The test case provisions of the TAA are located in s 138Q and s 138R. Section 138R empowers the Commissioner to designate a challenge proceeding a test case. The criteria for such designation is whether he considers that the determination of the challenge is like to be determinative of all or a substantial number of issues involved in one or more other challenge. Clearly the provision presupposes that there are other challenges before the Courts that have similar issues such that the determination of those issues in one case ought to resolve them in the others.
Allied to the s 138Q power is s 138R which is a provision that allows the Commissioner to stay proceedings by issuing a notice of stay. The notice of stay notifies the recipient that another challenge has been designated a test case on a similar challenge and is to be heard in the High Court. Section 138R(2) provides the criteria for the issue of a stay. He can issue a stay only if he or she considers that the test case is likely to be determinative of all or a substantial number of the issues in the challenge which is proposed to be stayed and the stayed challenge has not been determined by the a hearing authority. The leading case on what factors are relevant to the Commissioner’s decision to stay a challenge are set out in the judgment of Chambers J inBage Investments Ltd v CIR (2003) 21 NZTC 18,294.
A recipient of a notice of stay can respond to the Commissioner indicated that they want their challenge proceeding to go ahead: s 138R(3). The Commissioner must then make an application to the High Court for and order from the High Court staying the challenge: s 138(4). If the Commissioner does not take that step the stay is deemed to be abandoned. If the High Court grants the stay the stay remains in effect until expiration of the appeal rights after the test case is heard. There is provision for both the Commissioner and the disputant to apply to the High Court even once the stay is granted for the stay to be removed: s 138R(6). That provision would allow for review of the position once say the first instance judgment is available.
The litigation concerning the Trinity Forestry Scheme was litigation where there were large numbers of taxpayers which challenges to the Commissioner’s assessments disallowing the licence premium deductions claimed. The taxpayers were from different syndicates which had invested in different forests but the key attributes of the scheme were materially identical. The Commissioner designated 13 challenges as test cases at the outset. There is nothing in the legislation stopping the Commissioner designating the more than one proceeding a test case.
There was litigation over that designation: B & Ors v C of IR; C of IR v Multiple Taxpayers (2004) 21 NZTC 18,404. Following the litigation agreement was reached on the composition of the test cases. The substantive matter was heard by Justice Venning in 2004 and his judgment was issued in late December 2004: Accent Management Limited v C of IR (2005) 22 NZTC 19,027. The matter was appealed by the unsuccessfully plaintiffs’ to the Court of Appeal and then the Supreme Court: Accent Management Ltd v C of IR 23 NZTC 21,323 and Ben Nevis Forestry Ventures Ltd v CIR (2009) 24 NZTC 23,188, respectively.
Because the large sums involved the Trinity Forestry Scheme litigation did naturally involve a number of interlocutory arguments prior to trial:
- B & Ors v C of IR; C of IR v Multiple Taxpayers (2004) 21 NZTC 18,404. As mentioned above this was an application for judicial review of the Commissioner’s decision to designate some of the taxpayers involved in the Trinity Forestry Scheme as test cases. It was also an application by some of the taxpayer’s that their cases ought not to be stayed as a consequence of the test case designations decisions that the Commissioner had made. This litigation occurred before the substantive hearing.
- C and multiple parties v C of IR (2004) 21 NZTC 18,887. This was an application again made before the hearing of the substantive matter for an order that the hearing be conducted in secret. The principal reason being that some of the test cases had been filed in the Taxation Review Authority and if they had been heard there they would be heard in secret. It was only the Commissioner’s desire for them to be designated tests cases that meant that they had to be transferred to the High Court.
- Muir & Ors v CIR (2004) 21 NZTC 18,884 was an appeal to the Court of Appeal against the High Court decision that the substantive trial would not be heard in secret. This appeal was heard and judgment given before the substantive hearing got underway.
The purpose of designating cases as test cases and staying the balance of challenges is efficiency and economy. For example in CIR v Erris Promotions [2003] 1 NZLR 506 the Court of Appeal said that: “A purpose of the designation process is to save resources by not duplicating litigation.” Those savings are achieved by only the designated case or cases being heard and advanced through the Court system.
There is no explicit provision in the Act that states that the stayed cases will be bound by the outcome in the test case. The purpose of this article is to consider that absence in the light of the on going litigation concerning the Trinity Forestry Scheme.
In this regard once the Ben Nevis judgment had been released some litigants immediately issued judicial review proceedings. The basis of the review proceeding was an allegation that the assessments which were in dispute in the Trinity Forestry Scheme litigation were invalid. The Commissioner moved to strike out that judicial review proceeding and his strike out application was heard before Keane J in 2009. Justice Keane’s decision is still awaited.
After the Supreme Court judgment and in addition to the judicial review proceeding some taxpayers involved in the Trinity Forestry Scheme Litigation issued proceedings seeking orders that the judgment of Venning J issued back in late 2004 be set aside on the basis that the Commissioner of Inland Revenue presented a false case. That proceeding came before Lang J as duty judge who assigned it to Venning J to deal with probably on the basis that Venning J had had previous dealings with the matter and hence had some familiarity with it.
The allocation of that proceeding to Justice Venning has been the subject of a recent decision by him: (CIV 2009 -404-005991).
It is this fact of the abovementioned proceedings and the recent judgment that has prompted the question to be raised as to whether there is a gap in the test case provisions. Should the test case provisions explicitly apply the result of the designated case to the stayed cases. While it might be superficially tempting to answer that question in the affirmative in my view no such change should be made. The reasons for this view are set out below:
First, even having an explicit provision which applies the result in the test case to the stayed cases will not stop satellite litigation. For example in the Trinity Forestry Scheme situation there was such satellite litigation even before the final determination of the test cases by the Supreme Court. For example there was the following litigation:
- Accent Management Ltd v CIR (2006) 22 NZTC 19,758. This was an application by various plaintiff’s filed after Venning J gave his first instance judgment against them seeking to have his judgment recalled and Venning J recused. Venning J dismissed the application.
- Muir v CIR (2007) NZTC 21,543. This was an appeal against the decision referred to immediately above in which Venning J refused to recall the substantive judgment and recuse himself.
Secondly, the typical satellite litigation involves judicial review and challenges to the decision making process. That type of attack by its very nature largely undermines the efficacy of explicit binding provisions of the type being discussed. For example in the case of the Trinity Forestry Scheme litigation the proceeding issued immediately after the Supreme Court judgment was judicial review in nature and focused on alleged deficiencies in the Commissioner’s assessments.
Thirdly, the threshold for designating test cases is that the Commissioner considers that that designated challenge is likely to be determinative of all or a substantial number of issues in the other challenges. There is no requirement that the test case determine all the issues in the other challenges.
The implication of this is that it can be expected that where there is an additional issue for example in a stayed challenge that proceeding may well have to be heard in relation to that issue notwithstanding the fact that the test case has been heard.
Fourthly, there is the issue of whether the facts of the particular stayed case are distinguishable from those of the test case. This may arise because of the reasoning of the final decision on the test case. That reasoning may highlight a particular factor as being critical to the view reached. Having highlighted that factor a stayed case may genuinely be able to advance the argument that that factor is not present in their challenge.
Fifthly, there is no need for an explicit provision seeking to achieve a binding effect. This is because of the operation of Stari Decisis. The common law system is intended to provide consistency of outcome through this principle. Unless there is in fact a disguising feature it can be expected that any taxpayer who has a stayed case will be unsuccessful if they attempt to litigate their case once the result in the test case is known.
Our legal system has sufficient mechanism’s to arrive at the same outcome in a reasonably cost effective way should a taxpayer be motivated to peruse their stayed litigation in the hope of creating sufficient cost and frustration to procure a favourable settlement. Those mechanisms include the ability of a defendant in litigation (and the Commissioner is defendant in tax litigation) to seek summary judgment. There is in addition the mechanism of strike out for abuse of process and the sanction of above scale costs potentially available to assist as a stick if necessary.
Sixthly, such a provision will inevitably increase the amount of litigation surrounding the designation of test cases and the staying of others. In the Trinity Forestry Scheme litigation there was, as mentioned above, both a judicial review of the designation decision and an application by stayed taxpayers that they not be stayed. An example of this sort of litigation is B & Ors v C of IR; C of IR v Multiple Taxpayers (2004) 21 NZTC 18,404. Such pre-designation litigation is likely to become more frequent and aggressive if a provision providing for a binding effect was introduced.
Finally, from a taxpayer’s perspective the test case procedures already provide in effect a binding outcome if the Commissioner loses the test case. This because as a responsible public servant the Commissioner will accept the final determination of the matter by the Court and can be expected to apply the judgment to all the issues in stayed cases that he considered previously to be likely to be resolved by the test case. This arise from the fact that he has already made a judgment that a particular stayed case is likely to have all or a substantially number of its issues resolved by the test case.
For these reasons, it is considered that it would be ineffective and unnecessary to change the test case provisions of the TAA to introduce any provision making the outcome of the test case explicitly binding on either the Commissioner or taxpayers.