NEW ZEALAND STOCK EXCHANGE VS COMMISSIONER OF INLAND REVENUE, 1993 PTD-PRIVY-COUNCIL 374 (1991)

(a) Income-tax---

----Revenue---Commissioner requesting information from plaintiffs concerning class of unidentified possible taxpayers---Whether commissioner having statutory authority to require such information---Inland Revenue Department Act, 1974 (No.133 of 1974), S.17(1). (Inland Revenue Department Act 1974, S.17(1).)

(b) Income-tax---

----Bill of rights---Human rights and fundamental freedoms---Right to be secure against unreasonable search---Commissioner seeking to search property or correspondence of taxpayers investing in shares and commercial bills-- Whether infringement of taxpayers' right---New Zealand Bill of Rights Act, 1990 (No.109 of 1990), S.21.( New Zealand Bill of Rights Act 1990, S.21.)

The Income Tax Act, 1976, as amended, provided that income-tax was to be levied on every taxpayer's assessable income, and imposed on the Commissioner of Inland Revenue the duty of assessing such income to tax and collecting it. Section 17(1) of the Inland Revenue Department Act 1974 empowered the Commissioner to require information which he considered necessary or relevant for any purpose relating to the administration or enforcement of any of the revenue statutes including the Income Tax Act, 1976. In order to determine whether dealings in shares and commercial bills had resulted in taxable income and, if so, to identify the particular taxpayers, the Commissioner under section 17(1) required certain stockbrokers, who were members of the first plaintiff stock exchange, to supply lists of their largest clients and details of their share dealings. He also required the second plaintiff bank and other banks to identify customers who had invested with them in commercial bills and to provide details of each investment. The plaintiffs instituted proceedings seeking declarations as to the scope of the Commissioner's powers under section 17(1). The Judge held that section 17(1) only authorised the Commissioner to require information in respect of a named taxpayer whose tax affairs were being investigated, and so the share brokers and bankers were not obliged to supply the information requested. The Court of Appeal reversed that decision. After the judgment of the Court of Appeal, the New Zealand Bill of Rights Act, 1990 carne into force. Section 21 provided that everyone had the right to be secure against unreasonable search or seizure, whether of the person, property or correspondence or otherwise.

On the plaintiff's appeal to the Judicial Committee: ---

Held, dismissing the appeal, (1) that there were no policy reasons for implying into section 17(1) of the Act of 1974 the limitation that the Commissioner could only require information with regard to specified taxpayers whose tax liability was in question, since under that subsection he had power to obtain confidential information about any taxpayer, whether identified or not, and the secrecy of such information was sufficiently protected by other provisions of the Act of 1974, and the burden imposed on share brokers and bankers in supplying the information sought was not unduly onerous or oppressive; that, accordingly, on the proper construction of section 17(1), the Commissioner was entitled to require information in relation to a class of unidentified potential taxpayers, and in requesting the, information from the share brokers and bankers, he had not exceeded or abused his powers thereunder, and there, were no grounds for interfering with the Commissioner's demands.

Clinch v. Inalnd Revenue Commissioners (1974) QB 76 applied.

Commissioner of Inland Revenue v. West-Walker (1954) N.Z.L.R. 191; Commissioner of Taxation of the Commonwealth of Australia v. Australia and New Zealand Banking Group Ltd. (1979) 143 CLR 499 and In re: James Richardson and Sons Ltd. and Minister of National Revenue (1984) 9 DLR (4th) 1 distinguished.

(2) That, on the assumption that in requiring the information from the share brokers and bankers pursuant to section 17(l) of the Inland Revenue Department Act, 1974 the Commissioner was seeking to search the property or correspondence of taxpayers, such search would not be unreasonable in the circumstances; and that, accordingly, their right under section 21 of the New Zealand Bill of Rights Act, 1990 to be secure against unreasonable search would not be infringed.

(1990) 3 N.Z.L.R. 333 affirmed.

Associated Provincial Picture Houses Ltd. v. Wednesbury Corporation (1948) 1 KB 223; (1947) 2 All ER 680, CA

Bullivant v. Attorney-General for Victoria (1901) AC 196, HL (E). .

Canadian Bank of Commerce v. Attorney-General of Canada (1962) SCR 729.

Clinch v. Inalnd Revenue Commissioners (1974) QB 76; (1973) 2 WLR 862; (1973) 1 All ER 977.

Commissioner of Inland Revenue v. West-Walker (1954) N.Z.L.R. 191; Commissioner of Taxation of the Commonwealth of Australia v. Australia and New Zealand Banking Group Ltd. (1979) 143 CLR 499; McKinlay Transport Ltd. v. The Queen (1990) 68 DLR (4th) 568; Richardson (James) and Sons Ltd. and Minister of National Revenue, In re: (1984) 9 DLR (4th) 1 ref.

Entick v. Carrington (? 765) 2 Wills. 275; Flickinger v. Crown Colony of Hong Kong (1991) 1 N.Z.L.R. 439; Home Office v. Harman (1983) 1 AC 280; (1982) 2 WLR 338; (1982) 1 All ER 532, H.L.(E); Knight v. Barnett (1991) 13 N.Z.T.C. 8,014; Minister of Home Affairs v. Fisher (1980) AC 319; (1979) 2 WLR 889; (1979) 3 All ER 21, P.C.; Perron Investments Pty. Ltd. v. Deputy Federal Commissioner of Taxation (1989) 89 ATC 5038; Reg. v. Inland Revenue Commissioners, Ex parte Rossminster Ltd. (1980) AC 952, (1980) 2 f WLR 1; (1980) 1 All ER 80, HL (E); Riddick v. Thames Board Mills Ltd, (1977) QB 881; (1977) 3 WLR 63; (1977) 3 All ER 677, C.A.; Schwass v. Mackey (1983) 6 NZTC 61, 641; Williams v. Summerfield (1972) 2 QB 512; (1972) 3 WLR 131; (1972) 2 All ER 1334, D.C.; Wilover Nominees Ltd. v. Inland Revenue Commissioners (1974) 1 WLR 1342 and (1974) 3 All ER 496, CA. cited.

Appeal (No.7 of 1991) with leave of the Court of Appeal of New Zealand by the plaintiff, New Zealand Stock Exchange and the National Bank of New Zealand Ltd., from the judgment of the Court of Appeal of New Zealand (1990) 3 NZLR 333 (Richardson, Somers, Casey, Bisson and Hardie Boys JJ.) given on 26th July 1990 allowing an appeal by the Commissioner of Inland Revenue from the judgment of Jeffries J. (1990) 2 N.Z.L.R. 120 delivered on 8th March, 1990 in the High Court of New Zealand whereby he held that neither the share brokers nor the bank were obliged to supply the information sought by the Commissioner.

The facts are stated in the judgment of their Lordships.

George Barton Q. C., R. A. Dobson and R.J. Cullen (all of the New Zealand Bar) for Plaintiffs.

J.J. McGrath Q. C., S-G., New Zealand, Grant Pearson and Angela Satterthwaite (all of the New Zealand Bar) for the Commissioner.

Cur. Adv. volt.

JUDGMENT

LORD TEMPLEMAN.---By section 9 of the Income Tax Act 1976 of New Zealand, as amended, a taxpayer, defined by section 2 as a person chargeable with income-tax, shall for the purposes of the assessment and levy of income-tax furnish to the Commissioner of Inland Revenue in each year a return or returns in the prescribed form or forms setting forth a complete statement of all the assessable income derived by him during the preceding year together with such other particulars as may be prescribed.

Assessable income is defined by section 2 as income of any kind which is not exempted from income-tax. By section 19(1) of the Act of 1976:

"From the returns made...and from any other information in his possession the Commissioner shall in and for every year, and from time to time and at any lime thereafter as may be necessary, make assessments in respect of every taxpayer of the amount on which tax is payable and of the amount of that tax."

By section 21:

"If any person makes default in furnishing any return, or if the Commissioner is not satisfied with the return made by any person, or if the Commissioner has reason to suppose that any person, although he has not made a return, is a taxpayer, he may make an assessment of the amount on which in his judgment tax ought to be levied and of the amount of that tax, and that person shall be liable to pay the tax so assessed, save in so far as he establishes on objection that the assessment is excessive or that he is not chargeable with tax."

By section 27, except in proceedings on objection to an assessment under the Act of 1976:

"no assessment made by the Commissioner shall be disputed in any Court or in any proceedings ...and...every stab assessment and all the particulars thereof shall be conclusively deemed and taken to be correct, and the liability of the person so assessed shall be determined accordingly."

By section 34(3):

"Where, in relation to a person being a taxpayer and to any assessment the tax assessed in which has become due and payable, any amount of deferrable tax is unpaid and any amount of tax that is not deferrable tax is unpaid, each such amount of unpaid tax may be recovered by the Commissioner as a separate debt arising from a separate cause of action."

By sections 38 and 39 income-tax shall be payable by every person on all income derived by him during the year for which the tax is payable and shall be assessed and levied on the taxable income of every taxpayer at such rate or rates as may be fixed from time to time.

Thus income-tax at a stipulated rate is levied for the benefit of the community on the assessable income of every taxpayer and it is the duty of the Commissioner to see that such income is assessed to tax and that the tax is paid.

By accident or design, a taxpayer may default in his obligation to furnish a return or to disclose all hit assessable income. In order to discharge his duty of assessing and recovering tax on all taxable income the Commissioner must discover the names of taxpayers and the respective sources and amounts of their assessable income. By section 17(1) of the Inland Revenue Department Act 1974:

"Every person ...shall, when required by the Commissioner ...furnish in writing any information and produce for inspection any books and documents which the Commissioner ...considers necessary or relevant for any purpose relating to the administration or enforcement of any of the Inland Revenue Acts...

By section 2 and Schedule 1, the Inland Revenue Acts mentioned in section 17(1) includes the Act of 1976.

If a person trades or deals in shares or commercial bills, profits thereby generated may constitute taxable income. In order to determine whether taxable income had been generated and to- discover the relevant taxpayers, the Commissioner required information which would disclose to the Commissioner names of taxpayers who had bought and sold shares or bills and which would disclose sufficient details to enable the Commissioner to assess those taxpayers in respect of assessable income generated by dealings in shares and commercial bills. Under section 17 of the Act of 1974 the Commissioner therefore required some members of the first plaintiff stock exchange to produce a list of their largest clients and details of their -purchase and sale of shares. The Commissioner also required the second plaintiff bank and some other banks to produce the names and details of bank customers who had bought and sold or obtained the fruits of commercial bills.

In these proceedings the first plaintiff, the New Zealand Stock Exchange, acting in the interests of its members, and the second plaintiff bank, acting in the interests of banks generally, sought and obtained from Jeffries J. (1990) 2 N.Z.L.R. 120 a declaration against the Commissioner. As it emerged, the real issue was whether under section 17 of the Act of 1974 the Commissioner had any power to require information except in respect of a named individual whose tax affairs were under investigation. The Court of Appeal (1990) 3 N.Z.L.R. 333 (Richardson, Somers, Casey, Bisson and Hardie Boys JJ.) quashed the order of Jeffries J. The plaintiffs now appeal to Her Majesty in Council.

Their Lordships would be content to adopt the comprehensive judgment of the Court of Appeal which was delivered by Richardson J. but, in deference to the full and careful arguments advanced before the Board by Mr. Barton on behalf of the plaintiffs, they will deal fully with the arguments put forward.

As Richardson J. pointed out, at p. 337, section 17 is expressed in the widest terms. The plaintiffs seek to imply in section 17 a limitation whereby the Commissioner may only require information: "where the Commissioner leas a specified taxpayer in mind in respect of whom there is a serious question in mina as to the tax liability of that taxpayer." It is impossible to insert that limitation as a matter of statutory construction. The limitation could only be inserted as a matter of policy by a process of judicial legislation on the grounds that Parliament could not have intended to confer on the Commissioner a power so wide as not to be subject to such a limitation.

Two reasons are suggested for the insertion of the proposed limitation, first that the Commissioner is seeking information which is confidential and,- secondly, that the Commissioner is imposing on share brokers and bankers an onerous burden of research and report.

If the Commissioner, exercising his undoubted powers under section 17(1) of the Act of 1974, requires the bankers of a specified taxpayer under investigation to produce information about that taxpayer's activities, then the confidentiality which attaches to the relationship between bankers and customer must be broken. The whole rationale of taxation would break down and the whole burden of taxation would fall only on diligent and honest taxpayers if the Commissioner had no power to obtain confidential information about taxpayers who may be negligent or dishonest. In recognition of the fact that confidential information cannot be concealed from the Commissioner, the Act of 1974 imposes stringent restrictions on the Commissioner. Section 13 requires every officer of the Inland Revenue to maintain and aid in maintaining the secrecy of all matters relating to the Act of 1976 and other taxing statutes and requires every officer of the Department of Inland Revenue to make a statutory declaration of fidelity and secrecy. There are other provisions which are designed to secure and do secure the secrecy of information obtained by the Commissioner about the affairs of every taxpayer. There is no distinction between the secrecy and confidentiality, which attach to an identified taxpayer and a non-identified taxpayer. Confidentiality must be broken if the Commissioner is to obtain the information to enable him to carry out his statutory functions of assessing and collecting tax. Every taxpayer is protected by the secrecy obligation imposed on the Commissioner. If the plaintiffs' argument is correct, confidentiality does not assist the taxpayer who makes an honest return of his income or the dishonest taxpayer who is under investigation by the Commissioner but assists the dishonest taxpayer who conceals both his identity and his liability to tax from the Commissioner.

The plaintiffs relied on the decision of the Court of Appeal in Commissioner of Inland Revenue v. West-Walker (1954) N.Z.L.R. 191. In that case the Commissioner sought information about a taxpayer from his solicitor and the Court held that the solicitor was entitled to withhold information to which the common law legal professional privilege attached. The Commissioner was entitled to ask but the solicitor was entitled to decline to answer without the consent of his client. In the present case the plaintiffs deny the right of the Commissioner' to ask for the required information. Under the common law, but not under other systems of law, legal professional privilege forms a defence to a claim for information because as Fair J., citing Lord Halsbury L.C., in Bullivant v. Attorney-General for Victoria (1901) A.C. 196, 200-201, said in the West-Walker case, at p. 204:

"for the perfect administration of justice, and for the protection of the confidence which exists between a solicitor and his client, it has been established as a principle of public policy that those confidential communications shall not be subject to production."

The Court in the West-Walker case held that, in the absence of any express provision in the Income Tax Acts abrogating the principle of legal professional privilege, that principle excused the solicitor from supplying privileged information to the Commissioner. That case is of no assistance in the present case where it is manifest and is conceded that the principle of confidentiality was abrogated by section 17 of the Act of 1974.

The plaintiffs referred to Australian authorities. None of those authorities dealt directly with the present point at issue and all concerned statutory provisions in -forms different from that of the New Zealand Act of 1974. In Commissioner of Taxation of the Commonwealth of Australia v. Australia and New Zealand Banking Group Ltd. (1979) 143 CLR 499, the High Court of Australia dealt with the power conferred by statute on the Commissioner to require any person to attend and give evidence.

"concerning his or any other person's income or assessment, and may require him to produce all books, documents and other papers whatever in his custody or under his control relating thereto."

Mason J. said at p. 536:

"It is the function of the Commissioner to ascertain the taxpayer's taxable income. To ascertain this he may need to make wideranging inquiries, and to make them long before any issue of fact arises between him and the taxpayer. Such an issue will in general, if not always, only arise after the process of assessment has been completed. It is to the process of investigation before assessment that section 264 is principally, if not exclusively, directed."

The plaintiffs also relied on the Canadian case In re: James Richardson and Sons Ltd. and Minister of National Revenue (1984) 9 DLR (4th) 1. In that case Wilson J., giving the judgment of the Supreme Court of Canada, held that a general power conferred on the Minister of National Revenue by section 231 of the taxing statute, Income Tax Act 1970-71, 72, to require from any person any information for any purposes related to the administration or enforcement of the Act only enabled the Minister to-require information concerning a specified taxpayer. But in that case section 221 of the Act expressly authorised the making of regulations:

"requiring any class of persons to make information returns respecting any class of information required in connection with assessments under this Act."

The Court held that the express power in section 221, a power which had not been exercised, limited the general power conferred by section 231. If the minister wished to seek information regarding a class of persons then he must obtain a regulation under section 221. Wilson J., also relied on the earlier Canadian decision Canadian Bank of Commerce v. Attorney-General of Canada (1962) SCR 729 but in that case the minister asked for information concerning a particular alleged taxpayer. That case is of no assistance in deciding whether in the present case the Commissioner is entitled to information concerning a class of possible taxpayers.

Mr. Barton, on behalf of the plaintiffs, sought to pray in aid the New Zealand Bill of Rights Act, 1990, which affirmed, inter alia, in section 21 that: "Everyone has the right to be secure against unreasonable search and seizure, whether of the person, property or correspondence or otherwise:"

Their Lordships are content to assume that in the present case the Commissioner is seeking 'to search the property or correspondence of taxpayers. Having regard to the secrecy provisions of the Act of 1974 and to the fact that in the interests of the community the Commissioner is charged with ensuring that the assessable income of every taxpayer is assessed and the tax paid, the "search" involved in the application of section 17 of the Act of 1974 cannot be said to be unreasonable. A similar conclusion was reached by the Supreme Court of Canada in McKinlay Transport Ltd. v. The Queen (1990) 68 DLR (4th) 568 under the Canadian Charter of Rights and Feedoms. In that case there was an elaborate consideration of "different expectations of privacy in different contexts:" per Wilson J., at p. 580, but their Lordships are content simply to decide that the exercise of the powers conferred on the Commissioner by section 17 of the Act of 1974 is not, for the purposes of section 21 of the New Zealand Bill of Rights Act, 1990, "unreasonable".

The plaintiffs also contended that in the present case the Commissioner had exceeded or abused the powers conferred on him by section 17 of the Act of 1974 by making demands on sharebrokers and bankers which were onerous and expensive to obey. In the case of sharebrokers they were asked to supply lists of their largest clients together with details of their share dealings through the sharebroker. Bankers were asked to identify investors with them in commercial bills and to give details of each investment, cost and realisation. One sharebroker complained that he was asked for information over a 12-month period and that he only had information over an 11-month period because of a merger which had taken place. There is no doubt that sharebrokers and bankers have or ought to have the information which the Commissioner has requested. The Commissioner has demonstrated that he is prepared to modify his requirements to meet any particular genuine difficulty.

In Clinth v. Inland Revenue Commissioners (1974) Q.B. 76, the British Inland Revenue Commissioners sought information, which was described by the recipient as a "fishing" or "snooping" exercise. Similar complaints were made in the present case. In Clinch v. Inland Revenue Commissioners Ackner J., at p. 87, was unmoved by this emotive language but, at p. 92, had no doubt that if the particulars sought went substantially beyond that which was required for the purposes of en4bling the Commissioners to carry out their statutory functions:

"so that they could be properly described as unduly oppressive or burdensomea Court would be entitled to intervene ..One of the vital functions of the Courts is to protect the individual from any abuse of power by the executive, a function which nowadays grows more and more important as governmental interference increases."

Of course in New Zealand every sharebroker or banker will understandably resent the receipt of a notice from the Commissioner requiring information about the clients of the sharebroker or the banker. Every sharebroker or banker will resent the time and expense incurred in complying with the notice. But the Commissioner must carry out his functions of ensuring that assessable income is assessed and that the relevant tax is paid. Section 17 of the Act of 1974, requires information to be produced which the Commissioner "considers necessary or relevant". There is nothing in the point that the Commissioner wisely did not require every sharebroker and every banker to disclose information about all his clients and customers.

The Court can only interfere if satisfied that in making a particular requirement the Commissioner exceeded or abused his powers: see Associated Provincial Picture Houses Ltd. v. Wednesbury Corporation (1948) 1 KB 223 and Clinch v. Inland Revenue Commissioners (1974) OB 76. In the present case the Court of Appeal decided that as a matter of principle and construction the Commissioner was entitled to require information concerning a class of unidentified possible taxpayers. The Court declined to speculate on the circumstance which might lead to interference by way of judicial review. Their Lordships agree with the Court of Appeal and find nothing in the evidence deduced in the present case which could justify judicial review.

Their Lordships will humbly advise Her Majesty that this appeal ought to be dismissed. The plaintiffs must pay the costs of the Commissioner before the Board.

Solicitors: Simmons and Simmons; Allen and Overy.

M.BA./1948/T