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Court delivers final blow to Russell tax-dodge schemes

By Graeme Hunt

Friday 29th August 2003

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The Appeal Court this week dealt the final blow to commercial hazard John George Russell's tax-dodge schemes, dismissing his claims of unfair treatment and dishonesty by the tax commissioner as "speculative."

Mr Russell (68), a litigious business and financial consultant, sought by judicial review to persuade the court Inland Revenue was waging a vendetta against him.

He accused the commissioner of changing the rules under s99(3) of the Income Tax Act to remove tax benefits he had obtained for his clients under the so-called "Russell template."

In fact, Mr Russell's various tax arrangements, involving 3500 individuals and 1100 companies, were declared by the Privy Council in 2001 to be tax-avoidance schemes, leaving the IRD to reclaim some $10.3 million in unpaid taxes from his clients. He faced 226 prosecutions.

This week's decision was the latest of many setbacks in Mr Russell's chequered business career, including running merchant bank Securitibank, which collapsed in 1976 with external debts of $31.5 million ­ then New Zealand's biggest company failure.

In the latest proceedings Mr Russell, represented by Gary Judd QC, accused the department of acting in an inconsistent, contradictory and dishonest way in breach of s99(4) of the Income Tax Act.

Justice Thomas Gault, delivering the three-man judgment, said Mr Russell was attempting, as part of a challenge to the assessments of certain client companies, to conduct a "wide-ranging inquiry before the Taxation Review Authority [TRA] into the processes of the IRD."

"Because the commissioner is not co-operating as Mr Russell considers he should, Mr Russell and his clients complain that they have been, or will be, denied fair hearings."

But, the judge said, Mr Russell had been given fair hearing before the TRA.

Mr Judd alleged the commissioner failed to comply with obligations under s6 of the Tax Administration Act and s27 of the Bill of Rights Act to act honestly and fairly in conducting proceedings before the TRA.

But Justice Gault said the appellant's pleading did not disclose how those obligations of the commissioner bore on the task of the TRA.

"In this respect, the entitlement of an objector challenging an assessment is to a fair hearing of the objections to the assessment." The judge said the allegation that the commissioner had subverted or was subverting Mr Russell's rights to natural justice before the TRA did not withstand analysis.

"We are not persuaded that the commissioner stands in a unique position in objection proceedings so as to be under wider obligations than other civil litigants," Justice Gault said.

"The argument for that unique position is just another attempted justification for the type of investigation we have held to be inappropriate."

Mr Russell was ordered to pay $6000 costs to the commissioner.

Mr Russell has been involved in numerous legal disputes, not least in 1984 when he was named in a $24 million suit against Securitibank shareholders and former directors by the liquidator, Harold Goodman. In 1986 he was said to have contributed $100,000 to the $1 million collective out-of-court settlement by former Securitibank directors.

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