YANDINA INVESTMENTS LIMITED V ANZ NATIONAL BANK LIMITED & ORS CA529/2012 [2013] NZCA 469

YANDINA INVESTMENTS LIMITED V ANZ NATIONAL BANK LIMITED & ORS CA529/2012 [2013] NZCA 469 [14 October 2013]IN THE COURT OF APPEAL OF NEW ZEALANDCA529/2012[2013] NZCA 469BETWEEN YANDINA INVESTMENTS LIMITEDAppellantAND ANZ NATIONAL BANK LIMITEDFirst RespondentAND WESTPAC BANKING CORPORATIONSecond RespondentAND BNZ INVESTMENTS LIMITEDThird RespondentHearing: 25 September 2013Court: Harrison, Stevens and Wild JJCounsel: C R Carruthers QC and R J Cullen for AppellantJ A Farmer QC and A R B Barker for RespondentsJudgment: 14 October 2013 at 11.30 amJUDGMENT OF THE COURTA The appeal is dismissed.B The appellant must pay the respondents one set of costs for a standard appeal on a band A basis and usual disbursements. We certify for two counsel.____________________________________________________________________REASONS OF THE COURT(Given by Stevens J)Table of ContentsPara NoIntroduction [1]Factual background [4]Chronology of Yandina's claim [14]The transactions [16]The leveraged lease [16]The refinancing [22]The assignments [25]Issues on appeal [40](a) Approach to interpretation [41](b) What was being assigned? [57]Result [74]Introduction[1] This is an appeal against a decision of Miller J granting the respondent banks'application to strike out a claim for $22 million.1 The claim turns on the interpretation of three Deeds of Assignment (the Deeds) entered into in similar terms by each of the banks with Yandina in 1995.[2] In the High Court, Yandina also argued a second claim relating to a foreign exchange loss of $47.3 million which crystallised upon the 1994 refinancing. This claim was also struck out by Miller J, and this has not been challenged on appeal.[3] As Mr Carruthers QC for Yandina acknowledges, the central issue in the case is what interest was assigned to Yandina by the Deeds. In order to understand the genesis of the assignment transactions in the Deeds it is necessary to set out the background which emerges from a leveraged lease of an aircraft to Air New Zealand Ltd back in 1982.Factual background[4] The important elements of the factual background are not in dispute. For thatreason, we adopt Miller J's summary as follows.1 Yandina Investments Ltd v ANZ National Bank Ltd [2012] NZHC 1389 [High Court judgment].[5] Air New Zealand purchased the Boeing 747 aircraft, financing the purchase by selling the aircraft to a consortium of banks called the Maroro Partnership. The purchase was initially financed by loan in Japanese yen from the Japan Leasing Corp. The terms of the loan were set out in the Airframe Instalment Sale Agreement (AIS Agreement). The aircraft was then leased back to Air New Zealand for a term expiring on 4 October 1997 (the Lease) and the rent was payable to the Maroro Partnership in NZ dollars. The exchange rate risk arising from these arrangements rested with Air New Zealand by means of foreign exchange management contracts.[6] In 1994 the Maroro Partnership refinanced the aircraft and Air New Zealand became the lender in substitution for Japan Leasing Corp. The terms of the lease between the Maroro Partnership and Air New Zealand remained unchanged.[7] The leveraged leasing arrangements provided income tax advantages to the Maroro partners in the early years. However, towards the end of the lease the partners faced significant income tax liabilities. Once the refinancing had occurred there was an impact on the obligations of the Maroro partners to account for tax. This was because an accruals regime had been introduced into law since 1982 and this applied to the refinancing.[8] By 1995 the income tax advantages enjoyed by the Maroro partners had abated. For this reason, each of the banks assigned their interest to entitiesassociated with Yandina by separate deeds of assignment. Yandina's claim rests onthe meaning of these equitable assignments.[9] Under the Deeds, the banks assigned their respective shares, being the net profits of the Maroro Partnership for the balance of the lease term ($23.5 million),together with the residual value of the aircraft (not less than $10.1 million) and "all other payments and distributions" made "in connection with" the banks' interests.These shares are described in the respective Deeds. Yandina paid the banks $10.87 million for their interests. This apparent mismatch occurred because the assignmentsalso obliged Yandina to account for tax on the Partnership's post-assignment income.[10] In a statement of claim filed in December 2010, Yandina claimed that the banks failed to pay all the money due to it under the Deeds. Yandina admits receiving the net profit and the residual value of the aircraft. It originally claimed two other sums. The first was the Maroro Partnership's gross revenue under theLease for the balance of the term, being $45.5 million, less the net profit of $23.5 million. In other words, Yandina claimed that the banks must now pay $22 million, being the balance of the Partnership's gross revenue. That sum comprised that partof the rent that the Maroro Partnership used to make its loan repayments. The second sum claimed corresponded to the foreign exchange loss of $47.3 million which the banks had deducted on the 1994 refinancing.[11] In summary, Yandina claimed that the banks owed $92.8 million but paid only $23.5 million, leaving it out of pocket for a total of $69.3 million.[12] In the High Court Miller J noted that the claim was filed 13 years after the lease had ended.2 On the question of timing the Judge observed as follows:[11] Yandina said nothing about this alleged short payment at the time. It complained years later, after the Commissioner disallowed tax losses that Yandina had used to shelter the assigned taxable income from tax. The baredetails are common ground: Yandina's obligation to account for the partnership's income tax during the balance of the term extended to theaccruals income; Yandina did account for that income in the 1996 and 1997 income years; Yandina declared nil taxable income by setting off tax losses from unrelated transactions against the assigned taxable income; but the Commissioner of Inland Revenue disallowed the tax losses, characterisingYandina's arrangements as tax avoidance, and further default-assessed Yandina for the 1998 year.[13] In November 2003 Yandina issued challenge proceedings against the Commissioner. In 2010 and 2011 it unsuccessfully tried to involve the banks in that litigation, claiming that the assignments also involved tax avoidance and so should be set aside. Yandina capitulated in November 2011, shortly before the challenge proceedings were to be heard. Under a conditional settlement Yandina is liable to pay core tax of some $30 million, plus substantial penalties and interest.32 High Court judgment at [13].3 High Court judgment at [12].Chronology of Yandina's claim[14] Because it is relevant to an issue that arose in argument, we briefly refer to the chronology of the claim:23 December 2010 Statement of claim filedMarch 2011 First amended statement of claim filed28 April 2011 Statements of defence filed by each of therespondent banksDecember 2011 Application by the banks to strike out firstamended statement of claim13 December 2011 Notice of opposition by Yandina to the banks'application to strike out first amended statementof claim29-30 May 2012 Hearing before Miller J20 June 2012 Judgment delivered2 July 2012 Application by appellant for leave to appeal9 August 2012 Leave to appeal granted[15] The application to strike out the claim was accompanied by affidavits from representatives of each of the banks, including an affidavit of Brian Charles Birch for BNZ Investments Ltd. Yandina filed an affidavit in opposition from Stephanie Claire McLean, who whilst employed as a chartered accountant in New Zealand worked on the tax dispute between Yandina and the Commissioner of Inland Revenue. Mr Birch also filed a second affidavit responding to the affidavit of Ms McLean and some material in the detailed notice of opposition. There was no affidavit in opposition filed by a representative of Yandina, nor from a representative of the investment banking firm Babcock & Brown Pty Ltd which in 1995 approached the banks on behalf of a counterparty who was intending to purchase thebanks' shares in the Equity Participation.The transactionsThe leveraged lease[16] It is not necessary to provide extensive detail about the acquisition and financing of the aircraft.4 Under the Lease, Maroro Leasing Ltd5 leased the aircraft to Air New Zealand for a term of 15 years and two months. Rent was paid by Air New Zealand semi-annually on 4 April and 4 October each year to coincide withMaroro's instalment dates under the AIS Agreement. Schedule 10 of the Lease listed the amounts of each instalment of rent payable by Air New Zealand. Each instalment was divided into three columns: A, B and total. Column B comprises those amounts that the Maroro partners used to make the AIS Agreement payments, while Column A represented the Maroro Partnership's profit from the transaction. Atthe conclusion of the Lease, Maroro was required to sell the aircraft. Air New Zealand guaranteed a residual value for the aircraft of $10.1 million.[17] Subject to adjustments not relevant for present purposes, the amount of each semi-annual rent payment was fixed. For example, schedule 10 set out the following payments:RENTInstalment Payment DateNew ZealandDollars (000's)New ZealandDollars (000's)New ZealandDollars (000's)A B Total4 October 1995 2,624.52 5,820.10 8,444.004 April 1996 3,790.89 4,805.36 8,596.004 October 1996 3,057.66 5,470.45 8,528.114 April 1997 4,272.26 4,411.50 8,683.764 October 1997 6,947.34 3,265.95 10,213.29[18] The Maroro Partnership was formed by a partnership agreement called the Equity Participants Agreement (EP Agreement). The shares in the Partnership were as follows: Development Finance Corp of New Zealand: 7 per cent; Westpac Banking Corp: 45.5 per cent; BNZ Investments: 26.5 per cent; National Bank of4 These aspects of the transaction are described in the High Court judgment at [15]–[18].5 A nominee company appointed to enter into transactions on behalf of the Partnership.New Zealand Ltd:6 21 per cent. Clause 2.4 of the EP Agreement provided that eachpartner was entitled to its share of the "net profit after payment of all expenses",including all moneys due under the AIS Agreement and the foreign exchange management agreements:2.4 The periodic profits and losses of the Partnership at any time during the currency of the Lease constitute the aggregate as at that time of the profits and losses of each Equity Participant detailed in each Financial Evaluation.(a) Subject to this Deed at any time each Equity Participant shall be entitled to the net profits after payment of all expenses of the Partnership (including all moneys due under the Airframe Instalment Sale Agreement, the ECGD Loan Agreement ..., the Mortgage and the Foreign Exchange Management Contract) and shall bear any losses of the Partnership in therespective proportion which such Equity Participant's share of such profitsor losses (as determined by reference to the amount shown opposite the relevant period in its Financial Evaluation) bears to the total profits or losses of the Partnership to the intent that the aggregate of the shares of net profits of each of the Equity Participants as determined by each of the Financial Evaluations shall equal the total net profits of the Partnership in each year and the aggregate of the shares of the net losses borne by each of the Equity Participants as determined by each of the Financial Evaluations shall equal the total net losses of the Partnership in each year.(Emphasis added.)[19] Because the foreign exchange risk lay with Air New Zealand, the anticipated cashflows to the Maroro partners were known at the commencement of the transaction. These were set out in computer printouts called the "Financial Evaluations". Importantly, the Financial Evaluations described the amount of the column A or "net profit" each partner would receive on each six-month payment date during the lease term.[20] For example, BNZ Investments' Financial Evaluation for the years relevant to this appeal was as follows:Month Pre-tax cashflow(NZD)October 1995 285,260April 1996 903,060October 1996 343,3606 Now ANZ National Bank Ltd.Month Pre-tax cashflow(NZD)April 1997 1,043,510October 1997 3,301,970[21] The various transactions in 1982 are conveniently recorded in the diagram at Appendix 1 to this judgment.The refinancing[22] As already noted, in 1994 Air New Zealand sought to refinance the aircraft. The Maroro partners agreed to exercise a right to pre-pay the balance due to Japan Leasing Corp under the AIS Agreement.7 Prior to the date for pre-payment, a new loan was entered into between Maroro and Air New Zealand (Air NZ Loan). Under this loan, Air New Zealand advanced the amount necessary to allow the pre-payment of the AIS Agreement. Thus Air New Zealand replaced Japan Leasing Corp as the financier.[23] The parties made no changes to the Lease. The EP Agreement was amended only to the extent that references to the AIS Agreement were replaced withreferences to the "Air NZ Loan Agreement". New foreign exchange management agreements were entered, but these had the same effect as their predecessors. Air New Zealand thus became the financier and the lessee of the aircraft. The post-refinancing position is represented in the diagram at Appendix 2.[24] The refinancing had tax consequences for the Maroro partners. In 1986 Parliament had introduced accrual rules for financial transactions denominated in foreign currency. These rules did not apply to the original transaction but they did apply to the refinancing. The effect of this was that the Maroro partners would have significant additional non-cash taxable income for the remaining term of the Lease, which would exceed the cash income that they would receive from Air New Zealand.7 In return for a fee and an indemnity designed to ensure their after-tax return would not change.The assignments[25] In 1995 the banks were approached by a firm called Babcock & Brown about a potential sale of their interests in the Maroro Partnership. Because in the end stages of the Lease the transaction generated significant non-cash taxable income that exceeded the level of cash income, the banks elected to assign their interests in the transaction.[26] There is no dispute that the refinancing and the assignments were unrelated transactions.8 Each of the banks assigned its interest to a separate company: Westpac to Rifgac Sixteen Ltd, National Bank to Rifgac Nineteen Ltd, and BNZ Investments to Rifgac Twenty Ltd. All three Rifgac entities were controlled by Yandina. The banks agreed to sell their respective interests for payments totalling as between them $10.87 million.[27] There is disagreement between the parties as to who promoted the assignments. In the High Court Miller J assumed that the banks may have mandated Babcock & Brown to sell their interests in the partnership.9 We do not need to resolve this point.[28] Although the banks negotiated their assignments separately and on different dates, the Deeds were relevantly identical. The terms of the Deeds are important toYandina's claim.[29] Taking BNZ Investments' assignment as the example, the operative clausewas cl 2.2:[T]he Assignor hereby agrees to equitably assign to the Assignee absolutely... all the Assignor's equitable right, title and interest in the EquityParticipation ... subject to the provisions of section 34 of the Partnership Act 1908 and of this deed.[30] "Equity Participation" was defined as: all the Assignor's share in the Partnership comprising its right to receive ashare of the net profits (which are expected to comprise the Partnership8 High Court judgment at [38].9 High Court judgment at [42].Payments) and, on dissolution of the Partnership, a share in the net Partnership assets, in each case to which the Assignor is entitled pursuant tothe Equity Participants' Agreement which relate solely to the periodcommencing from and including [3 August 1995] ...[31] "Partnership Payments" were defined as follows:Partnership Payments means:(a) the net periodic payments detailed in column 2 of schedule 1;(b) the termination values calculated by reference to the dates specified in schedule 1; and(c) all other payments or distributions made in connection with the Equity Participation, or made to the Assignor in its capacity as partner of the Partnership.[32] The net periodic payments detailed in column 2 of schedule 1 were:Date Net Periodic Payments(NZD)4 October 1995 285,2604 April 1996 903,0604 October 1996 343,3604 April 1997 1,043,5104 October 1997 3,301,970[33] These payments mirrored those appearing in the pre-tax cashflow column inBNZ Investments' Financial Evaluation (above at [20]). In this example they represented BNZ Investments' share of the column A payments under the lease.[34] Clause 2.2 also refers to s 34 of the Partnership Act 1908, which provides that any assignment by a partner of his share in the partnership does not entitle the assignee to interfere in the management or administration of the partnership business or affairs, or to require any account of the partnership transactions, or to inspect the partnership books. Instead it entitles the assignee only to receive the share of profits to which the assigning partner would otherwise be entitled.[35] The Deeds also provided, for example, that BNZ Investments would remain a partner under the Maroro Partnership, and would receive all Partnership Payments asa bare trustee.10 It would then deposit the payments into a separate bank account inthe Assignee's name.11 The banks directed BNZ Investments Ltd, as Partnership manager, to pass to Yandina all future payments due to them under the Partnership. The assignment transaction is conveniently summarised in the diagram at Appendix 3.[36] BNZ Investments agreed to supply Yandina with copies of the Partnership'sannual tax returns.12 Yandina agreed to account for tax on the income derived from the EP Agreement after the assignment. The relevant clause provided:5.2 Assignee's tax returns: The Assignee covenants with the Assignor in respect of itself that it is and will remain a New Zealand resident for tax purposes and that it will file in a timely manner income tax returns in New Zealand for income derived by the Assignee from the Equity Participation subsequent to this equitable assignment and shall fulfil all its taxation payment obligations (if any) in relation to the Equity Participation.[37] The Deed was conditional upon a ruling from the Commissioner of Inland Revenue on the tax implications of the transaction.13 That ruling is not in evidence.[38] Finally, Yandina contends that cls 2.3, 2.4 and 6.4 are relevant to its claim. They provided:2.3 Acknowledgement by Assignor: The Assignor acknowledges that as a consequence of the agreement to equitably assign the Equity Participation provided in clause 2.2 the Assignee shall, subject to clause 2.4, be beneficially entitled to all moneys due to the Assignor in relation to the Equity Participation....2.4 Acknowledgement by Assignee: The Assignee acknowledges that following the equitable assignment being effected as provided in clause 2.2 the Assignor shall be beneficially entitled to all moneys due to the Assignor in relation to the Equity Participation....6.4 Bare Trustee's Indemnity: The Assignee shall not be obliged to indemnify the Assignor, or (except as expressly agreed in this deed)10 Clause 5.1(a).11 Clause 5.1(b). The evidence of Mr Birch confirmed that this in fact occurred.12 Clause 5.1(d).13 Clause 3.1(h).pay any sum to the Assignor, and all rights of indemnity implied by law or under the Trustee Act 1956 are hereby irrevocably waived and released by the Assignor and the Assignor undertakes not to enforce any such rights of indemnity. However, if, at any time:(a) the Assignor has paid any damages, loss, liabilities, costs, charges, outgoings, payments or expenses of any kind which have been imposed on or incurred by the Assignor in respect of its role as bare trustee of the interest in the Equity Participation or as indemnifier of the Assignee under clause 6.1 of the Guarantee; and(b) the Assignor has paid to the Assignee in full all payments when due to the Assignee as detailed in schedule 1 of this deed or under the Guarantee without deduction, set-off or counterclaim; and(c) the Assignor receives, as trustee for the Assignee, Partnership Payments,then, provided each of paragraphs (a), (b) and (c) above have been satisfied at that time, the Assignor may retain for itself from these Partnership Payments such amounts as are required to reimburse to the Assignor the amount of those liabilities, costs or expenses referred to in paragraph (a) above so paid by the Assignor.[39] Following the assignments under the Deeds, Yandina set up a scheme to"absorb" the Partnership's taxable income. The details of that scheme are not relevant to the appeal. However in 2002 the Commissioner of Inland Revenue issued assessments against Yandina and its associated companies setting aside the losses they had claimed on the basis that the transactions which generated those losses were void for tax avoidance. Challenge proceedings followed. As already noted, these proceedings were conditionally settled in 2011 when Yandina accepted that the loss-generating transactions it had entered into were void for tax purposes. Yandina became liable to pay tax on the taxable income it derived from the assignments without the benefit of any set-off of tax losses.Issues on appeal[40] The critical issue on appeal is what was being assigned in the Deeds. A subsidiary, albeit important, issue concerns the proper approach to the interpretation of the Deeds and whether at this stage of the proceeding there are genuinely disputed questions of fact such that the claim should not be struck out but ought to proceed totrial. Because of the considerable emphasis Mr Carruthers placed on this latter question we will address it first.(a) Approach to interpretation[41] On appeal there was no dispute as to the standard that applies to a strike-out application. Nor was there any argument that Miller J applied the wrong test.14 It was accepted that a Court must be certain that the claim cannot succeed.15[42] Mr Carruthers submits that this standard cannot be met because the claim involves issues of contractual interpretation which are materially affected by the factual context which in turn cannot be settled until trial and findings on potentially disputed issues. This submission assumed prominence in argument in answer to an inquiry about the commercial sense of a contractual construction that necessarily assumed that the banks would agree to assign the gross profits or income from the Partnership while retaining liability for all expenses.[43] Citing the Vector Gas Ltd v Bay of Plenty Energy Ltd decision16Mr Carruthers submits that the question which fundamentally affects the interpretation of the Deeds is why the assignments were entered into at all. He suggests that the banks may have been motivated to enter into an assignment on terms which would otherwise flout business sense by the prospect of a beneficial taxation advantage. Findings on the commercial and any other context in which the Deeds were made, and the facts and circumstances known to and guiding the parties, are required to answer that question. Thus evidence is required.[44] Elaborating on this submission, Mr Carruthers submits that the factual areas to be explained include:(a) the banks' reasons for entering into the assignment transaction;14 As described in the High Court judgment at [63].15 Couch v Attorney-General [2008] NZSC 45, [2008] 3 NZLR 725 at [33] per Elias CJ and Anderson J; Attorney-General v Prince [1998] 1 NZLR 262 (CA) at 267.16 Vector Gas Ltd v Bay of Plenty Energy Ltd [2010] NZSC 5, [2010] 2 NZLR 444 at [19]–[27].(b) information provided by the banks to the Commissioner for the purposes of his binding rulings, particularly what the Commissioner was told was being assigned;(c) any binding rulings by the Commissioner; and(d) the role of Babcock & Brown and the nature and extent of their involvement in the transaction.[45] This submission must fail for a number of reasons. The first point is that Yandina offers only speculation that something helpful to its claim may emerge from discovery.[46] As the chronology at [14] shows, the proceeding was issued in December 2010 and the first amended statement of claim filed in March 2011. Statements of defence followed in April 2011. The application to strike out and the notice of opposition were filed in December 2011. Mr Carruthers accepted that Yandina did not seek discovery as an immediate step, the logical response for a plaintiff which is seeking to pursue its claim.[47] The banks' application to strike out the claim was accompanied by a detailedaffidavit by Mr Birch. Representatives of the other banks also filed affidavits in support. However despite filing an affidavit from Ms McLean dealing with certain taxation issues arising in the challenge proceeding, Yandina did not file any affidavits responding to Mr Birch's evidence about the transactions. Mr Birch had provided an outline of the underlying transactions and the EP Agreement and the refinancing transaction. He also gave evidence as to the impact which the refinancing transaction had on the tax treatment of the profits arising from the leasing arrangement by the Maroro Partnership. Mr Birch then described the background to and economic rationale for the assignment transactions, before describing the assignment transactions themselves. In a later affidavit Mr Birch provides further information about the tax treatment of the refinancing. This evidence was uncontested and Miller J made findings consistent with this evidence.1717 High Court judgment at [32]–[37].[48] Yandina itself confirmed various aspects of the background to the assignments and their commercial purpose in its first amended statement of claim.We refer also to the paragraph in its notice of opposition to the banks' application tostrike out in which Yandina affirmatively stated:The claim by Yandina is founded on a correct interpretation of the three Deeds of Equitable Assignment and the trusts created by them and the related documents.[49] Significantly, the notice did not oppose the application on the ground that discovery had not been undertaken. The balance of this 33 page document contains no elaboration on the factual matrix other than as explained in Mr Birch's affidavitsand the documents themselves.[50] We agree with the submission by Mr Farmer QC for the banks that Yandina has not provided anything founded on evidence or the circumstances of the claim to suggest that further helpful factual material relevant to the contract interpretationissue might exist. Taking Yandina's suggestion that a full explanation of the reasons for the assignments might assist its case, there is no attempt by a company representative to explain what those reasons might be. In particular, no director or officer has provided an explanation of what Yandina understood to be the reason for the transaction, if it is different from what the documents themselves say.[51] Any further evidence about the assignments would have to establish that theparties', not the party's, reason for entering into the transaction was to ensure that Yandina would receive a total of $83.5 million18 in exchange for a payment of only $10.87 million. Such a transaction would be commercially absurd and would not be consistent with business commonsense.19[52] Mr Carruthers could only identify what the banks said to the Commissioner about the transaction as having a possible impact on the interpretation of the Deeds. But again, no request for discovery of such information has been made. We were told from the Bar that the binding ruling from the Commissioner (which has been18 This is the respondents' share of the "net profit" described in the Maroro Partnership's taxreturn: see [61] below.19 A phrase used by Tipping J in Vector Gas at [22].sought by Yandina) has already been disclosed in the context of the challenge proceedings.[53] It was common ground that one of the drivers of these assignments was the tax position of the Maroro partners towards the end of the Lease. This topic was comprehensively addressed by Miller J in an analysis not challenged by Yandina on appeal. The Judge stated:[32] instalments under the Airframe Instalment Sale Agreementcomprised interest when the agreement began in 1982 but substantially comprised principal by 1997. Interest was deductible to the partners. So was depreciation, deductions for which were substantial early in the lease term. Toward lease end these declining expenses ceased to shelter the partners from income tax on partnership profits.[33] On refinancing, the Maroro partners crystallised a foreign exchange loss of NZD47.3m on the principal repayment. They deducted this lossimmediately for tax purposes. Air New Zealand's top up paymentsrepresented tax remission income to the partnership, but tax law allowed the partnership to spread that income over the remaining term of the lease.[34] In 1986 the legislature had introduced accrual rules for financial transactions denominated in foreign currency, such as the aircraft financing. These rules did not apply to the original transaction, since it predated them, but they did apply to the refinancing. They were governed by a determination of the Commissioner of Inland Revenue, known as Determination G9A. The determination is not before me, but I understand that it required taxpayers to treat a foreign currency loan and associated foreign exchange management arrangements as a single transaction, and to account for tax on that financial transaction in each year. The determination required a calculation that used the interest expense, exchange rate gains and losses, and debt remission income in the relevant year to derive a NZD-denominated sum, which was the taxpayer's taxable income from thefinancial transaction.[35] Post refinancing, Maroro had to value the new Air New Zealand loan each year under the accrual rules, returning any increase or decrease in value from currency fluctuations. Exchange rate losses also continued, based on the 4 October 1982 exchange rate used in the lease, so Air New Zealand continued to make top up payments and the partnership earned more debt remission income. As just noted, Maroro had to incorporate these sums, along with interest expense on the loan, in the annual G9A calculations.[36] Finally, the eventual sale of the aircraft at lease end would deliver recovered tax depreciation, since Air New Zealand had agreed to a minimumpayment of $10.1m, which would exceed the aircraft's depreciated value.The partnership would have to also pay income tax on the recovered depreciation.[37] In summary, following the 1994 refinancing the Maroro partners expected to account for significant taxable income before lease end. In eachyear that income would comprise rent plus accrual income on the financial transaction (the latter based on exchange rate fluctuation income, debt remission income, and interest expense). There would be offsetting deductions for depreciation on the aircraft. At lease end the partnership would also earn recovered depreciation on the aircraft sale. The partners' taxable income until lease end would exceed their cashflow. In BNZI's case,for example, its anticipated income until lease end, calculated as at assignment date, was $20.7m, comprising gross rental income, and accrual income on the financial transaction, less depreciation deductions, plus (at lease end) recovered depreciation, but its cashflow would be $5.9m, being itsshare of the partnership's net profit.[54] In any event, any statements made by the bank officers to the Commissionerabout the assignments would be evidence of those parties' subjective intentions andwhat they understood the words in the Deeds to mean. This would fall foul of the principle referred to by Tipping J in Vector Gas.20 Mr Carruthers did not identify any evidence, whether from the affidavits filed by the banks or documents produced to date, which might possibly cast objective light on the meaning that the partiesintended to convey in using the phrase "net profits".[55] In conclusion, we do not accept Yandina's submission that further evidence isrequired. Yandina has not put forward any credible narrative as to any particular factual information that ought to comprise the contextual matrix which may properly be taken into account in the interpretation of the Deeds. We are also satisfied that the commercial or business object of the transaction may be objectively ascertained from the Deeds themselves and the related documentation of the leveraged lease and the refinancing by the Maroro Partnership. Any other necessary background information was before the High Court in the strike-out application and was not responded to by Yandina.[56] For the above reasons we are satisfied that no further evidence is necessary to enable us to construe the Deeds.(b) What was being assigned?[57] The essence of Yandina's argument is that the term "net profit" in the Deeds is not the same as the "net profit" referred to in the EP Agreement. Instead, it refers20 At [19].to the "net profit" described in the Maroro Partnership's tax return or, alternatively, to the gross income associated with the lease.[58] The Deeds equitably assigned to Yandina all the bank's equitable right, titleand interest in the Equity Participation.21 The Deeds defined the term EquityParticipation as "all the Assignor's share in the Partnership comprising its right toreceive a share of the net profits".22 Although the Deeds did not define "net profits",they did provide in a bracketed inclusion immediately following that net profits were"expected to comprise the Partnership Payments". "Partnership Payments" weredefined as the "net periodic payments" in column 2 of Schedule 1 (ie the column Apayments), plus the termination values and all other payments or distributions madein connection with the Equity Participation.23[59] The definition of Equity Participation makes express reference to the EquityParticipants' Agreement, itself a defined term referring back to the foundingdocument of the Maroro Partnership. As we have seen, under the EP Agreement,"net profit" was explained as "the net profits after payment of all expenses of thePartnership". Those expenses included the Air NZ Loan and the foreign exchangemanagement agreements.24[60] Mr Carruthers refers to three factors he says support the proposition thatthese definitions of "net profit" are not equivalent:(a) The "net profits" in the EP Agreement are "qualified and read down" in a way which is not replicated in the Deeds. That is because "net profits" in the EP Agreement refers to profits "after payment of all theexpenses of the Partnership". No corresponding "qualification" isfound in the Deeds.21 Clause 2.2 quoted at [29] above.22 See above at [30].23 See above at [31].24 See clause 2.4 quoted at [18].(b) Clause 2.3 and 2.4 of the Deeds, which include references to "all moneys due to the Assignor", are a clear indication that it was all moneys, rather than "all profit", that was assigned.(c) The reference in the definition of "Partnership Payments" to "all otherpayments or distributions made in connection with the EquityParticipation" makes it clear that the assignment was not limited to ashare of the net profits.[61] These factors are said to support Yandina's primary submission that the "net profit" in the Deeds is instead equivalent to the "net profit" in the Maroro Partnership's tax return. The income statements attached to Maroro's tax returns forthe relevant years recorded:+ Lease rentals $45,527,340+ Accrual income $36,662,658+ Depreciation recovered $8,845,092= Subtotal $91,035,090- Various expenses $1,077,385= Total $89,957,705[62] In the alternative, Mr Carruthers submits that what was assigned was thealleged income of the Partnership (gross rentals under the Lease plus the "top up"payments under the Foreign Exchange Management Agreement) but not the expenses (loan repayments). In essence Yandina, having previously received onlythe "column A" payments, now claims it is also entitled to receive the "column B"payments. Mr Carruthers also submits that cl 6.4, which provides a very limited indemnity by the assignee to the assignor, supports the argument that the banks'pre-existing obligations and expenses were not assigned.[63] Yandina submits25 that the assignments were designed to reflect some of the principles in Federal Commissioner of Taxation v Everett.26 Mr Carruthers submitted that the assignment in Everett was of the whole of the partnership interest25 Citing a letter from Babcock & Brown Pty Ltd dated 10 February 1995.26 Federal Commissioner of Taxation v Everett (1980) 143 CLR 440.and not just the income. Counsel noted that Everett is not the law in New Zealand.27But counsel submits that, unlike in Hadlee v Commissioner of Inland Revenue, the Maroro Partnership did not involve the provision by the banks of professional services. Thus the assignments could be, and were, assignments of each of thebanks' entire partnership interest, including non-cash amounts.[64] Yandina's submissions on appeal essentially repeated what had been put toMiller J in the High Court. We are in no doubt that Miller J was correct in the interpretation which he gave to the provisions of the Deeds. The meaning of theterm "net profits" in the Deeds is to be determined from the wording of the relevantprovisions read in their proper context.[65] In essence, Miller J was satisfied that the "net profits" referred to in the Deeds were the same "net profits" provided for under the EP Agreement. The Judge noted that although "net profit" was not defined in the Deeds, the definition of"Equity Participation" referred to net profits and stated that they were "expected to" comprise the Partnership Payments. Partnership Payments were defined as "net periodic payments", plus termination values and all other payments or distributions made in connection with the Equity Participation. The Judge noted that thosePeriodic Payments were "net" because they expressly excluded sums payable to AirNew Zealand as financier. They were also the same sums provided for in the Financial Evaluations prepared under the EP Agreement.[66] The Judge held that the EP Agreement:[69] defined the profits of the partnership as the banks' aggregateprofits and losses detailed in their Financial Evaluations. It further provided that each bank was entitled to "the net profits after payment of all expenses of the partnership", and specifically identified some such expenses, relevantly "all moneys due under" the Air New Zealand loan agreement. Itwent on to specify that out of each rent payment Maroro Leasing would first pay the lenders, then any expenses, and only then the banks in their respective shares.[70] In the circumstances, I find no ambiguity in "net profits" as that termis used in the assignments. It has the same meaning as it does in the EquityParticipants Agreement which was the source of the partners' entitlements.It positively excludes all sums due under the Air New Zealand loan27 See Hadlee v Commissioner of Inland Revenue [1993] 2 NZLR 385 (PC).agreement. That is of course consistent with any ordinary definition of profits.[67] Miller J did not find the argument in relation to "all other payments or distributions made in connection with the Equity Participation" to be persuasive. First, the Judge noted that the definition of "Partnership Payments" begins with the specified "net" periodic payments. If Yandina were to receive the gross revenue, there was no need to define the periodic payments in that way. Second, the phrase"in connection with the Equity Participation" links this definition back to the EPAgreement, which contemplates that the partners will not receive sums payable tothe partnership's financiers. Miller J concluded that the reference to "all other payments" merely contemplated that Yandina would receive any additional moneyspayable to the partners, such as the eventual proceeds of the aircraft sale.[68] For these reasons, Miller J was satisfied that neither of Yandina's suggested alternative measures of "net profit" was arguable. In particular, he considered that Yandina's attempts to equate net profit under the Deeds with the net profit recordedfor tax purposes "put the cart before the horse":[85] . To allow what Yandina characterises as conventional accounting and tax practice to determine the meaning of the assignments is to put the cart before the horse. The assignments determine what the banks must pay. Yandina does not plead that the assignments guaranteed it a given tax or accounting outcome. Manifestly the assignments were not structured in that way; they passed a closely-defined amount of income and an open-ended obligation to pay tax on the interests assigned.[69] Accordingly, Yandina's claim to the balance of the Partnership's gross revenues was untenable. The Judge found that Yandina's obligation to account for the Partnership's taxable income, a much larger sum than was actually paid to it, isproperly characterised as a liability associated with the partnership profits and assigned under the deeds. 28[70] We endorse and respectfully adopt this reasoning. We would only add thatthe reference in the definition of "Equity Participation" in the Deeds to the banks' "share of the net profits" needs to be read in the context of the overall commercial28 At [72]. Citing SB Properties Ltd (in liq) v Holdgate [2009] NZCA 327, (2009) 9 NZBLC 102,697.transaction, including the specific link in that definition to the EP Agreement entered into by the Maroro partners.[71] We consider that the equitable assignments which cl 2.2 of the Deedsdescribed as "all the Assignor's equitable right, title and interest in the EquityParticipation" are best understood by reference to the definition of that term in the Deeds. As we have seen the term is defined to mean "all of the Assignor's share in the Partnership". Partnership is itself defined to mean the Partnership established for the purpose of financing the acquisition of the aircraft by virtue of the EP Agreement. But the definition of Equity Participation goes on to add the words"comprising its right to receive a share of the net profits (which are expected to comprise the Partnership Payments) and, on dissolution of the partnership a share inthe net partnership assets ". The words inside the brackets are not an attempt at adefinition. Rather they are a statement of expectation as to the likely make-up of the net profits.[72] The key focus in this definition in each case is upon the net outcomes from the Partnership profits and Partnership assets. This emphasis is reinforced by reference to the definition of Partnership Payments including the reference in (a) to the net periodic payments detailed in column 2 of Schedule 1. We do not consider that the reference in (c) of that definition to all other payments or distributions supports the primary contention of Yandina that net profit refers to the profit referred to in the partnership financial statements or tax returns or alternatively the gross income associated with the Lease. Viewed in its commercial and business context,the term "net profit" is a direct reference back to that same concept as used in the EP Agreement.[73] We are satisfied that Yandina entered into the assignments which, from its perspective, only made commercial sense if it was able to absorb the non-cash taxable income with tax losses available to it. Yandina proceeded on this basis from 1995 until December 2010 when it filed the proceeding. However, the proper interpretation of the Deed does not sustain the reinvented interpretation contended for by Yandina. Miller J was right to strike the claims out.Result[74] For the reasons set out above the appeal is dismissed.[75] The appellant must pay the respondents one set of costs for a standard appeal on a band A basis and usual disbursements. We certify for two counsel.Solicitors:Thomas Dewar Sziranyi Letts, Lower Hutt for AppellantAPPENDIX 1MaroroPartnership Air New Zealand Japan Leasing CorpLoanrepayments(Column B +FX Top up)Rent(Column A +Column B)FX Top upAIS Agreement LeaseFX agreementRespondentsNet profit(Column A)EPAgreementAPPENDIX 2MaroroPartnership Air New ZealandLoan repayments(Column B + Top up)Rent(Column A + Column B)FX Top upAir NZ LoanLeaseFX agreementRespondentsNet profit(Column A)EPAgreementAPPENDIX 3YandinaNet profit(The disputedsum)DeedsMaroroPartnership Air New ZealandLoan repayments(Column B + Top up)Rent(Column A + Column B)FX Top upAir NZ LoanLeaseFX agreementRespondentsNet profit(Column A)EPAgreement$10.9 m