N T H DOUGLAS & ORS V THE COMMISSIONER OF INLAND REVENUE COA CA490/2011

N T H DOUGLAS & ORS V THE COMMISSIONER OF INLAND REVENUE COA CA490/2011 [23 October 2012]IN THE COURT OF APPEAL OF NEW ZEALANDCA490/2011[2012] NZCA 486BETWEEN N T H DOUGLAS & ORSAppellantsAND THE COMMISSIONER OF INLANDREVENUERespondentHearing: 15 October 2012Court: Randerson, French and Venning JJCounsel: S R G Judd for AppellantsC K Wood and K Naik-Leong for RespondentsJudgment: 23 October 2012 at 11.30 a.m.JUDGMENT OF THE COURTA The appeal is dismissed.B The appellants must pay the respondent costs for a standard appeal on a band A basis uplifted by 50 per cent.____________________________________________________________________REASONS OF THE COURT(Given by Venning J)[1] The appellants appeal against a judgment of Courtney J delivered on 8 July 2011.1 In that judgment Courtney J declined the appellants' application to invoke theslip rule (r 11.10 of the High Court Rules) to set aside judgments that had been sealed by the Court against the appellants. At issue before the Judge on that1 N T H Douglas v Commissioner of Inland Revenue HC Auckland CIV-2003-404-6359, 8 July2011.application was the construction of Courtney J's previous decision of 16 February 2009 (the February 2009 judgment).2 The same issue arises on this appeal.Background[2] The parties have been engaged in litigation in a number of different courts and over a number of years. The litigation has concerned the validity of assessments made in respect of people who had participated in tax arrangements, known as the Russell Template, organised by their tax agent, Mr Russell. The Russell Template has been held by the Privy Council to be tax avoidance.[3] In the February 2009 judgment Courtney J dealt with the issues that remained following an earlier judicial review decision, her interim decisions on a number of appeals by way of cases stated from the Taxation Review Authority (TRA), and the unsuccessful appeals from those decisions.[4] Courtney J rejected the appellants' submission that the matter ought to beremitted back to the TRA for consideration of further evidence and/or further issues and instead, with the exception of deductions permitted to corporate taxpayers for a consultancy fee charged by Mr Russell, confirmed the amended assessments that had been the subject of the original cases stated to the TRA.[5] The Judge then made a number of orders to give effect to that decision, including:3...(c) In relation to the individual taxpayers ... I confirm the amended assessments shown in the cases stated to the TRA for each;(d) Judgment made against any of the individual taxpayers may only be sealed upon the filing and service of an affidavit annexing the case stated to the TRA for that taxpayer. ...2 N T H Douglas v Commissioner of Inland Revenue HC Auckland CIV-2003-404-6359,16 February 2009.3 At [46].[6] It appears the affidavits were sworn on various dates from January 20104 but were not filed and served until 14 September 2010.[7] The Registry sealed the orders on the same day, 14 September 2010, and apparently before service of the affidavits was effected.[8] The appellants then applied to the Court by memorandum of counsel, supported by an affidavit from Mr Russell of 23 March 2011, seeking, inter alia, orders that the existing judgments were not validly sealed and must not be acted upon by any party.5The decision under appeal[9] Courtney J accepted that the slip rule could be invoked to amend a Court order to give effect to the intention of the Court: Bristol-Myers Squibb Co v Baker Norton Pharmaceuticals Inc.6 However she rejected the appellants' submission that,in the February 2009 judgment, she intended the appellants would have the opportunity to respond to the affidavits filed by the Commissioner. The Judge held it was perfectly clear from that decision, read as a whole, that there was no intention the appellants would have the right to respond and challenge the affidavits filed by the Commissioner for the purposes of obtaining the sealed judgments. She declined to make the orders sought.The appeal submissions[10] Mr Judd submitted:(a) Courtney J was wrong to decide there was no intention in the February 2009 judgment for the appellants to have the right to respond and challenge the affidavits filed by the Commissioner. The only rationale for requiring the affidavits to be served was to allow the appellants to respond;4 Only one, affirmed on 22 January 2010 is before the Court.5 The application should strictly have been brought by interlocutory application: r 11.10(2).6 Bristol-Myers Squibb Co v Baker Norton Pharmaceuticals Inc [2001] EWCA Civ 414.(b) Courtney J was wrong to decide that failure to serve the affidavits prior to the sealing of the judgments could have made no difference. If service could have made no difference, there would have been no point in providing for this requirement. The circumstances of each individual taxpayer could have been different;(c) the context of the February 2009 judgment was that the taxpayers had requested the case be referred back to the TRA to finalise their individual assessments. The TRA had reserved leave. By making the orders requiring the filing and service of the affidavits instead of referring the case back to the TRA, the Judge must have intended that procedure would enable resolution of the consequential issues inrespect of which the TRA had reserved leave;(d) the appellants were prejudiced because they accepted the February 2009 judgment (i.e. did not appeal it) because they understood the Commissioner's affidavits would be served on them in advance of thejudgments being sealed.Decision[11] As noted above, the issue on this appeal is the objective interpretation of the February 2009 judgment. We consider that when the February 2009 judgment is considered as a whole and in context, its intent is clear, as is the purpose for requiring the respondent to file and serve the affidavits annexing the individualtaxpayer's amended assessments.[12] By the time the matter came before Courtney J for determination in late 2008, all relevant issues had been considered by the TRA, the High Court and the Court of Appeal. Despite that, the appellants argued that the cases should be again remitted to the TRA. Mr Russell argued that there may be new evidence and new issues available from other cases before the TRA that should be taken into account in relation to the issue of inconsistent track assessments, the validity of IR150 certificates and the quantification of the funding charge.[13] Courtney J observed that to accept that submission would mean there would never be any finality to the litigation. She considered that remittance to the TRA was unnecessary and inappropriate. The matters that the appellants sought to raise (or that Mr Russell sought to raise on their behalf) were inconsistent with a number of specific findings in both the High Court and Court of Appeal that had been conclusively determined against the appellants.[14] Courtney J accepted that deductions claimed by the corporate taxpayers forMr Russell's consultancy fees should be allowed, but otherwise she confirmed theamended assessments that had been the subject of the original case stated. The Judge then adopted a practical solution, suggested by Mr Wood, to enable the terms of the judgments to be finalised and sealed. At [44] Courtney J held that:[44] Rather than reproduce the amended assessments in this judgment Iaccept Mr Wood's suggestion that I make an order confirming the amendedassessments for each of these taxpayers as they are shown in the originalcases stated to the TRA. Each case stated is to be produced to the Court byannexure to an affidavit by the Commissioner. The amount of the amendedassessment shown in each case stated will be the amount for which judgmentmay be sealed.The Judge confirmed her intent later:[46] With the exception of deductions permitted to corporate taxpayers for the consultancy fee, the effect of my determination of the questionsraised in the cases stated is to confirm the amended assessments that werethe subject of the original cases stated to the TRA. [15] In response to Mr Judd's principal submission we are satisfied that it is clear there was no intention that the appellants would have the right to respond (and the Commissioner then reply) and that there would then be a further hearing to settle the judgment. The clear intent of the February 2009 judgment was to finalise the long drawn out process of litigation. It was for that purpose and to enable the sealed judgment to reflect the amended assessments, that the Commissioner was required to file and serve the affidavits annexing the full cases stated to the TRA. The requirement for service of the affidavits was effectively a courtesy and for the information of the appellants only. We note the amended assessment before the Court dated back to 1993, for example.[16] The Judge was also right to find failure to serve the affidavits prior to sealingthe judgment could have made no difference to the appellants' position. The Judgehad upheld the amended assessments before the TRA and had rejected the request they be remitted back to the TRA. The appellants, as individual taxpayers, did not obtain the adjustment for the consultancy fee. We note Mr Judd was not able to identify any particular issues arising out of the amended assessments annexed to the affidavits.[17] Mr Judd's next submission that the purpose of requiring the Commissioner to file the affidavits was to enable the appellants to consider their position and, as such, was a substitute process for referring the matter back to the TRA, ignores and isinconsistent with Courtney J's rejection of the appellants' request for the cases to beremitted to the TRA.[18] Nor does the appellants' purported reliance on the fact the TRA reserved leave for the parties to apply with regard to any issues "not covered or consequential" assist them. In the February 2009 judgment Courtney J noted that, despite that reservation, no matters had been raised by the appellants pursuant to it and that once the appellants had required the TRA to state a case for the High Court, the reservation of leave was superseded by the appeal. That must be correct.[19] Finally, we reject the submission that the appellants have in some way been prejudiced as a consequence of their inability to reply to the affidavits. If the appellants considered they would have a right to raise the matter again, they were wrong. As noted, it was never intended that they would have the opportunity to reply. There can be no prejudice.[20] The appeal is dismissed.Costs[21] It should have been obvious to the appellants that the appeal was without merit. Were it not for the accepted fault on the part of the respondent, indemnity costs would have been appropriate on this appeal. To take account of all relevant circumstances theappellants are to pay the respondent costs for a standard appeal on a band A basis uplifted by 50 per cent.Solicitors:Ladbrook Law Ltd, Auckland for AppellantsMeredith Connell, Auckland for Respondent