WESTPAC BANKING CORPORATION V THE COMMISSIONER OF INLAND REVENUE HC AK CIV 2004-404-006444

WESTPAC BANKING CORPORATION V THE COMMISSIONER OF INLAND REVENUE HC AK CIV 2004-404-006444 26 October 2007IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY CIV 2004-404-006444IN THE MATTER OF the Tax Administration Act 1994 and the Income Tax Act 1994 BETWEEN WESTPAC BANKING CORPORATION Plaintiff AND THE COMMISSIONER OF INLAND REVENUE Defendant Hearing: 31 July, 1, 3 and 9 August 2007 Appearances: Jim Farmer QC, Richard Green and Richard Lange for Plaintiff Brendan Brown QC, Alan Goosen and Rebecca Ellis for Defendant Judgment: 26 October 2007JUDGMENT OF HARRISON JIn accordance with R540(4) I direct that the Registrar endorse this judgment with the delivery time of 3.00 pm on 26 October 2007_________________________________________________________________________________ SOLICITORS Simpson Grierson (Auckland) for Plaintiff Crown Law Office (Wellington) for Defendant COUNSEL JA Farmer QC; BWF Brown QCTable of Contents Para No. Introduction [1]Strike Out [5]Transactions [9]Statement of Claim [14]Statutory Framework [25](1) Disputes procedure [27](2) Binding rulings [34](3) Challenge procedures [39](4) Commissioner's duties and powers [42]Judicial Review(1) Inconsistency [47](a) Legal principles [48](b) Westpac's case [68](c) Decision [72](i) Inconsistency in principle [73](ii) Representation [82](iii) Inconsistency in fact [86](iv) Fairness [90](v) Reliance [91](d) Simunovich Fisheries [99](e) Summary [102](2) Legitimate Expectation : Substantive (a) Principles [103](b) Decision (i) Ex Parte Unilever [109](ii) MFK Agencies [123](3) Legitimate Expectation : Procedural [131]Conclusion [149]Result [153]Introduction[1] Westpac through wholly owned subsidiaries entered into four structured financing transactions with overseas counter-parties between September 1998 and July 1999. In chronological order they were the Koch, First Data, GE and CSFB transactions. I accept for these purposes that the structure and context of each was materially the same or materially similar. [2] Westpac sought a binding ruling from the Commissioner of Inland Revenue that the statutory tax avoidance provisions would not apply to negate or vary its proposed tax treatment of First Data. It applied in May 1999, after entering into Koch and First Data and just before GE and CSFB. The Commissioner issued a favourable ruling some 19 months later in January 2001. The bank never sought binding rulings for Koch, GE or CSFB. [3] Westpac's income tax returns filed for the 1999, 2000, 2001 and 2002 years took, it says, 'appropriate account' of all four transactions. However, in September 2004 the Commissioner reassessed the bank to taxation liability of $580m for Koch, GE and CSFB for the 1999 year. He says they were entered into for the purposes of avoiding tax. It is common ground that the Commissioner's decision reflects a change in his interpretation of the law from the approach adopted in his First Data Ruling three years earlier. [4] Westpac challenges the Commissioner's decision to issue an amended assessment. Its statement of claim pleads two causes of action. The first alleges that Koch, GE and CSFB are not tax avoidance arrangements and are not void but, if they are, the statutory anti-avoidance provisions do not operate in the manner and with the effect contended by the Commissioner. It pleads that the amended assessment is a disputable decision and seeks an order cancelling, varying or reducing it. The second alleges that the amended assessment is unlawful and invalid because the Commissioner has acted in abuse of his power. It seeks a declaration to that effect together with an order setting aside or cancelling the assessment.Strike Out[5] The Commissioner has applied to strike out Westpac's second cause of action. His counsel, Mr Brendan Brown QC, submits that the claim is a collateral attack on the correctness of the amended assessment, mounted under the guise of a challenge to validity and designed as a fatal blow to collection of taxes properly owed. He says the claim is a backdoor way of setting up the First Data Ruling as the equivalent to favourable rulings on the other three transactions, as if they had been sought and granted. He submits it is legally untenable and should be struck out before trial. [6] Westpac's counsel, Mr Jim Farmer QC, opposes. He asserts that the amended assessment is the result of inconsistencies which strike at the lawfulness of the Commissioner's powers. The primary inconsistency alleged is the Commissioner's decision not to apply the interpretation of the law adopted in a ruling made by one branch of the Department of Inland Revenue (the IRD), which bound him on First Data, to the three other transactions for which the bank did not seek rulings. Mr Farmer describes Westpac as the 'innocent victim' in an ongoing conflict between the IRD's rulings and corporate sections which the Commissioner has allowed to be resolved against the bank's interests. Alternatively, Mr Farmer says, the Commissioner's conduct denies Westpac's legitimate expectation that he would apply the law consistently to all transactions. [7] The principles governing all applications to strike out, including judicial review proceedings, do not require extensive recitation. I will proceed on the assumption that the factual allegations pleaded in the bank's cause of action are correct. The inquiry is whether the legal basis for the claim is so clearly hopeless that it could not possibly succeed at trial. The jurisdiction applies in a plain and obvious case of untenability: Miller v Commissioner of Inland Revenue [1995] 3 NZLR 664 (CA) per Richardson J at 668. While it is to be exercised sparingly, the power to strike out is not ousted simply because the application raises difficult questions of law: Attorney-General v Prince & Gardner [1998] 1 NZLR 262 (CA) per Richardson P at 267.[8] The question here is whether or not, based on the pleaded facts and within the relevant statutory framework, Westpac's application for judicial review has an arguable legal foundation.Transactions[9] It is necessary, in order to give perspective to this application, to summarise briefly the nature of the challenged transactions. [10] Westpac is incorporated as a company in Australia and is registered as a company under the Companies Act 1993 as an overseas company carrying on business in New Zealand. The transactions affect its wholly owned indirect subsidiary, TBNZ Ltd, and its wholly owned subsidiaries including TBNZ Developments Ltd, TBNZ Capital Ltd and TBNZ Equity Ltd; and TBNZ Developments' wholly owned subsidiary, TBNZ Investments Ltd. All of the TBNZ group are tax residents in New Zealand: s OE2 Income Tax Act 1994 (the ITA); Westpac has never been tax resident in New Zealand. Furthermore, each member of the TBNZ group was a 'conduit tax relief company': s OB1. [11] The essence of the structure of the four transactions is as follows: (1) A TBNZ subsidiary would acquire from a counter-party an equity or trust interest in an overseas entity (the issuer). The counter-party would agree to repurchase that interest at the same price, subject to adjustments, at a specified time (usually five years). The counter- party's parent company guaranteed performance. In economic substance, the TBNZ subsidiary was providing funding to the counter- party. The subsidiary's initial return was in the form of distributions from the issuer. So, for example, in the Koch transaction, TBNZ Investments invested in preference shares in a United States incorporated company and received dividend income in return. It also agreed to sell those shares to a member of the Koch group at a later date;(2) The return to the TBNZ group and the overall advantage between the bank and the counter-party is a function of the agreed distribution to be made by the issuer to the TBNZ subsidiary, a currency and interest rate swap between the subsidiary and the buyer within the Koch group of companies, a guarantee procurement fee of 2.95% of the purchase price paid by the subsidiary to another member of the Koch group, and the bank's borrowing costs; (3) Westpac would deduct its cost of borrowing, the procurement fee and the net cost of the interest rate swap and treat distributions from the issuer either as— (a) being exempt from tax on the basis that the distributions were received by an overseas owned company (as the Westpac subsidiary) from the overseas company (as the issuer would be) under the conduit tax relief rules; or (b) being relieved from tax under the foreign tax credit rules on the basis that a foreign tax credit was available for foreign tax paid by an overseas company (the issuer) resulting in a full credit claimed under the foreign tax credit provisions. [12] The Commissioner's view of these transactions is set out comprehensively in his Notice of Proposed Adjustment (NOPA) issued on 29 September 2004, the day before he formally reassessed Westpac to tax on Koch, GE and CSFB (he was working against a time bar); the bank's position in response is set out in its Notice of Response (NOR) dated 12 November 2004. Extensive but inconclusive correspondence has also passed between the parties. [13] In essence, the Commissioner considers the transactions are structured to provide flexibility as to the rate of distribution back to Westpac – the terms on which the interest swap took place and the level of the guarantee procurement fee thereby provide a mechanism for spreading between the bank and the counter-party the tax benefits associated with the tax asymmetry between deductible expenses and exemptreceipts; and that each transaction is unprofitable (in the sense of being cashflow negative) absent the tax savings arising from the tax shelter it creates against other taxable income of the bank. Against this, Mr Farmer says that moneys were genuinely advanced from Westpac held deposits to an American company to be used for its own commercial purposes for five years; Westpac took real risks on the borrower, the interest rate and the currency; the interest and currency swap arrangements designed to reduce that risk are commercially commonplace; and the transactions were consistent with the conduit tax regime providing for exemption of foreign company dividends.Statement of Claim[14] Westpac's amended statement of claim including the judicial review cause of action was filed in April 2005. On the eve of this hearing the bank tendered a draft amendment which introduced substantial changes. While the document has not been filed, argument proceeded on the premise that the draft represented Westpac's pleaded claim for judicial review. It is necessary to recite its terms fully, in order to appreciate the novel nature of the bank's claim and how, as I shall explain, its case changed yet again in argument at the hearing. [15] The first part of the judicial review cause of action describes the Commissioner's duties in these terms: (1) The Commissioner is appointed pursuant to s 6A Tax Administration Act 1994 (TAA) and is charged with the care and management of the taxes covered by the Inland Revenue Acts, as defined by s 3 TAA, and with such other functions as may from time to time be lawfully conferred on him; (2) The Commissioner is obliged to act consistently and fairly, and to treat like cases alike, and in particular is under a duty pursuant to s 6 TAA to use at all times his best endeavours to protect the integrity of the tax system, defined as including the rights of taxpayers to have their liability determined fairly, impartially and according to law, andthe responsibility of those administering the law to do so fairly, impartially and according to law; (3) As recognised in his memorandum dated 23 November 2001 (the Commissioner's Consistency and Escalation Process Memorandum), this duty extends to not 'knowingly applying different interpretations of the law to different taxpayers concurrently' and to 'applying the law in a consistent manner across the country and in all cases' which would preclude 'acting contrary to another known interpretative position on the basis that the [subject] case is distinguishable where this was objectively justifiable'. [16] The Commissioner possesses certain statutory powers and responsibilities under the TAA and, in its terms, all IRD officers are subject to his direction and control. One such officer is Mr Patrick Goggin who at all material times purported to exercise the Commissioner's delegated authority under s 7 TAA. The disputable decisions and the Commissioner's amended assessment to Westpac were made by Mr Goggin for and on behalf of the Commissioner under his delegated authority. [17] The Commissioner's 1999 amended assessment, based on a finding of tax avoidance, was made by Mr Goggin upon an interpretation of the law and application of legal principles ('the challenged approach') (as evidenced by the relevant NOPAs) which was inconsistent with the interpretation of the law and application of legal principles ('the existing approach') and which until that time (and subsequently) had been applied by the Commissioner to substantially similar transactions, or transactions with one or more substantially similar features, both in relation to Westpac and other taxpayers, and in respect of which the Commissioner has concluded there was no tax avoidance ('the Commissioner's inconsistency'). The First Data Ruling is an example of the Commissioner's application of the existing approach. [18] The Commissioner's inconsistency involves a significant difference of approach as to how and to what extent the underlying scheme and purpose of thespecific tax provisions under review, and the legislation as a whole, is to be taken into account in determining whether or not there is tax avoidance. [19] More particularly, the Commissioner's inconsistency includes a significant difference of approach in respect of (1) guarantee procurement fees; (2) circumstances where 'tax benefits' are shared; (3) circumstances where the tax treatment is asymmetrical as between expenses being deductible and receipts being non-assessable, exempt or effectively exempt by virtue of the receipt of imputation credits; (4) circumstances where transactions are pre-tax negative but post-tax positive, involving the conduit group regime, and in which an equity investment is made instead of a loan; (5) the use of swaps and consideration of the circular close of the resulting funds; (6) determining whether or not an arrangement has a more than merely incidental purpose of tax avoidance; and (7) the application of a reported Australian decision in New Zealand. [20] The Commissioner's inconsistency also reflects a fundamental difference of views between the Corporates and Rulings units which the Commissioner failed or declined to adequately address or properly resolve in accordance with the escalation process set out in the Commissioner's Consistency and Escalation Process Memorandum or otherwise before the 1999 amended assessment was made. [21] More particularly, the escalation process purportedly followed within the IRD for these transactions between October 2003 and January 2004 (1) was carried out on a global basis relating to structured finance transactions undertaken by all banks then under audit, with no escalation report specific to Westpac; (2) took place under a tight timeframe because of an impending statute bar for several banks including Westpac and was therefore hurried and truncated; (3) took place without any discussion with Westpac; (4) was dominated and/or pre-determined by Corporates which had been against the First Data Ruling prior to it being issued; (5) failed to pay any adequate or proper regard to the known interpretative position of Rulings or to consult with Rulings and take its views firmly and adequately into account; (6) incorrectly and inappropriately concluded there was no inconsistency between Corporates' approach (the challenged approach) to the subject transactionsand Rulings' approach (the existing approach) to the First Data Ruling; and (7) relied on allegedly different facts and evidence later obtained by Corporates. [22] The 1999 amended assessment was purportedly made at a time when the Commissioner was continuing to apply the existing approach in determining whether there was tax avoidance, had not disavowed it, and had not determined that it was incorrect. The existing approach has been and continues to be applied by the Commissioner and should have been applied to Koch, GE and CSFB for the 1999 income year. The Commissioner's inconsistency involves a contemporaneous inconsistency between the existing approach and the challenged approach which is unfair and unreasonable, contravenes the rights of Westpac as a taxpayer, and breaches his obligations including his statutory duty: s 6 TAA. [23] Alternatively, Westpac entered into and/or continued with Koch, GE and CSFB, and administered its tax reviews in respect of those transactions, with the existing expectation that the Commissioner would apply the existing approach to them consistently. This expectation was legitimate as the Commissioner: (1) had continued to apply the existing approach in determining whether there was tax avoidance; (2) had not determined that it was incorrect or was to be changed or reversed; and (3) had not notified Westpac previously that he had determined the existing approach was incorrect or was to be changed or reversed. That expectation was denied by the issue of the 1999 amended assessment. As a result, the Commissioner through Mr Goggin and other IRD officers, has acted in abuse of his power and the assessment is unlawful and invalid. [24] It must be recorded at this juncture that Westpac's claim for judicial review does not explicitly challenge the legal correctness of the amended assessment itself. That challenge is reserved to the first cause of action, although of course success on the second would be absolute and circumvent consideration of the first. Instead, the second claim is said to allege that the decision is the result of a process which constitutes an abuse of power and is thus invalid. So it is unnecessary to subject the amended assessment itself to any scrutiny on the Commissioner's application to strike out.Statutory Framework[25] I agree with Mr Brown that the statutory context within which the Commissioner's amended assessment was made is of critical importance. It necessarily sets the scene for and proscribes the boundaries of judicial review of a decision made by the Commissioner: see Attorney-General v Steelfort Engineering Co Ltd (1999) 1 NZCC 61,030 (CA) per Blanchard J at 61,036. Mr Brown's thesis is that the statutory framework reduces the grounds for judicial review to process- type decisions. [26] The Commissioner's powers to assess a party to tax derive from the ITA, which is substantive, and the TAA, which, as its name signifies, is primarily procedural or administrative. I am concerned with the TAA and its amendments.(1) Disputes procedure[27] An assessment is a 'disputable decision': s 3 TAA. The TAA contains a discrete Disputes Procedure to enable taxpayers to challenge or dispute the Commissioner's decisions including, of course, assessments: Part IV(A). This part was introduced by a 1996 amendment and its purpose is to establish procedures that will: s 89A:(a) Improve the accuracy of disputable decisions made by the Commissioner; and (b) Reduce the likelihood of disputes arising between the Commissioner and taxpayers by encouraging open and full communication (c) Promote the early identification of the basis for any dispute concerning a disputable decision; and (d) Promote the prompt and efficient resolution of any dispute concerning a disputable decision [28] The Commissioner is empowered to issue NOPAs in respect of a tax return or an assessment: s 89B. The NOPA must provide sufficient details to reasonably inform the recipient of a number of factors including the items in a disputable decision or tax return which the Commissioner proposes should be adjusted: s 89F.To reject a NOPA, the recipient must file a response notice within a fixed period: s 89G. The statute also provides a full regime for disclosure notices after the NOPA is issued: s 89M. [29] I agree with Mr Brown that Part IV(A) is designed to ensure that the principles of natural justice apply. He submits that its enactment raises questions about whether and to what extent there remains scope, outside the express provisions of the Act, for any additional requirements of natural justice relating to the process preceding a disputable decision. In this case, however, Westpac does not allege that the Commissioner denied its rights to natural justice. [30] Mr Brown emphasises s 109 which provides:Except in objection proceedings under Part 8 or a challenge under Part 8A,— (a) No disputable decision may be disputed in a court or in any proceedings on any ground whatsoever; and (b) Every disputable decision and, where relevant, all of its particulars are deemed to be, and are to be taken as being, correct in all respects.[31] Mr Brown submits that s 109 is absolute in its terms, and that the Courts have construed its purpose and effect as excluding rights of judicial review which seek to attack collaterally the correctness of the Commissioner's assessment. He accepts, though, that rights to challenge the process followed by the Commissioner when exercising his statutory power to make assessments are preserved: Golden Bay Cement Co Ltd v Commissioner of Inland Revenue [1996] 2 NZLR 665 (CA). Mr Brown relies in particular on this statement from Harley Development Inc v Commissioner of Inland Revenue [1996] 1 WLR 727 (PC) per Lord Jauncey at 736 (applying R v Inland Revenue Commissioner: Ex Parte Preston [1985] AC 835 per Lord Scarman at 852):Their Lordships consider that, where a statute lays down a comprehensive system of appeals procedure against administrative decisions, it will only be in exceptional circumstances, typically an abuse of power, that the Courts will entertain an application for judicial review of a decision which has not been appealed. The two decisions in these appeals involve no unfairness and hence no abuse of power.To the same effect is Miller v Commissioner of Inland Revenue [2001] 3 NZLR 316 (PC) per Lord Hoffmann at 329. [32] In this case, though, Westpac, as it is entitled, mounts discrete challenges in the one proceeding both to the correctness and validity of the Commissioner's decision: Golden Bay; Simunovich Fisheries Ltd v Commissioner of Inland Revenue(2002) 20 NZTC 17,456 (CA). The invalidity cause of action does not expressly challenge correctness. Whether it does so, however, collaterally is a central consideration in this application. [33] Three other provisions are directly relevant in this context. The Commissioner's obligation to ensure that his assessments are correct is reinforced by his power to amend at any time if he thinks it 'necessary in order to ensure its correctness, notwithstanding that tax already assessed may have been paid': s 113(1). The amended assessment must be issued within four years from the end of the year in which the return was filed: s 108. Also, an assessment made by the Commissioner is not invalidated through a failure to comply with the TAA or any other revenue statute or because the assessment is made in compliance with a declaration or recommendation by an authorised officer: s 114.(2) Binding rulings[34] The purpose of the binding rulings regime introduced by a 1995 amendment is to: s 91A: (a) Provide taxpayers with certainty about the way the Commissioner will apply taxation laws; and (b) Help them to meet their obligations under those laws – by enabling the Commissioner to issue rulings that will bind the Commissioner on the application of those laws. [This] part also recognises the importance of collecting taxes imposed by Parliament and the need for full and accurate disclosure by taxpayers who seek to obtain binding rulings[35] The Commissioner is under an absolute obligation: s 91E(1): [to] make a private ruling on how a taxation law applies to a person and to the arrangement for which the ruling is sought.That general obligation is subject to two qualifications. First, the Commissioner has a discretion to decline to make a private ruling in three circumstances: s 91E(3). Second, the Commissioner is prohibited from making a ruling in an extensive set of defined circumstances: s 91E(4). These qualifications indicate the narrow range within which statute contemplates the Commissioner being bound in his interpretation of the ITA. They confirm that a high degree of specificity and certainty is required of a transaction before a binding ruling will be issued. [36] Having issued a binding ruling, the Commissioner is duty bound to apply it to 'the person and the arrangement in accordance with the ruling': s 91EA(1), except, for example, where the taxpayer has been guilty of a material non-disclosure or failed to comply with a stipulated condition: s 91EB(2). It is equally clear from these provisions that the ruling is limited in its application to the 'arrangement' to which it expressly applies. [37] I agree with Mr Brown. Part VA is a detailed and unambiguously defined method available to a taxpayer to ensure that the Commissioner binds himself for the future on the taxation treatment of a specific arrangement. The confined scope of the circumstances in which a binding ruling can effectively be granted is emphasised by the fact that, once issued, the ruling cannot be the subject of challenge, manifesting a statutory reluctance to bind the Commissioner in all but the clearest of cases. [38] I part company with Mr Brown, though, and agree with Mr Farmer that a binding ruling is not the only way in which the Commissioner can be bound to apply the law to assess a transaction in a certain way. Mr Farmer points to Parliament's rejection of a recommendation from the Organisational Review Committee in April 1994 to the Minister of Revenue that a statutory binding ruling should be 'the only basis on which taxpayers can bind the Commissioner', implying a legislative recognition that this Court should remain free to exercise its supervisory jurisdiction to prevent unfairness. Mr Farmer says the power should apply 'in appropriate cases'; I would limit it, as the leading authorities emphasise, to rare and exceptionalcases, where an abuse of power can be made out. The question is whether this case might arguably fall into that category.(3) Challenge procedures[39] The principal mechanism available to a taxpayer to dispute the correctness of an assessment is to invoke the challenge procedure: Part VIII(A). It was also introduced in 1996 and relates to every notice of disputable decision issued by the Commissioner under an Inland Revenue enactment on or after 1 October 1996: s 138A. It identifies the circumstances in which a taxpayer is entitled to challenge an assessment: s 138B; or a disputable decision other than an assessment: s 138C. Certain rights of challenge are excluded: s 138E(1). [40] The Commissioner has powers to require payment of disputed tax before a decision is made: s 138I. There are powers to transfer a taxpayer's challenge to different hearing authorities, either from the High Court to the Taxation Review Authority or vice versa: s 138N. The powers of the hearing authority are wide: s 138P:(1) On hearing a challenge, a hearing authority may— (a) Confirm or cancel or vary an assessment, or reduce the amount of an assessment ; or (b) Make an assessment which the Commissioner was able to make at the time the Commissioner made the assessment to which the challenge relates, or direct the Commissioner to make such an assessment.[41] Mr Brown submits that these statutory provisions show a clear intent that primacy is to be given to ensuring that a taxpayer's tax liability is accurately quantified and reflected in correct assessments; and that the very nature of the objection or challenge process will obviate the need for most, if not all, procedural attacks. That is because, he says, the de novo nature of the statutory objection and challenge procedures will allow to be cured at the hearing any alleged defects in the processes occurring prior to the impugned assessment. I agree.(4) Commissioner's duties and powers[42] Other amendments were also introduced at the same time as the binding rulings regime. Section 6 expressly provides:(1) Every Minister and every officer of any government agency having responsibilities under this Act or any other Act in relation to the collection of taxes and other functions under the Inland Revenue Acts are at all times to use their best endeavours to protect the integrity of the tax system. (2) Without limiting its meaning, the integrity of the tax system includes— (a) Taxpayer perceptions of that integrity; and (b) The rights of taxpayers to have their liability determined fairly, impartially, and according to law; and (c) The rights of taxpayers to have their individual affairs kept confidential and treated with no greater or lesser favour than the tax affairs of other taxpayers; and (d) The responsibilities of taxpayers to comply with the law; and (e) The responsibilities of those administering the law to maintain the confidentiality of the affairs of taxpayers; and (f) The responsibilities of those administering the law to do so fairly, impartially, and according to law.[43] In addition, s 6A now particularises these powers and duties by the Commissioner:(1) The person appointed as chief executive of the Department under the State Sector Act 1988 is designated the Commissioner of Inland Revenue. (2) The Commissioner is charged with the care and management of the taxes covered by the Inland Revenue Acts and with such other functions as may be conferred on the Commissioner. (3) In collecting the taxes committed to the Commissioner's charge, and notwithstanding anything in the Inland Revenue Acts, it is the duty of the Commissioner to collect over time the highest net revenue that is practicable within the law having regard to— (a) The resources available to the Commissioner; and(b) The importance of promoting compliance, especially voluntary compliance, by all taxpayers with the Inland Revenue Acts; and (c) The compliance costs incurred by taxpayers.[44] These 'care and management' provisions mirror the English statutes, particularly s 1 Taxes Management Act 1970: see Inland Revenue Commissioners v National Federation of Self-Employed and Small Businesses Ltd [1982] AC 617 ('the Small Businesses case'), per Lord Wilberforce at 631-633 and Lord Diplock at 636; Steelfort at 61,036-61,037; Fairbrother v Commissioner of Inland Revenue[2000] 2 NZLR 211 per William Young J at [20]-[32]. The changes followed the Organisational Review Committee's 1994 report. [45] Mr Farmer submits that these new provisions reflect pre-existing legal obligations recognised in law. He says that, for example, the duties to treat taxpayers equally and to act consistently, lying at the heart of Westpac's claim for judicial review, do not spring from ss 6 and 6A. Those provisions are a valuable reflection and affirmation of pre-existing duties but do not create them. The importance of ss 6 and 6A lies in the obligation it imposes on the Commissioner as a matter of statutory duty to act to protect the integrity of the tax system and, if he fails, public law remedies remain available to enforce performance. [46] I am satisfied that the enactment of s 6 and the care and management provisions does not exclude a right of review: Simunovich. Westpac's invalidity cause of action relies concurrently on ss 6 and 6A and settled principles of public law, and I am content to proceed on that basis. To this extent, I do not accept Mr Brown's absolute proposition that the statutory framework reduces the grounds for judicial review to process type decisions, but I repeat that the scope for challenge is confined to rare or exceptional cases.Judicial Review(1) Inconsistency[47] Westpac's counsel filed a very lengthy synopsis of submissions in advance of the hearing, and tendered a casebook of over 70 authorities. However, at the hearing Mr Farmer produced a summary memorandum which focused but redirected the bank's case. He acknowledged that Westpac's allegation of inconsistency amounting to unfairness is the main plank of its claim, with its alternative expression in legitimate expectation, and did not pursue arguments advanced in the written synopsis of unreasonableness or a so-called innominate ground. The former features in Westpac's draft amended statement of claim; the latter does not and while it may have some academic appeal it has no place here.(a) Legal principles[48] What, then, is the source of the Commissioner's obligation to act consistently? Mr Farmer anchors Westpac's case squarely on the authority of HTV Ltd v Price Commission [1976] ICR 170 (CA). The HTV decision is the high water mark of the consistency principle and it is necessary to appreciate its facts in order to provide a setting for evaluating Mr Farmer's submission. [49] HTV provided television programmes under contract with the Broadcasting Authority. It paid a special fee or levy in addition to ordinary charges, known as the Exchequer levy, which was passed on to the Exchequer or Treasury. Between 1968 and 1974 HTV calculated the Exchequer levy as a percentage of its advertising receipts. However, in 1974 a new statute provided for the levy to be calculated on gross profits. [50] Parliament had established a Price Commission in 1973 as part of a range of counter-inflationary measures. One of its functions was to control prices by controlling profit margins. HTV was subject to the Price Code. The Commission wrote to another programme provider in June 1973 to advise its ' opinion that the levy should be treated as a cost for the purpose of determining the net profit margin' (the judgments do not record whether the letter was shown to HTV). In June and again in December 1974 HTV gave the Commission notice of its intention to increase its advertising charges, including the Exchequer levy as part of its totalcosts as the Commission's letter advised. The Commission allowed both applications on this basis. [51] In July 1975 HTV again notified the Commission of its intention to increase its advertising charges, so that its prices could afford the margin permitted by the Price Code over its total costs including the Exchequer levy per unit of output. On this occasion, however, the Commission refused HTV's application on the ground that a levy on profits was not a cost for the statutory purposes. In its view the levy was no longer a cost once the method of calculation changed in 1974 from one based on advertising receipts to profits. The financial consequences for HTV were severe. It was much more difficult to justify a price increase. [52] HTV applied to the High Court for a declaration that the Exchequer levy was a cost for the purpose of calculating the amount of a permissible price increase under the code; and that such an increase should take account of the increased levy payable on the increased profits. HTV failed at first instance before Mocatta J but succeeded on appeal to the Court of Appeal (Lord Denning MR, Scarman and Goff LJJ). Lord Denning MR delivered the leading judgment. He said this at 185:I think those criticisms are all well justified. It is plain to me that the Exchequer levy retained the same character both before July 1974 and after it. Its character remained the same, but it was calculated differently. Instead of being calculated on receipts, it was calculated on profits. But it still retained the same characteristics. It was a payment by HTV to the authority in return for a licence to produce the programmes. I see no warrant whatever for treating it differently after July 1974 from before. Yet that is what the Price Commission seek to do.[53] Lord Denning answered in the negative his rhetorical question about whether the Commission might be permitted to act in this way, again at 185: It is, in my opinion, the duty of the Price Commission to act with fairness and consistency in their dealings with manufacturers and traders. Allowing that it is primarily for them to interpret and apply the code, nevertheless if they regularly interpret the words of the code in a particular sense – or regularly apply the code in a particular way – they should continue to interpret it and apply it in the same way thereafter unless there is good cause for departing from it. At any rate they should not depart from it in any case where they have, by their conduct, led the manufacturer or trader to believe that he can safely act on that interpretation of the code or on that method of applying it, and he does so act on it. It is not permissible for them to depart from their previous interpretation and application where it would not be fair or just to do so. It has been often said, I know, that apublic body which is entrusted by Parliament with the exercise of powers for the public good, cannot fetter itself in the exercise of them. It cannot be estopped from doing its public duty. But that is subject to the qualification that it must not misuse its powers: and it is a misuse of power for it to act unfairly or unjustly towards a private citizen when there is no overriding public interest to warrant it [Emphasis added][54] Lord Denning cited four earlier English cases, all supporting the principle that a Minister of the Crown or a statutory authority 'was not allowed to go back on [its word]' where an individual had acted upon it: at 185-186 (the Judge had been a party to all four decisions, whether at first instance or on appeal, and the first,Robertson v Minister of Pensions [1949] 1 KB 227, followed his own precedent inCentral London Property Trust Ltd v High Trees House Ltd [1947] KB 130). Lord Denning's principle was plainly an adaptation of the law of estoppel, with constant emphasis upon the requirement of reliance and the implicit acceptance of detriment (and with much in common with the ground of legitimate expectation, in which Lord Denning had already played a pioneering part: see Schmidt v Secretary of State for Home Affairs [1969] 2 Ch 149). In view of this primary finding, Lord Denning did not consider it necessary to determine whether or not the Commission had erred in law, although he was inclined to that conclusion: at 186. [55] While affirming the requirement of fairness, Scarman LJ decided the appeal primarily on a different ground. He formulated three questions for determination on appeal: at 187. The first related to the Court's powers of review of decisions of the Price Commission. Scarman LJ was satisfied that the Court had jurisdiction where ' it can be shown that [the Commission has] fallen into an error of law in the construction of statutory language or [had] acted unfairly ': at 189. This was because the Commission had powers to enforce a code which affected the rights of commercial and industrial enterprises, and thus must be implemented fairly. [56] The second and decisive question was of statutory interpretation (the analysis eschewed by Lord Denning). Scarman LJ was satisfied that the issue was one of mixed fact and law. He concluded the Commission had erred in law in 1975 in not recognising that the Exchequer levy was a cost or expense (but by inference was correct in its 1973 letter). Like Lord Denning, Scarman LJ was satisfied thatthroughout the relevant period, both before and after the change in the mode of its calculation in 1974 from a percentage of receipts to profits, the levy's nature and character remained the same: at 191. This conclusion would have been a sufficient ground for allowing the appeal. [57] Nevertheless, Scarman LJ answered obiter the third question of whether the Commission had acted unfairly so as to justify intervention, even if its interpretation of the code was not reviewable. He was satisfied that the Commission had acted inconsistently in its dealings with HTV. He said this: at 191-192: The commission did not object to Exchequer levy, calculated as it then was upon the basis of gross receipts, being included within such total costs. H.T.V. would reasonably have inferred from their dealings with the commission prior to their present dispute that the commission accepted Exchequer levy as a cost. But now the commission is saying that the levy is to be treated not as a cost but as a compulsory transfer to the state of a share of the proceeds of a monopoly for the purposes of paragraph 39. Unless it is possible to treat the change in the basis of calculation as transforming the character of the Exchequer levy, I fail to see how the commission can rebut an accusation of inconsistency that they are acting inconsistently in the same subject matter. [Emphasis added][58] Importantly, the Judge accepted that inconsistency is not of itself necessarily unfair. But it was in this case, because: at 192: the commission's inconsistency has already resulted in unfairness, and, unless corrected, could cause further injustice. First, it gives rise to a real possibility of an erosion of profit margin which paragraph 39 is ineffectual to prevent. The Exchequer levy having been included in total costs for the purposes of paragraph 18, it is possible that prices cannot be increased on account of increased costs to the same extent as they could have been if it had been excluded Profit margins, consequently, might well be less than they would have been had the Exchequer levy been excluded from total costs. Thus it is possible that the profit margin in 1973 ought to have been greater than it was [Emphasis added][59] Scarman LJ accepted that, independently, an anomaly arose from the Commission's construction of the code: also at 192: By the decision of the Price Commission to exclude Exchequer levy from the calculation of current profit margins, those margins are enhanced so as to appear closer to the 1973 margin than ought in justice to be the case. Intruth, in order to get an increase under the paragraph, the contractor, on this basis, has to make good the amount of the Exchequer levy before he can establish a margin for comparison with that of April 30, 1973. The commission, to avoid being unfair, must either include or exclude Exchequer levy as a cost upon both sides of the comparison. Since it has made clear that, in the absence of a ruling to the contrary, it intends to exclude it when calculating current profit margins, the commission must also exclude it when calculating the profit margin at April 30, 1973. I am not completely sure that it intends to do so if it succeeds in this litigation.[60] Goff LJ was the third member of the Court. He agreed that the question of the Commission's construction of the code was one of law and thus reviewable and that it had erred: at 193-194. However, if the Court was wrong in deciding that the question was one of law, Goff LJ found the Commission would be acting unfairly if it was permitted to change its stance on the character of the Exchequer levy, emphasising ' the utmost importance that statutory tribunals should be consistent ': at 195. [61] The House of Lords considered HTV in Preston's case nine years later when dismissing an application by a taxpayer for judicial review of a statutory notification procedure initiated by the Revenue. The taxpayer alleged that in earlier correspondence the Revenue purported to contract or represent that it would not at a later date re-open tax assessments for earlier years if he withdrew claims for interest relief and capital loss in those years. [62] Lord Templeman delivered the leading speech in Preston. He endorsed the views expressed by the House three years earlier in the Small Businesses case that a right of judicial review lay against the Commissioner in rare circumstances amounting to an abuse of power. He accepted that judicial review would be available, however, if a decision by the Commissioner: at 866-867: is unfair to the [taxpayer] because the conduct of the commissioners is equivalent to a breach of contract or a breach of representation. Such a decision falls within the ambit of an abuse of power for which in the present case judicial review is the sole remedy and an appropriate remedy I consider that the [taxpayer] is entitled to relief by way of judicial review for 'unfairness' amounting to abuse of power if the commissioners have been guilty of conduct equivalent to a breach of contract or breach of representations on their part. [Emphasis added][63] Lord Templeman cited the HTV case as an exception to the general principle that unfairness amounting to an abuse of power will not be justiciable without proof of an improper motive: at 865-866, emphasising that the unfairness arose from the Commission's misconstruction of the code it was enforcing when changing its mind about the treatment of the Exchequer levy; if it had not erred, the Commission would not have acted inconsistently and unfairly: at 866. Its error deprived HTV of an increase in advertising charges, to which it was lawfully entitled and which it required in order to remain financially viable. [64] Lord Templeman cited from the passage of Lord Denning's judgment in HTVset out above. He gave it jurisprudential context and rationalised its relationship to private law remedies by noting that the precedents followed by Lord Denning showed: at 865: the authorities acted in a manner for which, if the authorities had not been emanations of the Crown, the applicants would have enjoyed a remedy by way of damages or an injunction for breach of contract or breach of representations.[65] Lord Templeman subjected Scarman LJ's judgment in HTV to careful attention. He construed the Judge's finding of unfairness as following from his conclusion that the Commission had misconstrued the code and thus erred in law. Lord Templeman viewed Scarman LJ's analysis of the unfair consequences for the company as powerful support for the argument that the Commission must have erred. In the event, Lord Templeman treated HTV as authority for the proposition that the Revenue may be guilty of unfairness amounting to an abuse of power if its conduct would: at 866: in the case of an authority other than Crown authority, entitle the appellant to an injunction or damages based on breach of contract or estoppel by representation.[66] The other four members of the Court in Preston, Lords Scarman, Edmund- Davies, Keith and Brightman, concurred. Only Lord Scarman gave a separate speech. He endorsed his judgment in HTV as illustrating the extent to which the principle of fairness falls for consideration in determining whether a statutory power has been abused or exceeded: at 852. In his judgment, this principle tempered Lord Diplock's statement in the Small Businesses case that judicial review was notavailable ' for acts done lawfully in the exercise of an administrative discretion which are complained of only as being unfair or unwise ': at 637. [67] Lord Scarman accepted in Preston, however, that the Court cannot question the fairness of the Revenue's decision to take action against a taxpayer except 'in special circumstances'; and agreed with Lord Templeman's classification of the availability of the remedy where the Revenue had acted in a way ' equivalent to a breach of contract or a breach of a representation giving rise to an estoppel': at 852.(b) Westpac's case[68] Mr Farmer's summary memorandum formulated Westpac's inconsistency argument as follows: (1) Westpac obtained the First Data Ruling under the statutory rulings regime to the effect that its proposed structured finance transaction would not constitute tax avoidance. Other rulings are to the same effect. This ruling was supported by fully reasoned issues reports; (2) In reliance on the First Data Ruling, Westpac maintained and entered into a number of similar transactions. The Commissioner has now deemed all to constitute tax avoidance (Westpac's draft amended statement of claim does not allege reliance, and I shall return to this subject); (3) The Commissioner is required to act consistently and fairly in relation to decisions affecting a taxpayer, whether singularly or collectively (a) as a matter of statutory obligation: s 6 TAA; (b) as a matter of general public law obligation; and (c) in accordance with his own stated policy as set out in the consistency and escalation memorandum;(4) The Commissioner did not act consistently and fairly when making the amended assessments in that: (a) there is a fundamental inconsistency between the view taken by the Commissioner through his ruling officials on the correct application of s BG1 ITA (tax avoidance) to the structured finance transaction, as contained in both the First Data Ruling and an earlier ruling in at least one other bank's case on the one hand and the view taken by him through his corporate officials when amending the Westpac assessment and issuing the NOPAs on the other. Both Corporates and Rulings acknowledge this inconsistency; (b) in accordance with the Commissioner's consistency and escalation policy the issue was referred to escalation, requiring consultations with Rulings and that Westpac be kept informed of the process. Corporates frustrated the process and ensured that the consultation did not take place. In itself, this was wrongful administrative conduct – it excluded Rulings and Westpac from the consultative process intended to obtain consistency and also obscured the fact that the fundamental difference of opinion related to the way in which s BG1 was being interpreted and applied. [69] Westpac's pleaded allegation of inconsistency divides into two. One is that the amended assessment, the impugned decision, inconsistently adopted the challenged approach, the one propounded by Corporates, ahead of the existing approach, the one favoured by the Rulings section and leading to the First Data Ruling. The other aspect of inconsistency is the Commissioner's alleged failure to follow his consistency and escalation process memorandum before making the assessment. Westpac's statement of claim alleges seven breaches of the process. At least four are in essence restatements of the primary ground of inconsistency between legal approaches. The other three are of a procedural nature.[70] It is, in my view, material that Westpac does not allege that any or all of the breaches of the memorandum constitute actionable inconsistency or provide a foundation for invalidity. This allegation sits on its own without any apparent relationship to Westpac's claim for relief. This may be because ultimately it does not add anything. [71] I infer, though, that the isolation of the breach of memorandum allegation reflects Mr Farmer's recognition that the so-called breaches are not unlawful and are thus unjusticiable: Small Businesses. Nevertheless, given that he placed greater emphasis upon this allegation in oral argument than in his written submissions, I shall return to it later within consideration of Westpac's legitimate expectation claim. But for now I shall focus on the primary allegation of consistency.(c) Decision[72] In my view Mr Farmer's faith in HTV does not withstand scrutiny. He has failed to establish how Westpac's case might arguably fall within the HTV principle of inconsistency. I think his argument fails at many levels. The first is generic or conceptual and the others are specific to the elements of inconsistency.(i) Inconsistency in principle[73] First, I do not consider that the inconsistency principle can apply here. Indeed, I question the extent to which inconsistency survives today as a stand-alone ground of judicial review. The reason, I think, for its failure to evolve is its conceptual difference from orthodox grounds of administrative or public law review which focus on the process and logic of decision making. [74] The House of Lords approved the HTV decision in Preston. But the speeches of both Lords Templeman and Scarman, like Lord Denning MR in the Court of Appeal, were careful to rationalise its jurisprudential basis upon an estoppel analogy conceptually indistinguishable from legitimate expectation of a substantial benefit. Neither of the Law Lords in Preston recognised inconsistency as a discrete groundfor review. As a matter of principle in a case like this, inconsistency is subsumed within the estoppel type ground because of its doctrinal foundation on a requirement for consistent conduct. [75] Inconsistency is not of itself, in any event, unfair in the public law sense:HTV per Scarman LJ at 192. Something more is required. The rationale for the inconsistency principle applied in the HTV case does not lie in the existence of a change of mind by a public authority. It lies in a change which is of a legally incorrect and thus unfair nature, striking at the very heart of the proper exercise of a statutory power. The unfairness for HTV arose from the Commission's error of law. The ratio of the judgments of Scarman and Goff LJJ was not that the Commission was wrong in 1975 because its decision was unfair but that it was unfair because it was wrong. The unfairness lay in the adverse consequences of applying a legally incorrect decision to a company which had previously dealt with the Commission upon a different but correct interpretation of the law and arranged its financial affairs accordingly. [76] On this analysis, adopted by Lord Templeman in Preston, the judgments of Scarman and Goff LJJ were founded on the traditionally reviewable ground of error of law: see Thames Valley Electric Power Board v NZFP Pulp & Paper Ltd [1994] 2 NZLR 641 (CA) per McKay J at 654; Chiu v Minister of Immigration [1994] 2 NZLR 541 (CA) per Fisher J at 550. The Price Code did not apparently provide a right of appeal against a decision by the Commission or incorporate a mechanism comparable to the disputes procedure under the TAA allowing a taxpayer the right to challenge an assessment decision. In its absence, judicial review was the only remedy available in HTV to correct a legal error. [77] There can be no constitutional proscription on the right of the Commissioner to change his mind on the correct interpretation of the tax avoidance provisions of the ITA. It is a notoriously difficult area of the law. Indeed, the Commissioner is under a duty to change his mind if he concludes his earlier view was wrong: Miller v Commissioner of Inland Revenue (1993) 15 NZTC 10,187 at 10,203-10,204, Blanchard J.[78] The taxpayer can, however, challenge the Commissioner by resorting to the disputes procedure if his revised interpretation is erroneous in law. Its remedial purpose eliminates any scope for Westpac to review the Commissioner for inconsistency and unfairness in the HTV sense: see Preston per Lord Scarman at 852. There is no risk of a '[misuse] of administrative authority which might otherwise go unchecked': Thames Valley Electric Power Board per Cooke P at 653. [79] Mr Farmer acknowledges that the Commissioner was entitled to change his mind, but subject to the qualification that he was not entitled to adopt the challenged approach without first disavowing the existing approach. Mr Farmer cites Lord Denning's observations in HTV in support. But the Judge's statement that the Price Commission should continue to interpret and apply the code in the same way as before 'unless there is good cause to depart from it' must be read in context. And it was in any event immediately qualified by and linked to the traditional elements of estoppel, where the conduct or representation had led to reasonable reliance and a detrimental change in position. [80] Mr Farmer did not cite in support Blanchard J's dicta in Miller v Commissioner of Inland Revenue (1993) 15 NZTC 10,187 at 10,204-10,205 to the effect that the Commissioner might be acting unfairly if he issued a tax avoidance assessment based on a different approach to the one adopted previously without giving the affected taxpayer notice and an opportunity to be heard. On closer examination, however, Blanchard J's qualified observations were in the context of a concern that the amended assessment might itself be capricious or unfair, which is not alleged here, and were not justified by principle. And the Judge confessed to his guilt of the ' sin of examining the possibility of substantive unfairness ': at 10,204, on an application for judicial review where legal correctness did not fall for consideration. In any event, as Mr Brown emphasises, the Commissioner advised Westpac in June 2003 that he was reviewing Koch, GE and CSFB. [81] In my judgment the HTV principle of inconsistency has no place where the Commissioner has issued an amended assessment to tax under a statute which vests rights in the taxpayer, first, to obtain an unconditional assurance on the taxation treatment of a transaction – a private binding ruling – and, second, to dispute anassessment where a ruling is not obtained. An analogy between HTV and this case would arise if the Commissioner disregarded his 2001 ruling and re-assessed Westpac to tax for First Data in 2004 on the challenged approach. He would be acting in breach of the TAA, unfairly and abusing his power: see Matrix-Securities Ltd v Inland Revenue Commissioners [1994] 1 All ER 769 per Lord Browne- Wilkinson at 791, and this Court would have jurisdiction to restrain the Commissioner on the estoppel type ground approved in Preston.(ii) Representation[82] Second, there was no representation by the Commissioner prior to 30 September 2004 relating to the same subject matter – the tax treatment of Koch, GE and CSFB. Identity of subject matter between representation and decision is an essential element of the HTV principle of inconsistency: see Scarman LJ at 192. The Commission's representation in the HTV case was created by its conduct in 1974 in approving the company's two applications for price increases. Its approval related to the same subject matter as the 1975 decision – the correct legal treatment of the Exchequer levy for the purposes of the Price Code. The existence of that earlier conflicting representation was the threshold condition for relief on the estoppel type principles applied in HTV. [83] Westpac does not plead the existence of a representation or its equivalent. The nearest it gets is to an allegation that the Commissioner previously applied the existing approach as exemplified by the First Data Ruling. I repeat that the Commissioner was duty bound to adopt the challenged approach if he decided the existing approach was wrong. This omission is of itself fatal. [84] However, even if Westpac sought to introduce a further amendment, it is not enough to say that First Data was substantially the same as one or more of Koch, GE and CSFB, and that the ruling must have the same status as a representation extending to all four. The First Data Ruling was not the equivalent of an actionable representation that the Commissioner would assess Koch, GE and CSFB to tax in the same way as First Data. There were different transactions and thus the subject matter was not the same.[85] I agree with Mr Brown. The scheme and content of the TAA unequivocally limits every private ruling in its application to the taxpayer to which it is issued and the specific arrangement for which the ruling is stated to apply. If a private ruling on a taxation law applies to a person in relation to an arrangement, and the person applies the law in the way stated, the Commissioner must apply the taxation law relating to the person in the arrangement in accordance with the ruling: s 91EA. Furthermore, the ruling applies only if the taxation law is referred to in the ruling and for the period or income year for which it applies: s 91EB. The ruling can have no wider legal purpose or effect.(iii) Inconsistency in fact[86] Third, Westpac's pleaded case is a challenge to the consistency of the Commissioner's decision itself, in adopting one view of the law in preference to another. It is not a complaint that the Commissioner was inconsistent in making two conflicting representations or decisions affecting the taxpayer on the same subject matter. The decision-maker's assessment of tax, based upon a preference for one of two internally conflicting legal interpretations, is not inconsistent towards the taxpayer in the HTV sense. The Commissioner did not make two or more conflicting statements, representations or decisions affecting Westpac between which an inconsistency could arise – he did no more than follow an allegedly inconsistent approach towards similar transactions. [87] Moreover, the bank does not allege that the Commissioner had no power to reassess Koch, GE and CSFB. Westpac's complaint is not that the decision was made – it does not challenge the process other than relating to alleged breaches of the Commissioner's memorandum – but that it was made adversely. The bank would not have complained if the Commissioner had adopted the existing approach, because the consequences would have been favourable to it. [88] The Commissioner exercised his judgment and formed an opinion on the correct interpretation of the law. It is not suggested that he acted outside his powers or that his opinion was arbitrary, ill considered or dishonest. Stripped down to itsessentials, this is, as Mr Brown submits, a challenge to correctness under the guise of invalidity: Golden Bay at 670. [89] In effect, Westpac is saying that when exercising his statutory powers of assessment the Commissioner was prohibited from applying what he was satisfied was the correct view of the law to the taxation treatment of transactions on which he had never bound or committed himself before. Logically extended, this argument obliged the Commissioner in 2004 to adopt what he was satisfied was an incorrect approach, simply because he had applied it to a similar but not the same transaction some years earlier. That is not an abuse of power. In Lord Templeman's words:Preston at 864: a taxpayer cannot complain of unfairness, merely because the commissioners decide to perform their statutory duties, including their duties to make an assessment and to enforce a liability to tax. The commissioners may decide to abstain from exercising their powers and performing their duties on grounds of unfairness, but the commissioners themselves must bear in mind that their primary duty is to collect, not to forgive, taxes. And if the commissioners decide to proceed, the court cannot in the absence of exceptional circumstances decide to be unfair that which the commissioners by taking action against the taxpayer have determined to be fair(iv) Fairness[90] Fourth, and related to the third ground, Westpac does not identify an unfairness of the type analogous to the HTV case. It does not within the framework of its claim for judicial review allege that the amended assessment was wrong and the consequences were thus unfair. Westpac could only show unfairness in the HTVsense in this context by proving that the assessment was wrong which it does not seek to do because that step would reveal that the claim is a challenge to correctness. As Lord Templeman explained in Preston, if the Commissioner's decision was not wrong, there was no unfairness to the bank because the consequences were those imposed by law.(v) Reliance[91] Fifth, Westpac could never succeed on the HTV line of authority without proving reliance on the Commissioner's inconsistent conduct, and a subsequent change in position and detriment; it is the essential feature linking the inconsistency to the unfair results outlined by Scarman LJ in the HTV case. As noted, the only pleaded inconsistency lies within the Commissioner's reassessment made in 2004, not beforehand. Westpac's statement of claim is notably silent on this element. [92] However, in his supplementary written notes, and in oral argument, Mr Farmer sought to introduce reliance but in a very different conceptual setting; I infer that he appreciated the bank's argument was doomed without it. He said this, within his 'narrower summary' of Westpac's claim:In reliance on the First Data Ruling (and on an earlier draft ruling to the same effect on a transaction – AIG – which did not proceed), Westpac maintained and entered into a number of such transactions (all of which have now been determined by the Commissioner to constitute tax avoidance).[93] It can be seen that this submission significantly shifts the goalposts of Westpac's case on inconsistency. Mr Farmer is postulating a new and different type of inconsistency, affirmatively linking the First Data Ruling and the 2004 assessment. While his argument is inconsistent with Westpac's most recently amended claim, which I repeat says nothing about reliance, I must address it should it be said in another forum that a further pleading amendment might be sufficient to accommodate this change. [94] The undisputed facts answer Mr Farmer's submission. Westpac does not suggest the Commissioner has gone back on his word by treating First Data at all differently from his ruling. And the bank cannot say that it entered into any of the four transactions, including First Data, in reliance on the First Data Ruling. Koch and First Data were undertaken in September 1998 and March 1999 respectively. Westpac did not seek a binding ruling on First Data until 28 May 1999. GE and CSFB were undertaken in July 1999. The First Data Ruling was issued in January 2001. [95] This proceeding challenges the Commissioner's 1999 amended assessment for Koch, GE and CSFB. He had not made any representations to Westpac for thosethree transactions or First Data before the 1999 income year. The bank could not assert that the Commissioner went back on his word by amending his assessment. [96] Faced with this obstacle, Mr Farmer says reliance existed in another sense. He says Westpac could have cut its losses on the three other five year transactions if it had received an adverse First Data ruling in January 2001. But the bank actually unwound half of Koch on 18 September 2000 – that is, before the First Data Ruling – and the other half together with CSFB in August/September 2001; that is, within a few months of the favourable First Data Ruling It did not unwind CSFB until July 2004. Even if Westpac could reasonably rely upon the First Data Ruling for any decisions on the other transactions, its application would be limited to the 2001 year and following. [97] Westpac has no factual or legal basis for an argument of reasonable reliance on the First Data Ruling in any event, given its right to apply for a binding ruling. Mr Farmer answers that it is hardly reasonable or fair to expect taxpayers to go back continually to IRD to sanction under the binding ruling regime identical or substantially similar transactions to those already approved. That is not the point. [98] Westpac had a statutory right to secure the same taxation protection for Koch, GE and CSFB as it enjoyed for First Data. Its reasons for failing to take that step are irrelevant. (It is inexplicable, though, that the bank, which must have acted on professional advice, did not apply for binding rulings for all transactions, given the amounts potentially at issue and the well known vulnerability of redeemable preference share transactions to scrutiny by the Revenue: see Commissioner of Inland Revenue v BNZ Investments Ltd [2002] 1 NZLR 450 (CA).) The inconvenience factor, put forward by Mr Farmer, is totally inconsequential within this framework and Westpac's omission is, I think, fatal to an argument of reasonable reliance.(d) Simunovich Fisheries[99] Finally, Mr Farmer seeks support from Simunovich Fisheries. The Court of Appeal, in what Richardson P called a rare situation, found that the Commissioneracted inconsistently when amending a GST assessment. Within the context of an application for judicial review, the Court held that the Commissioner had erred when amending an assessment to 31 January 1998 by failing to revisit and alter the basis of the GST assessment to 31 July 1995. At that first period, the Commissioner classified the vessel as a taxable supply good. This characterisation had continuing consequences; unless removed or changed it became the basis for calculating GST on sale where it would be zero rated. [100] Richardson P said this for the Court: at [50]:On first principles, if given a character for a particular purpose, an asset must retain that character for that purpose, unless and until it is lawfully changed. It would be inconsistent to have the same asset of the same taxpayer taxed on sale as having a different character from its characterisation in respect of its purchase. For the Commissioner to disregard a basic inconsistency of that kind would undermine the integrity of the tax system which he has the duty under s 6 [TAA] to use his best endeavours to protect.[101] I do not think that Simunovich is on point. If anything, it reaffirms the HTVprinciple of consistency. Just as the character of the Exchequer levy remained the same throughout in that case, so too did the character of the fishing vessel inSimunovich for GST purposes. The Commissioner was plainly wrong in law inSimunovich as was the Commission in HTV. Also, reinforcing the analogy, Richardson P confirmed in Simunovich that the Commissioner's original classification of the boat as a taxable supply good 'obviously would have continuing consequences': at [49].(e) Summary[102] In summary, Mr Farmer accepts Mr Brown's submission that the purpose of Westpac's claim for judicial review is to place it in the same position it would have enjoyed with favourable private rulings on Koch, GE and CSFB. However viewed, Westpac's claim of inconsistency leading to unfairness is in essence a challenge to the correctness of the Commissioner's amended assessment, rather than to the process of making that decision and its validity. The bank's case, whether as pleaded or differently argued, does not approach that rare or exceptionalcircumstance where the Commissioner's decision to assess it to tax on the three transactions might possibly be an abuse of power and thus justiciable.(2) Legitimate Expectation : Substantive (a) Principles[103] The alternative ground of Westpac's claim for judicial review is based upon a plea that the bank entered into and/or continued Koch, GE and CSFB, and administered its tax reviews in respect of those transactions, with 'the existing expectation' that the Commissioner would apply the existing approach (as exemplified by the First Data Ruling) to them consistently. It says this expectation was legitimate as the Commissioner: (1) had continued to apply the existing approach in determining whether there was tax avoidance; (2) had not determined that it was incorrect or was to be changed or reversed; or (3) had not notified Westpac previously that he had determined the existing approach was incorrect or was to be changed or reversed. This expectation was denied by the issue of the 1999 amended assessment. It is, as Mr Brown submits, a claim of a legitimate expectation of a substantive benefit – of a favourable taxation assessment of Koch, GE and CSFB. [104] Mr Farmer's written synopsis ranged wide over the field of legitimate expectation and I must confess to difficulty in following much of its relevance. This is not the forum to embark on a treatise on legitimate expectation and I shall attempt to confine myself to the principles bearing upon this application, conscious that a taxpayer's legitimate expectation is ' necessarily limited by the scheme and purpose of the income tax legislation ': Commissioner of Inland Revenue v New Zealand Wool Board (1999) 19 NZTC 15,476 per Richardson P at [62]. Mr Farmer acknowledges the conceptual overlap with inconsistency; it might be thought to be contradictory then if a claim based on inconsistency as a distinct head of unfairness failed but was nevertheless arguable on the ground of legitimate expectation (Simunovich, where the reverse applied, is an exception).[105] While much has been written, judicially and academically, upon the topic of legitimate expectation, it is largely a restatement of the core requirement that public authorities act fairly when exercising their powers. Its genesis lies in and remains closely aligned to the private law principles of estoppel. Such differences as have recently emerged are, on analysis, no more than conceptual variations adopted to accommodate the changing circumstances of public body activity and to retain the flexibility which is inherent in the High Court's supervisory jurisdiction. One distinction from the traditional elements of estoppel lies in a relaxation of the requirement to prove reliance or detriment, where it is necessary to protect the rights and interests of those whose particular disadvantaged circumstances require judicial intervention (such as in refugee or housing cases). [106] The most recent and authoritative statement of the principle is by Lord Hoffmann: R (Zeqiri) v Secretary of State for the Home Department [2002] UKHL 3 at [44]:It is well established that conduct by an officer of state equivalent to a breach of contract or breach of representation may be an abuse of power for which judicial review is the appropriate remedy: [Preston]. This particular form of the more general concept of abuse of power has been characterised as the denial of legitimate expectation. In considering the expectations which may legitimately arise from statements to taxpayers by the Inland Revenue, Bingham LJ said they must be 'clear, unambiguous and devoid of relevant qualification': [R v Board of Inland Revenue, Ex Parte MFK Underwriting Agencies Ltd [1990] 1 All ER 91]. Mr Gill said that while it might be appropriate in a case of dealings between the Revenue and sophisticated tax advisers to insist upon a high degree of clarity in the alleged representation, this need not necessarily be required in other cases. Kosovar refugees cannot be expected to check small print. In principle I agree that an alleged representation must be construed in the context in which it is made. The question is not whether it would have founded an estoppel in private law but the broader question of whether, as Simon Brown LJ said [in R v Inland Revenue Commissioners, Ex Parte Unilever (1999) 68 TC 205 (CA)], a public authority acting contrary to the representationwould be acting 'with conspicuous unfairness' and in that sense abusing its power. [Emphasis added][107] Both counsel devoted lengthy tracts of written argument to debate about whether legitimate expectation is available for judicial review of a decision by the Commissioner, particularly since the enactment of the care and management provisions and the binding ruling regime. On the one side is the negative viewexpressed by Richardson J: for himself and Woodhouse P in the majority inCommissioner of Inland Revenue v Lemmington Holdings Ltd [1982] 1 NZLR 517 (CA), and singularly in Brierley Investments v Bouzaid [1993] 3 NZLR 655 (CA) at 664. On the other side is the affirmative dicta of Casey J: Brierley at 670. [108] I do not need to determine whether Mr Brown is correct that the Commissioner can now or only ever be bound by a private binding. It is, though, as he says, a salutary starting point that a claim based on legitimate expectation has never succeeded against the Commissioner; Simunovich is the most recent illustration: at [46]-[47]. I am content to proceed on the premise that legitimate expectation may be available: Commissioner of Inland Revenue v Ti Toki Cabarets (1989) Ltd [2001] 1 NZLR 147. The issue is whether it is arguable here.(b) Decision (i) Ex Parte Unilever[109] Mr Farmer cites many authorities. But only a handful are relevant to judicial review of a taxation decision. He says Unilever is closest to this case. The facts were exceptional. The Revenue refused to exercise a discretionary power to accept late claims for loss relief. Both the High Court and Court of Appeal found that over a 20 year period the Commissioners had represented unequivocally by conduct and acquiescence that the time limit was not being rigidly enforced by accepting some 30 claims outside the two year period. The taxation consequences were severe. Both Courts held that, even if the Revenue's conduct was not intended to act upon Unilever's corporate mind, it plainly had that result and fostered a mistaken view formed genuinely that time limits would not be enforced. [110] Sir Thomas Bingham MR, delivering the leading judgment, was satisfied 'on the unique facts of this case' that the Revenue's decision ' to reject Unilever's claims in reliance on the time limit, without clear and general advance notice, is so unfair as to amount to an abuse of power': at 229. He thought also that the decision was so unreasonable as to satisfy the 'notoriously high' threshold of public law irrationality: at 230. He did not discuss legitimate expectation.[111] Simon Brown LJ addressed and dismissed the Revenue's discrete ground of appeal that Unilever was unable to establish all the elements of a challenge based on a substantive legitimate expectation. He rejected an attempt to confine the concept within the four corners of private law estoppel: namely, (a) full disclosure; (b) the existence of a clear, unambiguous and unqualified representation; (c) Unilever's presence within a class of people to whom the representation was made or by whom it was otherwise reliable to rely upon it; and (d) the company's reliance to its detriment. The second element could not be established. But in Simon Brown LJ's judgment to require its strict proof was unnecessary (contrary to Bingham LJ's suggestion in MFK Agencies). [112] Simon Brown LJ said this at 233:'Unfairness amounting to an abuse of power' as envisaged in Preston and other Revenue cases is unlawful not because it involves conduct such as would offend some equivalent public law principle, not principally indeed because it breaches a legitimate expectation that some different substantive decision will be taken, but rather because either it is illogical or immoral or both for a public authority to act with conspicuous unfairness and in that sense abuse its power In short, I regard the MFK category of legitimate expectation as essentially but a head of Wednesburyunreasonableness, not necessarily exhaustive of the grounds upon which a successful substantive unfairness challenge may be based. [Emphasis added][113] Simon Brown LJ added at 234:Public authorities in general and taxing authorities in particular are required to act in a high principled way, on occasions being subject to a stricter duty of fairness than would apply as between private citizens Any unfairness challenge must inevitably turn on its own individual facts In these circumstances I am very ready to accept that rare indeed will be the case when a fairness challenge will succeed outside the MFKparameters. It is certainly difficult to envisage many situations when, absent breach of a clear representation, a highly reputable and responsible body such as the Revenue will properly be stigmatised as having acted so unfairly as to have abused their powers – here their power to accept late claims [Emphasis added]Simon Brown LJ and the third member of the Court, Hutchison LJ, both agreed with Sir Thomas Bingham MR that the Revenue had in law abused its power.[114] Mr Farmer says Westpac's claim is analogous to Unilever. The analogy is said to lie in the Commissioner's acceptance and application of an interpretation of the tax laws to particular types of transaction or transactional features over a long period, then standing back and doing nothing to depart from that interpretation when he could and should have if he wanted to rely on a different one. He says that the common law through the principle of legitimate expectation protects Westpac's position in the same way as in Unilever unless and until the Commissioner changes his mind from the existing approach and announces accordingly. [115] I disagree; I have already dismissed a variant of the same argument in the inconsistency context. To hold otherwise would effectively permit a taxpayer to gain all the benefits of a binding ruling without meeting the attendant statutory requirements on the mere ground of 'substantial similarity'. That is directly at odds with the particularity and certainty demanded by the binding rulings regime. [116] Indeed, the cases could not be further apart. In Unilever there was ample evidence of the Commissioner's longstanding practice, constituted by unequivocal representations and acquiescence, that he would not exercise his discretionary power to extend a statutory time limit favourably to the taxpayer. That feature is fatally absent here. When Westpac entered into the structured financing transactions, there was nothing in the nature of a promise or practice by the Commissioner that he would not assess them to tax in accordance with the challenged approach. [117] Mr Farmer has not identified any conduct by the Commissioner which might possibly justify its central plea of a legitimate expectation that he would consistently apply the existing approach to Koch, GE and CSFB. The Commissioner was not bound to adopt any particular approach. His only duty was to act in accordance with his statutory powers and obligations. As noted, Mr Farmer accepts that the Commissioner was entitled to change his mind about the taxation implications of this generic type of transaction. That is what he did here, and legitimate expectation cannot be invoked to frustrate the Commissioner's honest appraisal of the bank's income tax liability by means of an assessment within the statutory period:New Zealand Wool Board per Richardson P at [62], unless of course Westpac obtained a binding ruling for a particular transaction or transactions.[118] The binding ruling regime was established to provide a mechanism for a taxpayer to secure a privative commitment from the Commissioner on how the taxation law would apply to a particular transaction. In a case such as this, a ruling once obtained would operate as an estoppel against the Commissioner; all the traditional elements, which are absent in this case, would come into play – a representation, an intention that it be relied upon, inducement, actual reliance and detriment if the Commissioner acted otherwise. The bank's failure to avail itself of this right in a situation where it might be expected to apply negates an argument that anything else done or said by the Commissioner might give rise to a legitimate expectation: Matrix Securities per Lord Browne-Wilkinson at 791-792. [119] There is no sense in which the Commissioner acted contrary to a representation and thus with conspicuous unfairness: Zeqiri. A representation or holding out is the trigger point for legitimate expectation. An adoption of the particular legal approach, without a positive affirmation of the type available by the private binding regime, can never operate as a promise or assurance of the type necessary to provide a foundation for legitimate expectation. Without it, all other considerations, be they based on unfairness or otherwise, fall away. [120] Mr Farmer also argues, seemingly as an alternative, that, because of his longstanding adoption of the existing approach, the Commissioner was bound to give Westpac notice of his intention to depart from it. Again, I have rejected a variant of the same argument in the inconsistency setting. Mr Farmer relies onUnilever. But the Master of the Rolls' satisfaction that on 'the unique facts' the Commissioner was obliged to give 'clear and general advance notice' where he intended to reject claims in reliance on the time limit is plainly directed towards the particular circumstances. His statement was not intended as one of general principle. [121] With respect, Sir Thomas Bingham's statement in Unilever was plainly correct within the context of an estoppel-type argument, where the Court found the existence of a clear and unequivocal representation; thus, notice of an intention to act in a contrary way was essential given the severe consequences for the taxpayer if the Commissioner departed from his longstanding practice when dealing with the company on the same issue over many years. While I do not doubt the significanceof the financial consequences occasioned by the three transactions being assessed to tax, there is nothing in this case comparable to the longstanding practice followed inUnilever. Moreover, the commitment in Unilever was to a particular process as opposed to a substantive result. [122] To take Mr Farmer's argument to its logical conclusion would result in the Commissioner being prevented from changing his mind in the tax treatment of any transaction that had commenced or continued in reliance on the initial binding ruling, on the basis that notice of the change post-dated the commencement of the transaction. That cannot be right.(ii) MFK Agencies[123] The MFK Agencies case is, I think, more apposite. In that case banks and their advisers approached the Revenue. They sought confirmation that an element of a transaction payable on redemption of securities would be treated as capital and, if taxed at all, would be taxed only as capital gains and not as income. Revenue officials responded affirmatively but, the Court found, tentatively and not in a way intended to fetter the department's future actions. The Revenue later decided to tax the relevant element as income, not as a capital gain. The banks argued that the decision to tax was unfair, inconsistent and discriminatory and an abuse of power. [124] In delivering the leading judgment, Bingham LJ said: at 110:I am, however, of opinion that in assessing the meaning, weight and effect reasonably to be given to statements of the Revenue the factual context, including the position of the Revenue itself, is all important.Every ordinarily sophisticated taxpayer knows that the Revenue is a tax- collecting agency, not a tax-imposing authority. The taxpayer's only legitimate expectation is, prima facie, that he will be taxed according to statute, not concession or a wrong view of the law No doubt a statement formally published by the Revenue to the world might safely be regarded as binding, subject to its terms, in any case falling clearly within them. But where the approach to the Revenue is of a less formal nature a more detailed inquiry is, in my view, necessary. If it is to be successfully said that as a result of such an approach the Revenue has agreed to forego, or has represented that it will forego, tax which might arguably be payable on a proper construction of the relevant legislation it would, in my judgment, be ordinarily necessarily for the taxpayer to show that certain conditions had been fulfilled. [Emphasis added][125] Bingham LJ then identified those conditions as follows: First, it is necessary that the taxpayer should have put all his cards face upwards on the table. This means that he must give full details of the specific transaction on which he seeks the Revenue's ruling, unless it is the same as an earlier transaction on which a ruling has already been given. It means that he must indicate to the Revenue the ruling sought. It is one thing to ask an official of the Revenue whether he shares the taxpayer's view of a legislative provision, quite another to ask whether the Revenue will forgo any claim to tax on any other basis. It means that the taxpayer must make plain that a fully considered ruling is sought. It means, I think, that the taxpayer should indicate the use he intends to make of any ruling given. This is not because the Revenue would wish to favour one class of taxpayers at the expense of another but because knowledge that a ruling is to be publicised in a large and important market could affect the person by whom and the level at which a problem is considered and, indeed, whether it is appropriate to give a ruling at all. Second, it is necessary that the ruling or statement relied on should be clear, unambiguous and devoid of relevant qualification.[126] The requirement to establish the second condition was questioned by Simon Brown LJ in Unilever but apparently endorsed by Lord Hoffmann in Zeqiri, but the difference is immaterial here. In this context Bingham LJ observed in MFK Agencies that the ruling or statement relied on must be ' clear, unambiguous and devoid of relevant qualification '. He then said: at 110-111:In so stating these requirements I do not, I hope, diminish or emasculate the valuable developing doctrine of legitimate expectation. If a public authority so conducts itself as to create a legitimate expectation that a certain course will be followed it would often be unfair if the authority were permitted to follow a different course to the detriment of one who entertained the expectation, particularly if he acted on it. If in private law a body would be in breach of contract in so acting or estopped from so acting a public authority should generally be in no better position. The doctrine of legitimate expectation is rooted in fairness[127] I have cited these passages fully because they articulate the straightjacket within which legitimate expectation is arguable against an assessment by the Commissioner. The facts of MFK Agencies were much more promising for the taxpayers than in Westpac's case. At least the banks actually approached the Revenue for clearances and received specific responses. [128] Nevertheless, in MFK Agencies the Court found there was an insufficient degree of disclosure and formality of the type necessary to establish that the Revenue's answers were intended to provide a binding commitment or assurance: at 111-113. The conditions imposed by Bingham LJ for committing the Commissionerforeshadow the essential elements of private binding rulings. That authoritative approach sets the threshold necessary to establish a legitimate expectation, the denial of which will be unfair and an abuse of power. [129] Westpac's only legitimate expectation of a substantive benefit was that it would be taxed according to statute: MFK Agencies per Bingham LJ at 110. The bank knew the Commissioner had a duty to apply what he considered was the correct view of the law. And it knew he might reassess that view, even change it, at any stage during the four year period before the time bar expired. It must be taken to have accepted the risk of an adverse reassessment given its failure to obtain a binding ruling: Simunovich at [47]. [130] Contrary to Mr Farmer's submission, I do not think that Westpac's case approaches the line where the Commissioner's decision denied the bank's legitimate expectation that it would not be assessed to tax on Koch, GE and CSFB on the challenged approach, or that the assessment might be characterised as 'so outrageously unfair that it should not be allowed to stand': Ex Parte Unilever per Simon Brown LJ at 236.(3) Legitimate Expectation : Procedural[131] I must deal finally with Westpac's claim of legitimate expectation of a procedural benefit based on the Commissioner's escalation memorandum. It received scant attention in Mr Farmer's written synopsis because, I infer, it does not feature as a distinct element of legitimate expectation in the statement of claim and is, at best, of a procedural character. Its importance was, however, elevated in his summary memorandum and oral argument. [132] Mr Farmer submits that in a general sense everyone is entitled to assume that public authorities will adhere to their internal policies unless and until they are changed formally; and for that reason knowledge and reliance are not always essential elements of legitimate expectation. It does not matter, he says, that the escalation policy was contained in an internal document.[133] The rationale for Westpac's argument on the memorandum emerged in this way. Mr Farmer says taxpayers have a legitimate expectation that the Commissioner will formulate a process or mechanism for resolving an internal dispute between sections or groups within the IRD; and, if he does set it up, he will faithfully adopt it, citing in support Justice Frankfurter's dictum that 'he who takes the procedural sword shall perish by it'. [134] Mr Farmer says the Commissioner failed to invoke the process prescribed by the escalation memorandum to settle the differences between Corporates and Rulings. While the issue was referred to escalation, the consultation process with Rulings never occurred and Westpac was not kept informed. Instead, Corporates persuaded Technical Services, which manages the process, that consultation was unnecessary because Corporates had access to certain information (which had not been available to Rulings). [135] This was, Mr Farmer says, wrongful administrative conduct because, first, it excluded Rulings and Westpac from a consultative process designed to achieve consistency and, second, it obscured the existence of the fundamental difference of internal opinion relating to the way in which s BG1 was being interpreted and applied. Mr Farmer referred to many IRD documents tendered to support these factual allegations. I am content to proceed again on the premise that Westpac could prove them at trial. But I am satisfied that this head of legitimate expectation, assuming it was pleaded on an independent ground of invalidity, is unarguable. [136] The starting point is the memorandum itself issued by the Commissioner on 23 November 2001 to senior IRD management. Its genesis was 'our overriding obligation to protect the integrity of the tax system ' to fair and impartial application of the law: s 6 TAA. The Commissioner noted:These [statutory provisions in s 6] in combination mean that it is important that the Department – to the greatest extent possible – do not apply the law inconsistently as between taxpayers, as this can give rise to negative perceptions of the fairness and impartiality of the tax system and can advantage, or disadvantage, some taxpayers over others. [Emphasis added][137] The whole thrust of the document was directed towards putting in place and following a mechanism for eliminating inconsistencies in the application of the law 'as between taxpayers'. To that end the Commissioner developed the escalation process: so that Inland Revenue is best able to comply with, and balance, its various obligations under [the TAA].[138] The general principles to be applied relating to consistency and escalation of technical issues were:A staff member or unit in a business group should not proceed to action an interpretation or application of the law to a taxpayer's affairs where it is known to that person or unit that a different interpretation or application has been published by Inland Revenue, or has been or is being applied elsewhere in IRD. Where a staff member or unit in a business group is aware of an existing interpretation that has been published or adopted elsewhere in IRD, and considers it to be legally incorrect, he or she should bring this to the attention of their reporting officer, with a view to (if considered necessary or desirable) escalating the issue to establish a single correct position within IRD.[139] The memorandum then set out the escalation process. Various prerequisite steps were identified. It provided that taxpayers are to be kept informed of the progress of an issue where it was referred to the Tax Intelligence Group or the National Office for resolution, and that response or progress updates be given in most cases at least monthly. It noted, though, that there may be some instances where because of the advent of the time bar it is not possible to adopt the escalation process. [140] The short answer to Mr Farmer's submission is that the memorandum has no legal force whatsoever. It is not a statutory provision and nor is it statutorily derived such as a regulation, rule or bylaw. It does not create rights or expectations enforceable by a taxpayer or impose any obligations on the Commissioner. It is no more than an internal direction by the Commissioner to IRD employees to follow certain steps for the purpose of avoiding inconsistent application of the law 'as between taxpayers', and the risks of 'negative perceptions of the fairness and impartiality of the tax system'.[141] A similar, and dare I say more promising, argument was advanced but peremptorily dismissed by the Privy Council in Miller v Commissioner of Inland Revenue [2001] 3 NZLR 316. The taxpayer argued that assessments issued by the Commissioner were unlawful because he did not comply with the terms of a policy statement issued to the general public in February 1990. That document set out in detail the Commissioner's views about the purpose and effect of the then tax avoidance provision (s 99(2) Income Tax Act 1976). It reassured taxpayers that the Commissioner 'would undertake a careful and thorough analysis of the meaning and purpose of the statute and the purpose or effect of the arrangement' before invoking s 99: at [24]. The taxpayer argued that this promise of a 'thorough analysis' amounted to a statutory condition with which the Commissioner did not comply. [142] It can be seen at once that the taxpayer in Miller at least attempted to find a statutory justification for the argument, and that the statement had been circulated to the public. Nevertheless, Lord Hoffmann rejected the argument in these terms: at [26]:A more fundamental point is that Their Lordships do not think that the CPS was intended to lay down conditions at all. They do not consider that the parts of the document relied upon by the appellants do more than to reassure the public that the Commissioner and his officers will think very carefully about whether s 99 applies to any particular case. But his statutory duty is to reassess the taxpayer in any case in which s 99 applies and this duty cannot be made subject to internal conditions. Nor do Their Lordships think that he intended to restrict his duty in such a way.[143] The principle underlying Lord Hoffmann's statement would be no different if the argument was advanced under the banner of legitimate expectation. The Court of Appeal made this very point when a different taxpayer but from the same tax scheme stable attempted to re-run the argument in a subsequent case: Dandelion Investments Ltd v Commissioner of Inland Revenue [2003] 1 NZLR 600. Describing the policy statement as 'no more than an administrative reassurance to the public' (at [74]), McGrath J added: at [75]:In the end this ground fails for the reasons articulated by the Privy Council, reflecting as they do earlier observations of this Court as to the limited scope for application of the principle of legitimate expectation to confine the Commissioner in the exercise of statutory duties in relation to assessment functions: Brierley Investments Ltd v Bouzaid [1993] 3 NZLR 655 at pp 662 and 664 and Commissioner of Inland Revenue v New Zealand Wool Board[(1999) 19 NZTC 15,476 (CA)] at paras [55] to [62]. The Commissioner cannot act in a manner incompatible with statutory powers which must be exercised to a specified end[144] Westpac's argument cannot succeed for other reasons. As noted earlier, the foundation stone of an argument for legitimate expectation in public law is the existence of a promise, representation or assurance by an authority, loosely termed a representation, to act in a certain way. Westpac's case does not get near this first base. As I have said, the Commissioner's memorandum is an internal administrative document which was never intended to be published, and was not published, to taxpayers as a whole. [145] Even if Westpac crossed that hurdle, none of the other critical components or elements exist. In particular, there is no suggestion that Westpac acted at any stage to its detriment in reliance upon the memorandum. Mr Farmer cited a number of recent English authorities for the proposition that detrimental reliance is now no longer essential. All of them, however, were decided in a markedly different context, principally in immigration and housing cases. [146] For example, in R (Bibi) v Newham London Borough Council [2002] 1 WLR 237, the Court of Appeal held that it was unnecessary for a vulnerable refugee family to prove knowledge of a promise by a local authority to provide permanent accommodation within a fixed period, upon which it later reneged. Proof of actual reliance or detriment was unnecessary because it would 'be to place the weakest in society at a particular disadvantage': at [55]. The special context of that obligation in Bibi, where fairness required that a local authority be held to its promise, could hardly apply to a large trading bank with direct access to the best professional advice available on the taxation treatment of highly sophisticated structured financing transactions. [147] Finally, Mr Farmer complains of the Commissioner's failure to consult with Westpac in terms of his memorandum. He relies on some dicta from R v Liverpool Corporation, Ex Parte Liverpool Taxi Fleet Operators Association [1972] 2 QB 299 (CA), a case about the issuing of taxi licences. The authority had given undertakingsto existing licensees of consultation about the number of licences to be issued which it failed to honour. The Court issued a writ of prohibition. [148] The facts only have to be summarised in this shorthand form to establish that the Liverpool Corporation case has no precedential value here. And even if the Commissioner had given an undertaking as to the procedure he would follow when conducting an assessment, any obligation to comply will always yield to his overriding statutory duty to assess the taxpayer to tax according to the law: Attorney- General of Hong Kong v Shiu [1983] 2 AC 629 (PC) per Lord Fraser at 638. In any event, as noted, the Commissioner advised Westpac in June 2003 that he was reassessing it to tax on Koch, GE and CSFB.Conclusion[149] The four structured financing transactions entered into by Westpac were complex; but the facts relevant to its application for judicial review are not. [150] The taxation treatment of redeemable preference share deals has long been the subject of debate, with the heightened risk of close scrutiny immediately following the Winebox inquiry in the late 1990s. The bank did not exercise its right to obtain binding rulings before entering into the transactions. Later it sought and obtained a favourable ruling for one of the four knowing that its application was expressly limited to that particular application; it never applied for a privative ruling on the other three, knowing that the Commissioner might reassess them to tax at any time within the statutory period. He has now exercised his judgment and reassessed the transactions to tax. Westpac does not allege that he has acted unlawfully or outside his powers in that process but still says he has acted unfairly. [151] There is an irony in a sophisticated taxpayer alleging unfairness by the Commissioner in circumstances which would not have arisen but for its originating failure to protect its own position against this very contingency. There was no unfairness in the public law sense of the word, whether on the grounds of inconsistency or denial of a legitimate expectation, in what was no more than the Commissioner's decision to change his mind about the correct application of the lawto the tax treatment of a generic type of transaction where he was legally entitled to reassess in the absence of a binding ruling to the contrary. However, there would be an unfairness, in my judgment, if the Court in exercising its supervisory jurisdiction came to the aid of a taxpayer by elevating its omission, whether deliberate or inadvertent, to obtain that privative benefit to the equivalent of a statutorily binding ruling. [152] Westpac's application for relief invalidating the Commissioner's assessment was bold, even audacious. But, with all deference to the careful argument put forward by Mr Farmer, its application is without hope of success at trial. Even if all its factual allegations might be proven, the bank's case is untenable in law. It is a plain and clear case for striking out.Result[153] I make an order striking out Westpac's second or amended cause of action against the Commissioner for a judicial review of his decision to issue amended assessments to Westpac for the Koch, GE and CSFB transactions for the 1999 income year. [154] The Commissioner is entitled to costs. While I have not heard from counsel on this topic, in my provisional view they should be fixed according to category 3B for two counsel together with reasonable disbursements. I trust that the parties are able to agree accordingly. If not, counsel are to file memoranda. The Commissioner is to file his memorandum on or before 3 December 2007 and Westpac in answer on or before 17 December 2007. Memoranda are not to exceed 10 pages in length; if required, I will convene a brief hearing at a time suitable to counsel to hear oral argument. [155] I wish to express my appreciation to all counsel for the quality, depth and skill of the argument advanced on both sides of the application. ______________________________________ Rhys Harrison J