BNZ INVESTMENTS LIMITED & ORS V COMMISSIONER OF INLAND REVENUE HC WN CIV 2004-485-1059

BNZ INVESTMENTS LIMITED & ORS V COMMISSIONER OF INLAND REVENUE HC WN CIV 2004- 485-1059 22 October 2008IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY CIV 2004-485-1059 CIV 2005-485-1045 CIV 2006-485-1028 CIV 2008-485-1056IN THE MATTER OF The Tax Administration Act 1994 and the Income Tax Act 1994 BETWEEN BNZ INVESTMENTS LIMITED & ORS Plaintiffs AND THE COMMISSIONER OF INLAND REVENUE DefendantCIV 2006-485-2084AND IN THE MATTER OF The Tax Administration Act 1994 and the Income Tax Act 1994 BETWEEN BANK OF NEW ZEALAND & ORS Plaintiffs AND THE COMMISSIONER OF INLAND REVENUE Defendant Hearing: 6 October 2008 Counsel: D J White QC and R J Ellis for the Defendant in Support A R Galbraith QC and A S Butler for the Plaintiffs to Oppose Judgment: 22 October 2008 at 4pm In accordance with r540(4) I direct the Registrar to endorse this judgment with a delivery time of 4pm on the 22 nd day of October 2008.RESERVED JUDGMENT OF MACKENZIE J INTRODUCTION[1] This is an application by the Commissioner of Inland Revenue for orders that two witness statements not be received as evidence in these proceedings. [2] The broad issue in each of the proceedings is whether certain transactions constitute tax avoidance. The relevant transactions are those described by the Court of Appeal in an earlier interlocutory appeal (BNZ Investments Ltd v CIR (2007) 23 NZTC 21,589 (CA)) in these terms:[9] .. In issue are six repo deals The first three are known as Gen Re 1, CSFB and Gen Re 2. According to the Commissioner, these transactions were unwound (or brought to a premature end) early to enable the BNZ to enter into three replacement transactions known as Rabo 1, Rabo 2 and Lehmans, which, on the Commissioner's case, gave the BNZ a bigger share of the tax advantages.[3] The nature of the transactions, and the tax issues which arise, were succinctly described by the Court of Appeal in these terms:[7] These transactions were structured broadly as follows: (a) A subsidiary of the BNZ ("the BNZ subsidiary") would acquire from a counter-party an equity or trust interest in an overseas entity ("the issuer") on the basis that the counter- party would repurchase that interest (at the same price, subject to adjustments) at a specified time (usually 5 years) with the counter-party's parent company guaranteeing performance. In economic substance, the BNZ subsidiary was thus providing funding to the counter-party. The BNZ's subsidiary's initial return was in the form of distributions from the issuer. (b) The return to the BNZ group and the overall balance of advantage between the bank and the counter-party is a function of the agreed distribution to be made by the issuer to the BNZ subsidiary, the interest rate swap arrangement, the guarantee procurement fee (at 2.95% of the purchaseprice) paid by the BNZ subsidiary for procuring the performance guarantee from the parent company of the counter-party ("GPF"), and the bank's borrowing costs. (c) The BNZ group would deduct its cost of borrowing, the GPF and the net cost of the interest rate swap and treat distributions from the issuer as either: (i) exempt from tax on the basis that the distributions were received by an overseas owned company (as the BNZ subsidiary) from an overseas company (as the issuer would be) under the "conduit" tax relief rules; or (ii) relieved from tax under the foreign tax credit rules on the basis a foreign tax credit was available for foreign tax paid by an overseas company (being the issuer) resulting in a full credit claimed under the foreign tax credit provisions. [8] The Commissioner's case is that the repo deals were devoid of commercial purpose other than the exploitation of the tax asymmetry just discussed and that they provided a mechanism by which the economic benefits of that exploitation could be divided up between the bank and counter-parties. So the Commissioner claims that the repo deals are subject to s BG 1 of the Income Tax Act 1994. As well, the Commissioner maintains that some at least of the GPF arrangements were shams.[4] Two statements of evidence are contested. The first is a witness statement which has been served under r 441B of the High Court Rules on behalf of the plaintiffs from Mr D K Simcock. Mr Simcock is a solicitor practising in the area of taxation and is a partner in Bell Gully, which Mr White QC describes as a firm which acted for New Zealand trading banks and counter parties in respect of similar structured finance transactions and for another plaintiff bank in respect of income tax challenge proceedings similar to these. Mr Simcock's statement of proposed evidence is described by counsel as purporting to provide independent expert opinion evidence on the evolution of New Zealand tax laws concerning the tax treatment of interest expenditure and dividend income. Mr Simcock summarises his understanding of the six transactions the subject of these proceedings, and his understanding of the New Zealand tax consequences of the transactions. He then addresses a number of basic general tax principles and the taxation of redeemable preference share financing. He suggests that his approach to the taxation of such financing is supported by a number of matters including statements by the Commissioner in policy statements, technical rulings, manuals and revenue alerts, the judgments in Commissioner of Inland Revenue v BNZ Investments Limited(2001) 20 NZTC 17,103, aspects of the legislative history of certain provisions in the Income Tax Act, the report of the consultative committee on full imputation and the legislative purpose of the introduction of the conduit relief regime, various discussion documents and commentaries and his own interpretation. He reviews the New Zealand position on international tax issues and legislative changes in respect of certain matters with reference to the work of the Policy Advice Division of the IRD, a consultation paper and a Cabinet paper. He comments on the binding rulings system and taxpayers' use of it. [5] The second statement is that of McLeod, a specialist tax practitioner with a particular focus on corporate income tax, and managing partner of Ernst & Young New Zealand. No brief of evidence has been served by the plaintiffs under r 441B. Mr Galbraith QC explained that the plaintiffs do wish to adduce evidence from Mr McLeod, but there is presently an unresolved issue as to his availability to give evidence. If that can be resolved, then, subject to the outcome of this application, the plaintiffs would wish to file a witness statement which it is anticipated is likely to be substantially the same as his statement in Deutsche Finance New Zealand Limited v CIR (2008) 23 NZTC 21, 758. His statement in that case was before me. If is described by Mr White as purporting to provide independent expert opinion evidence addressing the concepts of debt and equity, the New Zealand history of redeemable preference share financing and the commercial and tax characteristics of those transactions, the background to the introduction of the conduit tax relief regime, approaches New Zealand has taken to interest deductibility generally, the significance of a transaction having a pre-tax negative outcome and how asymmetrical outcomes are unremarkable in the New Zealand tax system.THE ISSUES ON THIS APPLICATION[6] The grounds on which the Commissioner contends that these statements should not be received as evidence in these proceedings are set out in the Notice of Application as follows:(1) The statements contain evidence which is irrelevant and inadmissible in that it comprises opinion evidence and submissions on matters of New Zealand law, includinglegislative history and statutory interpretation, which are not matters on which a lawyer or accountant may purport to give expert evidence in these proceedings. (2) The Court is unlikely to obtain any substantial help from the opinion evidence in understanding other evidence in the proceedings or in ascertaining any fact that is of consequence to the determination of the proceedings. (3) None of the Inland Revenue Department publications, the various discussion documents and issues papers, the views of the Policy Advice Division of the Department, Committee reports, rulings or the post-transaction amending legislation, which are referred to and relied on in the statements, is relevant to the issues in these proceedings. (4) The evidence of Mr McLeod relating to his involvement in the design and introduction of the "conduit regime" is inadmissible and irrelevant to the issues in these proceedings. (5) Mr Simcock is not eligible to give independent and impartial expert evidence to the Court in these proceedings because of the matters disclosed in paragraphs 8-9 of his written statement and the further involvement of his firm in aspects of the transactions the subject of these proceedings. (6) Mr McLeod is not eligible to give independent and impartial expert evidence to the Court in these proceedings because of the matters disclosed in paragraphs 2.4-2.5 of his written statement in the Deutsche proceedings and the further involvement of his firm in aspects of the transaction the subject of these proceedings. (7) The orders should be made now so as to avoid – (i) The need for the defendant to provide witness statements in response; (ii) The time and cost involved; and (iii) Needlessly prolonging the proceedings.[7] The grounds on which the plaintiffs oppose the making of the orders are set out in the Notice of Opposition in these terms:(1) It is inappropriate to consider the admissibility of evidence from Mr McLeod without an actual brief and without the plaintiffs having the opportunity to call affidavit evidence. The plaintiffs' annex marked "A" the affidavit of Mr McLeod filed in the Deutsche Bank proceedings. (2) Given the opaqueness of the defendant's pleading it is inappropriate to consider the admissibility of either or both Mr Simcock's and Mr McLeod's evidence in the absence of thefull evidential context, including briefs of evidence of the defendant and reply evidence of the plaintiffs. Until then it is not possible for the Court to determine whether the evidence is relevant as having a tendency to prove or disprove anything that is of consequence to the determination of the proceedings. (3) In any event both the evidence of Mr Simcock and the proposed evidence of Mr McLeod (in the event the plaintiffs are permitted to engage him) are directed to matters that are of consequence to the determination of the proceedings: (a) The aspects of the tax legislation relevant to these proceedings are part of New Zealand's international tax regime, which has been designed and implemented over a period of approximately 20 years. The purpose and scope of that regime should be determined on an informed basis and forms the context to the transactions in issue. The relevant evidence is principally factual. (b) The principal issue for determination in the substantive proceedings is whether the six transactions are tax avoidance arrangements. The defendant has alleged that the transactions resulted in the creation of deductions "artificially", were "unprofitable absent the tax benefits" and were not "normal commercial transactions". Those allegations can only be assessed in the context of commercial practice and an understanding of the ways in which the tax regime shapes that practice. (c) Part of the background to commercial practice were the RPS transactions with which New Zealand commercial parties had become generally familiar in the 1980's and 1990's. The principal factual evidence of BNZ witnesses relates the transactions under challenge as a development of these RPS transactions. Again the proposed evidence of Mr Simcock and Mr McLeod is principally factual and provides the historical commercial context surrounding the RPS transactions applicable to the present transactions. (d) The proposed evidence of Mr Simcock and Mr McLeod also explains the extent to which the tax laws and tax policy, over a 20 year period, have shaped commercial practice relevant to these transactions. That and evidence as to compatibility with other international tax regimes, to which New Zealand looks for guidance, gives a foundation for the Court to consider policy aspects of the issues before the Court. (e) Additionally the evidence identifies the policy underlying the reforms to New Zealand's international tax and interest deductibility regimes which has been supportive of the availability of deductions for expenses incurred in generating exempt or otherwise tax relieved income,contrary to the defendant's allegations that such an outcome is artificial. (4) In respect to grounds (5) and (6) of the defendant's application, these are matters which go to weight not to admissibility. (5) In respect to ground (7): (a) The need for the defendant to call evidence in response to the evidence of Messrs Simcock and McLeod will not unduly inconvenience the defendant. Any such witness or witnesses would in all likelihood be based in New Zealand, may be employees of the defendant, and could readily be briefed in respect to the matters on which their evidence is required. (b) The time and cost arising from the expert evidence in issue would be minimal compared to the cost which the parties are otherwise incurring. (6) It is premature for the Court to determine whether this evidence is likely to be of substantial help in understanding other evidence in the proceeding, or in ascertaining any fact that is of consequence to the determination of the proceeding, until the Court has a full appreciation of the matters in issue between the parties and the full scope of the evidence which the parties are intending to call.[8] The issues arising from those can be best addressed under three broad headings: a) Relevance; b) The appropriateness of opinion evidence; and c) The independence of the experts.RELEVANCE[9] The starting point for a consideration of relevance is the fundamental principle in s 7 of the Evidence Act 2006 that all relevant evidence is admissible, and evidence that is not relevant is not admissible. Under s 7(3) evidence is relevant in a proceeding if it has a tendency to prove or disprove anything that is of consequence to the determination of the proceeding. Counsel for the Commissioner submits thatin determining the issues in these proceedings the Court will not be concerned with a number of matters which have been ruled irrelevant in earlier interlocutory applications in these and related proceedings. Reliance is placed upon rulings concerning the discoverability of documents on certain issues. I consider that caution is required in approaching issues of relevance on the present application in a manner similar to that appropriate in determining issues relating to pre-trial discovery. First, relevance for discovery purposes must necessarily be determined in advance of trial. That is not necessarily, indeed not ordinarily, so for the purposes of admissibility. Caution is required in determining, on a pre-trial application, whether a particular issue will or will not be relevant. Second, the primary obligation to assess relevance for discovery is on the party giving discovery, not the Court. The Court will ordinarily become involved, in party discovery, only when the party's assessment is challenged. Pre-trial, the parties can be expected to have a more detailed appreciation of potential relevance than the Court. Third, the classic test which is applied to determine relevance for discovery, is whether a document may fairly lead to a train of enquiry which may either advance the case of the party giving discovery or damage that of the opponent. That is not necessarily the same test as whether evidence may tend to prove or disprove anything that is of consequence to the determination of the proceeding. In having regard to the issues which have been ruled not relevant, I bear those considerations in mind. [10] The submissions of counsel for the Commissioner on the question of relevance is encapsulated in the following statement:13.1 Both statements clearly fail to meet the test for relevance under ss 7(3) and 25(1) of the Evidence Act 2006 because they do not and could not properly address anything that is of consequence to the determination of the plaintiffs' challenge proceedings –• With the exception of one black letter law issue relating to the deductibility of the guarantee procurement fee, the issues in the challenge proceedings are whether the six transactions constituted void tax avoidance arrangements, that is whether, objectively and in substance, the purpose or effect of a more than merely incidental purpose or effect of the arrangements was tax avoidance;• For the purpose of the determination of the tax avoidance issues, there is no dispute that the plaintiffs were otherwise entitled to claim the interest deductions and foreign tax credits or conduitrelief. The question of the interpretation of application of those provisions does not arise in these proceedings;• Many of the materials relied on by Messrs Simcock and McLeod have already been ruled irrelevant to the issues in these or other income tax proceedings;• Alternatively, if the interpretation and application of those provisions does arise in these proceedings, they would be matters of law for the Court to determine and the Court would be unlikely to obtain substantial help from Messrs Simcock and McLeod (after cross-examination and "evidence" for the Commissioner) when their arguments should properly appear in submissions.[11] It is inherent in that submission that, because the application of the "black letter law" provisions of the tax law lead to a particular result, and that result is not in dispute, no question of interpretation of the law arises, and that accordingly no evidence of the background to those black letter law provisions can be relevant. The first of those propositions, namely that the interpretation of the 'black letter' law is not in dispute, is, in broad terms, accepted by counsel for the plaintiffs. But the second proposition does not necessarily follow. I do not consider that the fact that the application of the specific provisions in the tax legislation is not in dispute, so that no question of interpretation of those provisions arises, means that evidence of the sort intended to be adduced here is irrelevant. The plaintiff's position as to the issues which will be relevant in these proceedings is summarised by Mr Galbraith as follows:3.6 The plaintiffs' position is that the transactions were consistent with the scheme and purpose of the Act and were arm's length financing transactions commercially priced having regard to the statutorily defined tax consequence. They say that the transactions were of a character that represented normal commercial transactions between major commercial parties and that none of the features referred to by the Commissioner justify the asserted characterisation as artificial, or not on normal commercial terms. 3.7 The Commissioner's assertions and the plaintiffs' case can only be properly considered within an understanding of the tax regime, including the policy options, choices and purposes that have shaped that regime, and the interaction between the regime and commercial practice which influences the structure of commercial transactions.[12] I consider that it is likely to be desirable, indeed essential, that the trial Judge should have a detailed understanding of such matters as the scheme and purpose ofthe specific provisions, the fiscal and economic consequences of those provisions, and the way in which commercial practice has developed in response to changes in the legislative scheme for taxation in accordance with the specific provisions. [13] It is of the essence of the anti-avoidance provisions in the tax legislation that the tax consequences which would follow from the application of the specific provisions will not prevail where the purpose or effect of the transaction is tax avoidance. An essential conceptual feature of tax avoidance is that an arrangement which, if the specific provisions of the Act are applied to it will result in a certain tax consequence may, despite that, be held to have a different tax consequence. This feature of the interrelationship between general anti-avoidance provisions and specific tax rules has frequently exercised Courts which have had to grapple with it. The position was summarised by Richardson P in Commissioner of Inland Revenue v BNZ Investments Ltd [2002] 1 NZLR 450 (CA) at 41-42:[41] The function of s 99 is to protect the liability for income tax established under other provisions of the legislation. The fundamental difficulty lies in the balancing of different and conflicting objectives. Clearly the legislature could not have intended that s 99 should override all other provisions of the Act so as to deprive the taxpaying community of structural choices, economic incentives, exemptions and allowances provided by the Act itself. Equally the general anti-avoidance provision cannot be subordinated to all the specific provisions of the tax legislation. It, too, is specific in the sense of being specifically directed against tax avoidance; and it is inherent in the section that, but for its provisions, the impugned arrangements would meet all the specific requirements of the income tax legislation. The general anti-avoidance section thus represents an uneasy compromise in the income tax legislation. [42] Line drawing represents the legislature's balancing of the relevant public interest considerations. In terms of s 99, that line drawing is directed to three elements, each of which contains its own limits. There must be an arrangement coming within the section. The arrangement must have a more than merely incidental purpose or effect of tax avoidance. And where those two ingredients are present, the assessable income of any person affected by the arrangement is adjusted so as to counteract any tax advantage obtained by that person from or under that arrangement.[14] In the line drawing exercise which is contemplated by that case, a closer examination of the specific provisions of the legislation, and the commercial and economic considerations which underlie those provisions, may well be necessary. It is not simply an exercise of interpretation of the legislation. More is required toanswer the question whether the specific provisions of the tax legislation are, in a particular case, to be overridden by considerations of the purpose and effect of the arrangement. Accordingly, I do not accept the submission that, because the interpretation of the specific tax provisions is not in issue, material which might be relevant to explain the rationale for those provisions, would be irrelevant. I consider that evidence on such matters as the scheme and purpose of the Act, potentially different from and more extensive than that which may be used as an aid to interpretation, may well be relevant. Mr Galbraith for the plaintiffs succinctly summarises the potential relevance of the evidence in these terms:1.7 Specifically the evidence is relevant to, and the Court is likely to obtain substantial help for the evidence in relation to, the Commissioners assertion that features of the transactions are artificial, contrived or not on normal commercial terms. Those labels have no meaning without a context. The evidence of Mr Simcock and proposed evidence of Mr McLeod is directed at the interaction between the tax regime and taypayer behaviour represented in the structuring of commercial transactions, and of actual commercial practice in cross-border financing arrangements, including where cross-border tax arbitrage is a feature. This is necessary context within which the Commissioner's labels have to be assessed. Indeed absent such evidence the Court will have no proper basis on which to objectively determine those issues. Further, the basis for such determinations should be transparent on the evidence before the Court.[15] The jurisdiction to rule in advance of trial that evidence is inadmissible because it is irrelevant is one which should be sparingly exercised. Generally speaking, issues of relevance are best determined by the trial Judge, at trial. An assessment can be made in the context of the way the case is presented at trial, and in the light of all the evidence to be adduced. If I were to rule at this stage that the evidence is irrelevant, I would be doing so in the absence of a full understanding of the relevant transactions, and in the absence of any formal definition, beyond the pleading themselves, of how the case is to be presented. I would also be doing so without a knowledge of other evidence which either the plaintiffs or the defendant may seek to adduce. None of the other briefs of evidence for the plaintiffs are, or should be, before me. Necessarily, none of the briefs for the Commissioner are before me as the time for serving such briefs has not expired. Those factors suggested that only in the very clearest of cases should evidence be ruled admissible on the grounds of lack of evidence at this stage.[16] A similar question was considered by Stevens J in Deutsche Finance New Zealand Limited v CIR (2008) 23 NZTC 21, 758. That involved a proceeding in which the issues were very similar to those in this case: that is whether a transaction which was very similar to those in issue in this case constituted tax avoidance. The evidence in question included the brief of Mr McLeod, the very same brief on the basis on which I am asked to rule in this case. Stevens J said:[76] In order to be able to consider the merits of the challenged evidence in a meaningful and comprehensive way, it would be necessary for me to have a greater understanding of the test for tax avoidance in New Zealand and the factual issues raised by the transaction in this case. Yet at this stage, I really have only a superficial knowledge of both, particularly the facts of what is clearly a complex transaction with extensive documentation of detailed commercial arrangements. These are to be fully explored at trial. Moreover, the parties have not had an adequate opportunity to develop and test the various legal and factual issues thoroughly in the course of a half-day interlocutory hearing. Further, I consider that to effectively pre-determine many of the issues arising would be wholly inappropriate on my part. They should properly be left for determination at the trial. [77] This inexorably leads me to the conclusion that, despite potential problems with some of the challenged evidence, this is not the point at which to determine the admissibility of the challenged evidence. The application is in my judgment premature. I emphasise that in so concluding, I make no pre-judgment regarding the content of the evidence, its relevance or admissibility.[17] Mr White sought to distinguish that decision on the basis that the application here is made at an earlier stage. That is somewhat paradoxical, given that Stevens J considered the application in that case to be premature. Mr White submits that I have the opportunity to examine the issues in a more detailed way than did Stevens J in that case. I do not find that a valid basis for differing from the approach which Stevens J took, an approach with which I respectfully agree. It is in my view simply not appropriate to venture into the issues to the extent which would be necessary to make a final ruling the issues which are relevant in the proceeding on an interlocutory application. The hearing before me lasted approximately one day, compared to the half day before Stevens J. The only attempt by counsel for the Commissioner to identify the issues which will be relevant, was at a level which I regard as too superficial to enable any meaningful decision on the issues, and the relevance of evidence to those issues, to be made.THE APPROPRIATENESS OF OPINION EVIDENCE[18] The next aspect is whether, if evidence as to the wider scheme and purpose of the specific provisions in the legislation is relevant, that evidence is properly the subject of opinion evidence under s 25. Mr White submits that the proposed evidence is largely opinion evidence. Mr Galbraith submits that it is largely evidence of fact, based on the expert's experience. For present purposes, I am prepared to accept Mr White's categorisation of it. But I do not regard the categorisation as critical. The essential point is not the classification of the evidence, but its appropriateness as a means of proving anything of consequence. [19] As I have indicated, I consider that evidence as to the scheme and purpose of the Act, for the purpose of the line drawing exercise in a tax avoidance context, potentially goes far beyond the type of material which may be relied upon as indicating the purpose of the Act, under s 5 of the Interpretation Act 1999. The way that the specific tax provisions may have influenced how transactions have been structured, and the understanding of the tax laws in the market, are potentially relevant, in a way which would not ordinarily be the case if the question were one of interpretation of the specific tax provisions involved. The purpose and effect of the transactions cannot properly be assessed in a vacuum, divorced from their commercial context. If evidence of such matters is relevant, then it seems to me appropriate that it be given by persons with experience and expertise in tax law and practice, and with knowledge, derived from that expertise, of the relevant market circumstances. That will be partly evidence of fact and partly evidence of opinion. To the extent that it is opinion evidence, the test under s 25(1) of the Evidence Act is whether the fact finder is likely to obtain substantial help from the opinion in understanding other evidence in the proceeding or in ascertaining any fact that is of consequence to the determination of the proceeding. [20] Mr White submits, in relation to that test, that the trial Judge is unlikely to obtain substantial help from the evidence. He submits that the opinions of lawyers on matters of law or the application of the law in practice or to the facts of a particular case are irrelevant and inadmissible, and that there is no exception to that general rule in respect of the interpretation of the purpose and scope, or scheme andpurpose of tax laws. Mr Galbraith submits that a broad concept of relevance is reflected in s 25. He refers to the approach of Cooke P in Attorney-General v Equiticorp Industries Group Ltd (In Statutory Management) [1995] 2 NZLR 135 (CA) at 139 where he said:[M]atters which to a considerable extent are within the experience of a Judge trying the facts or a jury can arise, yet expert evidence may help materially in coming to a conclusion. As to helpfulness, we accept that the test is not as restrictive as suggested by Dawson J in Murphy, and we respectfully prefer the broader majority opinions It would be a churlish appellate Court that denied a trial Judge the advantage of evidence which he regarded as helpful to him. In our view the present law does not require us to do so.[21] I have considered, under the issue of relevance, the issue of whether the proposed evidence might be relevant. Similar considerations apply, in my view, to the question of whether it is likely to be substantially helpful. That is essentially a question for the fact finder, namely the trial Judge. To rule the evidence inadmissible at this stage, I would have to reach the conclusion that there was no reasonable possibility that the evidence might be substantially helpful. I do not consider that to be the case here. Beyond that, it would be inappropriate to comment.THE INDEPENDENCE OF THE EXPERTS[22] The final issue is whether the evidence of these particular witnesses should be admitted as expert opinion evidence. Mr White submits that it should not. He submits that it is a requirement of the giving of expert opinion evidence that the expert must be independent. He says: "It is trite law that a witness called to give expert opinion evidence when such evidence is admissible must be independent and not an advocate for one party". The proposition that the witness not be an advocate for one party is clearly correct. Section 26 of the Evidence Act requires that experts conduct themselves in accordance with the applicable rules of the Court relating to the conduct of experts. The relevant provision is Schedule 4 of the High Court Rules. That emphasises the overriding duty to assist the Court impartially on relevant matters within the expert's area of expertise and expressly states that anexpert witness is not an advocate for the party who engages the witness. There is nowhere in that schedule a requirement that the necessary impartiality can only exist if the witness is independent, and has no connection with either party or with the relevant issues. Impartiality is an obligation cast upon a expert witness, whose evidence is admissible, not a legal precondition to the admissibility of the evidence. The qualification to give opinion evidence is expertise, not independence. For opinion evidence, the condition for admissibility is expertise. It is not a separate requirement of admissibility that an expert witness be independent. I have previously dealt with this issue in ANZ National Bank Limited v CIR (2005) 22 NZTC 19,587. In that case, I followed a decision of Wild J in Geddes v New Zealand Dairy Board HC WN CP52/97 CP30/02 27 August 2003. I adhere to that view. I do not consider that anything in ss 25 or 26 of the Evidence Act alters that position. In my view, the independence of an expert is a question which goes to the credibility and weight of the evidence, not to its admissibility. I consider that that position is compatible with the duty of impartiality reflected in s 26 and in the Code of Conduct. [23] The imposition of a test of independence on the admissibility of expert opinion evidence could potentially create considerable difficulty. If the question of independence goes to admissibility and not to weight, then a sharp line must be drawn as to what constitutes independence. That would be a difficult exercise. In many instances it will be the expert's familiarity with the field which will constitute the main reason for calling the expert. In this case, to the extent that market practice, and market understanding of the operation of the tax legislation, may be relevant, only those with significant experience in the relevant markets, or the relevant disciplines, could have the necessary level of expertise. It is quite possible that a witness with that level of experience will have experience with parties or with transactions which might be argued to affect the independence of that expert. There can be no clear "bright line" basis for the assessment of independence. No such clear line need be drawn if the issue is one of weight. Different levels of independence may have different consequences in determining weight. [24] Here, the matters relied upon are that both Messrs Simcock and McLeod and their respective firms have had a close involvement in representing New Zealandtrading banks and counter parties in relation to these or similar transactions. The extent to which their involvement in representing New Zealand trading banks and counter parties in relation to these or similar transactions may affect the weight of their evidence by rendering it either more expert or less independent is part of the process of assessing the evidence. The weighing of the evidence is an assessment for the trial Judge, not one which should be undertaken at this stage. For these reasons, I consider that the extent to which the impartiality of Mr Simcock or Mr McLeod may be affected by any lack of independence, and the effect which that may have on the weight to be attached to their evidence, is an assessment which must be undertaken by the trial Judge.OTHER MATTERS[25] My conclusion that the Commissioner has not demonstrated that the evidence is inadmissible means that the application must be refused. That makes it unnecessary for me to address Mr White's submission which was addressed to the need for orders now, except to address briefly one point. Mr White submits that: "Experience suggests that allowing evidence of this nature to be admitted in income tax proceedings is frequently found to have been a mistake." He refers to the sequel to ANZ National Bank Limited v CIR (referred to above). I later dealt with the interlocutory application to which the challenged evidence, which I had ruled admissible, related. I found it to be "of limited relevance": ANZ National Bank Limited v CIR (No 2) [2006] 22 NZTC 19,835 at 19,842 para [24]. Mr White also refers to Woodside Energy v Commissioner of Taxation (No 2) [2007] FCA 1961. I do not consider that either of those cases justifies the submission that the admission of the evidence was a mistake. They simply reflect the fact that, when the evidence was assessed, it was accorded little weight. The fact that that view of it was taken provides no support for the proposition that the trial Judge should have been deprived of the opportunity to make that assessment.RESULT[26] For these reasons, the application is refused. The plaintiffs are entitled to costs. If the parties are unable to agree, memoranda may be filed."A D MacKenzie J"Solicitors: Crown Law Office, Wellington for the Defendants in Support Russell McVeagh, Wellington for the Plaintiffs to Oppose