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18 Jun 2010
Appeal Status
Not appealed

Discovery rights remain notwithstanding the evidence exclusion rule

2010 case note - compatibility of CIR's investigative powers and right to discovery - section 17 notices, evidence exclusion rule.

Radio Works Ltd, TV Works Ltd v CIR

Tax Administration Act 1994, High Court Rules


The applicant sought a review of the decision of Associate Judge Abbott who ordered discovery in a challenge of the Commissioner's assessments. The High Court declined to overturn the orders noting that the Commissioner notwithstanding various disputes process provisions in the Tax Administration Act 1994 ("TAA") is as entitled to discovery as any other litigant.

Impact of decision

The Court confirmed the "sea change" in tax litigation and discovery (BNZ Investments) and the compatibility of the Commissioner's investigative powers with his right to discovery. The court confirmed that section 138G should be read together with section 89M which only requires an "outline" of evidence to be relied on. Thus documents obtained later in the course of discovery are not excluded by this rule.


The plaintiffs, Radio Works Ltd and TVWorks Ltd, are challenging assessments made by the Commissioner disallowing deductions claimed in relation to optional convertible notes (OCNs) issued by the plaintiffs to other companies in the same group. The Commissioner wishes to obtain general discovery from the plaintiffs and discovery from a non party, MediaWorks NZ Ltd, which is the plaintiffs' parent company. Associate Judge Abbott dismissed applications by the plaintiffs for orders that general discovery not be required and granted the Commissioner's application for particular discovery against MediaWorks NZ Ltd. The plaintiffs and MediaWorks NZ Ltd applied to review the Associate Judge's decision.


The plaintiffs' general proposition was that, although general discovery is not precluded in tax cases, it will only be appropriate in rare cases. This is because the purpose and effect of the statutory scheme in the TAA is to ensure that the Commissioner has the power to obtain all relevant documents and information prior to making an assessment. In most cases, therefore, the Commissioner will already have all relevant documents, making it inappropriate to put the taxpayer to the expense of formal discovery.

MediaWorks NZ Ltd argued that the Associate Judge erred by holding that the evidence exclusion rule in section 138G of the TAA did not require the parties to set out all the available documentary evidence in their statements of position but merely precluded them from asserting "wholly new facts" and, as a result, wrongly concluded that the documents sought on discovery fell within the parties' statements of position and were arguably not excluded by section 138G.

Her Honour Justice Courtney reviewed the history of Part IVA, of the TAA, and its connection with the evidence exclusion rule in Part VIIIA. She did not find that there was any presumption against discovery in that analysis:

  • I do not find the materials that Mr McKay relied on helpful in determining the availability of discovery in tax cases. They were not relied on by the Court of Appeal in BNZ Investments v Commissioner of Inland Revenue [2008] 1 NZLR 598, 619, where the Court accepted that there had been a "sea-change" in tax litigation over the preceding 15-20 years (at [19]).

Her Honour noted that disclosure under section 17 compared with discovery had been considered recently by the Court of Appeal in ANZ National Bank Limited v Commissioner of Inland Revenue [2009] 3 NZLR 123 where it was clearly held that the ambit of section 17 and that of discovery are quite different. Section 17 applies to documents directly relevant to an investigation, whereas discovery is based upon far broader principles as enunciated in the Peruvian Guano case (1883) 11 QBD 55 (CA). This is particularly so where the Commissioner seeks information from third parties.

At [33] Her Honour summarised her findings on the section 17 point:

  • Three significant points emerge from these cases. First, because the discovery process is wider than the disclosure process under the TAA, discovery could result in the disclosure of documents that would not be required to be disclosed under s 17. Secondly, there is no reason to treat the Commissioner differently from other litigants, including in relation to the discovery process. Thirdly, the Commissioner should not be precluded from discovery because he did not make ongoing attempts to obtain further disclosure under s 17.

Regarding the operation of section 138G, rather than favour an exclusive "all cards on the table" approach, Her Honour preferred an analysis which aligned the scope of 138G with that set out in the section which sets the evidential standard; section 89M(4)(b) and (6)(b) simply requires "an outline of the evidence".

Regarding third party discovery, the plaintiffs contended that discovery was no longer relevant as they no longer intended to rely on the argument which precipitated the application.

  • The concessions made by the plaintiffs may assist the Commissioner in advancing his argument. However, it seems to me artificial to expect the Commissioner (and the expert witnesses on both sides) to adequately address the question of the value of these OCNs without a full understanding of the nature of the related party transactions of which they formed a part.

The essence of the decision is set out at paragraphs [75] and [76]:

  • [75] I have concluded that discovery in tax litigation is not limited to rare cases. The ambit of disclosure under s 17 is narrower than the ambit of discovery under the High Court Rules by reason of the breadth of the Peruvian Guano test. The fact that the Commissioner might, by issuing further notices under s 17, have obtained more documents is no reason to refuse discovery. Nor, in the normal course, should the fact that parties may have expended substantial time and cost complying with s 17 notices preclude discovery being required in later proceedings.
    [76] In relation to the evidence exclusion rule in s 138G, I have concluded that this ought to be read together with s 89M(4)(b) and (6)(b) so that a party is required only to provide an outline of the evidence relied on rather than identifying each piece of evidence. As a result, documents obtained later during the course of discovery are not necessarily excluded by s 138G.