TRUSTPOWER LIMITED v THE COMMISSIONER OF INLAND REVENUE [2013] NZHC 2970 ]

TRUSTPOWER LIMITED v THE COMMISSIONER OF INLAND REVENUE [2013] NZHC 2970 [12 November 2013 ]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYCIV 2011-404-007140[2013] NZHC 2970UNDER the Taxation Administration Act 1994IN THE MATTER of the Income Tax Act 2004BETWEEN TRUSTPOWER LIMITEDPlaintiffAND THE COMMISSIONER OF INLANDREVENUEDefendantHearing: 12-30 August 2013Appearances: G J Harley, S Armstrong, L Hablous and A F Church forPlaintiffD H McLellan QC, M Andrews, R Roff and C Kern forDefendantJudgment: 12 November 2013 at 10am(RESERVED) JUDGMENT OF ANDREWS JThis judgment is delivered by me on 12 November 2013 at 10ampursuant to r 11.5 of the High Court Rules......................................................Registrar / Deputy RegistrarSolicitors/Counsel:Russell McVeagh, AucklandG J Harley, Barrister, WellingtonD H McLellan QC, Barrister, AucklandCrown Law, WellingtonInland Revenue Department, WellingtonTable of ContentsIntroduction .......................................................................................................... [1]A history of the dispute ........................................................................................ [7]The development pipeline in more detail – feasibility investigation.............. [16]What are the issues?The pleadings ....................................................................................................... [30]Matters not pleaded.............................................................................................. [35]Issues emerging in closing submissions ............................................................... [41]The "general permission" and the "capital limitation" .................................. [42]The capital/revenue determination: overview of leading authorities ............ [44]The practical and business point of view – the BP Australia indicia ................... [48]The "identifiable asset" test................................................................................. [51]Further New Zealand authorities ......................................................................... [52]Resource consents and the Income Tax ActResource consents ................................................................................................ [57]Resource consents in the context of the Income Tax Act ...................................... [62]Submissions as to the statutory context ................................................................ [66]Discussion ............................................................................................................ [70]Are the resource consents obtained by TrustPower, on a stand-alone basis, assets?Introduction .......................................................................................................... [80]Submissions .......................................................................................................... [87]Discussion ............................................................................................................ [92]The BP Australia indicia .................................................................................... [98]What was the need or occasion which called for the expenditure? ..................... [99]Were the payments made from fixed or circulating capital? .............................. [104]Was the expenditure of a once and for all nature producing assets or advantages which were of an enduring benefit for TrustPower?....................... [111](a) Was the expenditure of a once and for all or recurrent nature? ................. [113](b) Were the assets or advantages produced of an enduring benefit to TrustPower? ............................................................................................... [119]How would the payment be treated on ordinary principles of commercial accounting? ........................................................................................................ [126]Was the expenditure incurred on the business structure of TrustPower, or as part of the process by which income was earned? .................................... [135]From a practical and business point of view, is the expenditure to be regarded as capital or revenue in nature? ......................................................... [139]Was TrustPower's expenditure in obtaining resource consent incurredfor the purposes of improving its interest in the underlying land?Introduction ........................................................................................................ [142]Discussion .......................................................................................................... [146]TrustPower's alternative argument: classification of expenditureIntroduction ........................................................................................................ [148]When was TrustPower committed to filing applications for resource consents? ............................................................................................................ [151]Discussion .......................................................................................................... [154]Result ................................................................................................................. [157]AppendixThe four projects: description and chronology1. Arnold hydro2. Kaiwera Downs wind farm3. Mahinerangi wind farm4. Wairau River HydroIntroduction[1] The plaintiff, TrustPower, derives its business income from selling electricity. It generates (by hydro or wind) approximately one-half of the electricity that it sellsand buys the remainder. TrustPower is New Zealand's fourth largest retailer, andfifth largest generator, of electricity.[2] TrustPower seeks to maintain flexibility as to whether it generates or buyselectricity, as circumstances change. To this end, it has developed a "pipeline" of generation projects, which it refers to as "the development pipeline", "the optionalitypipeline", or "the pipeline". The pipeline is intended to provide TrustPower withinformation as to the viability, feasibility, and costs of building new generation capacity, to be used when it makes decisions as to how it sources the electricity it sells.[3] The development pipeline comprises a number of possible wind or hydro generation projects, which are at various stages of the feasibility assessment.1 There are always more projects in the pipeline than TrustPower has the financial or resource capability to construct, or are needed to supply its customers. Nevertheless, TrustPower considers the pipeline to be essential, to provide sufficient detailed androbust information on which it can assess the relative merits of whether to "build" or "buy". TrustPower describes the development pipeline as providing it with a suite of options as to whether to build generation capacity, or buy electricity to sell.[4] Some projects are progressed through the pipeline to the stage of applying for various consents (for example, land use consents, water permits, and dischargepermits) under the Resource Management Act 1991 ("the RMA"). In the periodbetween July 2005 and November 2007, TrustPower applied for, and obtained,consents ("the resource consents") in respect of four projects: Arnold River hydro onthe west coast of the South Island ("Arnold"), Kaiwera Downs wind farm, east of Gore, Southland ("Kaiwera Downs"), Mahinerangi wind farm, west of Dunedin ("Mahinerangi"), and Wairau River hydro, in Marlborough ("Wairau"). TrustPowerrefers to resource consents obtained for projects in the development pipeline as1 At any time there are approximately 200 projects in the development pipeline."Type 2" consents, to distinguish them from consents relating to existing property or plant (which are "Type 1" consents). Each of the applications for resource consentsincluded an extensive "Assessment of Effects on the Environment" ("AEE"),pursuant to s 88 (2) (b) and Schedule 4 of the RMA.[5] The primary dispute between TrustPower and the Commissioner of InlandRevenue ("the Commissioner") is as to the nature of the expenditure (of approximately $17.7 million) TrustPower incurred in applying for and obtaining the"Type 2" resource consents in the tax years ending 31 March 2006, 2007, and 2008.2TrustPower contends that it applied for the resource consents as part of its feasibility analysis of each project, and before it had committed to the construction of any of the projects. For that reason, TrustPower submits that the expenditure is revenue expenditure, incurred in the course of deriving income from the generation and sale of electricity, and therefore deductible for tax purposes. The Commissioner contends that the resource consents are themselves intangible capital assets, and that from the time TrustPower was committed to applying for the consents, the expenditure incurred in obtaining them is capital expenditure, and therefore not deductible.[6] If the expenditure is held to be capital, then two secondary issues arise: first,at what time the expenditure ceased to be "revenue" and became "capital" in nature, and secondly, whether (after that point) the Commissioner correctly allocated particular expenditure as capital rather than revenue.A history of the dispute[7] TrustPower claimed that its expenditure in respect of each of the proposed Arnold, Kaiwera Downs, Mahinerangi, and Wairau projects was deductible as"feasibility expenditure" pursuant to the "general permission" in s DA 1(1) of the Income Tax Act 2004 ("the ITA 2004").3 On 31 March 2010 (for Arnold, Mahinerangi, and Wairau) and 22 June 2010 (for Kaiwera Downs) the Commissioner2 The exact figure in dispute was agreed between the parties to be $17,672,290 (as noted in a schedule provided to the Court on 30 August 2013). TrustPower does not claim that expenditurerelating to its "Type 1" consents is revenue in nature.3 The Income Tax Act 2004 applies in this case rather than its replacement, the Income Tax Act 2007.issued Notices of Proposed Adjustments disallowing the deductions for the tax years ending 31 March 2006, 2007, and 2008.[8] The reason given by the Commissioner for disallowing the deductions was that the expenditure was capital in nature, because it was incurred for the purpose of developing and acquiring a capital asset, namely, the four proposed projects. Expenditure that is of a capital nature cannot be deducted, pursuant to s DA 2(1) ofthe ITA 2004 ("the capital limitation").[9] TrustPower then began the challenge procedures pursuant to s 138B(1) of the Tax Administration Act 1994. The dispute was referred to the adjudication unit of Inland Revenue. At the time the adjudication unit was considering the matter, the time bar for the 2006 year was due to expire on 31 March 2011. The adjudication unit was not able to give a decision within time, notwithstanding an extension by agreement. The assessment for the 2006 tax year was therefore returned to InlandRevenue's service delivery group.[10] On 28 September 2011, the Commissioner issued an amended assessment forthe 2006 tax year, disallowing TrustPower's claimed deductions for feasibilityexpenditure for that year.[11] On 17 October 2011, the adjudication unit issued a report in respect of the2007 and 2008 tax years ("the adjudication decision"). The adjudication unitdecided that, because TrustPower had not committed to proceed with the acquisition or development of any of the proposed projects (in that the Board had not made a formal documented decision to proceed) in any of the relevant tax years, the expenditure was not capital in nature. Rather, it was feasibility expenditure, incurredin order to "weigh up" whether to proceed with the project.[12] Despite determining that, when considered within the projects to which they related, the resource consents were part of the feasibility expenditure, the adjudication unit went on to consider whether the resource consents were stand- alone assets and, if so, whether they were capital or revenue assets. It concluded that the resource consents could be either capital or revenue assets, depending on thefacts, but would in most cases be capital. The adjudication unit was not able to determine which consents were of a capital nature, and was not able to allocate costsbetween "mere feasibility expenditure" and "what constitutes the cost of the capital assets". The dispute was therefore returned to the service delivery group "to makenecessary adjustments resulting from the above conclusions".[13] On 29 March 2012, the Commissioner issued a "re-assessment letter". The Commissioner said that the resource consents for the four projects were "long life consents", and therefore would provide an enduring benefit to TrustPower. As such,the Commissioner said, they are capital assets and the costs incurred in obtaining them are of a capital nature. The Commissioner also said that from the time TrustPower commenced the resource consent process for a particular project, any costs incurred for the purpose of obtaining resource consents (as part of that process) were properly treated as resource consent costs of a capital nature rather than as feasibility costs.[14] The Commissioner concluded that expenditure of approximately $17.7 million associated with resource consent applications during the 2006, 2007, and 2008 tax years was capital in nature. The deductions claimed by TrustPower were therefore disallowed.[15] TrustPower issued this proceeding on 8 November 2011, challenging theCommissioner's amended assessment in respect of the 2006 tax year, only. Following the receipt of the re-assessment for the 2007 and 2008 tax years, TrustPower filed an amended statement of claim on 25 May 2012, which challengesthe Commissioner's re-assessment in respect of each of the 2006, 2007, and 2008 tax years.The development pipeline in more detail – feasibility investigation[16] In his evidence for TrustPower, Dr Harker, Chairman of the TrustPower Board of Directors, said that the pipeline of generation projects was developed to enable TrustPower to develop new generation projects as and when profitable. DrHarker referred to a "Generation Development Plan" presented to the Board inOctober 2002, which summarised the pipeline approach:TrustPower Limited has identified a number of generation project opportunities both related to the enhancement of existing assets and green field projects with potential for generation and associated infrastructure development. The Board of TrustPower wishes to progress some of the viable opportunities into robust business cases for development by the company or for sale.The following report identifies the key development objectives, outlines the strategy for establishing and maintaining a project pipeline, presents the current project portfolio and a timebound action plan for progressing selected concepts into business cases.[17] After setting out the "key drivers" of generation development (creatingshareholder wealth, progressing projects which are economically, socially, and environmentally sustainable, and the efficient use of resources to optimise returns),the Plan sets out a "development strategy", beginning with the comment:To achieve our goal, we need to develop and maintain a healthy concept to implementation project pipeline. We estimate that about 3 concepts out of 10 will pass the financial and economic hurdles and progress into the feasibility stage, and only 2 or 3 of the fully appraised projects would gain resource and land use consents and approvals required for implementation.[18] In his evidence for TrustPower Mr Kedian, who was General Manager, Generation at TrustPower, and responsible for overview and management of the development pipeline from 2005 to 2011, said that the pipeline:... consists of potential development generation projects, all at differentstages in TrustPower's feasibility process (a significant number of them aresubsequently eliminated). Projects remain in the pipeline from the time theproject is identified until a decision is made by TrustPower's Board tocommit either to construction of the generation scheme or to abandon the project. ...[19] Projects in the development pipeline are assessed through a three-step feasibility process. The first step involves the identification of potential generation sites and a high-level evaluation of the feasibility of this site. There are three stages within the first step. The first stage involves identifying and evaluating potentialsites (a "desktop" exercise undertaken in-house at TrustPower) and commencing discussions with affected landowners, with a view to obtaining agreements for access for investigation and monitoring, and option agreements (preferably by way of easements) in respect of future use of the land, should the project proceed to construction. TrustPower may also consider purchasing land.[20] The second stage of the first feasibility step involves on-site monitoring and undertaking a high-level evaluation, to determine whether the particular project should proceed to applications for resource consents. For the purpose of thisevaluation, TrustPower "guesstimate[s]" the cost of the project, because at this stageno detailed geotechnical analysis of the site has been undertaken, and no detailed design work done.[21] The third and final stage of the first feasibility step, if a project passes the high-level evaluation, and if it is concluded that the project (as currently envisaged) is likely to be economically viable, is applying for resource consents. In respect of this stage, Mr Kedian said:3.16 The third stage of the first step feasibility process is the RMA consent application. RMA consent is necessary before a decision can be made to proceed with the second step feasibility study, being an evaluation of what can be constructed, in terms of the consented project. This enables TrustPower to analyse comprehensibly the viability of the project in its second step process, which contemplates detailed design and costing, so as to be able to commence the preparation of the business case for the construction of a project.3.17 There are two aspects to this RMA consent preparation stage of the first step feasibility analysis. First, no project can proceed to construction without RMA consent. Secondly, until TrustPower has RMA consent, it does not know what it can construct or what limitations will be placed on the scheme operation and therefore cannot determine whether the project is viable. ... Although detailed and specific in their own terms and framework,the RMA consents do not enable TrustPower to say "let's go ahead and buildthis". At this time, these RMA consents reflect only in part what is apreliminary design concept. I would estimate that at the point of making the relevant application, engineering design would be about 10% complete. This point is fundamental and requires some understanding of the engineering and design complexity of the four projects....3.19 TrustPower engages external experts to carry out analysis of issues such as the impact on birds, native flora and fauna, and the noise and visual impact of the proposed project. These studies are essential to TrustPower'sassessment of whether the project is feasible, irrespective of the RMA requirements. However, TrustPower also knows that these things may subsequently impact its ability to obtain RMA consent. The project ideas start out as purely engineering concepts without any consideration of the RMA requirements in relation to the effects on the environment or the community. It therefore requires each external consultant to complete a"fatal flaw" analysis in order to identify up front any issues that will makethe project impossible to undertake. This occurs at an early stage in the process, before a firm decision has been made to proceed with an applicationfor RMA consent. If there are no fatal flaws identified, the external consultants will continue their work (alongside the other continuing work streams) and this may all eventually form part of an application for RMA consent.[22] Mr Kedian further said that the "Type 2" resource consents "provide what isthe outside 'shape of the envelope'", for a project and "the particular resource consent terms provide some of the relevant parameters". He went on to say that the resource consent terms are "no more useful than the wind or hydro data set. Each is a critical component in the whole picture, but it is the whole picture that is defined inthe second step feasibility analysis."[23] The second step of the feasibility process, which is not undertaken until resource consents are granted, involves the development of all the identifiedcomponents within the "envelope". The second step feasibility work includesdeveloping the necessary civil engineering and electromechanical designs, calling for tenders from (but not committing to) manufacturers and construction companies, analysing how the scheme will be connected to the national grid or a local network, and analysing the economic feasibility of the project.[24] The third step of the feasibility process, if the project is considered viable after the second feasibility step, is the preparation of a business case for consideration by the Board, in which a recommendation is made to the Board as to whether the project should proceed to construction, and a capital expenditure budget approved.[25] The fact that a generation project is in the development pipeline does not mean that it will ultimately be constructed. Dr Harker said in evidence thatTrustPower will "postpone its own developments when it is cheaper to purchase and this postponement can be ongoing". Purchasing may be the better option, for example, if other competitors have better new-build options than TrustPower has, or if other generators or retailers have cheaper electricity available from over-supply. Against that, reliance on purchasing electricity from other sources carries risks, which can be minimised if TrustPower has the ability to increase its generation capacity within a reasonably short period of time.[26] Dr Harker's evidence was that "the intention of the development pipeline isto provide TrustPower with development options that can be weighed up againstother options". He said:Development options in the pipeline are just options that enable good decisions about the source of supply to be made. Put another way,TrustPower is investing in a "chance" with these projects. While over the next 20 to 30 years it is possible that all projects in TrustPower's pipelinecould be built, I can say with confidence that they will not all be built by TrustPower in the next 10 years. TrustPower will only pursue the "build"option and progress a project in its development pipeline, where it is confident that this is a better use of its funds than sourcing supply throughthe "buy" option. However, options in the pipeline that may not beconsidered to be worthwhile at a particular time help TrustPower assess the merits and value of either not seeking to increase sales, or meeting existing or new demands from other wholesale sources.[27] A key factor in assessing the viability of any project in the development pipeline is the impact of "HVDC charges". The HVDC (high voltage direct current) power line is more commonly known as the "Cook Strait cable", and links the North and South island high voltage transmission systems ("the national grid"). A charge isimposed on South Island generators injecting electricity into the national grid. The charge can only be avoided if, rather than being injected into the national grid, electricity from South Island generation is embedded directly into a local distribution network. Mr Kedian's evidence was that the HVDC charge has a fundamental effecton the economics of projects in the development pipeline.[28] Mr Kedian reported to the TrustPower Board each month on projects in the development pipeline. A table setting out the pipeline was included in the Agenda papers. The Table was divided into five sections, reflecting the stage projects hadreached in the development pipeline: "In Final Design/Construction Planning Phase", "In Consenting/Engineering Design Phase", "Land Access/Scoping Phase", "Preliminary Investigation Phase", and "Prospect Parked".[29] Chronologies of progress of each of the four projects are set out in the Appendix to this judgment. The chronologies were derived from an agreed chronology provided by the parties, and documents in the agreed bundle of documents.What are the issues?The pleadings[30] In the Amended Statement of Defence to TrustPower's Amended Statementof Claim, the Commissioner put in issue (by denying or asserting having no knowledge of allegations) the majority of TrustPower's allegations. The Commissioner also made affirmative allegations in respect of many of TrustPower'sallegations.[31] In his submissions for TrustPower, Mr Harley criticised the Commissioner'spleading as being, in various respects, unresponsive to TrustPower's allegations,factually incorrect or misleading, and contrary to the matters and determinations setout in the adjudication decision. Mr Harley's objections are noted. TrustPower'sposition on these matters has been made clear in its reply to the Amended Statement of Defence,4 and in the evidence and submissions for TrustPower.[32] Mr Harley referred, in particular, to the Commissioner's pleading in response to TrustPower's allegation (at paragraph 9 of the Amended Statement of Claim) of its three-step feasibility analysis for potential new generation projects. At paragraph 9of the Amended Statement of Defence, the Commissioner denies the "three-step"characterisation of the feasibility analysis, and affirmatively alleges that TrustPower's process for analysing and developing potential new electricity generation projects involved a "four phase, 24 step" process. Mr Harley submitted that this was contrary to the adjudication unit's acceptance, in the adjudicationdecision, of TrustPower's characterisation of the feasibility analysis process.[33] Witnesses for TrustPower, Dr Harker, Mr Kedian, and Mr Campbell, all gave evidence of the three-step feasibility analysis process. Their characterisation of the process was not challenged on behalf of the Commissioner, and no evidence was given for the Commissioner in support of the alleged four phase 24 step process.4 Dated 10 July 2012, but incorrectly titled "Defendant's Amended Statement of Reply to Plaintiff's Amended Statement of Defence".[34] While the role and significance of applications for resource consents is an issue for determination, I have concluded that there is no real issue as toTrustPower's characterisation of the feasibility analysis process. If I am wrong in that conclusion, then I accept TrustPower's characterisation of the three-step processand reject the Commissioner's alleged four phase 24 step process.Matters not pleaded[35] Mr Harley also objected to the Commissioner having, through various witnesses who gave evidence for the Commissioner, put in issue a number of factual issues and propositions which were not raised in the pleadings. Again, while the objection is noted, TrustPower had the opportunity to, and did, file reply evidence,and the "new" issues were canvassed at the hearing.[36] Two particular matters raised at the hearing (but not pleaded) must be mentioned. First, expert evidence was given for the Commissioner to the effect thatTrustPower's accounting treatment of the expenditure at issue in this proceeding wasinaccurate, and that its financial statements were materially mis-stated and wrong. TrustPower called expert evidence in reply. I accept Mr Harley's submission that the Commissioner's evidence as to the accuracy of TrustPower's financial statements isnot relevant to the matters at issue in this proceeding. I have disregarded it in my consideration of the issues. However, I add that having heard the evidence forTrustPower and the Commissioner, I could not conclude that TrustPower's financialstatements were materially mis-stated and wrong.[37] The second matter relates to the submission made by Mr McLellan QC on behalf of the Commissioner, that expenditure in obtaining resource consents was non-deductible, for the reason that it was incurred for the purpose of improvingcapital assets; that is, TrustPower's interests in the underlying land.[38] Mr Harley submitted that this argument could not be raised now, as it had not been pleaded, and as it is barred from being raised by s 138G of the Tax Administration Act. Section 138G(1) provides that the Commissioner and a"disputant" may raise in a challenge only those matters raised in their Statements ofPosition. Mr Harley submitted that the Commissioner's Statements of Position,while referring to "rights in relation to land" (in the context of expenditure incurredin developing the projects themselves, rather than what the resource consents provided to TrustPower) do not put forward a proposition that the resource consents are an improvement to the land.[39] Mr McLellan submitted that the issue of whether the resource consentsenhance or improve land was not "new". He provided references to theCommissioner's Statement of Position. I have not found in those references anyclear statement to the effect that the Commissioner was asserting that the expenditure incurred in obtaining the resource consents was of a capital nature, having been incurred for the purpose of improving or enhancing the underlying land. Further, I accept that there is no pleading to that effect.[40] Accordingly, I accept Mr Harley's submission that the argument cannot nowbe raised. Notwithstanding that, Mr Harley addressed the argument in his submissions and, for that reason, the issue will be referred to later in this judgment.Issues emerging in closing submissions[41] Although counsel framed the issues in different terms, there are four principal issues (each of which raises sub-issues) to be determined:(a) Are the resource consents obtained by TrustPower for the Arnold, Kaiwera Downs, Mahinerangi, and Wairau projects assets, on a stand- alone basis, (that is, separate from the projects to which they relate)? If the answer to this question is "no", then because TrustPower hadnot committed to the projects, the expenditure it incurred in obtaining the resource consents is feasibility expenditure and therefore deductible.(b) If, however, the resource consents are stand-alone assets, the nature of the expenditure needs to be determined. Are the resource consents capital or revenue assets? If the answer to this question is that they are capital assets, then the expenditure incurred in obtaining them willnot be deductible. If the answer is that they are revenue assets, the expenditure will be deductible.(c) If the resource consents are capital assets, was the Commissionerwrong in her conclusions as to the dates from which TrustPower'sexpenditure was to be classified as being principally for the purpose of obtaining them (such dates being those from which the Commissioner considers that TrustPower was committed to applying for the resource consents)?(d) If the Commissioner was correct as to the dates from which TrustPower was committed to applying for the resource consents, did she wrongly allocate expenditure as between feasibility expenditure, and the expenditure incurred in obtaining the resource consents?The "general permission" and the "capital limitation"[42] For taxation purposes, the distinction between capital expenditure and revenue (income) expenditure is created by the ITA 2004. Pursuant to s DA 1 (the"general permission") expenditure which is incurred in deriving assessable income isdeductible:DA 1 General permissionNexus with income(1) A person is allowed a deduction for an amount of expenditure or loss (including an amount of depreciation loss) to the extent to which the expenditure or loss is —(a) incurred by them in deriving —(i) their assessable income; or(ii) their excluded income; or(iii) a combination of their assessable income and excluded income; orGeneral permission(2) Subsection (1) is called the general permission.[43] However, pursuant to s DA 2(1) (the "capital limitation"), a deduction is notallowed if expenditure is of a capital nature:DA 2 General limitationsCapital limitation(1) A person is denied a deduction for an amount of expenditure or loss to the extent to which it is of a capital nature. This rule is called thecapital limitation.Relationship of general limitations to general permission(7) Each of the general limitations in this section overrides the general permission.The capital/revenue determination: overview of leading authorities[44] In his judgment in Inland Revenue Commissioners v British Salmson Aero Engines Ltd ("British Salmson") (concerning whether a royalty payment made by auser of a patent was a capital or income payment), Sir Wilfred Greene MR observed:5There have been many cases where this matter of capital or incomehas been debated. There have been many cases which fall on the border- line. Indeed, in many cases it is almost true to say that the spin of a coin would decide the matter almost as satisfactorily as an attempt to find reasons.[45] Templeman J expressed a similarly pessimistic view in his judgment inTucker (Inspector of Taxes) v Granada Motorway Services Ltd ("Granada Motorway Services"), concerning a payment made to secure modifications of rent obligationsunder a lease.6 His Honour said:7The forensic field of conflict involved in this appeal [as to whether a payment to secure a more favourable lease was of a capital or revenuenature] is an intellectual minefield in which the principles are elusive , analogies are treacherous , precedents appear to be vague signpostspointing in different directions , and the direction finder is said to be "judicial common sense" The practice of judicial common sense isdifficult in Revenue cases.(References omitted)[46] Despite this pessimism, the courts have formulated and discussed tests for classifying expenditure as being on capital or revenue account. In Hallstroms Pty5 Inland Revenue Commissioners v British Salmson Aero Engines Ltd [1938] 2 KB 482 (CA) at 498.6 Tucker (Inspector of Taxes) v Granada Motorway Services Ltd (1979) 53 TC 92 (ChD).7 At 96–97.Ltd v Federal Commissioner of Taxation ("Hallstroms"), Dixon J referred to SirWilfred Greene's observation in British Salmson, but was:8 not prepared to concede that the distinction between an expenditure on account of revenue and an outgoing of a capital nature is so indefinite and uncertain as to remove the matter from the operation of reason and place it exclusively within that of chance, or that the discrimen is so unascertainable that it must be placed in the category of an unformulated question of fact.[47] His Honour went on to say:9What is an outgoing of capital and what is an outgoing on account of revenue depends on what the expenditure is calculated to effect from a practical and business point of view, rather than upon the juristic classification of the legal rights, if any, secured, employed or exhausted in the process.The practical and business point of view – the BP Australia indicia[48] In giving the judgment of the Privy Council in BP Australia Ltd v Commissioner of Taxation for the Commonwealth of Australia ("BP Australia")(concerning whether a payment to service station proprietors as consideration for theproprietors' agreement to sell one brand of petrol, exclusively, was capital or revenue), Lord Pearce said in relation to the approach to be taken to the capital/revenue determination:10The solution to the problem is not to be found by any rigid test or description. It has to be derived from many aspects of the whole set of circumstances some of which may point in one direction, some in the other. One consideration may point so clearly that it dominates other and vaguer indications in the contrary direction. It is a common sense appreciation of all the guiding features which must provide the ultimate answer. Although the categories of capital and income expenditure are distinct and easily ascertainable in obvious cases that lie far from the boundary, the line of distinction is often hard to draw in border line cases; and conflicting considerations may produce a situation where the answer turns on questions of emphasis and degree. That answer:"depends on what the expenditure is calculated to effect from apractical and business point of view, rather than upon the juristic classification of the legal rights, if any, secured, employed orexhausted in the process"8 Hallstroms Pty Ltd v Federal Commissioner of Taxation (1946) 72 CLR 634 at 646.9 At 648.10 BP Australia Ltd v Commissioner of Taxation for the Commonwealth of Australia [1966] AC 224 (PC) at 264–265.As each new case comes to be argued felicitous phrases from earlier judgments are used in argument by one side and the other. But those phrases are not the deciding factor, nor are they of unlimited application. They merely crystallise particular factors which may incline the scale in a particular case after a balance of all the considerations has been taken.(Citation for Hallstroms omitted)[49] The analysis in BP Australia has been endorsed in New Zealand. InCommissioner of Inland Revenue v McKenzies (NZ) Ltd ("McKenzies"), the Court ofAppeal considered whether a payment to secure the surrender of a lease was of a capital or revenue nature.11 Delivering the judgment of the Court (holding that the payment was capital), Richardson J set out the observations of Lord Pearce in BP Australia as to the capital/revenue determination, then went on to say:12Amongst the factors weighed by the judicial committee in BP Australiawere: (a) the need or occasion which called for the expenditure; (b) whether the payments were made from fixed or circulating capital; (c) whether the payments were of a once and for all nature producing assets or advantages which were an enduring benefit; (d) how the payment would be treated on ordinary principles of commercial accounting; and (e) whether the payments were expended on the business structure of the tax payer or whether they were part of the process by which income was earned.His Honour said that it was "a matter of analysing the particular transaction ... byreference to the legal arrangements entered into and carried out and taking intoaccount surrounding circumstances".13[50] More recently, the Privy Council endorsed the BP Australia indicia inCommissioner of Inland Revenue v Wattie (in relation to a determination whether an incentive payment for entry into a lease was capital or revenue).14 The Privy Council noted that the BP Australia indicia had been described by Richardson J inCommissioner of Inland Revenue v Thomas Borthwick & Sons (Australasia) Ltd asexemplifying the "governing approach" in New Zealand.1511 Commissioner of Inland Revenue v McKenzies (NZ) Ltd [1988] 2 NZLR 736 (CA).12 At 740.13 At 742.14 Commissioner of Inland Revenue v Wattie [1999] 1 NZLR 529 (PC).15 Commissioner of Inland Revenue v Thomas Borthwick & Sons (Australasia) Ltd (1992) 16 TRNZ 777 (CA) at 779.The "identifiable asset" test[51] The decision of Templeman J in Granada Motorway Services that the payment was capital expenditure was upheld by the Court of Appeal and the House of Lords. In the House of Lords, Lord Wilberforce set out what has since beenreferred to as the "identifiable asset" test. His Lordship said:16On the one hand the payment was designed to enable the Company to earn more profits: from this point of view it might be thought that the payment should have a revenue character. On the other hand, the payment produced a modification in the lease, which could be regarded as an identifiable asset, making the lease less disadvantageous: from this point of view it might be thought that the payment should be regarded as a capital payment. It is common in cases which raise the question whether a payment is to be treated as a revenue or capital payment for indicia to point different ways. In the end the courts can do little better than form an opinion which way the balance lies. There are a number of tests which have been stated in reported cases which it is useful to apply, but we have been warned more than once not to seek automatically to apply to one case words or formulae which have been found useful in another ... I think the key to the present case is to be found in those cases which have sought to identify an asset. In them it seems reasonably logical to start with the assumption that money spent on the acquisition of the asset should be regarded as capital expenditure. ...Later in his judgment, Lord Wilberforce said of the identifiable asset test:17The test may be to some extent arbitrary, but it provides a means which the courts can understand for distinguishing capital and income expenditure and I think that we would be wise to maintain it.Further New Zealand authorities[52] In Buckley & Young Ltd v Commissioner of Inland Revenue ("Buckley & Young"), the Court of Appeal had to decide whether payments to a departing directorof the company were of a capital or revenue character.18 The director agreed to leave the company, and entered into a restrictive covenant not to compete with, or divulge information about, the company. In return, he was to be paid $6,000 a year, together with other payments. In his judgment for the Court, Richardson J observed that:19... what is involved is the fundamental distinction between the source of the income and the income earning process; between capital and income;16 Tucker (Inspector of Taxes) v Granada Motorway Services Ltd (HL), above n 6, at 106–107.17 At 108.18 Buckley & Young Ltd v Commissioner of Inland Revenue [1978] 2 NZLR 485 (CA).19 At 488.between expenses affecting the business structure or entity and operating expenses. ... [t]he essential question is as to the true character of the payments made and the benefits provided. But, while that distinction is well recognised, it is equally well established that there is no single yardstick or test. ...[53] His Honour set out the alternatives on the opposite sides of the capital/income dividing line in Buckley & Young as follows:20A payment made as a matter of commercial necessity or expediency to secure the removal of an unsatisfactory director or employee is referable only to the current business operations of the taxpayer in gaining its assessable income and that also stamps it with the character of a revenue and not a capital disbursement. ... But a payment made to a retiring director or employee in return for a restrictive covenant ... which has the effect ofbuying off competition, of its very nature affects the value of the company'sgoodwill and is referable to the income earning structure rather than to the income earning process and is of a capital nature.The Court held that the payments in question had a dual character, as being revenue (and deductible) insofar as they referred to securing the director's retirement, andcapital (and not deductible) to the extent that they referred to the restrictive covenant.[54] In McKenzies, Richardson J observed that in BP Australia, and in the"companion case" involving Mobil Oil Australia Ltd, the decision was that the payments were revenue payments, but in Regent Oil Co Ltd v Strick (Inspector of Taxes), delivered the same day, the House of Lords (with the same Bench) held thatthe oil company's payments were capital expenses.21 His Honour said that:22The different result is a valuable demonstration of the importance of evaluating the facts of particular cases and recognising ... that the capital income field is an intellectual minefield in which the principles are elusive and analogies are treacherous.(reference to Granada Motorway Services omitted)[55] Richardson J also referred to the identifiable asset test set out in Granada Motorway Services, and observed that Lord Wilberforce had endorsed the test in the sense that so long as the expenditure in question could be clearly referred to the acquisition of an assets which satisfied one or other of the accepted categories, the20 At 489.21 Regent Oil Co Ltd v Strick (Inspector of Taxes) [1966] AC 295 (HL).22 McKenzies, above n 11, at 741.test must be a critical one. However, the test would yield in cases where there were sufficient indicators pointing the other way.23[56] As the Court of Appeal observed in McKenzies, in uncomplicated cases, one or more factors may very clearly point to the expenditure being capital or revenue in nature, so recourse to all of the factors referred to may be unnecessary. However, in borderline cases, it is necessary to analyse the facts as a whole, and consider which factors carry the most weight. As noted in Hallstroms, the capital/revenue decision requires considering what the expenditure was calculated to effect, from a practical and business point of view, rather than a juristic classification of legal rights.24Resource consents and the Income Tax ActResource consents[57] The "Type 2" resource consents obtained by TrustPower were land useconsents, water permits, and discharge permits. Pursuant to s 9 of the RMA, a person cannot use land in a manner which contravenes a national environmental standard prescribed under s 43 of the RMA, or a rule in a district or regional plan, unless such use is either expressly permitted by the RMA, or the person is authorised to use the land in a manner which is otherwise prohibited by the RMA, national environmental standards, or a district or regional plan. Similarly, a water consent permits a person to use water (other than in a coastal marine area) in a way which would otherwise contravene s 14 of the RMA, and a discharge consent permits a person to discharge contaminants (other than in a coastal marine area) in a way that would otherwise contravene s 15 of the RMA,[58] A resource consent is, therefore, permissive. It authorises a certain land use or activity, that would otherwise be unlawful. If the consent is exercised, it must be in accordance with any conditions imposed in the grant of the consent. A person granted a resource consent is not required by the RMA to exercise it, but if the consent is not exercised within its prescribed duration, it will lapse.23 At 746.24 Hallstroms, above n 8, at 648.[59] Section 88(1) of the RMA provides that "a person" may apply for a resourceconsent. Thus, an application can be made for a resource consent over land the applicant does not own, or to which the applicant does not have agreed access.25Section 88(2) provides that the application must be made in the prescribed form and manner, and must include, in accordance with Schedule 4, an assessment of environmental effects in such detail as corresponds with the scale and significance of the effects that the activity may have on the environment.[60] Section 122(1) of the RMA provides that "a resource consent is neither real nor personal property".[61] Pursuant to s 134 of the RMA, land use and subdivision consents attach to theland to which they relate, so may be "enjoyed" by the owner and occupier of theland. If the holder of the consent does not own the land, then the owner and theholder may each "enjoy" the land use consent. The holder of the resource consentmay transfer the holder's interest in the consent, pursuant to s 134(3) of the RMA. Other consents, such as permits to take water or to discharge contaminants, may in certain circumstances be transferred by the holder of the permit, in accordance with ss 136 and 137 of the RMA, respectively.Resource consents in the context of the Income Tax Act[62] Section DB 13B of the ITA 2004 provides (as amended as from 1 October 2005) that a person who applies for a resource consent under the RMA, and is refused the grant or withdraws the application, is allowed a deduction for expenditure incurred in relation to the application, that would have been part of the cost of depreciable property, or otherwise a deduction, if the application for resource consent had been granted, and for which a deduction is not allowed under another provision.[63] Section EE 53(1) (in subpart EE "Depreciation") of the ITA 2004 providesthat depreciable intangible property means the property listed in Schedule 17. Section EE 53(2) sets out the criteria for property to be listed in Schedule 17. It is25 See MacLaurin v Hexton Holdings Ltd [2008] NZCA 570, (2008) 10 NZCPR 1 (CA), at [47].required to be intangible, and to have a finite useful life that could be determined with a reasonable degree of certainty at the date of its acquisition. Section EE 53(3) provides that property listed in Schedule 17 is depreciable intangible property even if the criteria in s EE 53(3) are not met.[64] Pursuant to s OB 1 (definition of "property"), "property" in subpart EEincludes consents granted under the RMA. Thus, for the purposes of subpart EE (Depreciation), s OB 1 of the ITA 2004 overrides s 122 of the RMA, and resource consents can be property. The explanatory note to the introduction to s OB 1 statesthat the provision was introduced to "include for depreciation purposes consentsunder the [RMA]" due to certain consents (those listed in Schedule 17) being able tobe treated as depreciable intangible property.26[65] The property listed in Schedule 17 of the ITA 2004 (depreciable intangible property) includes, at clause 9:9 a consent granted under the [RMA] to do something that otherwise would contravene sections 12 to 15 of [the RMA] (other than a consent for a reclamation), being a consent granted in or after the 1996-97 tax yearSubmissions as to the statutory context[66] For the Commissioner, Mr McLellan relied on s OB 1 of the ITA 2004 to argue that under the ITA, resource consents are property. He further submitted that ss DB 13B and EE 53 (together with clause 9 of Schedule 17) support the conclusion that resource consents are prima facie capital assets, and that the purposes of s DB 13B shows that resource consents should be capitalised. In support of this submission, Mr McLellan referred to the explanatory note on the introduction of the legislation under which s DB 13B was inserted into the ITA 2004. The explanatory note in respect of s DB 13B stated:27Patent and resource management application costsAn amendment is proposed that allows costs associated with patent and resource management consent applications to be deducted, although the applications are not granted or are withdrawn. Costs for such applications26 See Taxation (Miscellaneous Issues) Bill 1995 (No 109-1) (explanatory note) at xv.27 Taxation (Annual Rates, Venture Capital and Miscellaneous Provisions) Bill 2004 (No 110-1) (explanatory note) at 5.cannot currently be claimed under the general deductibility rules as they are a capital expense. Nor can they be depreciated as there is no depreciable asset. Under the proposed change, the deductible expenditure consists of those costs that would have been depreciable if a patent or resource management consent had been granted.[67] Mr McLellan also referred to the Commentary on the Bill:28Patents and certain consents issued under the [RMA] are depreciable intangible property. To the extent expenditure incurred in applying for a patent or resource management consent results in an application being granted, the costs must be capitalised and depreciated. However, if an application is unsuccessful or is withdrawn, any costs incurred up to that point are not depreciable as there is no depreciable asset. Nor can this expenditure be expensed under the general deductibility rules because it is capital in nature.Mr McLellan submitted that s DB 13B made it clear that resource consents, once granted, are capital assets, and hence must be property.[68] Mr Harley submitted that subpart EE does not apply in this case, as TrustPower did not use, or have available for use, the resource consents during the relevant tax years.29 On that basis, he submitted, the consents were not depreciable, and the expenditure incurred in obtaining them was deductible under the general permission. Thus, pursuant to s EE 7(j), the resource consents cannot be depreciable property, s OB 1 cannot apply, and under s 122 of the RMA, the consents would not be property.[69] Mr Harley further submitted that s DB 13B of the ITA 2004 is irrelevant to the issues to be considered in this proceeding. He submitted that s DB 13B cannot inform the decision as to whether the expenditure is deductible. He submitted that s DB 13B is not a catch-all provision.28 Policy Advice Division "Taxation (Annual Rates, Venture Capital and Miscellaneous Provisions)Bill 2004, Commentary on the Bill" (Inland Revenue, Wellington, 2004) at 9.29 The relevant tax years were the years ending 31 March 2006, 2007, and 2008. The resource consents for the projects were granted as follows: Arnold: 17 December 2010; Kaiwera Downs: 30 May 2009; Mahinerangi: 15 December 2008; Wairau: 8 June 2011. In each case the consents were pursuant to a decision of the Environment Court.Discussion[70] In Aoraki Water Trust v Meridian Energy Ltd ("Aoraki Water Trust")(concerning an application to take water in respect of which Meridian had a permit to take all the available water), a Full Court of the High Court referred to s 122 of the RMA and said that, pursuant to s 122(1), a resource consent is not itself either real or personal property, but creates a right to use a resource.30[71] In Marlborough District Council v Valuer-General, Ronald Young J discussed s 122 in the context of an application for a declaration that mussel farms authorised by coastal permits under the RMA were rateable as "land".31 His Honour accepted that s 122(1) prevents the courts from recognising any property rights, real or personal, in respect of resource consents except where, and only to the extent that, Parliament has provided for them. In the case before him, his Honour concluded that the grant and operation of a coastal permit did not give rise to any real property.32[72] In another context, concerning different legislation, s 122 of the RMA has not been regarded as determinative. In its judgment in New Zealand Maori Council v Attorney-General ("NZ Maori Council"), the Supreme Court accepted that water permits obtained by Mighty River Power were properly regarded as "interests in the Waikato River", and were "assets" as defined in the State-Owned Enterprises Act 1986.33 In this respect, the Court differed from the position taken by Ronald Young J in the High Court, in reliance on s 122 of the RMA.34 The Supreme Court went on to observe, however, that the issue before it was not whether the water permits were property rights, rather whether the public offering of shares in Mighty River Power constituted a disposal of any such rights. The Court held that it did not.35[73] In this case, the provisions of the RMA establish the nature of the "legal arrangements entered into"36 (that is, the resource consents applied for and obtained)30 Aoraki Water Trust v Meridian Energy Ltd [2005] 2 NZLR 268 (HC) at [35].31 Marlborough District Council v Valuer-General [2008] 1 NZLR 690 (HC).32 At [41]–[59].33 New Zealand Maori Council v Attorney-General [2013] NZSC 6, [2013] 3 NZLR 31 (SC) at [81].34 New Zealand Maori Council v Attorney-General [2012] NZHC 3338 at [334].35 New Zealand Maori Council v Attorney-General, above n 33, at [81]–[82].36 See McKenzies, above n 11, at 742.but while that is an important part of the analysis, it does not determine the interpretation and application of the tax legislation. While it is necessary to consider the nature and effect of the resource consents, the RMA provisions do not dominate.[74] Turning to the ITA 2004, while the parties agree as to which provisions are relevant, they disagree as to their application. The first area of disagreement is as to whether s EE 7(j) applies, and so whether subpart EE applies. I accept Mr Harley'ssubmission that, as TrustPower did not use the resource consents, or have them available for use, during the relevant tax years, subpart EE cannot apply. However, even if subpart EE did apply, it could only be consents permitting activities otherwise restricted by ss 12–15 of the RMA that are "depreciable intangible property" pursuant to Schedule 17 of the ITA 2004. Those consents do not includeland use consents, and it is land use consents which are significant in each of the four projects referred to in this case.[75] The second area of dispute concerns s DB 13B. I note, first, that s DB 13B was amended by the Taxation (Base Maintenance and Miscellaneous Provisions) Act 2005. The Select Committee in 2005 commented that:37The intent of [the 2004 amendment] was to allow a deduction for costs [of a resource consent application that is unsuccessful or withdrawn] that would have been depreciable either in their own right or as part of the cost of other depreciable property, if the application was granted. However, as a result of the drafting of this provision, these costs are not deductible if they would have been part of the cost of other depreciable property had the consent been granted. This was not intended, and we recommend that the bill be amended to correct this effect.We recommend amending the bill to provide that consent costs that would have been deductible if a resource consent had been granted are also within the scope of these rules. ...[76] I conclude that s DB 13B provides no guidance as to how resource consentsshould be treated. I do not accept Mr McLellan's submission that the need for s DB13B supports the proposition that resource consents are identifiable assets that should be capitalised and may be able to be depreciated. What s DB 13B provides is that resource consents may be capitalised; it does not provide that they should be.37 Taxation (Base Maintenance and Miscellaneous Provisions) Bill (231-2) (select committee report) at 10.Further, the commentary indicates that resource consents may be separate, or part of other depreciable property. I do not accept the submission for the Commissioner that s DB 13B supports a conclusion that all resource consents are separate assets and that expenditure incurred in applying for them is non-deductible.[77] While I do not accept Mr Harley's submission that the provisions of s DB 13B and Schedule 17 of the ITA 2004 are irrelevant, I conclude that it is appropriate to exercise caution in drawing inferences from the wording of one section of the ITA 2004 as to the interpretation and application of another section. Referring again toMcKenzies, Richardson J's observation concerning the applicability of provisionsrelating to the tax treatment of other kinds of lease transactions to the deductibility of payments to surrender leases is instructive:38 we consider that the provisions of the Income Tax Act referring to the income tax treatment of receipts and payments in relation to other kinds of lease transactions are an insubstantial foundation from which to draw inferences as to the assessability or deductibility of payments in respect of the surrender of leases, one way or the other.[78] After referring to provisions relating to leases (which did not deal with payments made or received on surrender of a lease), Richardson J said:39In the circumstances it would be unsafe to draw any inference of a legislative purpose other than that their character as capital or income fall for determination on general taxation principles.[79] In interpreting and applying ss DA 1 (the general permission) and DA 2, (the capital limitation) regard must be had to the scheme and purpose of the ITA 2004 as a whole. The ITA provides a framework, but will not be determinative as to whetherTrustPower's expenditure in obtaining the resource consents was capital or revenuein nature. That issue to be determined by considering what the expenditure was"calculated to effect from a practical and business point of view",40 and weighing the factors set out in BP Australia,41 and McKenzies.4238 McKenzies, above n 11, at 739–740.39 At 740.40 See Hallstroms, above n 8, at 648.41 BP Australia, above n 10.42 McKenzies, above n 11.Are the resource consents obtained by TrustPower, on a stand-alone basis, assets?Introduction[80] Mr Harley submitted that the "logically prior" question to whether theresource consents were capital or revenue assets (and whether expenditure incurred in obtaining them was capital or revenue in nature) was whether the resourceconsents could properly be said to be "assets". If they are not assets, he submitted, itfollows that there is no need to consider whether they are capital or revenue assets by applying the BP Australia tests.[81] The word "asset" is not generally defined in the ITA 2004.43 The question whether the resource consents are assets arises out of the identifiable asset test formulated for the purpose of deciding whether expenditure is on capital or revenue account: see Granada Motorway Services,44 and McKenzies.45 While the word"asset" is often seen as referring to a proprietary right in something of value, for tax purposes, the term "asset" has broader application. In Sun Newspapers Ltd v Federal Commissioner of Taxation ("Sun Newspapers"), Dixon J considered whether:46The result or purpose of the expenditure may be to bring into existence or procure some asset or advantage of a lasting character which will enure forthe benefit of the organization or "profit-earning subject".(Emphasis added)Accordingly, in order to determine the "logically prior" question, it is necessary toconsider the nature of the resource consents, and what they provide for TrustPower.[82] The resource consents gave TrustPower permission to do something that it otherwise could not legally do: to use land, to use water, or to discharge contaminants. Without land use consents, it could not legally construct any of the four projects. Without water and discharge permits, it could not legally construct the43 "Asset" is defined in section CU11 and section DU8, both of which relate to mining. Thedefinitions are restricted to those subparts.44 Granada Motorway Services, above n 6, at 106-107.45 McKenzies, above n 11, at 746.46 Sun Newspapers Ltd v Federal Commissioner of Taxation (1938) 61 CLR 337 at 361.Arnold and Wairau hydro projects. Grants of the required resource consents were necessary for each project to continue along the development pipeline.[83] The period of a land use consent is unlimited, unless otherwise specified in the consent. A water or discharge permit may be granted for up to 35 years although the default duration is five years.47 TrustPower generally sought water and discharge consents for ten year periods.[84] Like the ITA 2004, case law is somewhat ambiguous as to whether resource consents are stand-alone, "separate", assets. In his decision for the Taxation Review Authority in Case T53, Judge Barber declined an application by a taxpayer to deduct legal fees incurred in a successful appeal against the refusal of resource consents required to carry on a second-hand machinery business.48 In declining the deduction, Judge Barber said:49In securing a resource consent it seems to me that the objector has clearly obtained an enduring benefit or advantage. That resource consent gave the objector the benefit or advantage of having the legitimate right to trade, or operate a business, on the particular farmland. This is an intangible benefit both for the objector company and the land which belongs to GR and his wife.Judge Barber said further:50Mr Brown submits that, on the facts of this case, no identifiable asset is produced by the expenditure. However, it seems to me that the resource consent is an intangible asset of the business of the objector. In so far as the objector submitted that the expenditure related to the protection of a right, I observe that the expenditure actually relates to the obtaining of a right which did not previously exist before the granting of the resource consent.[85] In Milburn New Zealand Ltd v CIR ("Milburn"), Wild J held that expenditureincurred in obtaining resource consents and licences for Milburn's quarries forsourcing aggregate and lime for its cement and concrete business was of a capital, not revenue nature.51 In the course of considering the "character of the advantage47 Resource Management Act 1991, s 123.48 Case T53 (1998) 18 NZTC 8,404 (TRA).49 At [21].50 At [27].51 Milburn New Zealand Ltd v CIR (2001) 20 NZTC 17,017 (HC).sought" (one of the BP Australia indicia), his Honour said of a submission for theCommissioner that the consents and licences "had a lasting quality":52I prefer to view the consents and licences as inseparable from the quarries to which they are related. But even if they are viewed separately, as assets in their own right, they are enduring and not recurrent in nature.[86] In ECC Quarries Ltd v Watkis (Inspector of Quarries) ("ECC Quarries")Brightman J considered whether expenses incurred in obtaining relevant consents for a quarry were capital or revenue.53 In his judgment his Honour expressed doubt as to whether the consents were assets (in their own right),54 but found that the consents allowed the subsequent operations of working and winning the minerals. The consents themselves would not produce profits, but the operations permitted by the consents would.55Submissions[87] Mr Harley submitted that TrustPower's "Type 2" resource consents cannot beisolated and seen, on a stand-alone basis, as assets. He submitted that when seen from TrustPower's business and practical point of view, the resource consents areonly part of the components of a particular project option, each option is part of the development pipeline as a whole, and the pipeline is only one of the possible sources of electricity to be sold by TrustPower. He submitted that the resource consents"simply tell TrustPower how much fuel it has available to it" and the consents do thisby determining how much water can be used in a hydro station, or how many wind turbines can be erected on a wind farm. Mr Harley accepted that a grant of resource consent was necessary to advance a project along the development pipeline, but pointed out that the grant was not in and of itself sufficient for a decision to be made to take any project through to the next stage.[88] Mr Harley further submitted that at the time the resource consents are granted, the underlying project is inchoate, and has no business utility. The various conditions imposed in the consent need to be satisfied, and TrustPower needs to52 At 17,025.53 ECC Quarries Ltd v Watkis (Inspector of Quarries) [1977] 1 WLR 1386 (ChD).54 At 1396.55 At 1397.make a decision to progress the project to construction, before the project can beconsidered as a reality. Without this "reality", he submitted, neither the underlying project nor the resource consents were close to being "assets".[89] Mr Harley also submitted that the Commissioner's focus on the resourceconsents (and in particular, the AEEs submitted with the application for consents) focused on the wrong question. He submitted that the proper focus is the role and place of resource consents in TrustPower's feasibility and optionality analysisprocess. He also submitted that the fact that resource consents may share some characteristics of real and personal property (such as transferability) did not mean that the consents were to be recognised by the Court as assets.[90] Mr McLellan submitted that the resource consents are assets, for the reasons that they are fundamental aspects of the development pipeline (in which very few projects are taken to the stage of obtaining resource consents), and the consents provide value and benefits to TrustPower both by themselves and as part of a package of rights. He submitted that the resource consents provided TrustPower with the ability to decide whether to construct the project or defer it until later, the existence of the consents was a block to any competitor carrying out competing activity in the same area, and the consents could also be sold by TrustPower. In all of these respects, the consents were of value to TrustPower. Mr McLellan further submitted that the resource consents had value to third parties. Accordingly, he submitted, the consents are properly regarded as assets for tax purposes, under the ITA 2004.[91] Mr McLellan also referred to the evidence of Professor Evans, called by the Commissioner to give expert evidence as to the nature (and in particular the value)of TrustPower's resource consents, from the perspective of an economist. Mr McLellan summarised Professor Evans' evidence as being that the value of theresource consents lay in their (a) providing rights to essential resources and the ability to choose the timing of investment and project expenditure, (b) being property (intangible assets) independent of (but complementary to) the land to which they relate, (c) providing enduring flows of services, and (d) being tradable with some restrictions.Discussion[92] I accept Mr Harley's submission that in none of T53, Milburn, and ECC Quarries, was a question raised as to whether the taxpayer was committed to undertaking the operation for which the consents were required. That is, the taxpayer in T53 was carrying on the business of selling second-hand machinery, andMilburn and ECC Quarries were concerned with consents for existing quarries. These cases are, therefore, ones involving what Mr Harley described as "functional capital assets". In each case, the consents obtained were a crucial part of carrying on the business, and are akin to those which TrustPower describes as "Type 1" consents,for existing operations.[93] However, the finding in each of these cases that the consents are inseparable from the business or land to which they relate lends support to the conclusion that the resource consents in this case cannot be seen as separate assets, on a stand-alone basis. That is, the consents cannot be seen as assets which are separable from the projects to which they relate.[94] I have referred to the evidence for TrustPower in some detail, at [16] to [28], above, and in the chronologies set out in the Appendix. I accept that TrustPower obtained the resource consents in the course of taking the respective projects further along the development pipeline, and that the consents can be said to be part of the components of each of the project options. While each of the witnesses for TrustPower accepted that the consents were of value to TrustPower, each said thatthat value was only as part of a "bundle", "package", or "suite" of rights. I also accept TrustPower's evidence that the development pipeline itself is only one part of TrustPower's business development: constructing a hydro station or wind turbine to generate electricity is only one method by which TrustPower sources electricity to sell. Buying electricity for re-sale is always considered against generating it.[95] Further, the value of resource consents may be tenuous, at best: for example, having resource consents is not all that is required for the decision whether toproceed to construction, or to defer the project. I accept TrustPower's evidence thatthere are many other factors that must be considered. Secondly, the fact thatTrustPower has resource consents will not "block" competitors from competing inthe area. As Mr Campbell said in his evidence for TrustPower, the same wind will blow across the hill next to where TrustPower has resource consents. I also acceptMr Harley's submission that in the absence of a commitment by TrustPower toproceed to construction, there is very little competitive advantage in holding resource consents. Further, I accept that resource consents, on a stand-alone basis, will be of little interest for possible sale. Any value of the consents could only be as part of a package. Such value as the resource consents may have does not, in my view, lead to the consents being stand-alone, assets, independent of the projects to which they relate.[96] That conclusion is reinforced by the evidence relating to the approach in relation to Kaiwera Downs (referred to at 2.12 of the Appendix). The offer was to purchase the site, including the resource consents, technical reports and designs, landowner agreements, and any physical assets related to the project. That is, the offer was in relation to the project as a whole, not the resource consents on a stand- alone basis.[97] On the particular facts of this case, I therefore find that the resource consents obtained by TrustPower for the Arnold, Kaiwera Downs, Mahinerangi, and Wairau projects are not stand-alone assets, separate from the projects to which they relate. The resource consents are part and parcel of the projects. It would be artificial from a practical and business point of view to regard them as separate assets in their own right. The expenditure in obtaining them must, therefore, be treated in the same manner as the projects. As noted at [11], above, the adjudication unit decided that expenditure relating to the projects was not capital in nature. Rather, it was feasibility expenditure. The same conclusion must apply in relation to the expenditure incurred in obtaining resource consents, as they are not stand-alone assets, separate from the projects to which they relate. It follows that TrustPower'sexpenditure was feasibility (revenue) expenditure, and is deductible pursuant to the general permission.The BP Australia indicia[98] The above conclusion is sufficient for me to find in favour of TrustPower. However, for the sake of completeness, and in case it is held that I am wrong in that conclusion, and the resource consents are stand-alone assets, I go on to consider, briefly, the BP Australia indicia in order to determine whether they are capital or revenue assets.What was the need or occasion which called for the expenditure?[99] Identifying the need or occasion for expenditure involves considering the factual background in which the expenditure was incurred, and the reason for the payment. In Birkdale Service Station Ltd v Commissioner of Inland Revenue, the Court of Appeal observed that, in that case, the background (in other words, the"need or occasion for the expenditure") to the transactions at issue (lump sumpayments made in connection with the taxpayer's entry into certain agreements) wasof considerable importance.56 If there is more than one reason, the principal reason for the payment determines the character of the payment.57[100] Mr Harley submitted that it is evident that there were multiple purposes behind the expenditure incurred before TrustPower applied for resource consents. He accepted that one of the purposes of the expenditure was to make an application for resource consent (if the decision was ultimately made to do so), but submitted that that was not the principal purpose. None of the purposes was more significant or more important to TrustPower than others. He submitted that to place emphasis on one purpose over others was misguided; the focus of the case must be on the nature or character of the expenditure. The true character of the expenditure incurred in obtaining resource consents was that it advanced projects along the feasibility pipeline, and supported pipeline optionality. Thus, the expenditure was of the samecharacter as TrustPower's other operating costs.56 Birkdale Service Station Ltd v Commissioner of Inland Revenue [2001] 1 NZLR 293 (CA) at [33].57 See Christchurch Press Co Ltd v Commissioner of Inland Revenue (1993) 15 NZTC 10,206 (HC) at 10,209.[101] Mr McLellan submitted that the principal purpose for which TrustPower incurred the expenditure was to secure resource consents for each of the projects. He submitted that the principal purpose of instructing consultants to prepare AEEs, carrying out consultation, and lodging applications for consents was to apply for and obtain consents. He submitted that it was unrealistic for TrustPower to maintain that securing resource consents was not the principal purpose of the expenditure.[102] This question requires the determination of a factual issue. I have acceptedTrustPower's evidence that the resource consents were applied for and obtained inthe course of taking the respective projects further along the development pipeline. I would accept that the purpose, or occasion, for the expenditure was not solely or principally to obtain resource consents. Rather, I would find that the expenditurewas incurred as part of TrustPower's investigation into the feasibility of the projects, to define the parameters of possible projects, and to enable an assessment of possibleprojects against TrustPower's other options for sourcing electricity to sell tocustomers.[103] Accordingly, on this aspect of the BP Australia indicia, I would find that the occasion or need for the expenditure points to it being on revenue rather than capital account.Were the payments made from fixed or circulating capital?[104] The distinction between fixed and circulating capital (as a guide to determining whether expenditure is of a capital or revenue nature) was noted in the judgment of the House of Lords in John Smith & Son v Moore, where Viscount Haldane, drawing on the distinction made by Adam Smith in The Wealth of Nations, discussed two ways in which profit may be produced: from the sale of purchases on income account (circulating capital), and from realisation of assets forming part of the business concern (fixed capital).58 For tax purposes, the former indicates revenue, the latter capital.58 John Smith & Son v Moore [1921] 2 AC 16 (HL) at 19.[105] In Milburn, Wild J was unable to view the test of whether expenditure was from fixed or circulating capital as compelling, or even useful, and wonderedwhether it "might not be given a quiet burial".59 In Commissioner of Inland Revenue v Fullers Bay of Islands ("Fullers") (in which the issue was whether legal feesincurred in attempting to secure a contract were on capital or revenue account), Baragwanath J said that the abandonment of the concept of nominal capital in theCompanies Act 1993 pointed to the "unreality" of treating the source of funds as asignificant guide to whether expenditure is to be treated as capital or revenue for tax purposes.60 Fullers was appealed to the Court of Appeal, which upheld the reasoning of Baragwanath J.61 In its judgment, the Court of Appeal did not discuss any of the BP Australia indicia, and made no comment on the utility of the fixed/circulating capital test.[106] Mr Harley submitted that in Milburn and Fullers, their Honours did not correctly refer to the question whether expenditure is part of circulating capital – a principle with, as he put it, a 120-year pedigree. He submitted that the contrast is between expenditure which can be seen to create fixed capital assets, and expenditure which funds revenue operations as cashflows circulate between purchases of supplies and receipts of sales. On that analysis (adapting the wording of Lord Pearce in BP Australia), he submitted that the expenditure incurred in obtaining resource consents could only be seen as part of annual development costs (circulating capital) which was being turned over and in that process, yielded profits or loss.62 Mr McLellan submitted that the fixed/circulating capital test did not shed any light on the issue I have to determine.[107] The fixed/circulating capital test was applied by the Privy Council in BP Australia (as "merely one indication and by no means conclusive"63) and indirectlyendorsed by the Privy Council more recently, by their Lordships' endorsement of theBP Australia indicia in Commissioner of Inland Revenue v Wattie.64 The Privy Council noted that the BP Australia indicia had been described by Richardson J in59 Milburn, above n 51, at [48].60 Commissioner or Inland Revenue v Fullers Bay of Islands [2005] 2 NZLR 255 (HC) at [36].61 Fullers Bay of Islands v Commissioner of Inland Revenue (2006) 22 NZTC 19,716 (CA).62 See BP Australia, above n 10, at 266.63 BP Australia, ibid.64 Commissioner of Inland Revenue v Wattie, above n 14.Commissioner of Inland Revenue v Thomas Borthwick & Sons (Australasia) Ltd asexemplifying the "governing approach" in New Zealand.65 While I have similar reservations as to the general utility of this test to those expressed by Baragwanath J in Fullers, I am not prepared to disregard the test.[108] In BP Australia, Lord Pearce stated that the test was whether the sums were"paid out of fixed or circulating capital".66 This test focuses on the source of the funds used in the expenditure.67 Lord Pearce contrasted fixed capital:68... that on which you look to get a return by your trading operations ...with circulating capital:... that which comes back in your trading operations ... [expenditure] which is turned over and in the process of being turned over yields a profit or loss .. part of the constant demand which must be answered out of the returns of the trade.[109] Mr Harley's submission referred to the use to which the expenditure was put: contrasting expenditure that creates fixed capital assets, with expenditure that funds revenue operations as cashflows circulate between purchases of supplies and receipts of sales. I do not accept that Mr Harley's submission accurately reflects theformulation of this test in the authorities.[110] However, even if Mr Harley is right in his formulation of this test, I do not find the fixed/circulating capital test useful in this case. First, there is little or no evidence as to the source of the funds used for the expenditure. Secondly, even if the focus is on the use of the expenditure, then it would require a determination of the nature of the resource consents (as capital or revenue assets) before it could be applied: in other words, on the facts of this case it would be a circular test for determining if the expenditure incurred in obtaining the resource consents is capital or revenue in nature.65 Commissioner of Inland Revenue v Thomas Borthwick & Sons (Australasia) Ltd, above n 15, at 779.66 BP Australia, above n 10, at 265.67 See also Mallet v Stavely Coal & Iron Co Ltd [1928] 2 KB 405 (CA) at 413 and 417, and Anglo- Persian Oil Co Ltd v Dale (Inspector of Taxes) [1932] 1 KB 124 (CA).68 BP Australia, above n 10, at 265–266.Was the expenditure of a once and for all nature producing assets or advantages which were of an enduring benefit for TrustPower?[111] In British Insulated and Helsby Cables Ltd v Atherton, Viscount Cave stated:69... when an expenditure is made, not only once and for all, but with a view to bringing into existence an asset or an advantage for the enduring benefit of a trade ... there is very good reason (in the absence of special circumstances leading to an opposite conclusion) for treating such an expenditure as properly attributable not to revenue by to capital.[112] There are two parts to this question: first, whether the expenditure was once and for all or recurring, and secondly, whether the assets or advantages produced were of an enduring benefit to TrustPower.(a) Was the expenditure of a once and for all or recurrent nature?[113] In Vallambrosa Rubber Co Ltd v Farmer, Lord Dunedin considered it:70... not a bad criterion of what is capital expenditure as against what is income expenditure to say that capital expenditure is a thing that is going to be spent once and for all, and income expenditure is a thing that is going to recur every year.In Sun Newspapers Dixon J described the "once and for all" test as a "by no means successful" attempt to find a test to decide whether expenditure was capital orrevenue.71 His Honour concluded that "recurrence is not a test, it is no more than a consideration the weight of which depends on the nature of the expenditure."72[114] TrustPower acknowledged that, if the focus were solely on individual resource consents, then the expenditure was properly described as "one-off".However, Mr Harley submitted that, as TrustPower regularly incurs expenditure for obtaining a number of consents within the context of the development pipeline, the expenditure should be recognised as being recurrent (and pointing towards revenue, rather than capital, expenditure). Mr McLellan submitted that the expenditure was"once and for all", because once obtained, the resource consents endured and did not69 British Insulated and Helsby Cables Ltd v Atherton [1926] AC 205 (CA) at 213–214.70 Vallambrosa Rubber Co Ltd v Farmer (1910) 5 TC 529 at 536.71 Sun Newspapers, above n 46, at 361.72 Ibid, at 362.have to be re-applied for in the short to medium term, and once exercised, had a long duration.[115] The distinction is not between expenditure which is incurred once only, and that which is incurred on a regular basis. In Sun Newspapers, Dixon J referred with approval to the dicta of Rowlatt J in Ounsworth v Vickers Ltd,73 that "the real test is between expenditure which is made to meet a continuous demand, as opposed to anexpenditure which is made once and for all."74 In this case the dispute is whether the resource consents should be seen in isolation, or within the context of the development pipeline. Lord Pearce considered in BP Australia that it is necessary to take a broad view of the general operation under which the expenditure was incurred.75 Taking such a broad view of TrustPower's operation requires me toconsider the expenditure in obtaining the resource consents within the context of the development pipeline.[116] In that context, I would accept TrustPower's submission that most of theexpenditure was not primarily directed at obtaining the resource consents, but was to assess the feasibility of the projects and recurrent in nature, being continually incurred to investigate and define the feasibility of the various projects. It is clear from the evidence that there were many projects in the pipeline, and some progressed further than others. Expenditure was continually being made to assess the feasibility of projects, including (for some projects) expenditure to obtain the resource consents. While applications for resource consents were not made in all of the projects in the development pipeline, applications were (to adapt the language ofBP Australia) part of the regular feasibility process, and certainly "one of the current necessities of" the feasibility process.76[117] That conclusion can be supported by reference to Commissioner of Taxation v Ampol Exploration Ltd ("Ampol").77 That case concerned the nature of expenses incurred in oil exploration, where the only benefit from the exploration was to be the73 Ounsworth v Vickers Ltd [1915] 3 KB 267 at 273.74 Sun Newspapers, above n 46, at 362.75 BP Australia, above n 10, at 264.76 Ibid, at 265.77 Commissioner of Taxation v Ampol Exploration Ltd (1986) 13 FCR 545.chance of participation in further exploration. In his judgment, holding that the expenses were deductible, Lockhart J said that the expenditure was:78... in truth part of the outgoings of the taxpayer in the course of carrying on its ordinary business activities. It was not expenditure incurred for the purpose of creating or enlarging a business structure of profit-yielding or income-producing asset.In his judgment, Burchett J characterised the expenditure as "an incident in the operations by which [the business] is carried on."79[118] I would conclude that this aspect of the test indicates that the expenditure was of a revenue nature.(b) Were the assets or advantages produced of an enduring benefit to TrustPower?[119] In Anglo-Persian Oil Co Ltd v Dale (Inspector of Taxes) ("Anglo-Persian Oil"), Rowlatt J explained that an "enduring benefit" means:80... a benefit which endures in the way that fixed capital endures; not a benefit that endures in the sense that for a good number of years it relieves you of a revenue payment. ... It is not always an actual asset, but it endures in the way that getting rid of a lease or getting rid of an onerous capital asset ... endures.Therefore, if expenditure is made to bring about an asset or advantage that endures in the way that fixed capital endures, this points to the expenditure being capital in nature.81[120] Mr Harley accepted that, within the context of the development pipeline, the resource consents provided benefits to TrustPower, and in that sense, the expenditure was incurred in order to create or add value. He submitted that this was hardly surprising, as any company would normally intend expenditure to result in creatingor adding value. More is required before "adding value or a benefit" indicatedexpenditure on capital account. However, he submitted, whether the resource consents were to be seen as securing an enduring benefit is not to be measured by the78 At 562.79 At 575, referring to Hallstroms [above n8] at 648.80 Anglo-Persian Oil Co Ltd v Dale (Inspector of Taxes) (1931) TC 253 at 262, affirmed on appeal in Anglo-Persian Oil Co Ltd v Dale, above n 67, at 146.81 Sun Newspapers, above n 46, at 361.duration of the particular consent. Mr Harley submitted that there is an inherent uncertainty surrounding the terms and duration of resource consents, once granted, that is difficult to reconcile with a submission that they provide an enduring benefit to TrustPower. He further submitted that the resource consents do not produce any income for TrustPower, absent any commitment to build a generation plant.[121] Mr Harley also submitted that the resource consents did not provide TrustPower with an enduring benefit of the kind argued for the Commissioner – that is, the advantage of strategic optionality as to building the project now, deferring building, blocking competitors from areas where TrustPower has consents, or sellingthe consents. He submitted that the Commissioner's argument ignored themultiplicity of purposes served by the development pipeline of which the resourceconsents are part, and was based on a misconception of the "value" or "benefit"provided by the consents.[122] Mr McLellan submitted that the resource consents provided TrustPower with an enduring benefit or advantage of strategic optionality. This includes the ability to proceed immediately with development of the project within the ten-year period before the consent lapses, to defer construction within that period, to block or exclude other generators from undertaking competing activities in areas where TrustPower has been granted consents, or to sell the resource consents (with or without land, land access rights, or intangible assets such as research and design work), if the project ceases to be feasible for TrustPower or the price is right.[123] I accept Mr Harley's submission that the presence of a project in thedevelopment pipeline does not mean that the project will ultimately result in one ofthe benefits argued for by the Commissioner, and referred to in Professor Evans'evidence. As he submitted, many projects never make it to the stage where any of the alleged benefits can arise. It is a matter of chance (in the words of TrustPower's witnesses, it requires "the stars to align"), whether any project proceeds to that stage. I also accept Mr Harley's submission that TrustPower does not know, at the timeexpenditure is incurred, whether resource consents will be applied for, or whether the particular project concerned will progress further along the pipeline.[124] In Milburn, Wild J considered that regardless of whether the resource consents were inseparable from the land, or separate assets, they clearly provided an enduring benefit due to the period of time they were granted for.82 Although I wouldaccept Mr Harley's submission that there is an inherent uncertainty surrounding theterms and duration of resource consents, and whether projects will be progressed further, the consents last for a significant period, and can therefore provide an enduring benefit.[125] This aspect of the BP Australia indicia would, therefore, indicate that the expenditure in obtaining resource consents should be regarded as capital rather than revenue expenditure.How would the payment be treated on ordinary principles of commercial accounting?[126] In Milburn, Wild J observed that while accounting treatment might provide a useful guide in some cases, it is not determinative of the correct treatment for tax purposes, and it is always subject to the rules of the income tax legislation.83[127] Expert evidence on accounting standards was called by TrustPower (MrHagen, and Mr Freeman (of PricewaterhouseCoopers, TrustPower's auditors)) and by the Commissioner (Mr Hucklesby). They focused on two standards: NewZealand Equivalent to International Accounting Standards ("NZIAS") 16 and NZIAS38. Mr Harley submitted that both NZIAS 16 and NZIAS 38 pointed to the expenditure on the resource consents being revenue rather than capital. Mr McLellan submitted that NZIAS 38 applied, and pointed to the expenditure being capital.[128] The title of NZIAS 16 is "Property, Plant and Equipment". Paragraph [2]provides that it is to be applied in accounting for property, plant and equipment"except when another Standard requires or permits a different accounting treatment."Paragraph [7] provides that:7. The cost of an item of property, plant and equipment shall be recognised as an asset if, and only if:82 Milburn, above n 51, at 17,025.83 Ibid, at 17,026.(a) it is probable that future economic benefits associated with the item will flow to the entity; and(b) the cost of the item can be measured reliably.[129] The title of NZIAS 38 is "Intangible Assets". Paragraph [2] provides that it isto be applied in accounting for intangible assets, except (as relevant to this case) intangible assets that are within the scope of another standard. In paragraph [8],"asset" is defined as a resource:(a) controlled by an entity as a result of past events; and(b) from which future economic benefits are expected to flow to the entity.An "intangible asset" is defined as:... an identifiable non-monetary asset without physical substance.Paragraphs [21] and [22] of NZIAS 38 provide:21. An intangible asset shall be recognised if, and only if:(a) it is probable that the expected future economic benefits that are attributable to the asset will flow to the entity; and(b) the cost of the asset can be measured reliably.22. An entity shall assess the probability of future economic benefits using reasonable and supportable assumptions that representmanagement's best estimate of the set of economic conditions thatwill exist over the useful life of the asset.Paragraph [57] ("Development Phase") of NZIAS 38 is relevant. It provides:57. An intangible asset arising from development ... shall be recognised if, and only if, an entity can demonstrate all of the following:(a) the technical feasibility of completing the intangible asset so that it will be available for use or sale.(b) its intention to complete the intangible asset and use or sell it.(c) its ability to sell the intangible asset.(d) how the intangible asset will generate future economic benefits. ...(e) the availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset.(f) its ability to measure reliably the expenditure attributable to the intangible asset during its development.[130] Mr Hagen's opinion was that the only difference between NZIAS 16 and NZIAS 38 is between a tangible and an intangible asset. Whichever applied, the expenditure incurred by TrustPower in obtaining the resource consents should be recognised as feasibility costs, and should not be recognised as the costs of acquiringa capital asset (whether tangible or intangible). Mr Freeman's opinion was thatNZIAS 16 applied rather than NZIAS 38, because it was very unlikely that anintangible asset (as defined under NZIAS 38) would result. Mr Hucklesby's opinionwas that NZIAS 38 applied and that the resource consents were assets, as defined.[131] For the purposes of this discussion, if the resource consents are stand-alone assets (contrary to my earlier finding), they could only be intangible assets. As such, I doubt that NZIAS 16 would apply.[132] I therefore turn to consider NZIAS 38. Both TrustPower and the Commissioner accepted that if the resource consents were intangible assets underNZIAS 38 and not part of the "development phase" (under paragraph [57]) then theywould be treated as capital. Paragraph [57] of NZIAS 38 is crucial.[133] The resource consents were obtained in the course of progressing projectsalong the development pipeline. If the consents were "assets" as defined in NZIAS38, then they arose from a development phase. There was no evidence that, at the time the expenditure was incurred, TrustPower intended to complete the projects in respect of which the resource consents were obtained (as the adjudication report found, there was no commitment to construct any of the projects), nor any evidence that TrustPower intended to use or sell the consents, independent of the projects to which they related. While an offer was made to purchase one of the projects, including the resource consents, TrustPower did not apply for the consents with theintention of selling them. Further, in the light of TrustPower's evidence that therewere always more projects in the development pipeline than it had the financial and resource capability to construct, TrustPower could not have demonstrated the availability of adequate technical, financial, or other resources to complete the projects and use the resource consents. On this basis, under NZIAS 38, the expenditure would not be recognisable as capital and would properly be treated as revenue.[134] Accordingly, I would conclude that this aspect of the BP Australia indicia indicates that the expenditure in obtaining resource consents should be held to be revenue rather than capital.Was the expenditure incurred on the business structure of TrustPower, or as part of the process by which income was earned?[135] In Sun Newspapers, Dixon J noted the distinction between:84... the business entity, structure or organisation set up or established for theearning or profit" and "the process by which such an organisation operate to obtain regular returns by means of regular outlay. ...The business structure ... may assume any of an almost infinite variety of shapes ... In a trade or pursuit where little or no plant is required, it may be represented by no more than the intangible elements constituting what is commonly called goodwill ... At the other extreme it may consist in a great aggregate of buildings, machinery and plant all assembled and systematized as the material means by which an organized body of men produce and distribute commodities or perform services.[136] Mr Harley submitted that the expenditure incurred in obtaining the resource consents does not create or reflect any business structure of TrustPower. He submitted that the consents are not means by which TrustPower can produce income, in the absence of a commitment to build a hydro station or wind turbine. MrMcLellan submitted that TrustPower's business structure included capital assetsrelating to the generation of electricity, and that the expenditure was incurred principally for the purpose of creating those assets. He submitted that as TrustPower cannot legally generate electricity without having such consents, the consents arefundamental parts of the TrustPower's business structure.[137] I would accept Mr Harley's submission that the consents are not means bywhich TrustPower can produce income, in the absence of a commitment to proceed to construct the project concerned. As Mr Harley submitted, the Mahinerangi project illustrates this point. The resource consents for this project were granted in December 2008. The TrustPower Board approved construction of Stage 1 of the project in April 2010. Although the consents were necessary for the project to be constructed, they did not generate any electricity, and they did not create any income for TrustPower.84 Sun Newspapers, above n 46, at 359–360.[138] I am satisfied that, if it is held that the resource consents are assets, theycould not be regarded as part of TrustPower's business structure. I would concludethat this aspect of the BP Australia indicia indicates that the resource consents should be found to be revenue assets.From a practical and business point of view, is the expenditure to be regarded as capital or revenue in nature?[139] None of these tests is determinative on its own. Rather, each test assists with determining the central question posed by Dixon J in Hallstroms: what wasTrustPower's expenditure incurred in obtaining the resource consents "calculated to effect from a practical and business point of view"?85 I would conclude that even if the resource consents were stand-alone assets, from a business and practical point of view, they were revenue assets, and the expenditure to obtain them is revenue in nature. As the BP Australia indicia were derived to assist in answering the question posed in Hallstroms,86 the answer is in large part set out in the analysis of the indicia, and need not be repeated.[140] I would accept the force of Mr Harley's submission that the expenditureincurred in obtaining the resource consents was indiscriminate as part ofTrustPower's general business operations expenses. The expenditure was not tosecure the specific consents, but to assist TrustPower in determining a source ofsupply of electricity. When seen from TrustPower's business and practical point of view, the resource consents are only one of the components of a particular project option, each option is part of the development pipeline as a whole, and the pipeline is only one of the possible sources of electricity to be sold by TrustPower. A grant of resource consents was necessary to advance a project along the development pipeline, but the grant was not in and of itself sufficient for a decision to be made to take any project through to the next stage.[141] TrustPower did not use the resource consents in the tax years concerned, and it did not generate any income from them. I would accept that the resource consentswere of value to TrustPower, only as part of a "bundle", "package", or "suite" of85 See Hallstroms, above n 8, at 648.86 See BP Australia, above n 10, at 264–265.rights, and as part of the development pipeline, which itself is only one part ofTrustPower's business development. Accordingly, from a practical and business point of view, I would find that TrustPower's expenditure incurred in obtaining theresource consents was incurred as part of the feasibility process and is, therefore, revenue in nature.Was TrustPower's expenditure in obtaining resource consent incurred for the purposes of improving its interest in the underlying land?Introduction[142] I turn to consider, briefly, Mr McLellan's submission that the expenditure was non-deductible, as it was incurred to improve a capital asset; that is, TrustPower'sinterest in the underlying land. He submitted that TrustPower owned or had interests in at least part of the land for all four projects, was committed to obtaining (or had an expectation that it could obtain) the residual land, and incurred the expenditure toobtain the consents to "improve the functionality of the land". He submitted that thefunctional connection between the land and the consents was illustrated by evidence that (in the case of Arnold) TrustPower intended to sell land if it did not obtain the consents.[143] Mr McLellan submitted that the resource consents provided TrustPower with the rights to construct and operate power plants on the land, and thereby improved the functionality of the land. He referred to ECC Quarries as authority for the proposition that expenditure incurred to obtain planning permission to improve the functionality of land (that is, a capital asset).87[144] In addition to submitting that the argument could not now be raised, MrHarley submitted that the Commissioner's argument had not confronted importantlegal and factual hurdles. These were that the resource consents did not become part of the land to which they relate, so the consents could be transferred independently of the land, or TrustPower could sell land it owned without the consents. Accordingly, the present situation is distinguishable from that in ECC Quarries, where the planning permission could not, by law, be transferred.87 ECC Quarries Ltd, above n 53.[145] Secondly, he submitted that the Commissioner could not say that the resource consents had resulted in an increase in the value of the underlying land, or that theland had become more advantageous, or how the land had been "radically andenduringly changed"88 by the resource consents.Discussion[146] I accept Mr Harley's submission that this argument could not succeed. There is, in this case, no factual foundation for it. As well, the Commissioner's argumentdoes not deal with the evidence given by Mr Campbell (TrustPower's presentGeneral Manager Generation) that TrustPower prefers easements to land ownership. In the event that, as a result of the resource consents, there was an increase in the value of land over which TrustPower has an easement, such increase would accrue tothe landowner, not TrustPower. Nor does the Commissioner's argument deal with TrustPower's evidence that it is often the case (particularly in relation to hydroprojects) that land decreases in value if resource consents are granted for construction of electricity generation plants.[147] Accordingly, if I were required to consider the Commissioner's argument thatthe resource consents enhanced the value of the underlying land, and the expenditure incurred in obtaining the consents is therefore capital expenditure, I would find against the Commissioner.TrustPower's alternative argument: classification of expenditureIntroduction[148] TrustPower's alternative argument, in the event that I were to find that theexpenditure in obtaining the resource consents was capital rather than revenue expenditure, was that the Commissioner wrongly classified expenditure in the"capital" and "revenue" categories. TrustPower claims that the Commissioner haswrongly classified approximately $6.5 million as consenting (capital) costs.89 I deal88 See ECC Quarries, at 1397.89 As set out in the schedule provided to the Court on 30 August 2013, the exact amount claimed by TrustPower as having been wrongly classified is $6,565.936.with this briefly, again for the sake of completeness, and because evidence and submissions on this argument formed a significant part of the hearing.[149] It was common ground that the classification depended on whether particularitems of expenditure were incurred as part of the "feasibility" process, or as part of the "consenting" process. It was also common ground that the primary distinctionbetween the two was to be made on the basis of when TrustPower could be said to have been "committed" to applying for resource consents.90 TrustPower submitted that it was not committed to applying for resource consents until very shortly before the respective applications were filed. The Commissioner says that the commitment was at a much earlier date.[150] A second issue, which arises only if I accept the Commissioner's argument as to the "commitment date", is whether all costs after that date must be classified as "consenting" (and therefore capital), or whether some costs can be regarded as continuing the feasibility process (and therefore revenue).When was TrustPower committed to filing applications for resource consents?[151] Ms Hablous, who argued this point for TrustPower, referred to the evidence of Dr Harker and Mr Kedian, which was that Mr Kedian made the decision that resource consents would be applied for, except in the case of Wairau, where the TrustPower Board approved lodging the application. She submitted that the decision to lodge the applications could not be, and was not, made until such time as TrustPower had all the information required to make a decision whether to proceed with the applications. TrustPower was not in that position until it had all theconsultants' reports, and had undertaken all necessary assessments. Ms Hablous submitted that the fact that the reports were later included in the AEEs wasimmaterial. TrustPower's standard instruction to the consultants was that theirreports were to be in a suitable format for inclusion in the AEEs. That was simply to avoid unnecessary cost in re-submitting and re-formatting reports.90 As recorded at [11], above, the adjudication unit found that expenditure on the underlying projects was feasibility, rather than capital, expenditure, on the grounds that TrustPower had not committed to proceed with the acquisition or development of any of the projects.[152] In contrast, Mr Andrews, who argued this point for the Commissioner, submitted that TrustPower was committed to lodging the applications at about the time it instructed consultants to prepare reports. He submitted that this work would not have been commissioned had TrustPower not formed the intention to lodge the applications.[153] The competing contentions were as outlined below. I note that a full chronology for each project is set out in the Appendix to this judgment.(a) ArnoldTrustPower: The decision to apply for resource consents was made at or around the time the application was lodged on 29 March 2006. Prior to that date, TrustPower was still considering the economics of an amended scheme (the Taramakau diversion) and technical concerns, and continuing discussions with recreational groups;Commissioner: The decision was made to apply for resource consents in November 2005, when Board approval was given to expenditure to acquire land purchases and option agreements. At that time, the Board was advised that it was anticipated that the resource consent application would be lodged around the end of November 2005.(b) Kaiwera DownsTrustPower: The decision to apply for resource consents was made at or around the time the application was lodged on 5 November 2007. Prior to that time TrustPower had commissioned further reports after apotential "fatal flaw" was revealed in original visual and landscapefeasibility reports, further modelling work was undertaken, and project economics were assessed.Commissioner: The decision to apply for resource consents was made in May 2007, after draft scoping studies for planning, noise, aquatic assessment, traffic assessment, and terrestrial ecological assessments were received, noting that on 27 April 2007 the Board was advised that consent work had started towards application.(c) MahinerangiTrustPower: The decision to apply for resource consents was made at or around the time the (second) application for resource consent was lodged in early December 2006, replacing an application that had been lodged in late June 2006. The second application did not seek consent to erect turbines on land owned by Dunedin City Council (and DCC had asked TrustPower to delay lodging the application). The application had to be re-worked.Commissioner: the decision to apply for resource consents was made in November 2005, when briefs of work for social work, landscape and visual, traffic, and ecological assessments, and legal services were sent out. At this time, the Board was advised that lodgement of the resource consent applications was targeted for late February/March 2006.(d) WairauTrustPower: The decision to apply for resource consents was made at or around the time the Board resolved to approve an application for resource consents being lodged, at its meeting in June 2005. TrustPower says that Board approval was necessary (as recorded in a report to the Board in April 2004) because of the complexities of the project. The Board was not presented with a full evaluation report, on which the project economics could be assessed, until 30 June 2005.Commissioner: The decision to apply for resource consents was made in September 2004. At this time, the Board was advised that a resource consent application was to be lodged in November 2004, subject to receiving Board approval and securing access/easements in key positions, and that the economics of the project would deteriorate only if there were difficulty with landowners or resource management impediments.Discussion[154] I accept the evidence given by TrustPower. The Commissioner's analysis of TrustPower's "commitment" rested on the dates on which consultants were instructed to prepare reports and/or target or "hoped for" dates of lodgementprovided to the Board. I do not accept that these are reliable indicators of TrustPower being committed to applying for resource consents. I accept on the basisof TrustPower's evidence, supported by the matters recorded in the chronologies,that TrustPower was not committed to lodging applications for resource consents until such time as it had received and considered all relevant information.[155] Further, I accept TrustPower's submission that the fact that consultants wereinstructed to prepare reports in a form that was suitable for inclusion in an AEE is not evidence of a commitment to lodge an application for resource consents. Rather, it is an indication that TrustPower was mindful of the possibility (or even anticipated) that an application would be lodged, and wished to have the necessary reports ready to go if and when the decision was made to apply. From a business and practical point of view, this would be to reduce cost and unnecessary duplication.[156] I would find that TrustPower was not committed to lodging applications for resource consent until at or around the time the applications were lodged. Accordingly, I would find that the expenditure incurred up until that time is revenue expenditure and as such is deductible under the general permission. I am, therefore, not required to consider the second issue, as to classification of costs incurred afterthe "commitment" date.Result[157] I find in favour of TrustPower on its primary claim. TrustPower is entitled to the declaration and determinations sought at paragraph 75 of its First Amended Statement of Claim.[158] In the event that costs cannot be agreed between the parties, memoranda may be filed: on behalf of TrustPower within 20 days of the release of this judgment, andon behalf of the Commissioner within a further 15 days. Unless the parties in their memoranda request a hearing, a decision as to costs will be made on the papers.________________________Andrews JAppendixThe four projects: description and chronologyThe following description and chronology of each of the four proposed projects is derived, in the main, from the chronology agreed by the parties, and the agreed bundle of documents.1. Arnold hydro1.1 The Arnold River is the outlet of Lake Brunner on the west coast of the South Island. TrustPower purchased an existing hydro scheme on the Arnold River in April 1999, and began investigating the potential to enlarge the generation output of theriver. TrustPower's original proposal (at that time referred to as the Dobson Scheme)was abandoned in early 2005 following individual feasibility work, as TrustPower was not able to gain access to Department of Conservation land affected by the scheme. A new proposal for the scheme was then developed, to take water from upstream of the existing dam, transport it along a canal for approximately 12 kms, then drop the water through a newly-constructed power station to a regulation pond and then back into the Arnold River.1.2 TrustPower commissioned environmental and engineering studies from December 2004 onwards. TrustPower management reported to the Board each month, noting progress as to technical feasibility, gaining land access, consultation, and the anticipated time when resource consents would be applied for. In a Board report dated 31 May 2005, it was noted that engineering and environmental briefs of work had been issued, landowner agreements were in place to allow access for survey work and basic geotechnical investigations, and the programme remained on schedule for presentation of a business case to the Board in August 2005, and for an RMA consent application to be lodged in the fourth quarter of 2005.1.3 In a Board report dated 28 July 2005, it was noted that easement option negotiations and feasibility assessment were ongoing, and that subject to the outcome of those, it was planned to lodge a resource consent application in December 2005.1.4 Further briefs of work, and instructions for peer review of work, were issuedduring July and August 2005. An "Arnold River Hydro Scheme DevelopmentProject Status Report September 2005" was presented to the Board meeting on 29 September 2005. The report concluded by expressing management's opinion thatthere was potentially significant long term value in the Arnold scheme, and that land acquisition and resource consents were critical to any future development. It was recommended that the Board approve expenditure to acquire the necessary land for"phase one" of the scheme, and to proceed to lodge a resource consent applicationbefore the end of 2005. The Board considered that "phase one" did not appear to beeconomic, and that further work needed to be undertaken on the proposal.1.5 Draft assessments and feasibility studies were received from consultants during October 2005. A report to the Board for its October 2005 meeting recorded that public open days had been held, the resource consent application remained on schedule for December 2005, negotiations with landowners were ongoing, preliminary design was complete, and a financial analysis was to be presented to the Board at its November 2005 meeting.1.6 An "Arnold Hydro Scheme Development Update Report November 2005"was presented to the TrustPower Board meeting on 24 November 2005. The reportwas accompanied by an "Arnold Options Valuation Analysis" appendix. The reportconcluded with a recommendation that the Board approve expenditure for necessaryland purchases and option agreements for the "Base Arnold Scheme" (equivalent to "phase one" referred to in the September Project Status Report), to lodge a resource consent application around the end of 2005, to begin long term monitoringprogrammes in relation to an extension of the base scheme (equivalent to "phase two" in the September Project Status Report, and known as the "TaramakauDiversion"), and to purchase or secure options over land potentially required for theTaramakau Diversion. The Board approved the recommendations for land acquisitions and completion of the RMA consent application.1.7 Briefs of work were sent to consultants in respect of the Taramakau Diversion in late November 2005. Management reported to the December 2005Board meeting that work was under way with "optimisation of the scheme with the Taramakau scheme included", work with landowners continued, and ecologicalstudies for the Taramakau Diversion were "scoped and out for pricing".1.8 Management reported to the Board's 27 February and 3 April 2006 meetingsthat the Arnold scheme was in the "consenting/engineering design" phase, that landnegotiations were progressing, and the preparation of the AEE was "slightly behind schedule due to the Taramakau addition". The application for a resource consentwas lodged on 29 March 2006. The application was in respect of the project without the Taramakau Diversion. Lodgement of the application was reported to the Board's27 April 2006 meeting, when it was also noted that negotiations were continuing with landowners and recreational users.1.9 Feasibility studies and assessments in respect of the Taramakau Diversion were received in the period from May to September 2006. During the same period, and up to late 2010, TrustPower purchased a number of parcels of land and obtained, where necessary, consent from the Overseas Investment Office.1.10 The hearing of the application for resource consent began on 5 November 2007. The consent process was eventually completed on 17 December 2010, with a final decision of the Environment Court.1.11 In July 2011, an "Arnold Hydro Business Case" was submitted to the Board.In the section headed "Summary and Recommendations", it was noted that TrustPower could shelve the project for review in the future, complete "phase one" of an "Early Contractor Involvement (ECI) process" (and at obtaining a "ReferenceTarget Out-turn Cost") then re-assess the project, or complete the full ECI process and proceed to a construction investment decision. Management recommended the second alternative and this was approved by the Board.1.12 Management presented an "Arnold Hydro ECI Phase 1 (Reference TOC)Preliminary Update" to the Board's November 2011 meeting. A further update was presented to the Board's April 2012 meeting, in which management recommendedthat the ECI work would be suspended, to be reviewed on a six-monthly basis.2. Kaiwera Downs wind farm2.1 The Kaiwera Downs wind farm project is a proposed wind farm approximately 15 kilometres south-east of Gore, in Southland. It was initiallyreferred to as the "Wilson/Jackson Wind Farm".2.2 A report for the August 2005 meeting of the TrustPower Board recorded that two landowners had been signed up, and appeared to have good prospects for wind development. At the September and October 2005 Board meetings the KaiweraDowns project was recorded as being at the "feasibility-land access/modelling"stage. Management reported to the November 2005 Board meeting that it was analysing the two wind farms, and that wind modelling was in place.2.3 At the December 2005 Board meeting, management reported that wind resource analysis had been completed, and that the opportunity was being progressed. It was noted that a resource consent application could follow shortly after another application which was expected to be lodged in February 2006.2.4 At the February 2006 Board meeting, management reported that additional monitoring masts were to be installed, additional landowners had been identified and would be signed up, and indications were that a wind farm was viable. Monitoring continued throughout 2006, and further landowners were signed up. As from the report for the September 2006 Board meeting, the Kaiwera Downs project was listedin the "consenting/engineering design" phase of the generation development pipelinetable included in the agenda papers.2.5 During December 2006 and January 2007, TrustPower engaged consultants for the Kaiwera Downs project. Management reported to the February 2007 Board meeting that landowner agreements were in place with seven sets of landowners, discussions were being held with two remaining owners, transmission land access agreements were in place, and wind monitoring reports were encouraging. At the March 2007 Board meeting, management advised that consultants had been engaged for civil design work for the consenting phase of the project, and a public meeting would be held in Southland ahead of submitting a resource consent application. A public open day was held in Gore on 29 March 2007.2.6 Scoping reports were received from consultants during April 2007. The development pipeline table included in the agenda papers for the April 2007 Board meeting recorded that work had started towards an application for resource consents.2.7 In a media statement issued on 10 May 2007, commenting on TrustPower'saudited financial results for the year ended 31 March 2007, it was recorded that TrustPower was investigating the potential for a wind farm of up to 185 MW at Kaiwera Downs, land access arrangements were nearing completion, and wind monitoring was being undertaken. It was also recorded that a resource consent application was expected to be lodged in the last quarter of 2007.2.8 An internal preliminary assessment of the feasibility of the Kaiwera Downs projected dated 28 May 2007 noted a potential fatal flaw, relating to the landscape and visual effects of the proposed wind farm, and that further analysis was required to clarify whether those effects were likely to constitute a fatal flaw.2.9 On 27 June 2007, TrustPower issued further briefs of work to consultants, for preparation of reports to be included in the AEE required for the resource consent application. The pipeline development table included in the agenda papers for the August 2007 Board meeting recorded that the AEE was nearing completion, and the site location was being refined on an ecological, geotechnical, and wind resource basis.2.10 Peer reviewers were engaged in respect of the consultants' AEE assessmentsin late October 2007. The resource consent application was made on 5 November 2007. Peer reviews of the AEE assessments were received by TrustPower during November and December 2007.2.11 The hearing for the resource consent application began on 31 March 2008. Consents were granted in a decision given in June 2008. An appeal to the Environment Court was resolved by a consent order made on 13 May 2009.2.12 In early 2010, TrustPower received an approach concerning a possible purchase from TrustPower of two wind farm projects: Kaiwera Downs and Mahinerangi. Following execution of a confidentiality deed, TrustPower provided an Information Memorandum concerning both projects. In April 2010, TrustPower received an offer to purchase the Kaiwera Downs site, including the resource consent, technical reports and designs, landowner agreements, and any physical assets related to the project. The offer was subject to due diligence and approval bythe offeror's Board. Although discussions continued for some time, an offer was notaccepted.2.13 The Kaiwera Downs project has not been developed further, although feasibility modelling work has continued, and land option agreements have been extended.3. Mahinerangi wind farm3.1 The Mahinerangi project is a proposed wind farm west of Dunedin. It is close to two TrustPower hydro schemes, Deep Stream and Waipori. Mahinerangi was earlier referred to as "Eldorado" or "Waipori Wind". Mahinerangi wasidentified in the generation pipeline table for the September 2005 TrustPower Boardmeeting, as being in the "land access / monitoring" phase.3.2 TrustPower engaged consultants to provide landscape/visual and ecological (terrestrial, aquatic and avian) assessments for the feasibility study phase, in late October 2005. Management reported to the TrustPower Board meeting in October 2005 that original impressions of a good wind site had been confirmed, that anapplication for resource consent to install a "Met Mast" had been submitted, and thatit was aiming to apply for a resource consent for the Mahinerangi wind farm early in 2006.3.3 In late November 2005, TrustPower engaged consultants to provide assessment reports to be included in the AEE for an application for resource consent for Mahinerangi. Management reported to the November 2005 Board meeting that landowner agreements were proceeding well, and that environmental and engineering studies were under way, targeting February/March 2006 for lodging an application for resource consent. The Board was advised at its January 2006 meeting that management was still on target to lodge a resource consent application in late February or early March.3.4 Management reported to TrustPower's January 2006 Board meeting thatpotential turbine sites had been identified, and option agreements had been signed with two landowners. Negotiations were continuing with four further landowners, one of which was the Dunedin City Council. Main concerns with the projected related to the visual impact, traffic effects during construction, and the impact on a local lizard population. A resource consent application was expected to be lodged in early April 2006.3.5 The report for the 3 April 2006 TrustPower Board meeting recorded that negotiations with the four landowners were continuing, and that a resource consent application was expected to be lodged in May 2006. At the Board meeting on 27 April 2006, management reported on requests for expressions of interest from turbine manufacturers, and public and individual consultations that had been held.3.6 In its media statement issued on 12 May 2007, on the release of its audited financial results for the year ended 31 March 2006, TrustPower recorded that itexpected to lodge a resource consent application for the Mahinerangi project "within the next month", and that it was likely that the project would be completed in stages.3.7 Management reported at the June 2006 TrustPower Board meeting that lodging of the resource consent application had been delayed at the request of the Dunedin City Council. The application for resource consent was lodged in late June 2006.3.8 A "Valuation Update Report [Mahinerangi] Wind Investment Opportunity" was presented to the TrustPower Board's June 2006 meeting. The report set out the result of computer modelling of the project costs against various changing circumstances (including exchange rate movements, local construction costs,availability of imported equipment, HVDC charges, and the uncertainty of resource consenting and land access) and projected revenue. The report recommended that TrustPower complete remaining landowner agreements, secure a resource consent for a 300MW wind farm, and monitor the site to obtain a comprehensive high quality data set.3.9 At the August 2006 Board meeting, management reported that it was givingconsideration to reducing the "consenting window" for the Mahinerangi project toexclude the Dunedin City Council land. The Chief Executive noted that he would be meeting with the Council to advise that TrustPower would be proceeding with a smaller project on privately owned land.3.10 In early September 2006, TrustPower asked its consultants to revise their earlier assessment reports to allow for a change to the development envelope, to allow for a maximum generation capacity of 200MW. A second application for resource consent for Mahinerangi was lodged in early December 2006. The first application was formally cancelled in January 2007.3.11 The hearing of the second resource consent application began on 10 May 2007. A decision to grant the consents was given on 27 September 2007. The decision was appealed to the Environment Court, which issued an interim decision in July 2008 and a final decision granting consent on 15 December 2008.3.12 As noted in respect of the Kaiwera Downs project, TrustPower received an approach as to a possible purchase of the Mahinerangi project in early 2010. No offer was made in respect of Mahinerangi.3.13 In a media statement issued on 5 February 2010 on the release of its third quarter operating results at 31 December 2009, TrustPower recorded that it was seeking pricing from wind turbine suppliers for Stage 1 of the Mahinerangi project, and that that process would assist in determining whether it was economically feasible to progress the project.3.14 A business case for Mahinerangi Stage 1 was presented to the TrustPower Board meeting in April 2010. The Board accepted management's recommendationto approve construction of Stage 1, from which electricity was to be supplied to the local distribution network. Stage 1 was completed in May 2011.4. Wairau River Hydro4.1 TrustPower purchased the Branch River Scheme in Marlborough in 1998. The Branch River is a tributary of the Wairau River. Following the purchase, TrustPower began investigating the potential for an additional hydro scheme on the Wairau River.4.2 Management reported to the TrustPower Board meeting on 31 January 2002 that work had started on a survey for a proposed diversion of water from the river,and that scoping work for environmental and ecological assessments was under way. In October 2002, management reported as to two potential Wairau River schemes, one upstream and one downstream of the existing Branch scheme.4.3 In February and May 2003, management reported as to negotiations with landowners for access for investigation and feasibility assessment. In May 2003 management also reported that proposals had been sought from consultants for environmental assessments of the project. Studies were to commence during May, with a view to completing an AEE for a resource consent application by March 2004. It was further reported that the key objective of the study was to quantify the river flow available for electricity generation, and confirm the economic viability of the project.4.4 During the remainder of 2003, TrustPower engaged consultants to prepare feasibility assessments, including assessments of the possible effects of the project on the landscape and cultural and archaeological aspects of the Wairau Valley, and to investigate the impact of increased traffic, noise, and dust in construction.4.5 Tenders were called for geotechnical and engineering assessments in September 2003, with a target of lodging a resource consent application by March 2004. The terms of reference for the engineering assessments noted that the key objective of the assessments was to present a preliminary design for the scheme that was technically and economically viable and environmentally sustainable.4.6 In a report for the December 2003 TrustPower Board meeting, management recorded that draft feasibility reports were being reviewed, final draft environmental and engineering assessment reports would be released for peer review at the end of January 2004, and work had started on compiling a summary feasibility report and AEE report. Management continued to report on progress as to technical and economic appraisal of the project, and consultation with affected landowners, with a view to the negotiation of easements.4.7 In a "Project Status Update" presented to the Board on 29 April 2004, it wasrecorded that lodgement of an application for resource consents was subject to receiving the approval of the Board, and securing access/easements to all land in question.4.8 A "Wairau Valley Hydro Scheme Feasibility Report" was presented to theTrustPower Board at its September 2004 meeting, in respect of a scheme to divert part of the Wairau River flow into the Branch River scheme, then to convey the water through interconnecting canals and penstocks to five new power stations spaced over about 46 km in the Wairau Valley. The project was considered to be a robust, environmentally, technically, and economically viable proposition. Major risks that could halt development were considered to be the denial of resource consent, and denial of access by one or more landowners along the scheme.4.9 A "Wairau Valley Hydro Scheme Development Evaluation Report" waspresented to the June 2005 TrustPower Board meeting. The report noted that thescheme layout and project design had been refined since the 2004 feasibility assessment, to mitigate the impact on affected properties and the environment. It was also noted that as at the date of the report, TrustPower had agreed access to 74 per cent of the required land. Project risks were listed as being denial of resource consent, a change in government policy, an increasing imbalance between construction industry supply and demand, and increasing costs. Management sought and obtained Board approval to lodge an application for resource consent.4.10 The application for resource consent was lodged on 14 July 2005. TrustPower continued to seek to secure land access by land acquisition and easement agreements, and to engage consultants to peer review assessments and respond to requests for further information under s 92 of the RMA. The application for resource consent was heard over the period from June to December 2006. An interim decision was issued in June 2007, and a final decision on 14 July 2008. Appeals to the Environment Court were heard over the period from November 2009to May 2010, and the Court's final decision granting consent was delivered on 8 June 2011.4.11 While application for resource consent was progressing through the local authority and Environment Court, TrustPower continued to seek to secure land access by acquisition or easement agreements. As at the date of the EnvironmentCourt's final decision, TrustPower had not been able to secure access agreements with the owners of 36.7 per cent of the land required for the project. Five landowners were considered to be unlikely to agree to access.4.12 In his evidence in this Court Mr Campbell (who has been TrustPower'sgeneral manager, Generation since April 2011) said that Wairau hydro has not progressed to second step feasibility. It has unresolved land access issues and until these issues are resolved, the project is not practicable. He added that under current market conditions the project is also not likely to be economically viable.