CHESTERFIELDS PRESCHOOLS LIMITED V COMMISSIONER OF INLAND REVENUE & OTHERS HC CHCH CIV-2008-409-000995

CHESTERFIELDS PRESCHOOLS LIMITED V COMMISSIONER OF INLAND REVENUE & OTHERS HC CHCH CIV-2008-409-000995 [12 June 2012]IN THE HIGH COURT OF NEW ZEALANDCHRISTCHURCH REGISTRYCIV-2008-409-000995[2012] NZHC 1302BETWEEN CHESTERFIELDS PRESCHOOLSLIMITEDFirst PlaintiffAND DAVID JOHN HAMPTONSecond PlaintiffAND CHESTERFIELDS PARTNERSHIPThird PlaintiffAND CHESTERFIELDS PRESCHOOLSPARTNERSHIPFourth PlaintiffAND ANOLBE ENTERPRISES LIMITEDFifth PlaintiffAND COMMISSIONER OF INLANDREVENUE & OTHERSDefendantsHearing: 12 September and 30 November 2011(Heard at Ashburton)Appearances: D J Hampton in PersonJ Pike and S Kinsler for Commissioner of Inland RevenueJudgment: 12 June 2012JUDGMENT OF FOGARTY JThis judgment was delivered by Justice Fogarty on12 June 2012 at 11.00 a.m., pursuant tor 11.5 of the High Court RulesRegistrar/Deputy RegistrarDate:Solicitors:Crown Law, PO Box 2858, Wellington 6140Copy to:D J Hampton, Edgeware Law Centre, PO Box 21-319, Christchurch 8143IntroductionThe litigation[1] The Crown applies to this Court to review the decision of Associate Judge Osborne on 5 August 2011.1[2] That judgment was upon an application by the Commissioner of InlandRevenue ("the Commissioner") to strike out the plaintiffs' claims for damages formisfeasance in public office and for compensation for a breach of the New Zealand Bill of Rights Act 1990 ("BORA"). The Crown's application was unsuccessful.[3] The plaintiffs have appealed the strike out of the cause of action against the Attorney-General under BORA.[4] Mr Hampton and entities under his control have been engaged in taxation disputes with the Commissioner for nearly 20 years, dating back to the early 1990s.[5] The allegations now pleaded as misfeasance were first examined in an application for judicial review in the High Court before me. The first paragraph of that judgment says:2[1] This is a difficult case. The events are spread over a long period of time. There are numerous taxpayers' accounts. The "taxpayers" have beentrying to take full advantage of every strategy possible to reduce tax. The"taxpayers" accounts have now got quite out of hand. Against core assessments in excess of $900,000, there is now a total liability on paper of about $4 million, the additional $3 million being made up of late penalty payments and interest. The plaintiffs seek judicial review of numerous past decisions of the Commissioner.[6] That judgment and a second judicial review judgment3 ordered officers of the Commissioner to reconsider and re-exercise statutory powers allowing remission of1 Chesterfields Preschools Ltd & Ors v Commissioner of Inland Revenue and Ors (2011) 25 NZTC20,092.2 Chesterfields Preschools Ltd & Ors v Commissioner of Inland Revenue and Ors (2007) 23 NZTC21,125.penalties. That process has not yet been completed. The second judicial review judgment was appealed. The Court of Appeal largely dismissed the appeal.4[7] Before the first judicial review judgment was delivered the misfeasance proceedings had been filed, in 2008. As the Judge in control of the proceedings in the High Court at the time I refused to allow these misfeasance proceedings to be advanced before me and generally in the High Court before disposal of the judicial review proceedings. It is since the Court of Appeal judgment, essentially upholding the first two judicial review judgments, that the misfeasance proceedings have been pursued and in this context generated the application by the Crown to strike them out.The "core" of the dispute[8] Like most complex cases, this saga of litigation has a core of conduct which falls particularly to be examined. The Commissioner then and now has statutory powers to group and offset tax liabilities and credits against both income tax and GST. Against some core (undisputed) income tax liabilities, some of the Hampton controlled entities sought substantial GST credits. Officers of the Inland Revenue thought that those credits may well have arisen out of sham transactions. Thosetransactions were sent to be examined by the Commissioner's audit office. By thelaw at the time an officer of the Commissioner had 15 days from receipt of a GST claim to decide whether or not to send it for audit. But once it was sent to the audit office there is no statutory time limit for its return. Mr Hampton had confidence in the GST claims and equally confidence that upon them being recognised as legitimate, credits would be passed and existing core tax liabilities would be largely extinguished and penalties against those liabilities would be remitted.[9] While awaiting the audit office evaluation of the GST claims, Mr Hampton argued he had reached arrangements with officers of the Commissioner. He was substantially successful in judicial review, in both decisions, in establishing that there were two in-substance arrangements, tolerating non-payment of tax arrears3 Chesterfields Preschools Ltd v Commissioner of Inland Revenue (2009) 24 NZTC 23,148.4 Commissioner of Inland Revenue v Chesterfields Preschools Ltd [2010] NZCA 400.pending the processing of the GST claims. He obtained judgements requiring reconsideration by the Commissioner of the application of credits and remission of penalties.[10] The plaintiffs succeeded in the judicial review proceedings largely on the basis of file notes which were discovered by the Commissioner. These file notescorroborated Mr Hampton's evidence that he had received assurances from officers, particularly Ms Thornley and Mr Aronsen. A set of these notes, known as the"Aronsen" notes, were discovered late. They were taken into account, to theplaintiffs' advantage, in the judicial review proceedings. But in the judicial reviewproceedings I refused to examine the merit and consequences of the argument that they ought to have been discovered earlier.The judgment under review[11] Associate Judge Osborne summarised the focus of the misfeasance pleadings in paragraphs [5] to [8] of his decision:5[5] The plaintiffs pursue six causes of action in the tort of misfeasance in a public office, leading to a claim for damages. They plead a seventh cause of action based on a breach of the plaintiff's rights of natural justice under the New Zealand Bill of Rights Act, leading to a claim for compensation. They claim damages in the amended statement of claim in this way:91. The first defendant's [the Commissioner] cumulative exercise of the statutory powers for improper purposes as set out in the first to sixth causes of action resulted in the first defendant, knowingly or recklessly, allowing the penalty accumulations to spiral out of control over the extraordinary number of years that the unlawful conduct continued from 1993 to 2006.92. The first defendant's extraordinary delay or refusal to properly and fairly address the plaintiffs' complaints caused severe hardship and damage to the plaintiffs. For example,the third plaintiff's core tax of approximately $33,000.00 for the June 1990 GST period, which had been settled in December 1992 by Consent Order of the Taxation Review Authority, as set out in the second cause of action, attracted out of control penalties to spiral over $1.2 million from 1990 to 2006.5 Chesterfields Preschools, above n 1.93. In 2004 the first defendant imposed the immediate enforcement and full force of the invasive and punishing section 157 TAA seizure powers without concession or respite, thereby intentionally causing harm to the plaintiffs knowing that the Aronsen filenotes had not been disclosed to the plaintiffs at any time over the years of complaints from 1996, and continued to withhold disclosure of those vital filenotes during the first defendant's exercise of the seizure enforcement powers.(The nature of compensation claimed under the seventh cause of action is not pleaded).[6] The first defendant, the Commissioner of Inland Revenue, is sued as the Chief Executive of the Department of Inland Revenue appointed under the State Sector Act 1998, who administers taxes covered by the Inland Revenue Acts as defined in s 3 Tax Administration Act 1994.[7] The second defendant is identified by the pleading as a partner of the law firm Raymond Donnelly, solicitors, the legal representative of the Commissioner. The plaintiff pleads that Mr Shamy was engaged by the Commissioner to advise on, and assist in, the enforcement of the Commissioner's statutory powers. It is alleged he was therefore appointed to discharge a public duty.[8] In the remaining cause of action, the plaintiffs sue the third defendant, the Attorney General, in right of the Department of Inland Revenue. It is alleged that the Attorney is the guarantor of rights contained in the New Zealand Bill of Rights Act. He is sued in respect of the actions of the Commissioner and Mr Shamy. Compensation is claimed.[12] The principal findings made by Associate Judge Osborne against the interests of the Commissioner are:1. That on the authorities it is arguable that the Commissioner can be liable in the tort of misfeasance vicariously even though there is no evidence that he had made the relevant decisions. He regarded that possibility as left open by the Court of Appeal in Reid & Ors v CIR.62. The second main decision was that misfeasance can be a failure to act.Relevant extracts of Associate Judge Osborne's reasoning is as follows:[128] Mr Pike's submissions appropriately identified the conduct pleaded by the plaintiffs as an "unlawful act" as being –failing to make decisions indefinitely6 CIR v Reid [2007] NZCA 576 at [33].withholding GST refunds indefinitely.[129] Mr Pike [counsel for the Crown] submitted that the element of decision- making or action-taking was missing in the pleading in that:"no decision to exercise, or to fail to exercise at all, a statutorypower attaching to a specific office is identified, and cannot be".3. Osborne AJ noted:[131] Mr Pike's submissions came close to suggesting that because there was no statutory direction limiting the time within which the Commissioner must determine a GST liability, there could be no deliberate abuse of the public office through mere delay.Commenting on this Osborne AJ said:[132] The tort exists to protect those who are vulnerable to the wrongful exercise of a public officer's powers or functions. What is not abusive through short term delay may become abusive over a long term. The previous examination of the Commissioner's conduct by this Court and the Court of Appeal in a judicial review context points at least arguably to theCommissioner's engaging in conduct contrary to the purpose of the GST legislation (see the judgment of Fogarty J dated 15 December 2006 at [154]) and assists an argument that powers arguably have been exercised for improper purposes (same judgment at [156]).Osborne AJ concluded:[134] In a parallel way [by cross reference to analysis of Andrews J in Reid v CIR], the Commissioner's management of the plaintiffs' GST positions and tax positions generally were arguably part of the exercise of public office in this case. Whether they were in fact so and whether the conduct was tortious is a matter properly for trial.4. Osborne AJ allowed the cause of action against Mr Shamy following New Zealand Defence Force v Berryman.7First hearing in this Court on 16 September[13] I part heard on 12 September 2011 an application by the Crown to review this decision of Associate Judge Osborne. The application relied on two main arguments. The first argument was that the claim alleged "corporate" responsibility. This was7 New Zealand Defence Force v Berryman [2008] NZCA 392.not a possible pleading. That the tort attached to conduct by individuals. Mr Pike sought to distinguish the refusal by the Court of Appeal to strike out a claim of misfeasance against the Commissioner in Reid v CIR,8 as not being a corporate liability case. Then he submitted that after this length of time of litigation over two judicial review hearings, themselves complex, and a major Court of Appeal decision, this Court can be satisfied that the plaintiffs have not and cannot plead all thenecessary elements of misfeasance in relation to one or more of the Commissioner'semployees.[14] The second argument refers to the joinder of Mr Shamy of Raymond Donnelly and Co. It is that there is no basis for concluding that Mr Shamy held and exercised the powers of public office. Accordingly, that he does not hold any power capable of being exercised which can be a tort of misfeasance. He is essentially a counsel advising the Commissioner, not the holder of a power.Misfeasance cannot be pleaded[15] The first argument was supported by a decision of the Court of Appeal inHobson v Attorney-General where the Court of Appeal struck out the misfeasance cause of action in that case.9 The backdrop to that case was that Heath J, at first instance,10 did not strike out the allegations of misfeasance but rather said it would be necessary for the plaintiff to plead particulars from which an inference could be drawn that those failures to act were deliberate. I refer to paragraphs [146] and [147] of his judgment.[16] The context of the Hobson judgment in the Court of Appeal was that nearly 18 months later the plaintiff had not provided particulars which met the requirements of malfeasance.[17] The essential submission in support of the proposition that Mr Hampton had not and could not plead misfeasance is that to do so he had to allege it against the Commissioner, since his argument rested upon failures to act. The fatal flaw8 Reid v CIR [2007] NZCA 576.9 Hobson v Attorney-General [2007] 1 NZLR 374 (CA).10 Hobson v Attorney-General [2005] 2 NZLR 220.according to the Crown in this argument is that there is no tort of misfeasance against the Crown as a corporate or a body. Rather the common law proceeds byidentifying individual tortfeasors. The Crown's liability is vicarious, see s 6(1) ofthe Crown Proceedings Act 1950. So for a misfeasance statement of claim to comply with the law it is necessary for the claim to identify and name as parties individual public officers, who it is alleged are the tortfeasors. Secondly, because the nature of a misfeasance claim is necessary for those pleadings against the individuals to have sufficient particularity to support the findings that at the very least they have been reckless. Knowing that there is no relevant power, or being reckless as to that, the person at the very least must be reckless as to causing economic harm. Of course, it is possible to allege deliberate and conscious wrongdoing, but I understand that is not being argued here.[18] The second authority relied upon by the Crown is Delamere v Attorney- General.11 That is a case where the plaintiff was on notice from 14 August 2009 through to March 2010 as to the need to amend pleadings so that there was a basis upon which Heath J could conclude that the allegations were not in truth establish bled against any one of the six named employees but were in fact institutional in nature.[19] Having heard these arguments in September, it seemed to me that the appropriate course was to adjourn the application for review, but on a timetable whereby Mr Hampton would have the opportunity to re-plead. He did say he could do so, as Associate Judge Osborne recorded in paragraph [127] of his decision.Joinder of Mr Shamy[20] Normally it is an important pre-condition to liability for a tort of misfeasance that the alleged tortfeasor should hold a public power. Normally a Crown counsel as an adviser, does not. However, there is dicta in both the High Court and the Court of Appeal in the case of Berryman12 which might open the door a little bit on that proposition. I was reluctant to decide precisely whether the Court of Appeal11 Delamere v Attorney-General HC Auckland CIV 2008-404-1377, 3 March 2010.12 Berryman, above n 7.decision in Berryman binds this Court. I thought the best solution is that I see again whether or not Mr Hampton could draw particulars in a statement of claim which were there to be proved could sheet home a tort of misfeasance against Mr Shamy.Resumed hearing[21] On 30 November the argument resumed after Mr Hampton had filed an amended statement of claim, 419 paragraphs taking up 145 pages.[22] The Crown pursues a judgment that the entire claim be struck out. TheCrown's argument has not changed.[23] Mr Pike submits that the pleading elements of the tort of misfeasance require:1. An identifiable person2. Holding a public office3. Exercising a power of that office4. Intending to cause the plaintiff economic harm; or5. Is reckless as to whether or not the power exercised is authorised by law; and6. Is aware that the intended exercise of the power is likely to cause economic damage[24] He further argues that these pleadings have to be in relation to specified officers of the Commissioner of Inland Revenue. The Commissioner himself should not be a party unless there are pleadings against him as an individual. Assuming that the claim is not struck out the Crown would be represented by the Attorney-General sued in relation to the Inland Revenue.[25] Mr Pike also submitted that in previous iterations of his claim Mr Hampton had focussed on two key issues:1. That his tax liability as represented by penalty tax had been allowedto accumulate out of all proportion to any "core" debt by dint ofunconscionable delay by IRD's Audit Unit in considering the validityof his GST claims.2. At the same time, Mr Hampton had received assurances from the IRD that because of these delays penalty tax would be essentially frozen.[26] This is what he termed the "Aronsen" arrangement. Mr Hampton has also consistently asserted in earlier "Thornley" arrangements the same effect. The latter "arrangement" is acknowledged by the defendants, but that it terminated when Mr Hampton failed to abide by its terms.[27] As to that second point, Mr Hampton submits that Mr Pike overlooked paragraph [27] of the Court of Appeal judgment:13[27] The Judge [Fogarty J] effectively found that the Thornley arrangement was still on foot:In a substantive sense the arrangement was still on foot. One thing is clear Mr Barry did not reconfirm the view of Mrs Thornley that the arrangement was at an end. He did not tell Mr Hampton that he had to start all over again negotiating a settlement. Such comfort as he did give Mr Hampton went the other way. However, Mr Hampton is wrong to contend that he was given any kind of explicit extension until 30 November 1993, at his meeting with Mr Barry on 16 November 1993. [Emphasis added][28] Mr Hampton argues that the plaintiff also argued two further issues which I will call 3 and 4.3. The failure to address, or the recklessly inadequate responses, of the IRD officers to the complaints of the plaintiff made over the years from 1996 to 2004 concerning the first two issues.13 Commissioner of Inland Revenue v Chesterfields, above n 4.4. The reckless, or intentional, failure of IRD officers to make proper, full and frank disclosure of creditor information and file notes relevant to the first two issues, when required by the rule of law and requested by the plaintiffs and their legal representatives.[29] Mr Hampton argues that these had fundamental and harmful consequences which were:(a) That the plaintiffs were denied, from 1996, at the earliest opportunity, the power to regularise their respective tax accounts by payment in accordance with the decisions and assurances, thereby preventing further accumulation of penalties, and the danger of penalties spiralling out of control;(b) The plaintiffs were denied, from 1996, at the earliest time before penalties spiralled out of control, a proper opportunity to seek administrative and injunctive relief from the Courts which would, or might, have resulted in a prevention or withdrawal of the seizure notices and liquidation action, and remission of extraordinary penalty accumulations in the tax accounts of the plaintiff; and(c) The plaintiffs were denied from 1996, at the earliest time before penalties spiralled out of control, a proper opportunity to seek to prove, to the required evidential standard, the grounds to establish legitimate expectation in relation to pleaded decisions and assurances made by the Revenue officers regarding the remission of penalties, in the face of denial of those decisions and assurances made by the defendants, contemporaneous with the non disclosure decisions and/or conduct of the Revenue officers.[30] Mr Pike argued that the latest statement of claim essentially pleads the elements of a conspiracy. For example, paragraph [52] provides:52. On or about 18 July 1997, at a meeting attended by each of them, Geerlofs, Lawlor, Winstanley, Sumner, Bond, Thornley, Miller,Nimmo and Barry, or any two or more of them, agreed on a "New 'Pack More Punch' Strategy" for dealing with the plaintiffs, theconstituent parts of which are pleaded at ...[31] Similarly, paragraph [67] of the claim pleads:67. On 5 August 1999, at a meeting attended by each of Geerlofs, Winstanley, Hunt, Miller, Bond, Gillard-Glass, Wilson, Barry, Beswarwick, Sumner, Kettley, Doubleday, and Lawlor considered,among other things, the plaintiffs' written request for disclosure ofthe 1993 and 1994 filenotes by letter dated 24 February 1999, the written and verbal complaints of the plaintiffs, including as set out in the letter dated 16 February 1999, and the extraordinary size of the out of control penalties accumulating in the tax accounts of the plaintiffs, (the Complaints Meeting).[32] In his submissions Mr Hampton made it clear that he was not pleading the tort of conspiracy. He was confining his cause of action to the tort of misfeasance.[33] He also acknowledged candidly that as a matter of course not all the officers so named would share all the knowledge of the facts. The officers attending these two meetings had different responsibilities of supervision. Some were senior officers and others had different responsibilities. For example, Ms Miller was in audit, whereas Mr Barry was in enforcement.[34] Mr Pike submitted that essentially Mr Hampton was relying on a corporate theory of tortious misconduct. He said that Mr Hampton had invented numerous strategies.[35] The latest statement of claim does identify at least three strategies which Mr Hampton argues the IRD officers were pursuing."Pack More Punch"[36] The "Pack More Punch" strategy is drawn from the following memorandumof 18 July written by Ms Thornley:Mr Hampton came in twice to pay $50,000, the first time 16/7/97 and then 17/7/97. The second time he paid the $50,000 because I wrote out the receipts myself and this correspondence is a copy of what was attached to the payment and which was handed personally to him.I have not paid the GST because there is a refund in the system which will markedly alter the amount payable and also there are five returns outstanding 9/96 – 5/97 inclusive.Mr Hampton asked if some of the penalties could be remitted and I stated that the Department would not even consider it as several returns are outstanding and several revenues were outstanding. On the day that everything came up to date then he was entitled to write but the probability of remission was remote. He stated that the Department was at fault as it had the GST refund for the 3/95 period two years and it was all our fault and no-one had assisted him. To this I replied that although I agreed the Department was partially at fault, he had continually filed returns late, failed to make payments or bring in records requested by the Department. I finished by saying that he was the author of his own misfortune, that he himself had stated that Blair Aronsen had assisted him locating payments and identifying what was owing. I also told him that I myself had come to an agreement with him to assist him back in 1992. I said then that he was advised to pay the $50,000 and if he located the missing payments then the payment would be credited to the correct [period] and the resulting credit would be transferred to any other arrears so that he would get the benefit of this. I did not request him to pay the GST also because there are still GST returns O/S (outstanding) and as GST was trust monies we would pack more punch if in the future this revenue was updated and was not paid. I asked what he wanted paid to ensure that he could not accuse the Department later of not doing as we asked. This was also the reason that I have sent to filings a copy of what I gave him. I have had several instances in our conversation where he has accused the personnel in the Department of not doing what he asked and in assisting him and that is totally incorrect. The periods paid are as follows:[Sets out number of dates and allocates various sums from $13.38 up to $6,175 allocating the $50,000 payment][37] Mr Hampton argues that the phrase:We pack more punch if in the future this revenue was updated and was not paidis a reference to managing payment of GST refunds in order to take full advantage of perceived non-compliance at a later date.Non-disclosure of the Aronsen notes[38] The second strategy is alleged to be a non-disclosure strategy. Mr Hampton targets particularly the non-disclosure of the Aronsen notes which confirmed his arguments to the IRD that he had received assurances from Mr Aronsen that the Commissioner would not take advantage of delays in audit, who were examining the merit of the GST refunds.The strategy of enforcement before the Audit Office reported[39] The third strategy, according to Mr Hampton, is a strategy of enforcement action: seeking liquidation and enforcement of indebtedness before the issues of GST refunds had been resolved. Mr Hampton pleads the then practices of the Commissioner to conduct audits and investigations pursuant to s 46 of the Goods and Services Tax Act 1985, the management of taxes pursuant to ss 6 and 6A of the Tax Administration Act 1994 ("TAA") and the exercises of powers of seizure pursuant tos 17 of the TAA. He refers to the ability of the Commissioner to within 15 days of a GST return being filed to decide to conduct an investigation. He argues that implicitly in accordance with the rule of law that audit investigation should be undertaken within a reasonable time and a decision made. He argues that key officers knew of this:28. Each of McNeill, Geerlofs, Winstanley, Hunt, Thornley, Miller, Bond, Gillard-Glass, Wilson, Barry, Consedine, Beswarwick, Newton, Sumner, Kettley, Doubleday, Messervy, Whitiskie, Shamy, Withers, Lawlor, Budhia and the Commissioner knew of the matters pleaded at paragraphs 15 to 28, or were reckless as to the existence of those matters.Putting the strategies together[40] He then under the heading "MISFEASANCE IN PUBLIC OFFICE" pleadsunder the sub-heading "Knowledge":151. By reason of paragraph 28 above, each of McNeill, Geerlofs, Consedine, Winstanley, Hunt, Thornley, Miller, Bond, Gillard-Glass, Newton, Wilson, Barry, Beswarwick, Sumner, kettle, Doubleday, Messervy, Withers, Whitiskie, Shamy and Lawlor and Budhia knew, or were reckless as to whether:(a) Implementation of the New "Pack More Punch" Strategyand/or the Non Disclosure Strategy and/or the Enforcement Actions would, or would probably, result in significantdamage to the plaintiffs and the plaintiffs' businesses and theloss of the preschool businesses;ParticularsA. The damage included loss of the kind pleaded at paragraphs 418-419 below.[41] Boiled down to its essentials Mr Hampton is alleging that at relevant times key Revenue officers knew that the core debt was low and was potentially reversible by offsetting GST credits except that those GST credits were the subject of investigation. Whilst being the subject of investigation the officers would know nonetheless that statutory interest and penalties were accruing. At material times these officers pursued strategies which essentially took advantage of the failure of the Audit Office to come to decisions on the GST refunds and were prepared to commence enforcement action to collect debts notwithstanding the failure of the GST funds to be resolved. (Those enforcement actions were stayed by the High Court.)[42] Mr Hampton is not arguing active dishonesty but he is arguing that an inference can be drawn that the officers were knowingly reckless as to whether or not they were going beyond their powers.[43] At its core this is a simple argument: that the IRD officers were taking advantage of the absence of a time limit on Audit for improper purposes. As already noted under s 46 of the GST Act, a decision had to be made within 15 days whether or not to refer a GST refund claim for investigation. There was a policy at the time to view sympathetically, and usually write off, accrued interest and penalties which accrued during the period of investigation, if the result vindicated a GST refund or other tax credit, and to book the tax credit at the time it should have been booked, i.e. ignoring the delay caused by the audit, to the core debt, rather than against accrued interest or penalties, and to write off such accruals which would not have occurred had the GST refund not been sent away for investigation.[44] Mr Pike, for the Commissioner, argued that all of these decisions as to allocation or tax credits and remission are separate decisions by exercise of discretion by relevant officers. In the course of normal departmental decision making no one person will be nor was in charge of this whole process. The officer who remitted the GST refund to Audit for investigation will not be the officer who does the investigation. The officer who might make decisions as to waiver of interest and penalties may be another officer. No one officer may be seized with the whole picture. Decisions as to waiver and penalties are an internal policy of theDepartment, not necessarily in that sense a matter of legal duty. Furthermore, exercise of discretion is capable of being influenced by conduct of the "taxpayer", as is instanced by comments by Ms Thornley in her memorandum set out above.[45] Mr Pike argued that a lot of decisions could be made by individual officers without any decision being dishonest or reckless and yet the outcome being as Mr Hampton alleged. This is an important concession. It focuses the dependence ofthe Crown on the proposition that there can be no "corporate" misfeasance.[46] Mr Pike agreed that at least from 1999 several senior officers of the IRD realised that they had a problem and that there needed to be a resolution to resolve it. A senior officer authorised the opening of without prejudice negotiations to settle the issue. This step, Mr Pike argues, was not on any view of it some kind of illegal conspiracy, let alone misfeasance, but a simple recognition of a problem that had developed and which needed to be resolved.[47] Mr Hampton argues in return that although that step was taken and a lot of information was handed over to his solicitors at the time, Buddle Findlay, thatcritically the Aronsen notes favouring Mr Hampton's version of events were notreleased.[48] I do not think that the issues have changed materially from those that were before Associate Judge Osborne and those that are now before me on the latest statement of claim. Nor, I note, has Mr Pike's argument changed materially.[49] Associate Judge Osborne left the Commissioner as a party because of the decision in the Court of Appeal of CIR v Reid.14 Mr Reid was one of the accused acquitted in the Digi-Tech trial. He sought to bring an action of misfeasance against the Commissioner of Inland Revenue in relation to the way in which the employees of the Commissioner conducted the investigations which resulted in the criminal charges. In the High Court, Andrews J dismissed the application for a strike out. She considered that she could not exclude the possibility that Mr Reid could successfully argue that the Commissioner should be held directly liable for the14 Above n 6.actions of others, carried out in his name. Before the Court of Appeal, Mr Pike argued that it was not pleaded that the Commissioner committed any elements of the tort of misfeasance, was involved in any of the relevant decisions, or was even made aware of them. He did not argue that the possibility of vicarious liability in relationto misfeasance in public office was foreclosed, but only that it was "controversial".Mr Walker for Mr Reid argued that the acts of agents or employees of the Commissioner were exercises of statutory powers conferred on the Commissioner by virtue of his position. That fact that the Commissioner may have been assisted by his agents or employees does not alter that position.[50] The Court of Appeal held that:[33] For the purposes of this strike out application, we accept this submission. The acts complained of by the respondents were all at least arguably acts of the Commissioner, or arguably acts of employees for which the Commissioner is vicariously liable.[51] Ultimately the argument pursued by Mr Pike was the same argument that was pursued before Associate Judge Osborne, namely whether misfeasance can be a failure to act. This judgment already sets out above the findings of Associate Judge Osborne in that regard in paragraph [13].[52] I only need to add briefly to paragraph [132] of his judgment, see paragraph [12] above. It is the foundation principle of public law that all statutory powers must be exercised in good faith and for their proper purpose. See Takaro Properties Ltd v Rowling.15 In this context, to quote Professor Joseph's text:16Statutory powers are never "at large" but are circumscribed by the statutory purpose(s).In Padfield v Minister of Agriculture, Fisheries and Food Lord Upjohn emphatically rejected the notion of unfettered discretion.17 Lord Reid observed:18Parliament must have conferred the discretion with the intention that itshould be used to promote the policy and objects of the Act; 15 Takaro Properties Ltd v Rowling [1986] 1 NZLR 22 (CA); [1987] 2 NZLR 700 (PC).16 P Joseph, Constitutional Administrative Law in New Zealand (3rd ed. Brookers Ltd, Wellington,2007) at 887.17 Padfield v Minister of Agriculture, Fisheries and Food [1968] AC 997 at 1060 (HL).18 Ibid at 1030.[53] Accordingly it is an entirely orthodox argument to say that a consistent failure to exercise discretionary powers can be an abuse of statutory power. The question becomes whether that abuse falls within the ambit of the tort of misfeasance of public office.[54] Mr Pike laid out the criteria for the tort of misfeasance, although it was settled law. In fact while the tort of misfeasance, is established it is far too early to say that it is not capable of responding to failures to act.[55] The leading exposition of the tort of misfeasance is the House of Lords decision, Three Rivers District Council v Governor and Company of the Bank of England (No 3).19 The speech of Lord Steyn, sums up the status of the tort:The matrix of the tortThe coherent development of the law requires the House to consider the place of the tort of misfeasance in public office against the general scheme of the law of tort. It is well established that individuals in the position of the depositors cannot maintain an action for compensation for losses they suffered as a result of the Bank's breach of statutory duties: Yuen Kun-Yeu v. Attorney-General of Hong Kong [1988] A.C. 175(P.C.); Davis v. Radcliffe [1990] 1 W.L.R. 821(P.C.) Judicial review is regarded as an adequate remedy. Similarly, persons in the position of the depositors cannot sue the Bank for losses resulting from the negligent licensing, supervision or failure to withdraw a licence: Yuen Kun-Yeu v. Attorney-General of Hong Kong; Davis v. Radcliffe. The availability of the tort of misfeasance in public office has been said to be one of the reasons justifying the non-actionability of a claim in negligence where there is an act of maladministration: Calveley v. Chief Constable of the Merseyside Police [1989] A.C. 1228, at 1238F. It is also established that an ultra vires act will not per se give rise to liability in tort: X (Minors) v. Bedfordshire County Council [1995] 2 AC 633. And there is no overarching principle in English law of liability in tort for "unlawful, intentional and positive acts": see Lonrho Ltd. v. Shell Petroleum Co. Ltd.(No. 2) [1982] A.C. 173, 187G in which the House refused to followBeaudesert Shire Council v. Smith (1966) 120 C.L.R. 145, which was subsequently overruled by the Australian High Court in Northern Territory v. Mengel (1995) 69 A.J.L.R. 527. The tort of misfeasance in public office is an exception to "the general rule that, if conduct is presumptively unlawful, a good motive will not exonerate the defendant, and that, if conduct is lawful apart from motive, a bad motive will not make him liable": Winfield and Jolowicz on Tort, 15th ed., (1998), p. 55; Bradford Corporation v. Pickles[1895] AC 587; Allen v. Flood [1898] A.C. 1. The rationale of the tort is that in a legal system based on the rule of law executive or administrative power "may be exercised only for the public good" and not for ulterior and improper purposes: Jones v. Swansea City Council [1990] 1 W.L.R. 54, 85F,19 Three Rivers District Council v Governor and Company of the Bank of England (No 3) [2003] 2AC 1 (HL) at 190-191.per Nourse L.J.; a decision reversed on the facts but not on the law by the House of Lords: [1990] 1 W.L.R. 1453, at 1458. The tort bears some resemblance to the crime of misconduct in public office: Reg. v. Bowden[1996] 1 W.L.R. 98. [Emphasis added][56] It is apparent from this quote that the Law Lords approved Nourse LJ's linking of the reason for the tort to the first principle of public law: that all statutory powers should be exercised in good faith for their statutory purpose. The difficulty for the plaintiffs in this case is to prove ulterior or improper purposes behind failure to act. If proved the three strategies may cumulatively amount to that.[57] As noted, several Officers of the Commissioner realised that there was a problem emerging with the accounts of Mr Hampton and the family entities. On any view of tax liability the accrued penalties and interest is extraordinary and raises a question as to whether or not enforcing a debt of that size would be carrying out the purpose of the statute. To the extent that a judgment as to an abuse of statutory powers is objective, rather than subjective, there is room to argue for a development of the tort of misfeasance to encompass a failure to act by a class, which may be indeterminate, of officials acting on behalf of the Commissioner. It is far too early at this stage to decide the action must fail, before the facts are proved. These additional reasons only extend and amplify the reasons of Associate Judge Osborne. I think his decision to leave these proceedings in place was correct.[58] For these reasons I now think that strike out or not does not depend on the ability to plead wrongdoing by named individuals. It is not necessary, therefore, to scrutinise those aspects of the latest pleading to dispose of the review. I am of the opinion that Osbourne AJ was right to dismiss the application to strike out the misfeasance claims, and to recognise that the pleadings have not closed.The joinder of Mr Shamy[59] Mr Hampton argues that Mr Shamy gave advice to the IRD on the question of whether the Aronsen notes should be released. If that advice was just a discovery opinion I see no basis for Mr Shamy having to defend an action in tort, whether his advice was right or wrong. But if Mr Shamy became engaged in the issue whether officials should or should not exercise a statutory power, there may be a basis forpersonal liability acting as a public officer, as left open by the Court of Appeal inBerryman vis-à-vis Mr McGuire, a territorial officer acting as counsel for the Army,see paragraph [76]. I agree with Osborne AJ's decision at [71] that given that decision it is not possible to strike Mr Shamy out of the proceedings at this stage. As Osborne AJ discussed, there is Australian case law to the contrary. But its application is a matter for the Court of Appeal, or the Supreme Court.[60] The result of this review is that the judgment of Associate Judge Osbourne stands, with the qualification that the BORA issue is, I understand, under appeal.[61] There is no order for costs, as Mr Hampton and the other applicants have not been represented.