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16 Sep 2011
Appeal Status
Not appealed

Taxpayer's attempt to consolidate two separate proceedings fails

2011 case note - taxpayer unsuccessfully sought to consolidate two separate proceedings, a tax matter and an attempt to recover funds from a third party.

Yandina Investments Limited v Commissioner of Inland Revenue


The taxpayer sought to consolidate (into a single hearing) two separate matters, a tax matter and the taxpayer's attempt to recover funds from a third party. The High Court declined to order the consolidation.

Impact of decision

Both the earlier joinder application and this consolidation application could have made tax litigation more difficult as, if successful, taxpayers could delay tax cases by adding other parties to the case (or by consolidating separate cases). This result avoids this risk of delay.


This was an application by the taxpayer to consolidate two separate trials into a single hearing under High Court Rule 10.12, these being a:

  1. challenge to the tax assessment for the 1997-1998 tax years. The assessments removed deductions and losses attributed to an alleged tax avoidance arrangement entered into by the taxpayers;
  2. claim in equity ("the equity case") against ANZ, Westpac and BNZ ("the Banks"). The case related to an assignment of a right to income by a partnership of the Banks to Yandina (itself in partnership with another entity). Yandina alleged that the Banks had failed to pay it the full amount of income arising under the assignment of the right to income.

For the 1996, 1997 and 1998 tax years the Banks advised Yandina partnership that the total income was $83 million, being the combination of cash and non-cash income. Yandina partnership filed tax returns stating the $83 million as income. The returns included tax losses and deductions, and had the effect of no tax payable.

In 2002, the Commissioner issued a Notice of Proposed Adjustment to the Yandina partnership for the 1996 and 1997 tax years. This led to three decisions by the Commissioner on 26 September 2003 for the 1996, 1997 and 1998 tax years. These decisions disallowed the losses and deductions claimed on the basis of a tax avoidance arrangement.

On 23 December 2010, the taxpayer commenced the equity case against the Banks. The taxpayer alleged that the failure of the Banks to pay $72 million of income meant that the taxpayer could not pay its tax liabilities.

The taxpayer alleges that both proceedings (the tax case and the equity case) spring from the same facts and that the same issues arise in both cases. Consequently he claimed that both cases should be heard together. The taxpayer had previously sought to add the Banks to the tax case (called a joinder). However, the attempt to join was rejected by the High Court (CIV 2006-485-1228 HC Wellington, 20 December 2010, McKenzie J).


Justice Mallon declined to exercise the discretion at HCR 10.12 to consolidate the two cases.

The Judge identified two principal grounds that the taxpayer had relied upon in its application.

The Banks were potentially affected by the tax case

  1. The taxpayer argued that the income was assessable to the Banks (who were part of a wider tax avoidance arrangement) and not the taxpayer so the Banks should be heard in the tax case.
  2. The Judge rejected this saying that "it is difficult to see that Yandina could be prevented from raising whatever arguments it seeks to make in respect of the Commissioner's assessments of it, even if they involve the Banks who are not represented at the [tax] hearing".
  3. The Judge recognised this as an attempt to achieve the joinder as previously rejected.

The equity case was relevant to the tax case

  1. The taxpayer argued that success in the equity case meant it could no longer oppose the tax case as it would be entitled to the income assessed to it and should pay the tax.
  2. Again the Judge recognised this had been raised and rejected the joinder application.
  3. The Judge said that "the assessment of tax and recovery of a debt by the taxpayer as against a third party are separate matters. As the Commissioner submits, to allow the two separate matters to be joined in this case has potential ramifications in other cases. Tax assessments in other cases could be challenged and then delayed by the taxpayer's pursuit of another claim."

In addition the Judge considered the possibility of different decisions on common issues. His Honour held that ordering the proceedings to be heard at the same time will not alter the taxpayers' position. The consequence of the tax case for the Banks is irrelevant to the taxpayers' position in its equity claim.

High Court Rules