BLAKELEY V CIR HC AK CIV 2007-404-7017

BLAKELEY V CIR HC AK CIV 2007-404-7017 3 March 2008IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY CIV 2007-404-7017BETWEEN IAIN WILSON BLAKELEY Appellant AND COMMISSIONER OF INLAND REVENUE Respondent Hearing: 19 February 2008 Counsel: GJ Harley and SR Willetts for Appellant RJ Ellis and C Curran for Respondent Judgment: 3 March 2008 at 4.00 p.m.JUDGMENT OF RODNEY HANSEN JThis judgment was delivered by me on 3 March 2008 at 4.00 p.m., pursuant to Rule 540(4) of the High Court Rules. Registrar/Deputy Registrar Date: .Solicitors:: Buddley Findlay, P O Box 1433, Auckland for Appellant (Mr G Hall) Crown Law, P O Box 2858, Wellington 6140 Copy to: Mr GJ Harley, P O Box 5241, Wellington[1] Mr Blakeley is a director of Ernst and Young, chartered accountants. In the course of a routine tax investigation, a client of Ernst and Young provided the Commissioner of Inland Revenue with four tax opinions given by Mr Blakeley. The Commissioner concluded that the two transactions which were the subject of the four opinions were void tax avoidance arrangements. He also took the view that the transactions were likely to have been undertaken by other taxpayers. [2] The Commissioner then issued Mr Blakeley with a notice under s 17 of the Tax Administration Act 1994 (the Act) requiring him to furnish a list of the names and IRD numbers of clients to whom he had provided advice in relation to the two types of transactions. Mr Blakeley refused to comply on the grounds that to provide such information would involve the disclosure of a tax advice document which was protected by s 20B of the Act. [3] The Commissioner applied to the District Court for orders that the information sought by the Commissioner was not a classified document for the purpose of s 20B of the Act and for an order that Mr Blakeley provide the names and IRD numbers to the Commissioner. [4] Hubble DCJ found that the information sought was not protected by s 20B. In the alternative, he found that there had been a waiver of privilege in relation to the advice given by Mr Blakeley to clients in relation to the relevant transactions. Mr Blakeley appeals against that decision.Issues on appeal[5] In support of the appeal, it is submitted on behalf of Mr Blakeley: a) The list of names and IRD numbers of clients are protected from disclosure under s 20B of the Act. b) There has been no waiver of privilege.c) It would be impossible for Mr Blakeley to comply with the s 17 notice.Statutory provisions[6] Section 17 confers wide information gathering powers on the Commissioner. Section 17(1) provides:Information to be furnished on request of Commissioner(1) Every person (including any officer employed in or in connection with any Department of the Government or by any public authority, and any other public officer) shall, when required by the Commissioner, furnish in writing any information and produce for inspection any books and documents which the Commissioner considers necessary or relevant for any purpose relating to the administration or enforcement of any of the Inland Revenue Acts or for any purpose relating to the administration or enforcement of any matter arising from or connected with any other function lawfully conferred on the Commissioner.[7] The powers s 17 provides the Commissioner for the purpose of facilitating the proper discharge of his statutory functions are expressed in the widest terms – seeNZ Stock Exchange v CIR [1990] 3 NZLR 333 at 337 (CA). [8] Section 17 is subject to legal professional privilege which is enacted in s 20 of the Act and to the right to resist disclosure of a tax advice document provided by ss 20B – 20G. Mr Blakeley's position is that the information sought by the Commissioner is a tax advice document as defined in s 20B which relevantly provides:No requirement to disclose tax advice document(1) A person (called in this section and sections 20C to 20G an information holder) who is required under 1 or more of sections 16 to 19 to disclose information in relation to the information holder or another person is not required to disclose a book or document that is a tax advice document for the person to whom the information relates. (2) A book or document is eligible to be a tax advice document for a person if the book or document— (a) is confidential; and(b) is created by— (i) the person for the main purpose of instructing a tax advisor to act for the person by giving advice to the person, if the advice is to be about the operation and effect of tax laws: (ii) a tax advisor or, where the tax advisor is in public practice, an employee of the tax advisor's firm, for the main purpose of recording research and analysis, if the research and analysis is performed for the main purpose of enabling the tax advisor to give advice to the person about the operation and effect of tax laws: (iii) a tax advisor or, where the tax advisor is in public practice, an employee of the tax advisor's firm, for the main purpose of the giving of advice by the tax advisor to the person, or the recording of advice given by the tax advisor to the person, if the advice is about the operation and effect of tax laws; and (c) is created for purposes that do not include a purpose of committing, or promoting or assisting the committing of, an illegal or wrongful act. (3) A book or document is a tax advice document for a person if— (a) the book or document is eligible under subsection (2) to be a tax advice document for the person; and (b) the person makes a claim, under section 20D, that the book or document is a tax advice document; and (c) the person satisfies the requirements of sections 20E and 20F for the book or document. ...Right to non-disclosureAppellant's submissions[9] At the heart of Mr Harley's argument in support of the appeal is the concern that the disclosure of the names of clients who had received opinions on the same subject matter as the opinions in the hands of the Commissioner would be tantamount to disclosure of the advice given; that is because it is unrealistic to think that Mr Blakeley would have given different advice to different clients. It followsthat the disclosure of their names would necessarily involve the disclosure of the likely tenor of the advice they were given. [10] Mr Harley relied on the principle, accepted in cases involving legal professional privilege, that, while client identity is not of itself privileged information, it will be protected if disclosure risks revealing confidential communications. As the Federal Court of Australia said in Federal Commissioner of Taxation v Coombes (1999) 92 FCR 240 at 251:While the disclosure of the name of the client is not of itself a matter within the privilege, it will be protected where so much has been divulged with regard to the legal services rendered or the advice sought that to reveal the client's name would be to disclose the whole relationship and confidential communications.Mr Harley also referred to the discussion of Blanchard J in Police v Mills [1993] 2 NZLR 592 and to the application of the principle in Courtney v Medtel Pty Ltd(2001) 113 FCR 512 and in decisions of the Federal Circuit Courts of Appeal of the United States in Baird v Koerner (Internal Revenue Agent) 279 F 2d 623 (1960) andRalls v United States 52 F 3d 223 (1995). [11] Mr Harley further submitted, citing B v Auckland District Law Society[2004] 1 NZLR 326 (PC) that the principle should not be abrogated or limited by statute except by clear and unambiguous language or by necessary implication. He maintained that ss 20B-20G, construed accordingly, constituted an extension of legal professional privilege which would protect Mr Blakeley's clients' names from disclosure.Scheme and purpose of legislation[12] I do not think the principles underlying legal professional privilege assist the appellant, even by analogy. The protection afforded by s 20B is much more confined than legal professional privilege. It is not, as Mr Harley would have it, a new substantive right of equivalent utility to legal professional privilege. Among the important points of difference which emerge from an analysis of the statute are the following:a) The definition of a tax advice document which may be the subject of a claim under s 20B-20F is a book or document. In contrast, s 17 of the Act enables the Crown to require a person to "furnish in writing any information" as well as to produce for inspection any books and documents considered to be necessary or relevant for the purposes specified in s 17(1). Legal professional privilege, as enacted in s 20, applies to any information as well as book or document (s 20(1)). So, whereas legal professional privilege may be claimed in relation to every category of information the Commissioner may demand under s 17, s 20B is confined to books and documents. b) In order to be eligible to be a tax advice document, the book or document must meet the conditions set out in s 20B(2). Self- evidently, they cover a much narrower range of communications than are protected by legal professional privilege. c) A claim that the book or document is a tax advice document must be made in accordance with s 20D. The claim must contain the information set out in subs (2) and (3) and be made within the time limits specified in subs (4). If made by a tax adviser on behalf of a person entitled to claim, the claim must include written confirmation that the tax adviser is authorised to act – s 20D(5). Again, in contrast, legal professional privilege does not need to be claimed. Privilege attaches to a qualifying communication and remains unless waived by the client. d) The protection excludes tax contextual information – s 20F. Tax contextual information is defined in subs (3). It includes a fact or assumption relating to a transaction that has occurred or is postulated in the tax advice document and a description of the step involved in the performance of the transaction so referred to. e) The protection applies only in response to the exercise by the Crown of powers under the Act. Unlike legal professional privilege, itprovides no basis for resisting discovery or production of documents in Court proceedings. [13] The statutory protection created for tax advice documents is accordingly significantly narrower than the scope of legal professional privilege both as to the information protected from disclosure and the conditions attaching to its application. I agree with Ms Ellis that there is no reason why the statute should be construed as if it were an extension to legal professional privilege with the constraints that entails. Sections 20B-20G provide taxpayers with a new but strictly circumscribed right to resist the exercise by the Commissioner of wide ranging information gathering powers. It should be construed on orthodox principles. Words should bear their plain and ordinary meaning but with reference to the context in which they appear and to the purpose of the legislation – see, in the context of revenue statutes, the discussion in CIR v Alcan New Zealand Limited [1994] 3 NZLR 439 (CA) at 443- 446. Adopting this approach, I turn to consider whether the information sought in this case may be protected from disclosure.Does Section 20B apply?[14] The s 17 notices sought the names and IRD numbers of all persons to whom Mr Blakeley had given advice since 1 April 1999 in relation to the two lease arrangements which were described in detail in the notices. As earlier mentioned, the two arrangements were those about which he had given tax advice in the four opinions. The opinions had been given to the Commissioner before the amendment to the Act which introduced the non-disclosure provisions for tax advice documents. There is no suggestion that the Commissioner was not entitled to see the opinions or that they have at any time been privileged or confidential. Nor is it suggested that the Commissioner is not entitled to use his powers under s 17 of the Act to obtain the names. The sole question is whether Mr Blakeley's clients could assert the statutory right to non-disclosure in s 20B. [15] I am satisfied that Judge Hubble was right to find the statutory protection is not available. The names and IRD numbers are not a tax advice document for thepurpose of s 20B. They are not a book or document, as stipulated in s 20B(2), and defined in s 3 as including:... all books, accounts, rolls, records, registers, papers, and other documents and all photographic plates, microfilms, photostatic negatives, prints, tapes, discs, computer reels, perforated rolls, or any other type of record whatever.No book or document has been created as contemplated by s 20B(2). A document would not come into existence until the data requested in the s 17 notice has been collated and recorded. Even then, it would not have been created for one of the purposes required by subs (2). [16] I am advised that it was conceded, for the purpose of the hearing before Judge Hubble, that a claim had been made pursuant to s 20D that a right to non- disclosure had arisen. But I do not see how the terms of s 20D could have been satisfied. They require, among other things, a description of the form and contents of the book or document and the date on which the book or document was created – subss (2) and (3). These provisions confirm that a tax advice document must be a book or document in existence at the time the request is made and that s 20B could not have been intended to cover information such as the names and IRD numbers sought by the Commissioner. [17] It is worth noting that much of what is contained in the four opinions comprise tax contextual information which would not be protected from disclosure, even if the tax advice itself was. As earlier mentioned, s 20F provides that facts or assumptions relating to transactions in a tax advice document are not protected. Clients identified in response to the s 17 notices as having been given advice in relation to the same arrangements as those referred to in the opinions would have no right to resist disclosure of the factual nature of the relevant transaction. [18] The right of non-disclosure created by ss 20B – F is much more confined than legal professional privilege. Unlike legal professional privilege, it is not a response to public interest considerations. It is, as Ms Ellis submitted, a creature of statute. It protects defined parts of a limited category of written communications.[19] There are no policy or public interest considerations weighing against disclosure, even if the consequence is that the tenor of the advice given to Mr Blakeley's clients is revealed. As it happens, the same consequence would occur even if legal professional privilege applied. Among the conditions attaching to client confidentiality in solicitor/client relationships is that the client must have disclosed his or her identity in confidence and must be either acting in the public interest or in circumstances where the disclosure of identity would incriminate the client – seePolice v Mills at 600. There is no indication in Ernst and Young's terms of engagement that clients disclosed their identity in confidence and no question of public interest or self-incrimination has been raised; it is common ground that no criminal offending is implied by the Commissioner's view that the arrangements involved tax avoidance. [20] However, ultimately the question is not to be found by reference to the principles of legal professional privilege which Mr Harley sought to rely on. It is to be found in the plain words of the legislation which, in this case, gives no protection to the information sought by the Commissioner.Waiver[21] Judge Hubble found that there had, in any event, been a waiver of privilege. He said he could not distinguish the facts of the case from Coombes. In Coombesthe Federal Commissioner of Taxation sent a statutory notice to a solicitor seeking the names and addresses of clients who had been advised in relation to employee share plans. In response, the solicitor sent the Commissioner a memorandum which he said had been used from time to time as the basis for advice in relation to employee share plans. In opposing the Commissioner's application for declarations that the identity of clients was not protected by legal professional privilege, the solicitor stated that the advice provided to each client "included advice substantially similar to the terms of the memorandum". The Court held that the provision of names and addresses would not disclose confidential information and, further, that the solicitor had voluntarily and intentionally disclosed the substance of the legaladvice he provided to his clients. This disclosure was found to have resulted in a waiver of legal professional privilege in respect of the advice given. [22] The facts and the law in the present case are very different. Mr Blakeley was careful in his responses to the Commissioner to avoid stating that he had given similar advice to other clients. More to the point, however, the protection against disclosure provided by ss 20B – F is not susceptible to waiver. As earlier discussed, tax advice documents are not automatically protected, even if eligible. The right to non-disclosure must be claimed by following the detailed procedure set out in s 20D. If the claim is not asserted by the means and within the time limits specified, with the authority of the client, there will be no right to non-disclosure. Waiver simply does not arise under ss 20B – 20G.Impossibility[23] Mr Harley's final argument was based on Mr Blakeley's evidence that it would be impossible for him to identify clients as requested in the notices, given the number of clients that he had advised on those issues over the period. The Judge said that the notice could not be resisted on the grounds of difficulty or expense providing the information. [24] This argument does not go to the issue of non-disclosure but to the right of the Commissioner to require Mr Blakeley to provide the information. Under s 17 of the Act, the Commissioner is entitled to request information considered to be necessary or relevant for any purpose related to his functions. As the Privy Council said in NZ Stock Exchange v CIR [1992] 3 NZLR 1 at 6-7, the Court can interfere only if satisfied that in making a particular requirement, the Commissioner exceeded or abused his powers. The practical difficulties of complying with the Commissioner's request do not make the exercise of his powers unlawful or improper. They may raise compliance issues but that is no reason to deny the Commissioner the order he seeks under s 17A of the Act to produce the names and IRD numbers sought in the Commissioner's s 17 notice.Result[25] The appeal is dismissed. The orders made in the District Court are confirmed. [26] The Commissioner is entitled to costs on a category 2 band B basis.