ANZ NATIONAL BANK LTD V COMMISSIONER OF INLAND REVENUE HC WN CIV-2005-485-1039

ANZ NATIONAL BANK LTD V COMMISSIONER OF INLAND REVENUE HC WN CIV-2005-485-1039 28 October 2005IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY CIV-2005-485-1037IN THE MATTER OF of the Tax Administration Act 1994 BETWEEN ANZ NATIONAL BANK LIMITED Plaintiff AND COMMISSIONER OF INLAND REVENUE DefendantCIV-2005-485-1038AND BETWEEN UDC FINANCE LIMITED Plaintiff AND COMMISSIONER OF INLAND REVENUE DefendantCIV-2005-485-1039AND BETWEEN TUI ENDEAVOUR LIMITED Plaintiff AND COMMISSIONER OF INLAND REVENUE Defendant Hearing: 13 September 2005 Appearances: L McKay and M J Crawford for the plaintiffs D J White, QC, and E J Norris for the defendant Judgment: 28 October 2005 at 3.00 p.m.JUDGMENT OF MACKENZIE J[1] The plaintiffs in these three proceedings have applied for the proceedings to be adjourned until after March 2006. The grounds for the application are that the plaintiffs submit that the dispute resolution procedures in Part 4A of the Tax Administration Act 1994 have been invoked in relation to related issues, and that these proceedings should await the outcome of that procedure. The matter was set down for hearing of the adjournment application, which is opposed by the Commissioner. A number of affidavits were filed, both in support of and in opposition to, the application for adjournment. The Commissioner has applied for orders that certain of the affidavits filed on behalf of the plaintiffs be not read. That application was opposed by the plaintiffs, and necessarily had to be dealt with before the application for adjournment. In the event, the time available at the hearing permitted only for the admissibility of the affidavits to be dealt with. This judgment accordingly deals only with the Commissioner's application for orders that the affidavits not be read. [2] The application raises objection to three affidavits, the first affidavit of D J Marris and the first and second affidavits of G J Harley. So far as Ms Marris is concerned, she had sworn an affidavit on 12 August 2005 in support of the application for adjournment. The Commissioner took issue with several matters deposed to in that affidavit. Following the application for an order that the affidavit not be read, Ms Marris sworn a second affidavit dated 24 August 2005, and in that affidavit took account of the objections which had been raised. The result is that no objection is now raised to the second affidavit being read in support of the application, and the plaintiff does not seek to rely upon the first affidavit. To the extent that it may be necessary, I order that the first affidavit of Ms Marris sworn on 12 August 2005 be not read. [3] The second deponent whose affidavits are in issue is Mr G J Harley. He swore an affidavit in support of the application for an adjournment, also on 12 August 2005. Again, objection was taken by the Commissioner to certain aspectsof that affidavit, and a second affidavit was sworn on 24 August 2005. However, those objections did not satisfy the Commissioner's concerns, and the objection to Mr Harley's second affidavit being read is maintained. Again, the plaintiffs no longer seek to rely upon Mr Harley's first affidavit, and, to the extent that this may be necessary, I order that his first affidavit not be read in support of the adjournment application. I must now deal with the issue which was argued before me, namely whether the second affidavit of Mr Harley is admissible in support of the application for adjournment. [4] I should say at the outset that applications to challenge evidence on an interlocutory application are not to be encouraged. The expeditious disposal of interlocutory applications, so that the merits of the litigation can be addressed without undue delay arising from peripheral issues, is an important element of interlocutory procedures. It is not conducive to that end for issues to be pursued by way of an interlocutory application within an interlocutory application, as is the case here. Objections to affidavits filed in support of an interlocutory application should ordinarily be dealt with at the hearing of the interlocutory application. That will generally be the appropriate course, for essentially three reasons. The first is the expeditious disposal of interlocutory applications, to which I have referred. The second is that the admissibility of evidence involves an assessment of relevance, and relevance is best determined by the Judge responsible for determining the issue to which the evidence is said to be relevant. The third reason is that issues as to the admissibility of evidence cannot always be readily separated from issues as to weight. The weight to be attached to otherwise admissible evidence on an interlocutory application is a matter for the Judge who hears the interlocutory application. It is, in general terms, undesirable to separate out issues of admissibility, and have those issues determined separately from issues as to weight. [5] In this case, however, the application that the affidavits be not read is being dealt with separately from the substantive application in respect of which the affidavit was filed. Because the interlocutory application for an adjournment is not presently before me, I am not aware of all of the matters which the parties may wish to raise on that application, so that my ability to assess the relevance of the evidence is necessarily restricted. Further, the weight which might be attached to the evidenceis not a matter on which I can properly rule at this stage. Unless the evidence is for technical reasons inadmissible, then, on this application, it must be allowed to remain, so that the Judge hearing the application for adjournment can then both assess its relevance and give it such weight as he may think fit. [6] That is to say, I must approach the present application on the basis that only if the evidence is clearly inadmissible should it be ruled out. I approach this application on that basis. [7] Rule 510 of the High Court Rules, which, by virtue of Rule 249 applies to affidavits in support of an interlocutory application, provides that every affidavit shall be confined to such matters as would be admissible if given in evidence at trial by the deponent. However, I bear in mind that it is not uncommon for a degree of latitude to be applied in respect of affidavits in support of interlocutory applications, where insistence on strict compliance with the rules of evidence may lead to unnecessary delay or expense. [8] The grounds of the application are: (a) That the four questions or matters on which Mr Harley purports to give expert evidence are not matters that can be the subject of expert evidence; and (b) That Mr Harley is not eligible to give independent and impartial expert evidence to the Court on those four questions or matters because: (i) He was a partner at the firm representing the plaintiffs until March 2004; and (ii) He was directly involved in representing another trading bank on similar matters; (iii) He has invariably appeared as counsel for plaintiffs in litigation against the Commissioner. [9] Those grounds essentially raise three issues for consideration:(a) Whether the evidence is properly admissible as opinion evidence on an issue or issues relevant to the application for adjournment; and (b) Whether the issue or issues to which the evidence is relevant are the "ultimate issue" which the Court must decide on that application; and (c) Whether the evidence is inadmissible because the expert witness is not independent. [10] It is necessary to describe briefly the issue in the proceedings, and the basis upon which an adjournment is sought. The proceedings relate to a number of financial transactions, each similar in nature, entered into by each of the plaintiffs. It is unnecessary to describe those transactions. Using the statement of claim in the ANZ National Bank Ltd proceedings as an example, the allegation is that the Commissioner carried out an audit of the plaintiff's taxation position under the transactions, and, as a result of that audit, took the view that a number of expenditures which had been claimed as deductions for income tax purposes were not deductible. The Commissioner issued notices of proposed adjustment, pursuant to s 89B of the Tax Administration Act 1994. The essence of the Commissioner's position is that the transactions constituted a tax avoidance arrangement. The plaintiffs issued notice of response to the Commissioner's notices, and the Commissioner subsequently issued amended assessments, in respect of the 2000 income tax year. The statement of claim alleges that the assessment is incorrect in law, and the plaintiff challenges the assessment pursuant to s 138B(1) of the Tax Administration Act 1994. [11] The plaintiffs seek to have these proceedings adjourned, essentially upon the grounds that the transactions have tax consequences for the plaintiffs for each of the income years ended 31 March 2000 to 2004, and that these proceedings relate solely to the tax consequences in respect of the year ended 31 March 2000. The plaintiffs are presently following the dispute resolution procedure set out in Part IVA of the Tax Administration Act, for the later years. In essence, the plaintiffs submit that the dispute resolution procedure for the subsequent years should be completed before these proceedings for the 2000 year are heard and determined.[12] Against that background, the questions or matters addressed by Mr Harley are set out by him in his second affidavit in these terms:"(a) My experience of the benefits obtained by the Commissioner and taxpayers by progressing the Dispute Resolution Procedure; (b) My experience of the general practice of the Commissioner and taxpayers where proceedings have had to issue for a particular year in respect of a reassessment made under statute bar time pressure, but also where the Dispute Resolution Procedure is being followed in respect of the same issues in dispute for the subsequent year or years; (c) Whether it is, in my opinion, consistent with the benefits of the Dispute Resolution Procedure to pursue that Procedure in priority to advancing the present proceedings; and (d) The Commissioner's Memorandum before the Court dated 12 July 2005, in the light of my responses to the other questions noted above."[13] Mr White for the Commissioner submits that none of those questions is appropriate for expert evidence. He refers to Air Chathams Ltd v Civil Aviation Authority of New Zealand (2003) 16 PRNZ 676 (HC), where Hammond J said:[31] The first issue is always whether something can be the subject of expert evidence at all. Classically, the purpose of expert evidence is to provide the Court with information which is outside the experience and knowledge of a Judge or jury. It is for the Court to decide whether or not a particular point requires expert evidence. If the Court decides that it does not, then the point in question must be proved either without the admission of opinion evidence at all or by non expert evidence. "In each case it must be for the Judge to decide whether the issue is one on which [the trier of fact] could be assisted by expert evidence" (R v Stockwell [1993] 97 Cr App R 260 at p 264 per Lord Taylor CJ). If from the proven facts the Judge or jury can form their own conclusion without help, then the opinion of the expert is quite unnecessary and indeed may create its own kind of dangers.[14] As to the four questions posed, he submits that questions (a) and (b), where Mr Harley refers to his experience, are matters of fact, and not a topic for expert evidence. He submits that the third question, whether the dispute should proceed through dispute resolution procedure, is not a matter of "expert opinion" but is a matter for determination by the Commissioner and the taxpayer in the circumstances of the particular case, and ultimately the Court. As to the fourth question, he submits that the contents of a memorandum conveying to the Court the position of the Commissioner are not matters for comment by an expert.[15] The essential distinction between an expert witness and an ordinary witness of fact is that the expert witness is permitted to express opinions within the witness's area of expertise. But that is not to say that an expert witness may give only opinion evidence. An expert can, of course, give evidence of relevant facts, in the same way as a lay witness may do. The experience of an expert witness on matters within the field of expertise, though not strictly speaking opinion evidence, can be admissible, where relevant. An obvious example is a case where a question as to the proper practice of a particular profession is in issue. There, evidence of practitioners in that profession as to what is normal practice within the profession is admissible. A case such as McLaren Maycroft & Co v Fletcher Development Co Ltd [1973] 2 NZLR 100 is an example. Accordingly, I do not consider that it can be said that Mr Harley's evidence on questions (a) and (b) can be said to be inadmissible as not properly the subject of expert evidence, in the abstract. Whether, in this context, that evidence is relevant and of assistance to the Judge who is hearing the application for adjournment is a matter for the Judge dealing with the matter, not for me. I do not consider that the affidavit can be said to be so clearly inadmissible that it should be ruled out of contention at this stage, so far as questions (a) and (b) are concerned. [16] As to question (c), this evidence trespasses very close to the realm of expressing an opinion on the ultimate issue. Freckelton & Selby, Expert Evidence, expresses the rule in these terms at p 10-53:[10.10] It is frequently asserted that an exclusionary rule of expert evidence provides that an expert witness may not be asked to give evidence about a matter which is an "ultimate issue" in the case. In practice this cryptic description is generally taken to refer to the central question which it is the responsibility of the judge or jury to determine – an important issue of fact or law: Joseph Crosfield & Sons Ltd v Techno-Chemical Laboratories Ltd(1913) 29 TLR 378 at 379; McCormich (1984, p 30).[17] In their commentary, the authors note the view of the English Criminal Law Revision Committee that "it would now be probable that the prohibition no longer exists" but go on to say:However, in Australia and New Zealand the ultimate issue rule technically remains intact, a trap for the unwary and unsuspecting.[18] I do not consider that the evidence so clearly infringes the ultimate issue rule that it ought to be excluded as inadmissible at this stage. It seems to me that the Judge who hears the application for adjournment will need to consider whether the evidence should be given weight, or whether it does in fact purport to deal with the ultimate issue. But the question of whether evidence infringes the prohibition on evidence as to the ultimate issue can be determined only by the Judge who is responsible for deciding what the ultimate issue is. That will be the Judge who hears the application for an adjournment. It would be to pre-empt that Judge's role to rule that the evidence relating to question (c) is inadmissible on this ground. [19] As to question (d), the objection is that this deals with matters which are more properly a matter of submission than of expert evidence. I consider that there is a great deal of force in that submission, but again I do not consider that it can be so clearly demonstrated that the evidence is inadmissible on this preliminary application that I should pre-empt the matter for the Judge dealing with the application by ruling the evidence inadmissible at this stage. [20] I have considerable reservations about the extent to which the evidence will in fact prove to be relevant, and as to the extent to which the Judge is likely to derive any assistance from it. However, I am unable to conclude, as a matter of law, that the evidence is so clearly inadmissible that it should be ruled out on this preliminary application. As I have said, to the extent that there is a discretion whether to rule the evidence inadmissible or not, I do not consider that the present application is a proper vehicle for the exercise of that discretion. That should be exercised by the Judge who hears the substantive application. [21] The further ground on which the Commissioner seeks to have Mr Harley's affidavit not read is that Mr Harley is not qualified to give evidence as an expert, because he is not, it is submitted, an independent expert. It is submitted that he is a former partner in the firm acting for the plaintiffs in the proceedings, that he has previously advised other taxpayers in relation to similar schemes, and that he has appeared in litigation, invariably acting against the Commissioner.[22] I do not propose to examine the issue of Mr Harley's independence, or his impartiality. In my view, it is clear that whether or not an expert witness is independent of the party by whom he is called is a matter which goes to weight, not admissibility. A lack of independence does not render the evidence inadmissible. [23] That is the view taken by Wild J in Geddes v New Zealand Dairy Board(High Court, Wellington Registry, CP 52/97, 27 August 2003), where he said:[73] I rule that: [a] An expert witness who is not independent of a party (e.g. is its employee) is nevertheless competent. [b] Independence, or lack of it, goes to the weight of the evidence. [74] Briefly, my reasons for so ruling are: [a] At modern common law there is no requirement that an expert be independent. A party, or a party's employee, if suitably qualified, may give evidence. The English Court of Appeal ruled to precisely that effect in Field v Leeds City Council [2000] 1 EGLR 54. The issue there was the competence of a surveyor employed by the defendant council to give expert evidence. The Court unanimously ruled that he could, if suitably qualified. May LJ put the matter succinctly at p 56: " there is no overriding objection to a properly qualified person giving opinion evidence because he is employed by one of the parties. The fact of his employment may affect its weight, but that is another matter " Waller LJ (also at p 56) explained that the competence of someone to give expert evidence depended on: " whether: (i) it can be demonstrated that that person has relevant expertise in an area in issue in the case; and (ii) it can be demonstrated that he or she is aware of their primary duty to the court if they give expert evidence." The position is correctly stated in the New Zealand edition of Cross on Evidence at para 15.11, citing Field. [b] In Laws NZ, Evidence the following appears: "88. Expert evidence. By way of exception to the general rule, the opinions of expert witnesses are admissible to assist the Court with independent scientific informationlikely to be outside the experience and knowledge of a Judge or jury. 1 " (The emphasis is mine.) If that is intended to convey that independence is a test, or the test, of the competence of an expert witness, then it is wrong. I note that the authority cited in footnote 1 as to independence of experts is R v Tihi [1990] 1 NZLR 540 (CA) at 548. Tihi says nothing about independence. Its emphasis is on the need for the prosecution to place scientific forensic evidence (in that case of the results of blood tests) before the Court in a complete, accurate and fair manner, including results helpful to the accused as well as those favouring the Crown case. Also relevant to the "independence" of expert evidence is the judgment in Air Chathams Ltd v Civil Aviation Authority of NZ HC Wellington, 27.5.03 CP146/98 in which Hammond J adopted seven propositions as to the content and presentation of expert evidence set out by Cresswell J inNational Justice Componia v Prudential Assurance Company Limited [1993] 2 Lloyds Rep. 68 at 81-82. The second of these is: "2. An expert witness should provide independent assistance to Court by way of unbiased opinion in relation to matters within his expertise An expert witness in the High Court should never assume the role of an advocate." Cresswell J is there using the word "independent" as indicating the necessity for expert evidence to be unbiased or impartial. I agree with that – it is the nub of my next point. [c] The Code of Conduct for Expert Witnesses introduced by r 330A, and contained in the Fourth Schedule to the Rules, does not require independence. It places on an expert witness an overriding duty impartially to assist the Court, and a concurrent duty not to advocate for the party who engages the witness. I accept the plaintiffs' point that a lack of independence can denote partiality – or a lack of impartiality – and in that way may affect the weight the Court attaches to evidence. But I agree also with the defendants' submission that an expert witness's overriding duty to the Court is consistent with that witness's (necessarily subordinate) duty to the party engaging the witness.[24] I respectfully agree with that analysis. The admissibility of opinion evidence depends, as a matter of law, on the expertise of the witness, not on the independence of the witness. In many situations where expert evidence is called, the purpose ofthat evidence is to assist the Court, and the necessary assistance can be provided only if the expert is independent of the party calling that expert as a witness. The importance of the independence of expert witnesses who are in this category is demonstrated by the specific provision which is made for such witnesses in Rule 330A of the High Court Rules. That rule makes explicit the duty of an expert witness to place the duty to the Court ahead of the duty to the party calling that witness. But that rule does not go so far as to rule opinion evidence by a duly qualified expert who is not independent of the party calling that witness inadmissible. In many situations, experts who have been involved in the events which are the subject of the litigation will be called as witnesses, primarily as witnesses of fact, but may in the course of their evidence be required to give opinion evidence within the area of their expertise. Rule 330A does not make such evidence inadmissible. The witness should, of course, make clear the nature of the involvement with the affairs of the party calling the witness, and should not assert an independence which does not exist. But the evidence of an expert witness who is not independent is not rendered inadmissible. It is admissible, and the weight to be attached to that evidence is a matter for the Court, having regard to all relevant considerations, which will include the degree of involvement which the witness has with the party calling that witness. [25] Applying those principles here, if the Judge considers that the evidence which Mr Harley gives may be of assistance to the Court, the Court is likely to give it little weight unless it is satisfied of his impartiality. That will be a matter for the Judge hearing the application for adjournment. Because the question of independence and impartiality goes to weight, and not to admissibility, it is not appropriate to deal with that issue on this preliminary application. [26] For these reasons, the application is dismissed. In the circumstances, there will be no order as to costs. "A D MacKenzie J"SolicitorsRussell McVeagh, Auckland, for plaintiffs Crown Law Office, Wellington, for defendant