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20 Dec 2013
Appeal Status

High Court grants Commissioner's application to transfer a challenge filed in the Taxation Review Authority to the High Court

2013 case note – CIR's application to transfer a challenge filed in the Taxation Review Authority to the High Court granted.

Commissioner of Inland Revenue v Kensington Developments Limited [2013] NZHC 3537

Tax Administration Act 1994


This case concerns an application by the Commissioner of Inland Revenue ("the Commissioner") for an order transferring a challenge proceeding filed by the taxpayer in the Taxation Review Authority ("TRA") to the High Court under section 138N(2) of the Tax Administration Act 1994 ("TAA"). The High Court granted the Commissioner's application, and made an order for transfer.


This decision involved an application made by the Commissioner seeking orders to transfer challenge proceedings (Kensington Developments Ltd (in receivership) v Commissioner of Inland Revenue (TRA 28/11)) filed by the respondent, Kensington Developments Limited ("Kensington"), in the TRA to the High Court. The Court granted the Commissioner's application, and made an order for transfer.

The application was made in reliance on section 138N(2) of the TAA, which provides that the Commissioner "… may apply to the High Court to have the challenge transferred to the High Court". Although there is no stipulated procedure to follow in making such an application, the Court acknowledged that making an originating application under Part 19 of the High Court Rules was appropriate.


Is the dispute of sufficient complexity to warrant transfer?

In finding that the challenge was moderately complex, Allan J rejected Kensington's submissions that no actual tax had been avoided and the losses had not been offset against any income. His Honour observed that nevertheless the losses remain available for offset, and that tax loss companies can have considerable commercial value. Further, Allan J admitted the Commissioner's submission that Mr Russell's actions as a receiver is relevant "… as part and parcel of its determination of commerciality issues" (Commissioner of Inland Revenue v Kensington Developments Limited [2013] NZHC 3354 (at [30]) and formed part of the overall picture.

The Court found that the tax value involved was moderately high when compared to other cases in which tax of hundreds of millions of dollars is in issue. However, the Court noted that the amount of tax in this case is by no means negligible. Although not determinative, on balance, the factors considered here favoured a transfer to the High Court.

Precedential value

The Court considered the Commissioner's submission that issues raised in this dispute are identical to those in other disputes and under active investigation by Inland Revenue; having already arisen in respect to some assessments and being likely to arise in the future. Allan J concluded that any judgment in the present case will likely serve as a precedent for a number of other cases, identifying that the tax treatment of substantial claimed losses would be affected.

Likelihood of appeal

Mr Judd, counsel for Kensington, submitted that it is not appropriate for the Commissioner to assume an appeal is likely, in that "… it may be an abuse of process …" (at [63]) for any party to decide an appeal against an adverse decision was likely prior to that decision being made.

The Court upheld the decision in Commissioner of Inland Revenue v Deepsea Seafoods (No 1) Ltd, (2004) 21 NZTC 18,469 (HC)), stating that it is well established that the likelihood of an appeal from a first instance decision is a highly relevant factor to the determination of an application under section 138N(2). The Court considered (a) the large sum involved, (b) the precedential value the decision would carry and (c) Mr Russell's tendency to exercise his rights of appeal as factors leading to a high prospect of an appeal occurring.

Vendetta allegations

Mr Judd urged the Court not to make too much of Kensington's complaints about the behaviour of the Commissioner and her staff in the challenge proceeding before the TRA. Mr Judd relied on the fact that Mr Russell had been making such allegations in proceedings for many years without it having any discernible impact on the TRA's ability to adjudicate the matter. Alan J said that Mr Judd was in effect suggesting "Mr Russell's bark is worse than his bite" (at [72]).

The allegations made in Kensington's notice of claim raised administrative law issues that could not be overlooked. The Court noted that if Kensington had wished to reduce the likelihood of a transfer to the High Court it should have "… framed its points of claim in a less strident fashion" (at [73]).

Other factors considered

Kensington raised an earlier unsuccessful application to transfer a proceeding in which Mr Russell was involved (JM Webster Ltd v Commissioner of Inland Revenue, HC Auckland M1052/96, 3 August 2004), despite vendetta allegations being raised. Allan J concluded that the application was unsuccessful in that case because the TRA at that time, Judge Barber, had extensive knowledge of the Russell template and so the High Court concluded that he was best placed to hear the matter. As Kensington is not a Russell template case, and Barber is no longer a TRA judge, those grounds did not apply here.

His Honour also confirmed in response to Kensington's submission that section 6 of the TAA should be accorded primacy in considering the transfer application, that section 6 did not create rights enforceable by the taxpayer.

In rejecting Kensington's submissions on section 27 of the New Zealand Bill of Rights Act, Justice Allan concluded that there was nothing to suggest Mr Russell was being discriminated against by the Commissioner in her making this application.

Allan J admitted that the convenience (informality, confidentiality) and cost advantages (lay representation, no costs award) of the TRA were relevant, but concluded they were not determinative.

Finally, the Court found that the Commissioner's delay in making the application (18 months after the challenge commenced) was a neutral factor as Kensington did not claim it had been prejudiced by the delay, and delay itself had not been considered relevant in previous transfer applications.


Considering these four factors collectively, the Court was persuaded to order the transfer of the proceeding to the High Court.