CHATFIELD & CO LTD v COMMISSIONER OF INLAND REVENUE [2015] NZHC 2099

CHATFIELD & CO LTD v COMMISSIONER OF INLAND REVENUE [2015] NZHC 2099 [1 September 2015]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYCIV-2015-404-1013[2015] NZHC 2099UNDER the Judicature Amendment Act 1972IN THE MATTER of a decision under the Tax AdministrationAct 1994BETWEEN CHATFIELD & CO LIMITEDApplicantAND COMMISSIONER OF INLANDREVENUERespondentHearing: 11 June 2015Appearances: R A Rose for the ApplicantP Courtney and M Bryant for the RespondentJudgment: 1 September 2015RESERVED JUDGMENT OF ELLIS JThis judgment was delivered by me on 1September 2015 at 3 pmpursuant to Rule 11.5 of the High Court Rules.Registrar/Deputy RegistrarDate:.Counsel/Solicitors:Bell Gully, AucklandCrown Law, WellingtonTable of ContentsThe Korean DTA and the international context [5]Mr Nash's evidence [9]The claim for judicial review [14]Discovery in a judicial review context [20]Relevant New Zealand authorities [21]The decision in Squibb [22]The decision in Avowal [29]Relevance [34]Submissions [34]Discussion [37]Privilege/Confidentiality [40]Submissions [40]Discussion [47]Next steps [79][1] Chatfield & Co Ltd (Chatfield) acts as the tax agent for KNC Construction Ltd and a number of associated companies (collectively, the companies). The companies are presently under investigation by the tax authorities in the Republic of Korea (Korea).[2] Korea's National Tax Service (the NTS) has asked the New Zealand Commissioner of Inland Revenue (the Commissioner) to obtain and provide information relating to the companies. The request was made pursuant to the Double Taxation Relief (Republic of Korea) Order 1983 (the DTA). As a result, the Commissioner issued Chatfield with Notices to Furnish Information pursuant to s 17 of the Tax Administration Act 1994 (the TAA). The Notices require Chatfield to provide information about the companies to the Commissioner in order that it may be passed on to the NTS. Chatfield has sought judicial review of the decision to issue the Notices.[3] In the context of that application for review, Chatfield has sought copies of documents exchanged between Korea and the Commissioner, including the original request. Chatfield says that it is necessary to see those documents because they willevidence the reasons for the Commissioner's decision and the procedures that werefollowed, and that those matters are relevant to the application for review.[4] The Commissioner has refused to provide copies of the documents on thegrounds that they are not relevant and (in any event) relate to "matters of state". Sheseeks a direction under s 70 of the Evidence Act 2006 (the EA) that they must not be disclosed.The Korean DTA and the international context[5] DTAs are effectively incorporated into New Zealand law through s BH 1 of the Income Tax Act 2007. Pursuant to s BH 1(3), DTAs enter into force on the date specified by the Governor-General by Order in Council. Importantly, s BH 1(4) provides:Overriding effect(4) Despite anything in this Act or in any other Inland Revenue Act or the Official Information Act 1982 or the Privacy Act 1993, a double tax agreement has effect in relation to—(a) income tax:(b) any other tax imposed by this Act:(c) the exchange of information that relates to a tax, as defined in paragraphs (a)(i) to (v) of the definition of tax in section 3 of the Tax Administration Act 1994.[6] Article 25 of the Korean DTA governs the exchange of information between the two countries. It provides:1. The competent authorities of the Contracting States shall exchange such information as is necessary for carrying out the provisions of this Convention or of the domestic laws of the Contracting States concerning taxes covered by the Convention insofar as the taxation thereunder is not contrary to the Convention, as well as to prevent fiscal evasion. The exchange of information is not restricted by Article 1. Any information received by a Contracting State shall be treated as secret in the same manner as information obtained under the domestic laws of that State and shall be disclosed only to persons or authorities (including courts and administrative bodies) involved in the assessment or collection of, the enforcement or prosecution in respect of, or the determination of appeals in relation to, the taxes covered by the Convention. Such persons or authorities shall use theinformation only for such purposes. They may disclose the information in public court proceedings or in judicial decisions.2. In no case shall the provisions of paragraph 1 be construed so as to impose on a Contracting State the obligation:(a) to carry out administrative measures at variance with the laws and administrative practice of that or of the other Contracting State;(b) to supply information which is not obtainable under the laws or in the normal course of the administration of that or of the other Contracting State;(c) to supply information which would disclose any trade, business, industrial, commercial or professional secret or trade process, or information, the disclosure of which would be contrary to public policy (ordre public).[7] New Zealand's DTAs are generally based on the OECD Model Tax Convention on Income and on Capital (the Model Convention). Article 25 of the Korean DTA generally follows the terms of art 26 of the 1977 Model Convention. The Model Convention (and art 26) has undergone several iterations since that date.[8] Article 26 of the Model Convention (as last revised in 2012) provides:1. The competent authorities of the Contracting States shall exchange such information as is foreseeably relevant for carrying out the provisions of this Convention or to the administration or enforcement of the domestic laws concerning taxes of every kind and description imposed on behalf of the Contracting States, or of their political subdivisions or local authorities, insofar as the taxation thereunder is not contrary to the Convention. The exchange of information is not restricted by Articles 1 and 2.2. Any information received under paragraph 1 by a Contracting State shall be treated as secret in the same manner as information obtained under the domestic laws of that State and shall be disclosed only to persons or authorities (including courts and administrative bodies) concerned with the assessment or collection of, the enforcement or prosecution in respect of, the determination of appeals in relation to the taxes referred to in paragraph 1, or the oversight of the above. Such persons or authorities shall use the information only for such purposes. They may disclose the information in public court proceedings or in judicial decisions. Notwithstanding the foregoing, information received by a Contracting State may be used for other purposes when such information may be used for such other purposes under the laws of both States and the competent authority of the supplying State authorises such use.3. In no case shall the provisions of paragraphs 1 and 2 be construed so as to impose on a Contracting State the obligation:(a) to carry out administrative measures at variance with the laws and administrative practice of that or of the other Contracting State;(b) to supply information which is not obtainable under the laws or in the normal course of the administration of that or of the other Contracting State;(c) to supply information which would disclose any trade, business, industrial, commercial or professional secret or trade process, or information the disclosure of which would be contrary to public policy (ordre public).4. If information is requested by a Contracting State in accordance with this Article, the other Contracting State shall use its information gathering measures to obtain the requested information, even though that other State may not need such information for its own tax purposes. The obligation contained in the preceding sentence is subject to the limitations of paragraph 3 but in no case shall such limitations be construed to permit a Contracting State to decline to supply information solely because it has no domestic interest in such information.5. In no case shall the provisions of paragraph 3 be construed to permit a Contracting State to decline to supply information solely because the information is held by a bank, other financial institution, nominee or person acting in an agency or a fiduciary capacity or because it relates to ownership interests in a person.Mr Nash's evidence[9] Mr Nash is the Inland Revenue officer who is designated the "Competent Authority" for New Zealand. He has held that designation since 1994. He is alsocurrently New Zealand's delegate to the OECD Working Party No 10 on Exchangeof Information and Tax Compliance. That Working Party has responsibility (inter alia) for the policy behind art 26 (Exchange of Information) in the Model Convention. As I have said, art 25 of the Korean DTA is based on an earlier version of the present art 26.[10] Mr Nash's affidavit explains that the broad objective of double taxationagreements is to avoid double taxation of income and prevent fiscal evasion and that the exchange of information between countries is central to achieving this objective.Mr Nash notes that the importance of the inter-country exchange of information is reflected in the seniority of the Competent Authority delegation.[11] Mr Nash deposes that over the 21 years he has acted as Competent Authority he has developed a close relationship with his Korean counterparts and that they (his counterparts) have always displayed the utmost integrity. He notes (and annexes) art 170 of Korea's Income Tax Act, which is in terms broadly similar to s 17 of the TAA, and records his satisfaction that the present request is in accordance both with the DTA and the taxation laws of New Zealand.[12] Mr Nash notes that on 12 December 2014 Chatfield's legal representative sought under the Official Information Act 1982 (the OIA) " a copy of allcorrespondence with the Minister of Finance, or his authorised representative, of theRepublic of Korea that relates to the requests for information" incorporated in the s 17 Notices that are the subject of this proceeding. The Commissioner refused the request on 13 March 2015. Mr Nash says:Under Article 25 of the DTA, information exchanged by the respective competent authorities is treated as secret. Furthermore, Article 26 of the OECD Model Tax Convention sets out provisions relating to the exchange ofinformation between OECD members The 2012 Update to the OECDModel Tax Convention clarifies that the confidentiality rules in Article 26 cover competent authority letters, including the letter requesting the information, and that in the case of a breach of confidentiality, the other State may suspend assistance until proper assurances are provided. New Zealand considers any failure to keep confidentiality would severely curtail future exchanges of information with the Republic of Korea as well as other treaty partners. Both New Zealand and the Republic of Korea are OECD members and abide by the international standards set by the OECD.[13] Mr Nash annexes the latest OECD Commentary on art 26 of the Model Convention to his affidavit. I shall return to that later.The claim for judicial review[14] Section 17 of the TAA relevantly provides:(1) Every person (including any officer employed in or in connection with any department of the government or by any public authority, and any other public officer) shall, when required by the Commissioner, furnish in writing any information and produce for inspection any documents which the Commissioner considersnecessary or relevant for any purpose relating to the administration or enforcement of any of the Inland Revenue Acts or for any purpose relating to the administration or enforcement of any matter arising from or connected with any other function lawfully conferred on the Commissioner.(1B) For the purpose of subsection (1), information or a document is treated as being in the knowledge, possession or control of a New Zealand resident if —(a) the New Zealand resident controls, directly or indirectly, a non-resident; and(b) the information or document is in the knowledge, possession or control of the non-resident.[15] It is not, as I understand it, in dispute that compliance with New Zealand'sDTA obligations relates to the administration or enforcement of one of the Inland Revenue Acts (because the DTAs are incorporated into New Zealand law through the ITA07) and/or is a function that is lawfully conferred on the Commissioner. Nor (I think) is it in dispute that Chatfield does have the relevant information or documents within its knowledge possession or control. Thus the request made of Chatfield appears, prima facie, to be within the very wide reach of s 17.[16] Chatfield nonetheless seeks review of the Commissioner's decision to issuethe s 17 Notices on two principal grounds.[17] The first relates to the procedures contained in a document known as Operational Statement (OS) 13/02, which is intended to offer guidance on the exercise of the Commissioner's power under s 17 and, in particular, those parts of the OS which refer to making information requests of third party tax agents. More particularly the OS suggests that ordinarily the Commissioner will only make requests of tax agents in circumstances where it is considered that transactions undertaken by their principals are likely to involve tax avoidance, evasion or some other form of criminal activity. A range of factors are said to be relevant to anydecision to make such a request. Chatfield says that the Commissioner's actions inthe present case were inconsistent with the OS and thus the s 17 notices were issuedin breach of Chatfield's legitimate expectation and were invalid.[18] The second ground alleges that in issuing the notices the Commissioner failed to take into account relevant considerations, namely:(a) the terms of the OS;(b) the "limited nature of the tax agent/client relationship"; and(c) the DTA and, in particular, the terms of art 25.[19] This last, art 25, pleading is not particularised. However as I understood itfrom Ms Rose's submissions, Chatfield wishes to test whether the request from Korea was:(a) necessary for carrying out the provisions of the Convention or of the domestic laws of Korea (as required by art 25(1)); and(b) for information which is obtainable under the laws or in the normal course of the administration of Korea (as required by art 25(2)).Discovery in a judicial review context[20] Discovery in judicial review is by leave under s 10(2)(i) of the Judicature Amendment Act 1972 rather than of right.Relevant New Zealand authorities[21] The New Zealand Courts have been required to grapple with applications for discovery in a DTA context on two previous occasions. Each is considered below.The decision in Squibb1[22] Squibb was a subsidiary of a United States' company carrying on business asa pharmaceutical distributor in Auckland. The Commissioner issued two consecutive s 17 notices, requiring Squibb to produce certain books and documents.1 Commissioner of Inland Revenue v E R Squibb & Sons (New Zealand) Ltd (1992) 6 PRNZ 601 (CA). (Henceforth this decision will be referred to as Squibb).By way of judicial review, Squibb sought declarations that the second s 17 notice was invalid and unenforceable and that the amended assessment was invalid and ofno effect. The company's key contention was that the Commissioner's actions weretriggered by material and information that had been supplied by an informer.[23] In the context of the review proceedings, Squibb applied for production of certain documents for which the Commissioner claimed privilege. The High Court dismissed most of the privilege claims. The Commissioner appealed against that decision in relation to three classes of document, one of which comprised communications between the IRD and the Australian Tax Office pursuant to the Double Taxation Relief (Australia) Order 1972. More particularly, information had been supplied to the Commissioner by the Australian tax authorities under the DTA, with a specific request that it remain confidential.[24] The Commissioner invoked art 20 of the 1972 Australian DTA (the equivalent to art 25 of the Korean DTA) as grounds for withholding from Squibb the information that had been supplied by the Australian Tax Office. Paragraphs 1 and 2 of art 20 read:(1) The competent authorities shall exchange such information (being information available under the respective taxation laws of the Contracting States) as is necessary for carrying out the provisions of this Agreement or for the prevention of fraud or for the administration of statutory provisions against avoidance of the taxes to which this Agreement applies by virtue of Article 1.(2) Any information so exchanged shall be treated as secret and shall not be disclosed to any persons other than those (including a Court or reviewing authority) concerned with the assessment or collection of the taxes to which this Agreement applies by virtue of Article 1, or the determination of appeals in relation thereto.[25] In the High Court, Eichelbaum CJ had concluded that the second paragraph did not avail the Commissioner because the provision of the information by the Australian Tax Office was not "for the administration of statutory provisions against avoidance of [income tax]". The Chief Justice went on to indicate that, had he held that the information exchanged fell within art 20, he would have found that para 2 authorised its disclosure to Squibb because Squibb was, within the meaning of para 2, one of those "concerned with the assessment" against it of income tax.[26] Both those propositions were rejected by the Court of Appeal. But only the second is now of interest. In that respect Richardson J said:2The second is more difficult. Para 2 is in the same terms as the second sentence of art 26(1) of the OECD Draft Double Taxation Convention on Income and Capital of 1963. The only material differences are the addition of the words in brackets in para 2 and of the final phrase "or the determination of appeals in relation thereto". The crucial question is who comes within the description "those ... concerned with the assessment or the collection of the taxes to which this Agreement applies"?The deliberate use of the words "the taxes to which this Agreement applies" is significant. It is not sufficient that a person is concerned with the assessment of income tax in a particular case only. A single taxpayer is concerned with its own tax liability. It cannot be said to be concerned with the assessment of the taxes to which the agreement applies. It is not surprising that the paragraph should draw a distinction between those in authority concerned with the assessment and collection of the taxes on the one hand and individual taxpayers on the other. The exchange of information is to assist the competent authorities in carrying out their respective responsibilities — for carrying out the provisions of the double taxation agreement or for the prevention of fraud or for the administration of statutory provisions against avoidance of the taxes to which the agreement applies. None of that is the responsibility of a particular taxpayer even though that information may be used by the commissioner in assessing that taxpayer or collecting taxes from that taxpayer.The official commentary to the draft double taxation convention article reflects that premise and that distinction. Paragraph 9 reads:"The obligation to treat as secret the information which is received under the present Article applies to all authorities of the Contracting State, including those which are empowered with the jurisdiction of disputes as to tax liabilities. In this connection, and to the extent required or permitted by the constitutional procedures and judicial organisation of certain States, special measures may be taken to safeguard the secrecy of such information if it is used in the course of court proceedings. Of course, the Contracting States are free to agree bilaterally that such information may be used in public court proceedings. To this end, the last sentence of paragraph 1 of the Article may be drafted as follows:'Any information so exchanged shall be treated as secret and shall not be disclosed to any persons or authorities other than those concerned with the assessment, including judicial determination, or collection of the taxes which are the subject of this Convention.'"[27] Richardson J observed:32 Squibb, above n 1, at 608-609.3 At 609.It seems that the framers of the Australia Agreement elected to deal with the last point by adding the words in brackets in para 2 and the further reference to appeals rather than by simply inserting the words "including judicial determination" as suggested in the official commentary. In doing so they cannot be treated as also intending to allow pretrial disclosure to taxpayer litigants.Both the Taxation Review Authority and the High Court are in a special position in determining objections to assessments. They sit in the shoes of the commissioner and may make any assessment which the commissioner was entitled to make at the time the commissioner made the assessment towhich the objection relates .[emphasis added][28] And then, His Honour concluded:4We are not concerned in this appeal with the conduct of tax cases in the High Court and before the Taxation Review Authority. But it is obvious from the special role of the Court and the Authority in determining objections, the emphasis on confidentiality in the legislation and the double tax agreement, and indeed the concerns in that regard underlying the Mobil case, that tax litigation has very special features. Because of their statutory functions the High Court and the Taxation Review Authority are concerned with the assessment of the taxes the subject of the Australia Agreement. In relation to judicial review of the assessment process the High Court has a similar role.But there is no justification in the language, scheme or purpose of para 2 for diluting the confidentiality obligations under the Article and requiring information exchanged in confidence to be released in pretrial discovery to a litigant in judicial review proceedings. To do so would contravene the understanding reached with the Commonwealth of Australia and would be contrary to the well-grounded express objection of the Australian Tax Office.[emphasis added]The decision in Avowal5[29] It will be noted that in Squibb the DTA material sought on discovery was information that had been provided to the New Zealand Revenue by the Australian DTA under an additional and express obligation of confidence. In Avowal, that position was reversed.[30] Avowal involved challenges by way of judicial review to the legality of searches ordered by the Commissioner of private and commercial properties occupied by Avowal and others under s 16 of the TAA. The companies applied for4 At 609-610.5 Avowal Administrative Attorneys Ltd v North Shore District Court [2008] 1 NZLR 675 (HC). (Henceforth this decision will be referred to as Avowal).discovery of the requests made by the Australian Tax Office which were directed at securing information to assist its own tax-gathering function, in the context of which it had performed concurrent searches of related parties' premises in Australia. The principal issue for determination was whether the Court was bound by Squibb to hold that art 26 of the Australian DTA precluded such discovery.[31] Although both Squibb and Avowal involved DTAs with Australia, the terms of the exchange of information provision had been amended (twice) since the decision in Squibb. What had formerly been art 20 in the 1972 DTA became art 26 in the later two. The relevant additions to art 26(2) of the 1995 DTA are highlighted in bold below: 62. Any information received under paragraph 1 by a Contracting State shall be treated as secret in the same manner as information obtained under the domestic laws of that State and shall be disclosed only to persons or authorities (including courts and administrative bodies) concerned with the assessment or collection of, the enforcement or prosecution in respect of, the determination of appeals in relation to the taxes referred to in paragraph 1, or the oversight of the above. Such persons or authorities shall use the information only for such purposes. They may disclose the information in public court proceedings or in judicial decisions.7[32] Article 25 of the Korean DTA is more similar to art 26 of the 1995 and 2007 Australian DTAs than it is to art 20 of the 1972 DTA that was considered by the Court of Appeal in Squibb.[33] Although noting that Squibb was determined in an era when discovery against the Crown, and especially the Commissioner, was less readily ordered, Baragwanath J nonetheless held that Squibb was indistinguishable and that he was bound to apply it. He said there was no material distinction between requests and information, and held that the latter must include the former. It appears that he did not consider the difference in wording between the 1972 and the 1995 DTAs.86 It was the 1972 DTA that had been at issue in Squibb and was the 1995 DTA that was in issue inAvowal.7 The new art 26 also contained additional paragraphs 4 and 5, in the same terms as paragraphs 4 and 5 of the Model art 26 which I have set out at [8] above.8 For reasons that are not entirely clear to me it is the differences between the 1995 and 2007 DTAs that are set out by Baragwanath J at [13] of the decision.RelevanceSubmissions[34] As noted above, Ms Rose's submission was that the principal question raised by the application for review that renders the DTA request and associated material relevant is whether the request was:(a) necessary for carrying out the provisions of the Convention or of the domestic laws of Korea (as required by art 25(1));(b) for information which is not obtainable under the laws or in the normal course of the administration of Korea (as required by art 25(2)).[35] She said that Mr Nash's affidavit does not wholly answer those issues. In particular, she notes that the material sought goes back to 2002 and that art 170 does not indicate what the position in Korea as regards statute bar. She said that an opinion from a Korean tax lawyer may be required.[36] For the Commissioner Mrs Courtney said that Chatfield's overall case forreview was weak and that the potential operation of any statute bar in Korea did not logically limit the material that could be requested. She did not submit that whether or not a request for information under a DTA conformed with the terms of the DTA was not a justiciable issue.9Discussion[37] I confess that I have found this issue difficult. That part of Chatfield's claimwhich relates directly to the DTA is somewhat inchoate. But the absence of specificity in part arises, perhaps, because Chatfield has been unable to get access in the usual way to the documents that are the subject of this application.9 As to which, see footnote 10 below.[38] The starting point is that the power conferred on the Commissioner by s 17 is a wide-ranging and intrusive one. The exercise of such a power should, ordinarily, be open to judicial scrutiny by way of judicial review proceedings.10 Ordinarily a taxpayer (or his proxy) who is served with such a Notice would be able to ask the Commissioner for the grounds upon which the Notice was issued and to seek access to material on any Inland Revenue file kept about him.11 While there may be grounds on which such requests can be refused under either the OIA or the Privacy Act 1993 those grounds could not, presumably, include (as here) a blanket and undifferentiated claim of confidentiality.12 The short point is that each request would need to be considered on its merits and in the particular circumstances of the case. That has not occurred here.[39] So while I tend to agree with Mrs Courtney that, on the basis of the materialbefore the Court, Chatfield's case seems neither clear nor strong, I am unsure that this should be determinative in the present circumstances. Rather, in light of the conclusions I have reached on the issue of confidentiality below, I am prepared to proceed in this decision on the rather simplistic basis that the documents that (indisputably) caused the s 17 Notices to be issued will, by definition, be relevant to a claim seeking judicial review of the decision to issue the Notices. It may, however, be necessary to engage more forcefully with the issue of relevance at the next stage.Privilege/ConfidentialitySubmissions[40] The Commissioner submitted that even if the documents were relevant, they should be protected from disclosure by s 70 of the EA because they relate to matters of State. Section 70 relevantly provides:10 There may, perhaps, be a contrary argument by analogy with those cases in which it has been held that judicial review of the issue or exercise of a search warrant is not appropriate: see for example Gill v Attorney-General [2011] 1 NZLR 433 (CA). The reason for this general (but not absolute) rule is that the most suitable remedy for any errors occurring in the search warrant process is the exclusion of wrongly seized evidence in the context of any subsequent trial. The issue seems less straightforward where the search and seizure power is exercised in New Zealand for the purposes of potential proceedings in another country.11 It is not my understanding that s 81 operates to preclude a taxpayer being given access to his own file.12 It will be recalled that recourse to these statutes has been denied to Chatfield here, on the basis set out in Mr Nash's affidavit (the terms of s BH 1(4) also refer).Discretion as to matters of State(1) A Judge may direct that a communication or information that relates to matters of State must not be disclosed in a proceeding if the Judge considers that the public interest in the communication or information being disclosed in the proceeding is outweighed by the public interest in withholding the communication or information.(2) A communication or information that relates to matters of State includes a communication or information—(a) in respect of which the reason advanced in support of an application for a direction under this section is one of those set out in sections 6 and 7 of the Official Information Act 1982; or[41] More particularly, Mrs Courtney submitted that:(a) Pursuant to s 70(2)(a) the communications are of the nature referred to in s 6(b)(i) and (c) of the Official Information Act 1982 (the OIA) (conclusive reasons for withholding official information);13(b) Mr Nash has deposed that the information is covered by international confidentiality obligations; and(c) The public interest in withholding the information sought is outweighed by the public interest in disclosure.13 Section 6(b)(i) and (c) of the OIA provides:Good reason for withholding official information exists, for the purpose of section 5,if the making available of that information would be likely -(b) to prejudice the entrusting of information to the Government of New Zealand on a basis of confidence by—(i) The Government of any other country or any agency of such a Government; or(c) to prejudice the maintenance of the law, including the prevention,investigation, and detection of offences, and the right to a fair trial; [42] Chatfield's position as regards this issue had two aspects. First, Ms Rose said that art 25 is not absolute in its terms. She said that, at least to the extent required or permitted by domestic law, it contemplates that information received pursuant to the DTA may be:(a) disclosed to a court; and(b) communicated to the taxpayer or his/her proxy.[43] Secondly, Ms Rose submitted that any confidentiality issues fell to be dealt with not in terms of s 70 but under s 81 of the TAA, which relevantly provides:81 Officers to maintain secrecy(1) An Inland Revenue officer must maintain, and must assist in maintaining, the secrecy of all matters relating to the legislation described in subsection (1C), and the officer must not communicate any such matter, except for the purpose of carrying into effect that legislation or under subsection (1B).(1B) Despite subsection (1), an Inland Revenue officer may communicate a matter if––(a) the communication is for the purpose of executing or performing a duty of the Commissioner, or for the purpose of supporting the execution or performance of such a duty; and(b) the Commissioner considers that such communication is reasonable with regard to the relevant purpose described in paragraph (a), and with regard to the following:(i) the Commissioner's obligation at all times to use best endeavours to protect the integrity of the tax system; and(ii) the importance of promoting compliance by taxpayers, especially voluntary compliance; and(iii) any personal or commercial impact of the communication; and(iv) the resources available to the Commissioner; and(v) the public availability of the information.(1C) For the purposes of subsection (1), the legislation is—(a) the Inland Revenue Acts, or another Act that is or was administered by or in Inland Revenue:14(b) the Accident Compensation Act 2001, the Injury Prevention, Rehabilitation, and Compensation Act 2001, the Accident Insurance Act 1998, the Accident Rehabilitation and Compensation Insurance Act 1992, or the Accident Compensation Act 1982:(c) the New Zealand Superannuation Act 1974:(d) any Act that imposes taxes or duties payable to the Crown.[44] Ms Rose said it is now orthodox that s 81 permits the Commissioner to give discovery as a necessary incident of tax litigation.15 And as far as its relationship with s 70 is concerned, she referred to the observations of the Supreme Court inWestpac Banking Corporation Ltd v Commissioner of Inland Revenue:16[71] On this basis, s 81 of the Act itself addresses comprehensively the conflicting principles of taxpayer secrecy and the interests of justice. It sets the basis upon which they are reconciled. This involves confining use of taxpayer material in a manner which discloses identity of other taxpayers to situations where that is reasonably necessary. Techniques of editing and redaction as applied in Squibb should be pursued where that does not impair the utility of the material concerned. As Mr White QC argued for the Commissioner, there is no need or basis for the court to revert to the common law principle of public interest immunity, or to its statutory expression in s 70 of the Evidence Act 2006, to clarify how that tension between the public interests is resolved. The balance has been set by the 1994 statute. We have already indicated that we do not accept that what Lord Wilberforce said in the National Federation of Self-Employed and Small Businesses case supports application of public interest immunity principles in this context. Indeed to do so would be contrary to the rule that resort is not to be had to the common law when the statute covers the ground.(footnote omitted).[45] Ms Rose therefore submitted that the issue of discovery was governed by s 81 and that s 70 had no application here.[46] I discuss both the issue of relevance and of confidentiality in turn.14 The "Inland Revenue Acts" include the Income Tax Act 2007 and the TAA itself.15 Relying on Knight v CIR [1991] 2 NZLR 30 (CA).16 Westpac Banking Corporation Ltd v Commissioner of Inland Revenue [2008] NZSC 24, [2008] NZLR 709.Discussion[47] At the outset it can be observed that:(a) Squibb was decided prior to the enactment of s 70; and(b) the arguments in Avowal appear to have straddled the commencement of the EA and s 70 appears not to have been raised.17[48] It seems to me that the decision in Squibb, insofar as it was concerned with the disclosure of DTA information, was squarely based on the words and purpose of the relevant Australian DTA and the principles of international comity (the express wishes of the Australian tax authorities). The potential operation of public interest immunity, which underlies s 70, is not mentioned at all in that context. And although public interest immunity appears to have been raised in argument in Avowal, Baragwanath J was of the view that it might only fall for consideration if and whenSquibb were held no longer to represent the law.18[49] Even were it not for the fact that these authorities suggest that the matter is to be determined (at least in the first instance) by reference to the terms of the DTA itself, the suggestion implicit in the Commissioner's position - that s 70 is automatically engaged whenever documents that are the subject of a DTA exchange are sought in Court proceedings - seems unattractive. The days of class immunity are almost, if not entirely, over. A claim under s 70 will generally be contents based, and thus relate to the specific information or documents sought. Accordingly, the mere fact that material has come into the hands of the Commissioner pursuant to a DTA process is therefore insufficient. Moreover I largely accept Ms Rose'ssubmission that the dicta from the Supreme Court's decision in Westpac set outabove suggests that, in tax matters, s 81 does the "work" that might otherwise bedone by doctrines more general application, such as those now reflected in ss 69 and 70 of the EA.17 The judgment records hearing days of 15 May and 20 and 21 August 2007.18 Avowal, above n 5, at [37].[50] Although it is tempting simply to conclude, as Baragwanath J did, that I am bound by the decision in Squibb, I think that that approach would risk error here. In particular, it seems to me unarguable that:(a) the wording of the Korean DTA is different from the wording of the DTA considered in Squibb;(b) the relevant Commentaries to the Model Convention have also evolved and been clarified since 1992; and(c) the legal landscape in relation to taxpayer secrecy has changed sinceSquibb, and even since Avowal.19[51] The question is, of course, whether any of these matters ultimately make a difference here.[52] In order to consider the first and second points, it is necessary to say something more generally about the interpretation of DTAs. Although this was a subject touched on by Baragwanath J in Avowal,20 he did not engage directly with the particular issues that arise in the present case.[53] First, as a matter of common sense, every DTA is the product of a separate bilateral negotiation process. So even to the extent that there might be a general template structure to the DTAs into which New Zealand has entered, there are likely to be differences between them simply because each is negotiated against the background of the particular languages, legal systems, historical influences, tax law, and wider economic policies and expectations of the respective countries.[54] For that reason, and because treaty negotiations are conducted against the general background of the OECD Model Tax Convention (which, as the product of international compromise and consensus, is itself couched in comparatively broad terms) it cannot be expected that the terms of the DTAs will be expressed with the19 To the extent that the Supreme Court's decision in Westpac Banking Corporation Ltd v Commissioner of Inland Revenue, above n 16, has any bearing on the matter (and I think it does) it carries greater authority than Squibb, in any event.20 Avowal, above n 5, at [19] to [21].same precision as ordinary domestic tax legislation. Nor is it possible always to maintain consistency in how the terms of a particular article are expressed in the various DTAs, because of the different mix of the factors mentioned in the previous paragraph and the compromises that are a necessary incident of international negotiations.[55] Thus it must be accepted at the outset that the fact that art 25 of the Korean DTA and art 20 of the 1972 Australian DTA (which are concerned with the same subject matter) are expressed differently does not necessarily mean that they should be interpreted differently. That point arguably favours simply following Squibb here.[56] That said, however, the converse may also be true. It seems to me to be wrong in principle simply to proceed on the basis that the various provisions that deal with a matter that is common to all DTAs (such as the exchange of information) mean the same thing notwithstanding differences of expression between them. In my view the particular DTA at issue needs properly to be considered and interpreted, but in light of its international context and the points made above.[57] As the Court of Appeal said in Commissioner of Inland Revenue v JFP Energy Inc:21In construing art 15 it is important to keep in mind that the double taxation relief agreement is part of a network of international agreements using international language, substantially similar in form and effect and designed, as the Commentary to art 1 (para 7) notes, to promote exchanges of goods and services and the movement of capital and persons in international trade by eliminating international double taxation. The OECD Convention rules have an international currency used as they are by and in countries throughout the world and accordingly the language of the rules should be construed on broad principles of general acceptation and having appropriate regard to the Commentary and any travaux preparatoires (CIR v United Dominions Trust Ltd (1973) 1 NZTC 61,028; [1973] 2 NZLR 555 ; Stag Line Ltd v Foscolo, Mango and Co Ltd [1932] AC 328; and see alsoFothergill v Monarch Airlines [1981] AC 251 and Thiel v FCT 88 ATC 4094; 20 ATR 170). But it is not necessary to go any further into international interpretation questions because it was not suggested that in this case the standard New Zealand interpretation approach to such questions would differ in any essentials from an approach grounded in art 31 and 32 of the Vienna Convention on Treaties.21 Commissioner of Inland Revenue v JFP Energy Inc [1990] 3 NZLR 536, (1990) 12 NZTC 7,176, (1990) 14 TRNZ 617. (Henceforth this decision will be referred to as JFP).[58] Although, in JFP, the Court considered that the Vienna Convention on the Law of Treaties added nothing to the orthodox New Zealand interpretive approach, I think it is worth setting out art 31 and 32 here.22 They read as follows:Article 31 General rule of interpretation(1) A treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given to terms of the treaty in their context and in the light of its object and purpose.(2) The context for the purpose of the interpretation of a treaty shall comprise, in addition to the text, including its preamble and annexes:(a) Any agreement relating to the treaty which was made between all the parties in connexion with the conclusion of the treaty;(b) Any instrument which was made by one or more parties in connexion with the conclusion of the treaty and accepted by the other parties as an instrument related to the treaty.(3) There shall be taken into account, together with the context:(a) Any subsequent agreement between the parties regarding the interpretation of the treaty or the application of its provisions;(b) Any subsequent practice in the application of the treaty which establishes the agreement of the parties relating to its interpretation;(c) Any relevant rules of international law applicable in the relations between the parties.(4) A special meaning shall be given to a term if it is established that the parties so intended.Article 32 Supplementary means of interpretationRecourse may be had to supplementary means of interpretation, including the preparatory work of the treaty and the circumstances of its conclusion, in order to confirm the meaning resulting from the application of article 31, or to determine the meaning when the interpretation according to article 31:(a) Leaves the meaning ambiguous or obscure; or(b) Leads to a result which is manifestly absurd or unreasonable22 The importance of interpreting DTAs as international law instruments to which the rules laid down in the Vienna Convention on the Law of Treaties has been emphasised in more recent Federal Court decisions in Australia: Lamesa Holdings BV v Federal Commissioner of Taxation[1997] FCA 134, and Chong v Federal Commissioner of Taxation (2000) 101 FCR 134. Both New Zealand (in 1970) and South Korea (in 1969) have ratified the Vienna Convention.[59] Thus Art 32 makes clear that the official Commentaries to the Model Convention can be relevant to the interpretation of DTAs that are based on the OECD Model.23 That approach was confirmed both by the cases referred to by the Court in JFP and subsequent authorities.[60] There is, however, apparently some debate about whether changes made over time to the OECD Commentaries should be used as an aid to interpretation of DTAs entered into prior to those changes. For example Dawson J in Thiel and Einfeld J inLamesa Holdings BV v FCT have expressed the view that amendments to the Model Convention and Commentaries are only relevant to those DTAs concluded after the changes are effected.24[61] On the other hand, in the time since those decisions were issued, the Introduction to the OECD Commentaries has itself been amended to indicate more clearly that the later Commentaries are intended by Member States to be used in interpreting and applying DTAs concluded before their adoption, except where the Commentaries relate to areas in which substantive changes have been made to the Model Convention itself. Thus the most recent update to the OECD Model and Commentaries (as at 15 July 2014) states:35. Needless to say, amendments to the Articles of the Model Convention and changes to the Commentaries that are a direct result of these amendments are not relevant to the interpretation or application of previously concluded conventions where the provisions of those conventions are different in substance from the amended Articles. However, other changes or additions to the Commentaries are normally applicable to the interpretation and application of conventions concluded before their adoption, because they reflect the consensus of the OECD Member countries as to the proper interpretation of existing provisions and their application to specific situations.36. Whilst the Committee considers that changes to the Commentaries should be relevant in interpreting and applying conventions concluded before the adoption of these changes, it disagrees with any form of a contrario interpretation that would necessarily infer23 Dawson J in Thiel v Federal Commissioner of Taxation 88 [1990] HCA 37 (1990) 171 CLR 338, ATC 4094; 20 ATR 170 went further and expressed the view that the OECD Model andCommentaries were also relevant under art 31. He nevertheless acknowledged that "somedoubts have been expressed about the applicability, as a matter of language, of art 31 to theCommentaries in the case of a bilateral treaty such as a double taxation agreement".24 Thiel v Federal Commissioner of Taxation, above n 23; Lamesa Holdings BV v Federal Commissioner of Taxation, above n 22.from a change to an Article of the Model Convention or to the Commentaries that the previous wording resulted in consequences different from those of the modified wording. Many amendments are intended to simply clarify, not change, the meaning of the Articles or the Commentaries, and such a contrario interpretations wouldclearly be wrong in those cases.[62] On that approach, any changes to the Commentaries (where there has been no relevant substantive change to the Model Convention) are to be viewed not as recording an agreement about a new meaning but as reflecting a common view as to what the meaning is and always has been.[63] So it is against that background that I turn to consider art 25 itself. On its face, the article can be broken down as follows:(a) any information received by New Zealand or Korea pursuant to the agreement;(b) shall be treated as secret in the same manner as information obtained under the domestic laws of that State; and(c) shall be disclosed only to persons or authorities (including courts) involved in the assessment or collection of, the enforcement or prosecution in respect of, or the determination of appeals in relation to, the taxes covered by the Convention;(d) such persons or authorities (including courts) shall use the information only for such purposes; and(e) such persons or authorities (including courts) may disclose the information in public court proceedings or in judicial decisions.[64] The principal interpretive issue that arises relates to (b) and (c) and, in particular, the relationship between them. Viewed in isolation, (b) would suggest that the material presently at issue could be disclosed in these proceedings (provided it is relevant to them) if such disclosure would be permitted under s 81. And on the basis of Knight, the Commissioner's defence of judicial review proceedings wouldlikely be regarded as falling within the exception to secrecy under s 81, namely disclosure that is for the purpose of carrying into effect the relevant legislation.25[65] But when (b) is read together with (c), the position becomes less clear. As the decision in Squibb suggests, the wording of (c) suggests that while disclosure in, or for the purpose of, certain types of Court proceedings is permitted, those proceedings are limited to those which directly relate to the collection and enforcement of taxes. In New Zealand those types of proceedings are governed by Parts 8 and 8A of the TAA; judicial review is not included.26[66] Because of this interpretive difficulty, it seems to me to be legitimate to consider what, if any, light can be shed on the matter by reference to art 26 of the Model Convention and the OECD Commentaries to it.[67] The starting point is that the relevant parts of art 26 of the Model Convention and art 25 of the Korean DTA are very similar. In particular, both use the potentiallyproblematic conjunction "and". Importantly, however, Model art 26 (but not the Korean art 25) includes the extra words, highlighted below:Any information received under paragraph 1 by a Contracting State shall be treated as secret in the same manner as information obtained under the domestic laws of that State and shall be disclosed only to persons or authorities (including courts and administrative bodies) concerned with the assessment or collection of, the enforcement or prosecution in respect of, the determination of appeals in relation to the taxes referred to in paragraph 1,or the oversight of the above.(emphasis added)[68] It seems to me to be quite arguable that "oversight" of the assessment, collection and enforcement of taxes would include the exercise by the New Zealand High Court of its supervisory jurisdiction over all executive action, and the exercise of statutory powers of decision, that may be related to those functions. Such oversight is typically made manifest in proceedings for judicial review. Such a conclusion would dispense with the difficulty otherwise created by the word "and".25 Knight v CIR, above, n 15.26 Richardson J's analysis in Squibb suggests that judicial review of the assessment process itself might be covered although subsequent court decisions have made it clear that there is virtually no room for proceedings of that kind.It would also enable the article to be interpreted in a way that is consistent with the approach of the New Zealand courts to taxpayer secrecy and discovery in judicial review matters.[69] The proposition that art 25 of the Korean DTA should be read as if those extra six words are included is, I think, confirmed (or at least not contradicted) by the OECD Commentary annexed to Mr Nash's affidavit, which relevantly says:11. Reciprocal assistance between tax administrations is feasible only if each administration is assured that the other administration will treat with proper confidence the information which it will receive in the course of their co-operation. The confidentiality rules of paragraph 2 apply to all types of information received under paragraph 1, including both information provided in a request and information transmitted in response to a request. Hence, the confidentiality rules cover, for instance, competent authority letters, including the letter requesting information. At the same time, it is understood that the requested State can disclose the minimum information contained in a competent authority letter (but not the letter itself) necessary for the requested State to be able to obtain or provide the requested information to the requesting State, without frustrating the efforts of the requesting State. If, however, court proceedings or the like under the domestic laws of the requested State necessitate the disclosure of the competent authority letter itself, the competent authority of the requested State may disclose such a letter unless the requesting State otherwise specifies. The maintenance of secrecy in the receiving Contracting State is a matter of domestic laws. It is therefore provided in paragraph 2 that information communicated under the provisions of the Convention shall be treated as secret in the receiving State in the same manner as information obtained under the domestic laws of that State. Sanctions for the violation of such secrecy in that State will be governed by the administrative and penal laws of that State. In situations in which the requested State determines that the requesting State does not comply with its duties regarding the confidentiality of the information exchanged under this Article, the requested State may suspend assistance under this Article until such time as proper assurance is given by the requesting State that those duties will indeed be respected. If necessary, the competent authorities may enter into specific agreements or memoranda of understanding regarding the confidentiality of the information exchanged under this Article.12. Subject to paragraphs 12.3 and 12.4, the information obtained may be disclosed only to persons and authorities involved in the assessment or collection of, the enforcement or prosecution in respect of, the determination of appeals in relation to the taxes with respect to which information may be exchanged according to the first sentence of paragraph 1, or the oversight of the above. This means that the information may also be communicated to the taxpayer, his proxy or to the witnesses. This also means that information can be disclosed to governmental or judicial authoritiescharged with deciding whether such information should be released to the taxpayer, his proxy or to the witnesses. The information received by a Contracting State may be used by such persons or authorities only for the purposes mentioned in paragraph 2. Furthermore, information covered by paragraph 1, whether taxpayer- specific or not, should not be disclosed to persons or authorities not mentioned in paragraph 2, regardless of domestic information disclosure laws such as freedom of information or other legislation that allows greater access to governmental documents.[emphases added][70] The following additional points can be made.[71] First, the above passage from the Commentary (if applied) immediately removes one of the impediments to discovery of DTA material in judicial review proceedings that was identified by the Court of Appeal in Squibb. More particularly, it can be seen as a vindication of Eichelbaum CJ's, rather than Richardson J's, approach to the question of whether disclosure of information exchanged pursuant to the Article could (if permitted by the relevant domestic laws) be made to the taxpayer concerned (or his proxy).[72] Secondly, the Commentary confirms the correctness of Baragwanath J'sconclusion that a request for information made by the requesting State is itself included in the information whose disclosure is protected (but might be permitted) by art 26. The further point about that, which is made explicit in the Commentary above, is that any such disclosure (of the request for assistance) is likely to be sought in the requested (not the requesting) State. And, as a matter of logic, any relevant Court proceedings in the requested State are much more likely to be something otherthan proceedings that directly relate to the assessment, collection and enforcement of the relevant taxes, such as (perhaps) judicial review proceedings.[73] Thirdly, however, the Commentary suggests that such requests may be disclosed where the relevant domestic court proceedings require it, unless the requesting State otherwise specifies. Although that is not something that is express in Model art 26 (or in art 25) it seems a matter of common sense. It will be the requesting State which knows the purpose of the request and whether disclosure of its details in New Zealand proceedings might prejudice (for example) the conduct ofsome investigation by the requesting State. Or it may be that the requesting State has disclosure rules that are generally less (or more) liberal than New Zealand's. In any event, logic suggests that specific inquiry should be made.[74] It seems to me that the upshot for the present case is as follows.[75] Unless consent to the disclosure of the letter of request (and associated communications between the requested and the requester) is refused by Korea following a specific inquiry, the terms of the DTA (interpreted in light of the Commentaries), coupled with s 81 and the rules of Court, govern the position. If the combination of those three things persuades the Court that disclosure can and should be made, then disclosure should be ordered. Subject only to the question of relevance, and an application of the broader principles governing discovery in judicial review, there appears to me to be no fundamental impediment to the making of such an order.[76] The need for a specific request and refusal is, of course, problematic as things presently stand. Although Mr Nash has deposed generally to the (undoubted) importance placed by both New Zealand and Korea on the confidentiality of information exchanged between them, he has not advised whether Korea has specifically been asked whether or not it consents to the disclosure presently sought. It will be recalled that in Squibb the Australians had made their view quite clear in that respect.[77] If consent is, as a consequence of this judgment, now specifically sought and refused, then ss 69 and 70 of the EA may come into play. More particularly, I consider that the Commissioner could, at that point, legitimately seek a direction from the Court under one or other of those sections. The Court would then need to consider whether the public interest in disclosure of the information was outweighed by the public interest in withholding it. The need for that balancing exercise suggests that it would be prudent for at least brief reasons to be given by Korea for any refusal.[78] Lastly, I record that I do not consider the above conclusions to be directly at odds with the decisions in Squibb and Avowal. To the extent there is nonetheless perceived to be some conflict, it is explicable on the basis of the different wording of the Korean DTA, the clarification contained in the more recent OECD commentaries together with the more nuanced approach that is now taken to secrecy under s 81. And of course the possibility remains that, if Korea cogently objects to disclosure, the outcome in this case will be on all fours with those decisions.Next steps[79] In my view the appropriate course is for the Commissioner now to make specific inquiries of Korea as to its views on the disclosure of the specific documents concerned. If secrecy is sought to be maintained, then the matter will need to be referred again to me and the balancing of the identified interests will need to occur. At that point it may be necessary to look at the documents concerned which I have not done in the course of preparing this judgment (copies are, however, presently in my possession). As will be evident from my discussion above, however, I am unattracted by the proposition that, simply because the request is made pursuant to a DTA, the request and any associated documents must be confidential, insofar as the affected taxpayers (or their proxies) are concerned.[80] The matter cannot, accordingly be resolved at this point. Mrs Courtney is to file and serve a memorandum advising the outcome of any inquiries made. Leave is reserved to convene a telephone conference with me if any issues arise in the meantime.[81] Costs are reserved."Rebecca Ellis J"