ALESCO NEW ZEALAND LIMITED V COMMISSIONER OF INLAND REVENUE HC AK CIV 2009-404-2145

ALESCO NEW ZEALAND LIMITED V COMMISSIONER OF INLAND REVENUE HC AK CIV 2009-404- 2145 15 April 2011IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYCIV 2009-404-2145UNDER THE TAX ADMINISTRATION ACT 1994IN THE MATTER OF THE INCOME TAX ACT 1994BETWEEN ALESCO NEW ZEALAND LIMITEDPlaintiffAND COMMISSIONER OF INLANDREVENUEDefendantHearing: 15 April 2011Counsel: L McKay and H Roberts for Alesco NZ LtdR G Simpson and M McKay for Telstra New Zealand Holdings LtdP Windeatt for Toll Group (NZ) Ltd, Toll Finance (NZ) Ltd and TollLogistics (NZ) LtdM Heron for RadioWorks Ltd and TVWorks LtdB Brown QC, M Palmer and R Roff for Commissioner of InlandRevenueJudgment: 15 April 2011(ORAL) JUDGMENT OF HEATH JSolicitors/Counsel:Mr L McKay – Lindsay@barrists.co.nzChapman Tripp, Auckland - matt.sumpter@chapman tripp.comSimpson Grierson, Auckland - Mr R B Lange – Richard.lange@simpsongrierson.com / paul.windeatt@simpsongrierson.comRussell McVeagh, Auckland – mike.heron@russellmcveagh.com and aaron.whitehouse@russellmcveagh.comBell Gully, Auckland – Ralph.simpson@bellgully.com /mathew.mckay@bellgully.comB Brown QC, Wellington - brendan.brown@xtra.co.nzM Palmer, Wellington – matthew.palmer@crownlaw.govt.nzJ Coleman, Wellington - james.coleman@terracechambers.co.nzR Roth, Crown Law Office, Wellington – Rachel.roff@crownlaw.govt.nzCIV-2009-404-4528BETWEEN PARBURY BUILDING PRODUCTS (NZ) LIMITEDPlaintiffAND BIOLAB LIMITEDSecond PlaintiffAND ROBINHOOD LIMITEDThird PlaintiffTHE COMMISSIONER OF INLAND REVENUEDefendantCIV-2010-404-4693BETWEEN ALESCO NEW ZEALAND LIMITEDFirst PlaintiffAND PARBURY BUILDING PRODUCTS (NZ) LIMITEDSecond PlaintiffAND THERMO FISHER SCIENTIFIC NEW ZEALAND LIMITEDThird PlaintiffAND CONCRETE PLUS LIMITEDFourth PlaintiffAND COMMISSIONER OF INLAND REVENUEDefendantCIV-2009-404-2490BETWEEN TOLL GROUP (NZ) LIMITEDPlaintiffAND COMMISSIONER OF INLAND REVENUEDefendantCIV-2010-404-3372BETWEEN TOLL GROUP (NZ) LTDFirst PlaintiffAND TOLL FINANCE (NZ) LIMITEDSecond PlaintiffAND TOLL LOGISTICS (NZ) LIMITEDThird PlaintiffAND COMMISSIONER OF INLAND REVENUEDefendantCIV-2007-404-5853CIV-2007-404-5854BETWEEN RADIOWORKS LIMITEDPlaintiffAND COMMISSIONER OF INLAND REVENUEDefendantCIV-2007-404-5854BETWEEN TVWORKS LIMITEDPlaintiffAND COMMISSIONER OF INLAND REVENUEDefendantCIV-2010-404-6563BETWEEN TELSTRA NEW ZEALAND HOLDINGS LIMITEDPlaintiffAND COMMISSIONER OF INLAND REVENUEDefendantIntroduction[1] These proceedings all involve challenges to assessments made by the Commissioner of Inland Revenue, in respect of notional interest components of certain optional convertible notes. The assessments have been based on alleged tax avoidance by the taxpayers in issue.[2] I have been assigned, for case management purposes, in respect of all proceedings as well as to preside over the trial of the first proceeding, which is currently scheduled for two weeks, beginning on 12 September 2011.[3] At present, the proceedings brought by RadioWorks Ltd and TVWorks Ltd have been allocated that fixture date. Those companies seek to adjourn the hearing. Another plaintiff, Alesco New Zealand Ltd, applies for its claim to be granted priority and to be heard at that time.[4] In addition, I am asked by the Commissioner to make timetabling orders to enable one of the other proceedings to be listed as a reserve fixture for the September dates, with time being allocated next year for all other un-stayed proceedings to be heard.Adjournment application[5] The applications before me were first called on 23 February 2011. At the conclusion of that hearing, an agreed formula was adopted in an endeavour to allow the proceedings to be determined in an orderly and efficient manner. The formula involved the provision of undertakings in respect of being bound by any decision on tax avoidance in the first case to be heard in September and an assurance on the part of Alesco, to proceed at that time.[6] The documents contemplated by the directions I made on 23 February 2011 have been filed and served. There has been a dispute about the appropriateness of the undertakings or assurances given. However, those events have been overtaken by another which makes it clear that the adjournment application made by RadioWorks and TVWorks must succeed and the application for priority by Alesco granted.[7] One of the grounds on which RadioWorks and TVWorks sought an adjournment was the fact that interlocutory issues had not been completed. In particular, reference was made to what I will now term a so-called discovery order made in those proceedings by Associate Judge Abbott, on 27 July 2009.1 That"order" had been the subject of an unsuccessful application to a Judge of this Court1 RadioWorks Ltd v Commissioner of Inland Revenue HC Auckland CIV 2007-404-5853, 27 July 2009 (Associate Judge Abbott).for review2 and a subsequent applications for leave to appeal to the Court of Appeal, from that decision.3 At the time of the February hearing, the application for special leave brought by RadioWorks and TVWorks was pending in the Court of Appeal.[8] The Court of Appeal delivered its judgment on 4 April 2011.4 Special leave was granted and Courtney J's judgment set aside on grounds that make it impossible for RadioWorks and TVWorks to proceed in September.[9] The Court of Appeal held that Judge Abbott had not, in fact, made any order susceptible to review. On that jurisdictional ground (which was not one that had been advanced either before Courtney J or initially before the Court of Appeal) special leave was granted for Courtney J's decision to be set aside and the proceeding remitted to Judge Abbott to finalise the terms of the order for discovery he had indicated should be made.[10] So far as the RadioWorks and TVWorks proceedings are concerned, the question of discovery is now back in the hands of the Associate Judge to determine what order should be made. There must then be compliance with the order. There is still the spectre that review and appellate procedures might yet be invoked again.[11] In those circumstances, I allow the application for adjournment made by RadioWorks and TVWorks. They are adjourned on terms set out later.5Priority application[12] Alesco is ready to proceed to trial in September. From what I have heard, I accept that it is intended to proceed, absent some unexpected reason to the contrary. I make an order granting priority to Alesco and direct it to proceed to trial on 12 September 2011.2 RadioWorks Ltd v Commissioner of Inland Revenue HC Auckland CIV 2007-404-5853, 18 June 2010 (Courtney J).3 RadioWorks Ltd v Commissioner of Inland Revenue HC Auckland CIV 2007-404-5853, 7 December 2010 (Courtney J).4 RadioWorks Ltd v Commissioner of Inland Revenue [2011] NZCA 129.5 See para [22] below.[13] Having discussed the issue with counsel, I indicate to the Registrar that three weeks should now be set aside for the hearing, which will include reconstruction issues as well as the question whether there has been tax avoidance. Three weeks is a preferable estimate to cover the possibility that there may be a short over-run and to meet any difficulties for witnesses and counsel with regard to travel in a period when the Rugby World Cup will be in full swing.Timetabling[14] The remaining issues are timetabling in nature, though there is an important issue over whether the Telstra proceeding should be allocated as a reserve fixture for the September hearing.[15] There is some background in relation to the Commissioner's application to have the Telstra proceeding identified as a reserve fixture. The context in which the application is made arises from the discontinuance of an earlier proceeding by Telstra in respect of earlier tax years. That discontinuance occurred at a time when that case had been designated as a test case. It was a decision made in the private commercial interests of Telstra. Having said that, Wylie J, in a judgment given on an application by the Commissioner to set aside the discontinuance on grounds of abuse of process, found that Telstra had reached its view on reasonable commercial grounds that did not amount to an abuse of process.6[16] Mr Simpson has submitted that what is now known as Telstra 2 is not ready for trial. The Commissioner says it can be readied in trial for September. Mr Simpson's firm is acting for both Telstra and Alesco. In addition, Telstra has the advantage of having completed some preparation in relation to the first trial which was discontinued about six weeks or so before the intended hearing.[17] I consider that it is inappropriate to allocate Telstra 2 as a reserve fixture given the preparation that will be required for Alesco and the likelihood on my6 Telstra New Zealand Holdings Ltd v Commissioner of Inland Revenue HC Auckland CIV 2009-404- 120, 6 December 2010 (Wylie J).assessment that that proceeding will take place in September. On that basis, I do not allocate Telstra 2 a fixture for the September block of time.[18] That leaves the question of timetabling in respect of the Telstra 2, RadioWorks and TVWorks proceedings, as well as the proceeding involving Toll that the Commissioner now wishes to progress.[19] Toll's position is different, in the sense that its proceeding is currently stayed. However, there is a significant amount of tax in issue. I am told something in the order of $42 million, leaving aside any questions of penalties. I consider it is in the public interest to have disputes of this type resolved as soon as possible and do not see any good reason why the Toll proceeding should not be dealt with in tandem with the balance of the claims presently in issue. I make an order lifting the stay attaching to its proceeding. For the avoidance of doubt all proceedings that have been stayed to date, other than Toll, remain stayed.[20] One of the reasons for reaching that view is that if time were not allocated late next year, there is a real risk that proceedings could not be heard and determined in this Court until sometime in 2013. As long as timetabling orders are made in a way which will enable those taxpayers whose cases are due for hearing in 2012 to apply to adjourn on good grounds or to adjust timetabling orders that may otherwise be impracticable to meet, the interests of justice overall will be met.[21] Having heard from counsel, I make the following directions, in relation to theTelstra 2 and Toll proceedings:(a) Affidavits of documents shall be filed and served on or before 30 November 2011.(b) Inspection shall be completed on or before 29 February 2012.(c) The plaintiffs' briefs of evidence and index of documents shall be served on or before 30 March 2012.(d) The Commissioner's briefs and index of additional documents shall be served on or before 11 May 2012.(e) The plaintiffs shall file and serve a common bundle of documents, on or before 11 June 2012.(f) The Registrar shall allocate a pre-trial conference three weeks before the scheduled fixtures.(g) A synopsis, chronology and bundle of authorities shall be filed by the plaintiffs two weeks prior to the fixture.In respect of both of these proceedings, the Registrar is directed to allocate hearing dates on the first available dates after 10 August 2012.7[22] In respect of RadioWorks and TVWorks, the same orders will apply, except the orders for the filing and service of verified lists of documents and the completion of inspection will not take effect. Those are issues now properly before an Associate Judge as a result of the Court of Appeal judgment. Those will be issues for him to determine.[23] The questions to be tried in respect of the RadioWorks, TVWorks, Telstra 2and Toll proceedings, will involve both tax avoidance and reconstruction issues.[24] All cases are to be allocated fixtures within a 10 to 12 week block, commencing on the first available date after 10 August 2012.[25] Leave is reserved for any party to request a case management conference, in Court for chambers, before me if any timetabling or adjournment issues arise.[26] The Registrar is directed, in any event, to set down a case management conference before me for one hour at 9am on the first available date after 6 February 2012, so that any specific issues arising out of a judgment to be given on the Alesco7 See also para [24] below.proceeding can be addressed promptly and before much of the cost of preparation for the intended August 2012 trials is undertaken.Costs[27] The only issue of costs that arises today involves the application for an adjournment by RadioWorks and TVWorks, which has been successful. Mr Heron submits, on behalf of those parties, that costs should be granted because the original stance of the Commissioner in relation to the absence of good grounds to appeal Courtney J's decision was an error.[28] I am not prepared to act on that basis. The Court of Appeal did not address the merits of the application. The application for special leave succeeded because it was necessary, on jurisdictional grounds, not presented to the Court of Appeal before the hearing, to set aside the judgment of Courtney J in order to enable Judge Abbott to complete the process he had initially instigated in respect of discovery issues.[29] I make no order as to costs on the application for adjournment by RadioWorks and TVWorks. All remaining questions of costs are reserved.___________________________P R Heath J