WIRE SUPPLIES LTD, SLIOC ENTERPRISES LTD, J.J. MCDOUGALL, L.L. MCDOUGALL AND J.U. MCDOUGALL V COMMISSIONER OF INLAND REVENUE CA CA206/05

WIRE SUPPLIES LTD, SLIOC ENTERPRISES LTD, J.J. MCDOUGALL, L.L. MCDOUGALL AND J.U. MCDOUGALL V COMMISSIONER OF INLAND REVENUE CA CA206/05 15 June 2007IN THE COURT OF APPEAL OF NEW ZEALAND CA206/05 [2007] NZCA 244BETWEEN WIRE SUPPLIES LTD, SLIOC ENTERPRISES LTD, J.J. MCDOUGALL, L.L. MCDOUGALL AND J.U. MCDOUGALL Appellants AND COMMISSIONER OF INLAND REVENUE RespondentCA207/05AND BETWEEN N.T.H. DOUGLAS, N.L. DOUGLAS, W.J. HENWOOD, J.B. HENWOOD, WAIKATO BROKERS LTD, R.J. TOURELLE, J.T. SHERLOCK, T.C. LARGE LTD, T.C. LARGE, V.M. LARGE, STRAITS FISHING CO LTD, P.G. LINTON, MELBAR ENGINEERING LTD AND G.J. HAYES Appellants AND COMMISSIONER OF INLAND REVENUE RespondentCA208/05AND BETWEEN WIRE SUPPLIES LTD AND SLIOC ENTERPRISES LTD First Appellants AND WAIKATO BROKERS LTD, T.C. LARGE LTD, STRAITS FISHING CO LTD AND MELBAR ENGINEERING LTD Second AppellantsAND COMMISSIONER OF INLAND REVENUE Respondent Hearing: 12 to 15 February 2007 Court: Glazebrook, O'Regan and Ellen France JJ Counsel: G J Judd QC and M J McCartney for Appellants M J Ruffin and A Wortman for Respondent Judgment: 15 June 2007 at 2.30 pmJUDGMENT OF THE COURT A All appeals are dismissed. B The Commissioner is entitled to costs in respect of all three appeals. The appellants in CA206/05 must pay costs to the Commissioner of $18,000 and 75% of the Commissioner's usual disbursements. The appellants in CA207/05 must pay costs to the Commissioner of $6,000 and 25% of the Commissioner's usual disbursements. We make no separate award of costs in CA208/05. We certify for second counsel in relation to all appeals. REASONS OF THE COURT(Given by O'Regan J)Table of Contents Para No Introduction [1]The Russell template [4]Assessments by Commissioner: Tracks A, B, C, D and E [13]WIRE SUPPLIES OBJECTION APPEAL [17]Res judicata/issue estoppel [19]Substantive grounds of appeal [33]Unintelligibility of assessments [40]Inconsistent tracks (Track C/Track B) [46]Relevant evidence not heard [47]Abuse of power: "following the money" [48]Exhaustion of discretion [61]Section 25 time bar [79]Additional tax [92]Consulting fee [96]Conclusion: Wire Supplies Objection Appeal [97]WIRE SUPPLIES JUDICIAL REVIEW APPEAL [98]Tracks C, D and E [101]Relevance of Track C [104]Mr McDermott [106]Could the appellants raise Track C? [107]The s 99(4) conundrum [109]The BASF principle [115]Conclusion: Wire Supplies Judicial Review Appeal [132]DOUGLAS AND HENWOOD APPEAL [133]Res judicata/issue estoppel [136]Substantive grounds of appeal [137]No breach of Section 99 [142]Funding charge [153]Apportionment of administration charge [164]Status of objection of R J Tourelle (Deceased) [167]Waiver of privilege [171]Conclusion: Douglas and Henwood Appeal [175]Costs [176]Introduction[1] In this judgment, we deal with appeals from three judgments issued by Courtney J on 1 September 2005. All dealt with aspects of a company restructuring scheme devised by Mr J G Russell, which has come to be known in the numerous cases in which it has been considered as the "Russell template". The three High Court decisions under appeal are:(a) Wire Supplies Ltd & Ors v Commissioner of Inland Revenue [2006] 2 NZLR 384, a decision on an appeal by way of case stated from decisions of the Taxation Review Authority (TRA) in Case T52(1998) 18 NZTC 8,378 and Case U23 (1999) 19 NZTC 9,208. We will refer to the appeal against this decision as the Wire Supplies Objection Appeal; (b) Wire Supplies Ltd & Anor and Waikato Brokers Ltd & Ors v Taxation Review Authority and Commissioner of Inland Revenue (2005) 22 NZTC 19,395. This decision dealt with judicial review proceedings in which the Wire Supplies plaintiffs sought orders quashing the decision of the TRA in Case T52 and Case U23, and the Waikato Brokers plaintiffs sought orders quashing the decisions of the TRA inCase T59 (1998) 18 NZTC 8,429 and Case V2 (2001) 20 NZTC 10,005. We will refer to the appeal against this decision as the Wire Supplies Judicial Review Appeal; (c) Douglas & Ors v Commissioner of Inland Revenue [2006] 1 NZLR 513 (we note that paragraphs [92] – [198] are omitted from this report of Courtney J's judgment. For a full report of the judgment, see (2005) 22 NZTC 19,407). This decision dealt with an appeal by way of case stated from the decisions of the TRA in Case T59 and Case V2. It involved five separate cases which had been heard together by the TRA. We will refer to the appeal against this decision as the Douglas and Henwood Appeal. [2] Courtney J dealt with all three cases together, but issued separate judgments for each. We have found it more convenient to deal with all the appeals in a single judgment, because of the great deal of commonality in the issues raised and the arguments made on behalf of the parties. [3] Many of these issues have already been the subject of decisions of all or some of the TRA, the High Court, this Court and the Privy Council, in the Millerlitigation. The Miller litigation involved both objection proceedings and judicialreview proceedings instigated by taxpayers who were participants in Russell template transactions. In a series of three judgments (reported at (1996) 18 NZTC 13,001), (1997) 18 NZTC 13,127, (1997) 18 NZTC 13,219 respectively), Baragwanath J rejected all of the grounds of judicial review raised by the taxpayer appellants and dismissed a substantive appeal against the decision of the TRA inCase R25 (1994) 16 NZTC 6,120, which dealt with the taxpayers' objections. In this judgment, we refer to these three decisions respectively as Miller (Judicial Review No 1), Miller (Judicial Review No 2) and Miller (Objection). Appeals were pursued against both the dismissal of the judicial review applications and the dismissal of the appeal against Case R25. This Court dismissed all appeals: [1999] 1 NZLR 275. A further appeal to the Privy Council (dealing only with judicial review) was dismissed: [2001] 3 NZLR 316. We will refer to the decisions of this Court and the Privy Council respectively as Miller (CA) and Miller (PC).The Russell template[4] Before turning to the individual appeals, it is necessary to describe the Russell template, which was implemented in relation to all of the appellants, except Waikato Brokers. We do this by adapting the description of the Russell template, which was given by the Privy Council in Miller (PC) at [1] – [8], to the present appeals. The transactions in issue in the present appeals differed in some minor respects from those in issue in Miller: these differences are reflected in the description which follows. [5] The corporate appellants were trading companies but have now ceased trading. The individual appellants are shareholders of one or more of these trading companies. The appellants participated in schemes devised by Mr Russell for the avoidance of income tax. He offered to take, year by year, the entire net profits of the trading companies and immediately to return them to the relevant shareholders (less remuneration for his services) in the form of tax-free capital. The trading companies and the shareholders found this prospect attractive, as did a considerable number of other New Zealand taxpayers who bought the same scheme.[6] The Commissioner was less impressed. He assessed the shareholders for income tax under s 99 of the Income Tax Act 1976. All of the assessments in issue in the present proceedings were issued under that Act, and all statutory references in this judgment are to that Act unless otherwise stated. [7] The Commissioner decided that the purpose or effect of the scheme was tax avoidance. It was therefore void as against him under s 99(2). In order to adjust the shareholders' assessable income to counteract the tax advantage which he considered that they had obtained, the Commissioner undertook what is commonly called a "reconstruction". That means that in accordance with s 99(3)(a) or (b), he formed an opinion about what would have happened if there had been no scheme. He decided in the cases under appeal in the Miller litigation and in the present cases that the net profits would have been received by the shareholders in the form of directors' remuneration and increased their assessable incomes accordingly. [8] In order to explain the issues in the appeals, it is necessary to give some more details of the scheme by which the profits of the trading companies were to be converted into capital receipts in the hands of the shareholders. The first step was for the shareholders to agree to sell their shares to a company controlled by Mr Russell. This company became the new parent of the trading company and held the shares on trust for another Russell-controlled company, which we will call the "loss company". The purchase price was left outstanding and secured by a mortgage over the shares. The transaction was not intended to be a sale in any commercial sense. Under a management contract between the trading companies, the shareholders and the relevant Russell entities which gave effect to the Russell template, the shareholders retained unfettered control over the business, notwithstanding the sale. The management contract also conferred on the shareholders an option to repurchase the shares when the scheme had run its course. [9] The sale had two purposes, both of which were entirely tax-related. The first was to make the trading company part of a group of companies controlled by Mr Russell, some of which had tax losses. This would enable Mr Russell to take advantage of the group relief provisions in s 191. The second was to create a debt to the shareholders which could be satisfied out of the profits of their trading company.[10] The next step was for the trading company to agree to pay its net profits, half- yearly, to the loss company controlled by Mr Russell. This was called an administration charge. It was income in the hands of the loss company, but group relief under s 191 was relied upon to avoid tax. In reality, the administration charge was partly a conduit for the money which was to be returned to the shareholders, and partly a fee payable to Mr Russell for the use of the scheme. The proportion was calculated by reference to the amount of tax saved. In addition, the company paid a consultancy fee representing five per cent of the administration charge to another Russell company. [11] The third step was for the parent company to pay the shareholders their part of the administration charge. This was designated an instalment of the purchase price. The amount of the purchase price was calculated not by reference to the value of the trading company, but to enable the scheme to mop up a given number of years of expected net profit. When that had been accomplished, the shareholders could exercise their option to repurchase the company and carry on as if nothing had happened. Alternatively, the parent company could agree to buy a release of the option for a sum which would create a sufficient new capital debt to enable the scheme to start up again. [12] The application of the Russell template in the present cases differed slightly from that in Miller. The difference was that in Miller, the vendors acted as the trustees of the shares rather than the parent companies. However Courtney J found, and we agree, that in substance the transactions at issue were routine applications of the template with no material differences from the transactions at issue in Miller. Accordingly, the appellants do not challenge the finding of tax avoidance. There is one exception to that, which we will address later in this judgment: see [142] – [152] below.Assessments by Commissioner: Tracks A, B, C, D and E[13] In the mid-1980s the Commissioner began to investigate the Russell template scheme. He formed the view that it infringed the general anti-avoidance provision in s 99. Initially he assessed the trading companies, disallowing the deductions thatthey had claimed for the administration charges and consultancy fees and assessing them on that income. This approach has become known as the Track A method of assessment. [14] The Commissioner was successful in these early cases but found that the trading companies were insolvent shells by the time the Inland Revenue Department (IRD) sought to enforce the judgments. This was because the assets of the companies had been sold back to the original shareholders as provided for in the management contracts. [15] The Commissioner then changed his approach. He restored the trading company's deduction for the administration charge (but not the consulting fee) and then reconstructed the administration charge as income to the original vendor shareholders, assessing them accordingly. This method of assessment has become known as Track B. The present appeals are examples of the Track B approach. [16] Subsequently, there have also been Track C, D and E assessments. We understand that Track C assesses the administration charge against the parent companies (see Case U23 at [18]), Track D assesses the consultancy fee against Mr Russell personally and Track E assesses certain income against Mr Russell personally. None of the current appeals involves a Track C, D or E assessment, but Tracks C and D are relevant to the appeals because there is an issue about the possible impact of assessments following the Track C or Track D approach on the Track B assessments in issue in the present appeals.WIRE SUPPLIES OBJECTION APPEAL[17] The transactions to which this appeal relate are set out in full in the High Court judgment at [15] – [35], and reference should be made to that judgment for that detail. We have not found it necessary to reproduce it in this judgment. [18] Counsel for the appellants, Mr Judd QC, complained that the summary of the facts in the judgments under appeal failed to make reference to aspects of the proceedings, thus causing disadvantage to the appellants. He listed complaints aboutnon-disclosure or late disclosure of documents by the Commissioner, the inconvenience to Mr Russell of the proceedings before the TRA running at the same time as court hearings in relation to other Russell template cases, the procedure adopted by the TRA by which evidence in one Russell template case is available in all other cases, the fact that the Commissioner called "the wrong witnesses" in the TRA and the fact that the Commissioner embarked on assessments under new tracks when his officers were confirming the correctness of assessments under earlier tracks. We record that complaint for the record, but note that all of these matters have been canvassed in numerous other cases, and none had direct relevance to the issues before Courtney J. So, in our view, she was right to confine herself to the facts that were relevant to the issues before her.Res judicata/issue estoppel[19] It is a notable feature of all of the judgments under appeal that the issues which are raised are either the same as, or very similar to, issues which have been dealt with at length in earlier litigation on the Russell template. In his judgment inCase U23 at [5] Judge Barber observed:Regrettably, the objectors have been rather repetitive in terms of submissions and evidence Also, the objectors keep seeking to relitigate matters which are res judicata. The objectors appear to have a "clutching at straws" mentality coupled with a constant search for information which might be relevant in present or prospective proceedings eg a proposed vendetta case aimed at showing that assessments are void as triggered by an improper IRD vendetta against Mr Russell. Also, there is an atmosphere of the desperate hope of a miracle point materialising from nowhere for the objectors.[20] Those remarks were made in 1999. Now, nearly eight years later, we have before us numerous issues which have exactly the same hallmarks. Needless to say, the constant reiteration of the submissions rejected by courts at all levels does little to advance the cause of justice. Immediately after making the above remarks, Judge Barber said he thought the situation called out for mediation. We doubt that that is a realistic suggestion in the circumstances. Rather, in our view, it calls for proper restraint on the part of the taxpayers and their advisers and acceptance that repetition of failed arguments, sometimes with hair-splitting variations to the arguments as originally made, does nothing to make them more convincing.[21] Because of this background, there was considerable focus in the High Court judgments under appeal on arguments made on the Commissioner's behalf to the effect that the matters raised by the appellants were subject to issue estoppel, on the basis that res judicata applied. The consideration of this issue was broken into two parts: (a) Whether the present appellants were parties to, or privies of parties to, the Miller litigation; and (b) If so, whether the decisions of the TRA, High Court, Court of Appeal and Privy Council in the Miller litigation disposed of the same arguments as are now being raised in this appeal.(a) Parties or privies?[22] This aspect of the issue estoppel argument can itself be dealt with in two parts. The first focuses on appellants in the present cases who were also objectors/appellants in the Miller litigation, or shareholders in the trading companies which were objectors/appellants in that litigation. The second deals with appellants in the present case who had no personal involvement in the Miller litigation. Their only connection with that litigation is the fact that the Miller litigation dealt with the same template, and that their cases have been pursued throughout by Mr Russell as their tax agent, as was the case in relation to the objectors/appellants in the Millerlitigation.(i) Parties/privies to the Miller parties?[23] This aspect of the case concerns Wire Supplies Ltd and SLIOC Enterprises Ltd, which was previously called Coils Specialists NZ Ltd. The High Court Judge referred to this company as "Coils NZ/SLIOC" and we will do the same. The shareholders in Wire Supplies prior to the Russell template transaction were two brothers, J J McDougall and L L McDougall, and their father J U McDougall. Only the two brothers were shareholders in Coils NZ/SLIOC. The McDougalls wereparties to the Miller litigation (both Miller (Judicial Review Nos 1 and 2) and Miller (Objection)) in the High Court. They pursued appeals to this Court and the Privy Council with respect to the judicial review proceedings only. [24] Courtney J found that Wire Supplies and Coils NZ/SLIOC were privies of the McDougalls, applying the decision of Fisher J in Russell v Taxation Review Authority (2000) 19 NZTC 15,924 at [31] (HC), a case which related to the Millers, O'Neils and Managed Fashions Ltd. Mr Russell did not pursue the appeal against this aspect of the decision. We agree with Courtney J's conclusion.(ii) Parties not involved in the Miller litigation[25] The position is more problematic in relation to other appellants who were not involved in the Miller litigation and not associated with any company involved in theMiller litigation. Courtney J found that there were a number of connections between the parties to the present litigation and the parties to the Miller litigation, particularly: (a) Once parties entered into the Russell template, they became "enmeshed in a Russell-controlled group", though they may have been unaware of this; (b) The loss companies and the companies which acted as the new parents for the trading companies and as agents and trustees for the loss companies were all controlled by Mr Russell, and some of these featured in more than one transaction. Certain companies acted as trustees and loss companies in a number of the transactions. Courtney J explained this in her descriptions of the transactions at [15] – [35] in her Wire Supplies objection judgment and at [17] – [41] in her Douglas and Henwood judgment; (c) The portion of the trading companies' profit which was not returned to the shareholders formed part of the pool of income used by the loss companies to set off their tax losses;(d) The shareholders became committed not only to the sale of their shares, but also to various other devices employed by Mr Russell to operate the scheme; (e) The documentation relating to the various template transactions was virtually identical; (f) Mr Russell was an active participant in every aspect of the scheme in relation to every Russell template transaction. [26] Courtney J concluded that the totality of the connections disclosed such a nexus or community or mutuality of interest, or such an identity between the parties, that it would be just to estop the appellants from advancing arguments that have already been determined in the Miller litigation. [27] In reaching that conclusion, Courtney J applied the test for establishing privity between litigants in different cases set out in the decision of this Court inShiels v Blakeley [1986] 2 NZLR 262 at 268:We conclude that there must be shown such a union or nexus, such a community or mutuality of interest, such an identity between a party to the first proceeding and the person claimed to be estopped in the subsequent proceeding, that to estop the latter will produce a fair and just result having regard to the purposes of the doctrine of estoppel and its effect on the party estopped.[28] Mr Judd argued that Courtney J had given too little weight to the requirement of a connection or mutuality of interest between parties, and had found privity between the appellants and the parties to the Miller litigation because of the mutuality of their interest in the courts' approach to the issues. He said that the factors taken into account by Courtney J demonstrated that the various parties to Russell template transactions had similar relationships with Mr Russell and the entities in the group of companies he controlled, but had no connection of any kind with each other, and were unaware of each other's connections with Mr Russell and his associated entities. He emphasised the reference in Shiels v Blakeley at 268 to privity being:[A] derivative interest founded on, or flowing from, blood, estate, or contract, or some other sufficient connection, bond, or mutuality of interest.[29] He said that the similarity of the issues, and the importance of the issues to the parties to the separate Russell template transactions did not give rise to a mutuality of interest: the present appellants (other than the McDougalls) did not have any personal interest in the Miller litigation. Their only interest was in the precedent effect of the decisions. [30] We accept Mr Judd's argument that Courtney J may have extended the test inShiels v Blakeley further than it was intended to go, which led to a finding of res judicata/issue estoppel in the present case in circumstances where there was insufficient mutuality of interest to justify the finding. In the light of our concern in that regard, we will proceed on the basis that issue estoppel does not apply to the appellants other than the McDougalls in CA206/05. [31] It was not argued before Courtney J or us that the repetition of arguments conclusively dealt with in the Miller litigation amounted to an abuse of process, and we do not express a view. However we signal to parties involved in Russell template litigation that in future cases courts are unlikely to be tolerant of the recycling of arguments which have been dealt with over and over again in successive cases involving transactions which are, in all material respects, identical.(b) Similarity of issues[32] In view of the decision we have reached on the application of issue estoppel to the parties other than the McDougalls, we do not propose to undertake a detailed comparison of the issues raised in the present proceedings with those dealt with in the Miller litigation, as Courtney J did. We prefer to approach the case on the basis that we will consider the merits of all of the arguments put to us and, only if a conclusion on issue estoppel may alter the result, will we resort to that exercise. That is not to say that the way in which the issues were argued and dealt with in theMiller litigation is not a significant factor in our analysis; it is. But its significance is derived from its value as precedent, rather than from its potential to bar the making of arguments in the present proceedings.Substantive grounds of appeal[33] We therefore turn to the substantive grounds of appeal in CA206/05 which are: (a) Unintelligibility of assessments; (b) Abuse of power: "following the money"; (c) Inconsistent tracks (Track C/Track B); (d) Relevant evidence not heard; (e) Exhaustion of discretion; (f) Section 25 time bar; (g) Additional tax; (h) Consulting fee; (i) Extent of annihilation. [34] The issue specified in (i) above (Extent of annihilation) was not pursued and we say no more about it. [35] We will deal with each of the remaining issues in turn. [36] Before doing so, we record that Mr Judd confirmed that the appellants did not appeal the finding of infringement of s 99. Having made that concession, he added that it was nevertheless necessary for the Commissioner to show that the McDougalls, Wire Supplies and Coils NZ/SLIOC were affected by the arrangement and obtained a tax advantage from the arrangement in the amount that had been assessed to them. However, earlier in the submission Mr Judd recorded that the appellants did not appeal the Judge's finding which he described as:Whether Coils NZ/SLIOC breached s 99 and whether the McDougalls obtained any tax advantage from it.[37] In the absence of any argument on this point, we record that the High Court Judge's findings are not challenged. But we also record that there did not appear to be any realistic basis for challenging them. [38] Courtney J found at [44] – [45] that the McDougalls had elected to limit their case before the TRA (Case T52) to threshold issues, and that the TRA had declined to permit them to advance arguments beyond those threshold issues. She said that she believed the TRA was correct in that respect. She therefore dealt with all issues (other than threshold issues) on the basis that they applied only to corporate objectors, not to the McDougalls. The TRA had followed a similar course in Case U23. Mr Judd argued that it was impossible or dangerous for the Court to say what was meant by "threshold issues" and to limit the McDougalls to those undefined issues, but there was no point of appeal in this regard and therefore no live issue before us. However we have approached the appeal on the basis that we will consider the merits of all arguments, so this distinction has no practical effect in our decision. We do, however, record that we take that approach to ensure that the merits of all issues are exhaustively dealt with, rather than because we identify any error in the approach taken by the TRA in Case T52 and Case U23, or by the High Court Judge in this case. [39] We now turn to the issues on the appeal.Unintelligibility of assessments[40] Mr Judd said that the assessments of the appellants in CA206/05 (which were Track B assessments of the shareholders in the trading companies) were unintelligible because: (a) They did not set out (or at least not accurately) the arrangement to which s 99 applied with reference to the contractual documentation;(b) They did not identify how the proposed assessee was affected by the arrangement; (c) They did not identify the income that was to be adjusted; (d) They did not identify the tax advantage obtained: this could be done only by reference to what income the Commissioner alleged would have been received by the assessee but for the arrangement; and (e) They did not show the status of the earlier Track A assessment on the trading company, and its effect on the Track B assessments of the shareholders. [41] The argument was that, because they were unintelligible, the assessments were invalid. [42] Courtney J found that the inconsistency of the Track B assessment with the Track A assessment was an issue which had been finally resolved by the Privy Council in Miller (PC), where Their Lordships recorded this argument at [32] and resolved it at [33]. Given the privity between the McDougalls, Wire Supplies and Coils NZ/SLIOC, issue estoppel applied. [43] We are satisfied that this argument fails on the merits, notwithstanding that we have already found that issue estoppel does not apply to Wire Supplies or Coils NZ/SLIOC. That is because this Court decided in Hyslop v Commissioner of Inland Revenue [2001] 2 NZLR 329 that: (a) There is a clear distinction between making an assessment and giving notice of an assessment after it has been made, and an omission to give notice does not invalidate the assessment (at [20]); (b) Giving notice of an assessment and providing the taxpayer with details of the assessment process to facilitate the framing of an objection are necessarily subsequent to the making of the assessment: ss 26 and 29(6) of the Inland Revenue Department Act 1974 proceedon the premise that the assessment process ends when the assessment itself is made (at [22]); (c) Any challenge to the validity of an assessment must be directed to the making of the assessment (at [23]); (d) While it may be said that a taxpayer is disadvantaged under the statutory arrangements governing assessments, notices and challenges, there are remedies and safeguards available (at [24]). For assessments made under the objection regime (as in this case), the objector is entitled to be provided with such details of the assessment process as are necessary to enable the objector to properly frame his or her objection: Commissioner of Inland Revenue v V H Farnsworth Ltd [1984] 1 NZLR 428 at 434 (CA); (e) The taxpayer may also request better particulars, may invoke the Official Information Act 1982 and, in appropriate cases, may seek an order in the nature of mandamus. Once the matter is before the TRA or the High Court, the taxpayer may apply for particulars in the ordinary way (at [24]). [44] Hyslop was not cited to Courtney J, and did not feature in the submissions made to this Court either. However, once counsel's attention was drawn to it, Mr Judd accepted that it was a complete answer to this point of appeal. We agree. The effect is that Mr Judd's criticisms of the intelligibility of the assessments do not go to the validity or, for that matter, to the correctness of the assessments. Given that all Russell template participants are now well aware of the basis for the Track B assessments, the unintelligibility issue can now be put to one side, once and for all. [45] However, we record that Mr Judd asked us to note that his acceptance thatHyslop resolved this point before us was subject to his reservation of the possibility of challenging the correctness of Hyslop in the Supreme Court.Inconsistent tracks (Track C/Track B)[46] The argument on this issue was dealt with in the context of the Wire Supplies Judicial Review Appeal. Our discussion appears at [98] – [132] below. For the reasons given there, we conclude that the present assessments were not affected by the later Track C assessments.Relevant evidence not heard[47] For the reasons given at [98] – [132], we are satisfied that the evidence of Mr McDermott did not need to be heard by the TRA.Abuse of power: "following the money"[48] The appellants submit that the Commissioner acted arbitrarily and in abuse of his power in determining to assess the shareholders under Track B, rather than persisting with Track A assessments of the trading companies. They say that the Commissioner realised that the trading companies were insolvent, and that his sole motivation in switching to Track B was to "follow the money", i.e. to assess parties that had potential to pay the amounts for which they were assessed. [49] Anyone who is familiar with litigation relating to the Russell template will be well acquainted with this argument. It has been run on numerous occasions and has never been successful. [50] Mr Judd referred us to a statement made by Richardson J in Miller v Commissioner of Inland Revenue [1995] 3 NZLR 664 at 672 (CA):The statutory power of adjustment of the assessable income of any person affected by the [tax avoidance] arrangement is exercisable "to counteract any tax advantage obtained by that person from or under that arrangement". It is outside that power and a misuse of authority for the Commissioner to make an amended assessment on the footing that the person selected may have a greater ability to pay than the trading company through which the individuals concerned derived their income. The reconstruction adopted by the Commissioner presupposes that F earned surplus income which is treated as salary or wages of the plaintiffs as working shareholders and so as bothassessable to the individuals and deductible by the company. If the motivation for targeting the individual plaintiffs rather than F was simply because F was not solvent, that could not possibly be justified under s 99(3) and would have to be characterised as an abuse of power.[51] As Richardson J went on to say, this statement was made in the context of strike out proceedings, where the pleaded facts were accepted as being capable of proof. Mr Judd accepted that, in Miller (Judicial Review No 1), Baragwanath J had considered whether there had been an abuse of power by the Commissioner. Baragwanath J held that, where there were two alternative bases of assessing tax, it was open to the Commissioner to use whatever reconstruction best reflected events. It was open to the Commissioner to use either Track A or Track B. As long as the Commissioner had an honest and reasonable belief that the individuals were assessable, the Commissioner could elect to assess them rather than the companies:Miller (Judicial Review No 1) at 13,039. [52] Mr Judd said that the decision of Baragwanath J did not address whether, in fact, the Commissioner's sole motivation for change of track was to follow the money. That could only be determined in proceedings where there is direct evidence and cross-examination so that the Court is in a position to resolve disputed issues of fact. He said that should be permitted to occur in this case. [53] In the High Court, Courtney J rejected this argument. She referred to the express approval by this Court of the finding of Baragwanath J to which we have just referred: Miller (CA) at 289. After approving the finding of Baragwanath J, this Court continued that the Commissioner was entitled to consider that it was part of the arrangement in this case that the money representing the net profits of the trading companies was to be removed from the trading companies, leaving those entities judgment-proof and that the money would be put into the hand of the former shareholders who would obtain a tax advantage in that way. This Court therefore found that the Commissioner was not improperly motivated in issuing the Track B assessment. There was no abuse of power. [54] Courtney J also referred to the observation made by Judge Barber in Case T52 that the switching of tracks was "perfectly permissible" and that he did not see it as "in any way an abuse of power". She considered the memorandum of Mr Player,an IRD official, explaining the background to the change of tracks, and concluded that this evidence did not justify re-litigation of this point. [55] We find it surprising that it is seriously contended that an official whose responsibility is the proper administration of the tax system could be said to be abusing his powers in the present circumstances. In effect, the Commissioner was required under s 99(3) to reconstruct the arrangement to negative the tax advantage obtained from it. In a situation where more than one party obtains that tax advantage, it would be surprising if the Commissioner was obliged to assess the party least likely to be able to pay tax, instead of the one more likely to be able to pay tax. Yet that was the proposition which Mr Judd asked this Court to accept, just as advocates for Mr Russell's interests have previously asked courts from the TRA through to the Privy Council to do in the past. The point becomes even more untenable when it is realised that the impecuniosity of the trading company is, in fact, one of the characteristics of the very tax avoidance arrangement which the Commissioner seeks to annihilate under s 99. [56] Miller (PC) also dealt with this point. Delivering the judgment of Their Lordships, Lord Hoffmann recorded Mr Judd's argument (the same as the argument he made to us) and said (at [31]):Their Lordships do not accept this submission. Section 99(3) says that the Commissioner shall adjust the assessable income of any person affected by the arrangement to counteract any tax advantage that person has obtained. There is no reason why an arrangement should not confer tax advantages upon more than one person and, as Their Lordships have already explained, this one plainly did. There were different tax advantages in relation to different payments. Mr Russell's company obtained the advantage of using group relief on income received from the trading company; the trading company obtained the advantage of deducting the administration and consultancy charges: and the shareholders received the advantage of receiving payments as capital when they would otherwise have been income. There was no reason why the Commissioner should not adjust the assessable income of each or any of these persons. Of course his assessments would have to be consistent with each other. He could not maintain an assessment on Mr Russell's company on the basis that it had received the whole trading profit but was not entitled to group relief and at the same time assess the shareholders on the basis that they had received the trading profit in the form of remuneration. But provided that he was not using inconsistent hypotheses for his reconstructions, he was in Their Lordships' opinion entitled to assess any party who had obtained a tax advantage.[57] We agree. More importantly, we are bound by that finding. [58] Mr Judd referred us to a considerable body of evidence which he said demonstrated that the Commissioner's sole motivation was to find a solvent assessee. He criticised Courtney J because she referred only to the memorandum of Mr Player, dated 11 May 1990, in which he referred to the Commissioner having some success but losing the war, noting that a new approach was being considered. In particular, Mr Judd referred to the following evidence, which he said supported the appellants' position: (a) Minutes of a meeting of IRD employees which took place on 30 May 1990, in which it was recorded that there were problems with the collection of tax from the trading companies and that there was a need for a different approach. It referred to a new approach which, in fact, was the Track B approach; (b) The minutes of a meeting of a number of IRD officers from different regions discussing J G Russell tax avoidance schemes. This meeting took place on 27 September 1990. There was a discussion of a legal opinion about possible assessment approaches, and agreement that a new policy would be adopted to the reconstruction of the tax avoidance arrangements resulting from the Russell template. This was what became Track B. There was some concern that there may be issues about the ability to reopen assessments given the time bar, and an acknowledgement that ultimately that would need to be decided by the courts; (c) An opinion by an IRD lawyer, Mr Lim, dated 19 November 1992. In the opinion, he responded to a request by the investigations unit in Lower Hutt to allow invocation of s 99 and issue reassessments in relation to the McDougalls and Wire Supplies. In the course of his discussion, he referred to the necessity of assessing the profit back to the McDougalls to prevent events in certain Track A cases (where thetrading companies were found to be unable to meet any tax liability for which they were assessed) occurring again; (d) A memorandum from Margaret Coffin, the Solicitor (Legal Services) in the IRD to the Director of Legal Services on the same topic (but this time in relation to Coils NZ/SLIOC). She concluded that assessing the profits of Coils NZ/SLIOC back to the company was unlikely to result in recovery of the avoided tax and that reassessing the McDougalls made recovery of the outstanding tax more likely; (e) A comment made by Mr Player in cross-examination by counsel for Mr Russell's interests in Case T52 to the effect that Track A assessments were going to be "rather pointless" because of the stripping of assets out of the trading companies. [59] Mr Judd said that this evidence established that the sole reason for the change of track was to follow the money. We disagree. In our view, the effect of this evidence is to establish that the Commissioner had realised that he had not factored into its consideration one aspect of the arrangement, namely the stripping of assets out of the trading companies, leaving them judgment-proof. Once that was factored into the discussion, the Commissioner realised that the more effective way of dealing with the arrangement as a whole (including the asset stripping) was to assess the shareholders. That is a legitimate stance for the Commissioner to take. We do not see any need for cross-examination of any of these witnesses to occur in order for that conclusion to be reached. [60] We do not understand the comments of Richardson J (in the context of a successful appeal from an interlocutory order sought by the Commissioner striking out the Miller judicial review actions) to indicate anything to the contrary, but, if they do, then we respectfully disagree with them. In our view, the effect of this evidence is to establish that what occurred was exactly what the Privy Council said could occur at [31] of Miller (PC).Exhaustion of discretion[61] The appellants argue that, when the Commissioner is acting under s 99(3), he is deciding or determining a question which affects the rights of the taxpayer whose income has been adjusted and, because of the automatic effect of s 99(4), also all other taxpayers who might but for that adjustment have been taxpayers deriving the income. Once that decision is made (unless it is expressed to be preliminary or provisional) it is final and conclusive, and cannot, in the absence of express statutory power or the consent of the person affected, be altered or withdrawn by the Commissioner. [62] The power under s 99(3) is for the assessable income of any person affected by a tax avoidance arrangement to be adjusted to counteract any tax advantage obtained by that person from or under the tax avoidance arrangement. Section 99(4) provides that, where income is included in the assessable income of any person under s 99(3), then that income is deemed to have been derived by the person subject to the assessment, and deemed not to have been derived by any other person. [63] Mr Judd accepted that this argument was inconsistent with the submission as to inconsistent tracks, but advanced it as an alternative to that argument. If the argument were accepted, the practical effect would be that in cases where the Commissioner had assessed a trading company on the Track A basis, then the Commissioner would have exhausted his discretion to make income adjustments under s 99(3), and would therefore not be permitted to assess the shareholders on a Track B basis. The effect in the present case would be that the Track B assessments would be invalid and the appeals would need to be allowed. [64] In the High Court, Courtney J did not deal with this argument, for two reasons, namely: (a) It had not been advanced as a ground of objection in the case stated to the TRA, and had not been advanced in argument during the hearing before the TRA in Case T52 or Case U23;(b) It was an argument that could have been raised in the Miller litigation, but was not. As she found that all parties were bound by the decisions in the Miller litigation, issue estoppel applied (under the rule in Henderson v Henderson (1843) 3 Hare 100; 67 ER 313) and it was not open to any party to raise the argument in the present proceedings. [65] We agree with Courtney J's first reason. But we heard extensive argument on this point and, consistently with the approach we have outlined in [32] above, we intend to deal with the merits of this argument. [66] Mr Judd argued that once the Commissioner has adjusted the assessable income of any person affected by a tax avoidance arrangement under s 99(3) and the decision in that regard has been communicated to the relevant taxpayer, that decision must be treated as final and cannot be changed. He described the decision under s 99(3) as a decision:determining a question which affects the rights of the subject (being the taxpayer) whose income has been adjusted and, because of the automatic effect of s 99(4), also all other taxpayers who might but for that adjustment have been taxpayers deriving the income.[67] Mr Judd relied on the common law principle which was summarised in the following way by this Court in Goulding v Chief Executive, Ministry of Fisheries[2004] 3 NZLR 173 at [43]:A valid administrative decision in the exercise of a statutory power, which is the outcome of a completed process, but which has not been formally communicated to interested parties, has not been perfected Once such a decision is so communicated to the persons to whom it relates, in a way that makes it clear the decision is not of a preliminary or provisional kind, it is final. A final decision which is made in the exercise of a power which affects legal rights, including those arising from the grant of a licence, is irrevocable. So is any other decision made under a statutory power where the Act explicitly or implicitly provides that once finally exercised the power of decision is spent.[68] The decision in Goulding essentially adopted the statement of principle set out in Re 56 Denton Road, Twickenham, Middlesex [1953] 1 Ch 51 at 56 – 57 (HC).[69] Mr Judd's argument proceeds on the basis that the decision under s 99(3) is a decision independent of the assessment which follows it, rather than a component leading to that assessment. It is also predicated on the basis that once a decision has been made under s 99(3) in respect of a particular arrangement, that decision must be reflected in future assessments of the taxpayer whose income is adjusted under s 99(3) and any other taxpayer whose income could have been adjusted under that subsection. In other words, a decision once made under s 99(3) binds the Commissioner for all assessments in later income years of anyone connected with the arrangement whose income could have been adjusted in the first year under s 99(3). [70] When asked by the Court why a decision under s 99(3) must be reflected in assessments in subsequent years, Mr Judd's answer was that if the Commissioner did not exercise his discretion under s 99(3) in subsequent years in the same way as he had done in the initial year, he would be acting in a way which was arbitrary or capricious. We disagree with that assertion. [71] Mr Judd acknowledged that, if the Court accepted this argument, it would reach a result which was at odds with the decisions made at all levels in the Millerlitigation, including the Privy Council, that the Commissioner was entitled to make Track B assessments, notwithstanding the existence of Track A assessments at any time up to the point at which the Track A assessments became unchangeable (we will identify that point later). Mr Judd suggested that all of the Miller decisions were per incuriam on this point because the present argument was not raised. That is an unattractive proposition, particularly given the Privy Council's approval of the decision of this Court about the validity of Track B assessments issued in circumstances where Track A assessments already existed. [72] More importantly, it is clear to us that the argument is out of step with the clear scheme of the Act, which permits the Commissioner to amend assessments or issue new assessments, and which clearly treats the exercise of making assessments as a year by year exercise, with each year's assessment requiring the Commissioner to apply his mind afresh to the appropriate level of taxation for the taxpayer being assessed.[73] Mr Judd argued that if the Commissioner has made an assessment which is "correct", he cannot issue a new assessment on a different basis which is also "correct". In effect, he said that the Commissioner cannot issue an assessment of a taxpayer which is inconsistent with the basis of the assessment in the previous year because it is not "necessary" to do so. For this he relied on s 19 of the Act, which provides that the Commissioner shall "in and for every year, and from time to time and at any time thereafter as may be necessary, make assessments in respect of every taxpayer". He argued that it was not "necessary" to assess on a different basis in a later year if the assessment in the previous year was correct. [74] In our view that involves a misreading of the section. The Commissioner's obligation is to assess in each and every year. There is nothing in the words of s 19 which requires that an assessment in one year be on the same basis as the assessment in the previous year. If the legislature had intended to bind the Commissioner to a particular basis for assessing a taxpayer forever, it could have specified such a requirement. For the obvious reason that it would be an unnecessary fetter on the Commissioner's ability to carry out his functions under the Act, the legislature did not do so. There is no basis for us to read such a requirement into s 19 when it is not there. [75] Mr Judd also argued that s 23, which relates to amendments of assessments, prohibited the Commissioner from amending an assessment if an earlier assessment made by him was "correct", because s 23 allows an amendment only if the Commissioner considers the amendment is necessary to ensure the correctness of the assessment. This argument appears to be predicated on the basis that there is only one "correct" answer, and that once the Commissioner has decided what it is he is bound by it forever. We do not think that is the case where the assessment follows from an adjustment of income to counteract a tax advantage derived from tax avoidance under s 99(3). In that context a number of different assessments may be "correct". [76] What s 23 permits is an amendment of an assessment if the Commissioner thinks it is necessary to ensure its correctness: the focus is on the Commissioner's view of correctness, not the court's. The Commissioner must be left with theflexibility to deal with changes, including changes in the understanding of the law, changes in his understanding of the arrangement which has led to the assessment and changes in the circumstances of the taxpayers involved. For example, the Commissioner will often need to amend an assessment in order to settle litigation with a taxpayer. On the argument made for the appellants in this case, that would not be possible unless the Commissioner acknowledged that the initial assessment was not in accordance with the legislation. But often settlements will be on a basis of a compromise which involves no such acknowledgement. There is no reason to read into the legislation the limitations which Mr Judd contended for. This analysis is consistent with the recent decision of this Court in Accent Management Ltd v Commissioner of Inland Revenue [2007] NZCA 231 at [20]. [77] In our view the principle enunciated in Goulding does not apply in the present legislative context. It is significant in that regard that the making of an assessment under the Act is effective whether notice is given or not. The decision and the notification of it are separate exercises: Hyslop at [20]. It is significant also that assessments are made as a separate exercise in each income year and that amendments to assessments are specifically permitted under s 23 of the Act "from time to time and at any time". This is subject to a common law limitation, namely that the Commissioner may not amend an assessment after the point at which any earlier inconsistent assessment has become unchangeable. We discuss this in greater detail at [117] – [130] below. And, in the present context, the decision made by the Commissioner under s 99(3) is only one part of the exercise relating to the overall assessment of income made under s 19. What is notified to the taxpayer is the assessment, not any separate divisible decision under s 99(3). This Court specifically stated in Miller (CA) at 292 that it did not read s 99(4) as preventing the Commissioner from changing his mind about the application of s 99. [78] We determine, consistently with the decisions at all levels in the Millerlitigation, that the existence of a Track A assessment does not inhibit the Commissioner's ability to issue an amended Track A assessment for a different amount, or issue a Track B assessment of different parties both for years in which Track A assessments have been made, and for subsequent years. The only exceptionto this is where the Track A assessment has become unchangeable: see [98] – [132] below. The exhaustion of discretion argument therefore fails.Section 25 time bar[79] Section 25 of the Act makes it unlawful for the Commissioner to alter an assessment in a way which increases the amount of tax payable by a taxpayer after the expiration of four years from the end of the year in which the notice of the original assessment was issued. However, there is an exception to this general rule. Under s 25(2) it is lawful for the Commissioner to alter an assessment notwithstanding the four year time bar provided for in s 25(1):in any case where, in the opinion of the Commissioner, the returns made are fraudulent or wilfully misleading or omit all mention of income which is of a particular nature or was derived from a particular source, and in respect of which a return is required to be made.[80] In the Miller litigation, the appellants argued that the exception in s 25(2) was not available to the Commissioner because the returns of the shareholders of the trading companies did not altogether omit mention of income of the nature, or from the source, in respect of which they were assessed after the Commissioner made adjustments to their assessable income under s 99(3). The argument was that their returns included various sums paid to them by way of remuneration by the trading companies, and the Commissioner's adjustments under s 99(3) had treated the money they received under the scheme as if it were remuneration. This argument was rejected. [81] In Miller (PC) at [21], Lord Hoffmann set out this argument and responded to it as follows in [22]:Their Lordships consider that this argument is based upon a misapprehension about the effect of a reconstruction [under s 99(3)]. The Commissioner's duty is to make an assessment with regard to what in his opinion was likely to have happened if there had been no scheme. But that does not mean that he is actually rewriting history. The reconstruction is purely hypothetical and provides a yardstick for the assessment. Although the income is deemed to have been derived by the person assessed (see s 99(4)), the nature and source of the income remains what it was, namelythe company's net profits routed to the shareholders through Mr Russell's company. None of this was disclosed.[82] The appellants accepted that it was not open to them to advance the same submission in the present proceedings. But Mr Judd submitted that it was open to them to argue in the present appeal that the IRD officer who exercised the Commissioner's power under s 25(2) did not hold the opinion that the returns of the shareholders omitted to mention income of the relevant kind (namely the trading company's net profit routed to the shareholders through Mr Russell's company, to use the words of Lord Hoffmann). He said that, as a matter of evidence, it had not been established that the officers who made the decisions under s 25(2) held the opinion, and that this was necessary because there had to be a genuine exercise of judgment. For that proposition he relied on the decision of this Court in Dandelion Investments Ltd v Commissioner of Inland Revenue [2003] 1 NZLR 600 at [94] and the advice of the Privy Council in Peterson v Commissioner of Inland Revenue[2006] 3 NZLR 433 at [33]. [83] We see nothing in [94] of Dandelion that assists the argument of the appellants in this case. While the Court referred to a taxpayer being assessed "by a genuine exercise of judgment as to the assessable income", we do not see why that reference offers any assistance to us in determining what is required under s 25(2). The same can be said for [33] of Peterson. There, Their Lordships simply reiterated what the Commissioner was required to demonstrate in relation to a transaction such that it constituted tax avoidance in terms of s 99(1). Again, no mention is made of s 25. The context is entirely different. [84] The decisions made by IRD officers under delegation from the Commissioner pursuant to s 25(2) are recorded on a standard form of certificate, IR 150. There is no legislative requirement for such a certificate, but in practice the IRD officer exercising the Commissioner's power under s 25(2) always signed a certificate. Certificates issued by the officer in the present case recorded:I have formed the opinion after examining the file including all relevant reports, returns and correspondence that the returns of income furnished by [the taxpayer] in respect of income derived during [the relevant years] omit all mention of income which is of a particular nature or was derived from a particular source, and in respect of which a return is required to be made.Pursuant to Section 25 of the Income Tax Act 1976, I direct that the income tax assessments made be altered so as to increase the amount thereof for those years.[85] In the present case the IR 150 certificates were properly in evidence in the TRA notwithstanding that they were hearsay. In our view they establish an evidential foundation for the proposition that the officer concerned did, in fact, hold the opinion stated in the certificate. No further evidence is required. [86] Mr Judd sought to persuade us by reference to numerous internal IRD documents that the makers of the certificates had expressed doubts about the ability of the Commissioner to invoke s 25(2), and that the need for legal advice on that point has illustrated that the requisite opinion was not held by the decision maker. In other words, Mr Judd said that the officer concerned had not held the opinion even though the certificate said that he or she did. [87] There is an onus on the taxpayer to persuade the court, on the balance of probabilities, that the Commissioner (or the Commissioner's delegate) did not honestly hold the opinion, that he or she misdirected himself or herself as to the legal basis upon which the opinion was to be formed, or that the opinion was one which was not reasonably open to the decision maker on the information available to him or her: Auckland Institute of Studies Ltd v Commissioner of Inland Revenue (2002) 20 NZTC 17,685 at [102]. [88] There is a degree of unreality about Mr Judd's submission. First, the fact that somebody expresses doubts at one point and then resolves them later is not at all surprising, and there is no reason to conclude that the IRD officer has signed a document (the IR 150) knowing it to be false. Second, there is no reason for the Court to reject the clear statement in the certificate that the IRD officer did, in fact, hold the opinion. There were certainly grounds on which the IRD officer could have reasonably formed the opinion and the certificate says he or she did in fact do so. As we have said, the onus is on the appellants, not the Commissioner, and they have failed to discharge it.[89] Our conclusion is the same as that of Judge Barber in another Russell template case, Case W46 (2004) 21 NZTC 11,424 at [50]. We agree with his observation that "some of the submissions for the objectors suggest that the objectors cannot accept the findings of our superior courts including even the Privy Council". [90] That is not to say that the court could not enquire into the question of whether the basis for the opinion existed. If, notwithstanding the existence of an IR 150 certificate, the return in question was produced and it was established that it did, in fact, mention the income of the relevant type, then it would be open to the court to find that the invocation of the time bar was invalid. There is, however, no prospect of that happening in this case because, as Lord Hoffmann clearly stated in Miller (PC) at [22], the income which would need to have been mentioned in the returns in this case was the income deemed to have been received by the shareholders by virtue of the reconstruction under s 99(3) which, of course, could only happen after the taxpayers' return had been filed. Unless a taxpayer displayed remarkable prescience in predicting the future invocation of s 99(3), it would be impossible for the return to mention income of this kind. [91] The lack of substance in this argument is also accentuated by the fact that, once it is established that the shareholders' returns did not in fact mention the income deemed to have been received by them by virtue of the s 99(3) reconstruction, then it would be open to the Commissioner even now to reopen their assessments.Additional tax[92] In the High Court, Courtney J upheld the decision of the TRA to the effect that there was no right of objection in respect of additional tax. The TRA had applied the law as stated in Miller (CA) at 294 in which it was held that additional tax imposed under s 398 of the Act did not attract a right of objection. [93] However, Courtney J recorded at [155] the Commissioner's acknowledgement that the decision of Baragwanath J in Withey v Commissioner of Inland Revenue (No 2) (1998) 18 NZTC 13,732 applied. This meant that theCommissioner had to set prospective dates for payment of tax, and additional tax would not become payable until those dates had been set and communicated to the appellants. [94] None of this was contested in this Court, but Mr Judd submitted that finalisation was required. He said that there was no evidence of prospective dates having been set or communicated to the appellants, and that the appellants were therefore entitled to a decision that no additional tax was payable by them. The response of Mr Ruffin was a repetition of the Commissioner's acknowledgement that the decision in Withey applied to all template taxpayers. [95] To the extent that any matter remains outstanding in relation to additional tax, it seems to us that the appropriate forum to resolve it is the High Court. The decision of Courtney J was an interim decision and she contemplated that the impact of the decision on individual taxpayers would be dealt with when the hearing was reconvened in the High Court. This issue can be dealt with in that context.Consulting fee[96] The appellants did not make submissions on this point, choosing to rely on their submissions in the Wire Supplies Judicial Review Appeal. In the light of our conclusions in that appeal, we can see no basis for interfering with the decision of Courtney J on this aspect of the case.Conclusion: Wire Supplies Objection Appeal[97] All of the above points of appeal fail on their merits. It is not therefore necessary for us to deal with the issue estoppel points dealt with by Courtney J. We dismiss the Wire Supplies Objection Appeal.WIRE SUPPLIES JUDICIAL REVIEW APPEAL[98] The only point at issue in the judicial review application was whether the TRA had acted in breach of the rules of natural justice when determining Case U23and Case V2 without having heard evidence from Mr McDermott, who was apparently the IRD officer principally responsible for the Commissioner's decision to issue Track C assessments. Case U23 and Case V2 relate to Track B assessments: they are the final decisions in relation to Case T52 and Case T59 respectively. The answer requires us to address whether the subsequent issuing of Track C assessments affected the TRA's evaluation of the appellants' objections to their Track B assessments. [99] The appellants argue that Track C assessments were relevant to the TRA's consideration of objections to Track B assessments. They argue that the Track C assessments relate to the same income as the Track B assessments, and therefore trigger the operation of s 99(4): see [62] above. They say the advent of the Track C assessments had to be taken into account by the TRA in its consideration of the Track B objections. [100] It is surprising that the appellants in the Wire Supplies Judicial Review Appeal are the trading companies that were initially assessed under Track A. This is because, if the appeal were successful, the Track B assessees would benefit, not the Track A assessees. We also note that the TRA was not named as a respondent to the appeal, though it was the first defendant in the High Court judicial review proceedings. We have proceeded on the basis that, in accordance with normal practice, the TRA abides this Court's decision.Tracks C, D and E[101] Before turning to the appellants' contention we comment on the Track C assessments, and the later assessments under Track D and Track E. On behalf of the Commissioner, Mr Ruffin indicated to us that the Commissioner does not intend to pursue the Track C and Track D assessments, and will withdraw them. However, he indicated that, whatever happens to Tracks C and D, the Commissioner intends to pursue his assessments under Track E, which assess Mr Russell personally for income derived by companies under his control.[102] Mr Ruffin said that the Track E assessments are based on the existence of a tax avoidance arrangement quite separate from that arising from the operation of the Russell template with trading companies that have agreed to participate in the template arrangement. Whether that is so or not will need to be determined in relation to Mr Russell's objection to the Track E assessments. Until that determination occurs, we will proceed on the basis that there is an argument that assessments under Track B and under Tracks C, D or E are inconsistent with each other and that the existence of Track B assessments concurrently with assessments under Tracks C, D, or E may make arguments about the operation of s 99(4) available. [103] The Commissioner's intention to withdraw the Track C assessments may mean that evidence from Mr McDermott about Track C assessments would, whatever the outcome of the present argument, be irrelevant, because it would relate to evidence about assessments that have been withdrawn. However, we approach the issue on this appeal on a more generic level, namely whether evidence about a subsequent assessment, which is alleged to deal with income already assessed, could be relevant to the consideration of an objection to the earlier assessment where the later assessment came into existence after the objection to the earlier assessment had been subject to a case stated and therefore subject to consideration by the TRA.Relevance of Track C[104] Courtney J recounted the unsatisfactory procedural history. In particular, she noted that the appellants' application to the TRA to defer finalisation of its decisions until after Mr McDermott had given evidence was made orally, in the course of the hearing of another Russell template case. She proceeded on the basis that the issue which needed to be determined was whether Mr McDermott's evidence about Track C was relevant to the matters dealt with in the decisions of the TRA in Cases T52, T59, U23 and V2 (at [17]). We will take the same approach, recognising that the real issue may now be whether evidence from an IRD official about Track E needs to be considered by the TRA.[105] Despite this, we will, for ease of reference, continue to refer to the Track C assessment as the potentially relevant subsequent assessment.Mr McDermott[106] Mr McDermott is a former IRD officer who has now retired. He is described in the High Court judgment as "the architect of Tracks C and D". The High Court Judge proceeded on the basis that, if evidence about Tracks C and D was relevant to the consideration of objections to Track B assessments, then the rules of natural justice would require that evidence from Mr McDermott be heard. We do not accept that that is necessarily the case. The determination of any issues arising under s 99(4) requires only that the TRA or court has sufficient information about Tracks C and D to determine whether they involve an assessment of income that has already been attributed under s 99(3). It is not clear to us that evidence from the "architect" of Tracks C and D is necessarily required for that purpose. As this Court noted inRussell v Taxation Review Authority (2003) 21 NZTC 18,255 at [31], there is no obligation on the Commissioner to make available witnesses considered by an objector to be the "correct" witnesses.Could the appellants raise Track C?[107] It is also unclear to us on what basis the appellants were entitled to raise a new ground of objection after the hearing of their other grounds of objection had concluded. Section 36 of the Inland Revenue Department Act provided that an objector was limited to the grounds stated in his or her objection, and it was common ground that the Track C issue did not arise until some years after the appellants' objections were made. Baragwanath J confronted this issue in the context of an application to recall his judgments in Miller (Judicial Review Nos 1 and 2) because of the advent of Track C assessments. In his judgment refusing a recall, Miller v Commissioner of Inland Revenue HC AK M103/93 26 September 1997 he said at 11:But the submission that the mere invention and advancing of the argument [as to inconsistency between Track B and Trace C] in such cases many years after the defining of the issues, and following judgment at second appellate level upon the issues raised by the notices of assessment and objection, requires recall of such judgment, is untenable.[108] We agree. And we believe the same point can be made in the present context where the objections had been considered at the first tier of appeal (the TRA) and judgment had been delivered on all issues raised by the objections.The s 99(4) conundrum[109] The points made at [106] – [108] above may be sufficient to dispose of this appeal, but we intend nevertheless to confront the essential issue as to the way in which potentially inconsistent assessments should be dealt with. This is something of a conundrum, as is illustrated by the fact that, in the course of the present appeals, the appellants have contended for two mutually exclusive positions. The first is that, once an assessment applying s 99(3) is made, no further inconsistent assessment can be made: see the "Exhaustion of discretion" discussion at [61] – [78] above. That argument is essentially that the earlier assessment trumps any later assessment. The second is the present argument, which is essentially that when a later inconsistent assessment is made, the earlier assessment must be withdrawn or altered to remove the inconsistency. On that scenario, the later assessment trumps any earlier assessment. [110] Section 99(4) gives no guidance on how to resolve this conundrum. The issues were first confronted in Russell template litigation in Miller, where there was no dispute that the Track B assessments taxed the same income as had been taxed under the Track A assessments. In that case the triggering of s 99(4) was clear. The position becomes murkier in the present situation because the Commissioner disputes the appellants' contention that Tracks C, D or E trigger s 99(4). On the appellants' contention, no Track A or B assessments can be resolved until the s 99(4) arguments relating to all later tracks are resolved, ie after the objection proceedings for those later tracks are finally concluded. And if there is an inconsistency, the appellants say the earlier track assessees get the benefit, to the detriment of the later track assessees. There is nothing in s 99(4) that indicates that that should necessarily be the case and there is a degree of opportunism in this argument being made on behalf of Track B assessees, when Track B assessees were the beneficiaries of the opposite conclusion in Miller.[111] There also appears to be an element of artificiality about these arguments in the present context. In his evidence in the High Court, Mr Russell said that the appellants in the Wire Supplies Judicial Review Appeal had signed deeds of assignment of their rights in the litigation against the Commissioner in favour of a company associated with him. If that is so, and such deeds are effective, the practical position is that all tracks lead eventually to Mr Russell or companies associated with him. [112] The appellants' approach appears to be predicated on the premise that there can be only one "correct" assessment of income after the Commissioner has made any adjustment under s 99(3). As noted at [75] above, that is not so. Lord Hoffmann confirmed in Miller (PC) at [31] (which is reproduced at [56] above) that a number of different parties derived tax advantages from the Russell template and made it clear that there is no reason why the Commissioner should not adjust the income of each or any of them. Where the Commissioner has assessed different parties in circumstances that trigger or may trigger s 99(4), the question that faces the court may well be which of two otherwise valid and "correct" assessments prevails. [113] The essence of the argument for the appellants is that the operation of s 99(4) means that (assuming assessments under Track C deals with the same income assessed under Track B) Track C assessments must make the earlier Track B assessments incorrect or invalid. Accordingly, the Commissioner became bound when he issued assessments under Track C to cancel or amend downwards the Track B assessments to avoid any double taxation in breach of s 99(4). If the Commissioner did not do this, then it was incumbent on the TRA to do so. That meant that the TRA needed to hear Mr McDermott's evidence in order to understand the extent to which the Track B assessments needed to be amended downwards. [114] Although the TRA did not hear Mr McDermott's evidence, it did consider the impact of Tracks C and D on the Track B assessments in Case U23. In the TRA's view, Track C assessments could not affect assessments made under Tracks A or B which had been taken to the case stated stage, and so the advent of the Track Cassessments could not alter the TRA's decision on the objections to the Track B assessments: Case U23 at [29] – [30].The BASF principle[115] The impact of later assessments on earlier assessments was also considered in the Miller litigation. In Miller (Judicial Review No 2) the focus was the impact of later Track B assessments on assessments that had already been made under Track A. In the High Court, Baragwanath J found that once the taxpayer had asked for a case to be stated to the TRA or the High Court, the Commissioner could not issue an assessment that was inconsistent with the Track A assessment. Thus a Track B assessment issued after a request for a case to be stated to the High Court or the TRA for a Track A assessment had been made, would be invalid on the basis that it purported to reopen an issue requiring determination in the case stated for the Track A assessment. [116] This aspect of Baragwanath J's decision was in favour of the Track B assessees and was not the subject of a cross-appeal by the Commissioner to this Court. However, it was the subject of comment in the judgment of this Court and in the judgment of the Privy Council. [117] The decision of Baragwanath J was based on the decision of the High Court in BASF New Zealand Ltd v Commissioner of Inland Revenue (1995) 17 NZTC 12,136. In that case, Thorp J was asked to answer the following question:Is an assessment issued by [the Commissioner] to [a taxpayer] while a case stated in relation to a notice of assessment previously issued by [the Commissioner] to [the taxpayer] for the same income year has yet to be disposed of by the Court or conceded by the Commissioner, valid?His answer was:The second assessment would be invalid if and in so far as it purported to reopen any issue requiring determination in the original case stated.[118] Baragwanath J applied the BASF principle (as he called it) by analogy to the situation where the subsequent Track B assessment was against a party other than theassessee under the Track A assessment, but the basis for the Track B assessment was inconsistent with the basis for the Track A assessment. [119] In Miller (CA), this Court did not express a view as to whether the BASFprinciple applied. However, the Court said at 293 that, if the BASF principle did apply, it would apply only after the objection to the Track A assessment was the subject of a signed case stated, and thus placed in the hands of the TRA or the court, rather than at the point at which the taxpayer had asked for a case to be stated, as Baragwanath J had found. On that basis, it would not be open for the Commissioner to make a Track B assessment once a Track A assessment was the subject of a case stated and, applying the same logic in the present case, it would not be open to the Commissioner to make a Track C assessment which was inconsistent with the Track B assessment once the Track B assessment was the subject of a case stated. [120] The Privy Council agreed with the Court of Appeal: Miller (PC) at [34]. [121] The BASF principle is a judge-made qualification of the very wide words of s 23, which provided that the Commissioner could amend an assessment "from time to time and at any time". Obviously those words need to be qualified, or they would permit the Commissioner to amend an assessment after the court had quashed it altogether as if nothing had happened. In Farnsworth, this Court recognised that Parliament cannot have intended to give the Commissioner such a carte blanchewhile limiting the taxpayer's grounds of objection. Similarly in Zentrum Holdings Ltd v Commissioner of Inland Revenue [2007] 1 NZLR 145 at [26], this Court noted that s 89B(4)(a) of the Tax Administration Act 1994, which provides that the Commissioner may not issue a notice of proposed adjustment if the proposed adjustment is already subject to a challenge, appeared to be a "statutory reflection" of the BASF principle. Thus Parliament apparently approved of the limitation the courts imposed on s 23 prior to 1994. [122] Mr Judd argued that the application of the BASF principle in the present circumstances was an open question because neither this Court nor the Privy Council had dealt with the issue in Miller. He argued that the BASF principle did not apply in circumstances where the Commissioner sought to amend an assessment (or issuean inconsistent assessment to another taxpayer) after a case had been stated for the TRA if the result of the new assessment was favourable to the taxpayer (here, the Track B assessee). Thus he argued that the issuing of a Track C assessment was a step that was open to the Commissioner in relation to the present cases even though the Track B assessments were under consideration in case stated proceedings by the TRA. It was therefore necessary for the TRA in the present cases to consider what impact an inconsistent Track C assessment would have on the Track B assessments before it. [123] Mr Judd said that Miller (CA) and Miller (PC) supported this position. InMiller (CA) at 292, Blanchard J dealt with the position that arises where the Commissioner makes an assessment of one taxpayer (Track B in that case) which is inconsistent with an earlier assessment of a different taxpayer (Track A in that case). He said that it was not necessary that the Commissioner simultaneously amend the earlier assessment, but that that must ultimately be done or the Commissioner would, in effect, be collecting the same tax twice over. However Blanchard J said the Commissioner was to be allowed some flexibility in the timing of the adjustment to meet administrative demands and to enable him to await the outcome of objection proceedings in relation to the assessments. Thus, he said, although there must in due course be a reconciliation, a Track B assessment is not invalid merely because a Track A assessment has not yet been withdrawn. [124] Mr Judd said that if this were applied to the present situation, the Track C assessment would not be invalid, but it would necessitate an adjustment to the Track B assessment to prevent any double taxation (if, indeed, such arises) and that if the Commissioner did not do this, then the TRA should. He said the BASF principle did not prevent such an adjustment being made to a Track B assessment because theBASF principle prevents the Commissioner from reassessing or amending an assessment only if such a step is disadvantageous to the taxpayer. Here the adjustment to the Track B assessment would be to the taxpayer's advantage. [125] The answer given by Thorp J to the question under consideration in BASFitself (see [117] above) does not support that contention, because it simply says that a later assessment would be invalid in so far as it purported to reopen an issuerequiring determination in the case stated relating to the earlier assessment. As Courtney J noted at [130] of her objection judgment in Wire Supplies, consideration of Track C assessments in the present context would require a reopening of issues requiring determination in the Track B cases stated. On this basis, the approach taken by Baragwanath J in Miller (Judicial Review No 2) is consistent with BASF. However, this Court in Dandelion Investments Ltd v Commissioner of Inland Revenue [2000] 2 NZLR 548 explained the rationale of the BASF decision (which this Court accepted was a correct statement of the law) in terms which lend some support to Mr Judd's argument. Giving the judgment of the Court, Tipping J said at [15]:[The BASF] decision was designed to avoid the injustice to taxpayers which could arise if, while a case stated was pending, on which the Commissioner was committed to a particular stance, the Commissioner attempted to circumvent that restriction by making another assessment in relation to the same issue, but on a different basis Thorp J was not saying that pending the resolution of a case stated there could be no amendment at all to the assessment underlying the case stated.[126] Dandelion was concerned with the situation where the Commissioner seeks to make a later assessment of the same taxpayer. The present situation, and the situation under consideration in Miller, involved an application of the BASFprinciple by analogy to the situation where the later assessment is of a different party, but in circumstances where the s 99(4) prohibition on taxing the same income twice potentially ties the fortunes of the earlier assessee and the later assessee together. In Miller (Judicial Review No 2), Baragwanath J considered that once the Track A assessee had given notice seeking the stating of the case (which must now be read as applying once the case is actually stated, given the subsequent correction of this aspect of Baragwanath J's decision by this Court and the Privy Council), the Track A assessee is relieved of further exposure to an amendment of the Track A assessment. In view of that, the fact that the TRA cannot direct the Commissioner to make a change from Track A to Track B, and the fact that s 99(4) provides a seemingly irresistible basis for challenge to a Track B assessment if there is an extant Track A assessment, the practical effect of the BASF principle was to stop the Commissioner issuing a Track B assessment once a Track A assessment was the subject of a case stated. If the Commissioner did not then withdraw the Track B assessment, Baragwanath J thought it would be a nullity, but this was subsequentlycorrected in Miller (PC) at [33]. Rather than being a nullity, it would be subject to objection under s 30 on the basis that its existence contravenes s 99(4). The Track B assessee was the beneficiary of the s 99(4) prohibition, not the Track A assessee. [127] The essence of Mr Judd's argument is that the BASF principle is designed to protect the interest of taxpayers, but its application in the present case could work against the interests of the Track B assessees in favour of the interests of the Track C, D and E assessees. We accept that the foundation of the BASF principle was the protection of taxpayers. It was a recognition that taxpayers who were committed by virtue of s 36(2) of the Inland Revenue Department Act to particular grounds for objection should not have the ground removed from under them by the Commissioner changing tack. This is consistent with the position of this Court inFarnsworth. But where there are two taxpayers with competing interests, the inevitable consequence of protecting one (here, the Track C assessee) is a potentially disadvantageous outcome for the other taxpayer (the Track B assessee). [128] We believe it is appropriate to apply the BASF principle by analogy in cases involving the potential application of s 99(4) to provide a proper basis for consideration of potentially inconsistent assessments. There needs to be a way of ensuring that the Commissioner cannot continue to change ground on the party to whom tax avoidance income will be assessed, while at the same time recognising that, once the Commissioner has become committed to a particular party or parties, s 99(4) must operate to protect other potential assessees for the same income. In our view, the application of the BASF principle on the basis that it was applied in theMiller litigation as between Track A and Track B assessees provides a workable solution which ensures that once objection proceedings have been started they can proceed to finality without being left in a perpetual state of uncertainty, and at the same time giving effect to s 99(4). [129] This means that where a Track C assessment is made in circumstances where a Track B assessment is already before the TRA, the party who may seek to invoke an inconsistency argument based on s 99(4) is the Track C assessee, but not the Track B assessee. This is consistent with the decisions of all courts in Miller, as well as reflecting the reality that the Track B assessee is limited in the grounds of itsobjection to those which appeared in the objection itself, which cannot have included the possibility of an inconsistent Track C assessment that did not exist at the time of the objection. If, on the other hand, the Commissioner makes a Track C assessment which is inconsistent with a Track B assessment that has not become the subject of a case stated, then the Commissioner will be required to amend the Track B assessment to remove any inconsistency with the Track C assessment. [130] This approach leads to a bright line rule which determines whether an earlier or a later assessment derives the benefit of s 99(4) in the event of inconsistency. It is consistent with the approach taken in the Miller litigation and it prevents a situation arising where no Track A or B assessments can be determined until the final outcome of proceedings dealing with Track C, D and E. Given the competing interests of the Track B assessee and the Track C assessee, it is hard to see how that could be done other than in proceedings involving both, though there is no provision for that in the legislation. All of this recognises that, while the foundation of theBASF principle is the protection of the interests of taxpayers, it also has the effect of recognising that the courts must adopt procedures to ensure that objections to assessments can be resolved in an orderly manner, and that later assessments taken on a different basis from earlier assessments should not be permitted once the fate of the earlier assessment is in the hands of the court system. [131] In a memorandum filed some weeks after the hearing, Mr Judd asked us to take into account s 129 of the Tax Administration Act, which, he said, supported the appellants' position. Section 129 states that the determination of an objection does not affect the right of the Commissioner to amend the assessment "in any manner rendered necessary by any other matter". Mr Judd argued that the advent of later, allegedly inconsistent, Track C assessments was a matter which rendered necessary an amendment to the appellants' Track B assessments. We disagree: for the reasons just given, it is the Track C assessments, not the Track B assessments, that would need to be amended in this case if s 99(4) is engaged. In any event, it is not clear to us that s 129 applies to the present case: it took effect from the 1997-1998 tax year. The previous version of s129 and its predecessor, s 35 of the Income Tax Act 1976, referred to an amendment of an assessment where that was necessary to assess "any other income of the objector". Clearly, those sections were not engaged because aTrack C assessment does not create a necessity to assess other income of the Track B assessee.Conclusion : Wire Supplies Judicial Review Appeal[132] We conclude that Courtney J was right in her finding that the Track C assessments were not relevant to the TRA's consideration of Track B objections. That means the evidence of Mr McDermott was also irrelevant. We therefore dismiss the Wire Supplies Judicial Review Appeal.DOUGLAS AND HENWOOD APPEAL[133] The transactions to which this appeal relate are described in the High Court judgment at [17] – [41]. Reference should be made to that judgment for detail. [134] The template transactions involving Melbar Engineering Ltd, Straits Fishing Ltd and T C Large Ltd were typical template transactions. We have described the template in general terms at [4] – [12] above. Although the Douglas and Henwood transaction involved the sale of a business operated by a partnership, rather than the sale of shares in a company, Courtney J found that the substance of the transaction was that of a standard template transaction, and that there was no justification for treating this transaction differently from any other Russell template case. We agree with her assessment. [135] There were also differences between the transaction involving Waikato Brokers Ltd and standard template transactions. These are discussed in some detail in the High Court judgment, but because of the view we take on the applicability of issue estoppel, and the limited scope of the argument before us as to the application of s 99 to the Waikato Brokers transaction, it is not necessary for us to discuss those differences.Res judicata/issue estoppel[136] None of the appellants in the Douglas and Henwood Appeal was involved in the Miller litigation. The Commissioner argued that issue estoppel should apply to the appellants anyway. Our comments at [25] – [32] above apply to the Douglas and Henwood Appeal. In short, we are concerned that there may be insufficient mutuality of interest between the present appellants and the appellants in the Millerlitigation to justify the finding that issue estoppel applied against the present appellants in respect of arguments dealt with in the Miller litigation. We therefore take the same approach in this appeal as that taken in the Wire Supplies Objection Appeal: see [32] above.Substantive grounds of appeal[137] The substantive grounds of appeal in CA208/05 are: (a) No breach of s 99; (b) Unintelligibility of assessments; (c) Abuse of power: "following the money"; (d) Inconsistent Tracks (Track C/Track B); (e) Relevant evidence not heard; (f) Exhaustion of discretion; (g) Section 25 time bar; (h) Additional tax; (i) Funding charge;(j) Apportionment of administration charge; (k) Status of the objection of R J Tourelle (deceased); (l) Waiver of privilege. [138] We have dealt with a number of these issues in the context of the Wire Supplies Objection Appeal, particularly (b) (Unintelligibility of assessments), (c) (Abuse of power: "following the money"), (f) (Exhaustion of discretion), (g) (Section 25 time bar) and (h) (Additional tax). The findings we made in that appeal apply equally to the present appeal, and we therefore need to say little more about those issues. In addition, we have dealt with two further issues, (d) (Inconsistent Tracks (Track C/Track B)) and (e) (Relevant evidence not heard) in the context of the Wire Supplies Judicial Review Appeal. Our findings in that context apply equally to the present appeal. [139] In relation to issue (c) (Abuse of power: "following the money"), the evidence relied on by Mr Judd for this appeal was similar in effect to that relied on for the Wire Supplies Objection Appeal, which is described at [58] above. Mr Judd relied in particular on a report by an IRD officer, Mr Vonder, dated 21 November 1990. He argued that this showed that the sole reason for the change from Track A to Track B was to follow the money. In our view, Mr Vonder's report simply records that one of the features of the arrangement was that the trading company, after the exercise of the option, was left with no assets and no money, and that once that was factored into the assessment of the position, the Track B assessment was more appropriate. Mr Judd also relied on evidence given by Ms Foulds and by Mr Cheong, but in our view this also fails to establish that the Commissioner's decision to switch from Track A to Track B was in any way an abuse of power. [140] In relation to issue (g) (Section 25 time bar), Mr Judd argued that the signatories of the IR 150 certificates were either unidentified or did not give evidence to the effect that they had formed the opinion stated in the IR 150 certificate. He said in those circumstances there was insufficient evidence to supportthe lifting of the time bar. We reject that contention for the same reasons that we rejected a similar contention in the Wire Supplies Objection Appeal. [141] We now turn to the remaining issues.No breach of s 99[142] In the High Court both Messrs Douglas and Henwood and Waikato Brokers argued that there was no breach of s 99 in relation to them. Messrs Douglas and Henwood have accepted the High Court Judge's finding that s 99 was breached in their case, but Waikato Brokers appeals against the Judge's adverse finding in its case. [143] The argument put to us on behalf of Waikato Brokers was narrowly focused. It was contended that, even if the operation of the template had sheltered the taxable income of Waikato Brokers, the benefit of that tax shelter had never been obtained by the former shareholders and directors of Waikato Brokers, Messrs Sherlock and Tourelle. Accordingly, no tax advantage had been derived by Messrs Sherlock and Tourelle. That meant that there was no basis for an assessment against them to be made under s 99(3), which empowers the Commissioner to adjust the assessable income of any taxpayer "so as to counteract any tax advantage obtained by that person from or under [the tax avoidance] arrangement". Under s 99(3)(a), the Commissioner can have regard to such income that the taxpayer "would have, or might be expected to have, or would in all likelihood have derived" had there been no tax avoidance arrangement. The other bases for objection to the finding of a breach of s 99 that were pursued in the TRA and the High Court were not pursued in this Court. [144] The dispute relates only to the 1988 and 1989 tax years, in which Waikato Brokers made profits: although it was not entirely clear on the evidence, it appears that the trading conditions for Waikato Brokers were such that no profits had been made in earlier years, and effectively that the template had not therefore been activated. Under the template, these profits were payable to the Russell-controlled parent company of Waikato Brokers as administration charges, and this liability wasrecorded in the accounts for Waikato Brokers. However, the administration charge was not actually paid. It was apparently treated in the accounts as a shareholder advance. The effect of Waikato Brokers incurring a debt to the parent company for the administration charge was to reduce the profit of Waikato Brokers to zero, because the liability equated with the trading profit. That meant that no tax was payable by Waikato Brokers. [145] Because the parent company did not receive payment of the administration charge in cash, it did not pay 77.5% of the administration charge to Messrs Sherlock and Tourelle, the former shareholders in Waikato Brokers (or to a company interposed between them and the parent company). This was because the parent company was required to pay the sum equal to 77.5% of the amount received from Waikato Brokers within seven days of the receipt of the amount in cash. Because it never received the amount in cash, it never made the payment. Mr Russell did seek payment of the administration charge in both years, and his letter requesting payment made it clear that payment of the 77.5% to Messrs Sherlock and Tourelle would be made immediately after receipt of payment of the administrative charge. [146] The Commissioner still treated the Waikato Brokers transaction in the same way as other template transactions where the liabilities of the parties were met and the payments actually occurred. The report of the investigating accountant of the IRD described the position as follows:It is conceded that no actual cash payments have been made in respect of the Administration Charges [referred] to (i.e. the 1988 and 1989 Administration fees). However, these administration fees have been accrued in the accounts and disclosed as liabilities to the "parent" company under the heading "Shareholders Advances". By doing so, Waikato Brokers Ltd was effectively setting up a creditor so that cash payment can be paid as and when the company (Waikato Brokers Ltd) liquidity/cash flow position improves. These cash payments received by the parent company would in turn be paid either directly or indirectly to Mr. Sherlock and Mr. Tourelle or to a company under their control. Also by accruing the administration charges (management fee), Waikato Brokers Ltd. has reduced its net profit to nil and consequently has no tax liability. What is at issue here is merely the timing of the cash flow![147] Mr Judd argued that the Commissioner was wrong to reconstruct the arrangement on a Track B basis, because no tax advantage had been derived by Messrs Sherlock and Tourelle. They had no entitlement to receive payment of 77.5% of the administration charge from the parent company because it had not received the administration charge in cash. They would have gained a tax advantage only if they received payment from the parent company on a tax free basis of an amount which they would otherwise have received from Waikato Brokers as taxable remuneration. [148] This argument was rejected in the High Court: Courtney J said at [169] that the taxpayers were in no different position to any business proprietor who finds that his or her tax liability precedes the receipt of cash. She said that Messrs Sherlock and Tourelle had an entitlement to be paid by the parent company and the amount of that payment would, in the usual course, be taxable. She said there was no reason for the Commissioner to enquire further into when, or if, the debt would be repaid. [149] The approach taken by the Commissioner proceeds on the basis that the Russell template tax avoidance scheme placed Messrs Sherlock and Tourelle in a position to receive from the parent company a tax free payment when cash became available to Waikato Brokers to cause it to be paid. Without the tax avoidance arrangement, they would have been in a position to receive the amounts on a taxable basis from Waikato Brokers itself by way of remuneration when Waikato Brokers became able to pay it. Therefore, there was a tax advantage which could be the subject of reconstruction of assessable income by the Commissioner under s 99(3). [150] In other Track B cases, the Commissioner's assessment has been predicated on an assumption that the profit of the trading company would be distributed by way of remuneration of one form or another to the directors/former shareholders if there were no tax avoidance arrangement. The same assumption is made in the present case. There is only one difference. In other template cases, the directors actually received the sums by way of loan repayments from the parent company. In the present case, there were book entries crediting Messrs Sherlock and Tourelle with loan repayments but they had only a contingent entitlement to receive them when Waikato Brokers was able to fund the making of the payments. In the present case,the assumption is that if there had been no tax avoidance arrangement, the taxable profit of Waikato Brokers would have been credited to the current accounts of the directors/former shareholders and thus been taxable income in their hands, rather than that it would actually have been paid in cash to them. Either way they would have received it as taxable income but for the tax avoidance arrangement if that assumption is accepted. [151] Some support for the appellants' position can be obtained from the approach taken in Federal Commissioner of Taxation v Peabody (1994) 181 CLR 359. In that case, the High Court of Australia found that the taxpayer could not be said to have a reasonable expectation of receipt of a tax benefit in circumstances where she had no present entitlement to any of the sum which would have been assessable income in the absence of the tax avoidance arrangement. The Court said that "reasonable expectation" required more than a mere possibility. [152] In our view there was more than a mere possibility of receipt by Messrs Sherlock and Tourelle of the tax benefit. It is not in dispute that the terms of the agreement implementing the template required the parent company to pay to Messrs Sherlock and Tourelle, 77.5% of the amount it received from Waikato Brokers on receipt. So the only uncertainty is the availability of cash in Waikato Brokers. In those circumstances, we consider that Courtney J was right to find that the shareholders did effectively have an entitlement to receive the 77.5% payment when Waikato Brokers' cash position permitted, and that, in those circumstances, they were in essentially the same position as a business person receiving a credit carrying with it a tax liability in advance of the actual cash payment. In the words of s 99(3)(a), Messrs Sherlock and Tourelle would, in all likelihood, have derived income equal to the taxable profit of Waikato Brokers (ignoring the obligation to pay the administration charge) if the tax avoidance arrangement had not been entered into.Funding charge[153] The appellants claimed that, where payment of the administration charge by the trading company to the parent company was deferred, the parent company wasentitled to charge interest, and that interest should be deductible to the trading company. The claim for interest was not part of the original objection, but emerged from the consideration by the TRA of the appellants' claim that the administration charge itself was deductible. In Case T59 the TRA, having rejected the claim for deductibility of the administration charge itself, observed that where substantial funding had been provided free of interest to the trading company, an appropriate funding charge would be justified. However, in Case U23 the TRA refused to allow a funding charge on the ground that there was no agreement for such a charge, and also on the basis that the claim for a funding charge was not a ground of objection. [154] In the High Court, Courtney J determined that the funding charge issue arose directly out of the objection to the disallowance of the deductibility of the administration charge, and was therefore a matter properly in issue in the objection proceedings in the TRA. The Commissioner has not appealed against that finding. [155] Courtney J determined that the TRA had been wrong to reject the claim for a funding charge because there was no agreement between the trading company and the parent company that such a charge would be paid. Her finding at [157] of her judgment was:I consider that, even in the absence of a specific agreement, if funding were provided by the parent company it should be entitled to charge for it. There is no reason that the subsidiary should benefit from interest-free funding at the expense of the parent simply because the transaction giving rise to the funding breached s 99. It must have been implied into the contractual arrangements between the companies that if the underlying template scheme was annihilated the subsidiary would nevertheless meet the cost of genuine services which had been provided.[156] However, Courtney J found that there was no evidence that funding had been provided and therefore rejected the claim. [157] In this Court the appellants argued that the finding by Courtney J, that there was no evidence that funding had been provided, was wrong. They said that there was before the TRA and the High Court an exhibit to an affidavit by Mr Russell headed "Funding Allowance Calculations" (Exhibit 16) which dealt with company advances apparently made to Douglas and Henwood, Melbar Engineering, Straits Fishing Co, Waikato Brokers and T C Large. Exhibit 16 has four columns, the firstspecifying the year, the second the amount of the parent company advance, the third a calculation of 18% of the amount of the advance (being the funding charge claimed by the trading company) and the fourth a reference to another exhibit. Counsel were unable to assist us in determining what the reference to the other exhibit meant. [158] Although Courtney J did not refer to Exhibit 16 (apparently because it was not drawn to her attention), we agree with her that there is not sufficient evidence of any advances actually being made. Exhibit 16 is simply a list of advances, with no indication of the time period for which the advances were made. The 18% allowance is calculated as 18% of the amount advanced in every case, but that would be correct only if all amounts were advanced on 1 January and repaid on 31 December in the relevant year, which is highly unlikely. There is simply no evidence that these advances were actually made to the companies concerned and, if they were, when they were made and when they were repaid (ie when the administration charge was payable and when it was actually paid). [159] When we expressed a tentative view along these lines to Mr Judd during the hearing, he sought to persuade us that there had been evidence before the TRA that advances had actually been made, but that this evidence was not before the High Court or in the case on appeal in this Court. He referred us to the decision of the TRA in Case V2 at [49], where the TRA refers to Exhibit 16. In that paragraph, there is a reference to the "sums set out on the Schedule [presumably, Exhibit 16] which, in turn, come from the balance sheets as sums advanced by shareholders". He said this showed that there was evidence before the TRA of balance sheets showing that advances had actually been made. [160] We do not read the TRA's comments as establishing that at all: if the balance sheets were before the TRA they would have been in the record before the High Court, and that would have been reflected in the case on appeal in this Court. The information simply was not provided. In addition, there is nothing before us, or apparently, the TRA, indicating when the advances were made (or when they were deemed to have been made) and when they were repaid.[161] Mr Judd argued that, if the High Court Judge was not satisfied that there was sufficient evidence supporting the claim for a deduction for a funding charge, she should have sent the matter back to the TRA for determination. We disagree. The appellants had the chance to adduce evidence of any funding provided, and the charge made for that funding, at the time the objection was heard in the TRA. If they failed to do this, they could not expect the High Court to provide them with a second opportunity to do so. [162] We therefore uphold the High Court finding that there was no evidence of advances being made or of the period for which they were made. This ground of appeal therefore fails. [163] We are not to be taken as agreeing with the High Court Judge that a deduction for a funding charge would have been permissible in circumstances where there was no agreement that a funding charge would be paid. We are not called upon to decide the point because the Commissioner did not appeal against the Judge's finding, but we think there is considerable logic in the TRA's finding to the contrary.Apportionment of administration charge[164] The Commissioner's assessment of the former shareholders of trading companies involved in the Russell template was based on the benefits to which each individual shareholder was entitled under the template. In Case T59, the appellants submitted that this approach did not reflect the fact that the various parties had different levels of involvement. For example, where the former shareholders were husbands and wives, the wives did not play as active a part in the business as their husbands. In the case of Waikato Brokers, Mr Tourelle played a lesser role than Mr Sherlock did, because Mr Tourelle suffered from ill health during the relevant tax years. [165] The TRA gave the appellants the opportunity to adduce evidence about the actual involvement of the relevant former shareholders in the relevant trading company. In Case V2, the TRA found that the appellants had not adduced evidence satisfying the onus on them to establish that the administration charge should beapportioned other than in accordance with the legal entitlements of the former shareholders. That was upheld by the High Court. [166] In this Court, Mr Judd said that the High Court had been wrong to uphold the TRA's finding. He said Mr Russell had provided the TRA with a written submission setting out the views of the former shareholders in each of the trading companies as to their actual involvement in the relevant trading company. However, that was not evidence and the TRA was entitled to proceed as it did. We can see no error in the approach adopted by the High Court and therefore reject this ground of appeal.Status of objection of R J Tourelle (Deceased)[167] Mr Tourelle died in 1997. His wife was the executrix of his estate. She wrote to the IRD to notify it that she had appointed Ms McCrae of BDO Hogg Young Cathie "to deal with all tax matters relating to my late husband's Estate". Ms McCrae then wrote to the Registrar of the TRA advising the TRA of Mr Tourelle's death and giving notice that:We have been appointed by the deceased's personal representative, [Mrs] Tourelle to act on behalf of the Estate. She has instructed us to request that the case be withdrawn.[168] In December 1998, Mrs Tourelle entered into a Settlement Agreement with Downsview Nominees Ltd (a company associated with Mr Russell and the Russell template) and Mr Russell compromising the debt owed by Reg Tourelle and Associates Insurance Ltd to Downsview. Under this agreement, Mrs Tourelle, in her capacity as executrix of the estate, agreed that Downsview could make application to the IRD for a refund of the money which the IRD had received in respect of the assessments of Mr Tourelle which were in issue in the TRA. If any refund were received, Mrs Tourelle was to account to Downsview for the amount of the refund to reimburse Downsview for the costs it had incurred in the TRA proceedings up until the time they were withdrawn by Mrs Tourelle. [169] In the High Court, it was contended on behalf of Mr Russell that the letter sent by Ms McCrae did not constitute a notice of discontinuance of Mr Tourelle'sobjection, and that Mr Russell was entitled to be heard in the TRA in respect of it. Courtney J found that the TRA had been correct to determine that Mrs Tourelle had revoked Mr Russell's authority to conduct the case before the TRA and had effectively filed a notice of discontinuance. She said that the letter sent by Mrs Tourelle to the IRD indicating that she had authorised BDO Hogg Young Cathie to deal with all tax matters relating to Mr Tourelle's estate revoked Mr Russell's authority. And she was satisfied that the letter sent to the TRA by Ms McCrae was an effective notice of discontinuance in accordance with r 479 of the District Court Rules, which applied in the TRA. [170] In this Court, Mr Judd argued that the District Court Rules required that a discontinuance be signed by a solicitor. However, it is clear that accountants can be advocates in the TRA, and we see no reason why a discontinuance of proceedings in the TRA should not be signed by an accountant who is appropriately authorised to do so. Mr Judd eventually accepted that this was the case. In reply, he argued that the District Court Rules did not apply to TRA proceedings at the relevant time. We accept that is correct, but we cannot accept that Ms McCrae's request that the case be withdrawn did not amount to a discontinuance. We agree with Courtney J that the letter from Ms McCrae could not have been clearer that Mrs Tourelle's intention was to discontinue the case against the IRD. Nothing more was required.Waiver of privilege[171] The appellants argued in both the TRA and the High Court that the Commissioner had waived privilege in relation to opinions prepared by internal IRD solicitors, Mr Scott and Mr Clark. The High Court Judge found that even if there had been an inadvertent waiver of privilege in relation to the opinion of Mr Scott, the loss of opportunity for the appellants to cross-examine on the opinion was not of sufficient moment to have made any difference to the outcome of the appellant's objection in the TRA. She recorded that the appellants had not been able to identify anything significant in the opinion in respect of which cross-examination may have yielded information.[172] In relation to Mr Clark's opinion, the Judge found that there had been a number of references to the opinion in reports by IRD officers. She said the writers of these reports could not have contemplated that the reports might come before the Court or form a basis for cross-examination in a trial. She said the reports were simply part of the internal process leading up to recommendations on which the Commissioner acted in invoking s 99 and lifting the time bar under s 25(2). Accordingly, this was not a situation where the respondent sought to disclose only parts of a document known to be to its advantage while withholding others, as had been the case in Equiticorp Industries Group Ltd v Hawkins [1990] 2 NZLR 175 (HC). Accordingly, she found that the reference to the opinions in the reports which were later discovered as part of the TRA process did not amount to a waiver of privilege. [173] In this Court Mr Judd took issue with those findings, and asked that this Court make a declaration that the Commissioner ought to hand over the opinions to the appellants. [174] We have carefully considered Mr Judd's arguments but find ourselves in agreement with the High Court Judge on this issue. The question for her on appeal was whether there was any defect in the process of the TRA hearing which called into question its decision. She found that the failure to disclose the Scott opinion was not such a defect because no detriment arose. In relation to the Clark opinion she rightly found that privilege had not been waived. We see no error in her approach and therefore dismiss this ground of appeal.Conclusion: Douglas and Henwood Appeal[175] All grounds of appeal fail. We therefore dismiss the Douglas and Henwood Appeal.Costs[176] The Commissioner is entitled to costs in relation to all appeals. We award costs on the conventional basis for civil appeals. Future unsuccessful appeals byRussell template parties involving repetition of arguments which have already been dealt with can be expected to attract higher costs awards.Solicitors: Warburtons, Auckland for Appellants Crown Solicitor, Auckland for Respondent