RADIO WORKS LTD V COMMISSIONER OF INLAND REVENUE HC AK CIV-2007-404-005853

RADIO WORKS LTD V COMMISSIONER OF INLAND REVENUE HC AK CIV-2007-404-005853 7 December 2010IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY CIV-2007-404-005853BETWEEN RADIO WORKS LIMITED Plaintiff AND THE COMMISSIONER OF INLAND REVENUE DefendantCIV-2007-404-005854AND BETWEEN TV WORKS LIMITED Plaintiff AND THE COMMISSIONER OF INLAND REVENUE Defendant Hearing: 25 November 2010 Appearances: M R Heron and A A Whitehouse for Plaintiffs J Coleman and R Roff for Defendant Judgment: 7 December 2010 at 11:00 amJUDGMENT OF COURTNEY JThis judgment was delivered by Justice Courtney on 7 December 2910 at 11:00 am pursuant to R 11.5 of the High Court Rules. Registrar / Deputy Registrar Date.. Solicitors: Russell McVeagh, P O Box 3076 Shortland Street, Auckland 1140 Fax: (09) 367-8163 – M Heron / A WhitehouseCrown Law, P O Bx 2858, Wellington 6140 Fax: (04) 473-3482 – J Coleman / R RoffIntroduction[1] In my decision 18 June 2010 I dismissed an application by the plaintiffs and their parent company, MediaWorks, for review of a decision by Associate Judge Abbott in which the Associate Judge held that the defendant was entitled to both general discovery against the plaintiffs and particular discovery against MediaWorks. The plaintiffs and MediaWorks seek leave to appeal my decision. In the event of the application for leave succeeding a stay of judgment is also sought pending the outcome of the further appeal. [2] The application for review of Associate Judge Abbott's decision was brought under s 26P Judicature Act 1908 which provides that determination of such an application is final unless the High Court gives leave to appeal or the High Court refuses leave but the Court of Appeal gives special leave to appeal. A proposed second appeal must raise some question of law or fact that is capable of bona fideand serious argument in a case involving some interest, public or private, of sufficient importance to outweigh the cost and delay of a further appeal. 1 It is relevant when considering a proposed appeal against an interlocutory decision that important legal points may be subject to the possibility of further appeal in any event and therefore the refusal of leave at the interlocutory stage does not preclude consideration of substantive issues. 2[3] The plaintiffs and MediaWorks assert errors of law in both the application of relevant authorities and the interpretation of the relevant provisions of the Tax Administration Act 1994 which they say: a) Are capable of serious and bona fide argument; b) Involve issues of wider public interest and importance relating to the availability of discovery in tax cases that are of importance to taxpayers generally; and1 Waller v Hider [1998] 1 NZLR 412 at 413; Payne v Attorney-General [2005] NZFLR 846 at [5]2 Orion New Zealand Ltd v Clapperton CA260/04, 21 March 2005c) Involve issues not previously considered by the Court of Appeal. [4] The defendant opposes leave being granted. He asserts that there are no questions of law or fact capable of serious argument that involve either a public or private interest of sufficient importance to outweigh the cost and delay of a further appeal.Are the questions raised by the proposed appeal capable of bona fide and serious argument?[5] On the application for review from Associate Judge Abbott's decision the plaintiffs argued that, although general discovery was not precluded in tax cases, it was only appropriate in rare cases because of the Commissioner's powers under the TAA to obtain all relevant documents and information before making an assessment. They maintained that because of the volume of material already provided to the Commissioner it was inappropriate to put them to the cost and expense of general discovery. MediaWorks had argued that particular discovery was unnecessary because any further documents would be excluded from evidence by s 138G. [6] Mr Heron, for the plaintiffs and MediaWorks, identified five questions raised on the proposed appeal capable of bona fide and serious argument. The first was whether I had correctly followed and applied the decision of the Court of Appeal inANZ National Bank Ltd v Commissioner of Inland Revenue as authority for the proposition that s 17 only requires a taxpayer to provide the Commissioner documents "with direct relevance" to the issues in contrast to the broader Peruvian Guano test for discovery. 3[7] As I understood Mr Heron, there was no argument as to the principles expressed in ANZ National Bank. His point, however, was that the issue in that case was entirely different from the present case, being whether documents for which there was a specific non-disclosure right in respect of a s 17 notice could also be withheld on discovery. He pointed out that the application of the principles enunciated in ANZ National Bank have never been applied to the present factual3 [2009] 3 NZLR 123situation. The plaintiffs and MediaWorks wish to argue that the decision in ANZ National is distinguishable from the present case because no issue of non-disclosure arises in this case. They wish to argue, further, that s 17 notices were not limited to the Commissioner's subjective assessment of relevance but instead required the plaintiffs and MediaWorks to furnish him with, on an objective basis, all documents "related to" the issue in the proceedings. Thus, there was no real difference between obligations in response to a s 17 notice and obligations under an order for general discovery. [8] The difficulty with Mr Heron's submissions on this point is that the only basis on which he could support this argument is the basis advanced on the hearing of the review application, namely that it was never intended to require parties who had given disclosure under s 17 to be subject to general discovery. This argument, in turn, could only be based on the historical context that preceded the introduction of the current statutory scheme. There is no basis on which to think that this possibility would have been overlooked by the Court of Appeal in both ANZ National and BNZ Investments v Commissioner of Inland Revenue. 4 It is highly unlikely that, had the material the plaintiffs and MediaWorks rely on had the effect contended for, it would have been overlooked by the Court of Appeal in both these cases when making general statements of principle. While the general statements of principle may not yet have been applied to the facts that exist in this case, I do not accept that their application to such facts is capable of serious argument. [9] The second issue that Mr Heron identified was whether I had correctly determined, on the basis of a line of decisions from the TRA and High Court not considered by the Court of Appeal including Dick v Commissioner of Inland Revenue5 and Glenharrow Holdings Ltd v Commissione of Inland Revenue,6 that general discovery is required to give effect to the exclusion rule of s 138G so that the Court can determine whether any documents may be subject to the exception to the exclusion rule in s 138G(2). In identifying this as an issue capable of bona fide and serious argument Mr Heron pointed out that in Glenharrow Holdings the4 [2008] 1 NZLR 5985 [2003] 1 NZLR 7416 (2002) 20 NZTC 17,792Commissioner himself had mounted the same argument that the plaintiffs and MediaWorks now seek to advance, namely that s 138G precluded discovery in tax cases unless the applicant can show how information obtained on general discovery can be brought within one of the exceptions to the section. The argument did not succeed but Mr Heron suggested that the fact it had been made suggests its bona fides. Whatever my view about the correctness of my determination, I accept that it is a point which has not been considered by the Court of Appeal. I do not exclude the possibility of it supporting a bona fide an serious argument. [10] The third issue identified by Mr Heron was whether I had correctly interpreted and applied the wording of s 89M(6)(B) TAA. Again, this is a question of statutory interpretation which has not been the subject of Court of Appeal authority and I do not exclude the possibility that there could be a bona fideargument over it. [11] Fourthly, Mr Heron identified as an issue whether I had properly considered as a relevant factor that the Court may not have access to relevant documents at trial if the orders for general and non-party discovery were not made on the basis that s 138G would preclude either party from relying on such additional documents obtained through discovery in evidence at trial. This point I took to relate to my assessment at [55] – [57] as to whether general discovery was appropriate and, given that it was based on my previous conclusion regarding the correct interpretation of s 138G, I do not see that it, independently, could be regarded as an issue capable ofbona fide and serious argument. [12] The final point Mr Heron relied on was the question as to whether I had properly or adequately considered the objective of the High Court Rules to secure the just, speedy and inexpensive determination of the proceedings. I do not accept that this is a point which raises any bona fide or serious argument.Are the questions of sufficient importance to justify the potential cost and delay that could be caused by a further appeal?[13] The starting point in considering this aspect is the procedural background to this case. This case and another case (involving Telstra New Zealand Holdings Limited) have both been designated test cases pursuant to s 138Q. A number of other cases involving optional convertible notes have been stayed pending the determination of these two cases. The Telstra case has recently been discontinued and one of the companies whose proceeding has been stayed pending the outcome of the Telstra case has sought to be allowed to progress its own case. The outcome of that application is, however, uncertain because the Commissioner has applied to set aside Telstra's discontinuance. As matters stand now the proceedings involving the plaintiffs and MediaWorks remains a test case and delay in resolving this proceeding inevitably means delay in resolving the other proceedings which are dependent on its outcome. [14] There has already been significant delay in this proceeding. A two-week fixture in September 2009 was vacated at the request of the plaintiffs and MediaWorks. A second fixture for April 2010 was adjourned at the request of the Commissioner (though Mr Coleman, for the Commissoner, asserts that the Commissioner had no choice in that because of delays by the plaintiffs and MediaWorks). A third fixture has now been allocated for September 2011. If the application for leave to appeal is granted this fixture, too, will be lost. It is self- evident that the loss of this third fixture will have repercussions for the other cases. [15] Mr Heron pointed to two factors which he said outweighed the cost and delay of a further appeal. The first was that the questions he has identified as being capable of bona fide and serious argument are of public importance because they affect taxpayers generally. The clarification by the Court of Appeal of these issues will assist both the Commissioner and other taxpayers in the conduct of future proceedings under part 8 TAA. In particular, they will affect the other cases for which this case is a test case. I do not find this point compelling. I agree that a further appeal on these issues may result in clarification on the application of s 138G. However, these are matters which can be argued on a substantive appeal.Given the nature of the dispute and its background it is highly likely that, whatever the outcome in the High Court, there will be a substantive appeal. It is therefore unnecessary to allow a second appeal of an interlocutory point in order to address these issues. [16] The second point that Mr Heron raised was that, if the plaintiffs and MediaWorks were forced to give discovery at this stage, the cost would be substantial (estimated at $250,000-300,000). I accept that discovery in this case would put the plaintiffs to considerable expense. However, this is an aspect which can properly be dealt with through a costs award at the conclusion of the proceeding. [17] Mr Heron also submitted that if general discovery were required to be given the scope of the documents disclosed would result in extensive cross-examination by the Commissioner which would currently not be possible on the documents already disclosed and which would significantly lengthen the trial. I found this submission difficult to reconcile with the submissions made on behalf of the plaintiff and MediaWorks at the hearing of the application for review. Then it was conveyed that, although the plaintiffs acknowledged the possibility that documents might exist that had not been disclosed, they nevertheless maintained that, to the best of their knowledge, everything had been disclosed and their reluctance to provide a formal list was simply that the responsible officers could not be sufficiently certain to actually swear that every relevant document had been disclosed. During argument I tried unsuccessfully to reconcile that position with Mr Heron's submission. Mr Heron, however, maintained his submission and I am therefore left to conclude that, contrary to what was conveyed earlier, there is more than just the possibility that documents exist which have not been disclosed and, further, that there may be a substantial number of such documents. [18] Viewed overall, I do not consider that the benefits of a second appeal claimed by the plaintiffs and MediaWorks outweigh the cost and delay of any such appeal.Result[19] The application for leave to appeal is refused. Since the application for stay was dependent on leave being granted, it is unnecessary to deal with that aspect of the application. [20] I was not addressed on the question of costs. If parties wish, they may file memoranda, the Commissioner filing a memorandum within 14 days and the plaintiffs/MediaWorks within seven days after that.____________________P Courtney J