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14 Jul 2015
Appeal Status
Not appealed

High Court grants Commissioner's application for transfer

2015 case note – CIR's application for transfer to the High Court granted - Section 138N(2), transfer, s 330, complexity, likelihood of appeal, s 108, vendetta.

Commissioner of Inland Revenue v Great North Motor Company Limited (In Receivership) [2015] NZHC 1645


The High Court granted the Commissioner of Inland Revenue's ("the Commissioner") application, made pursuant to s 138N of the Tax Administration Act 1994 ("TAA"), to transfer the challenge proceeding filed by Great North Motor Company Limited (In rec) ("Great North") in the Taxation Review Authority ("TRA") to the High Court.


The Commissioner applied to transfer the substantive proceedings, currently before the TRA, to the High Court and also applied to bring this application by way of originating application. The respondent, Great North, opposed the Commissioner's transfer application but did not oppose the Commissioner's application being brought by way of originating application.

John George Russell is the sole director and receiver of Great North. Great North's shareholdings are held by two separate companies, Glen Eden Holdings Ltd ("Glen Eden") and Downsview Nominees Ltd ("Downsview").

On 20 August 1993, Great North issued a debenture to Glen Eden ("the Debenture"). Glen Eden held the Debenture as nominee for Downsview. The terms of the Debenture provided that the principal sum would be repaid on demand and with interest. Great North has made no actual interest or principal payments on the Debenture but has claimed annual income tax deductions for the interest payable.

On 25 May 2005, Glen Eden assigned the Debenture to Kensington Developments Ltd. The Commissioner now calculates the amount owing on the Debenture to be nearly $22 million. It appears that no steps have been made to recover the amount owing.

The Commissioner reassessed the returns filed by Mr Russell on behalf of Great North. The primary issue in the substantive proceeding is whether Great North has entered into an arrangement that has the purpose or effect of tax avoidance.


The Court was satisfied that this was an appropriate case for transfer to the High Court.

Leave to commence proceeding by way of originating application

The High Court noted there are numerous High Court cases that have confirmed that an originating application under Part 19 of the High Court Rules is the appropriate way to commence proceedings under s 138N(2) of the TAA. The Court also noted that Great North did not oppose the application.

Accordingly, the Court granted leave for the Commissioner to commence this proceeding by way of originating application.

Transfer of proceeding to the High Court under s 138N(2) of the TAA

The High Court noted that the courts have been left to establish a number of principles relevant to considering when a transfer application should be granted. These principles were recently affirmed by the Court of Appeal in Kensington Developments Ltd (in rec) v Commissioner of Inland Revenue [2015] NZCA 60 ("Kensington").

The Commissioner gave submissions on the following factors in support of her application for transfer:

  1. complexity of the arrangement;
  2. importance of the proceeding from the Commissioner's perspective;
  3. likelihood of appeal;
  4. amount of money at stake;
  5. vendetta allegations;
  6. any advantages to Great North from the proceeding remaining in the TRA.

Complexity of the arrangement

The High Court found that for some of the factors raised by the Commissioner, the substantive proceeding will involve some complexity.

The Court noted the Court of Appeal's finding in Kensington that "the moderate complexity weighed in favour of transfer to the High Court but could not on its own be decisive" [29]. Accordingly, the High Court considered the other factors identified by the Commissioner.

Importance of the proceeding from the Commissioner's perspective

The Commissioner treated the tax returns for the 1996–2005 period as a nullity because during that period Great North had been taken off the company register and did not exist. Great North argues that pursuant to s 330(2) of the Companies Act 1993, the returns are not nullities and that the Commissioner cannot make assessments to re-assess the losses that were claimed because she is out of time under s 108 of the TAA.

Counsel for Great North relied upon the Supreme Court's decision in Clark v Libra Developments Ltd ([2007] NZSC 16, [2007] 2 NZLR 709) ("Clark"), submitting that s 330(2) of the Companies Act plainly validates the returns. The High Court noted that it was not clear that Clark was decisive of the interplay between s 108 of the TAA and s 330(2) of the Companies Act. The Court noted that a decision that Clark has the effect argued by Great North in this case would have far-reaching implications for the way in which the Commissioner deals with companies that have been struck off the register. Accordingly, the Court found that this factor favours transfer of the proceeding to the High Court.

Likelihood of appeal

The High Court noted that given the importance of the case to the Commissioner and Mr Russell's litigation history, it is almost certain that the decision will be appealed by the unsuccessful party. The Court found that this factor favours transfer.

Amount of money at stake

The High Court agreed that the $21,717,813.79 at stake in the proceeding goes to the significance that the parties attach to the proceeding and the likelihood of appeal. Accordingly, the Court found that this factor favours transfer.

Vendetta allegations

The Court considered that the nature of the allegations on behalf of the taxpayer weighs strongly in favour of transfer to the High Court.

Advantages to Great North of the proceeding remaining in the TRA

Great North submitted that the confidentiality of the TRA combined with its ability to receive evidence not admissible in a court of law and costs savings were factors that must be given more weight than the factors outlined by the Commissioner in support of her transfer application. The Court found Great North's considerations unpersuasive and supported the Commissioner's submissions on these points.

Tax Administration Act 1994