THE COMMISSIONER OF INLAND REVENUE v RUSSELL [2014] NZHC 1296

THE COMMISSIONER OF INLAND REVENUE v RUSSELL [2014] NZHC 1296 [10 June 2014]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYCIV-2013-404-5188[2014] NZHC 1296UNDER The Tax Administration Act 1994BETWEEN THE COMMISSIONER OF INLANDREVENUEPlaintiffAND JOHN GEORGE RUSSELLDefendantHearing: 26 May 2014Appearances: Mrs P Courtney and K Naik-Leong for PlaintiffMr S Judd for DefendantJudgment: 10 June 2014JUDGMENT OF ASSOCIATE JUDGE J P DOOGUEThis judgment was delivered by me on10.06.14 at 5 pm, pursuant toRule 11.5 of the High Court Rules.Registrar/Deputy RegistrarDateBackground[1] The plaintiff, the Commissioner of Inland Revenue, has applied for summary judgment against the defendant, John George Russell, in the amount of $367,204,207.41, plus costs and disbursements.[2] It is common ground between the parties that the defendant has exhausted his ability under the statutory disputes and challenge process provided for by the Tax Administration Act 1994 to challenge that the assessments correctly quantify the amount of his tax liability. Therefore, the plaintiff has commenced enforcement action in which she seeks judgment in the sum of $367,204,207.41.[3] The brief background to the process that ended with Mr Russell being assessed for that sum is as follows:(a) In January 2003 the plaintiff assessed the defendant personally for profits of $15,757,556.18 in relation to the 1985 to 2000 income tax years and the defendant challenged those assessments in the TaxationReview Authority ("TRA"). On 17 September 2009, the tax challengeto the Commissioner's assessment was dismissed by Judge Barber.1(b) On 3 September 2010 the defendant's appeal of the TRA decision tothe High Court was dismissed.2(c) On 3 April 2012, the Court of Appeal dismissed the defendant'sappeal of the High Court decision. 3(d) On 13 August 2012, the defendant's application for leave to appeal tothe Supreme Court was dismissed.41 Case Z19 (2009) 24 NZTC 14,217 (TRA).2 Russell v Commissioner of Inland Revenue (2010) 24 NZTC 24,463 (HC).3 Russell v Commissioner of Inland Revenue [2012] NZCA 128; (2012) 25 NZTC 20-120.4 Russell v Commissioner of Inland Revenue [2012] NZSC 73, (2012) 25 NZTC 20-140.[4] In addition to the original assessments made, over the intervening years, additional tax penalties and interest increased the amount owed to the sum now claimed.[5] A further aspect of the litigation between the parties that needs to be noted because of its relevance to this judgment is that the defendant has now commenced judicial review proceedings against the Commissioner challenging her decisions which were reached in 2006 not to enter into an instalment payment arrangement with the defendant pursuant to s 177 of the Tax Administration Act 1994.[6] The plaintiff contends that the defendant has no defence to this claim. The defendant contends that the Court ought to decline summary judgment on the basis of its limited residual discretion to do so, if it considers that ordering summary judgment would be oppressive or unjust. However, the plaintiff contends that the grounds the defendant relies on do not meet that test so summary judgment should be ordered.[7] The case for the plaintiff is that:(a) The defendant has not, and cannot, establish that in the circumstances of this case ordering summary judgment would be oppressive or unjust.(b) The defendant has exhausted the opportunities to exercise his rights under the statutory appeals procedure and the courts, without exception, have determined that the assessments correctly quantifiedthe defendant's tax liability.(c) It is undisputable that the defendant's tax liability of $367,204,207.41is owed and remains unpaid.(d) In relation to the defendant's application for judicial review whichwas filed in the High Court at Auckland, it should be understood that judicial review is a discretionary remedy, and the timing of the actionand the events sought to be reviewed should be seen for what they are, an attempt to delay the enforcement action the plaintiff has embarked upon.(e) Even if a judicial review proceeding is filed, as here, the Courts have recognised that, where there has been flagrant and on-going failure tocomply with the taxpayer's obligations, and where recovery is likelyto result in only a minor proportion of the overall debt being recovered, preserving the integrity of the tax system and encouraging voluntary compliance by all taxpayers may justify the plaintiff continuing with enforcement procedures. This is a clear example of one of those cases.[8] The grounds the defendant relies on that entry of summary judgment would be oppressive or unjust are:(a) That he had made offers to pay the debt through instalment arrangements and lump sum payments.(b) That the failure to agree with the defendant a payment instalment planwas irrational and/or unreasonable and/or in breach of the plaintiff'sstatutory duties under the Tax Administration Act 1994.(c) That if the proposals had been accepted substantial amounts of tax would have been recovered and the plaintiff would not have incurred substantial litigation costs.(d) That the decisions by the plaintiff's officers involved improperpurposes and the defendant has foreshadowed he intends to apply for judicial review of the failure to accept the proposals.5[9] Mr Judd for the defendant focused attention on another important matter which will need to be considered. He contended that Mr Russell did not actually5 I understand that the judicial review proceedings have now been filed.obtain the benefit of the tax which was avoided as a result of arrangements which he contrived. The assessment which the plaintiff is attempting to enforce is based upon tax being imputed to Mr Russell following a reconstruction of accounts pursuant to s 99(3) of the Income Tax Act. I understand that what is contended for is that this is a separate aspect of the case which justifies the Court declining to enter summary judgment by invoking its residual discretion. I also understand that this may be put forward as a circumstance that is relevant to the judicial review proceedings in which the plaintiff will focus attention on the propriety of the actions of the Commissioner in declining to enter into an instalment plan for payment of the tax owing.Principles[10] Mrs Courtney referred me to the summary of the applicable principles which govern applications for summary judgment set out in this judgment by the Court of Appeal in Krukziener v Hanover Finance Ltd:6The question on a summary judgment application is whether the defendant has no defence to the claim; that is, that there is no real question to be tried:Pemberton v Chappell [1987] 1 NZLR 1 (CA) at 3. The Court must be left without any real doubt or uncertainty. The onus is on the plaintiff, but where its evidence is sufficient to show there is no defence, the defendant will have to respond if the application is to be defeated: MacLean v Stewart (1997) 11 PRNZ 66 (CA). The Court will not normally resolve material conflicts of evidence or assess the credibility of deponents. But it need not accept uncritically evidence that is inherently lacking in credibility, as for example where the evidence is inconsistent with undisputed contemporary documents or other statements by the same deponent, or is inherently improbable: Eng Mee Yong v Letchumanan [1980] AC 331 (PC) at 341. In the end the Court's assessment of the evidence is a matter of judgment. The Court may take a robust and realistic approach where the facts warrant it. Bilbie Dymock Corporation Ltd v Patel (1987) 1 PRNZ 84 (CA).[11] I intend to be guided by that statement.Principles relating to when it will be unjust and oppressive to enter summary judgment[12] For the Commissioner, Mrs Courtney made reference to cases where the so-called "residual discretion" to decline summary judgment has been considered.6 Krukziener v Hanover Finance Ltd [2008] NZCA 187, (2008) 19 PRNZ 162 at [26].[13] She noted that the Court of Appeal has indicated that, once the plaintiff has complied with the requisite formalities and has satisfied the Court there is no defence, there will only be a discretion of the most residual kind.7[14] In Sudfeldt v UDC Finance the Court of Appeal stated that the summary procedure rules are aimed at the just, speedy and inexpensive determination of proceedings. Although the discretionary power is unrestricted, it would be difficult to see how an application could be refused once the plaintiff satisfies the Court the defendant has no defence to the claim. and there are no circumstances suggesting that a summary judgment might cause injustice.8 The Court of Appeal in Berg v Anglo Pacific similarly noted that there is only the most limited scope for the discretion where injustice is not claimed.9[15] Counsel further submitted that the Court of Appeal has indicated that the circumstances in which judgment might be refused are where some injustice may be caused or if the procedure is being used as an instrument of oppression.10 Examples are:(a) The proceeding involves the actions or possible liability of a third party which is not before the Court;11(b) The proceedings are such that the opportunity should be given to allow discovery or other interlocutory applications to be concluded;12(c) The combination of complex issues of fact and law justify the dismissal of the application for summary judgment, either as a matter of discretion or because the Court cannot be satisfied that the defendant has no defence.137 Pemberton v Chappell [1987] 1 NZLR 1 (CA) at 5; European Asian Bank AG v Punjab and Sind Bank [1983] 2 All ER 508 at 515.8 Sudfeldt v UDC Finance Ltd (1987) 1 PRNZ 205 at 209 (CA).9 Berg v Anglo Pacific (1988) Ltd (1989) 1 PRNZ 713 at 717 (CA).10 Sayles v Sayles (1986) 1 PRNZ 95 (HC).11 Sudfeldt v UDC Finance Ltd (1987) above n 8 at 209. See also Murphy v Westpac Banking Corporation [1994] 1 NZLR 187 at 195 (HC).12 Westpac Banking Corp v M M Kembla New Zealand Ltd [2001] 2 NZLR 289 (CA) at [62] –[63].13 At [62].[16] Counsel referred to decisions in cases where the Court of Appeal has identified principles relevant to the exercise of the discretion including:(a) The residual discretion should not be used to refuse summary judgment unless the ground for refusal would provide a basis for judgment to be refused at the substantive hearing.14(b) The circumstances will be rare where a plaintiff who has shown there is no arguable defence will be denied summary judgment.15(c) The need for judicial caution to prevent prejudice to the defendant must be balanced with a robust and realistic judicial attitude where appropriate.16[17] Mrs Courtney also noted that the Court of Appeal in Sayles v Sayles invoked the residual discretion to prevent oppression or injustice possibly resulting from the use of the summary judgment procedure.17 In Sayles v Sayles the defendant had already issued a proceeding seeking a declaration as to ownership of assets acquired together with the plaintiff during their relationship; the plaintiff responded by applying for summary judgment, relying on a different legal entitlement, which if granted might have defeated or prejudiced the defendant's existing claim to the sameproperty.18 It was the use of the summary judgment procedure in those unusual circumstances that was potentially unjust or oppressive in Sayles v Sayles.19[18] I accept the foregoing submissions for the plaintiff concerning the scope of the discretion under r 12.2 High Court Rules.14 Inner City Properties Ltd v Mercury Energy Ltd (1998) 13 PRNZ 73, at 77 (CA); Jowada Holdings Ltd v Cullen Investments Ltd CA248/02, 5 June 2003 at [30].15 Jowada Holdings Ltd v Cullen Investments Ltd at [30].16 Bilbie Dymock Corporation v Patel (1987) 1 PRNZ 84 at 85-86 (CA).17 Sayles v Sayles above n 10 at 99.18 At 98.19 See also Herring v Herring [2010] NZCA 500, 2 NZLR 433.Argument that the Commissioner ought to have agreed a payment instalment arrangement[19] The question of what consequences would have followed had the Commissioner agreed to enter into such a instalment arrangement was not subject to analysis in the arguments before me.[20] It is not clear what, if any, effect entry into the arrangements under part 11 of the TAA would have had on the underlying debt. The defendant seems to have assumed that attempts to now enter summary judgment are so inconsistent with what he sees as his entitlement to a payment instalment plan that the Court ought to exercise its discretion to decline summary judgment. Consideration therefore needs to be given to the effect on the underlying debt that would have resulted, if the defendant had been successful in persuading the Commissioner to enter into an instalment arrangement.[21] In the absence of any statutory indication, it would seem unlikely that the legislative intention was that one effect of entering into an instalment arrangement would be that the underlying debt would be abrogated entirely and replaced by a statutory obligation to make instalment payments. This view is implicitly supported by the fact that there is power in the legislation20 for the Commissioner to cancel an arrangement in certain circumstances including where it has been entered into on the basis of false or misleading information or where the taxpayer is not complying with his/her obligations under the arrangement. Plainly that is intended to provide the Commissioner with an opportunity to enforce the original tax debt. That is a result which can only be consistent with the underlying liability continuing in existence notwithstanding entry into an instalment arrangement.[22] I consider these issues are relevant because it is implicit in the fact that the defendant invokes the discretion to decline to enter summary judgment that that step would be necessary in order to permit the defendant to take advantage of any instalment arrangement that the Commissioner might eventually be required to enter into as a result of a direction following the judicial review hearing. In my view such an outcome does not logically follow.20 Tax Administration Act 1994 s 177B(6).[23] In the absence of detailed grounds supporting such an outcome, my conclusion is that entry of summary judgment would not create any difficulty for the Court hearing the judicial review application in the event that it decided that the Commissioner ought to be directed to reconsider an instalment arrangement. Such a result would not, apparently, be precluded by the entry of summary judgment.[24] Therefore it is not strictly necessary to consider the judicial review application in detail. Even on the assumption that the defendant would succeed, there is no requirement that the Court exercise its discretion to disallow summary judgment to prevent oppression or injustice to the defendant.[25] To complete the discussion about whether the Court should exercise the discretion on this ground, it is necessary to note that the advantages to the Commissioner in obtaining summary judgment are more than theoretical. The advantage of entering judgment would be that the Commissioner would have the assurance of a final judgment which would be binding on the defendant, and his successors after his death. The entry of judgment also clears the way for the plaintiff to proceed to execution.[26] In case I am wrong in that conclusion, I will go on and consider whether the defendant has a substantial prospect of succeeding in the judicial review proceedings.The Judicial Review proceedings[27] Mr Judd produced to the Court a draft statement of claim which he had instructions to file on behalf of the defendant in the High Court in which the defendant sought declaratory orders, amongst other things, requiring the plaintiff to reconsider a payment proposal which he put forward first in 2006.[28] The causes of action set out in the statement of claim are first that the decisions on the part of the plaintiff to decline to accept the proposals were"decisions that were not made fairly, reasonably or in accordance with law"[29] The particulars of this cause of action included assertions that the decisions were not consistent with collecting the highest net revenue that is practicable within the law because continuing to litigate against the applicant will not lead to any recovery of revenue given that the applicant owns no assets. It was said that continuing to litigate against the applicant instead of accepting instalment proposalswas an inefficient use of the plaintiff's resources that would not maximise recoveryof outstanding tax. Further, it was argued that there was no basis to conclude under s 177B of the Tax Administration Act (TAA) that the applicant was in a position to pay all of the outstanding tax immediately. It was also said that it was not reasonable or rational to decline the instalment proposal and to continue to take enforcement proceedings to promote compliance by other tax payers or to secure the wider interests identified by the legislation. It was also claimed as a further ground for relief that the plaintiff had not provided proper grounds for declining the instalment proposals and taking the steps that she had now embarked upon to obtain summary judgment.[30] It is the hope of the defendant that if such an order were to be made and the plaintiff properly complied with it, that in place of the current liability for approximately $360 million, there would be an arrangement that would instead oblige the defendant to pay the sum of $1000 per week until his death or bankruptcy.[31] Presumably ancillary directions would be sought preventing the plaintiff from taking other steps to enforce the core or principal amount owing.[32] It was not contended by the plaintiff that, at least in theory, the discretion which is vested in the Court to decline summary judgment could not be put to service in the way which the defendant proposes. The plaintiff did not however accept that the defendant enjoyed any realistic expectation of success in the judicial review proceedings.[33] In the affidavit that the defendant filed, the further ground was advanced for attacking the refusal of the Commissioner to agree to an instalment payment arrangement. The additional ground was that in declining the proposal, the relevant departmental officers had been motivated by personal animosity towards thedefendant. While Mr Judd did not separately address this ground in his submissions, I will make reference to below.Discussion of JR application[34] The central authority that the plaintiff relied upon as supporting her submissions was the High Court decision of Raynel.21 There the Court had before it a case where the Commissioner of Inland Revenue was seeking to bankrupt the first plaintiff, Mr Raynel, and to wind up the second plaintiff, his company. In both cases the Commissioner had made assessments that the plaintiffs owed tax which were not disputed. The plaintiffs had put forward proposals for payment which were rejected by the Commissioner.[35] The submission was made on the taxpayer's behalf that the Commissionerwould have achieved a greater recovery under the offers made than would be possible in a bankruptcy and winding up. It was submitted that the duty to maximise the recovery of outstanding tax was the primary or overriding obligation of the Commissioner.22[36] Randerson J accepted that the TAA required the Commissioner to maximise the recovery of tax but that that has never been an absolute obligation. He referred to the fact that s 6 of the Act imposed an obligation on the Minister and every officerhaving responsibility under the legislation "to use their best endeavours to protect the integrity of the tax system". He noted that preserving of the integrity of the taxsystem extended by virtue of the provisions of s 6(2) to tax payers' perceptions ofthat integrity.23 The Judge also noted the provisions of s 6A(3) of the Act. He noted that the obligation to collect the highest net revenue was not absolute and that the Commissioner was only required to take steps to recover revenue which are practicable and lawful. As well, the Commissioner is required to have regard to the resources that are available to her, the importance of promoting compliance (especially voluntary compliance) by all taxpayers, and the compliance costs incurred by tax payers. For those reasons, Randerson J concluded that the21 Raynel v Commissioner of Inland Revenue (2004) 21 NZTC 18,583 (HC).22 At [3].23 At [47].Commissioner was not obliged to take steps to collect revenue regardless of issues of practicality, available resources, and costs incurred. Rather, the Minister's duty is tobe approached on a pragmatic basis with proper regard to the likely benefits and the costs of achieving them.[37] In a key passage in the judgment, Randerson J went on to say:24The cases have emphasised that the Commissioner has a wide managerial discretion as to the best means of obtaining the highest net return in the fieldof tax recovery: As Richardson P observed:25The principles underlying subsection 6 and 6A are designed to protect the integrity of the tax system in an environment where the Commissioner is required to operate within limited resources in the care and management of all the functions committed to theCommissioner's charge.[38] Randerson J continued:26Where the public interest in collecting taxes would be better served by a compromise agreement with the taxpayer than by the exercise of the range of enforcement powers available to the Commissioner, such a compromise is regarded as being within the broad managerial discretion of the Commissioner. But the considerations relevant to the exercise of theCommissioner's duty are not limited to issues of practicality, resources andcosts. Importantly, the Commissioner is also required by s 6A(3)(b) to have regard to the importance of promoting compliance (especially voluntary compliance) by all taxpayers with the Inland Revenue Acts.[39] Randerson J also observed that:27Sections 6 and 6A(3)(b) emphasise that there is a broader public interest in the integrity of the tax system and in ensuring that taxpayers meet their obligations. Taxpayers who comply with the requirements of the Inland Revenue Acts are entitled to expect that appropriate and (where necessary) firm action is taken against taxpayers who shirk their obligations. If not, complying taxpayers will justifiably perceive there is a lack of integrity in the system and an unfair burden is cast on those who conscientiously comply with their obligations. As well, as Master Lang pointed out, the voluntary compliance scheme which is central to the proper functioning of the Inland Revenue Acts will be placed in jeopardy unless all taxpayers know that the Commissioner will act firmly and resolutely with those who do not meet their obligations and have no reasonable excuse for doing so.24 At [51].25 In Auckland Gas Company Limited v Commissioner of Inland Revenue (1999)19 NZTC 15,027, at 15,034 (CA).26 At [52].27 At [54].[40] The Judge noted that ordinarily where a higher net recovery will be achieved through a proposed compromise than by winding up or bankrupting a taxpayer andthere are no countervailing considerations, the Commissioner's duty will be to acceptthe compromise:28But there may be circumstances where, in order to preserve the integrity of the tax system and promote compliance by other taxpayers, the Commissioner will be justified in refusing an offer and, instead, taking enforcement proceedings. Where, for example, there has been a flagrant and on-going failure to comply with the taxpayer's obligations and whererecovery is dubious or is likely to result only in a relatively minor proportion of the overall debt being recovered, the Commissioner may be justified in initiating or continuing enforcement proceedings to secure the wider interests identified by the legislation.[41] Randerson J concluded by saying:29Finally, I wish to say a word about the availability of judicial review in cases such as this. Given the broad managerial responsibilities given to the Commissioner and the officials of the Inland Revenue Dept, this court will be slow to interfere with the proper exercise of their statutory duties and discretions in relation to the recovery of outstanding taxation revenue. Decisions in this field essentially involve the exercise of judgment within the statutory framework and this court will not lightly interfere with decisions of that kind.[42] The Judge also noted that in what he described as "the present context" therewould be limited grounds for review and that if the decision-maker has called to attention all mandatory considerations and has not made any material errors of law, then the Court will be unlikely to intervene unless the decision can be shown to be such that no reasonable decision-maker could have made it:30It must be emphasised that this court does not, on judicial review, simply substitute its own view for that of the decision-maker and proper weight will be given to the experience, knowledge and judgment of the departmental officer or officers concerned"[43] Mrs Courtney submitted that Raynel has been applied in later cases wheresimilar arguments on the Commissioner's duty to maximise recovery of outstanding28 At [55].29 At [73].30 At [74].tax and collect over time the highest net revenue have been raised.31 I accept that submission.Prospects of success[44] The prospects of the defendant successfully obtaining judicial review of the determination on the part of the plaintiff not to accept the proposed instalment plan are not great. The Commissioner has a broad discretion which she is required to exercise when making a decision to accept or reject payment proposals. The argument on behalf of the defendant that rejection of the proposal would lead to bankruptcy and nothing would be gained from bankruptcy because the defendant has deposed that he cannot pay more than the $1000 per week oversimplifies matters. Nor do I accept that it is likely that the Commissioner has rejected the proposals because of personal antipathy to Mr Russell.[45] The fact that Mr Russell has deposed that it is his view that that is what was behind the decision of the Commissioner when declining to accept his proposal issome evidence. Mr Russell's affidavit rests on the logic that in his view it isinexplicable that the Commissioner would decline to accept his offer because it represents the only chance that the Commissioner will receive any payment. He then reasons that such an inexplicable stance can only be explained by the personal vendetta that staff at the department are pursuing against him.[46] But the fact that some personal animosity may have been generated on the part of departmental employees who investigated the affairs of Mr Russell does not establish that the decision to decline to accept the proposed instalment arrangement is tainted by, and explicable on the grounds of, such personal antipathy. The decision is entirely explicable on other grounds. Those other grounds include the consideration that the Commissioner is entitled to take into account the need for visible and vigorous enforcement of taxation liabilities to protect the integrity of the taxation system.31 See Rogerson v Commissioner of Inland Revenue (2005) 22 NZTC 19,260 (HC); McLean v Commissioner of Inland Revenue (2005) 22 NZTC 19,231 (HC); Clarke v Commissioner of Inland Revenue; Money v Commissioner of Inland Revenue (2005) 22 NZTC 19,165 (HC). See also Re Marra (2004) 21 NZTC 18,494 (HC).[47] The defendant has made reference to the possibility that the Commissioner might seek his bankruptcy. While that is not a matter that is of direct relevance to these proceedings, it is well known that creditors will pursue a bankruptcy for reasons other than realisation of the property which the bankrupt acknowledges owning. That is to say, the availability of bankruptcy proceedings can also assist an investigation into the affairs of the bankrupt and the unwinding of insolvent transactions, amongst other possibilities.[48] The proposal for payment of $1000 per week (or approximately $50,000 peryear) during the remainder of the defendant's life is not advantageous to theCommissioner. The defendant is now 79 years of age. Even on the favourable assumption to the defendant that he would be able to continue working for a further 10 years to generate the $1000 per week from income, the total amount that would be repaid would be a small fraction of the total $360 million approximately which is owed. Such considerations mean that there is a reduced prospect of the Court taking the view that the Commissioner was wrong to reject the instalment proposal when it was made some years ago. I interpolate that the evidence of the defendant is that he initially made his offer in 2006. Even then, the amount being offered was small in relation to the total amount of tax outstanding and would not even adequately compensate the Commissioner for loss of use of the unpaid revenue. It is even less likely that the Court would consider that it should exercise its discretion to issue a declaration that the Commissioner ought to consider a proposal which would involve the plaintiff accepting in full settlement of the claim for approximately $367 million an arrangement that would see the defendant now starting to pay $1000 per week and continuing until his death or bankruptcy.[49] It is said that that suggestion was made seven years ago and that had it been accepted as much is $400,000 would have been paid off the debt. That is not the same thing as saying that Mr Russell has accumulated the money and that it would be possible for him to now tender such payment if the plaintiff became obliged to accept a part payment of his liability by virtue of an order of the Court sitting to hear the judicial review application. He has not given evidence that that would be the position. Mr Russell did not, of course, tender the payments because he was notprepared to make them other than on the basis that they would be in full and final settlement of his entire liability.Conclusion on prospects of success in judicial review proceedings[50] In coming to a conclusion on these matters, the Court has to bring common sense to bear. The argument that the defendant puts forward does not constitute a compelling case. He claims that because the Commissioner has failed to properly consider whether an instalment plan should be accepted in the way that the law requires, then the decision made ought to be set aside. As a result the Commissioner ought to be required to reconsider the means that she adopts to collect what can only be described as a vast amount of unpaid tax.[51] The fact that the end that the defendant has in view is an arrangement whereby he should pay $1000 per week off a taxation liability of over $360 million until the end of his life, he being 79 years of age, does not seem to be realistic.[52] I accept that having heard argument and evidence in proceedings which arespecifically designed for the purpose of testing the legality of the Commissioner'sdecisions, the Court might come to a different view from mine. On the basis of the material that is available to the Court the enquiry is whether the plaintiff has been able to satisfy the Court that the defendant has "no defence" to the particular cause of action, which has been interpreted as meaning, "no bona fide defence, no reasonable ground of defence, no fairly arguable defence" – the absence of any real question to be tried.32 Viewed from that perspective, and adopting as the principal question whether the defendant has a prospect of success in the judicial review proceedings, my opinion is that the plaintiff has succeeded in showing that the defendant has no arguable defence.Procedural issues raised by the intended application for interim relief[53] Before departing from the subject of judicial review and the application for interim relief, it is necessary to make reference to one other matter that counsel for the plaintiff mentioned in his submissions and that concerns the approach that the32 Pemberton v Chappell above n 7 at 3.Court should take in cases where an issue arises about the possibility that a defendant to proceedings in which judgment is being sought might be able to seek judicial review which would reverse the basis upon which the judgment is sought. I was specifically referred to the authority of Air New Zealand Ltd v Wellington International Airport Ltd.33 The respondent sought judgment for landing charges levied against the appellant. The appellant intended to bring judicial review proceedings to challenge the validity of the process by which it was levied for the charges. The High Court Judge had declined to enter summary judgment so as to allow the appellant an opportunity to bring the judicial review proceedings.[54] The Court of Appeal described the issue as:34Where a body, whose pricing decisions are potentially susceptible to judicial review, seeks to enforce a pricing decision against a non-payer by issuing proceedings and seeking summary judgment, can the non-payer resist summary judgment on the basis that he or she has issued, or will issue, judicial review proceedings challenging the decision?[55] Mrs Courtney for the plaintiff drew my attention to what she described as the guidance by way of obiter comment to be found in paragraphs [84] to [86] of the judgment where the Court said:[84] Mr Goddard submitted that this approach was wrong. [The High Court had refused to enter summary judgment because to do so would have left it without a remedy and pre-empt its review proceedings.] He arguedthat WIAL's charges should be treated as valid and enforceable unless and until set aside, in accordance with the doctrine of "relative invalidity" (orlegal relativity). In accordance with this doctrine, allegedly unlawful decisions are treated as valid until successfully challenged (see the discussion in Joseph, Constitutional and Administrative Law in New Zealand(3rd ed, 2007), paras [21.9.3] – [21.9.5]. Mr Goddard submitted that the entry of summary judgment would not constitute an issue estoppel or res judicata in respect of the subject-matter of the judicial review application. Further, he submitted that Air NZ could apply for interim relief under s 8 of the Judicature Amendment Act 1972, which was the appropriate way to deal with cases of this type.[85] We consider that there is considerable force in Mr Goddard'ssubmission that s 8 provides the proper mechanism for dealing with this type of situation. That section is, after all, expressly designed to deal with questions of interim relief in judicial review proceedings and directs the Court to the relevant considerations.33 Air NewZealand Ltd v Wellington International Airport Ltd [2009] NZCA 259, [2009] 3 NZLR 713 (CA).34 At [82].[86] if an entity wants to be relieved of the obligation to pay until ajudicial review challenge is determined, it should apply for interim relief under s 8. If it fails to do so, it is at risk of having summary judgment entered against it should the statutory body seek to enforce its charges.Analytically, this seems to us to be the preferable way of addressing situations of this type.(emphasis added)[56] Counsel for the plaintiff also referred to the Court of Appeal judgment in the case of Tannadyce Investments Limited v Commissioner of Inland Revenue.35 In proceedings in the High Court the applicant had sought an order setting aside a statutory demand based upon unpaid taxes which had been assessed to the applicant. Shortly before the hearing in the High Court, the applicant filed proceedings seeking judicial review orders. The applicant had claimed that in making the assessment the Commissioner had been guilty of conscious maladministration and had abused statutory powers of decision including an obligation to protect the integrity of the taxsystem. As well the applicant pleaded that the Commissioner's employee was under an obligation to administer the law fairly, impartially and in accordance with the law.36[57] Associate Judge Christiansen dismissed the application to set aside the statutory demand. He referred to the authorities which confine judicial review in taxation assessment cases to those which are exceptional. He concluded that the judicial review proceedings in contemplation in that case had no prospect of success and therefore there was no substantial dispute which needed to be resolved outside the framework of the liquidation proceedings.[58] On appeal the Court of Appeal considered that TIL should have sought interim relief under s 8 of the Judicature Amendment Act 1972 prior to the hearing of its application to set aside the statutory demand, rather than arguing before the Associate Judge that its intended judicial review proceeding would arguably providea defence to the Commissioner's claim:3735 Tannadyce Investments Limited v Commissioner of Inland Revenue [2010] NZCA 253, (2010) 24 NZTC 24,34136 At [40].37 At [44].This Court has recently made some observations about the approach that should be taken in proceedings enforcing payment of a debt owed to a body whose pricing decisions are amenable to judicial review where the non-payer resists summary judgment on the basis that it has issued (or will issue) judicial review proceedings challenging the decision.38 Although the factual context is different in this case, the approach is equally applicable. On the facts of this case, the adoption of that approach would have required Tannadyce to seek interim relief under s 8 of the Judicature Amendment Act 1972 prior to the hearing of its application to set aside the statutory demand, rather than arguing before the Associate Judge that its intended judicialreview proceeding would arguably provide a defence to the Commissioner'sclaim for tax owing under the relevant assessments. That would have prevented the situation that arose in the statutory demand decision where Associate Judge Christiansen was required to deal with the merits of the proposed judicial review claim even though he did not have jurisdiction to deal with the judicial review claim itself.[59] As I read the decision, the appeal was dismissed on the grounds that the judicial review proceedings which the applicant in the High Court had since commenced had no proper basis and were an abuse of process. Once that decision was taken, there could be no basis for maintaining the appeal against the refusal of the High Court to dismiss the application to set aside the statutory demand.[60] The views that were expressed in the appeal judgment were therefore obiterand do not directly bind this Court to adopt the same approach in this case. However, I would respectfully agree with the views that the Court expressed in both of the appeals to which I have made reference. They provide guidance on the way in which the Court is dealing with the type of situation that has arisen in this proceeding.[61] At most, had I considered that there was merit to the position which the defendant intends to advance in the judicial review proceedings, and if the defendant could not reasonably have been expected to bring the interim relief application well in advance of the hearing of the summary judgment application, the Court might have been willing to allow an adjournment of the summary judgment proceedings so that judgment on that application could await the outcome of the interim relief application. Such an application could, in appropriate cases, properly result in the direction being given to the respondent to cease prosecuting the summary judgment38 Air NewZealand Ltd v Wellington International Airport Ltd [2009] NZCA 259, [2009] 3 NZLR 713 at [82] – [87].proceedings until such time as the judicial review application had been determined. It would be difficult to envisage a situation in which the Court might actually decline to enter summary judgment. That expression of view is based upon what the Court of Appeal said in the Air New Zealand appeal judgment which I have referred to at paragraph [56] above.[62] The defendant has not provided any explanation as to why judicial review proceedings were not taken at an earlier date. In his second affidavit Mr Russell says that he originally made the offer I have mentioned earlier in this judgment at a judicial settlement conference on 27 September 2006. He says that he repeated that offer in more or less the same form after his application for leave to appeal to the Supreme Court was declined. The date of the judgment in those proceedings was 13 August 2012.[63] To summarise, I do not consider that the plaintiff should be delayed in obtaining judgment because of the last minute judicial review proceedings when there has been more than adequate opportunity for the defendant to seek substantive relief by way of judicial review at any time during recent years. Further, having been served with the summary judgment proceedings on 13 December 2013 the defendant had adequate time to bring an application for interim relief.Additional grounds that defendant put forward[64] It is necessary to deal with two additional matters that Mr Judd raised on behalf of Mr Russell.The argument that defendant did not obtain financial advantages equivalent to the amount of the tax imputed to him following reconstruction under Section 99(3)[65] Mr Judd put forward the following argument:16. The purpose and logic of income tax is that it is paid on income received. It is calculated as a percentage of that income and a taxpayer pays it out of that income. By assessing income to a person who did not receive it, and not assessing income to the entities that did receive it, the Commissioner has prevented the payment of tax out of the income. The person required to pay the tax is not legally able to pay it out of the income because that income has been received by and is legally owned by other entities..........18. In the present case there was no failure by the defendant to comply with his tax obligations until after the Commissioner'sreconstruction. The Commissioner chose to reconstruct income that had been earned and received by other entities to the defendant, leaving him with a tax liability that he could not, legally, meet. It has only been after the reconstruction and resulting assessment that the defendant has failed to comply but compliance was always an impossibility.19. As a result, these enforcement proceedings do not promote compliance by other taxpayers or secure the wider interests identified by the legislation. The idea of requiring a person to pay tax on income that they did not earn or receive, and attempting to bankrupt the person when, inevitably, they cannot do so, would not seem to be in the wider interests of the tax legislation[66] The amount of the tax for which the defendant was assessed resulted from a reconstruction carried out pursuant to s 99(3) of the Income Tax Act 1976. The reconstruction which the Commissioner carried out was approved by the Court of Appeal in its judgment.39 It is this judgment which finally fixed the liability for tax that Mr Russell owes.[67] In its judgment the Court of Appeal expressed the conclusion that there had been large scale tax avoidance by a group of companies which was under the control of Mr Russell. Stevens J in the judgment of the Court, remarked:But what the appellant was doing involved more than just income allocation for genuine business reasons. The appellant was seeking to launder through the CM Partnership and the other partnership and corporate entities controlled by him the whole of the substantial income from the Russell template system, itself a clear tax avoidance scheme. This had extensive and dramatic financial consequences. No taxation was paid by the appellant or the partners in the CM Partnership although later partnership over a 15 year period. We consider that these considerations amply justify the conclusion that the income should be attributed to the appellant. And so we find.[68] It is no answer to say that Mr Russell should be able to avoid liability because he did not receive the fruits of the tax avoidance scheme. That is because the legislature when conferring the power of reconstructing tax avoidance arrangements so as to move the burden to the author of those arrangements, did not make it a39 Russell v Commissioner of Inland Revenue [2012] NZCA 128; (2012) 25 NZTC 26078precondition of the assessment of the reconstructed tax that the person assessed should actually have received pecuniary advantages from the arrangement.[69] Even if the policy underlying the conferment of a power to reconstruct was linked to the obtaining of benefits by the party who contrived the tax avoidance, it is difficult to see why such an advantage could not be found to be present in cases where the advantages achieved under the tax avoidance scheme actually accrued to associates of the assessed taxpayer rather than to him/her personally. It is not apparent either that the other forms of indirect benefit to the taxpayer should not be seen as justifying a reconstruction. If the taxpayer, for example, provided paid advice which led to the illegitimate reduction of tax payable by a third party, there would still be appreciable policy reasons for visiting the tax on the architect of the scheme by means of a reconstruction rather than on the third party.[70] But in any case, there seems to be no reason to view the power to reconstruct as being one limited to cases where it is the taxpayer him/herself who has received the benefits flowing from the tax avoidance. An equally valid reason for conferring the power on the Commissioner would be the desirability of visiting the consequences on the person who actually caused the loss to the Inland Revenue in the first place.[71] While Mr Judd raised these matters before me, I understand that it is not suggested that it would still be open to the defendant to renew his attack on the actual assessments themselves including the reconstruction by way of judicial review or by other means. That is no doubt for the reason that the defendant appreciates that he has exhausted all possibilities of challenging the assessments. He is mistaken if he considers that such an issue can be raised in the summary judgment proceedings.[72] In short, not only is the analysis of the policy which the defendant has put forward flawed, but the entire argument about whether the re-construction had been carried out on a legally justified basis or otherwise is irrelevant to the question of whether summary judgment ought to be entered.The potential liability for tax of other entities[73] Mr Judd was also critical of the Commissioner for allegedly not taking steps to recover the tax from the parties who were the direct beneficiaries of the scheme. This is no basis upon which the Court can reasonably decline to enter summary judgment against the defendant. There are no express terms of the legislation giving rise to a defence of this kind. Nor can it be said that such a defence is one that was arguably intended by implication from the legislation.Summary[74] The conclusions that I have reached in this judgment are as follows. First, the issue of whether or not the Commissioner ought to have entered an instalment arrangement with the defendant is not relevant to the question of whether judgment ought to be entered for the amount of tax. Such an issue may theoretically become relevant once the point is reached (if at all) where execution of the judgment is sought.[75] I have further concluded that the entry of judgment would not have the effect of pre-empting interim relief in the Judicial Review proceedings. In other words, it is not correct to characterise the availability of summary judgment and the instalment payment type proposal as being mutually exclusive alternatives.[76] There are no grounds upon which the Court ought to exercise the residual discretion to decline summary judgment. The fact that the defendant did not receive all any of the benefits from the tax avoidance arrangement is not such a ground. The reconstruction effectively deems to have been the person who earned the income which he is required to pay tax on. The fact that the Commissioner is acting in accordance with her statutory authority when taking such steps cannot be a basis upon which the discretion can be exercised in the favour of the defendant.[77] Likewise, even if it is the case that the Commissioner could have pursued other parties for the tax, that does not derogate from the power of the Commissioner to carry out a reconstruction as a result of which the tax has been imputed to the defendant. Because the Commissioner was acting within her authority in doing so, itis not open to the Court to defeat the objectives of the legislation by declining to enter summary judgment on a discretionary ground.[78] Alternatively, the judicial review proceedings are unlikely to result in interim or permanent relief being granted to the defendant. Therefore declining to enter judgment on that ground by invoking the discretion vested in the Court would not be justified because such an outcome would not be necessary in order to avoid an unjust or oppressive outcome for the defendant. Further, the defendant has not explained why he has delayed seeking judicial review of the decision of the Commissioner not to agree an instalment payment arrangement. It would not be just or reasonable to defer finalisation of the summary judgment application because of the late application for interim relief.Orders[79] There will be summary judgment for the plaintiff in the sum of $367,204,207.41. The parties should confer on the matter of costs and if they are unable to agree they are to file memoranda not exceeding five pages on each side within 10 working days of the date of this judgment._____________J.P. DoogueAssociate Judge