ANZ NATIONAL BANK LTD V COMMISSIONER OF INLAND REVENUE HC WN CIV-2005-485-1037

ANZ NATIONAL BANK LTD V COMMISSIONER OF INLAND REVENUE HC WN CIV-2005-485-1037 19 July 2006IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY CIV-2005-485-1037AND IN THE MATTER 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: 17 July 2006 Appearances: L McKay and L J Turner for Plaintiffs D J White QC and E J Norris for Defendants Judgment: 19 July 2006 at 2.30pm In accordance with r540(4) I direct the Registrar to endorse this judgment with a delivery time of 2.30pm on the 19th day of July 2006.JUDGMENT OF ASSOCIATE JUDGE D I GENDALL Introduction[1] On 6 June 2006 the plaintiffs applied for a stay of these proceedings pending a hearing in the Court of Appeal of an appeal against a judgment of His Honour MacKenzie J's in this proceeding on 3 April 2006 declining an adjournment. The appeal is to be heard on 23 November 2006. [2] The decision of His Honour MacKenzie J noted that these three proceedings are challenge proceedings under Part VIIIA of the Tax Administration Act 1994 ("the Act"). All plaintiffs are members of the ANZ National Bank Group and in the hearing before him MacKenzie J indicated that the plaintiffs sought:(1) what is described in the application as an adjournment but which might more accurately be described as a stay, of these proceedings.[3] The substantive issue for His Honour MacKenzie J was whether the present High Court proceedings should be adjourned (or effectively "stayed") so as to allow the dispute resolution procedures set out in Part IVA of the Act to run their proper course. For reasons outlined in his judgment, His Honour MacKenzie J. refused the plaintiff's application for an adjournment. It is these matters which will be the subject of the Court of Appeal's consideration. [4] The present application for a stay is opposed by the defendant.Counsel's arguments and my decision[5] Rule 710 High Court Rules deals with a stay of proceedings on an appeal. It states in part:(1) An appeal does not operate as a stay of the proceedings appealed against or as a stay of execution of any judgment or order appealed against.(2) However, pending the determination of an appeal, the decision- maker or the Court may, on application,- (a) Order a stay of proceedings in relation to the decision appealed against or a stay of execution of any judgment or order appealed against; or (b) Grant any interim relief. [6] In considering this rule, McGechan on Procedure at HR710.01 states:The general rule is that a party is entitled to enjoy the fruits of a judgment in its favour. A party seeking a stay would accordingly have to persuade the Court that, if it were not granted, its appeal rights would be rendered nugatory: Philip Morris (NZ) Ltd v Liggett & Myers Tobacco Co (NZ) Ltd[1977] 2 NZLR 41 (CA). In exercising its discretion, the Court will engage in a balancing exercise, weighing up the position of both parties: Duncan v Osborne Building Ltd (1992) 6 PRNZ 85.[7] It is clear that ultimately it is a matter of the Court's discretion to determine whether a stay of proceedings ought to be granted or not. Generally however the Court is to have regard to a non-exhaustive list of considerations alluded to first in the judgment of Anderson J in Area One Consortium Ltd v Treaty of Waitangi Fisheries Commission (1993) 7 PRNZ 200 at 201, and then noted in the judgment of Hammond J in Dymocks Franchise Systems (NSW) Pty Ltd v Bilgola Enterprises Ltd(1999) 13 PRNZ 48 at 50 as follows:(a) If no stay is granted will the applicants right of appeal be rendered nugatory? (b) The bona fides of the applicants as to the prosecution of the appeal. (c) Will the successful party be injuriously affected by the stay? (d) The effect on third parties. (e) The novelty and importance of the question involved. (f) The public interest in the proceedings. (g) The overall balance of convenience.[8] If a Court is able to readily determine on the merits of an appeal that it is not seriously arguable then a stay is not to be granted – Salem Top Ltd v Top End Homes Ltd CA169/05 27 September 2005. There is, however, an obvious difficulty inassessing the merits of an appeal on the basis of material before the Court for a simple stay application. [9] The key grounds put forward in support of its application were expressed by Mr McKay as counsel for the plaintiffs in the following terms:(a) Unless the stay is granted, the plaintiffs' appeal will be rendered nugatory. The plaintiffs' adjournment application seeks to avoid the need to take steps in the litigation, including by unnecessarily undertaking the very substantial task which discovery (in particular) will be in this case, pending use of the specialist dispute resolution procedures. Without a stay for the short period between now and the appeal being determined, the plaintiffs will be denied the very relief sought in the judgment under appeal. (b) The prejudice to the plaintiffs in being required to commence discovery is twofold. First, discovery will have for the plaintiffs a potential cost of $1.5 million (the majority of which cost may be unrecoverable) depending on matters including the need to recovery electronic documents and the apportionment of the costs of doing so. (c) Second, merely engaging in discovery will prejudice the prospects of a successful appeal by the plaintiffs. (d) Conversely, little or no prejudice will fall on the Commissioner if the stay sought is granted. (e) The Commissioner has always anticipated that this appeal would take place, and accordingly cannot be surprised or otherwise inconvenienced by a relatively short stay pending the appeal decision. Moreover the consolidated appeal also includes hearing the Commissioner's appeal. (f) The delays in progressing the proceedings to date have largely been caused by actions taken by the Commissioner. Indeed, had the Commissioner agreed at the outset to proceed through the part IVA dispute resolution process it would by now possible be complete or cost to it.[10] At the outset I need to say that notwithstanding submissions to the contrary made by counsel for the defendant, I do not think it is necessary for me to determine whether the plaintiffs' current appeal is without merit and ultimately destined to fail – Salem Top Ltd v Top End Homes Ltd. Clearly counsel for the plaintiffs holds views on the merits which differ from those of the defendants, and given first, the difficulty of assessing those merits at this stage, and secondly, my findings on otheraspects which are to follow in this judgment, it is unnecessary for me to deal with this issue further here. [11] I turn now to what I see is the critical aspect before the Court on this stay application. That is whether if a stay is refused here, the plaintiffs' appeal rights would be rendered nugatory. In considering this matter and the exercise of the Court's discretion, as the statement from McGechan at HR710.01 (noted above at paragraph [6]) suggests, the Court is to engage in a balancing exercise weighing up the position of both parties here – see also Barge v Freeport Development (HC AK, 6 December 2005, CIV-2002-404-1771, Harrison J). [12] Essentially, the plaintiffs' position is that if a stay is not granted the appeal to a substantial extent will be rendered nugatory as the plaintiffs will need to unnecessarily undertake an extensive discovery exercise pending use of the defendant's dispute resolution process. As to this question of discovery, Mr McKay for the plaintiffs contended that it could conceivably take over six months to complete and it would have a potential cost of $1.5m. This would include the need to recover electronic documents, which will require consultant IT experts to be engaged at considerable cost. Counsel indicated that this IT expert cost alone could be around $1m with solicitor's costs on discovery of possibly $500,000 as well as internal management time required to complete the discovery exercise. [13] The plaintiffs contended further that they would suffer a second form of prejudice if a stay was refused insofar as any requirement to commence discovery was enforced prior to determination of the appeal. The basis of this contention was that if discovery was required prior to the appeal being heard by the Court of Appeal, then this would offer to the defendant a further argument on the appeal. According to the plaintiff, the Commissioner could argue at the appeal that this order for discovery was a further significant example of the High Court being seized of the issues in this dispute and advancing the resolution of them through its own processes, and hence the appeal should be declined. [14] As to this last aspect (noted in paragraph [13] above), before me Mr White QC, for the defendant, was quick to say that this point could be readily met. Heconfirmed that he had instructions from the defendant to give an undertaking that if the plaintiff's present application failed and a stay was refused, the Commissioner would not use this particular discovery argument against the plaintiff on the appeal before the Court of Appeal. As I see it, this meets this particular objection put forward by the plaintiff. [15] I turn back to the plaintiffs' general contention that its appeal rights would be rendered nugatory unless a stay is granted here. [16] With regard to this, Mr White QC noted that even if the plaintiffs were successful on appeal they would still be able to proceed to adjudication within the Inland Revenue Department processes. Proceeding with the current proceedings in this Court in the meantime (ie providing adequate further and better particulars and discovery) it is said would not in any way render the plaintiffs' appeal nugatory. On the contrary, providing further and better particulars and discovery would serve to enhance the plaintiffs' prospects of proceeding to adjudication in the event of a Court of Appeal decision favourable to the plaintiffs because the Commissioner would in any event require the plaintiffs to make full disclosure of all relevant information (if necessary by way of further notices under s17 of the Act) before proceeding with completion of disclosure notices/statements of position under s89M of the Act. [17] It is the defendant's contention therefore that one way or the other the plaintiffs will incur the cost of discovery as there would be neither adjudication nor Court determination without discovery by the plaintiffs. The defendant maintains that the plaintiffs are obliged either by s 17 of the Act or the High Court Rules to provide discovery and therefore any claim to prejudice as a result of being required to comply with their statutory discovery obligations is unfounded. [18] As to this the plaintiffs point to the decision of Eichelbaum J in Dow Chemical Co v Ishihara Sangyo Kaisha Ltd (1986) 1 TCLR 332. There, the applicant sought a timetable for completing discovery and the production of documents. Concurrently, the respondent sought a stay of proceedings pending determination of an appeal, primarily because discovery would be a massiveundertaking and dependent on the outcome of the appeal, the exercise of discovery might become an unnecessary burden on the respondent. In his judgment Eichelbaum J noted at 334:While the respondent's rights of appeal would not be rendered wholly nugatory they would certainly become ineffective to the extent that one of the benefits of a successful appeal would be to avoid the need for discovery or complete discovery.[19] The defendant contends, however, that the present case is distinguishable from Dow Chemical because in that case, if the appeal had succeeded, the proceedings would have been struck out and there would have been no need for discovery at all. Later in his judgment in the Dow Chemical case Eichelbaum J noted at p344:Perhaps more significantly, if discovery proceeded now the respondent would be compelled to disclose information to which in the end the applicant may not be entitled.[20] Here the defendant says that the Commissioner is fully entitled to the information in the documents which the plaintiffs ought to discover and further that he needs that information before the plaintiffs' challenges to his assessments are able to be properly resolved. Mr White QC argues that unlike the situation in Dow Chemical, there is no question here that the plaintiff is being compelled to disclose information to which the defendant, in any event, would not be entitled. [21] For the defendant, Mr White QC's argument goes further. He contends that if by what he describes as a remote chance, Court ordered discovery ultimately did prove to be unnecessary, the plaintiffs would not be prejudiced as they could be compensated at that point by an appropriate order for costs and given the nature of the defendant, it would obviously be in a position to meet any such order. Where parties are well resourced, as here, and it ultimately transpires that a party has been required to participate in proceedings needlessly, the situation can be adequately addressed by an appropriate order for costs – Securities Commission v Midana Rail Investments Ltd (HC AK, 13 January 2006, CIV-2004-485-2174, Williams J). [22] Mr White QC then turned to consider the question of prejudice to the defendant in the event that an order staying the proceedings was granted.[23] With regard to this, he noted the defendant's responsibility to preserve the integrity of the tax system and also under s6A(3) of the Act to ensure the collection over time of the highest net revenue that is practicable under the law. Mr White QC went on to contend that a stay here would prevent the Commissioner from seeking the expeditious resolution of the plaintiffs proceedings in this Court, proceedings which are needed to obtain certainty of outcome and a successful recovery of what are very substantial amounts of outstanding tax. And, before me Mr White QC particularly noted that the Commissioner is most concerned that the present cases should be progressed and not further delayed by the stay sought. [24] In my view, there is substance in these arguments put forward for the defendant. [25] I am satisfied that the refusal of a stay here would not in any sense render the plaintiffs' appeal nugatory. The discovery process and provision of the relevant documents, as I see it, would be required whether this case proceeds before the Court or alternatively is pursued within the internal Inland Revenue Department adjudication process. [26] I am satisfied, too, that in weighing up the position of both parties here, a stay might well tend to cause greater prejudice to the defendant in the sense that it would bring about further delays in the progression of these proceedings. It need hardly be said that it is the plaintiffs who brought the current proceedings and under all normal circumstances would be presumed to wish to have matters pushed on to a speedy and proper resolution. [27] I conclude, therefore, that the plaintiffs here have been unable to establish grounds upon which the Court should exercise its discretion to grant them a stay. That said, it is unnecessary for me to deal in detail with the other considerations noted by Hammond J. in Dymocks Franchise Systems (NSW) Pty Ltd noted at paragraph [7] of this judgment. [28] Suffice to say that I make no comment here as to the bona fides of the plaintiffs as to the prosecution of their appeal before the Court of Appeal. So far asthe effect on third parties of the stay sought is concerned, as I see it, this is not a significant matter here. Similarly, the novelty and importance of the questions involved and the public interest in these proceedings, in my view, must take second place to the issues directly between the plaintiff and the defendant regarding the substantial assessments and outstanding tax here. [29] Finally, I am satisfied, for the reasons outlined above, that the overall balance of convenience in this case must rest with the defendant, as I see no reason for departing from the general rule that he is entitled here to enjoy the fruits of the judgment His Honour Justice MacKenzie made in his favour.Conclusion[30] It will be apparent, therefore, that for the reasons outlined above, I decline the plaintiffs' application for an order staying these proceedings. [31] The defendant is entitled to costs against the plaintiffs on this application, which I fix at category 3C. [32] Timetabling directions as to discovery matters are now required. I am hearing a further application by the defendant for further and better particulars of the plaintiffs' Statements of Claim on Monday 24 July 2006 at 2.15pm. Counsel for the parties are directed to file memoranda with respect to these discovery timetabling matters by 2pm on 24 July 2006, and appropriate directions will be made at that time.________________________ Associate Judge D. I. GendallSolicitors:Russell McVeagh, Auckland, for Plaintiffs Crown Law Office, Wellington, for Defendant