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01 May 2006
Appeal Status
Not appealed

Valuation and hindsight

2006 case note - evidence of subsequent events can be relied on to help determine whether valuation reasonable and justified - discovery, hindsight, sham, avoidance.

TRA Number 145/04, Decision Number 006/2006


When a purported valuation is subject to review, evidence of events that have occurred post that valuation date can be relied upon to help determine whether a valuation made was reasonable and justified at the time.


This was an interlocutory application by the Disputant seeking an order limiting the scope of discovery.

In 1997 the Disputant transferred its registered office to New Zealand from Luxembourg and became a New Zealand resident company. Once resident in New Zealand the Disputant began depreciating the rights to particular software using a straight line method and taking NZ$76,125,375 as the cost price for depreciation purposes.

The Commissioner disallowed the depreciation deductions on the basis that the sale price was a sham (as at December 1994), that the sale price is part of a tax avoidance arrangement and that the so-called price (as at December 1997) cannot properly form the basis of the depreciation claim by the Disputant.

The Commissioner sought discovery by the Disputant of all documents including those evidencing sales and licensing of the software post December 1997.

The Disputant applied for an order that discovery be restricted so that information relating to the Disputant's sales and licensing of the relevant software post December 1997 not be required; or, alternatively, that events after December 1997 not be subject to discovery as irrelevant to the substantive issues.

The Commissioner opposed that application and claimed neither order was warranted or necessary because:

  1. The Disputant mischaracterises the case as one of valuation alone. In fact it is a case involving allegations of sham, tax avoidance and technical arguments as to the correct depreciation basis of the copyright.
  2. In tax cases where sham and tax avoidance and valuation have been in issue the Court has accepted as relevant any evidence both pre and post the transaction date.
  3. The sales history from 1 January 1998 is relevant to the sham argument, the tax avoidance argument and the technical argument about the correct depreciation basis.
  4. Even in a strict valuation context, which this is not, evidence post dating the transaction is admissible.


For the reasons advanced by the Commissioner (as set out above) His Honour agreed that neither order sought by the Disputant was warranted or necessary. He concluded that the sales history of the software after December 1997 and up to the date of the substantive hearing would be relevant and important to the issues and therefore discoverable.

In regards to the sham and tax avoidance issues, His Honour stated that in his view the law was clear that the Courts would allow evidence to be called of events which occurred after the transaction in question. His Honour cited Glenharrow Holdings Ltd v The Commissioner of Inland Revenue (2006) 22 NZTC 19,319 as an example of where the High Court allowed evidence of events occurring post transaction where sham was in issue.

His Honour noted that sales post-December 1997 could well be relevant to the intentions of the parties at the material times and certainly to their credibility. His Honour went on to explain those figures could well show quite some disparity between predictions on which the Disputant wishes to rely as compared to what actually happened and what might be thought to have actually happened.

In the context of valuation His Honour stated the law provided for the admission of evidence post valuation date (hindsight), where the purpose was to determine the proper weight to attach to the circumstances relied upon at the valuation date, see Brian Russell Gilfoyle v Patrica Joan Gilfoyle unreported judgment of Laurenson J, 3 September 2001, High Court, Auckland, and Wood v Wood [1984] FRNZ 576 at 581.

In the present case the Disputant's sales projections are alleged by the Commissioner to have been too optimistic. Evidence of actual sales since 1994 through to the present will be relevant to assessing the reasonableness of those assumptions.

His Honour concluded that in this pre-trial context, the information in issue was both relevant and reasonably necessary for the purpose of discovery. His Honour also referred to the question of weight and noted that that was different to the question of relevance for the purpose of discovery. His Honour however noted that weight of the evidence must be determined at trial and not at this preliminary stage.

Although His Honour did not accept the Disputant's submission that requiring discovery of material covering 12 years would be excessive he was prepared to reserve leave for the Disputant to apply from time to time regarding any particular aspect of the discovery which may seem to be unduly onerous. His Honour however, noted that in general, the discovery should not be onerous on the Disputant.

District Court Rules, Tax Administration Act 1994