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11 May 2010
Appeal Status

Judicial Review: The Commissioner's powers under sections 16 and 16b of the Tax Administration Act 1994

2010 case note - access operation carried out by CIR to obtain information - Section 16, blanket privilege claim, 'book or document', double tax agreement.

Avowal Administrative Attorneys Ltd & Ors v The District Court at North Shore & the Commissioner of Inland Revenue

Tax Administration Act 1994


The access operation carried out by the Commissioner pursuant to section 16 of the Tax Administration Act 1994 (TAA) was used to obtain information which was necessary or relevant for the investigation of activities affecting New Zealand tax liabilities.

Impact of decision

This decision confirms that:

  1. the Commissioner's interpretation of the extent of his section 16 and 16B powers is correct
  2. a preliminary screening on site will not necessarily be a prerequisite to a reasonable access operation (particularly where the Commissioner has obtained sufficient information under an earlier investigation to consider it necessary to copy information)
  3. in the event the Commissioner faces a blanket claim of privilege, removal of the hard drives for inspection once the privilege claim is resolved is an appropriate action
  4. a hard drive is a "book or document" for the purposes of section 16
  5. the Commissioner is not under any obligation to undertake an access operation which not only complies with section 16 but also with the equivalent Australian provision, case law and practice guidelines.


On 8 November 2006, the Commissioner of Inland Revenue ("Commissioner") and the Australian Tax Office ("ATO") conducted simultaneous access operations on both sides of the Tasman. The operations followed a request by the ATO to the Commissioner in 2004 under Article 26 of the Australia-New Zealand Double Tax Agreement ("DTA"). The ATO provided background information which indicated that a number of entities based in or operating in New Zealand were promoting, marketing and implementing a wide range of tax avoidance schemes.

Using his powers under section 16 of the Tax Administration Act 1994 ("TAA"), the Commissioner entered seven premises, both private and commercial, and removed hard copy documents and hard drives for copying. The taxpayers filed a judicial review on a number of grounds culminating in a High Court judgment in favour of the Commissioner on 22 December 2008.

A stay application (pending appeal) filed by the taxpayers was also dismissed on 1 May 2009. In addition, the taxpayers filed a further application to recall directions made by the High Court on 8 October 2009 (in relation to the process for reviewing the information obtained during the access operations). Venning J, in his judgment dated 21 December 2009, set out the refined procedure for the Commissioner to follow in reviewing the information.

The appellants appealed to the Court of Appeal against the High Court judgment of 22 December 2008 on the judicial review.


The Court of Appeal found in favour of the Commissioner.

Before considering the issues, the Court briefly considered the powers in sections 16 and 16B generally, and did note that the existence of section 16C of the TAA (which was not in force at the time of the access operations in this case) means that the issues in this appeal may now be of limited significance for future access operations carried out by the Commissioner.

Ground One - preliminary keyword searches

The search and inspection powers under section 16(1) are subject to section 21 of the New Zealand Bill of Rights Act 1990 and, like all public officials, the Commissioner must exercise the power in a manner that conforms to the reasonableness requirement of section 21. The Court noted that while a preliminary screening (as envisaged by the Australian Full Federal Court in J M A Accounting) was undoubtedly good practice, it was not a necessary prerequisite to a reasonable access operation under section 16.

This issue was then considered separately in relation to the Auckland and Motueka sites.

The Auckland site

The taxpayer had argued that despite the blanket privilege claim made at the Auckland site, the Commissioner should still have continued to undertake a preliminary screening to determine the relevance of any information rather than remove the hard drives. The Court, however, concluded that the Commissioner had acted reasonably in relation to the Auckland site.

The Court again stated that a preliminary screening was not necessary. It noted further that in this case it may be that the prior investigation carried out by the Commissioner provided him with a sufficient basis for considering inspection necessary. However, as neither the High Court nor the Court of Appeal had heard argument on that aspect, the Court decided not to make a finding on that basis.

The Court referred to the taxpayer's assertion that section 16B provides that the only documents that could be removed were those considered necessary or relevant under section 16 and concluded that it was not apparent that section 16B needed to be read down this way. In any event, the Court concluded that once the privilege claim was made, it was open to the Commissioner to determine that it was necessary to remove the hard drives to inspect later once the privilege claim was resolved.

The Court also dismissed the argument raised by the taxpayer that the Commissioner was unable to remove the hard drives and give them to the District Court pursuant to section 20(5) (rather that the District Court had to request the information). The Court held that the power of the District Court to require the production of information relating to a privilege claim does not restrict the ability of the Commissioner to lodge the information voluntarily with the Court. Further, the Commissioner's actions were a pragmatic and sensible approach to ensuring the privilege claims were respected without prejudicing the access operation.

The Motueka site

The taxpayer had argued that the Commissioner did not intend to carry out preliminary screening at the site. In addition, the Commissioner's argument that the hard drives were cloned because encryption software was detected was incorrect as there was no evidence that the encryption was operative. Further, the Commissioner should first have asked the proprietor to remove the encryption before determining the relevance of the information on the hard drives.

The Court determined that it was the intention of the Commissioner to undertake preliminary screening unless encryption rendered that operation futile. Further, given the history of the investigation, it was reasonable for the Commissioner to conclude that hard drives containing encryption software would provide relevant information. In addition, the Court held that the Commissioner did not have to seek the assistance of the proprietor to remove the encryption given the Commissioner was sceptical about the outcome of any request.

Ground Two - operation solely for the ATO

The Court concluded that while it was acknowledged that the ATO had initiated an exchange of information, the access operation was carried out some two years after that initial exchange, pursuant to a New Zealand tax investigation and was for the purposes, at least partly, of investigating conduct affecting the New Zealand tax base and collection of tax in New Zealand.

Sections 81 and 88 of the TAA

The taxpayer had argued that the Commissioner has no obligation to supply information to the ATO, pursuant to Article 26 of the DTA, unless the information could have been obtained by the Federal Commissioner of Taxation in Australia utilising the same operation undertaken in NZ. The Court rejected this and held that it was clear that Article 26 simply provides that the Commissioner is not obliged to pass on information that would not be accessible under Australian law or practice. The Court went further to suggest that it would be an absurd result if the Commissioner was required to carry out access operations which not only complied with section 16 but with the Australian equivalent provision, case law and practice guidelines.

In any event, the Court concluded that the information obtained from the access operation would be obtainable under the Australian equivalent provision and therefore the Commissioner was obliged to supply it to the ATO.

The Court also agreed with the Commissioner that the fact that Article 26 provided only that there was no obligation on the Commissioner to provide information does not prevent the Commissioner from voluntarily doing so. However, the Court did note that, prima facie, section 88 requires secrecy be maintained unless the Commissioner is required to provide the information. However, the Court decided that it was unnecessary to conclude on this point given their earlier conclusion.

Ground Three - are hard drives "books or documents"?

The Court held that a "record" (for the purposes of the definition of "books or documents") includes both information as recorded and also the medium upon which the recording is made. Accordingly, a hard drive is a "record" and can therefore be cloned. The taxpayer had also asserted that a hard drive should be excluded due to the vast quantity of material it can hold but this distinction was rejected by the Court.

Ground Four - consent

Notwithstanding the fact that the Court had already concluded that the removal of the hard drives was permitted, the Court concluded that in any event Ms Chisnall (the Avowal representative present at the Auckland site) had consented to their removal.

Ground Five - advising on law reform

The Court accepted that there was no evidential basis for this finding by the High Court (in that it was not advanced by the Commissioner nor present in the warrant applications) but noted that this had no impact on the outcome of the present appeal.

Ground Six - contempt of NSW court

The Court firstly concluded that there was no evidence that the timing of the access operation coinciding with the criminal proceedings in Australia was "contrived" rather than merely coincidental. Further, the Court rejected the taxpayer's argument that the ATO requested information from the Commissioner who consequently acted in contempt. This was because the ATO gave an undertaking that no information derived from the section 16 access operations in New Zealand would be communicated to anyone associated with certain related criminal prosecutions. The Court noted that in this regard no information derived from the access operation was in fact exchanged by the time the criminal proceedings took place. The Court also rejected the taxpayer's assertion that the removal of a laptop hard drive belonging to Mr Petroulias from the Motueka site also resulted in a contempt in that it contained information relevant to the defence of the criminal proceedings.


The access operation carried out pursuant to section 16 was used to obtain information which was necessary or relevant for the investigation of activities affecting New Zealand tax liabilities.