Issued
2016
Decision
16 Dec 2016
Appeal Status
Appealed

Court of Appeal upholds High Court decision declining an application for discovery of material exchanged pursuant to a Double Taxation Agreement

2016 case note – application for discovery of material exchanged pursuant to a Double Taxation Agreement declined - Exchange of Information.

Case
Chatfield & Co Limited v Commissioner of Inland Revenue [2016] NZCA 614
Legal terms
Discovery ? Exchange of Information ? Double Taxation Agreement

Summary

The Appellant brought an appeal against a decision of the High Court declining an application for discovery of material (“the Documents”) exchanged pursuant to a Double Taxation Agreement (“DTA”) between New Zealand and the Republic of Korea. The Court of Appeal agreed with the High Court that the documents were not required to be discovered but differed from the High Court on the basis for that decision. The Court considered that the documents for which discovery was sought had not been shown to be relied on by the Appellant, or to adversely affect its case or to adversely affect or support another party’s case. Accordingly the Court of Appeal considered that there was no basis for the making of a discretionary order for discovery and dismissed the appeal.

Facts

The Appellant appealed against a decision of the High Court declining an application for discovery of material (“the Documents”) exchanged pursuant to the DTA.

The decision of the High Court was reflected by judgments of Ellis J dated 1 September 2015 (Chatfield & Co Ltd v Commissioner of Inland Revenue [2015] NZHC 2099, (2015) 27 NZTC 22-024) and 9 June 2016 (Chatfield & Co Ltd v Commissioner of Inland Revenue [2016] NZHC 1234, (2016) 27 NZTC 22-053), and by minute of Ellis J dated 19 May 2016 (Chatfield & Co Ltd v Commissioner of Inland Revenue HC Auckland CIV-2015-404-1013 19 May 2016).

The substantive proceeding in which the application for discovery was advanced is an application for review of decisions made by the Commissioner to issue notices to the Appellant under s 17 of the TAA for information held on various parties for whom the Appellant was the "tax agent" for the purposes of ss 33 and 34B of the TAA. (Note the judgment refers to issuing notices unser s 17 "to various parties for whom Chatfield was the 'tax agent'".)

The Appellant’s substantive litigation originally involved two causes of action. The first was that the Appellant had a legitimate expectation under operational statement OS 13/02 (Operational Statement: Section 17 notices Inland Revenue, OS 13/02, 14 August 2013). The second was that the Commissioner failed to consider the terms of OS 13/02, the limited nature of the tax agent/client relationship and the DTA. The first cause of action and the first two limbs of the second cause of action were struck out by Lang J on 27 September 2016 (Chatfield & Co Ltd v Commissioner of Inland Revenue (No 2) [2016] NZHC 2289, (2016) 27 NZTC 22-072).

This left the allegation that in making the decision to issue the s 17 notices the Commissioner failed to consider the DTA as the last remaining cause of action.

The strike out decision has also been appealed but had not been heard as of the date of the current appeal. Accordingly, the Court of Appeal was required to proceed on the basis that only one part of the original pleading remains to be argued in the substantive judicial review proceedings.

In the decision under appeal, Ellis J concluded that the only aspect of the pleading to which the Documents would relate (namely the allegation that the Commissioner failed to take into account the DTA) was unlikely to be justiciable and the Documents were not required to be disclosed (Chatfield & Co Ltd v Commissioner of Inland Revenue [2016] NZHC 1234, (2016) 27 NZTC 22-053 at [22]).

Decision

The Court of Appeal agreed with the High Court that the documents were not required to be disclosed; although on a different basis. As a result the Court of Appeal dismissed the appeal.

The Court of Appeal highlighted that discovery in judicial review proceedings is not available as of right. The power of the Court to grant discovery in judicial review proceedings is discretionary and contrasts with the position that applies in an ordinary proceeding.

Since 1 February 2012, the High Court Rules have provided for two kinds of discovery, namely “standard discovery” and “tailored discovery”. References in the new rule to the cases of the parties means that relevance will still be a hallmark of what has to be discovered. The relevance of a document for discovery purposes must be assessed having regard to the pleaded claim.

The sole effective pleading, following the strike out by Lang J, was that the Commissioner failed to consider “the DTA, and in particular the terms of Article 25 of Schedule 1 to the DTA”.

The Court noted the difficulty that immediately rose for the Appellant is that it is clear that the Commissioner did consider Article 25; it was only by virtue of this Article that the Commissioner was able to issue the notices under s 17 of the TAA.

The Court was not persuaded by the Appellant’s attempts to particularise the last remaining cause of action at hearing and did not consider it was enough to support a discovery order under s 10(2)(i) of the Judicature Amendment Act 1972. In light of this, the Court of Appeal considered that the application indicated that the Appellant was “fishing”.

The Court noted the fundamental point to be made is that the pleading as it stands makes an assertion that is apparently incorrect on its face since it is clear the Commissioner did take the DTA into account. There is no basis in the pleading for making a discretionary order for discovery. Whilst there are important issues at stake when the Court is asked to order discovery in a case involving a request made by a foreign state under a DTA, when examined against the last remaining cause of action, the documents for which discovery is sought have not been shown to be relied on by the Appellant, or to adversely affect its case or to adversely affect or support another party’s case.

Sections 17 and 81 of the Tax Administration Act 1994, ss 69 and 70 of the Evidence Act 2006, s 10(2)(i) of the Judicature Amendment Act 1972