivated by concern that some documents may have been withheld. His Honour noted that after a long investigation Inland Revenue ought to have been able to know what was “necessary and relevant” for the purposes of section 17 so as to refine their notice. This is a reminder of the importance of that test in the context of the section, given suggestions that have been made that the tests of necessity and relevance ought to be dispensed with41. His Honour found them sufficiently important to suggest that the Commissioner’s wide cast of his investigative net was close to the border of a proper exercise of his powers.
7.8 It is difficult to determine from His Honour’s comments whether in saying this he was approaching the issue on the basis that repeated requirements for the taxpayer to produce the same documents would amount to an abuse in the sense contemplated in NZ Stock Exchange. Alternatively he may have founded the comment in an analysis of the Commissioner’s section 17 powers overall, taking account of Inland Revenue’s ability to remove and retain documents produced to them, and the obligation to retain them for only so long as is reasonably required for inspection.
7.9 The importance of the necessity and relevance test was amplified by His Honour in relation to adviser’s papers. Adviser’s opinions relating to the conduct of the tax dispute and the validity of the Commissioner’s notices were not relevant to the determination of liability and so fell outside those documents that could properly be regarded as necessary and relevant to the fulfilment of the functions conferred by statute on the Commissioner. In this His Honour appears to have emphasised the fundamental obligations of quantification of liability. The function of conducting litigation was not referred to specifically. However, he appears inevitably to have taken a position on the way that litigation should be conducted by the Commissioner when he concluded that the exercise of investigative powers simply to check the view taken by the taxpayer’s advisers as to the Commissioner’s claims and actions, would amount to an abuse of power. While it is not stated, that abuse seems to be grounded in the view that it would be fundamentally unfair for the Commissioner to have access to the opinions of taxpayer’s advisers when that has no direct bearing on the tax position actually taken by the taxpayer.
7.10 His Honour limited this approach when the facts upon which advice may have been given could differ from the facts known to the Commissioner. The Commissioner could still check those facts. For a time this gave rise to the prospect that accountants might be forced to divide their tax opinions into two: one part comprising a statement of facts (disclosable to the Commissioner) and the other the analysis and conclusions (not disclosable). Such a practice seems not to have materialised largely because of the Commissioner’s preparedness to adopt a standard practice on accessing accountant’s workpapers. That standard practice does not always apply satisfactorily and in some circumstances the effort is still made to excise from opinion material and supply to the Commissioner, the facts upon which advice has been given, as opposed to the advice as a whole.
7.11 The approach taken in Green v Housden has set the stage for further debate on the extent to which the Commissioner should have access to opinion material, even that provided by legal practitioners. The Law Commission’s suggestions for changing the law relating to legal professional privilege in tax matters are one example. Government has signalled a review of tax and privilege. The Law Commission distinguished between advice given before the taking of a tax position and advice given in the face of IRD action thereafter. Although its proposal would obviously allow a good deal more information to be obtained by the Commissioner than facts alone, it is reminiscent of the distinction drawn by His Honour between the facts known to an adviser on the basis of which advice is given, and advice relating to a dispute that has been joined between a taxpayer and Inland Revenue at some later stage.
7.12 As a final note, that which Henry J had acknowledged as being in excess of the Commissioner’s powers but insufficient to make them ineffective in their entirety, was considered to have just such an effect by the Court of Appeal. His Honour Richardson J took the view that a notice under section 17 should strictly comply with the section. A taxpayer should not, at his or her peril, be expected to volunteer production of their own premises in lieu of the requirement set out in the notice. He held that it was not unreasonable to confine the Commissioner to reliance on a notice that meets the actual requirements of the section42.
8. JULY 1993 – BRIERLEY INVESTMENTS LIMITED
8.1 If Green v Housden was a targeted attack on one element of the Commissioner’s investigative arsenal, namely the section 17 notice, the case in Brierley Investments43 was a broader attack on the Commissioner’s right to investigate, at least in respect of years asserted by the taxpayer to be subject to certain understandings. Brierley Investments Limited had deducted interest on a particular basis for a number of years reflecting its view of the distinction between capital and revenue transactions. The company asserted that the Commissioner ought not to be able to investigate the company with a view to upsetting its calculations and replacing them with others with which the Commissioner was more comfortable.
8.2 The case has hints of the original Lemmington approach in that it relied upon the Commissioner’s actions or practice to give rise to a suggestion of unfairness or abuse in his change of mind. His Honour Richardson J’s judgment dealt with the scope of judicial review in relation to the Commissioner’s investigative powers. He examined the statutory regime and the role of the Commissioner in it. He concluded that the Commissioner is unable to contract out of his obligations, an echo again of the imperative duties imposed on him by the statute. His Honour concluded that the Commissioner’s extensive powers of investigation exist for a reason. The scope and application of the powers could be determined having regard to the scheme of the Act permitting the Commissioner to assess within the statutory time bar. That scheme supported the Commissioner’s ability to investigate the approach taken to the deduction of interest by the taxpayer in past income years, notwithstanding that a prior return may have been accepted and an original assessment issued.
8.3 His Honour took the strong view that the Commissioner was not entitled to create no-go zones given the duties imposed upon him. A debate ensued in the judgments of the Court as to the extent of the Commissioner’s administrative role and whether he was possessed of a dispensing power that might have enabled him to reach an accommodation with a taxpayer such as Brierley over the calculation of interest. Opposing views as to the extent of the Commissioner’s powers in that regard are reflected in the judgments of Richardson and Casey JJ, respectively. His Honour Richardson J took the view that there was no such power and in support of that view cited his own Organisational Review Committee report. By contrast, Casey J took the view that there was little between the United Kingdom power of care and management and the obligation imposed on the Commissioner of “administration” of the Revenue Acts. The respective positions of former counsel in Reckitt & Colman had clearly survived the ensuing 27 years.
8.4 Despite the absence of a dispensing power, His Honour Richardson J acknowledged in Brierley Investments that a taxpayer could still review the Commissioner if it could be shown the Commissioner was exceeding his power, making an error of law, breaching a tenet of natural justice or had reached a decision he could not reasonably reach if properly directed. He noted, however, that even with these surviving opportunities, the legislation may itself limit the extent to which recourse to administrative remedies is possible. Brierley Investments was one such case in which the Commissioner could not in His Honour’s view simply rule out by arrangement the possibility of investigating Brierley’s interest deductions.
8.5 His Honour’s approach can be compared with that of Casey J who held that there may well be instances in which a decision of the Commissioner to act inconsistently with the legitimate expectation of a taxpayer in the lead up to an assessment is unfair and abusive, justifying intervention by way of judicial review. The Judge held, however, that simply receiving and acting on returns could never be enough and that more would be needed before such abusive conduct could be made out.
8.6 The fundamental difference between the two Judges is clear. Richardson J took the view that the Commissioner could not compromise his statutory function by action or implication. In other words he should always be at liberty within the time bar imposed upon him by statute to reopen an issue with a taxpayer even if there had been prior agreement. Casey J held, fundamentally, that the Commissioner could do exactly what Richardson J said he could not. He concluded that in Brierley Investments the Commissioner had done too little for the taxpayer to be able to assert that a change of course would be abusive, but he clearly contemplated that with something more the Commissioner would indeed be able to create the “no-go zones” that Richardson J refused to countenance.
8.7 The judicial debate presaged the enactment of sections 6 and 6A of the Tax Administration Act 1994 which, despite a reluctance on the Commissioner’s part, are now regarded as vesting in him a general dispensing power. Although it is by no means clear given the terms in which those sections have been enacted, the debate survives Brierley Investments as to whether the Commissioner can indeed rule himself out of investigating a taxpayer even within the statutory time bar if the “something more” contemplated by Casey J can be established.
9. MAY 1994 – CANTERBURY FROZEN MEAT
9.1 This is the first of a number of cases considered in the 1990s dealing with the validity of purported assessments. The case involved a so-called “protective assessment”. It was an appeal from the High Court’s refusal to strike out Canterbury Frozen Meat’s application for judicial review of the Commissioner’s purported assessment. The company sought orders as to the invalidity of the assessment and that the Court had no jurisdiction to hear a case stated on an objection that had been lodged with the Commissioner seven years previously.
9.2 The case arose out of the view taken by Inland Revenue towards a payment made by Canterbury Frozen Meat of $2.52 million to Thomas Borthwick & Sons. The payment was for the variation and partial surrender of Borthwick’s rights under a long term supply contract. Inland Revenue took the view that the payment to Borthwicks was assessable but was concerned that it may be wrong.
9.3 Essentially Inland Revenue sought to raise a “backstop” assessment in 1987 against Canterbury Frozen Meat. The assessment denied the company a deduction for the payment to cover the possibility that the Borthwicks44 case would go against Inland Revenue. Inland Revenue did not specify a due date in its purported assessment but advised of such a date collaterally, stating that it would fall one month after the decision in the Borthwicks case.
9.4 Canterbury Frozen Meat lodged an objection on grounds that did not purport to challenge the validity of the assessment but to assert that it was incorrect on the grounds that the deduction was allowable, the expenditure not capital, and the tests for determining the status of payment in Borthwicks, irrelevant.
9.5 The Borthwicks case went against the Commissioner in 1992. Before the Commissioner could seek payment from Canterbury Frozen Meat of half the tax in dispute, the company commenced judicial review proceedings.
9.6 Richardson J’s judgment is notable for his exposition of the requirements for an assessment. That exposition is based upon the same building blocks of statutory scheme and the Commissioner’s functions. Those functions, he held, required judgement as to the amount that was taxable and the tax to be paid, hence the need for the Commissioner to obtain information and his ability within the time bar to reassess to ensure the correctness of his position. The need for judgement on the Commissioner’s part found express reference in the then section 21 of the Income Tax Act 1976 and the Commissioner’s power to amend assessments “as he thinks necessary” also recognised the need for judgement on his part.
9.7 His Honour focused on the privative provision in the then section 27 of the Income Tax Act. This deemed an assessment to be correct outside objection proceedings. He also noted the difference between the comparable Australian and New Zealand provisions, noting that in Australia a purported assessment was given additional weight by being conclusive evidence of the due making of the assessment. By contrast, he held that section 27 of the Income Tax Act 1976 did not preclude a Court going behind the assessment to review whether what was done, ie, the process adverted to in Lemmington, led to a result that could probably be called an assessment.
9.8 The distinction between the Australian and New Zealand provisions was clearly of moment to His Honour in Canterbury Frozen Meat45. That distinction seems to have carried little weight at all when, in the face of Harley Developments46 the Court of Appeal concluded Golden Bay Cement on a basis that seems still to be quite contrary to the approach taken in Canterbury Frozen Meat.
9.9 His Honour’s approach in the case was that objection procedures are concerned with real assessments and he suggested that it was not appropriate to run validity issues in objection proceedings. Nevertheless he did contemplate that the issue of invalidity might be dealt with in the case stated proceedings. He noted, however, that invalidity was not a ground of objection. Indeed his view that objections deal with real assessments suggests it would have been wrong to raise validity as a ground of objection. He went on to say that if it was possible to deal with validity issues quickly and cleanly by review (as in Canterbury Frozen Meat), there was no reason for that issue to be thrown back into the “uncharted territory” of case stated proceedings.
9.10 These points clearly marked out a view that issues relating to the validity of an assessment were not the proper focus of objection in case stated proceedings. They were matters inherently to be dealt with by way of judicial review because the formal proceedings dealt only with “real” assessments. If the validity of an assessment was indeed impugned, there was no basis upon which an objection in case stated proceedings could be founded. His Honour went so far as to say that he doubted validity issues could be dealt with as preliminary matters in case stated proceedings.
9.11 In arriving at these conclusions, His Honour created in Canterbury Frozen Meat something of a high water mark for taxpayers’ expectations of recourse to review proceedings in relation to tax matters. Unhappily, the tide receded in a rush just over two years later.
10. SEPTEMBER 1995 – MILLER
10.1 In the meantime, a further appeal48 arose from a motion to strike out judicial review proceedings, this time a successful motion by the Commissioner in the High Court49.
10.2 The arguments involved the now well-known allegations by Mr J G Russell of a vendetta against him and his clients by Inland Revenue, a relationship that His Honour Richardson J described aptly (and mildly) as giving rise to a “continuing saga of cases” with a “turgid history”.
10.3 The Commissioner had sought to rely on the privative provision of section 27 of the Income Tax Act 1976 to restrict the taxpayer to objection proceedings. As to that the Court of Appeal reiterated the position from Canterbury Frozen Meat that not all that purports to be an assessment will necessarily be one. On the foundation of Lemmington and Brierley Investments the Court held that one could challenge on administrative grounds the process leading to a purported assessment and that the validity of the process determined the character of the resulting decision.
10.4 Relying on Canterbury Frozen Meat the Court held that if evidential support exists that the process is flawed, its outcome can be impugned on administrative grounds. His Honour Richardson J canvassed the approach taken in the High Court and concluded that the taxpayers were alleging that the Commissioner chose to assess them because they were targets who might be better able to pay than others. If proven, His Honour held that would be outside the voiding and reconstruction powers of the general anti-avoidance provision and a misuse of the Commissioner’s authority.
10.5 On the test applicable for striking out proceedings, the taxpayer was saved to fight another day though ultimately to no avail when all relevant facts were before the Court in substantive review proceedings50. The case is noteworthy, however, for the strength with which the Court continued to assert the view that validity issues were properly the subject of judicial review proceedings and could, in the right circumstances, result in a purported assessment being treated as nugatory.
11. JUNE 1996 – GOLDEN BAY CEMENT
11.1 This case saw a fundamental reversal of the position taken in Canterbury Frozen Meat and approved in Miller. With respect the reversal has been “distinguished” away in subsequent cases. I am reliably informed that counsel in the case still smarts at the fact that the decision of the Privy Council in Harley Developments51 had apparently been posted on Lexis the night before the Court of Appeal hearing. Counsel did not have the case, but the Court did. With that seems to have disappeared any chance of maintaining recourse to judicial review proceedings on the question of the validity of assessments in that case.
11.2 In Golden Bay Cement the issue was whether assessments were invalid as being outside the relevant time bar. That depended on whether certain “zero” assessments, apparently mistakenly made by Inland Revenue in the context of a group assessment, were themselves proper assessments.
11.3 The judgment of the Court was delivered not by His Honour but by McKay J. Details aside, each paragraph of his decision on behalf of a five strong bench over which His Honour Richardson P presided, resounded like nails being hammered into the taxpayer’s judicial review coffin.
11.4 Counsel gamely submitted on the question of validity an argument as to jurisdiction that was founded strictly on Canterbury Frozen Meat. She argued bluntly that if there is no real assessment, objection proceedings cannot be pursued. She supported this by reference to the differences between the Australian and New Zealand legislation that, in Canterbury Frozen Meat, Richardson P had called in aid of just such an approach.
11.5 The argument was despatched, however, by a new view of the meaning of “assessment” in the provision granting the right of objection. For the first time the Court decided that an assessment included any purported assessment until a Court ruled on its validity. Along the way, the differences between the New Zealand and Australian legislation that had been important in Canterbury Frozen Meat were swept up and aside in the face of the primacy to be afforded the objection process on the authority of Harley Developments. With that Richardson P’s quiet recognition in Canterbury Frozen Meat that there was justice in keeping these issues outside the objection procedure was also despatched.
11.6 In the eyes of the Court it clearly did not help that, unlike Canterbury Frozen Meat, in Golden Bay Cement an objection had been lodged that included validity issues. They were expressed without prejudice to the taxpayers’ rights to pursue administrative remedies. The assertion of those grounds on the objection appear, however, to have been taken by the Court as a point of distinction with Canterbury Frozen Meat or at least a basis upon which to criticise the taxpayer for having left open the option of pursuing objection proceedings while seeking review.
12. AUGUST 1996 – BNZ FINANCE
12.1 This decision52 was a preliminary skirmish in the broader battle over redeemable preference share investment structures. BNZ Finance sought to restrain a proposed assessment, pending completion of review proceedings. In the High Court His Honour Doogue J accepted that the proceedings should not be struck out but stayed them in the light of Golden Bay Cement, to allow the Commissioner to assess and for the objection procedures to follow. He held that in those circumstances the review and objection proceedings would be consolidated.
12.2 His Honour Richardson P gave judgment and noted again the urgency of proceedings because of delay in possible objection and case stated proceedings and the financial consequences of tax in dispute having to be paid. In this he echoed sentiments from Canterbury Frozen Meat. He held that Doogue J was wrong to restrain proceedings ahead of assessment and to insist that BNZ Finance wait for what may be an unlawful act. His Honour noted a distinction between BNZ Finance and Golden Bay Cement in that the former involved no objection because it was anticipating an assessment. By contrast, Golden Bay Cement involved an objection in which validity questions had been raised. Richardson P left interim relief to be determined by the Court below but noted that pending the such relief the Commissioner was free to assess. Inevitably at that point the position taken in Golden Bay would prevail.
13. DECEMBER 1996 – NOVEMBER 1999 – NEW ZEALAND WOOL BOARD
13.1 The Wool Board case spans a number of hearings and appeals53 dealing with both interlocutory and substantive matters. Initially the High Court ordered a temporary stay of review proceedings brought by the Board pending an objection being determined and consolidation with proceedings arising from that objection. His Honour Richardson P noted that in the High Court Moran J had regarded the case as a half way house between Golden Bay Cement and BNZ Finance. This was because the Commissioner had taken no steps to disallow the Board’s objection but it was likely to do so, at which time the matter would be referred to the High Court in case stated proceedings. His Honour concluded that the stay allowed by Moran J was premature but it was unnecessary to determine the wider issues canvassed in argument. The stay that had been allowed by Moran J was dismissed and the Board was permitted to continue the review proceedings it had contemplated.
13.2 Those proceedings arose out of a decision by the Commissioner which changed his treatment of certain receipts the Board derived from redeemable preference share transactions that had fallen under the spotlight in the Winebox Inquiry. An assessment was issued two days before the time bar for the relevant period. In that assessment the Commissioner brought to charge dividends that had been treated by the Board as exempt income, on the basis that they attracted the application of the general anti-avoidance provision.
13.3 In the High Court54 the Board succeeded in an argument on judicial review that the assessment made by the Commissioner was invalid. It did so on three grounds, namely that:
(a) There had been inadequate pre-assessment inquiry so that an honest judgement could not have been made by the Commissioner;
13.4 On each of these bases the Board failed before the Court of Appeal. His Honour Richardson P delivered the judgment of a bench of five and drew on his own judgment in Canterbury Frozen Meat for the view that the Commissioner’s assessment process required the exercise of judgement. The Board’s case before the High Court and the Court of Appeal involved an argument that the Commissioner possessed too little information to have been able honestly to come to a judgement of its taxation liability. The Board had relied upon references in Canterbury Frozen Meat by McKay J to “information available” to the Commissioner to say he had to inquire further. His Honour dismissed the arguments noting that there was nothing in the point. Taking into account the Commissioner’s statutory assessment function, His Honour concluded that the only proper question was whether in exercising that function the Commissioner’s delegate, Mr Nash, exercised an honest judgement on the information then in his possession. Mr Nash had not been cross-examined on his affidavit evidence addressing that issue, and His Honour was clearly unprepared to see that evidence lightly set to one side.
13.5 His Honour amplified his prior judgment in Canterbury Frozen Meat, explaining the nature of an assessment, by noting that this required only a genuine attempt to ascertain the assessable income of the taxpayer. This did not prevent the Commissioner from assessing unless and until he was fully informed of the taxpayer’s affairs. Such a requirement would amount to an unwarranted fetter on his statutory function which was expressed in terms that made it clear the Commissioner should assess based upon information from returns made by the taxpayer and from other information in his possession. This required only that the Commissioner do the best he could, rather than imposing an obligation to go out and obtain more information in order to be absolutely sure of his assessment.
13.6 His Honour distinguished between the situation where the Commissioner acts on a paucity of information but nevertheless arrives at an honest judgement of the taxpayers’ liability and the situation where he might disregard the law or facts known to him in order to issue a purported assessment. The arbitrary issue of an assessment in that way, or without any foundation for the assessment at all, would allow the Court to intervene and set aside the purported assessment. Honest judgement based on information to hand protected the Commissioner from review.
13.7 The Court dealt equally briskly with the Board’s other arguments. Unlike Durie J at first instance, His Honour was not prepared to find any basis for a legitimate expectation of consultation between the Department and the Board. He referred to Brierley Investments for the proposition that taxpayers must be taken to know the time bar period within which the Commissioner has a right to reopen matters and again was not prepared to allow an administrative remedy to impede the Commissioner’s functions in that regard.
13.8 Counsel for the Board gave His Honour an opportunity to revisit Lemmington Holdings and in particular Eichelbaum J’s decision in Lemmington Holdings (No 2) in which the Judge had suggested that the Commissioner might be required to notify a taxpayer of a decision to change his usual procedures. Eichelbaum J had suggested that the Commissioner had to act fairly in the sense that, as a prerequisite to the issue of an assessment, he should inform himself adequately of both facts and law. His Honour Richardson P placed the view taken by Eichelbaum J in the category of cases dealing with the preassessment stage. Diplomatically His Honour noted that the Court of Appeal was not called on to review the Judge’s reasoning or his conclusions. He noted, however, that the opportunity to invoke legitimate expectation is necessarily limited by the scheme and purpose of the income tax legislation. Legitimate expectation could not frustrate an honest appraisal by the Commissioner of the taxpayer’s liability by means of an assessment.
13.9 The third ground upon which the Board advanced its case was “improper purpose”. That was despatched by His Honour on the basis that what might have begun as a reaction to outside pressure to assess could nevertheless develop into a genuine opinion as to the Board’s liability.
13.10 Having been permitted to advance its case as an application for judicial review, the Board lost because the Court of Appeal applied a rigorous analysis of the Commissioner’s statutory obligations, was unprepared to limit those unduly by requiring the Commissioner to satisfy anything other than the light threshold of an honest opinion, and found no basis in the expression of the Commissioner’s duties for him to be required to consult with the taxpayer in the formulation of that opinion. Against the question, “has the Commissioner made a proper assessment?” His Honour’s judgment in New Zealand Wool Board suggests that all but the most extreme instance of aberrant decision-making by the Commissioner may nevertheless amount to an assessment that must be challenged under the standard disputes process rather than by attacking the procedure that leads to it.
14. AN EYE TO THE FUTURE – DECEMBER 2001 – SIMUNOVICH FISHERIES LIMITED
14.1 In this case55 judicial review proceedings were brought against the Commissioner when he issued a notice of proposed adjustment that for GST purposes characterised a fishing vessel on sale inconsistently with the treatment afforded it when it had been purchased some years previously, in a period that was now statute barred.
14.2 Unusually the Commissioner did not apply to strike out or stay the judicial review proceedings. His Honour Richardson P, delivering the judgment of a Court of five, made several comments concerning the availability of review under the present disputes regime in the Tax Administration Act 1994. Those comments are a “shot across the bows” of counsel considering an administrative attack on a notice of proposed adjustment in all but exceptional cases. His Honour noted that although issuing a notice of proposed adjustment is the exercise of a statutory power, or notification of its anticipated exercise, reviewing the Commissioner in this case did not involve a collateral process incompatible with the primacy of the statutory dispute process. The case was regarded as an unusual one because the Commissioner was inevitably constrained in what he could purport to do under a notice of proposed adjustment by the treatment he had afforded the fishing vessel in the prior period. This was more than merely a case in which a taxpayer might argue that the Commissioner’s notice of proposed adjustment was wrong. It was a case in which the Commissioner could not possibly conclude, properly applying the principles of the GST Act, that tax applied in one period on a basis that was inconsistent with the treatment of the vessel in the prior period.
14.3 Although the distinction will be difficult to make in all cases, it seems to lie in the finding that the Commissioner’s statutory function required a consistent treatment to the goods in question. With respect, the Commissioner argued strongly that no such requirement existed. It is difficult to see why that argument could or should have been dealt with on review rather than by the application of the statutory dispute process. Nevertheless His Honour was prepared to entertain review in these circumstances and left open the possibility that other exceptional cases will exist where the particular exercise of a statutory power may be abusive, if that exercise does not allow challenge proceedings to be undertaken.
14.4 This conclusion signals that in exceptional cases before the issue of an assessment, recourse to the Courts on judicial review may still be available. It also suggests that in those instances where disputable decisions other than assessments may be made by a Commissioner and a right of challenge is not expressly prohibited by statute, taxpayers may be required to consider recourse to challenge proceedings on those decisions rather than review.
15.1 His Honour Richardson P’s contribution to the development of the law relating to the Commissioner’s powers has been immense. It is not a contribution that taxpayer advocates have always welcomed, because it has carefully limited opportunities to constrain the legitimate exercise by the Commissioner of his statutory functions. The Judge has, however, continued to recognise that recourse to administrative remedies in tax matters may be available in certain cases. The question, of course, is “which cases?”.
15.2 I have tried to distil from the case law canvassed in this paper some basic principles that may assist in answering that question. They are:
(a) The Commissioner acts by statute. The statutory expression of his functions affects the extent to which a Court can review him.
(i) on an honest judgement of liability;
(e) Reviewing the Commissioner before he has issued an assessment may be overtaken by a subsequent assessment. That will usually require review and challenge proceedings to be consolidated and validity and substantive issues considered together.
14.3 This summary is my own. I have no doubt that His Honour would have something to say about it! It reflects, however, the consistency with which the Court of Appeal during His Honour’s tenure has adhered to a strict, realistic and practical analysis of the Commissioner’s functions and the limits on recourse to administrative remedies that follow from that.
1. Canterbury Frozen Meat Limited v CIR (1994) 16 NZTC 11,150 at 11,159.
2. Harley Developments Limited v CIR  STC 440.
3. Golden Bay Cement Co Limited v CIR (1996) 17 NZTC 12,580.
4. CIR v New Zealand Stock Exchange; CIR v National Bank of New Zealand Limited (1990) 12 NZTC 7,259.
5. Green & Anor v Housden & Anor (1993) 15 NZTC 10,053.
6. CIR v E R Squibb & Sons (NZ) Limited (1992) 14 NZTC 9,146.
7. Knight & Anor v Barnett & Ors (1991) 13 NZTC 8,014.
8. Brierley Investments Limited v CIR (1993) 15 NZTC 10,212.
9. BNZ Finance Limited v Holland & Anor (1996) 17 NZTC 12,658.
10. CIR v New Zealand Wool Board (1999) 19 NZTC 15,476.
11. N 2, above.
12. Reckitt & Colman (New Zealand) Limited v Taxation Board of Review & Anor  NZLR 1032.
13. CIR v Lemmington Holdings Limited (1982) 5 NZTC 61,268.
14. N 10, above.
15. Simunovich Fisheries Limited v CIR (2002) 20 NZTC 17,458.
16. N 12, above.
17. N 8, above.
18. R v Special Commissioners of Income Tax, Ex Parte Elmhirst (1930) 20 TC 381.
19. Brierley Investments, n 8 above.
20. Lemmington, n 13, above.
21. Hawkes Bay Hide Processors of Hastings v CIR (1990) 12 NZTC 7,241.
22. Before Chilwell J in Lemmington Holdings Limited v CIR (1982) 5 NZTC 61,123.
23. s.19, Income Tax Act 1976.
24. Maritime Electric Co Limited v General Dairies Limited  AC 610.
25. Lemmington Holdings (No 2) v CIR (1983) 6 NZTC 61,576.
26. N 8, above.
27. His Honour is in fact scrupulously polite in his reference to Lemmington (No 2) but it is submitted that his meaning is clear.
28. E R Squibb & Sons (NZ) Limited v CIR (1991) 13 NZTC 8,096 at 8,098.
29. P L Reddy, Objecting to Discretionary Determinations by the Commissioner of Inland Revenue  11 VUWLR 125 at 127.
30. N 21, above, at 7,259.
31. N 4, above.
32. (1991) 13 NZTC 8,147.
33. N 7, above.
34. N 6, above.
35. N 28, above.
36. s.22, Income Tax Act, 1976.
37. Gamini Bus Co Limited v C of I T, Colombo  AC 571.
38. Hieber & Ors v CIR; London Continental Limited v CIR (2002) 20 NZTC 17,562.
39. (1992) 14 NZTC 9,025.
40. CIR v McDougall’s Holdings Limited (1983) 6 NZTC 61,505.
41. See now clauses 73-75, Taxation (Annual Rates, Maori Organisations, Taxpayer Compliance and Miscellaneous Provisions) Bill 2002.
42. Ibid: the proposal is to allow the Commissioner to direct production of documents to a nominated Inland Revenue office.
43. N 8, above.
44. The Borthwick case was decided on appeal in CIR v Thomas Borthwick & Sons (Australasia) Limited (1992) 14 NZTC 9,101.
45. N 1, above.
46. N 2, above.
47. N 3, above.
48. Miller v CIR (1995) 17 NZTC 12,341.
49. (1993) 15 NZTC 10,187 Miller v CIR; Managed Fashions Limited v CIR (1998) 18 NZTC 13,961.
50. N 2, above.
51. N 9, above.
52. Culminating in that reported at No 10, above.
53. New Zealand Wool Board v CIR (1999) 19 NZTC 15,476, Durie J.
54. N 15, above.