Re Winebox Inquiry: Controller and Auditor-General v Davison KPMG Peat Marwick v Davison Brannigan v Davison

CA226/95; 223/95; 231/9

Court of Appeal

1996 NZAR LEXIS 40; [1996] NZAR 145

30, 31 October, 1, 2 November, 8 December 1995, 16 February 1996

16 February 1996

CATCHWORDS:

[*1]

Conflict of laws — Sovereign immunity — Cook Islands Government issuing tax certificate as part of transaction where tax refunded to taxpayer for payment of fee — Whether issue of tax certificate governmental or commercial act — Whether auditor entitled to sovereign immunity for documents held in capacity as auditor of Cook Islands Government.

Evidence — Witness — Refusal to give evidence or produce documents situated in New Zealand to Commission of Inquiry — Inquiry investigating alleged fraud on New Zealand revenue in which Cook Islands Government significantly involved — Risk of Cook Islands prosecuting witness for disclosure of information in breach of Cook Islands secrecy legislation — Risk of breach of injunction of High Court of Cook Islands preventing disclosure of information as to company involved in alleged tax fraud — Whether "just excuse" for failure to give evidence — Whether "sufficient cause" for refusal to produce documents — Commissions of Inquiry Act 1908.

Evidence — Privilege — Privilege against self-incrimination — Threat of prosecution in Cook Islands if evidence given to commission of inquiry — Act of testifying to commission of inquiry breach of Cook Islands   [*2]  secrecy legislation — Whether privilege against self-incrimination applying to crime in foreign country — Whether privilege applying where act of testifying constituting crime.

HEADNOTE:

The defendant (the Commissioner) was appointed under the Commissions of Inquiry Act 1908 (the 1908 Act) as a commission of inquiry to inquire into allegations by a member of Parliament that various companies (including the European Pacific group of companies) were involved in tax evasion using the Cook Islands as a tax haven and that the Inland Revenue Commissioner and Serious Fraud Office Director (who had contended there was tax avoidance but not evasion) had criminally conspired not to prosecute the companies. The terms of reference provided for inquiry into (a) the conduct of the Inland Revenue Department and Serious Fraud Office and (b) whether to make changes to taxation laws. Evidence suggested that a member of the European Pacific group paid tax of $881,582 in the Cook Islands for a second member of the group; at the same time a third member sold a promissory note to the Cook Islands Property Corporation (the Corporation) for $10,881,582; and a fourth member bought the same note from the Corporation   [*3]  for $10,050,000. The Cook Islands Government then issued a tax credit for $881,582, apparently used against New Zealand income tax. The Corporation was established by Cook Islands legislation as an instrument of the Executive Government and consisted of members of the cabinet empowered to deal with the Corporation's property.

Controller and Auditor-General v Davison

Under ss 4C and 4D of the Commissions of Inquiry Act 1908, the Commissioner sought production of documents held in New Zealand (but not from the Cook Islands) by the Controller and Auditor-General of New Zealand (the Audit Office), or KPMG Peat Marwick (KPMG) (a chartered accountancy partnership) as its delegate, in their capacity at material times as auditors of the Cook Islands government account under article 71 of the constitution of the Cook Islands. The Audit Office sought judicial review of the Commissioner's orders on the ground that it infringed the sovereign immunity of the Cook Islands. It was assumed that the Cook Islands was a fully independent sovereign state. The Commission submitted inter alia that sovereign immunity did not apply to documents held by the Audit Office as it was created by and answerable   [*4]  under New Zealand law, namely the Public Revenues Act 1953 (NZ), and therefore did not hold documents on behalf of the Cook Islands Government. The Cook Islands Constitution (enacted by the Cook Islands Constitution Act 1964 (NZ)) provided in article 71 for audit of the Cook Islands Government Account by the Audit Office of New Zealand (amended in 1991 to refer to the Audit Office of the Cook Islands).

KPMG Peat Marwick v Davison

KPMG acted for international companies registered in the Cook Islands (including European Pacific companies) and audited theCook Islands Government account from 1 April 1988 to 30 June 1991 as the New Zealand Controller and Auditor-General's delegate and then until 30 June 1994 as auditor under the Cook Islands Constitution. In February 1995 the Commissioner served notices on KPMG requiring production of documents. However, KPMG refused on the ground there was "sufficient cause" to refuse to produce documents (s 9 of the 1908 Act) and "just excuse" to refuse to give evidence (s 13A of the 1908 Act) because of the risk of prosecution in the Cook Islands for breach of s 227 of the International Companies Act (which made it an offence to disclose information  [*5]  about Cook Islands-registered international companies). In April 1995 the Commissioner ruled that KPMG had to comply as "sufficient cause" and "just excuse" referred to immunities and privileges under s 6 of the 1908 Act that were no wider than common law privileges and immunities; and the privilege against self-incrimination did not apply. The Commissioner also summonsed two New Zealand resident partners as witnesses. However, in May 1995 European Pacific obtained an interim injunction in the Cook Islands (made permanent in August 1995) restraining KPMG from disclosing documents or information concerning European Pacific. KPMG sought judicial review by the High Court of New Zealand of the Commissioner's decisions on the basis of ss 9 and 13A of the 1908 Act, relying on inter alia the risk of prosecution and the restrictions imposed by the injunction.

Brannigan v Davison

The plaintiffs were formerly employed by European Pacific companies in the Cook Islands. Two of the plaintiffs were currently employed by an accounting firm with two offices in the Cook Islands accounting for 20 per cent of the firm's work, half of that asCook Islands government work (including as government  [*6]  auditor). The Commissioner believed European Pacific was significantly involved in the transactions in the inquiry and summonsed the plaintiffs to give evidence. The plaintiffs sought judicial review of the Commissioner's request on the grounds that (a) there was an appreciable risk they would be exposed to criminal prosecution under Cook Islands secrecy legislation, and (b) there was "just excuse" within s 13A of the Commissions of Inquiry Act 1908 for refusing to give evidence. One plaintiff had visited the Cook Islands 13 times in the past three years and feared loss of the government work and detention and prosecution in the Cook Islands if compelled to give evidence.

The proceedings were removed by consent to the Court of Appeal.

Held

Appeal dismissed.

The appeal by the Controller and Auditor-General would be dismissed for the following reasons:

1. Per Cooke P, Henry and Thomas JJ. In deciding whether to grant sovereign immunity, a Court had to consider the context as a whole to decide whether an act was within the area of commercial activity or of a private character (and therefore not subject to sovereign immunity) or governmental or sovereign activity. The context of  [*7]  issuing the tax certificate included the promissory note dealing involving the Corporation. As a whole the element of tax collection was largely illusory, the activity was commercial and of a private law character and, accordingly, sovereign immunity did not apply. It followed that if the Cook Islands could not claim immunity that its auditor could not claim immunity for an audit of the same acts.

I Congreso del Partido [1983] 1 AC 244 and Kuwait Airways Corp v Iraqi Airways Co [1995] 3 All ER 694 applied.

Per Richardson and McKay JJ. Sovereign immunity applied to governmental but not trading or commercial acts of a private law character which any private citizen could perform. Taxation, including issuing tax certificates, was a governmental activity not exercisable by private persons and an extension of the sovereign power which imposed the taxes (even though part of a wider arrangement where European Pacific companies derived benefits and the Cook Islands authorities incurred losses). Accordingly, any request for documents held in New Zealand as to the tax certificates involved an intrusion on the sovereign activities of the Cook Islands. Under article 71 of the Cook Islands  [*8]  Constitution, the Audit Office carried out a sovereign governmental, rather than contractual, function to assess and report on the legality, efficiency, effectiveness and economy of government financial management. Accordingly, production of documents held in that capacity was subject to sovereign immunity and was not overridden by s 4C of the 1908 Act as it was not expressed to override such immunity or apply extra-territorially.

Dictum of Judge Learned Hand in Moore v Mitchell 30 F 2d 600 (1929) at 604 approved.

2 . Per Richardson and McKay JJ. Sovereign immunity was founded on broad considerations of public policy, international law and comity. Accordingly, immunity could be refused where an activity breached a fundamental principle of justice or deep-rooted tradition of a forum state, such as unlawful acts on its territory or outrageous conduct directly affecting it so that the protection of international law should not be allowed. It was indefensible for the Cook Islands to attempt to evade or abuse New Zealand's tax laws since tax collection was fundamental to the functioning of government. Further, it would undermine values generally acceptable to New Zealanders which the  [*9]  Cook Islands had undertaken to uphold in 1973 in an exchange of letters with New Zealand, states obligations of good faith under international law and states responsibilities in the Council of Europe-OECD Convention on Mutual Administrative Assistance in Tax Matters 1988 (although not ratified by New Zealand and the Cook Islands) to provide information about international tax transactions. The documents requested by the Commissioner being held in New Zealand by a New Zealand agency and believed to contain evidence of a conspiracy involving the Cook Islands Government issuing false tax credits, it was a proportionate response by New Zealand and justified under international law to insist on production. Finally, the issues were not properly dealt with politically as the Executive had decided to constitute a commission of inquiry.

Per Henry J. There were compelling reasons in public policy to refuse sovereign immunity as the inquiry was investigating the need to protect New Zealand's tax base from fraud, there was evidence that the Cook Islands was instrumental in assisting such fraud and the documents sought were all in New Zealand. There were no principles of international comity requiring  [*10]  otherwise.

Per Thomas J. In determining whether sovereign immunity applied all relevant factors (rather than considering a single criterion) should be balanced, including the fact that state immunity was a derogation from territorial sovereignty, public policy and customs and practices of international law. In this case sovereign immunity should not be granted because (a) it would subvert Parliament's intention in the 1995 amendment to the 1908 Act, (b) the Cook Islands had interfered with New Zealand's sovereign right to tax, (c) the Cook Islands was not party to the inquiry, (d) the documents sought were in New Zealand, (e) the Commissioner's request was a proportionate response justified in international law to an apparent conspiracy to defraud the New Zealand tax system, (f) the dispute was not best dealt with politically rather than through diplomatic channels, (g) involvement in the inquiry was not best dealt with politically rather than through diplomatic channels, (g) involvement in the inquiry was not an affront to the dignity of the Cook Islands, (h) the Cook Islands had forfeited its right not to have its affairs intervened in by its apparent fraud on the New Zealand tax  [*11]  revenue, and (i) it would not be contrary to comity or goodwill between states.

The KPMG and Brannigan appeals should be dismissed for the following reasons:

3. Per Cooke P and Thomas J. Although s 227 of the International Companies Act 1981-82 and the Cook Islands injunction were intended to have extra-territorial effect, the witnesses should comply with the Commissioner's requests because (a) a defence of foreign state compulsion was probably available if the witnesses were prosecuted, (b) it was unlikely New Zealand citizens would be extradited to the Cook Islands to face charges arising from evidence given to the inquiry as there would be undue hardship or extradition would be unjustifiable or inexpedient under s 343 of the Cook Islands Act 1915 (NZ) and there may remain a residual discretion to grant relief on the ground of abuse of process, (c) as a witness had no privilege against self-incrimination where the offence concerned conduct made criminal by a foreign law, there was no immunity available to witnesses under s 6 of the 1908 Act, (d) as the Commissioner was in a better position to judge the importance of the evidence sought in deciding whether there was "sufficient  [*12]  cause" or "just excuse" for witnesses not to comply with the Commissioner's requests under ss 9 and 13A of the 1908 Act, his conclusion that the justification for compelling witnesses was so strong that it could not be outweighed by considerations of foreign state compulsion was unassailable (even if the plaintiffs also carried on business in the Cook Islands since that was their choice and they had to live with the consequences).

Dictum of Kirby P in Ganin v New South Wales Crime Commission (1993) 32 NSWLR 423 at 429 referred to.United States v First National Bank of Chicago 699 F 2d 341 (1983) and Murphy v Waterfront Commission of New York Harbor 378 US 52 (1964) distinguished.

Per Richardson, McKay and Thomas JJ. (i) By its language, structure and purpose, s 227 of the International Companies Act 1981-82 (Cook Islands) displaced the presumption that an Act creating an offence did not have extra-territorial effect. In particular (a) subs (3) applied to divulging information "in the Cook Islands or elsewhere", (b) subs 4(c) excepted disclosure to a foreign government or Court only in respect of narcotics, and (c) by subs (8), the section applied to company officers  [*13]  not resident in the Cook Islands. Further, it could not be said that the Cook Islands injunction did not include oral testimony since it referred to information being divulged or disclosed.

(ii) Under conflict of laws rules, compliance by KPMG was determined according to the law of New Zealand (as the domestic forum) rather than the Cook Islands. A witness excused by a Court should also be excused by an inquiry since "privileges and immunities" (s 6), "sufficient cause" (s 9) and "just excuse" (s 13A) were wider than common law privileges and (in the case of s 9) had a similar meaning to the District Courts Act 1947 (s 54), (in the case of s 13a) Summary Proceedings Act 1957 (s 39), Judicature Act 1908 (s 56B) and Crimes Act 1961 (s 352). It was a question of weighing considerations properly bearing on the exercise of a discretion, including assessing New Zealand's vital national interests in the inquiry, the importance of the information sought to the inquiry, alternative means for obtaining the information, the nationality and residence of the witnesses, location of the documents, nature and extent of the witnesses' commercial and personal connection with the Cook Islands  [*14]  and the risk to them of requiring the evidence to be given. There was no sufficient cause or just excuse for the witnesses to refuse to produce documents or give evidence since (a) there was insufficient basis to depart from the Commissioner's assessment of the importance of the evidence, (b) the governmental interest in investigating abuse of the New Zealand tax system and criminal laws was reflected by constitution of the inquiry with its terms of reference, (c) personal factors affecting the witnesses would have to be weighty to displace the public interest in the inquiry but there was no evidence of consequences to KPMG, and (d) the Cook Islands authorities would recognise that KPMG evidence was given under compulsion. KPMG's appeal should therefore be dismissed.

Spencer v The Queen [1985] 2 CTC 310 and Ganin v New South Wales Crime Commission (1993) 32 NSWLR 423 referred to.

Per Henry and Thomas JJ. The words "sufficient cause" and "just excuse" in ss 9 and 13A of the Commissions of Inquiry Act 1908 had their ordinary meaning and were not restricted to privileges and immunities referred to in s 6 of the 1908 Act. Although the Cook Islands secrecy statutes had extra-territorial  [*15]  effect, applied to non-residents of the Cook Islands and included the giving of oral evidence, once it was accepted that domestic law was paramount over foreign law in a situation of conflict it was difficult to claim that foreign law provided sufficient cause or just excuse for not giving evidence. It required compelling circumstances for a foreign law to prohibit or restrict examination in New Zealand of a New Zealand citizen as to New Zealand's domestic matters in a commission of inquiry. In this case (a) the Commissioner rather than the Court was in the best position to evaluate the importance of the evidence and its availability from other sources, (b) a defence of justification or compulsion would be recognised by a Cook Islands Court, (c) even if there was a risk of prosecution, the public interest required the claims of sufficient cause or just excuse to be rejected, (d) it was difficult to see how KPMG's reputation would be adversely affected by being compelled to give evidence to the inquiry, (e) the inquiry was of national importance, and (f) the Commissioner needed to be able to carry out his tasks in a full and effective way. There was a clear balance in favour of disclosure  [*16]  by KPMG and accordingly its application should be dismissed.

Ganin v New South Wales Crime Commission (1993) 32 NSWLR 423 referred to.

4. Per Cooke P, Richardson, Henry and Thomas JJ (McKay J dissenting). The plaintiffs were not entitled to refuse to give evidence on the ground of the privilege against self-incrimination since the privilege did not include conduct made criminal by foreign law or (per Richardson, Henry and Thomas JJ) where the act of testifying constituted a crime. Accordingly, there was no ground for refusing to testify under the privilege against self-incrimination due to the risk of prosecution in the Cook Islands.

Rio Tinto Zinc Corp v Westinghouse Electric Corp [1978] AC 547 and F F Seeley Nominees Pty Ltd v El Ar Initiations (UK) Ltd(1990) 96 ALR 468 referred to. United States v Field 532 F 2d 404 (1976) adopted. United States v McRae (1867) LR 3 Ch App 79 not followed.

Observation

(per Henry J) The right to freedom of movement to enter and leave New Zealand under s 18 of the New Zealand Bill of Rights Act 1990 did not guarantee the right to enter the Cook Islands.

CASES-REF-TO:

Cases referred to in judgments

Adsteam Building Industries Pty Ltd [*17] v Queensland Cement and Lime Co Ltd [1984] 2 Qd R 127

Adsteam Building Industries Pty Ltd v Queensland Cement and Lime Co Ltd (No 4) [1985] 1 Qd R 127 (SC, Qd)

Air India v Wiggins [[1980] 1 WLR 815,] [1980] 2 All ER 593

Arab Monetary Fund v Hashim [1989] 3 All ER 466

Attorney-General v Equiticorp Industries Group Ltd (CA188/95, 11 December 1995

Attorney-General for the United Kingdom v Wellington Newspapers Ltd [1988] 1 NZLR 129

Blunt v Park Lane Hotel Ltd [1942] 2 KB 253

Busby v Thorn EMI Video Programmes Ltd [1984] 1 NZLR 461

Commissioner of Inland Revenue v Europa Oil (NZ) Ltd [1971] NZLR 641

Cristina, The [1938] AC 485

Duff Development Co Ltd v Government of Kelantan [1924] AC 797

East India Co v Campbell (1749) 1 Ves Sen 246

Euro-Diam Ltd v Bathhurst [1990] 1 QB 1, 39

European Pacific Banking Corp v Television New Zealand Ltd [1994] 3 NZLR 43

Fay Richwhite [amp] Co Ltd v Davison [1995] 1 NZLR 517

Federal Commissioner of Taxation v Spotless Services Ltd (1995) 95 ATC 4,775)

F F Seeley Nominees Pty Ltd v El Ar Initiations (UK) Ltd (1990) 96 ALR 468

Ganin v New South Wales Crime Commission (1993) 32 NSWLR 423

George W Cook (US) [*18] v United Mexican States UN Rep Vol IV 593 (1930)

Government of India v Taylor [1955] AC 491, 511

Governor of Pitcairn and Associated Islands v Sutton [1995] 1 NZLR 426

Hale v Henkel 201 US 43 (1906)

Hammond v The Commonwealth (1982) 152 CLR 188

Jackson v Gamble [1983] VR 552 (SC, Vic)

King of the Two Sicilies v Willcox (1851) 1 Sim (NS) 301; 61 ER 116

Kuwait Airways Corporation v Iraqi Airways Company [1995] 3 All ER 694; [[1995]]1 WLR 1147

Letelier v Republic of Chile 488 F Supp 665 ([D.D.C.] 1980)

Moore v Mitchell 30 F 2d 600 (1929)

Murphy v Waterfront Commission of New York Harbor 378 US 52 (1964)

O'Neill v New Zealand National Creditmen's Association (Wellington) Ltd [1933] NZLR 144

Olsen v Mexico 729 F 2d 641 (1984)

Playa Larga (Owners of cargo lately laden on board) v I Congreso del Partido (Owners) [1983] 1 AC 244

Practical Concepts Inc v Republic of Bolivia 613 F Supp 863 [(D.C. D.C. 1985)], 615 F Supp 92 ([D.C. D.C.] 1985)

Pye Ltd v B[.]G[.] Transport Service Ltd [1966] 2 Lloyd's Rep 300

Pyneboard Proprietary Ltd v Trade Practices Commission (1983) 152 CLR 328

R v B (High Court, Dunedin T16/91, 18 February 1992, Williamson J)

R v Burney [1958] NZLR 745  [*19]

R v Garbett (1847) 1 Den 236; 169 ER 227

R v Howse [1983] NZLR 246

R v Moke (CA398/95; 399/95, 15 December 1995)

Rahimtoola v Nizam of Hyderabad [1958] AC 379

Rank Film Distributors Ltd v Video Information Centre [1982] AC 380

Re Atherton [1912] 2 KB 251

Re Emery's Investment Trusts [1959] Ch 410

Re H [1971] NZLR 982

Re Rees [1986] 1 AC 937

Re Schmidt [1995] 1 AC 339

Redfern v Redfern [1891] P 139

Reference re Exemption of US Forces from Canadian Criminal Law [[1943] S.C.R. 483,] [1943] 4 DLR 11

Reggazoni v K C Sethia (1944) Ltd [1958] AC 301

Rio Tinto Zinc Corp v Westinghouse Electric Corp [1978] AC 547

Schooner Exchange v McFaddon (1812) 7 Cranch 116

Societe Nationale Industrielle Aerospatiale v United States District Court (1988) 37 Am ULR 827

Sorby v Commonwealth of Australia (1983) 57 ALJR 248

Spencer v The Queen (1983) 145 DLR (3d) 344

Spencer v The Queen [1985] 2 CTC 310; [[1985]] 2 SCR 278

Taranaki Co-operative Dairy Co Ltd v Rowe [1970] NZLR 895

Tournier v National Provincial and Union Bank of England [1924] 1 KB 461

Trendtex Trading Corp v Central Bank of Nigeria [1977] 2 WLR 356

United States of America and Republic [*20] of France v Dollfus Mieg et Cie SA and Bank of England [1952] AC 582

United States of America v McRae (1867) LR 3 Ch App 79

United States v Bank of Nova Scotia 691 F 2d 1384 (11th Cir 1982); 740 F 2d 817 ([11th Cir.] 1984)

United States v Field 532 F 2nd 404 (5th Cir, 1976)

United States v First National Bank of Chicago 699 F 2d 341 (7th Cir 1983)

United States v Frank 494 F 2d 145 (1974)

United States v Murdock 284 US 141 (1931)

United States v (Under Seal) 794 F 2d 920 (4th Cir, 1986), cert denied 479 US 924 1986

Wiest v Director of Public Prosecutions (1988) 86 ALR 464

INTRODUCTION:

Appeal

This was an application for judicial review of decisions of a Commission of Inquiry requiring the production of documents and the giving of evidence. The proceedings were removed by consent to the Court of Appeal.

COUNSEL: G P Barton QC and D B Collins for the Controller and Auditor-General

D A R Williams QC , B D Gustafson and Fiona Guy for KPMG Peat Marwick, J A Dawson, R J Florence and K R Rushbrook

R J Craddock QC and Cecily M Brick for G D Barry and D R Lilly

R B Stewart for P J Brannigan and A J McCullagh

B P Henry andRachel G Downs-Honey for  [*21]  the Hon Winston Peters

W G G A Young QC , R S Chambers QC and J R Eichelbaum for the Commissioner of Inquiry (the Rt Hon Sir Ronald Keith Davison)

JUDGMENT-READ: Controller and Auditor-General v DavisonKPMG Peat Marwick v DavisonBrannigan v Davison

PANEL: Cooke P, Richardson, McKay, Henry, and Thomas JJ

JUDGMENTBY-1: COOKE P.RICHARDSON J.MCKAY J.HENRY J.THOMAS J.RICHARDSON J.MCKAY J.HENRY J.THOMAS J.RICHARDSON J.McKAY J.HENRY J.THOMAS J.

JUDGMENT-1:

These three cases relating to the Winebox Inquiry were heard on various dates in October, November and December 1995, and on or about 13 December counsel for KPMG Peat Marwick ("Peats") supplied the Court, as had been requested, with a compilation of materials concerning tax havens. We are grateful for this help. There has now been sufficient opportunity to consider and reflect upon those materials, together with the written submissions of counsel, so the Court is in a position to give judgment.

Although the oral arguments and the written matter placed before the Court have been very extensive, no stone being left unturned by the assiduity of counsel, I think that the cases can be disposed of on a broad and relatively  [*22]  simple ground, namely the New Zealand public interest. In my opinion it dictates the decisions in all three of the present cases. As there is this common theme, I have found it convenient to deal with the three cases in one judgment, to be delivered in each. This does not inhibit the other members of the Court from delivering separate judgments in one or more of the cases, and I have had the advantage of seeing individual drafts prepared by some of my brothers.

This is the third occasion on which winebox cases have come before this Court. The general facts are prominently in the public domain and have been described in previous judgments. There is no need to give here more than a brief outline. Certain documents belonging to the European Pacific group of companies were allegedly stolen by an employee. They came into the possession of the Hon Winston Peters MP, who by leave tabled them in the House of Representatives. They were in a winebox. He and others alleged that they implicated various well-known New Zealand companies in the evasion of New Zealand income tax by the use of the Cook Islands tax haven; and that the New Zealand Commissioner of Inland Revenue and the Director of the  [*23]  Serious Fraud Office had been incompetent in failing to detect and take action against the abuses. Mr Peters went as far as to assert criminal conspiracy on the part of those officials.

Ultimately, by Order in Council under the Commissions of Inquiry Act 1908, a Commission was constituted to inquire into whether the Inland Revenue Department and the Serious Fraud Office in dealing with the winebox transactions had acted in a lawful, proper and competent manner; and whether, having regard to those kinds of transactions, any change to criminal or tax law should be made to protect New Zealand's tax base from the effects of fraud, evasion and avoidance. The Rt Hon Sir Ronald Davison, retired Chief Justice, was appointed sole Commissioner of Inquiry.

There has been a history of attempts by some of the companies allegedly implicated to minimise publicity about their winebox-related transactions and to prevent the Commissioner of Inquiry from obtaining information from them. The first case to come before this Court was European Pacific Banking Corporation v Television New Zealand Ltd [1994] 3 NZLR 43. The plaintiff company was seeking to prevent documents for which it claimed confidentiality  [*24]  from being used for a television programme. The Court held that the defendants had a seriously arguable defence of iniquity, on the principle that the law will not protect confidential information if the publication complained of is shown to be in the overriding public interest. On that ground various High Court pre-trial orders concerning interrogatories, discovery and particulars were affirmed.

The second case was Fay Richwhite [amp] Co Ltd v Davison [1995] 1 NZLR 517. Certain companies sought unsuccessfully to prevent the Commissioner of Inquiry from hearing evidence in public. The Court held that he was entitled to conclude that public and personal interests (such as the public perception of the integrity of the Inquiry, the nature of the public offices held by two of the parties, and the impracticality of a closed inquiry) outweighed the interest of taxpayer confidentiality.

I think that the approach taken by the Court in those two cases should be maintained in the present series of cases. Each is a judicial review proceeding removed into this Court by an order made in the High Court. They arise because objections have been raised to the use by the Commissioner of Inquiry  [*25]  of his powers under the 1908 Act, ss 4C and 4D, to require the production of documents and the giving of evidence. During the early stages of the Inquiry, when the only clear sanction was statutory provision for a fine not exceeding $1000 on summary conviction, the Commissioner lacked adequate power to enforce his requirements. That was remedied by Parliament by the Commissions of Inquiry Amendment Act 1995, which received the royal assent on 29 July 1995. The Amendment Act introduced into the principal Act provisions, ss 13A and 13B, empowering a Commissioner who is a Judge or former Judge of the High Court to impose sanctions, including detention in custody for periods of seven days, on a witness who 'without offering any just excuse' refuses to answer questions or produce documents. Power is further conferred to impose imprisonment for up to three months for contempt of the Commission. By s 13C there is the safeguard of rights of appeal to the Court of Appeal.

Although the new provisions apply to future Commissions as well (see s 4 of the Amendment Act), their immediate purpose was undoubtedly to give the Winebox Commissioner the powers that he had found to be needed. Introduced  [*26]  by the Government, the Amendment Bill was accorded urgency, supported on all sides of the House of Representatives, and can be taken as representing the virtually unanimous wishes of Members of Parliament. It was common knowledge that the Inquiry centred on the Cook Islandstax haven — and also that the difficulties encountered by Sir Ronald Davison stemmed partly from claims that the secrecy with which Cook Islands legislation clothed the tax haven required witnesses to refrain from helping him with information. In my view it would subvert the intention of the New Zealand Parliament if the New Zealand Courts were to hold that, despite the apparently strengthening Amendment Act, the Commissioner's Inquiry into these tax matters could be frustrated by invoking the doctrine of sovereign immunity, or by resort to the 'immunities' of witnesses preserved by s 6 of the Commissions of Inquiry Act or to the provision for 'any just excuse' in the new s 13A(l)(b). Any such decision would be contrary to the true intent, meaning and spirit of the legislation, which the New Zealand Courts are enjoined to apply by s 5(j) of the Acts Interpretation Act 1924, and could only be justified for reasons  [*27]  of transparent clarity and cogency. But in truth no such reasons exist.

Tax havens are a relatively new international development. They may serve legitimate purposes, such as attracting investment by offering low or negligible rates of tax, opportunities to harbour profits, or freedom from exchange and other controls. But material provided for us by Mr Williams, such as International Tax Avoidance and Evasion, Four Related Studies published in 1987 by the Organisation for Economic Co-operation and Development, shows disquiet in developed countries about the use of havens for international tax avoidance and evasion (terms which cannot, it seems to me, be sharply distinguished). The following passage fromThe Taxation of Controlled Foreign Corporations: an International Comparison by Brian J Arnold, published by the Canadian Tax Foundation in the same year, pp 117-8, invites a rueful reflection:

Second, and undoubtedly most important, tax havens are used to avoid, defer or reduce tax. The ways in which tax havens can be used to avoid tax are virtually limitless. Some of the more common uses of tax haven corporations and trusts are discussed below. It must be emphasised that  [*28]  the use of tax haven corporations and trusts in these circumstances is assumed to be legal. In other words, the success of the tax haven operation is not dependent on the inability of the tax authorities of the taxpayer's home country to discover the true facts.

Third, tax havens are often used to evade tax. Tax evasion through the use of tax havens is clearly illegal and must be contrasted with the use of tax havens for tax avoidance purposes, which is clearly legal. Although the distinction between tax avoidance and tax evasion is a controversial one, it is sufficient for this purpose to note that tax evasion usually involves fraud, deceit, and the concealment or nondisclosure of the true facts. According to various US government studies, the illegal use of tax havens by US taxpayers is increasing significantly. Most of the increase is apparently attributable to organised crime and the illegal drug trade. As indicated at the outset, the illegal use of tax havens is beyond the scope of this book.

Faced with a serious issue of illegality or iniquity, a Court cannot fall back on a bland answer that this sort of thing is beyond its scope. A large part of the very raison d'etre of a tax  [*29]  haven may be to enrich the haven country at the expense of other countries. A warning seems appropriate that older doctrines such as sovereign immunity, privilege against self-incrimination and the like, will not necessarily be apt when dealing with this sophisticated modern phenomenon. The public policy or interest of the country of the forum may properly require a different approach and in my view does so in this instance.

Such a public policy-based approach is analogous to that applied by this Court in the Spycatcher case Attorney-General for the United Kingdom v Wellington Newspapers Ltd [1988] 1 NZLR 129, where it was held inter alia that, although the New Zealand Courts would normally be ready to lend their aid to enforcing duties of confidence owed to the British Government by its employees, the public interest of New Zealand justified publication in that particular instance. It is not a one-sided approach. As Cheshire and North's Private International Law , 12th ed (1992) 117 states, "[hellip] on the ground that public policy demands the maintenance of harmonious relations with other nations the courts will not countenance any transaction, such as a fraudulent tax  [*30]  evasion scheme, which is knowingly designed to violate a revenue law of a foreign and friendly State'. The immediate supporting authorities cited are Re Emery's Investment Trusts [1959] Ch 410; Pye Ltd v BG Transport Service Ltd [l966] 2 Lloyd's Rep 300, 308-9; andEuro-Diam Ltd v Bathhurst [1990] 1 QB 1, 39-40. As Kerr LJ pointed out in the passage just cited, one need not go beyond the House of Lords case of Reggazoni v K C Sethia (1944) Ltd [1958] AC 501 for authority that, while local courts do not enforce foreign revenue or penal laws, it is contrary to comity and public policy to assist in their breach. There is no reason why New Zealand law should not embrace the same principle.

It is against that background and with that approach that I turn more specifically to the particular objections raised in the instant cases.

The question of sovereign immunity

At all material times until 12 August 1991 the Controller and Auditor-General of New Zealand, in effect the Audit Office, was also, pursuant to article 71 of the Constitution of the Cook Islands, the auditor of the Cook Islands Government Account and the accounts of all departments and offices of the Executive  [*31]  Government. For the financial years ending 31 March 1989 and 1990 and a 15-month period ending 30 June 1991, the Audit Office delegated its Cook Islands functions to Peats. An Act of the Cook Islands Legislative Assembly, the Cook Islands Government Property Corporation Act 1969, constitutes that Corporation, consisting of members of the Cook Islands Cabinet, to hold Cook Islands government property of all kinds, with the widest powers of management; including by s 4(3) power to sell, exchange, convey, transfer, assign, lease, dispose of, turn to account or otherwise deal with any property vested in the Corporation. By s 8 the Corporation is declared to be an instrument of the Executive Government of the Cook Islands. It is clear however, that the Act is abundantly wide enough to authorise the Corporation to enter into commercial dealings.

The Controller and Auditor-General, supported by Peats and by correspondence from the Prime Minister of the Cook Islandshimself, seeks a declaration that the Winebox Commission has no lawful authority to order the Audit Office or Peats to produce to the Commission information or documents that have come into their possession in the exercise of  [*32]  their functions as Government Auditor of the Cook Islands under article 71 of the Constitution; and the quashing of certain notices and an order of the Commission. The ground relied on is that the New Zealand Courts are obliged to ensure that there is no encroachment on the constitutional integrity of a foreign sovereign state. It is recognised that commercial transactions of a private law character are an exception to this principle, but the contention is that this exception does not apply.

To dispose of the two preliminary matters it should be mentioned (i) that although the Queen in right of New Zealand is the Head of State of the Cook Islands, the Court was invited to and does approach this issue on the basis that the Cook Islands is a fully sovereign independent state and that the special relationship between the Cook Islands and New Zealand does not affect this issue; (ii) that the Commissioner has come to accept that it is impracticable to require the production of documents that are not held by the Audit Office or Peats in New Zealand. I will assume that all the documents held here are or may be the property of the Cook IslandsGovernment, although in fact some of the Peats  [*33]  documents may not be in that category.

Sovereign immunity is of course accepted by the New Zealand Courts. The doctrine was recently applied by this Court in Governor of Pitcairn v Sutton [1995] 1 NZLR 426. The two leading expositions of the doctrine and the commercial exception to it evolved in recent times are the speech of Lord Wilberforce in Playa Larga (Owners of cargo lately laden on board) v I Congreso del Partido (Owners) [1983] 1 AC 2434 [sic, should be 244] and the speech of Lord Goff of Chieveley in Kuwait Airways Corp v Iraqi Airways Co [1995] 3 All ER 694. In the latter case at 704-5 Lord Goff refers to the distinction between acta jure imperii and acta jure gestionis and adopts the following passages from Lord Wilberforce:

The conclusion which emerges is that in considering, under the 'restrictive' theory, whether state immunity should be granted or not, the court must consider the whole context in which the claim against the state is made, with a view to deciding whether the relevant act(s) on which the claim is based, should, in that context, be considered as fairly within an area of activity, trading or commercial or otherwise of a private law character, in which the state  [*34]  has chosen to engage or whether the relevant act(s) should be considered as having been done outside that area and within the sphere of governmental or sovereign activity.

[hellip] is not just that the purpose or motive of the act is to serve the purposes of the state, but that the act is of its own character a governmental act, as opposed to an act which any private citizen can perform.

The facts of those two cases, however, were remote from the present case. In particular, as noted by this Court in European Pacific Banking Corporation v Television New Zealand Ltd [1994] 3 NZLR 43, 46, the winebox documents evidence methods of business involving dealings in promissory notes. In the Magnum transaction, for instance, one member of the European Pacific group paid on behalf of another member $881,582 for tax. Contemporaneously another member issued and sold to the Cook Islands Property Corporation a promissory note (for $10,000,000 and interest) for the consideration of $10,881,582. Contemporaneously a fourth member of the group bought the same note from the latter Corporation for $10,050,000. The Cook Islands Government issued a tax credit for $881,582, which was apparently utilised  [*35]  against New Zealand income tax. All this was prearranged. In the result all the tax was in substance repaid but the Corporation made on behalf of the Cook Islands Government a profit of $50,000. The arrangements were evidently not disclosed to the New Zealand Commissioner of Inland Revenue.

In an affidavit sworn on 26 October 1995 Sir Ronald Davison speaks of having evidence of a series of transactions apparently using the same or a similar promissory note structure and called the Japanese Investment Fund (or JIF) transactions, and of a payment to the Cook Islands Government Public Account in Wellington in connection with one of those transactions. He also refers to evidence that European Pacific, Euro-National and the Cook Islands Government may have negotiated an agreement whereby the two groups or members thereof may have obtained exclusive rights from the Cook Islands Government to utilise tax credit arrangements. Such arrangements would enable the companies to attract investments from clients. The affidavit mentions figures of profits apparently obtained by New Zealand companies from such transactions, and an attempt by European Pacific to dissuade the Cook IslandsGovernment  [*36]  from a bond issue on the perhaps cynical ground that it would be seen as a fraud on the Australian tax revenue.

Seen in isolation, the issuing of a tax credit is an act which could only be performed by a state. At least on the surface, it would by itself attract sovereign immunity. But the affidavit of the Commissioner of Inquiry and the evidence already before him show prima facie that the Cook Islands Government Property Corporation, in the buying and selling of promissory notes, was integrally involved in the tax credit transactions. Dealing in promissory notes is an activity which any private citizen can perform. As a whole the transactions may be called the sale of tax credits, but, if that description is too loose, it is at least clear that there is apparently strong evidence of ostensibly commercial sale-and-purchase contracts as a key component of the arrangements. I Congreso andKuwait Airways and the other authorities cited to us do not deal with mixed-up transactions of this kind. I have no doubt that the winebox papers and the other evidence already received by the Commissioner provide substantial evidence that the Cook Islands Government and its instrumentalities  [*37]  were engaged to a major extent in such mixed-up activities. Clearly they fall within the Commission's terms of reference. Their commercial aspect is so significant that one can have no doubt that the doctrine of sovereign immunity must be excluded in relation to the whole Inquiry. A government which descends to this extent into the market place cannot fairly expect total immunity. Its auditors and financial advisers can be in no better position.

It may be that in ordinary court proceedings in New Zealand there would be, apart from the doctrine of sovereign immunity, a judicial discretion to allow a witness to refuse to answer a particular question because of its tendency to undermine the legislation of a friendly foreign government. On balance in all the circumstances of a particular case a judge might be able to find that the witness had sufficient cause for refusing. The refusal might not be 'without offering just excuse' within the meaning of s 352(1) of the Crimes Act 1961: compare R v Burgess, Rulings 2 and 3, High Court, Dunedin, 18 and 19 February 1992, Williamson J. That case related to the very different subject of sexual abuse, but in the second of these characteristically  [*38]  perceptive rulings Williamson J accepted that 'just' encompasses 'what is right, what is fitting, what is fair, what is well founded'. There is also a statutory discretion under s 35 of the Evidence Amendment Act (No 2) 1980 to excuse a witness from answering questions or producing documents, on the ground of breach of confidence: see R v Howse [1983] NZLR 246, 251. Moreover, in this country we tend to accord to trial judges a degree of control over the evidence that they will receive or require wider than has been seen to be appropriate in some English cases. But it is unnecessary to diverge into those areas. Certainly, I think, the Commissioner of Inquiry could, in his discretion, accept a refusal as offered with 'just excuse', within the meaning of the new s 13A(l)(b). But it is manifest that the Commissioner is not minded in that direction, and in my opinion rightly so. One of his main functions under the Order in Council is to conduct a thorough investigation of a possible undermining of New Zealand's tax base. He cannot be bound to exercise his discretion in a way which would tend to frustrate the Inquiry with which he is charged.

Having had the advantage of reading in draft  [*39]  the judgment of Richardson J, with much of which (particularly the concluding part) I am in sympathy, I add some brief comments on what my brother calls the iniquity factor. In the present era of civilisation and international law I should think that a Court would be going too far if it were to allow a general exception of iniquity to the doctrine of sovereign immunity. The invasion of Kuwait was treated as iniquitous by the United Nations and no doubt was so regarded by many countries, yet in the Kuwait Airways case the House of Lords held unanimously that the seizure of Kuwait civil aircraft was protected by sovereign immunity. On the other hand, as noted in the American Law Institute's Restatement of the Foreign Relations Law of the United States (1986) vol. 1, s 461c, 'In principle, a foreign state is responsible for violations of domestic law by terrorist acts committed by its agents'. The assassination case of Letelier v Republic of Chile 488 F Supp 665 (DDC 1980) is one of the supporting authorities cited.

One can speculate that the law may gradually but steadily develop, perhaps first excepting from sovereign immunity atrocities or the use of weapons of mass destruction,  [*40]  perhaps ultimately going on to except acts of war not authorised by the United Nations. But this is to peer optimistically into the future far beyond the bounds of anything falling to be decided in the present judicial review proceedings. The maxim festina lente is in point, and while founding on public interest I prefer to confine the reasoning in this judgment to issues of tax avoidance or evasion under investigation by a national commission of inquiry.

The question of incrimination of witnesses

The plaintiffs in the second judicial review proceeding now before the Court are the New Zealand chartered accountancy partnership Peats and three members of the firm who practise in New Zealand but from time to time work elsewhere, as in the Cook Islands. The plaintiffs in the third judicial review proceeding are four former employees of the European Pacific group of companies. The group was or is based in the Cook Islands. The plaintiff Barry has continued to do contract work for the group, taking him to the Cook Islands from time to time. The plaintiffs Brannigan and McCullagh practise as chartered accountants in a New Zealand partnership. The practice of their partnership includes  [*41]  considerable Cook Islands work, necessitating frequent visits there. They have now become auditors to the Cook Islands Government. The plaintiff Lilly is currently employed by another group of companies and does not have a continuing business connection with the Cook Islands. All the plaintiffs are citizens and residents of New Zealand. They object to answering questions or supplying documents as required by the Commissioner of Inquiry, on the ground that this would tend to expose them to criminal proceedings in the Cook Islands.

In one respect, while not at all doubting his ultimate conclusion, I very much doubt an opinion expressed by the Commissioner of Inquiry in the course of a comprehensive ruling by him on 27 September 1995. Contrary to his view, the relevant Cook Islandslegislation designed to ensure the secrecy of the tax haven appears to me to be almost certainly intended to have extra-territorial operation. Under s 227(3) of the International Companies Act 1981-82, any person or entity who, with respect to an international company or a foreign company registered under the Act and whether in New Zealand or elsewhere, divulges information etc. is guilty of an offence. There  [*42]  are enacted exceptions, including one relating to transactions in prohibited narcotic substances, but, despite some inelegance in the wording of s 227(8), the tenor and terminology of the section as a whole point to an intention to exclude the presumption against extra-territoriality. I will assume that the true interpretation of the section is that it does have extra-territorial effect.

Similarly, certain injunctions obtained by European Pacific in the High Court of the Cook Islands may be assumed to have been intended to have extra-territorial effect so far as that is within the competence of the Cook Islands Court. The injunctions, an interim one on 3 May 1995 and a permanent one on 29 August 1995, were against KPMG Peat Marwick, sued as a company registered in the Cook Islands, and three individual partners or employees of the company, two of whom are also plaintiffs in the second judicial review proceeding now before this Court. KPMG Peat Marwick had performed accountancy and auditing functions for European Pacific as well as for the Government; it seems evident that this international firm, with local branches or personifications, must have considerable knowledge relating to  [*43]  winebox transactions. The injunctions were based on s 227 of the International Companies Act and are couched in wide terms enjoining disclosures contrary to Cook Islands law. It should be accepted that Sir Peter Quilliam, Chief Justice of the Cook Islands, intended them to have the widest reach consistent with the law of that country. In his judgment of 29 August 1995 he emphasised that the duty of his Court is 'to interpret and apply the law of the Cook Islands and not to consider whether that law is somehow to be regarded as subordinate to the laws of New Zealand or of any other country'. That approach by Quilliam CJ, recognising his primary loyalty as Chief Justice to Cook Islands law, is entirely understandable. It cannot of course determine the effect of his injunction in New Zealand.

It is to be noted, moreover, that Quilliam CJ himself in his judgment hinted, without going any way towards deciding, that in the event of prosecution in the Cook Islands of defendants resident in New Zealand, the defence of foreign state compulsion is likely to be available. I, too, accept that likelihood. So did Sir Ronald Davison in his ruling, applying the rules set out in the AmericanRestatement [*44]  volume already cited, s 441. The same defence of foreign state compulsion seems likely to be available to proceedings in the Cook Islands to enforce the injunction.

The spectre of extradition was raised before us, albeit without detailed argument. If any attempt were made to extradite New Zealand citizens and residents to the Cook Islands to face charges there, arising from evidence given by them under compulsion in New Zealand to the Commission of Inquiry, this Court would be most unlikely to countenance it. Assuming that all the statutory conditions of extradition are satisfied, there may remain in exceptional cases a residual jurisdiction to grant relief on the ground of abuse of process: In Re Rees [1986] 1 AC 937, 962, per Lord Mackay of Clashfern; Wiest v Director of Public Prosecutions (1988) 86 ALR 464, 469, per Burchett J. In Re Schmidt [1995] 1 AC 339 is not necessarily to the contrary. The House of Lords in that case were not called upon to consider any question of an overriding United Kingdom public interest. The New Zealand public interest which I have been stressing could justify the exercise of such jurisdiction. However that may be, there is a shorter answer  [*45]  to this point. Sections 340 to 347 of the Cook Islands Act 1915 of the New Zealand Parliament, as amended, provide a simplified procedure for extradition from New Zealand to the Cook Islands. Section 343 is important:

343. Refusal of order in case of hardship A Magistrate may refuse to make any such order if, having regard to the nature of the charge made against such person or to the circumstances of the case, the Magistrate is of opinion that the return of such person to theCook Islands would be the cause of undue hardship or would otherwise be unjustifiable or inexpedient.

The statutory discretion conferred by the phrases 'the circumstances of the case', 'undue hardship' and 'otherwise unjustifiable or inexpedient' is very wide (compare Re H [1971] NZLR 982 and the authorities there collected). In the circumstances of evidence under New Zealand compulsion a District Court Judge would act properly in refusing an order.

But the foregoing considerations do not altogether eliminate the concern expressed by the plaintiffs in the second and third judicial review proceedings now before us. For a practical risk of prosecution, even if not necessarily conviction, may still  [*46]  remain. Possibly the course of events may be governed for a time more by political attitudes than by the principles of private international law.

A point to be borne in mind is that the plaintiffs are not claiming that the testimony or documents required from them by the Commissioner of Inquiry will disclose past breaches by them of Cook Islands law. Rather, their claim is that by answering questions or providing documents they will place or tend to place themselves at risk under Cook Islands law. Therefore the question becomes whether that risk provides ground under the Commissions of Inquiry Act of the New Zealand Parliament by reason of which the Commission is bound to allow them to refuse disclosure.

Again I think, as did Sir Ronald Davison, that New Zealand public policy demands a negative answer to that question. Arguably it might be otherwise if there were a settled rule that the ordinary privilege of a witness in court proceedings against self-incrimination extended to conduct made criminal by foreign law. But there is no such settled rule, as noted by Lord Diplock in Rio Tinto Zinc Corporation v Westinghouse Electric Corporation [1978] AC 547, 636. The subject is discussed  [*47]  and authorities reviewed by Zelling J in F F Seeley Nominees Pty Ltd v El Ar Initiations (UK) Ltd (1990) 96 ALR 468, 471-3, where it is pointed out inter alia that the powerful opinion of Wigmore (Vol 8 McNaughton Revision, s 2258) is categorically against such an extension of the privilege. There is no need to rake over the ground again. The judgment of Lord Chelmsford LC, sitting alone, in United States v McRae (1867) 3 LR Ch App 79 is to the contrary, but in the light of other English cases is uniformly treated in the textbooks as not having settled the law of England. To treat it now as settling the law of New Zealand would be a good deal less than obligatory, especially after Lord Diplock's observations. The South Australian Judge in Seeley doubted very much whether the privilege does exist in relation to incrimination under foreign law. I respectfully share that doubt, and to such an extent that I think the time has come to settle the point for New Zealand law by holding unequivocally that the privilege or immunity does not extend so far.

That would mean that the privileges and immunities imported by s 6 of the Commissions of Inquiry Act 1908 may be put on one side.  [*48]  But the provisions of s 9(1) as to 'without sufficient cause' and of s 13A(l)(b) as to 'without offering any just excuse', apply and give the Commission a discretion to be exercised in the light of all the circumstances. I agree with Kirby P, who in Ganin v New South Wales Crime Commission (1993) 32 NSWLR 423, 439, speaking of the similar statutory expression 'without reasonable excuse' said that it was undesirable that different formulae be substituted for that which Parliament has enacted. I would also take the approach stated by the President in the same judgment at 439-40:

[hellip] the Commission, as a body constituted to perform investigatory functions, is likely to have more knowledge of the reasonableness or otherwise of the appellants' now submitted excuses than this Court could muster from its own experience. Where parliament establishes a specialised body, such as the Commission, it is appropriate for this Court to accord great weight to the decision of the Commission, given the knowledge and experience available to it [hellip]

On that approach, questions such as the likely ambit of the knowledge of witnesses, the degree of help likely to be obtained from their evidence,  [*49]  and the possibility of reasonably obtaining the required information from other sources, are best left to the assessment of the Commissioner of Inquiry. He has made it plain that the evidence which he is seeking from the plaintiffs may be important to him. He is in a much better position than the Court to make that judgment.

Perhaps the Commissioner went a little too far at one point in his ruling of 27 September 1995 in describing the provisions of theCook Islands legislation relating to secrecy as 'completely irrelevant'. But later in the ruling he expressed the belief that '[hellip] the justification for compelling the witnesses to give evidence in New Zealand is so strong that no balancing of considerations under the foreign state compulsion principle could possibly lead to the witnesses being allowed to refuse to give evidence'. As I see it, in all the circumstances of this Inquiry that conclusion is unassailable.

It is a conclusion well supported by prior authority. A few examples will be enough. Probably the closest of all the cases cited to us isSpencer v The Queen [1985] 2 CTC 310, where the Supreme Court of Canada disposed briefly of a contention that the appellant,  [*50]  a resident and citizen of Canada who had been the manager of a Canadian bank in the Bahamas, could not be compelled to testify for the Crown in a prosecution under the Income Tax Act against a client of the bank. The appellant contended that to do so would make him liable to prosecution under a Bahamian statute, but in the course of delivering the principal judgment, concurred in by seven other Judges, La Forest J said:

To allow Mr Spencer to refuse to give evidence in the circumstances of this case would permit a foreign country to frustrate the administration of justice in this country in respect of a Canadian citizen in relation to what is essentially a domestic situation. Indeed such an approach could have serious repercussions in the operation of Canadian law generally.

La Forest J treated it as immaterial to consider whether or not the Bahamian statute had extra-territorial effect. The Canadian public interest was seen as the overriding factor. In argument before us an attempt was made to distinguish that case on the ground that the principal judgment mentioned that only if the appellant decided to go to the Bahamas would he be in jeopardy of prosecution. The point made to us  [*51]  by counsel was that a number of the plaintiffs carry on professional or business activities in the Cook Islands. The short answer must be, however, that if a New Zealand citizen and resident elects to carry on practice or business partly abroad, he cannot thereby emancipate himself from his obligations under New Zealand law. Any dilemma stems ultimately from his own choice, and he must live with the consequences.

Of the American cases cited to us, I think the most instructive are United States v Frank 494 F 2d 145 (1974) and United States v First National Bank of Chicago 699 F 2d 341 (1983). The former, a decision of the United States Court of Appeals, Second Circuit, includes the following passage at 156-7:

[hellip] no principle of accommodation requires the United States to seal the lips of American citizens testifying to facts within their knowledge concerning activities of other Americans in a foreign country as part of a scheme to violate American criminal law, simply because that country chooses to throw a veil of secrecy around bank accounts except insofar as their courts may see fit to lift it.

The First National Bank of Chicago case, before the Seventh Circuit,  [*52]  contains a useful exposition of the balancing of competing interests approach to claims that the production of evidence to a domestic court should not be ordered because it may expose the person to criminal sanctions in a foreign country. It is said that where two states have jurisdiction each is required by international law to consider, in good faith, moderating the exercise of its enforcement jurisdiction, in the light of a list of factors derived from the Restatement. These are cited by the Commissioner in his ruling, as are most of the cases which I have cited. In theChicago case it was held that a district court had committed an abuse of discretion in making an unqualified order for production, particularly without indicating the rationale of the decision. The case was remitted to the district court for further consideration. But it is significant that in that case the critical act of initially conveying the information would take place in Greece, and it was highly probable that persons of Greek nationality would make the disclosure. Those acting in Greece would be exposed to criminal liability there (see p 345 of the report).

That situation differs from the circumstances  [*53]  of the present case. Whatever the initial intention, the Commissioner of Inquiry is not now seeking to compel any action in the Cook Islands. And I repeat my view that, in the circumstances of the New Zealand Inquiry, the Commissioner was entitled to find that no balancing of considerations could possibly justify allowing the witnesses to refuse to give the evidence that he is seeking.

McKay J has drawn attention to Murphy v Waterfront Commission of New York Harbor 378 US 52 (1964), a case concerning the United States federal system and for that reason of limited relevance. I do not see it as of assistance on the main point before us. The majority and the minority Justices differed in their opinions as to whetherMcRae (cit sup) had settled the law of England. If not, as has been thought in England itself, nothing said in the Supreme Court of the United States can settle that law. But I do think that Murphyis helpful on a secondary point. There appears to have been unanimity in the result that, while a State granting local immunity may compel testimony incriminating a witness under federal law, the Federal Government may not use such testimony or its fruits in a federal  [*54]  criminal proceeding: the State cannot grant federal immunity, but the Federal Courts as a matter of public policy decline to allow the compelled evidence to be used before them. This gives some further support to the view that testimony compelled in New Zealand cannot be used in a Cook Islands prosecution.

The plaintiffs complain of difficulty in identifying in advance, amongst a mass of papers and information, that which the Commissioner wants. I understood Mr Carruthers to indicate that a list of topics would be provided, but I am not disposed to favour any order by this Court which would circumscribe the Commissioner in his procedure, either as to advance notice of questions or as to their limitation to information not otherwise obtainable. The plaintiffs are experienced professional and business persons, surely well able by now to appreciate the kinds of information likely to be of interest to the Commissioner.

For these reasons I would simply dismiss all three applications for review. As to each application the plaintiffs should be ordered to pay the defendant Commissioner costs in the sum of $10,000, with disbursements, including the reasonable travelling and accommodation expenses  [*55]  of two counsel, to be settled by the Registrar of this Court.

Before parting with the cases I would add something. It is inspired by nothing personal, as I shall no longer be a member of this Court if and when unfortunately any further winebox cases are brought and reach here. But I hope that the Court has seen the last of these cases. As already mentioned, there has been a sequence of them, the first before and the rest after the constitution of the Commission. The difficulties with which the Commissioner was presented came to be such that the unusual step of legislation extending his powers during the course of his Inquiry was found necessary by Parliament. It can be said that the present judicial review proceedings, although unsuccessful, were justified on the ground that clarification was required. But, after all, Sir Ronald Davison is a former Chief Justice of New Zealand and hardly likely to act in any unfair, unlawful or hasty way. May he now be permitted to continue his Inquiry with full co-operation.

The Court being unanimous as to the result of the first two proceedings (those brought by the Controller and Auditor-General and Peats and three other persons), they are dismissed  [*56]  with costs as already mentioned. The third proceeding (brought by Brannigan and others) is likewise dismissed with the same costs, this being a majority decision by four of the five members of the Court.

The central question which I see in this case is whether New Zealand law may deny sovereign immunity status to documents held by the Audit Office in New Zealand as auditor of the Cook Islands accounts under the Constitution of the Cook Islands on the ground that the Cook Islands Government was arguably party to transactions designed to abuse the tax system of New Zealand.

Background to proceedings

On 12 September 1994 Sir Ronald Davison was appointed pursuant to the Commissions of Inquiry Act 1908 to be a Commission to inquire into and report on:

  (a)  Whether the Commissioner of Inland Revenue and his staff and the Director of the Serious Fraud Office and his staff acted, in the course of their official duties, in a lawful, proper, and competent manner in dealing with the transactions referred to in the Papers presented, by leave, to the House of Representatives by the member for Tauranga, the Hon Winston Peters, on 16 March 1994 (A6, Volumes 1 to 2):

  (b)  Whether, having  [*57]  regard to the kinds of transactions referred to in the papers so presented, any changes to the criminal law or the tax law should, in your opinion, be made for the purpose of protecting New Zealand's income tax base from the effects of fraud, evasion, and avoidance, and, if so, what:

The papers were presented to the House of Representatives in a winebox and the inquiry has come to be known as the winebox inquiry. Some 60 sets of transactions have been identified. They have been narrowed down into various categories. What has been described as the Magnum transaction followed a structure proposed to the Cook Islands Government by the European Pacific group of companies. The Commission is aware of at least five other transactions which followed a similar structure. The Magnum transaction was summarised by the Commission in a letter to the Prime Minister of the Cook Islands on 30 May 1995 in this way:

This transaction involves a series of steps in a number of jurisdictions. It is unnecessary to explain all those steps. The important acts occurring in the Cook Islands concern two payments of interest, one occurring on 27 July 1988, and the other on 28 July 1989.

The relevant steps occurring  [*58]  in the Cook Islands on 27 July 1988 begin by the payment of interest by one European Pacific company to another, in respect to which it is said that Cook Islands withholding tax was payable at the rate of 35% — being a sum of $881,582. Deloittes confirm that such an amount was paid into account number 70CIGPA at the European Pacific Banking Corporation (EPBC), and a receipt issued.

On the same day the Cook Islands Government Property Corporation (CIGPC) purchased a promissory note from a member of the European Pacific group for $10,881,582, and sold it to another member of the group for $10,080,000 — a loss of $831,582. $831,582 was then transferred from 70CIGPA to 70CIGPC (the account of CIGPC) at EPBC. The nature of this payment is unclear. One European Pacific document describes it as an "advance", but the money was not repaid. The economic effect of these transactions is to pay back all but $50,000 of the amount of withholding tax paid.

On 28 July 1989, the same steps are followed for the second payment of interest, except that the full amount of withholding tax is repaid — being $1,169,609.

Both the receipts or certificates evidencing the payment of withholding tax were  [*59]  presented in New Zealand by a member of the European Pacific group. This led to a reduction in the tax to be paid by that company in New Zealand of $2,051,191. Accordingly, at the end of these transactions, European Pacific are better off by $2,001,191, the Cook Islands Government is better off by $50,000 and the New Zealand Government is worse off by $2,051,191.

The prior knowledge by the Cook Islands Government of the intended substance of the arrangements may be inferred from an earlier letter from European Pacific to the Prime Minister of the Cook Islands of 14 October 1987. It began by noting that, as the Prime Minister was aware, European Pacific Banking Corporation and Euro-National Corporation Limited had developed financial arrangements to utilise foreign tax credits from transactions to be undertaken in the Cook Islands and proposed that the Government not allow any other operator to utilise a foreign tax credit arrangement without first obtaining their approval. It described the financial arrangements in this way:

A financial arrangement involving foreign tax credits includes an understanding or arrangement whereby a taxing authority derives a tax levied in the Cook Islands  [*60]  and that authority or the Government or an associated instrumentality, entity or person remits that benefit or substantially a similar benefit for the purpose of or in order to facilitate the giving effect to of, the financial arrangement.

[hellip]

The exclusive nature of the agreement between Government and EPBC and ENC would result in significant benefits in the orderly marketing of foreign tax credit arrangements associated with the Cook Islands in a proper manner, by skilled financial operators.

To put it bluntly, as discussed in the explanatory letter and as implemented in transactions including the Magnum transaction, it appears that the Cook Islands Government was, in effect, selling tax credit certificates for a fee which was only a fraction of the amount shown as withholding tax in the certificates issued. That was because of the associated cash benefits derived by an associated company in the client group dealing with the Cook Islands Government.

Not surprisingly, the Commission has been trying to gain a comprehensive understanding of this and other transactions channelled through or occurring in the Cook Islands affecting the tax revenues of other countries, particularly  [*61]  New Zealand. The Commission sought directly and through the assistance of the New Zealand Government to obtain information and support from theCook Islands Government. That was rejected. The Cook Islands Government asserted that the principles of sovereign immunity precluded any questioning of Cook Islands Government actions in this regard by the Commission.

The Commission also sought relevant information from the Audit Office. When the Cook Islands became an independent state under the constitutional arrangements contained in the Cook Island Constitution Act 1964 (which although a New Zealand statute applies to the Cook Islands only and not to New Zealand (s 2)), Article 71 of the Constitution, expressed to be the supreme law of the Cook Islands, provided for the audit of Cook Islands accounts in the following terms:

  (1)  The Audit Office of New Zealand shall be the auditor of the Cook Islands Government Account and of all other public funds or accounts, and of the accounts of all Departments and offices of executive government and of such other public, statutory, or local authorities or bodies as may be provided by law.

  (2)  The Audit Office shall, at least once annually, forward  [*62]  to the Speaker of the Legislative Assembly for presentation to the Assembly a report containing such information as is required to be submitted by any enactment, together with such other information relating to the Cook Islands Government Account or other funds or accounts which under this Constitution or under any other enactment are required to be audited by the Audit Office as that Office considers desirable.

By constitutional amendment (Constitution Amendment (No 14) Act 1991 of the Cook Islands s 4(1)) the "Audit Office of the Cook Islands" was substituted for the New Zealand Audit Office in Article 71(1). However, for most of the years with which the Commission is concerned the New Zealand Audit Office was the constitutional auditor of the Cook Islands accounts.

Section 12 of the Public Revenues Act 1953 (NZ) had established the office of Controller and Auditor-General appointable by the Governor-General in the name and on behalf of Her Majesty and removable only upon an address to the Governor-General from the House of Representatives. Under s 2 "Audit Office" meant the Controller and Auditor-General and the statute provided appropriate powers and machinery for the exercise  [*63]  of the audit functions. Section 14, on which the Commission relied in the course of the present argument, provided that the Controller and Auditor-General should not be capable of being a member of the Executive Council or of Parliament or of holding any office of trust or profit in the public or any other service than his office created by the 1953 Act.

The Deputy Controller and Auditor-General has deposed that the Audit Office provides assurance to Parliament that statements of accountability rendered by the Executive are a valid representation of the results of the activities of the Executive. That assurance is provided by auditing those statements of account and reporting the results of audits to Parliament. His evidence was that the Audit Office's role as auditor of the Government Accounts of the Cook Islands was undertaken pursuant to specific provisions in the Constitution of the Cook Islands; the Audit Office reported directly to the Parliament of the Cook Islands when auditing the Government Accounts of the Cook Islands; and the Government of the Cook Islands was invoiced directly for those audits by the Audit Office. His understanding was that the functions the Audit Office  [*64]  was required to carry out with respect to the Cook Islands Government were the same as those required of it in New Zealand in respect of the operations of the New Zealand Government.

The documents presently held by the Audit Office are (i) documents (mainly letters, memoranda, etc) created by the Audit Office; (ii) documents (letters, memoranda, minutes, etc) created by the Government of the Cook Islands; and (iii) documents created by third parties. The pleading of the Audit Office is that all such documents are the property of the Cook Islands or are held by the Audit Office by or on behalf of the Cook Islands and subject to the direction of the executive authority of the Cook Islands in accordance with the Constitution.

The Commission believes that the documents so held by the Audit Office are likely to include documents in all three categories relating to winebox transactions. Purporting to act pursuant to s 4C of the Commissions of Inquiry Act 1908, the Commission issued notices to the Audit Office and its delegate KPMG Peat Marwick on 10 May 1995 and 26 April 1995 respectively seeking production of certain documents. By order dated 8 September 1995 it directed the Audit Office  [*65]  to produce to the Commission for its inspection all documents in the possession or power of the Audit Office within the terms of the notice of 10 May 1995 so that the Commission might determine the validity of the objection made by the Audit Office to the production of the specified documents.

The proceedings

Faced with a perceived conflict between his continuing responsibilities to the Cook Islands in respect of the performance of his constitutional function during the period when the Audit Office was the constitutional auditor of the Cook Islands, and compliance with any lawful orders of the Commission, the Controller and Auditor-General instituted proceedings for judicial review. They were subsequently removed into this Court.

The Amended Statement of Claim seeks a declaration that the Commission has no lawful authority to require or to order the Audit Office or KPMG Peat Marwick to produce to the Commission information or documents that have come into the possession or control of the Audit Office or of KPMG Peat Marwick in the course of the exercise of their functions as Government Auditor of theCook Islands under Article 71 of the Constitution; and an order quashing or setting  [*66]  aside the Commission's notices of 26 April 1995 and 10 May 1995 and order of 8 September 1995. The pleading avers that:

  17.1  In accordance with the principles of international law both the New Zealand Government including Commissions of Inquiry appointed under the Commissions of Inquiry Act 1908 and the New Zealand courts are obliged to ensure that there is no encroachment on the constitutional integrity of a foreign sovereign state.

  17.2  As an exception to that principle, a foreign sovereign state is not entitled to immunity from the exercise of jurisdiction either by the Executive Government of New Zealand or by the Courts of New Zealand in respect of commercial transactions of a private law character.

  17.3  That the documents and information sought by the Commission from the Audit Office and of KPMG Peat Marwick in the exercise of their said functions are the property of the Cook Islands and held by the Audit Office and by KPMG Peat Marwick by or on behalf of the Cook Islands and subject to the direction of the executive authority of the Cook Islands in accordance with the Constitution and as such are immune, in accordance with the principles of International Law, from  [*67]  interference by any other state or by the courts and instrumentalities of any other state.

  18  That the exercise by the Audit Office or by KPMG Peat Marwick of the functions of Government Auditor under Article 71 of the Constitution lay within the sphere of the governmental or sovereign activity of the Cook Islands and, contrary to the view of the Commission, did not constitute an act of commerce or a commercial transaction or a commercial activity of a private law character.

By its Amended Statement of Defence the Commission avers that:

  (a)  in conducting the audit of the Cook Islands Public Accounts, the Audit Office was acting pursuant to duties imposed on him by New Zealand law and was not acting as part of or at the direction of the Executive Government of the Cook Islands Government;

  (b)  such documents are not held on behalf of or at the direction of the Cook Islands Government; and

  (c)  such documents include documents concerning the commercial activities of the Cook Islands Government.

The primary arguments presented to the Court

The arguments for the Audit Office and the Commission proceeded largely down different paths. The primary focus of Mr Barton's submission  [*68]  for the Audit Office was on the functions of the Government Auditor under Article 71 of the Constitution: whether they were within the sphere of the governmental or sovereign activity of the Cook Islands and thus not an act of commerce or a commercial activity of a private law character. Mr Chambers' submissions for the Commission were, in essence, first that the Audit Office was not an organ of the Cook Islands Government; and, second, that it is the character of the acts evidenced by the documents sought to be inspected which is relevant and not the character of the act of auditing, and the documents concern the commercial activities of the Cook Islands Government. It is convenient to take up Mr Chambers' arguments first, then Mr Barton's, before turning finally to consider the public policy or iniquity argument which was canvassed but not fully explored before us.

The status of the Audit Office

Mr Chambers submitted that the Controller and Auditor-General is an officer created by New Zealand law answerable to the New Zealand Parliament only and that the continued role of the Audit Office after the 1964 Act came into force was part of New Zealand's continuing involvement in  [*69]  Cook Islands affairs reflecting the special relationship of associated statehood and New Zealand's financial support of the Cook Islands. In that regard he submitted that s 14 of the Public Revenues Act 1953 precluded the Audit Office from holding any independent office. With respect, this is a hopeless submission.

It is not necessary to explore the elements of statehood in international law and, in particular, the implications of New Zealand representation of Cook Islands in foreign relations. This is because of the clear stance taken by New Zealand in this regard. It is well settled that, where the Crown recognises a foreign entity as sovereign, the Courts are bound to follow and no other evidence is admissible or needed (Duff Development Company Ltd v Government of Kelantan [1924] AC 797). Mr Chambers accepts, as has the Commission throughout, that New Zealand recognises the Cook Islands as a sovereign state. That is reflected in the terms of the letters exchanged between the Prime Minister of New Zealand of 4 May 1973 and the Premier of the Cook Islands of 9 May 1973 tabled in both Houses of Parliaments which are part of the record in the case. They record that there are no  [*70]  legal fetters of any kind upon the freedom of the Cook Islands which make their own laws and control their own Constitution. And in his judgment of 29 August 1995 in European Pacific Group Ltd v KPMG Peat Marwick the Chief Justice of the Cook Islands recorded that theCook Islands has international capacity, and the authority of the common Head of State (Her Majesty the Queen in Right of New Zealand) in external affairs and defence is, by convention, exercised on the advice of the Cook Islands ministers — as, indeed, was provided for in s 5 of the Cook Islands Constitution Act 1964 (NZ). Accordingly, the Cook Islands is entitled to jurisdictional immunity in these matters in respect of any conduct on its part which properly falls within the protection afforded the exercise of sovereign authority.

Up to 1964, while the Cook Islands were part of New Zealand, the Audit Office acted purely in its New Zealand capacity, reporting to the New Zealand Parliament. From 1964 it exercised two separate responsibilities — one as Auditor of the New Zealand accounts responsible to the Parliament of New Zealand; the other as Auditor of the Cook Islands under Article 71 of the Constitution responsible  [*71]  to the Parliament of the Cook Islands. That latter responsibility was provided for in the Cook IslandsConstitution Act 1964. It was a New Zealand statute but the obligations of the Audit Office then arose under Article 71 of the Constitution which was part of the supreme law of the Cook Islands. Not surprisingly, the Audit Office recognised those separate functions in undertaking its role as Auditor pursuant to Article 71, reporting directly to the Parliament of the Cook Islands (and not in that regard to the New Zealand Parliament or any member of the Executive in New Zealand) and billing the Government of the Cook Islands for its audit services.

Further, and referring to the second point, the documents it received or generated in its capacity as constitutional auditor of the Cook Islands were held by it in that capacity. Sovereign immunity extends to property in the hands of a bailee for a foreign sovereign (United States of America and Republic of France v Dollfus Mieg et Cie SA and Bank of England [1952] AC 582) and the unchallenged evidence from the Audit Office is that all documents which it holds in respect of its Article 71 responsibilities were acquired solely in that  [*72]  role.

Selling tax certificates a commercial activity?

Assuming for present purposes that there is an arguable case that the Cook Islands Government engaged in selling tax certificates in the manner earlier described, are the transactions involved within the exclusion from sovereign immunity of commercial activities of states?

Public policy justifications for allowing a degree of immunity for foreign states and their agencies from the jurisdiction of domestic courts derive from general principles of territorial sovereignty, the equality and independence of states, notions of comity and reciprocity and an assessment of the risk to foreign relations of excessive claims to jurisdiction. Although these considerations support the acceptance of restrictions on absolute immunity, they do not yield an obvious test for distinguishing categories of immunity and non-immunity. The common law and international law generally have tended to distinguish between commercial and governmental transactions but the well known difficulties of determining employment cases within that rubric (see Governor of Pitcairn & Associated Islands v Sutton [1995] 1 NZLR 426) suggest that the matter is of  [*73]  considerable complexity and, as noted in that case (p 433), international law has not yet developed a universally accepted set of principles governing the whole spectrum of governmental activity abroad.

Many states, including the common law countries Australia, Canada, United Kingdom, and the United States, but not New Zealand, have provided a statutory framework for dealing with sovereign immunity claims. The leading statement of the common law exclusion of commercial activities of states from the protection of sovereign immunity is in the speech of Lord Wilberforce in Playa Larga (Owners of cargo lately laden on board) v I Congreso del Partido [1983] 1 AC 244, 262, endorsed by the House of Lords inKuwait Airways Corporation v Iraqi Airways Company [1995] 1 WLR 1147:

"The relevant exception, or limitation, which has engrafted upon the principle of immunity of states, under the so called "restrictive theory", arises from the willingness of states to enter into commercial, or other private law, transactions with individuals. It appears to have two main foundations: (a) It is necessary in the interest of justice to individuals having such transactions with states to allow  [*74]  them to bring such transactions before the courts. (b) To require a state to answer a claim based upon such transactions does not involve a challenge to or inquiry into any act of sovereignty or governmental act of that state. It is, in accepted phrases, neither a threat to the dignity of that state, nor any interference with its sovereign functions.

When therefore a claim is brought against a state (I include in this expression, and shall not repeat, direct and indirect claims — cfUnited States of America and Republic of France v Dollfus Mieg et Cie SA and Bank of England [1952] AC 582) and state immunity is claimed, it is necessary to consider what is the relevant act which forms the basis of the claim: is this, under the old terminology, an act "jure gestionis" or is it an act "jure imperii": is it (to adopt the translation of these catchwords used in the "Tate letter") a "private act" or is it a "sovereign or public act", a private act meaning in this context an act of a private law character such as a private citizen might have entered into?"

Lord Wilberforce went on to observe (p 264) that the activities of states cannot always be compartmentalised into trading  [*75]  or governmental activities and a state may have clearly displayed both a commercial interest and a sovereign or governmental interest. To which is the critical action to be attributed? His conclusion (p 267) was that:

"[hellip] the Court must consider the whole context in which the claim against the state is made, with a view to deciding whether the relevant act(s) upon which the claim is based, should, in that context, be considered as fairly within an area of activity, trading or commercial, or otherwise of a private law character, in which the state has chosen to engage, or whether the relevant act(s) should be considered as having been done outside that area, and within the sphere of governmental or sovereign activity."

However, as emphasised by Lord Goff in the Kuwait Airways case at p 1157, Lord Wilberforce at p 269 and applying a passage from the judgment at first instance, stressed that:

[hellip] it is not just that the purpose or motive of the act is to serve the purposes of the state, but that the act is of its own character a governmental act, as opposed to an act which any private citizen can perform.

The question for present determination is whether the actions  [*76]  of the Cook Islands Government are to be characterised as governmental or commercial. The imposition of taxes is an exercise of sovereign power. The operation of a tax system is a quintessential example of governmental activity that should ordinarily be immune from intrusive scrutiny by the agencies of another state. In George W Cook (US) v United Mexican States UN Rep Vol IV 593 at 595 (1930) cited in O'Connell, International Law(2nd ed 1970) 715 the United States-Mexican Claims Commission held that "the right of the State to levy taxes constitutes an inherent part of its sovereignty; it is a function necessary to its very existence." The exercise of a taxing power is a governmental activity. That activity is not exercisable by private persons. The exercise of the tax function may constitute an abuse of power but that does not change the character of the power which is exercised.

It is a matter of looking at what was done in order to determine whether the questioned activity was a private act of the state or whether it involved necessary participation in a public act of the state. The transactions involved in Magnum included the derivation of interest income in the Cook  [*77]  Islands by a European Pacific company on which Cook Islands income tax was payable and was paid. The derivation of interest income in the Cook Islands and the consequential incurring under Cook Islands law of a tax liability was part of the wider arrangement from which European Pacific companies derived other benefits and the Cook Islandsauthorities incurred losses with the result that the overall advantage to the Cook Islands revenues was only a fraction of the tax collected. But whatever the motivation and whatever the overall economic result, it involved the application of the tax legislation of the Cook Islands by the Cook Islands. The issue of a tax certificate for tax stated to have been paid was an integral feature. It was a public act of the state. The issue of the receipt or certificate of payment of Cook Islands tax must in me view, be characterised as an exercise of governmental power.

As Professor Schreuer observes (State Immunity: Some Recent Developments (Grotius, 1988) 25) provisions uncharacteristic of commercial contracts can render an agreement non-commercial. He citesPractical Concepts Inc v Republic of Bolivia 613 F Supp 863 [D.D.C. 1985], 615 F Supp 92 ([D.D.C.] 1985), where  [*78]  the United States District Court found that the agreement between an American firm and Bolivia for the provision of consultancy services contained so many provisions untypical of private contracts, such as tax exemptions, immigration privileges and diplomatic immunities, that it could not be classified as commercial. Professor Schreuer goes on to suggest (at p 42) as one of the criteria for distinguishing commercial from sovereign transactions: "[hellip] Did the State use sovereign prerogative in effecting the transaction, such as granting tax exemptions, promising future preferential treatment in non-commercial contexts, or did it use purely commercial incentives?"

And in Moore v Mitchell 30 F 2d 600, 604 (1929) cited by Lord Keith of Avonholm in Government of India v Taylor [1955] AC 491, 511, Judge Learned Hand said:

To pass upon the provisions for the public order of another State is, or at any rate should be, beyond the powers of the court; it involves the relations between the States themselves, with which courts are incompetent to deal, and which are intrusted to other authorities. It may commit the domestic State to a position which would seriously embarrass its neighbour.  [*79]  Revenue laws fall within the same reasoning; they affect a State in matters as vital to its existence as its criminal laws. No court ought to undertake an inquiry which it cannot prosecute without determining whether those laws [of the other State] are consonant with its own notions of what is proper.

Those last two sentences deserve emphasis. Revenue laws and their administration are an extension of the sovereign power which imposed the taxes. Any local enquiry which involves an assessment of their operation encroaches on that sovereign power.

The conclusion that the Magnum transactions must be characterised as an exercise of governmental power is reinforced by consideration of the provisions of our Income Tax Act 1976 concerning credits for foreign tax. Section 293(2) provided that subject to the section "where a person who is resident in New Zealand derives income from a country or territory outside New Zealand, income tax paid in that country or territory in respect of that income shall be allowed as a credit against income tax payable in New Zealand in respect of that income." These transactions occurred before the introduction of the detailed and sophisticated international  [*80]  tax regime and, in the absence of a double tax agreement between New Zealand and the Cook Islands, the Commissioner of Inland Revenue necessarily relied on the domestic anti-avoidance and other provisions of the legislation then in force to assess claims to foreign tax credits.

Any consideration of the progressive development of the international tax regime in this country and of the experience of other countries brings home the difficulties faced by courts, tax administrations and legislatures in giving effect to the apparently simple statutory command to allow a credit for foreign income taxes. Writing in 1984 Professor Isenbergh summarised the American experience in this way ("The Foreign Tax Credit: Royalties, Subsidies, and Creditable Taxes" (1984) 39 Tax LR 227,285):

"There are over 200 foreign countries with tax systems of some kind. Even among those ostensibly predicated on income, the variations are endless. Some tax gross income, some net, some a tax base in between. Some ignore realisation and treat changes in net worth as taxable income. Others tax various notional or imputed gains. Rules of aggregation, averaging, and survival of losses are as varied as climates and  [*81]  ethnicities. Furthermore, the administration and enforcement of an income tax system have as much effect on its real import as do its substantive terms, as we are now discovering in the United States. And that is not the end: Nontax regulation, pricing policies, various subsidies (direct or hidden), all enter into the ultimate determination whether (and how) a foreign government is collecting a true income tax — a tax at the risk of a taxpayer's profit. Add to this all the more oblique ways governments can abet or hinder the operations of taxpayers, and the determination becomes even more obscure. The present rules for creditable taxes require an elaborate and often scholastic dissection of foreign tax systems to determine whether they adhere closely enough to norms of taxation derived from our own. The undertaking is immensely difficult, uncertain, and easily undermined."

Of more immediate significance for present purposes, the tax credit legislation proceeded and still proceeds on the premise that the imposition and receipt of tax is a governmental activity. Any questioning of Cook Islands authorities in relation to the Magnum transaction involving inquiring into the operation  [*82]  of the Cook Islands tax administration comes up against that problem. If the seizure of Kuwait Airways Corporation aeroplanes in Kuwait and their removal to Iraq following Iraq's invasion of Kuwait was a governmental act, as the House of Lords held in that case, I do not see how the Magnum transactions, dependent as they were on the exercise of the sovereign taxing power, could be characterised differently. It follows that any demand for documents which are held in New Zealand on behalf of the Cook Islands Government is an intrusion on the public or sovereign activities of the Cook Islands.

Finally, it is no answer to say that the operation of tax havens is commercially driven. Every tax regime has commercial implications. Variations from state to state exist in the degree of comprehensiveness of the tax base, tax treatment of companies and other entities, rates of tax, tax treatment of particular activities, incentives and exemptions. Almost every tax regime, including New Zealand's, will have some features attractive to international commerce. Our foreign investor tax credit regime is one example. In my view there is no plausible basis for differentiating between different tax regimes  [*83]  when considering sovereign immunity. A tax is a tax is a tax. Its imposition and operation is a public governmental activity.

The Audit Office function

I have concluded that the Magnum transactions are not to be characterised as commercial transactions of the Cook IslandsGovernment. The reason is that the crucial tax collecting was necessarily within the sphere of governmental or sovereign immunity. That finding cuts the ground from under any argument that the exercise of the audit function could be regarded as monitoring commercial activities and having that same character. In any event the crucial question is whether the exercise by the Audit Office of the functions of Government Auditor under Article 71 of the Constitution was within the sphere of governmental or sovereign authority of the Cook Islands.

In auditing the Cook Islands public accounts the Audit Office was performing the duty imposed on it by Article 71 of the Constitution. In enacting the Cook Islands Constitution Act 1964 the Parliament of New Zealand must be taken to have approved the designation of the Audit Office as the auditor of the Cook Islands until such time as the Legislative Assembly of the Cook Islands [*84]  by constitutional amendment should provide otherwise. Once the 1964 Act came into force the Audit Office, while acting under Article 71, was performing responsibilities imposed by Cook Islands law, not New Zealand law. Further, it would be wrong to treat the discharge of those responsibilities as similar to the audit of a company's accounts by a private auditor. The relationship between the Audit Office and the Cook Islands Government was not contractual. It was not one of auditor and client. The auditor under Article 71 is an integral part of the constitutional arrangements. It may perhaps be described as an organ of state.

In terms of Article 71 the auditor audits the Cook Islands Government account and other designated accounts. In that regard theCook Islands Government Property Corporation, which was referred to in the letter from the Commission to the Prime Minister of the Cook Islands as a participant in the Magnum transactions, is declared to be an instrument of the Executive Government of the Cook Islands (Cook Islands Government Property Corporation Act 1969 s 8). The auditor then reports annually to Parliament.

Public sector financial management is at the heart of Executive  [*85]  accountability to Parliament. The audit function assesses and reports on the legality, efficiency, effectiveness and economy of financial management. Audit is a governmental function in a modern state as is recognised internationally in the "Lima Declaration on Guidelines on Auditing Precepts" resolved on by the 9th Congress of the International Organisation of Supreme Audit Institutions meeting in Lima in 1977. The Deputy Controller and Auditor-General saw the Article 71 functions as being the same in the Cook Islands as those required of the Audit Office in New Zealand in respect of the operations of the New Zealand Government. The Report of the Audit Office for the year ended 30 June 1995 states the purpose of the office as being a constitutional safeguard to maintain the financial integrity of the country's parliamentary system of government; its role being to assist Parliament to strengthen the effectiveness, efficiency and accountability of the instruments of government; and the role being discharged by providing reports on whether governmental activities are carried out, and accounted for, in a manner consistent with Parliament's intentions.

In that role of constitutional  [*86]  auditor of the Cook Islands under Article 71, the Audit Office came into possession of documents created by the Government of the Cook Islands, by third parties and by the Audit Office itself. Those documents were then held by the Audit Office on behalf of the Cook Islands Government. Some of those documents will no doubt relate to the spending of public money for the acquisition of goods and services for the state. However, that cannot affect the legal answer which is that on the material before the court the Audit Office came into possession of the documents and information and created documents for its own audit purposes in the course of carrying out a sovereign governmental function. That being so, the requisition by the Commission for the production of these documents by the Audit Office affects the property rights and interests of the Cook Islands so as to implead the state. While s 4C of the Commissions of Inquiry Act 1908 and Rules 310 and 311 of the High Court Code, on which the Commission relied in issuing the notices and making the order for production, are broadly phrased, they are not expressed to apply extra-territorially or to over-ride sovereign immunity They cannot  [*87]  be construed as barring a claim to sovereign immunity (Governor of Pitcairn & Associated Islands v Sutton 430, 438).

It follows that, subject to consideration of the iniquity factor, all the arguments raised by the Commission in support of the notices and the order for production fail.

Iniquity and public policy

In Rahimtoola v Nizam of Hyderabad [1958] AC 378, 404 Lord Reid emphasised that the principle of sovereign immunity is not founded on any technical rules of law: it is founded on broad considerations of public policy, international law and comity.

In assessing the weight which may legitimately be given at common law to New Zealand public policy considerations in the present case it is as well to have three other factors in mind. The first is that, as the distinguished international law scholar Sompong Sucharitkul has emphasised (Bedjaoui, International Law: Achievements and Prospects (1991) ch 16: Immunity of States, at p328), the doctrine of state immunity is the result of an interplay of two fundamental principles of international law: the principle of territoriality and the principle of state personality, both being two aspects of state sovereignty.  [*88]  Under that first fundamental principle sovereign states have jurisdiction to prescribe rules of law and processes applying within their territory.

The second and related consideration is that the state activity in question in this case is New Zealand based in three respects. First, Magnum and like transactions contemplated that the tax payment certificates issued by the Cook Islands Government would be utilised to secure a tax credit for the full amount in New Zealand and for New Zealand income tax purposes. Second, all the documents sought by the Commission for production for inspection are presently in New Zealand. Third they are in the possession of the Audit Office of New Zealand. While the Audit Office carried out the audit activity in question as constitutional auditor of theCook Islands and holds documents in that capacity, it remains a New Zealand agency constituted under New Zealand law and amenable in the ordinary way to the jurisdiction of New Zealand courts and commissions of inquiry. Neither the Cook IslandsConstitution Act 1964 nor any other New Zealand enactment has taken the further step of immunising the Audit Office in that capacity as such from the jurisdiction  [*89]  of New Zealand courts and tribunals. The Audit Office may interplead in respect of the property interests of the Cook Islands in the documents, as it has done It is not immune ratione personae from the jurisdiction of the Commission.

The third background factor is the particular expression of the recognised international law principle of good faith in the special relationship between the two states. Cook Islanders are New Zealand citizens and in the 1973 exchange of letters the Prime Minister of New Zealand stated and the Premier of the Cook Islands agreed that the bond of citizenship "also creates an expectation that theCook Islands will uphold, in their laws and policies, a standard of values generally acceptable to New Zealanders".

Against that background the public policy argument for requiring production by the Audit Office of the specified documents can be put very shortly. It is not a matter of the forum state simply preferring public policies underlying its domestic laws to those of the foreign state. Fundamental values must be at stake. Where the conduct of the foreign state is in question, refusal of a claim to sovereign immunity could be justified only where the impugned  [*90]  activity, if established, breaches a fundamental principle of justice or some deep-rooted tradition of the forum state.

It is well established that the forum state may assert jurisdiction over certain governmental torts committed within or having an effect within the jurisdiction. The European Convention on State Immunity of 1972, the articles on jurisdictional immunities of states and their property adopted by the International Law Commission in 1991 and many state immunity statutes (including those of Australia, Canada, the United Kingdom and the United States of America) withhold immunity. The basis for the assumption and exercise of jurisdiction is territoriality. The current provisions are confined to physical damage and do not extend to defamation or interference with contractual rights.

Thus s 1605(a)(5) of the United States Code as enacted by the Foreign Sovereign Immunities Act of 1976 provides:

  (a)  A foreign state shall not be immune from the jurisdiction of courts of the United States or of the States in any case:

  (5)  [hellip] in which money damages are sought against a foreign state for personal injury or death, or damage to or loss of property, occurring in the  [*91]  United States and caused by the tortious act or omission of that foreign state or of any official or employee of that foreign state while acting within the scope of his office or employment; except this paragraph shall not apply to:

  (A)  any claim based upon the exercise or performance or the failure to exercise or perform a discretionary function regardless of whether the discretion be abused, or

  (B)  any claim arising out of malicious prosecution, abuse of process, libel, slander, misrepresentation, deceit, or interference with contract rights.

One extreme case is Letelier v Republic of Chile 488 F Supp 665 ([D.D.C.] 1980). That was a tort claim by the families of dissident Chilean leaders assassinated in Washington, against the Republic of Chile alleging it had directed the assassination. The United States District Court held that the Foreign Sovereign Immunities Act of 1976 would not protect a foreign government from civil liability in those circumstances. While the decision turned on the construction and application of the particular statutory provision, there are two important points for present purposes. The first is that the assertion of jurisdiction in civil claims against  [*92]  a foreign state does not distinguish between governmental and non-governmental acts. Its basis is the entitlement of the forum state to exercise local control over particular forms of harm or danger. See also Olsen v Mexico729 F 2d 641 ([9th Cir.] 1984), a claim against Mexico arising from the crash within United States territory of an aeroplane carrying prisoners on behalf of Mexico.

As Professor Crawford explains (International Law and Foreign Sovereigns: Distinguishing Immune Transactions, 54 BYIL (1983) 75,111):

Deliberately to cause such harm or damage on the territory of another State by an act of 'public power' is, in the absence of some special exception, a plain violation of international law, whether the harm is caused by assassination or invasion. The exercise of local jurisdiction in such cases is an assertion of the forum's right, acknowledged by international law, to deal with the consequences of unlawful acts on its territory.

The second point is the observation of Green DJ (p 673): "Whatever policy options may exist for a foreign country, it has no "discretion" to perpetrate conduct designed to result in the assassination of an individual or individuals, action that is  [*93]  clearly contrary to the precepts of humanity as recognised in both national and international law." That reference to international law simply emphasises that a gross violation of international law on foreign territory is an additional ground for refusing sovereign immunity (Schreuer, p 54).

Letelier was an extreme case. There must be other cases where the alleged conduct of the foreign state is directed in a real sense against the forum state or so directly affects it and is so outrageous that the protection international law would otherwise give to the foreign state in matters properly within the jurisdiction of the forum state should not be allowed. The due imposition and collection of taxes is fundamental to the functioning of government. The state has a prime interest in tax enforcement and in the investigation of abuses of its tax system. Defrauding the public revenue strikes at the heart of government. It would be indefensible for a friendly state to be party to an attempt to evade or abuse our tax laws. It would also undermine those values generally acceptable to New Zealanders which the Cook Islands has committed itself to uphold.

The Council of Europe-OECD Convention  [*94]  on Mutual Administrative Assistance in Tax Matters of 1988 which came into force on 1 April 1995 recognises that states have information obligations to each other in international tax matters. The purpose in this regard of the Convention is reflected in the opening paragraphs of the Preamble:

Considering that the development of international movement of persons, capital, goods and services — although highly beneficial in itself — has increased the possibilities of tax avoidance and evasion and therefore requires increasing co-operation among tax authorities; Welcoming the various efforts made in recent years to combat tax avoidance and tax evasion on an international level, whether bilaterally or multilaterally;

Considering that a co-ordinated effort between States is necessary in order to foster all forms of administrative assistance in matters concerning taxes of any kind whilst at the same time ensuring adequate protection of the rights of taxpayers;

Article 4(1) requires State Parties to exchange any information:

[hellip] that is forseeably relevant to:

  a.  the assessment and collection of tax, and the recovery and enforcement of tax claims, [hellip]

Article 5 goes on to provide:  [*95]

  1.  At the request of the applicant State, the requested State shall provide the applicant State with any information referred to in Article 4 which concerns particular persons or transactions.

  2.  If the information available in the tax files of the requested State is not sufficient to enable it to comply with the request for information, that State shall take all relevant measures to provide the applicant State with the information requested.

And Article 7 requires a Party, without prior request, to forward to another Party information of which it has knowledge in certain circumstances including where:

  (a)  the first-mentioned Party has grounds for supposing that there may be a loss of tax in the other Party;

[hellip]

  (d)  a Party has grounds for supposing that a saving of tax may result from artificial transfers of profits within groups of enterprises;

The Convention has not been incorporated by legislation into New Zealand law. It has not yet been ratified by New Zealand. Nevertheless it is a contemporary recognition by the Council of Europe and the OECD that states have responsibilities to each other for the provision of information in their possession relating to international  [*96]  tax transactions. It also reflects the good faith obligation which states owe each other under international law.

Conclusion

The documents in question are held within New Zealand by an agency of New Zealand. They are believed to contain evidence of a conspiracy to which the Cook Islands Government was party to make an abusive claim to foreign tax credits in which reliance on tax certificates issued by the Cook Islands Government was a key feature. In my view to insist on production of those documents for the purpose of copying them would be a proportionate response by New Zealand and should be justified under international law.

The remaining question is whether the court should take the view that such issues are more appropriately dealt with through diplomatic channels or at least by Executive decision rather than under the exercise of the court's judgment in assessing underlying policy considerations. That may often be the proper course. But the constituting of the Commission recognises that the Government made the policy decision to inform itself about the winebox transactions through a commission of inquiry. The Executive has ruled where New Zealand interests lie in that regard  [*97]  and that the Commission is the appropriate mechanism for gathering relevant facts and recommending action within the terms of reference.

I would refuse the declaration and orders sought in the Amended Statement of Claim.I have had the advantage of reading in draft the judgment of Richardson J in respect of this appeal. I am in agreement with his reasoning and conclusions and concur in the result proposed by the President.

This was the first of three closely related proceedings for review argued in this Court, all having been removed to it by orders of the High Court. All relate to decisions of the defendant acting in his capacity as a Commission of Inquiry duly appointed by Order-in-Council. It has become known as the Winebox Inquiry. In each proceeding challenges were made to the right of the Commissioner to require the giving of evidence or the production of documents. Judgments are being delivered contemporaneously in all three proceedings.

The issue in this case is whether the claim of sovereign immunity made by the plaintiff as auditor of the accounts of the Cook IslandsGovernment and on behalf of that Government, is to be upheld. The composite judgment of the President and  [*98]  that of Richardson J in this proceeding set out the relevant factual matrix which I need not repeat. I am prepared to approach the issue on the basis that all documents in question are or may be the property of the Cook Islands Government and that the information sought to be disclosed relates to the exercise of the functions of the plaintiff as constitutional auditor of the Cook Islands Government accounts. Whether the auditor is an organ of State needs no separate determination, because in my view the issue can be decided by the application of the recognised exception in respect of commercial transactions. This doctrine, which it is common ground forms part of the law of New Zealand and is referred to as the restrictive theory, is discussed in Playa Larga (Owners of cargo lately laden on board v I Congreso del Partido (Owners)[1983] 1 AC 244 and Kuwait Airways Corporation v Iraqi Airways Company [1995] 3 All ER 694. In the former Lord Wilberforce said at p 267:

The conclusion which emerges is that in considering, under the "restrictive" theory whether state immunity should be granted or not, the court must consider the whole context in which the claim against the state  [*99]  is made, with a view to deciding whether the relevant act(s) upon which the claim is based, should, in that context, be considered as fairly within an area of activity, trading or commercial, or otherwise of a private law character, in which the state has chosen to engage, or whether the relevant act(s) should be considered as having been done outside that area, and within the sphere of governmental or sovereign activity.

and at p 269:

[hellip] it is not just that the purpose or motive of the act is to serve the purposes of the state, but that the act is of its own character a governmental act, as opposed to an act which any private citizen can perform.

Although the imposition and collection of a tax is undoubtedly a function of Government and not a commercial activity, as is the issuing of a tax credit certificate, in my opinion to allow those factors to be determinative is to ignore the reality of the transactions being investigated. An example of those is what is known as the Magnum transaction, described in some detail by Richardson J in his judgment. It would appear that withholding tax paid to the Cook Islands Government and evidenced by a tax credit certificate for $881,582  [*100]  was in reality repaid (except for the sum of $50,000) through the medium of a contemporaneous dealing in a promissory note carried out by the Cook Islands Government Property Corporation. The Corporation, a statutory body, comprises all members of the Cabinet of Ministers of the Cook Islands. As a result of the dealing the Corporation, which has wide commercial powers, retained the sum of $50,000 by way of profit.

One day later a similar procedure was adopted, the amount of tax involved being $1,169,909, the whole of which was effectively repaid. The net result is said to be that the New Zealand taxpayer obtained a reduction of tax otherwise payable in this country of $2,051,191 and the Cook Islands Government received $50,000. As Richardson J observed, in those circumstances put bluntly what occurred was a sale of tax certificates.

The Commissioner is inquiring into the propriety of the tax credit consequently claimed under the New Zealand tax legislation. The context in which the act of the Cook Islands Government in issuing the tax credit is to be considered must include the directly associated promissory note dealing involving the State corporation. That dealing cannot be divorced  [*101]  from the associated collection of "revenue", and in my opinion lends the transaction as a whole a commercial character, with the element of tax collection becoming largely illusory. To use the words of Lord Wilberforce, when put in context the acts in question can properly be considered as falling within a commercial area of activity of a private law character.

The use of a revenue gathering power, although necessary to the implementation of the whole transaction, is but part of it. There is a strong commercial flavour, with the Government and its instrument the Corporation being directly and significantly involved. It is difficult to see how it can be said that the acts of the Corporation were other than commercial and of a private law character. They cannot be the subject of immunity. The issuing of the tax credit gave rise to and formed an integral part of that commercial activity, and must also have the same character.

In his submissions Mr Barton also argued that the functions of the audit office are functions of Government (performed by an organ of Government) and therefore immune. It is not however the acts of the auditor which are in question. The Commissioner is investigating  [*102]  transactions which presumably have come under the audit inspection. If the doctrine of immunity is unavailable to the sovereign State itself because its acts are outside the sphere of Governmental activity then I do not think the immunity can be claimed on behalf of Government in respect of the audit relating to those acts. The documents held by the auditor are in its possession as a result of the commercial activities of the State.

In his judgment Richardson J gives his reasons for concluding that public policy here requires rejection of the claim to sovereign immunity by reason of the inequity factor. There is in my respectful view merit in the line of reasoning adopted in that judgment. Whether or not this Court should now accept a broad principle of iniquity as affecting and possibly overriding the traditional concept of sovereign immunity — which would be a development beyond that now accepted under the "restricted" theory — is debatable. However in my opinion there are compelling reasons for excluding the doctrine of sovereign immunity, even if the restrictive theory did not apply, without offending current concepts of international law. This case is concerned with the functions  [*103]  of a Commission of Inquiry whose terms of reference require investigation into the winebox transactions and the need for change to criminal or tax law to protect New Zealand's tax base from fraud and evasion. There is evidence presently before the Commissioner to support a contention that some of the transactions may have defrauded the New Zealand revenue or provided a means for evading tax. The foreign State is said to have been instrumental in a significant way in assisting New Zealand taxpayers to that end. The persons sought to be examined, and the documents sought to be inspected are all in New Zealand. In those circumstances, public policy requires disclosure, not frustration of the objects of the Commission of Inquiry. Principles of international comity do not in my opinion require otherwise.

I would dismiss the application.

I am spared, and will spare the reader, a review of the background facts and circumstances leading up to this appeal. Those matters have been fully traversed in the draft judgments of Cooke P, Richardson J and Henry J which I have had the advantage of reading.

I am in agreement with the decision which is reached in each of those judgments. The claim to  [*104]  sovereign immunity cannot be allowed. In the circumstances of this case it would be a denial of the sovereign right of this country to exert jurisdiction within its own territory to excuse the Auditor-General from producing documents held by the Audit Office in New Zealand which are directly relevant to a task of the Commission of Inquiry. The Commission was established by the Government to examine the competence of two of its most senior public servants in dealing with certain transactions and, having regard to those transactions, to report on what changes, if any, are required to the criminal or tax law for the purpose of protecting New Zealand's tax base from the effects of fraud, evasion and avoidance. To a greater or lesser extent, the Cook Islands Government is involved in, at least, certain of those transactions, but the inquiry is not directed at either that Government or its conduct. The documents are simply required to enable the Commission of Inquiry to discharge its duly authorised function of reporting in accordance with its terms of reference.

Whatever argument may precede or accompany the issue, ultimately no court of law would be prepared to extend sovereign immunity  [*105]  to the Cook Islands Government in respect of the documents held by the Auditor-General. Different courts, or different judges, may adopt different routes in arriving at that conclusion, as evidenced in the judgments of Cooke P and Richardson J but in the end the same conclusion is inevitable. The court's decision will be founded expressly or tacitly on perceptions of public policy and expectations of international law which accord with that policy. Neither the content nor application of the doctrine of sovereign immunity is so inflexible as to exclude the influence of those perceptions or expectations.

In this judgment, therefore, I first seek to affirm that the restricted theory of sovereign immunity can be applied without strain or injury so as to disentitle the Cook Islands to immunity from the jurisdiction of this country. In the second place I suggest an alternative, and preferred, approach which would enable the Court to have regard to all relevant factors and criteria in determining whether the doctrine of sovereign immunity should apply or not. In the course of advancing that proposal, I warmly endorse the opinion of Richardson J under the heading of "Iniquity and public  [*106]  policy" to the effect that, as a matter of public policy, the Cook Islands should be refused sovereign immunity.

For the purpose of this judgment, I accept that the Cook Islands is a sovereign independent state, that the Commission of Inquiry is an instrument of the Executive, having been appointed by the Governor-General by Order-in-Council pursuant to s 2 of the Commission of Inquiry Act 1908, and that the Audit Office is, or was at the material time, an organ of the Cook Islands'Government.

The restricted theory of sovereign immunity

At times during argument counsel on both sides of the case managed to convey the impression that they were addressing the topic in the early part of this century. The doctrine of absolute sovereign immunity, perhaps eroded only by an exception in respect of commercial activity, strictly defined, of the foreign state, was confidently extolled. Such a view is, of course, patently incorrect. Indeed, a number of commentators doubt that the absolute theory of sovereign immunity has ever prevailed. Even English law, which has in the past tended to the monolithic on the subject, is not absolute (See D P O'Connell, Vol. II, International Law , (2nd  [*107]  Ed, 1970) at 843). Exceptions abound, as is to be expected when it is recognised that the principles of state immunity are grounded less in theories of sovereignty than in the needs of international relations. (See Vol I, Restatement of the Law: The Foreign Relations Law of the United States , as adopted and promulgated by the American Law Institute, May 14 1986, at 438). The enumeration of non-immunity situations is so long that it is beyond me to provide an exhaustive list, and I shall not attempt to do so. Reference to any textbook on international law readily reveals the wide ranging exceptions required by most countries (See Ian Brownlie, Principles of Public International Law 4th ed 1990 334-338). As Professor Sucharitkul reports, absolute immunity, even in common law jurisdictions, has been in decline since The Cristina [1938] AC 485. (Sompong Sucharitkul, State Immunities and Trading Activities in International Law (1959) Chap 16).

What may be noted in passing, however, is that the present circumstances share some affinity with a number of exceptions. Thus, the exception which provides that any question relating to the ownership, possession and use of property,  [*108]  removable as well as movable, is to be resolved by the forum rei sitae reflects the well-established principle that matters occurring within the forum state are subject to the jurisdiction of that state. Hence, documents in the possession of the Auditor-General in this country may be viewed differently from documents in his possession in the Cook Islands. Then, again, the denial of sovereign immunity for states in the case of contracts or transactions involving industrial or intellectual property indicates a readiness on the part of local courts to assert jurisdiction in respect of relationships having a private law character and involving questions of public policy, such as the need to protect intellectual property rights from infringement by those bent upon that iniquity.

I am here concerned, however, with the principal restriction to sovereign immunity; the exception of activity engaged in by the foreign state otherwise than in the exercise of sovereign authority, as distinct from acts performed pursuant to the state's sovereign authority, or activity which is "private" in character or of a "kind carried on by a private person", as distinct from conduct which is of a "public  [*109]  nature", or to "commercial" transactions or activity as distinct from "governmental" acts or, if refuge is to be taken in Latin maxims, acts de jure gestionis as distinct from activities de jure imperii — or however else the distinction might be framed. The problem, as many international law commentators have pointed out, is that a precise distinction between these concepts is difficult to discern and define. Professor Lauterpacht has aptly described the distinction as "incoherent and unworkable". (H Lauterpacht "The Problem of Jurisdictional Immunities of Foreign States" (1951) 28 BYIL 220, at 228). It is all of that.

It may, to some extent, appear artificial to apply the "commercial" exception in the circumstances of this case. The exception developed to cope with the enormous increase in the trading activities of governments undertaken beyond their territorial boundaries in an increasingly global economy. Local litigants were unfairly deprived of a just remedy by the application of the doctrine of sovereign immunity and foreign states obtained an unfair advantage in competition with private commercial enterprise. (Restatement, supra, at 391). Both notions of fairness  [*110]  and public policy demanded that foreign states acting like private persons, particularly when engaging in commercial activities, should be amenable to suit in the country in which they chose to so act. In the present case, however, the Cook Islands Government is not engaged in any "commercial" activity within the territorial jurisdiction of this country. Nor is it, or its organ, the Auditor-General, a litigant in proceedings within the jurisdiction. The circumstances do not fit precisely the historical basis of the exception.

I do not consider, however, that the restricted doctrine of sovereign immunity should be discarded. As Cooke P has demonstrated, policy factors other than fairness to local litigants and to competitors exist in full measure to justify the application of the restricted theory. Just as the non-governmental or "commercial" activity of a foreign state which is contrary to New Zealand's laws is unacceptable when undertaken within the jurisdiction, so too it is unacceptable for this country to be subject to the detrimental impact of such activity when it occurs beyond its borders. This extra-territorial effect of a foreign state's actions is recognised in the United  [*111]  States' Restatement (supra, Ch 5, s 453, at 401) prepared by the American Law Institute. Having first declared that a foreign state is not immune from the jurisdiction of local courts with respect to claims arising out of commercial activity, the concept is extended to acts performed in the United States (whether commercial or not) in connection with commercial activity carried on "outside" the United States where the act "causes adirect effect in the United States". (Emphasis added).

To my mind, this qualification is a logical extension of restrictive immunity. What must count is the effect of the foreign state's activity within the jurisdiction and not simply its presence, particularly when, as is the case here, both the organ of the foreign government and the information sought is within the local jurisdiction. It cannot be gainsaid that the involvement of the Cook Islands Government in transactions described by the Commissioner have, or are likely to have, a direct effect on the tax base of this country. The impact of the sale of tax credit certificates on the tax base is no less than it would be if, by some device, the Cook Islands Government were able to sell the  [*112]  tax credit certificates within New Zealand.

There are no universally accepted criteria for classifying the acts of a foreign government. The basic difficulty lies in distinguishing between sovereign and non-sovereign activity. In a sense, all or most activity undertaken by a state is an exercise of sovereign authority. A government which decides to exert a monopoly in operating a national airline is exercising its sovereign authority but the activity is undoubtedly commercial in that it can be undertaken by private entrepreneurs. In the same way, nobody other than theCook Islands Government could establish a tax haven or "financial services centre" in the Cook Islands of the kind described by the Commissioner, but the transactions entered into as part of the services provided have an undeniably commercial flavour. It is probably a fiction to suggest that the state ever steps down from its sovereign pedestal or that, if it purports to do so, it acts as a private person (See O'Connell, supra, at 846).

Various tests which are applied in an attempt to assist in determining the proper classification of the activity invariably prove inadequate. Thus, a test which directs the court to  [*113]  have regard solely to the "nature" of the transaction has been widely criticised. (See M Sornarajah, "Problems in Applying the Restrictive Theory of Sovereign Immunity", (1982) 31 Int & Comp LQ 661, at 668-9). It is difficult to exclude the purpose of a transaction in determining its classification. The nature of a tax haven may point to it being a legitimate governmental activity, but if the purpose of the responsible government is to obtain a profit by selling tax credit certificates, or the like, it is difficult to avoid perceiving the activity as commercial. While in the United States s 1603(d) of the Foreign Sovereign Immunities Act 1976 directs that the test to be adopted in determining whether an activity is commercial or governmental is the nature of the act, no final decision has been reached in England. (See Sornarajah, supra, at 669). It is probable that, because of the recognised incoherence of the nature/purpose dichotomy, no single or exclusive test will be adopted in this country. As Lord Wilberforce said, suggesting a broader approach, in Playa Larga (Owners of cargo lately laden on board) v I Congreso del Partido (Owners) [1983] AC 244, at 267, the court  [*114]  must consider the whole context in which the claim against the state is made, with a view to deciding whether the relevant act upon which the claim is based, should, in that context, be considered to fall fairly within an area of activity, trading or commercial or otherwise of a private law character in which the state has chosen to engage, or whether the relevant act should be considered as having been done outside that area, and within the sphere of governmental or sovereign activity. (See also Goff J in the same case [1978] 1 All ER [1169], at 1194, pointing out that regard must be had, not only to the nature of the transaction (if any) between the parties, but also to the nature of the act complained of).

For present purposes, however, the point to make is that the classification of the activity in question as sovereign or non-sovereign, and the determination of what test to apply in making that classification, will in effect dictate the outcome of the determination. If the activity of the Cook Islands Government is regarded as essentially one of implementing taxation measures, then it is likely that it will be viewed as a proper governmental activity or function; if the nature of the  [*115]  transaction (entering into the arrangement involving the contemporaneous exchange of the promissory notes), the nature of the act complained of (selling tax credit certificates), and the purpose of the activity (to secure revenue for the Cook Islands other than tax on income earned) is examined, the activity is likely to be classified as non-governmental. Underlying the latter decision will be an appreciation of what is or is not acceptable as a function of the state in accordance with concepts of public policy prevalent in the forum state. (See Brownlie, supra, at 332).

In this regard, I join with Cooke P and Henry J in classifying the activities of the Cook Islands Government as being within the exception contemplated by the restricted theory of sovereign immunity. Imposing taxes, collecting taxes, and issuing tax credit certificates in respect of taxes which are otherwise due, are certainly functions of a sovereign state. The government may establish a taxation regime of, in all probability, immense complexity to that end. But the Cook Islands Government did far more than engage in a tax regime of this kind. By virtue of entering into contemporaneous transactions with the "taxpayer"  [*116]  through the medium of the Cook Islands Government Property Corporation it allowed the "taxpayer" to utilise the tax credits against their income in New Zealand, in the knowledge that the tax paid in the Cook Islands to which the tax credit certificate related would be repaid. The commission or fee charged by the Government cannot be categorised as tax; it represents a profit on the deal which the Cook IslandsGovernment entered into with its "taxpayer". Whether too loose or not, the blunt description of the deal as selling tax payment certificates for a fee adopted by Richardson J in his judgment is not inappropriate. What was involved was a financial arrangement in which the Cook Islands Government was a participant and, as with its commercial associates, it looked for and received what was a commercial profit.

To my mind, it does not mater that this financial arrangement utilised the Cook Islands tax regime. Many commercial arrangements or transactions do that. Identifying the act complained of, having regard to the nature and purpose of the transaction, and considering the whole context of the claim, I am left in no doubt that the Cook Islands Government cannot properly claim  [*117]  to be outside the scope of the "commercial" or non-governmental exception to the doctrine of sovereign immunity

If any doubt did exist, it could be eliminated, I suggest, by examining whether the decision to withhold sovereign immunity offends, or is inconsistent with, any of the established theories which have been advanced to rationalise the immunity; the equality and independence of states, the avoidance of indignity for a state in subjecting it to municipal jurisdiction, the conferment of immunity as a matter of comity and goodwill or because of notions of reciprocity, the maintenance of international order, or the adoption of an approach based largely on expediency exempting a foreign government from the local jurisdiction where the interests of diplomacy so require. But although I believe such an examination supports the classification of the Cook Islands activity as being of a "commercial" or non-governmental nature, I will, to avoid repetition, leave that examination to my exposition of the alternative approach.

An alternative approach

While content to hold that the claim of the Auditor-General for immunity cannot succeed on the basis of the restricted theory of sovereign  [*118]  immunity, I propose to advance an alternative and, I consider, preferable approach. It is, I believe, the logical outcome of the widespread acceptance of the concepts of restrictive immunity and the growing appreciation that it is unsatisfactory for such immunity to be grounded on autonomous propositions. Under this approach, no single criteria or test for determining whether the claim of a foreign state for sovereign immunity should be granted would be adopted. Rather, regard would be had to all relevant factors in the light of any criteria which are applicable in the circumstances. Where the criteria are in conflict, it will be necessary to balance one against the other in reaching a decision as to whether or not sovereign immunity is applicable. Similar approaches are discussed in Professor Brownlie's leading textbook (supra, at 333) and by the Australian Law Reform Commission in its Report,Foreign State Immunity , No. 24, at 26-28.

The preferred approach recognises that, in this area of international law, the incremental approach favoured in the development of the common law is unlikely to be wholly useful. International law is too uncertain and cases on particular topics  [*119]  too infrequent for such an approach to be productive. Indeed, the task of converting international custom and practise and the relations and expectations of states into international law at any given time tends to preclude an approach involving the explication of a universal rule, albeit with exceptions, simply because custom and practice and the relations and expectations of nations do not progress in that fashion. Precedent is necessarily of more limited value. Indeed, in Trendtex Trading Corporation v Central Bank of Nigeria [1977] 2 WLR 356 Lord Denning MR and Stephenson LJ affirmed that international law knows no rule of stare decisis. The Supreme Court of Canada also said in Reference re Exemption of United States Forces from Canadian Criminal Law [1943] 4 DLR 11 at 49; "to insist upon precise precedent in usage would sterilise judicial action toward changing international relations ". In a similar vein, in discussing the present need for a test which can be flexibly applied, and recognising that no rules can be regarded as inflexible, but have, at best, only presumptive value, Professor Sornarajah (supra, at 670-671) declares; "In the area of sovereignty immunity,  [*120]  which lies at the interstices of law and politics, inflexible rules are of little value".

For my part, therefore, I wholeheartedly endorse the observations of Sir Samuel Evans in The Odessa [1915] P 52, who, while observing that guides must not be lightly deserted, states (at 61):

In the domain of international law, in particular, there is room for the extension of old doctrines or the development of new principles, where there is, or is even likely to be, a general acceptance of such by civilised nations. Precedents handed down from earlier days should be treated as guides to lead, and not as shackles to bind.

Such an approach would make explicit the flexibility which is now ostensibly covert in the law. The uncertainty of international law and practise, the lack of uniformity between states, the breadth of the exceptions to the doctrine of sovereign immunity, the significance of the classification of the activity adopted by the court, the test applied in determining the outcome of a claim to sovereign immunity, and the other factors which I have discussed above already confer a substantial measure of flexibility on the courts when faced with a claim to sovereign immunity. Once  [*121]  this flexibility is openly accepted, however, it becomes possible to articulate more precisely the factors and considerations which should result in a claim to sovereign immunity being granted or refused.

The more overtly flexible approach recommended finds its footing in the fundamental nature of the doctrine of sovereign immunity and gains support from an appreciation of its basic tenets.

In the first place, the concept of jurisdiction is founded on the notion of state sovereignty. The state is supreme within its own territory. Territorial jurisdiction is the paramount principle, both in theory and in practice. It is, indeed, essential to the existence and personality of the state. State immunity therefore represents an immunity from that jurisdiction. The competence of the courts of the forum state is not in question. In this respect, the doctrine of sovereign immunity differs from the concept of act of state. The latter is beyond the competence of the domestic courts in that they do not have jurisdiction to adjudicate upon the foreign act. In the case of state immunity, however, the court relinquishes the jurisdiction which it possesses pursuant to the basic concept of territorial  [*122]  jurisdiction.

Although there may be theories to the contrary, I regard territorial sovereignty as the starting point. Practice and reality demand no less. This being the case, state immunity is to be seen as a derogation from territorial sovereignty and the exclusive jurisdiction which that sovereignty confers. It at once becomes acceptable to allow the court of the forum state to exercise a greater degree of flexibility in determining whether or not it should relinquish its jurisdiction in deference to a foreign state. Public policy issues may assume a higher profile. The principles and customs and practices which make up international law will, of course, be relevant, but the courts of the forum state can approach the question whether or not a foreign state should be granted immunity from its jurisdiction less rigidly than if it is supposed that there is some definite rule of international law waiting to be unearthed and duly applied.

Much the same point can be made with reference to Professor Brownlie' s introductory comment on the subject of the privileges and immunities of foreign states in his leading textbook on international law (supra, Chap XV, at 322-3). The agents of one  [*123]  state enter the territory of another and act in their official capacity in that state by licence. The existence of immunity from the jurisdiction of the local courts is then seen as a concomitant of the "privilege" to enter and remain within the territory. Indeed, it is to be noted that in The Schooner Exchange v McFaddon (1812) 7 Cranch 116, at 137, the principles of sovereign immunity enunciated by Marshall CJ are advanced as implications of an "express licence" to enter foreign territory. Thus, in granting sovereign immunity, the sovereign state is, in the Chief Justice's words, to be "understood to waive the exercise of a part of that complete exclusive territorial jurisdiction, which has been stated to be the attribute of every nation." (Also referred to by the Chief Justice as the state's "full and absolute territorial jurisdiction", at 137).

It is not surprising, therefore, that in practice courts may refuse to recognise foreign acts considered to be contrary to international law or the public policy of the forum state. (See Brownlie, supra, at 322). Certainly, this perception proceeds on the basis that the foreign state is within the jurisdiction but, as discussed  [*124]  above, the principle is the same when the act of the foreign state directly effects another state. The notion that a state may not interfere with the territorial sovereignty of another state other than by licence does not disappear simply because the act of the other state is performed beyond its territorial boundaries.

Once the notion of licence is accepted, it again becomes more acceptable for the courts to determine whether the act of the foreign state becomes an abuse of that licence, being contrary to public policy or a perceived breach of international law as may be determined by the courts in the exercise of the forum state's "full and absolute territorial jurisdiction".

What, then, are the relevant factors and criteria which the Court should have regard to in determining whether the Cook Islandsshould be granted sovereign immunity and the Auditor-General permitted to withhold the information sought by the Commissioner?

I believe that the first consideration would be the nature of the Commission of Inquiry and the certain endorsement which, in this case, the inquiry has received from Parliament. Cooke P has referred to the Commission of Inquiry Amendment Act 1995, which  [*125]  vested the powers of a High Court Judge in a Commission in regard to a witness who, "without offering any just excuse", refuses to answer questions or produce documents or who commits a contempt. The urgent manner in which that amendment was passed to allow the Commissioner to proceed with the inquiry is fully traversed. I therefore agree with Cooke P that it would seemingly subvert the intention of Parliament if the Courts were to grant sovereign immunity to the Cook Islands in the present circumstances.

Apart from this compelling reason, I believe that it is relevant to have regard to the perception of commissions of inquiry which prevails in New Zealand. In 1980, the investigatory powers of a commission of inquiry were enlarged following a report of the Public and Administrative Law Reform Committee presented to the Minister in May of that year (Thirteenth Report of the Public and Administrative Law Reform Committee, May 1980). While alert to ensure that appropriate safeguards exist for the protection of the individual, the Committee emphasised the positive role commissions of inquiry play in the working of government in this country and the diverse functions which a commission  [*126]  can perform. The Committee concluded that commissions of inquiry are to be regarded as a valuable component in a Parliamentary democracy. (See paras 12-23). In order, therefore, to extend a commission's investigatory powers, the Committee recommended the enactment of additional provisions, particularly in respect of the inspection and production of documents and furnishing of information. (See ss 4B, 4C and 4D).

The Commissioner in this case is therefore to be seen as exercising a valuable investigatory function as an adjunct to the working of government and an equally important component of this country's Parliamentary democracy. The importance of his task or role is not to be lightly undermined. In my view, this would be the case if the Auditor-General, resident in New Zealand and in possession of relevant documents held in this country, were to be exempt from the processes of the inquiry by virtue of the doctrine of sovereign immunity.

The second consideration would obviously relate to the activities of the Cook Islands Government. Its apparent involvement in the transactions under inquiry has already been subject to adverse comment in this judgment and need not be repeated. More  [*127]  general regard may be had, however, to the Cook Islands Government's establishment of a tax haven in that country. I have found the first report published by the Organisation for Economic Co-operation and Development entitled, Issues in International Taxation: International Tax Avoidance and Evasion: Four Related Studies (1987), of considerable assistance. While a tax haven may have a number of uses, some of which are wholly legitimate, its overriding characteristic is that the jurisdiction in which it is established is actively promoted as a haven for the avoidance of tax which would otherwise be paid in another country. Income which derives from activities carried on outside the territory of the tax haven is attracted to that territory. Thus, taxpayers make use of a base company (generally a subsidiary company) in tax havens to shelter income derived from source countries (which may often be the country of residence itself) and, in that way, to escape tax normally payable to the country of residence. Although the real income-producing activity generally occurs elsewhere, income is redirected to the tax haven with an obvious detrimental effect on the revenue of the country of  [*128]  residence whose tax base is diminished. Hence, it is recognised that the use of tax havens leads to decisions which are at variance with what a neutral tax system would command and results in undesirable economic distortions in international competition and the flow of capital. The OECD members also express concern at the impact of tax avoidance and evasion (and the line between the two may be fine), such practices being contrary to fiscal equity and having serious budgetary effects.

Both New Zealand and the Cook Islands, of course, have the sovereign right to impose taxes within their territory — their own residents. But the characteristics of a tax haven, briefly described above, cannot be ignored. In a real sense, the erosion of a country's tax base undermines the basic principle of the resident country's tax system and is an invasion of that country's sovereign right to tax. The Cook Islands interference with New Zealand's sovereign right to tax, provides a sound reason for not granting it sovereign immunity.

Lewis Carroll, alone, I suspect, would countenance the notion of another country operating a tax haven to the possible detriment of this country's tax regime seeking to  [*129]  shelter behind the doctrine of sovereign immunity when an attempt is made to ascertain the existence and extent of that detriment.

In the third place, it is relevant to note that the inquiry being undertaken is not directed at the Cook Islands Government itself. It is not directly "impleaded" in the process. The terms of reference are directed at the competence of the Commissioner of Inland Revenue and the Director of the Serious Fraud Office in dealing with the transactions referred to and to whether, having regard to those kinds of transactions, what changes, if any, should be made to the criminal or tax law for the purpose of protecting this country's income base from the effects of fraud, evasion and avoidance. Thus, while the extent that the Cook Islands was involved in the transactions may well emerge during the Commissioner's hearings, that country is not directly impugned. The New Zealand Government seeks no report on the Cook Island's Government's competence or culpability, other than may be incidental to reporting on what, if any, changes should be made in the law. Nor is the Cook Islands Government exposed to any enforcement procedures in respect of its involvement in  [*130]  the transactions under inquiry. In all, the circumstances here are far removed from the situation where a foreign state is impleaded before a court or tribunal and subjected to the possibility that the coercive machinery of the forum state will be used to execute any judgment against it.

A fourth factor has been foreshadowed already. The Auditor-General and the documents in issue are within New Zealand. It is analogous that jurisdiction may be exercised in rem by the courts of a forum state on the basis that property, such as a ship or trust fund, is within the jurisdiction. The physical presence of the property reinforces the state's full and absolute territorial jurisdiction. Similarly, if the person having control of documents is within the jurisdiction, jurisdiction in personam may be acquired. (Brownlie, supra, at 324). Indeed, it is now beyond doubt that the Federal Courts in the United States have the power to require the production of documents which are actually located in a foreign country if the Court has in personam jurisdiction over the person in possession or control of the material. (See James D Harman Jr, "United States Money Laundering Laws: International Implications",  [*131]  Vol 9, No 1, NYL Sch J Itn'l Comp L (1988) 1, at 32). This consideration is, of course, a manifestation of the fundamental principle of territorial jurisdiction.

Fifthly, I believe that it is pertinent that the Commissioner's inquiries have revealed that the Cook Islands Government has been involved in arrangements in which the taxpayers concerned have presented tax credit certificates issued by the Cook IslandsGovernment to the Inland Revenue Department in this country in order to enable the taxpayers to obtain a credit for that amount of tax in New Zealand. As Richardson J has pointed out, Magnum and like transactions contemplated that the tax payment certificates would be utilised to secure credit for the full amount in New Zealand for New Zealand income tax purposes. Yet, the amount of the tax credit certificates is repaid to the taxpayers by the Cook Islands Government's agency for a fee or commission. Conduct of this kind cannot be ignored by the forum state. I therefore welcome Richardson J's finding that to insist on the production of the documents in issue for the purpose of copying them is a proportionate response by New Zealand, and one which should be justified under  [*132]  international law having regard to the fact that the documents are believed to contain evidence of a conspiracy, to which the Cook Islands Government was a party, to make an abusive claim to foreign tax credits in reliance upon tax credit certificates issued by the Cook Islands Government. The judgment represents a realistic recognition of the part public policy plays in determining the application of sovereign immunity to the conduct of a foreign state.

I endorse Richardson J's observation that the state has a prime interest in tax enforcement and in the investigation of abuses of its tax system, and that defrauding the public revenue strikes at the heart of government. I agree that it would be indefensible for a friendly state to be party to an attempt to evade or abuse our tax laws. I do not, therefore, need to elaborate the point further. Suffice to say that, while content to include this consideration among a number of others in determining whether or not sovereign immunity should apply, I accept that the point can, in itself, provide a proper public policy basis for withholding that immunity.

Sixthly, this is not a case where the dispute would be best dealt with politically or  [*133]  through diplomatic channels. The judgments of the House Lords in I Congreso del Partido (supra) indicate an awareness that there are classes of cases in this area which are better settled by the executive than the judiciary. (See also Goff J [1978], 1 All ER 116, at 1192). I do not question the merit of this point of view. This is not, however, such a case. The Auditor-General has objected to the summons issued by the Commissioner and pursued his objection in this Court. It properly falls to the Court to resolve the issue, no doubt alert to the political impact which its decision might generate. Correspondence produced to the Court between representatives of the Cook Islands Government and the New Zealand Government reveal that the latter has not been moved to indicate that state immunity is thought appropriate in the circumstances, or that refusing it would cause difficulties in its relationship with the Cook Islands Government which it is not prepared to meet. Even if there were to be adverse consequences of a political or diplomatic kind, the primary objective of having the Commissioner effectively complete his investigation in accordance with his terms of reference must prevail.  [*134]

Finally, it is relevant to assess whether sovereign immunity should be granted having regard to the principles underlying the doctrine. In this respect, counsel for the Auditor-General submitted that the exercise of jurisdiction by the Commissioner would be incompatible with the dignity and independence of the Cook Islands, that it could upset international relations, that it would amount to interference with the sovereignty of the Cook Islands and that, in effect, it would be an interference with the property rights of that country. But is this claim correct? I think not.

First, with reference to the theory that the assertion of territorial jurisdiction is an affront to the dignity of a foreign state, it may be questioned how realistic it is in this day and age to suggest that it would be undignified for a foreign state to be subjected to the legal processes of another state in respect of matters in which it is directly involved. As Professor O'Connell observes, it is not beneath the sovereign's dignity in civil law systems, and now by statute in England and America, to subject itself in private matters to its own jurisdiction. He asks why, then, it should be beneath the sovereign's  [*135]  dignity to submit itself to a foreign jurisdiction in the interests of the administration of justice? (at 842). To my mind, it cannot be validly claimed that, once the Cook Island's Government chose to enter into the arrangements in issue with the ramifications which that had for the New Zealand tax regime, it is an affront to the dignity of that nation to have its actions examined in the course of an inquiry in New Zealand.

Secondly, much the same observations can be made with reference to the theory that the equality and independence of nations gives rise to a duty on the part of states to refrain from intervening in the internal or external affairs of other states (See Brownlie, supra, at 291). The point can at once forcibly be made that no such duty arises in the circumstances of this case. By virtue of its involvement in arrangements apparently designed to defraud the New Zealand tax revenue, the Cook Islands forfeited any claim to have its sovereign equality and independence recognised by the grant of sovereign immunity. In any event, it can hardly be said that New Zealand is seeking to intervene in the internal or external affairs of the Cook Islands by permitting the Commissioner  [*136]  to have access to documents in New Zealand relevant to its terms of reference, whatever consequences may eventuate in respect of the secrecy attaching to the operations of its Government.

Nor is the theory of comity a sound basis for exempting the Cook Islands from the jurisdiction of this country. This basis for sovereign immunity presupposes, of course, comity and goodwill as between states in their international relations. Thus, comity and goodwill is due to New Zealand from the Cook Islands as well as from New Zealand to the Cook Islands. Good faith is required on the part of both. Again, however, it cannot be properly suggested that refusing to waive its jurisdiction in the present circumstances would demonstrate a lack of comity or goodwill on New Zealand's part. Indeed, it could be suggested that the essential comity and goodwill, and the element of good faith, is lacking in the actions of the Cook Islands government in participating in the arrangements in question.

Finally, reference may be made to a number of bases put forward justifying the doctrine of sovereign immunity which might be loosely termed the preservation of international order. It is suggested that, in the absence  [*137]  of a supranational authority, the subjection of one state to the jurisdiction of another would upset that international order. But it would, perhaps, be a rather inflated overstatement to suggest that New Zealand's refusal to confer sovereign immunity on the Cook Islands relating to matters arising in the course of an inquiry would result in the international order being disrupted. Countries which operate tax havens having the characteristics described above cannot fairly claim that they should be immune from the scrutiny of other countries whose tax base is adversely affected. Nor, again, can the maintenance of the international order be used to shelter behind when conduct is undertaken by the foreign state which is itself damaging to that international order.

In the present case there is an added factor which can be introduced under this head. Richardson J has referred to the particular expression of the recognised international law principle of good faith in the special relationship between New Zealand and the Cook Islands. Cook Islanders are New Zealand citizens, and in an exchange of letters in 1973, the Prime Minister of New Zealand stated, and the Premier of the Cook Islands  [*138]  agreed, that the bond of citizenship "also creates an expectation the Cook Islands will uphold, in their laws and policies, a standard of values generally acceptable to New Zealanders."

Having regard to these considerations I am of the view that the Court must decline to grant immunity from jurisdiction to the Cook Islands. The balance between the interests of New Zealand in exercising its territorial jurisdiction and the interest of the Cook Islandsin obtaining sovereign immunity falls heavily in favour of denying immunity. To my mind, to reach any other decision in the circumstances of this case would be to pay undue homage to some perceived legal formula which does not adequately reflect the reality of international relations, the reasonable expectations of international law, or the various factors which point to the grant of sovereign immunity being contrary to the perceptions of public policy which prevail in this country.

I would disallow the appeal and refuse the declarations sought by the Auditor-General.

In these proceedings the plaintiffs, an international accounting firm and three of its New Zealand partners, are caught between the apparently conflicting commands of  [*139]  two sovereign states, New Zealand and the Cook Islands, in relation to the giving of evidence in New Zealand. The proceedings under the Judicature Amendment Act 1972, removed into this court by Thorp J on 11 October 1995, are for judicial review of the decision by a Commission of Inquiry requiring the KPMG partners to produce documents and to give oral evidence in relation to certain tax matters notwithstanding an injunction issued against two of them and warning of prosecution by the Cook Islands authorities if KPMG personnel disclose information to the Commission in New Zealand in breach of Cook Islands secrecy laws.

Background facts

On 12 September 1994 Sir Ronald Davison was appointed pursuant to the Commissions of Inquiry Act 1908 to be a Commission to inquire into and report on:

  (a)  Whether the Commissioner of Inland Revenue and his staff and the Director of the Serious Fraud Office and his staff acted, in the course of their official duties, in a lawful, proper, and competent manner in dealing with the transactions referred to in the Papers presented, by leave, to the House of Representatives by the member for Tauranga, the Honourable Winston Peters, on 16 March 1994  [*140]  (A6, Volumes 1 to 2):

  (b)  Whether, having regard to the kinds of transactions referred to in the papers so presented, any changes to the criminal law or the tax law should, in your opinion, be made for the purpose of protecting New Zealand's income tax base from the effects of fraud, evasion, and avoidance, and, if so, what:"

Those transactions referred to in para (a) have come to be called the winebox transactions and the inquiry the winebox inquiry. They are international transactions in the sense that, while conducted outside New Zealand and under the laws of the Cook Islands, they affect the tax revenues of other countries. Indeed, a major reason for the establishment of international tax havens is the reduction of world wide tax obligations of tax entities through channelling transactions through a tax haven. Viewed from the perspective of another jurisdiction which is affected by the reduction of income or expansion of deductions or credits for the purposes of its income tax, such transactions may constitute (i) acceptable tax planning, or (ii) tax avoidance which is not criminal but is countered within its tax legislation, or (iii) tax evasion which involves criminal liability  [*141]  for breaking of the law. Legitimate tax planning allows taxpayers to enjoy the benefit of consciously-designed features of a country's tax system. Tax avoidance and evasion are of concern to governments because such practices are contrary to fiscal equity, have serious budgetary effects and distort international competition and budgetary flows ("International Tax Avoidance and Evasion" OECD 1987, p 11).

As the terms of reference indicate, the Commission is required to determine into what category or categories the winebox transactions fall. To determine that in particular cases will require careful analysis. And concentrating on some specific transactions may not give a fair picture of the range of financial transactions undertaken in the Cook Islands. For example, the Federal Court of Australia recently rejected a challenge under the Australian general anti-avoidance provisions to a set of transactions in the Cook Islands arranged through European Pacific (Federal Commissioner of Taxation v Spotless Services Ltd (1995) 95 ATC 4775). Categorising winebox transactions and line drawing between legitimate tax planning, tax avoidance and tax evasion will clearly require careful analysis  [*142]  of the particular sets of transactions involved.

Cook Islands tax haven infrastructure

Counsel provided the court with a wealth of material on offshore financial centres and tax havens. That has been helpful to an understanding of the reasons for their development and use, the general infrastructure and functioning of tax havens and the initiatives undertaken within the international community to counter any perceived illegitimate erosion of the tax base.

Mr Williams summarised the Cook Islands legislation in this way:

  6.8  The Cook Islands off-shore financial centre and tax haven was created by a series of Acts of the Cook Islands Parliament in the early 1980s with the object of establishing the Cook Islands as a jurisdiction in which to conduct off-shore business. The principal statutes of the off-shore regime are:

Trustee Companies Act 1981-82; International Companies Act 1981-2; Off-shore Banking Act 1981; Off-shore Insurance Act 1981-82; International Trusts Act 1984; International Partnerships Act 1984.

  6.9  These statutes establish the off-shore regime as a separate and distinct regime from the domestic jurisdiction of the Cook Islands. Entities established within the  [*143]  off-shore regime are not subject to the ordinary laws of the Cook Islands. This exemption extends beyond taxation and fiscal matters to other obligations; duties and responsibilities imposed by domestic laws. Entities established within the off-shore jurisdiction are exempt from any form of taxation, including stamp duties, capital gains tax and withholding tax. There is no exchange control.

  6.10  Strong confidentiality provisions apply in the off-shore regime, requiring Government officials as well as trustee company and bank employees to observe secrecy."

KPMG in the Cook Islands

Associated KPMG companies and partnerships operate throughout the world. There are two such companies operating in the Cook Islands. One carries on accounting work for domestic residents of the Cook Islands. The other, also registered in the Cook Islands,services international clients registered as international companies in the Cook Islands under the Cook Islands International Companies Act. The domestic practice is owned by the partners of the Auckland KPMG. For many years the three individual plaintiffs, acting as consultants, have had responsibility for auditing and other advisory work for the  [*144]  international practice, including the European Pacific group of companies. KPMG Auckland also undertook audits of the Cook Islands Government account under delegation from the Controller and Auditor-General for the periods 1 April 1988 to 30 June 1991 and as statutory auditor under the Cook Islands Constitution for the financial years ending 30 June 1992, 1993 and 1994 (but not thereafter).

The Commission's stance

On 15 February 1995 KPMG (and European Pacific and others) were served notices under s 4C of the Commissions of Inquiry Act requiring the production to the Commission of certain documents. KPMG demurred pointing to the secrecy provisions of s 227 of the Cook Islands International Companies Act and to the refusal of KPMG's audit client European Pacific Group Limited to consent to production. On 21 April 1995 the Commissioner ruled that KPMG must comply with the notice and provide the documents under their control whether located in New Zealand or the Cook Islands. He noted that KPMG provided accounting and disclosure advice to European Pacific concerning winebox transactions, and also considered such transactions in their capacity of auditor to European Pacific, and possibly  [*145]  also in their capacity as auditor to the Cook Islands Government. He concluded that that evidence would be very important in understanding the transactions and in answering both questions posed under the terms of reference.

On 26 April 1995 a more extensive notice to produce documents was served on KPMG and the next day Mrs Dawson and Mr Florence, the second and third plaintiffs, were summonsed to attend the Commission on 22 May to give evidence and to produce any documents in their control relevant to the Commission's inquiries. They travelled to the Cook Islands to determine what relevant documents were held in the offices of KPMG there. They were threatened by the Cook Islands Monetary Board with prosecution if documents were produced or information divulged in breach of the International Companies Act. Then, on 3 May 1995, while they were in the Cook Islands, on the application of European Pacific, the Chief Justice of the Cook Islands granted an interim injunction against KPMG, the second and third plaintiffs, and a Mr Carr, an accountant at KPMG Raratonga. It was in these terms:

  (1)  THAT each of the Defendants be restrained, and that an injunction be granted restraining them  [*146]  until trial, or further order, whether by themselves, their servants or agents or otherwise howsoever, from acting or omitting to act in a manner which has, or may have, the effect of:

  (a)  allowing any information, of whatever nature, concerning the Plaintiffs, or concerning the affairs of any of their respective clients or former clients, (whose affairs are, or may be, the subject of scrutiny or enquiry at the commission of inquiry known, colloquially as "the Winebox Enquiry"), to be divulged to any person other than the Plaintiffs or removed from the Cook Islands;

  (b)  allowing that information to be copied, taken or transmitted (in any form, whether by post, telecommunication, modem, facsimile, or telephonically) out of the jurisdiction;

  (c)  disclosing that information, or any of it, to any person not ordinarily resident in the Cook Islands (provided that nothing in this paragraph shall prevent disclosure to any legal adviser to the Defendants, where such disclosure is necessary for the purposes of allowing the proper defence of these proceedings by the Defendants and provided further that such adviser removes no documents, lists or information from the Cook Islands).  [*147]

  (d)  allowing access to the documents or records, (howsoever stored) held by the First Defendant of or pertaining to the Plaintiffs or any of their respective clients or former clients by any of the servants, agents, or advisers of the First Defendant not ordinarily resident in the Cook Islands, or by the servants or agents of any associated office overseas."

The Commission declined to be represented at the substantive hearing of the injunction proceedings in the Cook Islands on 23 August 1995; his counsel wrote to the High Court of the Cook Islands submitting that any challenge to the Commission's ruling should be determined in the New Zealand courts and that the Cook Islands proceedings should be struck out as an abuse of process of the High Court of the Cook Islands.

The decision of the Chief Justice of the Cook Islands

At the hearing before the Chief Justice the Solicitor-General of the Cook Islands supported the grant of a permanent injunction. In his judgment of 29 August 1995 Sir Peter Quilliam CJ noted that the secrecy provisions of s 227 had been described by the Secretary of the Cook Islands Monetary Board as an essential cornerstone of the tax haven industry, a statement  [*148]  which, the Chief Justice remarked, by the very nature of that industry must be accepted as correct.

Earlier in his ruling of 21 April Sir Ronald Davison had expressed the view that the relationship which exists between the Cook Islands and New Zealand made it very unlikely that the defendants would be prosecuted if they complied with the notice. Referring to the stance of the Cook Islands Monetary Board and the Solicitor-General , the Chief Justice could see no basis on which the view of Sir Ronald Davison could be supported. The Chief Justice concluded that it was his clear duty to apply the law of the Cook Islands, that the legislation was clear and uncompromising in its terms, that there was no basis on which the court could permit that disclosure; and accordingly a permanent injunction was granted in the same terms as the interim injunction.

The relevant legislation

Before summarising the Commission's ruling of 27 September 1995 it is convenient to set out the material provisions of the Cook Islands and New Zealand legislation.

Section 227, the secrecy provision of the Cook Islands statute, provides:

227. Secrecy

(1) All proceedings, other than criminal proceedings,  [*149]  relating to international companies commenced in any Court either under the provisions of this Act or for the purpose solely of determining the rights or obligations of officers, members or holders of debentures, and any appeal from a decision therein, shall, unless such Court otherwise orders, be heard in camera and no details of the proceedings shall be published by any person without leave of such Court;

(2) Where

(a) in any proceedings for winding up an international company the Court is satisfied that the company or any officer thereof has failed to comply with any provision of this Act; or

(b) an international company or any officer thereof is convicted by any Court of any offence under this Act,

such Court may, if it thinks fit, order that the records and registers of that company are to be deposited with the Registrar and that such records, books and registers and the entries in the Registrar's registers and records relating to that company are to be opened to public inspection.

(3) Any person or entity who, with respect to an international company or a foreign company registered under this Act and whether in the Cook Islands or elsewhere

(a) divulges;

(b) attempts offers  [*150]  or threatens to divulge;

(c) induces or attempts to induce other persons to divulge;

(d) incites, abets, counsels or procures any person to divulge;or

(e) is knowingly concerned in the divulging of;

any information or communication in respect of, in relation to or concerning

(i) the membership of or beneficial ownership of, any share or other interest in such a company;

(ii) the identity of any member of such a company or the interest (legal or beneficial) of any such member in such a company;

(iii) the management or officers of such a company;

(iv) any of the business, financial or other affairs or transactions of such a company;

(v) the assets or liabilities of such a company; or

(vi) the existence of, or the contents of, any register maintained by such a company or any other documentation held by the company,

shall be guilty of an offence against this act.

(4) Notwithstanding subsection (3) of this Section, an offence shall not be committed where information is divulged or made available to the extent reasonably required in the circumstances:

(a) by an officer of an international company or foreign company to the Registrar or the Minister for the purpose of complying with, or facilitating  [*151]  the giving effect to of, the provisions of this act;

(b) by an officer of an international company or foreign company to any person for the purpose of carrying on the business of the company or is otherwise in the best interests of members: provided that nothing herein shall permit compliance with any demand or request for information by any foreign government or any court or tribunal of any country other than the Cook Islands where the divulging of the information will, or is likely to, result in the payment of any tax, penalty or any fine by the company;

(c) by an officer of an international company or a foreign company to any foreign government or any court or tribunal of any country other than the Cook Islands, but only if and to the extent that the court in the Cook Islands so directs, having been satisfied that the information is required and will be used solely for the purposes of an investigation or prosecution of any person in relation to the sale, or the laundering of the proceeds of sale, of any prohibited narcotic substances, whether that sale or laundering occurred in the Cook Islands or elsewhere;

(d) by any person to an officer of an international company or a foreign  [*152]  company or trustee company in the course of the performance of the duties of that officer;

(e) by an officer of an international company or foreign company to a member of the company where all of the directors of that company consent to such disclosure (or otherwise in accordance with Section 107 of this Act);

(f) by an officer of an international company or a foreign company to any other person where all of the directors of that company consent to such disclosure;

(g) by an officer of an international company or a foreign company to a legal practitioner for the purpose of obtaining legal advice for the benefit of that officer;

provided that the Minister may in his absolute discretion prohibit any disclosure of any information permitted by this Act.

(5) Nothing in this Section shall prevent the Court from requiring any person to produce documents or to give evidence in any criminal proceedings or in any civil proceedings of any facts relevant in such proceedings in a Court in the Cook Islands.

(6) In recognition of the desirability of maintaining secrecy in respect of the activities of all international companies and foreign companies registered under this Act, the Minister shall  [*153]  be obliged to do all things which, in his opinion, are necessary to give full effect to the provisions of this Section.

(7) This Section shall bind all instrumentalities of the Government of the Cook Islands in their executive, legislative and judicial capacities.

(8) This Section shall apply to every international company and to every foreign company to the extent to which that information relates to any branch of the foreign company in the Cook Islands or any business which it conducts in the Cook Islands, or in relation to any person who is a resident of the Cook Islands."

Sections 4C, 4D, 6, 9 and 13A of the Commissions of Inquiry Act apply to the giving of evidence before the Commission. Section 4C states:

(1) For the purposes of the inquiry the Commission or any person authorised by it in writing to do so may

[hellip] (a)

(b) Require any person to produce for examination any papers, documents, records or things in that person's possession or in that person's control and to allow copies of or extracts from any such papers, documents, records or things to be made;

(c) Require any person to furnish, in a form approved by or acceptable to the Commission, any information or particulars  [*154]  that may be required by it, and any copies of or extracts from any such papers, documents, or records as aforesaid.

Section 4D states:

  (1)  For the purposes of the inquiry the Commission may of its own motion, or on application, issue in writing a summons requiring any person to attend at the time and place specified in the summons and to give evidence and to produce any papers, documents, records or things in that persons possession or in that persons control that are relevant to the subject of the inquiry.

Section 6 states:

Every witness giving evidence, and every counsel or agent or other person appearing before the Commission, shall have the same privileges and immunities as witnesses and counsel in Courts of law.

Section 9 states:

(1) Every person commits an offence who, after being summoned to attend to give evidence before the Commission or to produce to it any papers, documents, records or things, without sufficient cause:

(a) Fails to attend in accordance with the summons; or

(b) Fails to be sworn or to give evidence, or having been sworn refuses to answer any question that the person is lawfully required by the Commission or any member of it to answer concerning the subject  [*155]  of the inquiry[hellip];

(2) Every person commits an offence who:

(a) [hellip]

(b) Without sufficient cause, fails to comply with any requirement of the Commission or any authorised person made under section 4C(1)(b) or (c) of this Act; or

Section 13A states:

(b) Where, in any proceedings before a Commission, a witness, without offering any just excuse, refuses to give evidence when required [hellip] any member of that Commission who is[hellip] a retired Judge of the High Court may exercise the powers conferred on the High Court by section 56B of the Judicature Act 1908[hellip]

The decision of the Commission

The argument for the present plaintiffs was that a witness should not be required to answer questions asked by the Commission and to produce documents sought by the Commission where to do so would cause that person to offend against Cook Islands law. The Commission held that the question had to be determined by reference to conflicts of laws rules which in this situation required determination under the domestic laws of the country in which the evidence was to be given. In concluding that the Commission was required to apply the principles of New Zealand law as contained in  [*156]  the Commissions of Inquiry Act, the Commissioner added that he was required "in doing so to regard the provisions of the Cook Islands legislation relating to secrecy as completely irrelevant".

While he noted that that decision concluded the matter, the Commissioner went on to consider certain other makers which had been raised and gave other grounds for rejecting the claims of the witnesses to refuse to give evidence. It is sufficient for present purposes to refer to four matters. First, he held that a witness who does not have a common law privilege against self-incrimination lacks "sufficient cause" within s 9 or "just excuse" within s 13A(1)(b) and, if the rules of conflicts of laws determine that New Zealand law applies, then there are no penal consequences in the Cook Islands.

Second, in the course of considering the application of the foreign state compulsion defence he drew a distinction between giving oral evidence before the Commission and producing documents presently in New Zealand on the one hand and producing documents presently in the Cook Islands on the other hand:

  77.  I believe that the justification for compelling the witnesses to give evidence in New Zealand  [*157]  is so strong that no balancing of considerations under the foreign state compulsion principle could possibly lead to the witnesses being allowed to refuse to give evidence.

  78.  Correspondingly, the order of the Commission that KPMG Peat Marwick produce documents presently in the Cook Islands is now so fraught with difficulties of compliance — the injunction issued by the Cook Islands High Court, the difficulty of removing the documents from the Cook Islands and the possibility of prosecution in the Cook Islands if they do so — that it cannot now be reasonably expected that they can in fact comply.

Third, the Commissioner concluded that s 227 did not have extra-territorial effect and so did not apply to New Zealand residents giving evidence in New Zealand courts. In his view the Cook Islands courts would so interpret that legislation. Finally, he was satisfied that the Cook Islands decision was limited to the production of documents and did not involve any question of oral evidence.

Extra-territorial effect and scope of decision

The third and fourth points can be dealt with quite briefly. In determining as a matter of statutory construction whether a statutory provision has  [*158]  extra-territorial effect it is presumed in the absence of clear and specific language, first, that an offence-creating section is not intended by Parliament to cover conduct outside the territorial jurisdiction of the Crown and, second, that it will not be construed as applying to foreigners in respect of acts done by them abroad (Air India v Wiggins [1980] 2 All ER 593).

But the language, structure and purpose of s 227 make it clear that the section is intended to apply to extra-territorial conduct. The section applies (s 227(3)) to "Any person or entity who [hellip] divulges any information or communication in respect of, in relation to or concerning [hellip] any of the business, financial or other affairs or transactions of such a company", that is, "an international company or a foreign company registered under this Act and whether in the Cook Islands or elsewhere". That last phrase can only relate back to the opening phrase of the subsection "Any person or entity who[hellip] ". Subsection (4)(c) also proceeds on the premise that the section has extra-territorial effect. It carves out an exception applying under the conditions specified to the divulging of information  [*159]  to a foreign government or court and then only in respect of narcotics. It is clear that disclosure to the New Zealand Commission is not protected by any of the exception provisions.

Sir Ronald Davison read s 227(8) as limiting the section to conduct in the Cook Islands by Cook Islands residents. He considered the better interpretation of the subsection was to treat the final words "in relation to any person who is a resident of the Cook Islands" as adding a third category of persons protected by the divulging of secret information to the earlier categories of "every international company" and "every foreign company" and so consistently not applying to non-resident individuals. With respect that cannot be right.

Elsewhere in the section the expression "officer of an international company or foreign company" is not limited to those officers resident in the Cook Islands. Companies act through individuals and a secrecy regime for an international financial centre and tax haven could not operate if non-resident individuals were free to disclose confidences in the Cook Islands or elsewhere. Further, that construction of subs (8) requires reading the opening words of the final phrase  [*160]  "or in relation to" as "and to".

Finally, assured confidentiality of financial information may serve legitimate foreign state interests. Privacy in financial affairs may be accorded a fundamental status for two reasons. First, as Werner De Capitani, Judge at the Commercial Court of Zurich explains ("Banking Secrecy Today: Recent Developments" (1988) 10 UPa J Int Bus L 57, 58 ):

The individual right to privacy is a basic concept of democracies. It has perhaps greater significance in the countries of the European continent than elsewhere, because Europeans have been involved in a century-long struggle against authoritarian regimes. Financial privacy — which embraces bank secrecy — is an inseparable part of this concept of privacy.

Common law bank secrecy has its roots in Tournier v National Provincial [amp] Union Bank of England [1924] 1 KB 461. In Europe the secrecy component has been an essential element of the banker/client relationship for centuries and European countries where the violation of bank secrecy entails criminal sanctions include Austria, Denmark, France, The Netherlands, Spain and Sweden as well as Switzerland (pp 60-61).

The second reason a state may consider  [*161]  financial privacy a matter of priority is economic. Historically Swiss banks have relied on banker client privilege to attract business and, because of the importance of banking business to the national economy, the state may have a strong interest in ensuring secrecy (see the discussion in Corrado "The Supreme Court's Impact on Swiss Banking Secrecy: Societe Nationale Industrielle Aerospatiale v United States District Court " (1988) 37 Am ULR 827; and also Brodeur "Court Ordered Violations of Foreign Bank Secrecy and Blocking Laws: Solving the Extraterritorial Dilemmas [1988] U of Ill LR 563; Jones "Compulsion over Comity: the United States' Assault on Foreign Bank Secrecy" (1992) 12 Northwestern J of Int Law [amp] Business 454; Kent "The Canadian and International War Against Money laundering: Legal Participation" (1993) 35 Crim LQ 21; and Erbstein "Palm Trees Hide More Than Sunshine: The Extraterritorial Application of Securities Laws in Haven Jurisdictions Dick J. Int Law Spring 1995, 443).

To the same effect, in Spencer v the Queen [1985] 2 CTC 310, 312 Estey J cited the statement by the Chief Justice of the Bahamas that "the secrecy provision is one of the pillars  [*162]  of this part of our economic structure, the destruction of which would lead to the collapse of the whole structure which it supports". Estey J added that the provisions were of equal import to the Canadian and other foreign companies doing business in the Bahamas.

The reality is that national interests will differ. The domestic court or commission's desire to do justice in the particular case by gaining access to relevant information may be viewed by another state as an affront to its sovereignty. Thus many states, including New Zealand, have enacted blocking statutes inhibiting disclosure. Under s 481 of the Evidence Act 1908 (as enacted by s 2 of the 1980 Amendment Act) the Attorney-General may prohibit production of documents presently in New Zealand to a foreign authority and the giving by a citizen or resident of New Zealand of evidence before a foreign authority in relation to such documents if the Attorney-General is satisfied that it is desirable, for the purpose of protecting the trading, commercial or economic interests of New Zealand, that the order be made. That is in addition to the authority to make an order where the Attorney-General is satisfied that a foreign authority  [*163]  is proposing to exercise any jurisdiction or power of a kind or in a manner that infringes or is prejudicial to the sovereignty of New Zealand.

In circumstances where an individual risks sanctions in either event because of the prospect of punishment for refusing to disclose or for actually disclosing particular information, the court or tribunal must weigh those risks in a sensitive and realistic way recognising the principle of international comity or mutual respect of state sovereignty.

A secrecy provision would be hopelessly ineffective if non-resident officers or employees or other individuals could freely divulge abroad information concerning the transactions or affairs of international companies in the Cook Islands. It is not surprising that para (c) of the injunction specifically enjoins disclosure to persons not ordinarily resident in the Cook Islands. But to defer to the other state's secrecy regime may seriously impede the administration of justice or hinder the investigation of iniquity.

A further and unrelated question is whether the Cook Islands injunction is limited to the production of documents and so is not also directed to oral testimony before the Commission. The  [*164]  injunction does not refer specifically to oral evidence. And much of the terminology is directed to the use of documents. But the injunction enjoins each partner against "allowing any information of whatever nature [hellip] to be divulged to any person" and "disclosing that information [hellip] to any person not ordinarily resident in the Cook Islands". An oral recitation or explanation of a document to a Commission would surely be as controversial as producing the document to the Commission. While there may be uncertainty as to the reach of the injunction, one cannot say with confidence that a Cook Islands court would construe it as inapplicable to oral testimony and so dismiss that risk.

Resolving conflicting responsibilities

I turn now to the central issue in the case, how is the apparent conflict between the responsibilities of the appellants under New Zealand legislation and Cook Islands legislation respectively to be resolved. The governing legal principles are clear. Conflicts of laws rules allow and require that the law of the forum, and so the public policies underlying that law, shall prevail. As the Commission put it:

The obligation or duty which exists on a resident  [*165]  of New Zealand to assist in the search for truth during the conduct of investigations, inquiries and hearings before New Zealand bodies, is necessary for the proper and fair administration of justice in this country. And whether a witness is compellable to give evidence is a question for the law of the country in which he is required to give evidence. Private international law emphasises that in cases of conflict such as are alleged to arise here, it is fundamental that public policy should dictate that domestic law should prevail.

Dicey's Rule 2R states the paramountcy of fundamental policy of the domestic law (Dicey [amp] Morris on the Conflict of Laws (12th ed 1993) 88):

English courts will not enforce or recognise a right, power, capacity, disability or legal relationship arising under the law of a foreign country, if the enforcement or recognition of such right, power, capacity, disability or legal relationship would be inconsistent with the fundamental public policy of English law.

See, also, Castel, Canadian Conflict of Laws (3rd ed 1994) 163 and Nygh, Conflict of Laws in Australia (6th ed 1995) 281.

The state is entitled to the relevant evidence of witnesses before  [*166]  courts, tribunals and commissions of inquiry. Witnesses cannot escape that obligation, except as provided by law.

Spencer v The Queen is directly in point. The appellant, a Canadian citizen and resident, who had been the manager of a Canadian Bank in the Bahamas, was required by the Crown to testify about his knowledge relating to specific customers and transactions of the Bank in the Bahamas in a prosecution in Ontario under Canadian tax legislation. Subject to certain exceptions, Bahamas legislation made it an offence to disclose such information. The Supreme Court of Canada upheld the conclusion of the Ontario Court of Appeal that the public and the courts had a right to the appellant's evidence at the trial whether or not the giving of the evidence constituted a crime in the Bahamas (at p 311):

To allow Mr Spencer to refuse to give evidence in the circumstances of this case would permit a foreign country to frustrate the administration of justice in this country in respect of a Canadian citizen in relation to what is essentially a domestic situation.

I do not read Spencer as holding that, whatever the circumstances of the particular case, a witness win be required to testify  [*167]  and answer an questions relating to his or her knowledge of the transactions and data in the foreign country. The court there saw what was involved as essentially a domestic Canadian situation. implicitly they found the evidence sought to be adduced sufficiently relevant to the prosecution to insist on its admission. And, as the judgment noted (p 312), Mr Spencer had not returned to the Bahamas since 1974 and would be in jeopardy of prosecution only if he decided to go there again.

Where an individual is called to give evidence in relation to transactions in another jurisdiction two questions arise. The first is whether the witness can be compelled to testify if in doing so he or she breaches the secrecy provisions of the other state. The second is whether in the particular circumstances of the case the witness should be required to give that evidence. In Spencer the Supreme Court, in effect, answered both questions in the affirmative. The secrecy provisions of the Bahamas legislation were not a bar to compelling Mr Spencer to testify in the Canadian proceedings and the circumstances of the case required that he testify.

The law as to the obligations and protection of witnesses  [*168]  before New Zealand courts and tribunals is governed by the law of New Zealand. That second enquiry, like the first, is a matter of domestic law. It falls for consideration in this country under the sufficient cause and just excuse provisions to which I now turn.

"Sufficient cause" and "just excuse"

The next and crucial question concerns the interpretation and application of the sufficient cause and just excuse provisions of s 9 and s 13A of the Commissions of Inquiry Act respectively. Mr Williams did not contend that privilege against self-incrimination could be invoked by the plaintiffs to justify refusing to answer questions or produce documents. His submission was that the risk of prosecution in the Cook Islands should be considered amongst other factors under the broad rubric of sufficient cause.

The Commission took the view that the expressions "sufficient cause" and "just excuse" were no wider than privileges and immunities recognised as such under the criminal law and, treating the provision against self-incrimination as inapplicable, concluded that the language of s 9 and s 13A did not assist the plaintiffs. In my view that approach unduly restricts the expression  [*169]  "privileges and immunities" in the context of s6 and the companion provisions of s 9 and s 13A. If a witness would be excused in the ordinary courts, he or she would be excused in an inquiry under the Commissions of Inquiry Act. "Without sufficient cause" under s 9 probably derives from the same expression in the counterpart s 54 of the District Courts Act 1947. "Without offering any just excuse" appears in similar witness provisions in s 39 of the Summary Proceedings Act 1957, s 56B of the Judicature Act 1908 and s 352 of the Crimes Act 1961.

Given those various statutory formulations the legislature could never have intended that a narrow view of privileges in the sense of historic common law categories should be applied to s 6 and then used as the basis for reading down sufficient cause and just excuse in s 9 and s 13A. The statutory obligation to amend to give oral evidence, to answer questions and to produce documents is a substantial intrusion on privacy and personal liberty. It may well be particularly onerous for some witnesses where an investigatory commission is conducting an inquisition in a blaze of publicity and where its factual findings may have a devastating  [*170]  effect on the reputations of those involved. Whether expressed in terms of privilege of witnesses in courts of law or sufficient cause or just or reasonable excuse, the object of the restraint is clear. And, contrary to the argument advanced by Mr Young, the restraint is directed to the requirement to give evidence rather than to the decision whether to punish a recalcitrant witness. If the witness offers any just excuse (s 13A), he or she is entitled to refuse to give evidence. A witness who gives sufficient cause (s 9) is not required to produce the documents sought.

Similar questions arose in Ganin v New South Wales Crime Commission (1993) 32 NSWLR 423. The appellants there sought to decline to answer questions put to them in proceedings before the Commission claiming "reasonable excuse within their statute. Kirby P said (p 436):

It [the question under the statute] is whether, at the relevant time of refusal to answer the question as required, there was, or was not, a reasonable excuse. In accordance with orthodox canons of construction these words would not be given a narrow meaning. They appear in a provision which imposes a criminal sanction for its breach. They appear in  [*171]  an enactment which, as has been said, amounts to a drastic derogation from the ordinary liberties of citizens. They appear in a subsection which, giving ample meaning to the words "without reasonable excuse", will be defensive of fundamental rights recognised both by the common law and by international law.

More broadly, in upholding the claim to a "just excuse" within s 352 of the Crimes Act by the alleged victim who was cohabiting with the accused and invoked her concern for her family, Williamson J in R v Burgess (T16/91 Dunedin Registry, judgment 18 February 1992) concluded that the decision must be made in the context of the particular allegations, the overall circumstances, the relationship between the persons concerned and the circumstances of the witness at the time when the refusal to give evidence is made.

In the present case as in others it is a matter of weighing all the considerations properly bearing on the exercise of the discretion. In an extra-territorial matter of the present kind those considerations are likely to include:

  (a)  an assessment by the Commission of the vital national interests of New Zealand in the inquiry, including New Zealand's international  [*172]  relationships with the Cook Islands and other States;

  (b)  the importance to the Commission's inquiry of the information sought;

  (c)  any alternative means of accessing that information from other sources;

  (d)  the nationality and ordinary residence of the prospective witnesses and the location of the documents (Note: The earlier added complication that the Commission was seeking production of documents held abroad no longer applies because the issue is now confined to documents held in New Zealand and oral testimony);

  (e)  the nature and extent of the witnesses' commercial and personal connections with the Cook Islands; and

  (f)  the nature and extent of the risk to the witnesses and any others immediately affected (including KPMG) that requiring testimony would impose and the professional and personal consequences for them.

Conclusion

For the reasons given I have concluded that the Commission erred in its interpretation of sufficient cause and just excuse. It cannot be said with certainty that, had the Commissioner approached the matter correctly, he would have nevertheless have reached the same conclusion. Given the public interest in the due investigation of the winebox  [*173]  transactions and of the questions of possible evasion and fraud on the New Zealand revenue which they raise and given the general tenor of his decision, it seems highly likely that he would have done so.

We have had the benefit of extensive submissions on this branch of the case, particularly from counsel for the plaintiffs. In the result we now have sufficient material and argument before us to make a final determination. It is in the public interest that we do so in order to allow the Commission to proceed with the inquiry on the basis of a final ruling of this court.

I have reached the firm conclusion that the circumstances on which the plaintiffs rely do not constitute sufficient cause or just excuse for a blanket refusal to give evidence or produce documents as required by the Commission. First, I consider there is insufficient basis in the argument for the plaintiffs as to the materiality of the evidence sought, for departing from the assessment by the Commission that the evidence would be very important in understanding the winebox transactions and in answering both questions posed under the terms of reference. The governmental interest in investigating the transactions and  [*174]  any abuse of the New Zealand tax system and the criminal laws of this country is reflected in the constituting of the Commission of Inquiry with those terms of reference. That is reinforced by the granting at the Commission's request and by statutory amendment (Commissions of Inquiry Amendment Act 1995 s 2) of greater powers to punish for contempt those refusing to give evidence. Clearly any personal and professional factors affecting witnesses would have to be particularly weighty to displace the public interest in eliciting such relevant information of New Zealand nationals in a New Zealand inquiry of this kind. The witnesses will give that evidence before the Commission under compulsion. The Cook Islands authorities will be obliged under conflicts of laws rules to recognise that feature of the case both in considering prosecution and as a defence to any prosecution for breach of Cook Islands secrecy laws. While the plaintiffs might be inhibited in practising their profession in the Cook Islands or visiting there depending on the stance the Cook Islands ultimately take, and that in itself is a significant consideration, there is no evidence as to the possible financial consequences  [*175]  for KPMG or the individual plaintiffs or as to the likely impact on KPMG internationally or in New Zealand. The balancing of considerations, which is inherent in the sufficient cause/just excuse test, in my view requires us to uphold the orders made by the Commission in that regard.

The general conduct of the inquiry is of course for the Commission to determine. I suggest, however, that the specification in advance of a detailed list of topics on which the three individuals are required to testify, and confining their examination to information not reasonably available to the Commission from other sources, might ease their position.

I have had the advantage of reading in draft the judgment of Richardson J. I agree with his conclusions, and can express my reasons quite shortly.

The background to this application has been set out in the judgment of Richardson J, including the basis of the Commission of Inquiry's decision, the relevant Cook Islands legislation, and the terms of the injunction issued by the Chief Justice of the Cook Islands. The Commission held that the question whether a witness resident in New Zealand should be required to give evidence before it and to produce documents  [*176]  was to be decided by New Zealand law, on the basis of the Commissions of Inquiry Act 1908. The Commission relied on standard texts on conflict of laws, and on such cases asSpencer v The Queen (1983) 145 DLR (3d) 344 in the Ontario Court of Appeal, affirmed on appeal to the Supreme Court by a full bench of nine Judges: 1985 2 CTC 310.

Mr Williams, for the plaintiffs, accepted that New Zealand law applied. He identified the central issue as being whether the plaintiffs had "sufficient cause" under s 9 of the Commissions of Inquiry Act 1908 to refuse to give evidence or to answer questions and produce documents. He referred also to s 13A(l)(b), introduced by the Commissions of Inquiry Amendment Act 1995. That section came into force on 29 July 1955, and applies to the fresh summonses issued to the intended witnesses on 14 September 1995. It enables a Commission who is, as in this case, a former Judge of the High Court, to exercise the powers of the High Court to detain in custody a witness who "without offering any just excuse" refuses to give evidence when required, or to produce documents or answer questions.

The Commission took the view that in applying New Zealand law it  [*177]  was required to regard the Cook Islands law as completely irrelevant. He regarded the words "sufficient cause" and "just excuse" as referring back to s 6 of the Act, under which every witness giving evidence before the Commission is to have "the same privileges and immunities" as witnesses and counsel in Courts of law. It followed that a witness who did not have the common law privilege against self incrimination could not have "sufficient cause" or "just excuse". I respectfully disagree. Those words are of wide and general meaning, and should be so construed. They are similar to the words "reasonable excuse" appearing in a similar context in s 18 of the New South Wales Crime Commission Act 1985. Those words were considered by the New South Wales Court of Appeal in Ganin v New South Wales Crime Commission(1993) 32 NSWLR 423. In giving the judgment of the New South Wales Court of Appeal, Kirby P saw no apparent reason to read down these words, but on the contrary every reason to give them their ordinary construction. He describes the words "without reasonable excuse" as very wide words, not confined to the excuse of self-incrimination, but directed to a broader frame  [*178]  of reference. His reasons are equally applicable here.

There is no basis in the Act for giving the words a restricted meaning as being limited by s 6. S 9 applies inter alia to a witness who fails without sufficient cause to attend in accordance with the summons. A failure to attend could arise through ill health or transport breakdown, but such happenings would not be described as "privileges" or immunities" within s 6. They might nevertheless be regarded as providing "sufficient cause". Ss 6, 9 and 13A can be read together without limiting the meanings of "just cause" and "sufficient excuse" to cases coming within s 6.

I also agree, with respect, with Richardson J that in any event the "privileges and immunities" referred to in s 6 should not be understood as limited to the privilege against self-incrimination. I read s 6 as excusing a witness before the Commission in any circumstances where the witness would not be compelled to answer in a Court of law, whether as a result of any rule of common law or statute or of the exercise of any discretion given to the Judge by common law or by statute.

I also agree with Richardson J for the reasons which he gives, that s 227 of  [*179]  the Cook Islands' statute is clearly intended to have extra-territorial effect, and provides no basis for the distinction between giving oral evidence and producing documents. The Commission relied on s 227(8) as limiting the operation of the section to Cook Islands' residents. The subsection is unhappily drafted. The simple device of using subparagraphs would have made the draftsman's intention clear. The subsection provides:

  (8)  This Section shall apply to every international company and to every foreign company to the extent to which that information relates to any branch of the foreign company in the Cook Islands or any business which it conducts in the Cook Islands, or in relation to any person who is a resident of the Cook Islands.

The problem lies in the concluding words "or in relation to any person who is a resident of the Cook Islands". In treating these words as adding a third category to those to whom the section applies, "every international company and every foreign company", the Commission treated the words "or in relation to" as meaning "and to". That not only stretches the words beyond their natural meaning, but as Richardson J has pointed out, would have  [*180]  the effect of exempting non resident officers of companies to which the section is intended to apply. The whole purpose of the section would be frustrated. The words "or in relation to" can more naturally be read in conjunction with the earlier use of the word "relates": the section is to apply to the extent that the information "relates to any branch of the foreign company in the Cook Islands or any business which it conducts in the Cook Islands, or in relation to any person who is resident of the Cook Islands". The repetition of the conjunction "or" introduces a further alternative. Whether on that view the concluding words add anything of substance may, as the Commission said, be open to doubt, but at least they are given their ordinary meaning and the intention of the section as a whole can be achieved.

In considering whether the intended witnesses have just cause or sufficient excuse, an important factor to be considered is the injunction issued by the Chief Justice of the Cook Islands. The terms of the injunction have been set out in the judgment of Richardson J and it is unnecessary to repeat them. I agree with his view that the wording cannot be read as applying only  [*181]  to documents. Paragraphs (a) and (c) expressly prohibit allowing to be divulged or disclosing any information concerning European Pacific Group Ltd and European Pacific Trust Group (Cook Islands) Ltd their respective clients or former clients. The wording is not limited to divulging or disclosing documents, and there would be little point in granting an injunction so limited.

I have sympathy with the Commissioner in his endeavours to obtain all the information which might assist him in understanding the winebox transactions in order to report on the subject matter of the inquiry. Because of the narrow meaning which he gave to the words "sufficient cause" and "just excuse", he did not need to consider the wider considerations relied on by the plaintiffs. These were listed by Mr Williams, but of the nine points made, he gave the greatest emphasis to the concern about breaching the Cook Islands'statutes and concern about breaching the terms of the injunction. He relied also, but to a lesser extent, on concern at being required to testify in relation to transactions which occurred some years ago without the benefit of access to relevant files, and concern as to the continued viability  [*182]  of Cook Islands' practices if unable to travel to the Cook Islands and complete audits or supervise a domestic practice.

I agree with Richardson J that these matters do not amount to a sufficient cause or just excuse which would justify a blanket refusal to give evidence or produce documents as required. What is required is a balancing exercise. The Commission is of the view that the information required is of importance to the carrying out of his functions, and he is in the best position to make that assessment. It has certainly not been shown that his assessment is wrong. Nor has it been shown that the information in question can be obtained from other sources. The likely effect which giving evidence under compulsion would have on the witnesses themselves, both personally and in respect of their business interests, must also be weighed. The reluctance of counsel for the Commission to specify in advance the topics on which evidence is to be required makes it impossible to carry out the balancing exercise in respect of specific matters, but there is no basis for granting a blanket exemption.

It follows that although the Commissioner has, with respect, erred in his approach, the plaintiffs  [*183]  have not established their claims to the relief sought. It may not be possible to define in advance, with precision, the questions which may be put to the intended witnesses, as these may develop during the course of the evidence. It should be possible to give a reasonable description of the areas of interest. As Mr Williams accepted, there are many areas in which the witnesses will be able to give evidence without being in breach of Cook Islands' law or of the injunction. In other areas, the Commission may in some cases have alternative sources and may choose not to press the matter. In the remaining areas, it will be for the Commission to carry out the balancing exercise, and decide whether the importance of the information to the Inquiry outweighs the risk to which the witness may be exposed.

I would dismiss the plaintiffs' application for review, with costs as proposed by the President.

This is the second of three proceedings for judicial review before the Court relating to the Winebox Inquiry.

The plaintiffs here seek to set aside orders made by the defendant requiring the second, third and fourth plaintiffs to give evidence before and produce documents to a Commission of Inquiry  [*184]  in relation to certain taxation transactions undertaken within the jurisdiction of the Cook Islands.

I have had the advantage of reading in advance judgments in draft of other members of the Court which set out the relevant background giving rise to the matters argued which need not be repeated in detail. There can be no doubt that the plaintiffs, who are New Zealand citizens and residents of New Zealand, are compellable witnesses for the purposes of the Commission of Inquiry. They are under an obligation to answer questions lawfully put to them and to produce documents in their possession unless New Zealand law recognises they are excused from so doing. The obligation is statutory, and in particular is contained in the following provisions of the Commissions of Inquiry Act 1908:

4C. Power of investigation

(1) For the purposes of the inquiry the Commission or any person authorised by it in writing to do so may —

(b) Require any person to produce for examination any papers, documents, records or things in that person's possession or in that person's control and to allow copies of or extracts from any such papers, documents, records or things to be made;

(c) Require any person  [*185]  to furnish, in a form approved by or acceptable to the Commission, any information or particulars that may be required by it, and any copies of or extracts from any such papers, documents, or records as aforesaid.

4D. Power to summon witness

(1) For the purposes of the inquiry the Commission may of its own motion, or on application, issue in writing a summons requiring any person to attend at the time and place specified in the summons and to give evidence and to produce any papers, documents, records or things in that person's possession or in that person's control that are relevant to the subject of the inquiry.

Section 6 preserves rights available in Courts of law. It provides:

Every witness giving evidence, and every counsel or agent or other person appearing before the Commission, shall have the same privileges and immunities as witnesses and counsel in Courts of law.

All plaintiffs claim, on behalf of the Cook Island government, sovereign immunity. The claim arises from the fact that KPMG Peat Marwick was pursuant to Art 71 of the Constitution of the Cook Islands auditor of the accounts of the Cook Islands Government. It is that firm's documents the Commissioner wishes  [*186]  to inspect, and its officers he wishes to have examined. The submissions in support of the claim adopted those made on behalf of the Controller and Auditor-General in CA 226/95. For reasons set out in my judgment in that proceeding, I have concluded that the claim cannot be sustained.

It is not suggested by the plaintiffs that any other privilege or immunity accorded a witness in Courts of law can be invoked by them in the present case, and in particular privilege against self-incrimination is not relied upon.

There is no other express statutory exception to the obligation to give evidence. For enforcement purposes the Act contains penal provisions, but these are expressed in terms which allow a defence of justification. The primary issue in this appeal is whether the Commissioner was correct in his decision that there is here no such justification.

There are two relevant penal provisions. S 9(2)(b) states:

(2) Every person commits an offence who —

[hellip]

(b) Without sufficient cause, fails to comply with any requirement of the Commission or any authorised person made under s 4C(l)(b) or (c) of this Act.

Section 13A(l)(b) states:

(b) Where, in any proceedings before a Commission,  [*187]  a witness, without offering any just excuse, refuses to give evidence when required [hellip] any member of that Commission who is a [hellip] retired Judge of the High Court may exercise [hellip] the powers conferred on the High Court by s 56B of the Judicature Act 1908.

The phrase "just excuse" has long been a standard exception in New Zealand legislation concerned with the enforcement of an obligation to give evidence. In addition to s 13A of the Commissions of Inquiry Act 1908 it occurs currently in at least three statutes covering the civil and criminal jurisdiction of the Court:

s 352 of the Crimes Act 1961 (there was no equivalent power in the 1908 Act)

ss 56A and 56B of the Judicature Act 1908 (inserted in 1960)

ss 38 and 39 of the Summary Proceedings Act 1957 which are traceable back to the 1850s.

The phrase "without sufficient cause" is used for similar purposes in s 54 of the District Courts Act 1947, and also applies to jurisdiction exercised by the Planning Tribunal, the Maori Land Court, and the Human Rights Tribunal.

The phrase "without reasonable excuse" is used in a similar context in s 103 of the Commerce Act 1986 and in s 44 of the Takeovers Act 1993.

For practical  [*188]  purposes I do not think the meaning of the various phrases are significantly different. The words are to be given their ordinary meaning and do not require definition by the Court. I can see no justification for reading them as applying only to established common law principles of privilege and immunity, even if s 6 of the Commissions of Inquiry Act 1908 is to be so construed. In that respect there is in my view room for argument that it embraces for example the statutory justification spelt out in both the Judicature Act 1908 and the Crimes Act 1961.

In Ganin v New South Wales Crime Commission (1993) 32 NSWLR 423, the words "reasonable excuse" were given a wide meaning in a context similar to the present. The phrase "without lawful excuse" occurs frequently in this country's criminal legislation. The need to examine each case on its individual facts without attempting to define the phrase has traditionally been the approach of the Courts in that area. An example is R v Burney [1958] NZLR 745 at p 753. The words of s 9(2) and s 13A are therefore to be given their ordinary meaning and not written down.

It is necessary now to examine the validity of the claim to entitlement  [*189]  to release from the obligation to testify. Two bases only are proffered. The first is that the secrecy laws of the Cook Islands would otherwise be infringed, with a consequential likelihood of prosecution. The second is that the terms of the injunction issued against the first, second and third plaintiffs would necessarily be breached, with a consequential likelihood of being held in contempt of the Cook Islands High Court.

As regards the injunction, it can be noted that its terms are extremely wide. Order l(a) restrains the named persons from acting or omitting to act in a manner which has or may have the effect "of allowing any information of whatever nature concerning the plaintiffs or concerning the affairs of any of their respective clients or former clients (whose affairs are, or may be the subject of scrutiny or enquiry at the [hellip] Winebox Inquiry) to be divulged to any person other than the plaintiffs".

Although the order is in such wide terms, a perusal of the reasons for judgment in granting the injunction makes it clear that the sole basis for its issue was a perceived or threatened breach of the Cook Islands secrecy laws, which are wide in themselves but are not  [*190]  couched in those all-embracing terms. In my judgment it is appropriate to consider the present issues on the basis that the injunction can properly be regarded as doing no more than prohibiting conduct which would constitute a breach of those secrecy laws. I agree with the other members of the Court that the secrecy statutes, properly construed, purport to have extra-territorial effect, to apply to non-residents of the Cook Islands, and to embrace the giving of oral evidence.

The essence of the case for the plaintiffs is a claim of what is known as a defence of foreign state compulsion, namely that they are prohibited by the law of the Cook Islands from giving evidence before the Commission. It is that prohibition which it is said in the circumstances required the Commissioner to excuse them.

It must be borne in mind that the individual plaintiffs are all New Zealand citizens, resident in New Zealand and not in the Cook Islands; that they are being required to give evidence in New Zealand before a properly convened Commissioner of Inquiry; that if they do so they would not infringe any obligations or lose any rights which they have under New Zealand law. This factual situation immediately  [*191]  highlights the extent of the extra-territorial jurisdiction said to be claimed by the Cook Islands and to be operative so as to prevent the evidence of the plaintiffs from being available to the Commission.

It is common ground that it is a principle of conflict of laws that the domestic law has paramountcy in a situation such as the present (Dicey and Morris on the Conflict of Laws , 12 ed 1993 p 88).

Once that is accepted, there are obvious difficulties in claiming that the foreign law can constitute sufficient cause or just excuse for not complying with the domestic statutory obligation to give evidence. To allow that claim effectively gives supremacy to the foreign law. In Spencer v The Queen [1985] 2 SCR 278 a Canadian citizen and resident was required to testify in Canada for tax prosecution purposes about matters which occurred during his managership of a Canadian bank in the Bahamas. The Supreme Court of Canada confirmed that the manager was a compellable witness notwithstanding that the giving of such evidence might constitute a criminal offence under the laws of the Bahamas under its secrecy legislation.

To allow Mr Spencer to refuse to give evidence in the circumstances  [*192]  of this case would permit a foreign country to frustrate the administration of justice in this country in respect of a Canadian citizen in relation to what is essentially a domestic situation. Indeed such an approach could have serious repercussions in the operation of Canadian law generally. [Judgment of the Court p 311]

In his separate concurring judgment Estey J who suggested as a cautionary measure that an order permitting disclosure by Mr Spencer should first have been sought on his behalf from a Bahamas Court which had jurisdiction to make such an order, concluded with these words:

If an authorising order had not been sought or obtained within a reasonable time, the Canadian courts would have had no option, having regard to the subject matter of these proceedings, but to proceed in the manner indicated by the Ontario Court of Appeal below. [p 312]

It does not appear that either the Supreme Court of Canada or the Ontario Court of Appeal whose judgment was affirmed undertook any sort of balancing exercise, although s 708 of the Canadian Criminal Code contains a "without lawful excuse" provision in respect of refusal to attend and give evidence.

In my judgment it would require  [*193]  compelling circumstances to exist before the Court would allow a foreign law to frustrate the administration of justice in this country, including the legitimate functions of a Commission of Inquiry, by prohibiting or restricting the examination in New Zealand of a New Zealand citizen and resident in relation to New Zealand's domestic matters. I turn therefore to consider whether there are circumstances which would warrant a finding of sufficient cause or just excuse for the withholding of evidence seen by the Commissioner as relevant to his terms of inquiry.

Although the Commissioner concluded that the Cook Islands secrecy laws were irrelevant because New Zealand law was supreme, he also held that no balancing of considerations under the foreign state compulsion principle could lead to the witnesses being allowed to refuse to give evidence. A balancing exercise as such was not expressly undertaken in his decision. The plaintiffs have put before this Court all material relevant to that exercise, and counsel have made full and detailed submissions in respect of it. In my view this Court is therefore able itself to examine what is put forward and to decide whether it can in all the  [*194]  circumstances of this case be said to constitute either sufficient cause or just excuse to avoid the operation of s 9(2) or s 13A of the Commissions of Inquiry Act 1908.

It was submitted by Mr Williams for the plaintiffs that the "prohibited" evidence which could be given by them was of doubtful significance. I do not think this Court is in a position to make any sensible evaluation of that nature. The weight which can be given to assertions from the plaintiffs as to the significance of that evidence cannot be great — it is undoubtedly the Commissioner's view which is of importance as it is he who must enquire and report. Similarly with the question of availability from other sources, a matter which is necessarily linked with the nature of the evidence which it is desired to hear. The importance of the terms of the Commission of Inquiry are self-evident.

At the centre of and essential to the strength of the submissions for the plaintiffs is the claim of likelihood of criminal prosecution for breach of the secrecy laws. As indicated earlier, I take the view that this also embraces the effect of the injunction.

Despite the stance apparently adopted by the Solicitor-General of the  [*195]  Cook Islands, and the observations of the Chief Justice expressed in his reasons for granting the injunction, there are factors which must weigh heavily against the likelihood of conviction and even against prosecution if a release from the present orders of the Commission is not given and they are upheld by this Court.

The plaintiffs who are New Zealand citizens and residents would be giving evidence in New Zealand under compulsion of New Zealand law. No question of voluntary disclosure of any nature is involved.

The Cook Islands Courts must be seen as likely to respect and apply the rules of conflict of laws which are common to New Zealand, and in particular the rule already referred to whereunder New Zealand law is regarded as paramount. It is in my view likely that the Cook Islands law will recognise a defence of justification or compulsion in respect of acts which would otherwise be a breach of the secrecy laws. That defence would appear to be a general fundamental proposition of criminal law as it is understood in Commonwealth countries. If that be so, and the likelihood is that giving evidence under compulsion would not constitute a breach of statute or be treated as a contempt  [*196]  of the Court orders, then the substance of the present challenge largely if not entirely disappears.

Even if the plaintiffs can be said to be at appreciable risk, I am of opinion that in the circumstances the public interest requires the claim of just excuse or sufficient cause to be rejected.

The possible withholding by the Cook Islands government of visas, and the reluctance of witnesses who have given evidence to travel to the Cook Islands will of course remain, and with those factors the possible effect on the continued practice in that jurisdiction of KPMG Peat Marwick must be taken into account. Although it was proffered in argument, I do not see s 18 of the New Zealand Bill of Rights 1990 granting freedom of movement to enter and to leave New Zealand as being of any present significance. The right to enter Cook Islands is not guaranteed under that statutory provision.

The possible adverse effects on KPMG Peat Marwick and its partners or members in relation to continued practice in the Cook Islands which are relevant can only be those which are a result of being compelled to give evidence before this Commission of Inquiry. It is difficult to see how reputation would be adversely  [*197]  affected. The loss of future business is likely to be only that which could be the subject of a future investigation such as the present, and that to my mind is not of major concern for present purposes. Against these and the other consequential effects raised in argument are the national importance of the Commission of Inquiry and the need for the Commissioner to be able to conclude his task in a full and effective way.

I have reached the view that when undertaken the balancing exercise propounded by the plaintiffs yields a clear answer in favour of upholding the orders made by the Commissioner which are now under review. It can be observed by way of comparison that it has long been accepted that fear of physical recrimination or of serious adverse effect on a personal relationship will not in general excuse a witness from giving evidence.

I endorse the observation of Richardson J to the effect that the giving of an advance specification to the intended witnesses of a detailed list of topics is desirable. The Commissioner will no doubt also keep firmly in mind in respect of these witnesses who have properly sought to ensure their own protection are examined only on matters of significance  [*198]  which are not readily accessed from other sources. The sensitivity of their position requires recognition.

I would dismiss the application for review.I have read the draft judgments of Cooke P, Richardson J and Henry J and have nothing to add. I agree that the appeal should be dismissed with costs.

The plaintiffs in this proceeding seek a declaration that they should not be required to give any evidence to the "winebox inquiry" on any matter which will or is likely to render them liable to prosecution in the Cook Islands pursuant to the secrecy legislation of that jurisdiction, and an order setting aside the ruling of the Commission of Inquiry of 27 September 1995 insofar as it requires them to give evidence of that kind.

The KPMG case

Similar questions as to the compellability of witnesses called to give evidence before the Commission of Inquiry arose in KPMG Peat Marwick v Sir Ronald Davison the judgments in which have been delivered today. The plaintiffs there were an international accountancy firm and three Auckland partners who had had responsibility for auditing and other advisory work for the international and domestic practices in the Cook Islands, including in the  [*199]  international practice work for the European Pacific group of companies. The plaintiffs in the present proceeding also worked for the European Pacific group.

Except for one argument advanced for the present plaintiffs, but not in the KPMG case, the issues of law are the same, as is the essential factual background. It is unnecessary to traverse that ground again. It is sufficient to record that in the KPMG case we rejected all the separate grounds on which the Commissioner ruled that the individual KPMG Peat Marwick plaintiffs must give evidence but nevertheless held that, on the wider interpretation we gave to the relevant witness provisions of the Commissions of Inquiry Act 1908, the circumstances on which the plaintiffs relied did not constitute sufficient cause or just excuse for a blanket refusal to give evidence or produce documents as required by the Commission.

Privilege against self-incrimination

Before turning to the application of the witness provisions in the present case it is necessary to consider the additional and logically prior argument which has been advanced for the present plaintiffs. Section 6 of the Commissions of Inquiry Act preserves in favour of a witness  [*200]  the privileges and immunities that witnesses have in courts of law. The plaintiffs have not been required to produce any documents. Their concern relates to oral testimony. They seek to invoke the privilege against self-incrimination as a basis for lawfully declining to give oral evidence before the Commission on matters that would involve them in infringing Cook Islandssecrecy legislation. They submit that the privilege is available whenever there is an appreciable risk that a witness will expose himself or herself to criminal proceedings by giving that evidence and even though any such criminal proceedings would have to be instituted in the Cook Islands, not New Zealand.

The first and threshold question, however, is whether the common law privilege against self-incrimination applies even though it is not suggested that the witness has committed any offence on which the evidence sought may bear but the giving of evidence may itself constitute an offence under a foreign statute. The answer turns on the nature and scope of the common law privilege.

It is well settled that "a party cannot be compelled to discover that which, if answered, would tend to subject him to any punishment,  [*201]  penalty, forfeiture or ecclesiastical censure" to use the words of Bowen LJ inRedfern v Redfern [1891] P 138,147 (and seePyneboard Proprietary Ltd v Trade Practices Commission (1983) 152 CLR 328,355). The report of R v Garbett (1847) 1 Den 236; 169 ER 227 records (257;235) that "if a witness claims the protection of the Court, on the ground that the answer would tend to criminate himself, and there appears reasonable ground to believe that it would do so, he is not compellable to answer; and if obliged to answer, notwithstanding, what he says must be considered to have been obtained by compulsion, and cannot be given in evidence against him." As it was put in Phipson on Evidence (11th ed) 148, the common law privilege was sustained by the view that it is unfair to put any person in a position whereby he or she must either answer correctly and go to gaol for what emerges, answer incorrectly and go to gaol for perjury, or refuse to answer and go to gaol for contempt of court.

The privilege against self-incrimination is the right of a person asked a question to decline to answer on the ground that the answer would have a tendency to expose that person to a criminal  [*202]  charge. The protection is directed to the particular answer to the particular question. And in Hammond v The Commonwealth (1982) 152 CLR 188,202-203 Brennan J referred to the privilege against self-incrimination as "a principle deep-rooted in our law and history that the Crown may not subject an accused person to compulsory process to obtain his answers upon the issue of his guilt of an offence with which he has been charged."

It is also implicit in the two most important statutory provisions bearing on the question that the incrimination is in respect of an offence which has already been committed. S 4 of the Evidence Act 1908, after making the parties to civil proceedings and their spouses competent and compellable witnesses for either sides adds the proviso that "nothing herein shall render any person compellable to answer any question tending to criminate himself". And s 25(d) of the Bill of Rights affirms the right of anyone charged with an offence not to be compelled to be a witness or to confess guilt.

The origin, history and policy foundations of the common law privilege have been much debated by legal scholars. They are extensively discussed in such major works as  [*203] Wigmore on Evidence (McNaughton Revision) paras 2250 and 2251 andMcCormick on Evidence (3rd ed) paras 114-118. It is not necessary for present purposes to explore those questions or to determine whether the common law privilege extends to answers which might incriminate the witness under foreign law (compare the differing views expressed in Cross on Evidence (4th NZ ed 1989) para 10.14; 16.7 Laws of Australia para 94; Wigmore para 2258 andMcCormick para 122). The purpose of the privilege against self-incrimination is to protect the witness from compulsory disclosure of an existing criminal liability. It is not directed to the act of testifying or the attempt by foreign states, by imposing criminal sanctions for breach of their secrecy regime, to stop anyone from giving any evidence on a matter. The risk of prosecution for testifying is to be taken into account in determining under the relevant witness provisions of the Commissions of Inquiry Act 1908 whether the plaintiffs have a sufficient cause or just excuse for refusing to give evidence. In principle, that risk does not come within the common law privilege against self-incrimination.

The same question  [*204]  concerning the scope of the privilege arose in a similar factual context in In re Grand Jury Proceedings:United States v Field 532 F 2nd 404 (1976). A non-resident of the United States was subpoenaed while in the United States to testify before a Grand Jury investigating possible criminal violations of American tax laws. Part of the investigation centred on the use of foreign banks to evade tax enforcement. Mr Field was manager of a bank and trust company in the Cayman Islands. It was accepted that the act of testifying would probably subject him to criminal prosecution in his country of residence for breach of its secrecy regime. He pleaded the constitutional protection against self-incrimination. The Court of Appeals held it had no application. The Fifth Amendment protected the giving of testimony that tended to show that the person concerned had committed a crime. It restrained the state from submitting to the temptation of resorting to the expedient of compelling incriminating evidence from one's own mouth. It was not pertinent to the situation where a foreign statute makes the act of testifying a criminal offence. The court went on to consider and determine against Mr Field  [*205]  the separate argument whether the interests of comity between nations required the quashing of the subpoena.

The "just excuse" test under s 13A

I turn to consider the application of the witness provisions of the Commissions of Inquiry Act in the present case. In terms of s 13A a witness who offers "any just excuse" is entitled to refuse to give evidence. In terms of s 9 a witness who gives "sufficient causes is not required to produce the documents sought. The plaintiffs are not asked to produce any documents to the Commission and it is sufficient to focus on s 13A.

InKPMG I concluded that in a statute authorising compulsory interrogation those words must be given an ample meaning. The Commission has to weigh all the considerations properly bearing on the exercise of discretion in determining whether any just excuse has been given. I suggested various factors for particular consideration.

The Commission's approach to s 13A

As in KPMG , the Commission must be taken to have erred in its approach to s 13A. The Commissioner did not undertake an appropriate balancing exercise. He concluded that the secrecy provisions of the Cook Islands legislation were completely  [*206]  irrelevant and that a witness who did not have a common law privilege against answering a question lacked just excuse within s 13A. Because of the narrow view he took to just excuse he did not balance the particular position of each witness and the potential detriment to them from having to testify on winebox matters against the assessment of the need for their evidence.

It cannot be said with assurance that had he approached the matter correctly he would inevitably have reached the same conclusion. That being so I turn to consider whether, as Mr Carruthers submitted for the Commission, we should on our assessment now hold that the circumstances on which the plaintiffs rely do not constitute just excuse for their refusal to give evidence as required by the Commission; or whether, as Mr Stewart and Mr Craddock submitted for their respective plaintiffs, that the matter should be remitted to the Commission (Mr Stewart), or to the High Court (Mr Craddock), to hear and determine the matter.

Balancing the relevant considerations

The governmental interest in investigating winebox transactions and any abuse of the New Zealand tax system and in having the Commission undertake that examination  [*207]  is reflected in the constitution of the Commission with its terms of reference. The materiality to the inquiry of evidence of European Pacific involvement in the transactions is obvious enough. In his ruling of 21 April 1995 the Commissioner concluded:

European Pacific is at the heart of the winebox transactions. Not only does the evidence presently available to me demonstrate that it had significant involvement with the transactions, but it shows that its employees were involved in originally setting up the tax haven in the Cook Islands, including by drafting the very legislation upon which it now relies to prevent disclosure.

The Commissioner added that allegations that some of the winebox transactions involved tax evasion and/or fraud were most serious for European Pacific and those New Zealand companies involved in the transactions.

While the Commission did not refer to the respective roles of the plaintiffs, each was employed in an accounting or management position in the European Pacific group in the Cook Islands at material times. Clearly their evidence could be very important in understanding the winebox transactions and in answering the questions posed under the terms of  [*208]  reference.

Mr Stewart and Mr Craddock submitted strongly, however, that there had been no attempt by the Commission to ascertain just what evidence is required from these witnesses, why it is required, whether or not it is relevant, and, if it is, whether or not it could be obtained elsewhere. In response the Commission sought leave to adduce further evidence as to the relevance and importance of the evidence the plaintiffs could be expected to give. The court declined to admit the affidavits while recording that on the evidence presently available to the court the questions the Commission wished to take up were likely to be both relevant and legitimately significant to its inquiry. The Commission has provided the witnesses with large folders containing numerous documents but following discussions by counsel we were advised that the Commission could and would identify topic areas on which the particular witnesses would be questioned. The judgment as to what evidence is relevant and important and from whom it should be sought is essentially for the Commission which has been entrusted with the inquiry. The witnesses would be protected by having their examination confined in the way proposed  [*209]  and by being represented by counsel at the public hearing, if they so wished.

As in the KPMG case, any personal and professional factors affecting witnesses would have to be particular weighty to displace the public interest in eliciting such relevant information of New Zealand nationals in a New Zealand inquiry of this kind. It is also important to re-emphasise that, if the plaintiffs give evidence under compulsion, the Cook Islands authorities will under conflicts of laws rules recognise that feature of the case both in considering prosecution in the Cook Islands and as a defence to any prosecution.

Mr Carruthers submitted that there was no evidence that the plaintiffs had made good faith efforts to obtain exemption from secrecy obligations. But European Pacific sought and obtained an injunction against KPMG and its personnel in the High Court of the Cook Islands and the Cook Islands Monetary Board threatened them with prosecution if they divulged information in breach of the International Tax Act. Given the clear stance of European Pacific and the Cook Islands Monetary Board, the only reasonable inference is that exemption would not have been granted and the plaintiffs cannot  [*210]  be criticised for failing to provide explicit evidence of a request and refusal.

None of the four plaintiffs is currently employed by European Pacific but Mr Barry, who is a chartered accountant employed in a family company in the Waikato, does some contract work for European Pacific which has taken him to the Cook Islands some 10 to 12 times in the last two years. Mr Lilly is employed in New Zealand by a multi-national company and has no business commitments in the Cook Islands. Mr Brannigan and Mr McCullagh are members of an accounting firm in Auckland which has an office in theCook Islands. In July 1995, and so after the question of their attendance before the Commission arose, the firm became auditor to theCook Islands Government. The Cook Islands work forms some 20% of the Auckland practice with Government and Government-linked work providing about half of that figure.

Mr Brannigan has visited the Cook Islands on 13 occasions during the past three years and needs to continue doing so to maintain the practice. He is concerned that if he is compelled to give evidence before the Commission he will be detained in the Cook Islandsand dealt with under the penal provisions of the  [*211]  relevant statutes and his firm will lose the Government associated work. Mr McCullagh has not been to the Cook Islands since 1991 but considers it will be necessary for him to visit there in order to service the firm's growing practice.

In their affidavits all four plaintiffs seek a ruling from this court to clarify their obligations to the Commission.

Conclusion

There is force in the submission for the plaintiffs that the risk of prosecution in the Cook Islands and of professional and financial losses of that kind together with the inhibiting consequences on their professional and private lives are significant considerations to weigh in the balancing exercise. Nevertheless, in the end I have concluded first, that we must respect the judgment of the Commission as to the relevance and importance to the inquiry of the evidence sought from the plaintiffs and, second, that the balancing of considerations inherent in the just excuse test requires us to uphold the orders made.

Before parting with the case I wish to emphasise two points which I noted in the Audit Office and KPMG cases. The first is that courts and commissions recognise the reality that national interests differ.  [*212]  Every tax regime has commercial implications and has some features attractive to international commerce. That is certainly true of the New Zealand tax regime. As the enactment of blocking statutes demonstrates, the desire of courts and commissions in one country to gain access to relevant information may be viewed by another state as an affront to its sovereignty. In circumstances where an individual risks sanctions in either event because of the prospect of punishment for refusing to disclose or for actually disclosing particular information, the court or tribunal must weigh those risks in a sensitive and realistic way recognising the principle of international comity or mutual respect of state sovereignty.

The second is that transactions affecting foreign tax credits may constitute (i) acceptable tax planning, or (ii) tax avoidance which is not criminal but is countered within the tax legislation, or (iii) tax evasion which involves criminal liability for breaking of the law. Determining into what category transactions fall requires careful analysis of their true nature. As recently as in Attorney-General v Equiticorp Industries Group Ltd (CA188/95 judgment 11 December 1995)  [*213]  the court re-emphasised the rejection by the Privy Council in the firstEuropa case (Commissioner of Inland Revenue v Europa Oil (NZ) Ltd[1971] NZLR 641) of an appeal to overall substance and stressed the need to focus on the contractual arrangements entered into and carried out. And in the line drawing between tax planning and tax avoidance it is of some interest that the Full Federal Court of Australia has recently rejected a challenge under the Australian general anti-avoidance provision to a set of Cook Islands transactions through European Pacific (Federal Commissioner of Taxation v Spotless Services Ltd (1995) 95 ATC 4775).

In eliciting and assessing the evidence in this inquiry the Commission can be expected to maintain a proper appreciation of the essential differences between tax planning, tax avoidance and tax evasion.

This is the third of a series of cases heard late last year. They arise out of the hearings before the Commission of Inquiry into the actions of the Commissioner of Inland Revenue and the Director of the Serious Fraud Office in respect of the transactions referred to in the so-called Winebox papers". This proceeding is brought by four of the former  [*214]  employees of the European Pacific Group of companies, each of whom has been directed by the Commission to appear and give evidence. They claim that to do so would breach the Cook Islands secrecy legislation and render them liable to criminal sanctions. They seek a declaration that they should not be required to give evidence on any matter which may render them so liable, and an order setting aside the Commission's ruling requiring them to do so. The Commission is named as defendant, and the proceedings were transferred to this Court by consent.

The plaintiffs base their claim to relief on two grounds. The first is the common law privilege against self-incrimination. This point was not raised in theKPMG Peat Marwick case arising from the same Commission of Inquiry. Section 6 of the Commissions of Inquiry Act 1908 provides that every witness appearing before a Commission has the same privileges as a witness in a court of law. The second ground, put forward as an alternative, is based on s 9 of the Act. That section makes it an offence to refuse, without sufficient cause, to give evidence when required by the Commission. The plaintiffs claim that the risk of exposure to criminal  [*215]  proceedings is in this case sufficient cause for declining to give evidence. The plaintiffs, Brannigan and McCullagh, claim that in their case the threat of termination of valuable business arrangements and loss of an established client base also provides sufficient cause for them to decline to give evidence without committing an offence under s9.

The privilege against self-incrimination was discussed in the judgments of this Court in Busby v Thorn EMI Video Programmes Ltd[1984] 1 NZLR 461, in which reference was made to Rank Film Distributors Ltd v Video Information Centre [1982] AC 380as to the degree of risk required before the privilege can be invoked. The position was summarised by Cooke J in Busby at 469 as follows:

In New Zealand the availability of the privilege against self-incrimination when discovery or interrogatories are sought is established by the decision of this Court in Taranaki Co-operative Dairy Co Ltd v Rowe [1970] NZLR 895; and claims to the privilege have often been upheld in the Supreme or High Court. The test generally applied has been whether answers may place the defendant in real and appreciable, not merely imaginary or fanciful, peril.  [*216]  Mr Crew collected a line of cases to that effect, of which as a typical example it is sufficient to cite here the judgment of Myers CJ and Reed J in O'Neill v New Zealand National Creditmen's Association (Wellington) Ltd [1933] NZLR 144, 152. Gibbs CJ has stated the test in substantially the same way in Sorby v Commonwealth of Australia (1983) 57 ALJR 248, 251-253.

The leading English cases on the test are now Rank and a case in the House of Lords a few years Earlier, Re Westinghouse Uranium Contract [1978] AC 547. Reading the speeches in those cases as a whole, I think that they accept that the test of a sufficient tendency to incriminate is not a rigorous one; a mere improbability that criminal proceedings will be taken is not enough to exclude the privilege; the risk must be real and not fanciful.

At 470, in referring to the approach of Lord Wilberforce and Lord Fraser in Rank, he said:

I think that their approach supports the view that regard should be had to the practical risk of criminal proceedings. If it can be shown to the Court that the practical risk is negligible, notwithstanding that in theory a prosecution could be brought, the privilege need not be held to  [*217]  apply. No Court would lightly be satisfied that a risk of prosecution which clearly exists in theory is negligible in practice; but I would favour recognising that limited degree of elasticity.

Although these cases dealt with the rule in the context of discovery or interrogatories, the rule applies to evidence in general: Cross on Evidence 7th ed, Phipson on Evidence 11th ed 148. In USA v McRae (1867) LR 3 Ch App 79 at 83 Lord Chelmsford LC referred to it as as "the well known rule, applying equally both to the examination of witnesses and to interrogatories of defendants in equity, that no person is compellable to answer any question which has a tendency to expose him to a criminal charge, penalty or forfeiture". In the present case the risk of prosecution under the Cook Islands' law is not a mere negligible one, and the possible penalties are substantial. Each of the plaintiffs has received a letter from the relevant Government agency in the Cook Islands drawing attention to s 227 of their International Companies Act which makes certain disclosures of information an offence, and to s 229 which provides penalties on conviction of a fine of $5,000 and imprisonment for  [*218]  12 months. The principal issue is whether the privilege applies where the only risk of prosecution is in another jurisdiction under its own law.

This question has arisen in earlier cases. In East India Co v Campbell (1749) 1 Ves Sen 246 the Court of Exchequer held that the privilege applied where the witness would be liable for an offence against the law of Calcutta. In King of the Two Sicilies v Willcox(1851) 1 Sim (NS) 301 the Vice-Chancellor declined to allow the privilege as the Court did not know whether the witness would be liable under the law of Sicily, and he would in any event not be at risk unless he elected to go there. That case was distinguished inUSA v McRae , where Lord Chelmsord LC upheld on appeal the defendant's objection to answer interrogatories on the ground that his answer might render him liable to forfeiture of property in the United States. The Court had no difficulty in knowing the relevant law, as it was set out and admitted in the pleadings. Lord Chelmsford expressly rejected the argument that the protection from answering applied only where the witness would be exposed to the peril of a penal proceeding in England, and did not apply where  [*219]  the liability to penalty or forfeiture was incurred by the breach of the laws of a foreign country. He said he could not distinguish the latter situation in principle.

In the Two Sicilies case there was no evidence before the Court as to the law of Sicily. In the present case the Cook Islands' statutes are before us, and it is not suggested that they would be construed any differently from the way the Courts here would construe a New Zealand statute. If such were the case, it could be readily proved by expert evidence. The Chief Justice of the Cook Islands has already granted the plaintiffs employers, European Pacific Group Ltd. an injunction against its auditors and their directors and employees to restrain them from making disclosures to the Commission of Inquiry in breach of s 227 of the Cook Islands' statute.

In England, the privilege has been limited by s 14(1)(a) of the Civil Evidence Act 1968 to apply only to criminal offences and to penalties imposed under the law of any part of the United Kingdom. There is no comparable provision in New Zealand. In Rio Tinto Zinc Corporation v Westinghouse Electric Corporation [1978] AC 547, Lord Diplock at 636 referred to the purpose  [*220]  of s 14 as being "to remove the doubt as to whether the privilege against self incrimination extends to offences and penalties under foreign law — a question on which the previous authorities were not wholly consistent". He gives as his reference the report of the Law Reform Committee "Privilege in Civil Proceedings" CND 3472. Paragraph 11 of that Report does contain such a statement, but shows that the doubt did not arise from later authorities, but from a view that theTwo Sicilies and McRae cases "were not wholly consistent", and an erroneous belief that the abolition of the privilege would leave the matter to the discretion of the Judge: see Arab Monetary Fund v Hashim (1989) 3 All ER 466 at 473-4.McRae's case clearly held that no valid distinction is to be made between incrimination under domestic law and under the relevant foreign law, and distinguished the earlier Two Sicilies case: Any "inconsistency" was thereby resolved. There appears to be no English case to the contrary in the following 100 years, except In Re Atherton [1912] 2 KB 251. That decision was per incuriam, being given on the assumption that the rule had never been applied to the  [*221]  case where the alleged crime was in another jurisdiction (see p 255). McRae's case was unaccountably overlooked.

These and other English authorities were considered by the United States Supreme Court in Murphy v Waterfront Commission of New York Harbor 378 US 52 (1964). After discussing McRae, the majority judgment said (at 63):

This decision, not King of the Two Sicilies , represents the settled 'English rule' regarding self-incrimination under foreign law.

The judgment proceeded at 77 to accept as correct the construction of the privilege given by the English Courts as set out in McRae . It expressly rejected as "unsupported in history or policy" the deviation from that construction adopted by the Supreme Court in two previous decisions, Hale v Henkel201 US 43 (1906)< and United States v Murdock 248 [sic, should be 284] US 141 (1931). The settled English rule, it is said at 67, was exactly opposite to that stated by the Court in those cases, the most recent authoritative announcement of the English rule being that made in 1867 in United States of America v McRae . An examination of the briefs and summary of argument indicated that neither party in Murdock had informed the  [*222]  Court that the Statement in King of the Two Sicilies had been overruled byMcRae (ibid, 71).

McRae's case has been followed in Australia in Adsteam Building Industries Pty Ltd v The Queensland Cement and Lime Co Ltd (No 4) [1985] 1 Qd R 127, 144-5, where the privilege was upheld in respect of production of a document which would or might expose the person concerned to a penalty under the Swiss Penal Code. On the other hand inF F Seeley Nominees v El Ar Initiations(1990) 96 ALR 468 Zelling AJ regarded McRae's case as turning on discovery, and the position as remaining doubtful. I see nothing inMcRae'scase to suggest that the principle is limited to discovery. I have already referred to Lord Chelmsford's direct statement to the contrary, that the rule applies equally to the examination of witnesses. Zelling AJ refers to 8 Wigmore on Evidence (McNaughton Revision) 1961 ed, para 2258 p 342, but that edition was before the decision of the Supreme Court inMurphy , to which reference is made in later supplements.

The position has been discussed in Canada in Spencer v the Queen (1983) 145 DLR (3d) [344], affirmed on further appeal by the Supreme Court of  [*223]  Canada [1985] 2 CTC 310. Spencer was a bank employee who had earlier been the manager of the bank's main branch in the Bahamas. He was ordered by the provincial court judge to give evidence at a criminal trial in relation to transactions of the bank in the Bahamas. He objected on the ground that to disclose the information sought could expose him to a criminal prosecution in the Bahamas. The order requiring him to give evidence was quashed, and the Crown appealed. The Crown's primary agreement was that the public and the Courts had the right to every person's evidence, whether or not foreign law made it a crime for the witness to give that evidence. The Ontario Court of Appeal upheld this argument, holding that Spencer was a compellable witness in Ontario. It referred in its judgment to the Two Sicilies case and to Re Atherton , but did not refer to McRae . It stressed that the question whether a privilege existed to exempt a witness from giving evidence was one for the led Con, and held that Canadian law did not recognise any privilege in bank officials which would prevent them from giving evidence. The Crown did not find it necessary to decide on the second ground advanced  [*224]  by the Crown, namely that the Judge had erred in concluding that Spencer would be violating Bahamian law by giving the evidence sought. It went on to discuss this question, however, and concluded that the Bahamian legislation was not intended to have extra territorial effect.

The Supreme Court of Canada, with a bench of nine judges, was unanimous in affirming that decision. Only two brief judgments were delivered, one dealing with a late argument based on the Charter. On the primary issue, the Court held that the fact that the giving of the evidence sought might constitute a crime in another country could not prevent the Canadian courts from compelling a witness to testify. It expressed the view that as a matter of international comity it would have been preferable to have sought an order from the Bahamian court permitting the disclosure to be made, but in the absence of such an order the witness was properly ordered to give the evidence.

It is unfortunate that McRae's case does not appear to have been drawn to the attention of the Canadian courts, and no consideration was given to the question whether the privilege against self incrimination should be limited to incrimination  [*225]  under domestic law. The privilege is not an absolute one, in that the prosecution or penalty feared must be one "which the judge regards as reasonably likely to be preferred or sued for": per Goddard LJ in Blunt v Park Lane Hotel Ltd [1942] 2 KB 253, following earlier cases. The present rationale for the rule is to encourage witnesses to testify freely: see for example Cross on Evidence , 7 ed 687, 4 NZ ed 244. That does not suggest making a distinction between incrimination under domestic law and incrimination under foreign law, where in each case there is a reasonable likelihood that a charge will be preferred. It is not a question of preferring some other law to the lex fori. The question is whether the common law which applies in New Zealand as part of the lex fore recognises a privilege from disclosure in such a case.

Counsel for the Commission referred us to United States cases which appear to have held against any privilege for a witness on the ground of possible incrimination under a foreign law. In United States v Field 532 F 2d 404 (1976), Field was required to give evidence before a grand jury in Florida investigating possible criminal violations of tax laws.  [*226]  He was a Canadian citizen resident in the Cayman Islands, where he was managing director of a bank. He had been served with a subpoena while at Miami International Airport. He claimed that to give testimony as required would violate the bank secrecy laws of the Cayman Islands. The case resembles the present case in that it was not the content of the evidence which gave rise to the risk of incrimination, but the mere fact of giving the evidence which would constitute the offence. The Fifth Circuit Court of Appeals drew this distinction. The Court held that the privilege, which is conferred by the Fifth Amendment to the Constitution, protects against the use of the witness's answers and evidence in any subsequent criminal case in which he is a defendant. It does not protect the fact of testifying. The Court also rejected an argument based on international comity, stressing the vital importance of the grand jury's function under United States' law.

A similar view was taken by the Second Circuit Court of Appeals inUnited States v Frank 494 F 2d 145 (1974), in discussing an appeal against conviction on the ground (inter alia) that evidence of bank transactions had been received in  [*227]  breach of a Bahamian statute. In United States v The Bank of Nova Scotia 740 F 2d 817 ([11th Cir.] 1984) the Eleventh Circuit Court of Appeals upheld an order of civil contempt and a fine of $1.825 million for failure to give evidence as required by subpoena. The bank's assertion that to do so would violate the business secrecy laws of the Cayman Islands did not excuse compliance, which required a balancing of pertinent factors.

I do not accept the logic of the distinction between giving evidence the content of which may incriminate, and giving evidence where the fact of giving the evidence will incriminate. In each case it is the giving of the evidence which exposes the witness to the risk of prosecution and penalty. If there is good reason for the common law to recognise a privilege in the one case, that reason would appear to apply equally to the other.

These cases suggest that privilege under the Fifth Amendment does not extend to incrimination under foreign law, at least where evidence is required for a grand jury investigation. None of them refer to the decision of the Supreme Court in Murphy , nor attempt to distinguish it.McCormick on Evidence (3 ed, 1984) 298-300 notes that  [*228] Murphy was concerned with the risk of prosecution under federal law, notwithstanding the grant of immunity under state law. It therefore did not necessarily resolve the problem of incrimination under the laws of a foreign country or of another state, but "it destroyed the conceptual basis, weak as it was, for the traditional view that in those situations the privilege was inapplicable". There may be much to be said for applying a balancing exercise in each case, and for the Court to exercise a discretion as contemplated by the Law Reform Committee in England. This is a policy question, however, and if the common law as stated in McRae is to be varied after so many years, the implications need to be considered in a wider context than the present case. In England the change was made by statute, following a Law Reform Committee's report. If a change is thought to be desirable in New Zealand, the question might be found suitable for consideration by the Law Commission.

I regard the present law in New Zealand as settled by McRae. That case distinguished but was not in conflict with the Two Siciliescase. It is supported by East India Company v Campbell . The only English  [*229]  decision to the contrary is In re Atherton, which was clearly in error in assuming the absence of prior authority. The case turned on the scope of the statutory requirement that a debtor answer all questions put or allowed by the Court in a public examination under the Bankruptcy Act. The Judge made the comment that he was not aware of any case where the rule that a man cannot be compelled to answer questions tending to criminate him had been applied where the alleged crime has been committed outside the jurisdiction. This cannot be regarded as an authority, when there are such cases but they were not cited in argument.

No sufficient reason has been shown for departing from the earlier authority. As Mr Stewart pointed out in his argument, the recognition of the wider scope of the privilege avoids possible bizarre situations. He gave the example of an Australian resident temporarily in New Zealand who declines to answer a question in a New Zealand Court which may incriminate him in Australia in respect of an offence for which he could be extradited. He could not be required to answer the question in Australia, but if he could be compelled to answer in New Zealand he could be arrested  [*230]  and extradited. In the present case a warrant might be obtained in the Cook Islands against any of the plaintiffs within their jurisdiction in respect of offences against the International Companies Act. The Cook Islands Government could then seek to have them extradited from New Zealand pursuant to sections 340-346 of ourCook Islands Act 1915. Whether extradition should be granted or not would be for the Judge to decide in the exercise of his discretion.

It follows that in my view the plaintiffs are entitled to the relief sought, and it is unnecessary to consider the second and alternative ground of appeal. The learned Commission was correct in regarding the question as one to be decided by the New Zealand Courts. He was, with respect, in error in regarding it as intolerable that they should be able to rely on the long established principle against self-incrimination, whether of an offence in New Zealand or elsewhere. No doubt there could be overseas statutes so inconsistent with the fundamental principles of our law that our Courts might exclude them as a basis for claiming privilege, but the secrecy clauses in question have not been shown to be in this category. The Commission  [*231]  accordingly erred in concluding, as he did, that the provisions of the Cook Islands' legislation in respect of secrecy should be regarded as "completely irrelevant".

I would grant the relief sought.

In this, the third of the proceedings for judicial review relating to the Winebox Inquiry, the plaintiffs seek to set aside a decision of the defendant requiring them to give evidence before the Commission. What is at issue is the right claimed by the plaintiffs to refuse to give evidence when prohibited from doing so by what can broadly be described as the secrecy legislation enacted by the Government of the Cook Islands

The general background is referred to in the associated appeal of KPMG Peat Marwick [amp] Others v Davison (CA 223/95), judgments in which are being delivered contemporaneously. That background need not be repeated.

It is submitted by the plaintiffs that the Cook Islands secrecy legislation enables them to invoke the common law privilege against self incrimination, which is preserved by s 6 of the Commissions of Inquiry Act 1908. It is further submitted that the same legislation provides the plaintiffs with sufficient cause or just excuse and thereby avoid the penal  [*232]  consequences of s 9 and s 13A of the Act, which would otherwise come into question as a result of the refusal to give evidence,

It is important that the issues be considered in the proper context of the present case.

One aspect of the inquiry under consideration by the Commission is whether any of the transactions identified in its terms of reference constitute tax evasion and possible breaches of the New Zealand criminal law. The plaintiffs admittedly have direct knowledge of some of the transactions. They are compellable witnesses; they are New Zealand citizens and New Zealand residents; their evidence will not render them liable to any penalty or forfeiture under New Zealand law; their evidence is to be adduced in New Zealand before a Commission duly appointed by Order-in-Council; the only reason proffered for a refusal to give evidence is the existence of a foreign law which purports to prohibit disclosure of matters upon which it is sought to examine the plaintiffs.

I do not think the common law claim of privilege is available in the circumstances of this case. First, this is not a situation where a witness is being required to disclose previous conduct which constituted a crime,  [*233]  the disclosure of which would provide evidence for a prosecution. Traditionally, the privilege was a protest against a person being compelled to utter his or her own guilt. That is not the present case, where the protest is that it is the very giving of evidence which constitutes the offence. The distinction was recognised by United States Court of Appeals, Fifth Circuit in United States v Field 532 F 2nd 404 (1976). An alien while present in the United States was subpoenaed to testify before a grand jury concerning possible taxation law violations. He refused, pleading his rights under the Fifth Amendment and relying on the fact that to give testimony on the matters in question would violate the basic secrecy laws of the Cayman Islands. The Court held that the Fifth Amendment was not pertinent to the situation where a foreign State makes the act of testifying a criminal offence. The Court also went on to hold that the subpoena should be enforced notwithstanding that compliance would subject Field to prosecution in his country of residence, applying s 40 of the Restatement (2nd) Foreign Relations Law of the United States . In theKPMG Peat Marwick appeal I referred to the  [*234]  Canadian Supreme Court authority of Spencer v The Queen [1985] 2 SCR 278, a case closely analogous to the present. No question of protection against self-incrimination or possible breach of the Charter was considered to exist.

Although it could perhaps be argued that the rationale behind the common law privilege can be applied to the situation when the giving of evidence itself constitutes an offence, that does not in my view necessitate the extension of the privilege beyond its traditional boundaries. The better approach in my judgment is to restrict its operation to established principle.

There is a logical distinction to be drawn between disclosure of a breach of the criminal law when giving evidence, and the commission of a breach by giving evidence. It is difficult to envisage a situation where one jurisdiction requires testimony to be given and at the same time declares that the giving of testimony is a crime. Perhaps understandably no authority was cited in argument to support the proposition that the rule applies to such a situation. I can see no sufficient reason for extending the operation of the rule in this way when its domestic application is so unlikely to arise.  [*235]

A second and more compelling reason for rejecting the applicability of the privilege is that the infringement in question is not that of New Zealand law but of foreign law. Although the common law position in this regard is not settled (Rio Tinto Zinc Corporation v Westinghouse Electric Corporation [1978] AC 547 per Lord Diplock at p636), there is a strong body of opinion that the privilege does not extend to embrace possibility of prosecution by a foreign State. See Wigmore on Evidence VIII para 2258; The King of the Two Sicilies v Willcox 61 ER 116; Re Atherton [1912] 2 KB 251. USA v McRae (1867) LR 3 Ch App 79 is an authority to the contrary, as is the Australian decision in Adsteam Building Industries PU Ltd v Queensland Cement [amp] Lime Co Ltd [1984] 2 Qd R 127. In my opinion, the better view is that the common law privilege should not be extended in this country to protection against disclosure of an offence against foreign law, and that should now be this Court's determination.

Little is to be gained by traversing the history of the rule or by attempting to analyse its policy. As is said in Wigmore , "There is no 'the' privilege. It is many things  [*236]  in as many settings". Suffice it to observe that although repugnant for the State by its legislature to require a person to give self-incriminating evidence which the State then uses for prosecutorial purposes, the same objection does not apply where the only consequence is the risk of prosecution by a foreign State. The rule, if it is applicable, is absolute and allows no discretionary relaxation. It follows that the foreign State legislation which is arguably infringed would be given full recognition and therefore paramountcy over the wider interests directly relevant to the administration of justice in New Zealand. That must result even if the foreign legislation is objectionable in form, provided the risk of prosecution can be classed as reasonably likely. Here the Cook Islands legislation purports to put at risk New Zealand citizens resident in New Zealand obeying in New Zealand the express dictates of their own domestic law. I would be hesitant to endorse a rule which covered such a situation.

Importantly, the argument for extension loses much if not all its significant force when there is the means to give protection where overall justice or the public interest so require.  [*237]  Wide protection is given by the discretionary statutory relief available in probably all judicial and quasi judicial proceedings by the "just excuse" and "sufficient cause" provisions which I have discussed in the KPMG Peat Marwick judgment. This avoids the theoretical consequences of the scenario suggested by Mr Stewart in argument as being unacceptable if the privilege could not be claimed in respect of a possible breach of foreign penal law. I would therefore hold that the rule has no application to the present situation and is unavailable to the plaintiffs.

It was also submitted in the alternative that the claimed right to refuse to give evidence or produce documents should be upheld by reason of the "just excuse" and "sufficient cause" provisions contained in s 9 and s 13A(l)(b). For the reasons expressed in my judgment in the KPMG Peat Marwick proceedings that contention cannot in my opinion succeed. There is nothing in the plaintiffs' respective personal circumstances which warrant a different conclusion.

Accordingly I would dismiss the application for review, and in doing so endorse the President's expression of hope that all concerned in this Inquiry will  [*238]  co-operate in assisting the Commissioner to complete his task in a fulsome way in accordance with his terms of reference.

I have read the draft judgments of Cooke P, Richardson J, McKay J and Henry J. I am of the view the appeal should be dismissed, substantially for the reasons canvassed in the majority judgments. There are only two matters on which I wish to comment

First, I wish to expressly endorse Cooke P's judgment in holding that the time has come to settle the question whether the privilege against self-incrimination applies to criminal conduct in a foreign state as far as New Zealand law is concerned by holding unequivocally that the privilege or immunity does not extend to incrimination under foreign law. I reject the suggestion that the law in New Zealand is settled by United States ofAmerica v McRae (1867) LR 3 Ch App 79. If it is an authority it is, at best, a fragile authority. Decided in 1867, it has had a chequered history, apparently not having been cited in a number of cases on the point (as demonstrated by McKay J in his judgment), doubted judicially, and eventually been negated by Parliament. The following reasons may be proffered for not followingMcRae [*239]  .

1. I consider that the two early cases, King of the Two Sicilies v Willcox (1850) 1 Sim (NS) 301; 61 ER 116 and McRae are in fact inconsistent. Willcox refused to allow the privilege against self-incrimination on the grounds that it did not apply to incrimination under foreign law. The lack of information as to the foreign law was only part of the ratio of the decision of the Lord Chancellor, Lord Cranworth. His Lordship discussed the various ramifications of accepting the application of the privilege and concluded (at 331) "[hellip] in the absence of all authority on the point, that the rule of protection is confined to what may tend to subject a party to penalties by his own laws ; and so the objection in the present case cannot be sustained." (Emphasis added).

2. Next, McRae was effectively reversed by the United Kingdom legislature when it enacted s 14 of the Civil Evidence Act 1968 (UK) following a report of the Law Reform Committee, "Privilege In Criminal Proceedings" (Cmnd 3472). It seems to me that the authority of a case which has been effectively reversed by an Act of Parliament must be seriously weakened. In effect, the rationale of the case has  [*240]  not been accepted. It would be stilted for later courts to fail to have regard to the subsequent history of an authority and to the fact that it was an informed Parliament which declared that it no longer represented the law in that country.

3. Then, there is the dictum of Lord Diplock in Rio Tinto zinc Corporation v Westinghouse Uranium Contract [1978] AC 547. The distinguished law Lord declared that the privilege against self-incrimination related to "offences and penalties provided for by the law of the United Kingdom", and that the statute was "declaratory of the common law"(at 636). Its purpose, he went on to say, was "to remove the doubt as to whether the privilege against self-incrimination extends to offences and penalties under foreign law." It would seem tolerably clear that Lord Diplock did not regard the prior law as settled.

4. The position of the Australian Courts is unclear. But the little authority which is available seems to be weighted against the recognition of the privilege where the offence is outside the jurisdiction. In F F Seeley Nominees Pty Ltd v El Ar Initiations (UK) Ltd(1990) 96 ALR 468 (SC,SA), Zelling AJ briefly canvassed the authorities  [*241]  and stated (at 473): "For myself I doubt very much whether the privilege does exist in relation to incrimination under foreign law." See also Jackson v Gamble [19831 VR 552 (SC,Vic) and Adsteam Building Industries Pty Ltd v The Queensland Cement and Lime Company Ltd (No 4) [1985] 1 Ad R 127 (SC,Qd).

5. The position in the United States is complicated by the fact of there being both a federal jurisdiction and number of state jurisdictions. Murphy v Waterfront Commissioners of New York Harbour 378 US 52 (1964) can, I believe, be distinguished on that basis. However much the position as between the federal and state jurisdictions and between state jurisdictions may be equated with the position between the United States and foreign countries in theory, it must surely be conceded that relations between the United States and the various states are likely to be viewed on a different footing from those between the United States and the Bahamas — or any other country.

I am not aware of any decisions of the Supreme Court which concern the application of the privilege to jurisdictions outside the United States, but there are a number of decisions of the Federal Courts. These cases  [*242]  seem to be largely against the extension of the privilege to jurisdictions outside the United States. See United States v Field 532 F 2d 404 (5th Cir 1976), cert denied 429 US 940 (1976); United States v Bank of Nova Scotia 691 F 2d 1384 (11th Cir 1982); United States v (Under Seal) 794 F 2d 920 (4th Cir, 1986), cert denied 479 US 924 (1986); and Re Grand Jury Proceedings 819 F 2d 984 (11th Cir 1987). Contra United States v First National Bank of Chicago 699 F 2d 341 (7th Cir 1983). It has generally been held that the privilege does not apply to the testimony of a witness before a grand jury where the evidence may tend to incriminate the witness in another country.

6. Wigmore , in his early treatise on evidence, launched a scathing attack on the suggestion that the privilege could be extended to incrimination under foreign law. (See 8 Wigmore on Evidence (3rd ed 1940) s 2258, cited in 8 Wigmore on Evidence (McNaughton rev ed 1961) s 2258):

It is not the power or the duty of one State, or its Courts, to be concerned in the criminal law of another State [hellip] A constitution is intended to protect the accused against the methods of its own jurisdiction  [*243]  and no other [hellip] The only conceivable rule would be that when an act was by any possibility capable of being treated as criminal by the law of any other sovereignty, the privilege would protect it. That such a rule should be seriously suggested is incredible.

I do not think that this Court should lightly endorse a proposition which such a prestigious legal figure as Wigmore can describe as "incredible".

7. I do not consider that the fact that the United Kingdom Parliament has seen fit to enact s 14 of the Civil Evidence Act, and the New Zealand Parliament has not passed an equivalent statute, means that the issue is best left to a law reform agency and the ultimate attention of the New Zealand Parliament. This Court is capable of making a sensible assessment as to whether a matter should be left to Parliament or not. In this instance, the issue is not complex and does not require the attention of the law reform machinery and Parliament. If it chooses, of course, Parliament can always reverse a ruling of this Court. And the Court has the assistance of the United Kingdom Law Reform Committee's Report and the subsequent legislation enacted by the United Kingdom Parliament. It  [*244]  may be observed that only recently this Court held that videotaped evidence of interviews with children relating to offences, which are not of a sexual nature, are admissible in evidence in criminal proceedings, notwithstanding the more restricted provisions of ss 23C et seq of the Evidence Act 1908, and notwithstanding that the legislature in the United Kingdom had enacted a provision expressly permitting such evidence in cases of a non-sexual nature. (See ss 32 and 32A of the Criminal Justice Act 1988 (UK) and R v Moke [amp] Lawrence (unreported, 15 December 1995, CA398/95 and CA399/95).

8. I do not consider that the privilege against incrimination in respect of foreign law can be justified by the various rationale or policies that are advanced for the recognised privilege against self-incrimination. Although the rationale may be subject to some disagreement, they provide a useful means of ascertaining whether or not the privilege should apply. The main rationale which have been identified are, (1) the protection of the innocent against wrongful conviction, a consideration which is more relevant where the witness is the accused; (2) effectuating the presumption of innocence,  [*245]  in that accused are entitled to put the prosecution to proof and not to be required to give evidence against themselves; (3) the protection of the individual, in the sense that the individual's integrity is not violated by requiring him or her to give incriminatory evidence against themselves; and (4) reducing the risk of perjury, the belief being that the witness may not tell the truth under threat of prosecution for an offence which he would be obliged to disclose if he or she told the truth. (See Dennis, "Instrumental Protection, Human Right or Functional Necessity? Reassessing the Privilege against Self-incrimination" [1995] CLJ 342, and Heydon "Statutory Restrictions on the Privilege against Self-incrimination" (1971) 87 LQR 214). It seems clear that the dangers inherent in these rationale or policies are less prevalent or pronounced when the danger is perceived incrimination in a foreign jurisdiction.

The second matter I wish to comment upon relates to the distinction which Richardson J develops in his draft judgment between giving evidence which may tend to incriminate the witness and where the giving of evidence by the witness is a crime in a foreign jurisdiction. I am  [*246]  prepared to accept this distinction. The question whether the privilege against self-incrimination applies to the act of giving evidence, as distinct from the substance of the evidence given, arises out of the peculiar facts of this case. It is quite unlikely to arise within New Zealand itself, that is to say, where a witness before a Court or commission of inquiry claims privilege against self-incrimination because the giving of his or her evidence would be an offence under a New Zealand statute. A New Zealand Court seized of such an unusual situation would surely hold that the question whether the witness should give evidence fell to be decided under the "just excuse" or "sufficient cause" provisions of the appropriate statutes. I do not see why the position should be any different simply because the conduct is an offence in another jurisdiction.

Again, when regard is had to the rationale or policy considerations behind the privilege already referred to, it can be seen that they are largely irrelevant. Putting to one side questions of the proprietary of forcing a witness to commit a crime in another jurisdiction (which can be resolved under the "just excuse" or "sufficient  [*247]  cause" requirements), a wrongful conviction will not eventuate simply because the evidence is given; the presumption of innocence cannot be pertinent when the evidence itself, as distinct from the giving of evidence, is not incriminating; the individual's rights are no more nor less protected; and there is little or no risk of perjury arising from the fact that the evidence is required to be given. To my mind, therefore, it would be unwise to extend the privilege against self-incrimination beyond its well-defined and well-established limits.

Finally, I am more than willing to endorse Cooke P's concluding comments to the effect that the inquiry should proceed with the full co-operation of the parties and their counsel. This is the fifth case in which the parties have approached this Court objecting to the admissibility or manner of evidence and it is the fifth case which has failed. To my mind, the time is long past when it should be accepted that it is in the interests of all parties and counsel to co-operate with the Commissioner in expediting the completion of the hearing.

Reported by : Stewart Benson, Barrister