A firm of Auckland accountants has won a High Court fight with Inland Revenue, which wanted it to hand over documents about a client being investigated by South Korean tax authorities.
Chatfield & Co is the tax agent for a group of companies linked to KNC Construction, which has built two high-rise apartment projects in New Zealand and once proposed to erect the country's tallest tower.
KNC and its related companies are substantially owned by Jae Ho Huh, who has lived in New Zealand since 2004 but is being investigated by the Korean National Tax Service (NTS).
The NTS requested information about the companies from Inland Revenue, which in 2014 issues notices to Chatfield requiring the firm to produce documents it holds on their behalf.
These documents included financial statements, property sale and purchase agreements and bank remittance certificates.
Chatfield had concerns about the legality of the notices and when it couldn't resolve the situation with the IRD, the accounting firm in 2015 went to the High Court for a judicial review.
Parts of the tussle have been to the Supreme Court and back and came before Justice Ed Wylie last year.
Chatfield, represented by law firm Bell Gully, argued IRD wrongly issued the notices and had failed to fully evaluate the NTS' request and had insufficient information to accurately assess its lawfulness.
The accounting firm also said the IRD did not take into account the terms of the tax treaty New Zealand has with Korea and that some of the taxes over which information was sought may not be covered by that deal.
Inland Revenue denied that it had erred in law and argued that Chatfield had failed to establish the tax department had exercised its statutory powers and duties unlawfully.
Justice Wylie, in a decision released just before Christmas, said the difficulty when dealing with the case was relevant background documents - particularly the request from the NTS, file notes made by the Inland Revenue manager John Nash who dealt with it and any communication between him and the South Korean authorities - had not been disclosed to the court.
While the IRD was willing to share the documents with the judge, it was not prepared for Chatfield's lawyers to see them.
Justice Wylie was not comfortable with this arrangement and the IRD eventually advised the judge it was happy for the case to proceed without him seeing all the relevant material.
"The end result is that the Commissioner [of Inland Revenue] has elected to run her case without reference to the background documents. I proceed accordingly," he said.
The judge said that the IRD's Nash was required to satisfy himself that "all of the information requested by the NTS was needed or required in relation to an investigation into, or other action being taken by the NTS against a Korean taxpayer, and that the information was in regard to income tax, corporation tax, or inhabitant tax, or fiscal evasion."
Nash also had to be satisfied that any information exchanged under the tax treaty would only be used in relation to those taxes and that the NTS had been unable to obtain the information in Korea.
Considering affidavits filed by Nash and others from IRD, Justice Wylie said they suggested "there has been no hard inquiry into the necessity for any exchange, and therefore the need to request the documents in the first place".
Justice Wylie said that he was left with nothing more than Nash's "say-so" that he satisfied himself that the NTS' request was under the terms of the tax treaty and this country's tax laws and that the information sought was consistent with the grounds of the request.
"The days when a court will accept an official's simple assertion that a power had been exercised lawfully are long over ... when the actions of public authorities are in issue, there is an expectation that public authority defendants will explain themselves, and disclose all relevant documents. The defendant authority can be expected to satisfy the court, and if it does not do so, the claimant can, in appropriate cases, get the benefit of any doubt," the judge said.
"Chatfield has been able to raise relatively little, but the little it has raised rings alarm bells, albeit quietly ... there is a high duty on public authority respondents to assist the court with full and accurate explanations and to give the court all the facts relevant to the matter in issue," he said.
The judge said it should have been "relatively straightforward" for the IRD to produce the relevant documents.
"In my view, the Commissioner [of Inland Revenue] has not been as candid in her conduct of this case as might have been expected. On the very limited materials available to me, I am not satisfied that the appropriate inquiries were undertaken by Mr Nash," Justice Wylie said.
He quashed the IRD's notices requiring the documents to be produced, declared them to be invalid and awarded costs to Chatfield.