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Statutory interpretation is more an art than a science. While certain “rules” or “canons” exist, it is difficult to know exactly how these will be applied in a given case. This article examines the various approaches to statutory interpretation, particularly in regard to revenue statutes. It considers historical and contemporary approaches in the light of various common law and statutory directives. The article shows that there is little consistency or consensus on how revenue statutes should be interpreted, but offers some guidelines for future courts performing this task.
New Zealand is a Westminster democracy that crudely applies the doctrine of separation of powers. This doctrine requires that the legislature enacts laws, the judiciary applies them, and the executive administers and enforces them. There is a simple reason for this division of functions: the elected legislature cannot pass a law for every situation as it arises. Rather, the legislature establishes general rules to guide and regulate behaviour among the population as a whole. The judiciary steps in to resolve particular disputes involving particular people. They take the general rules enacted by the legislature and apply them to specific situations.
However, since these rules (or laws) are written as general guidelines, their application necessitates an intermediate step. When judges apply statutes, they must also interpret them. This is one of the most important tasks in judicial work. The New Zealand Law Commission noted in 1990 that, of 119 recent reported cases, legislation was “central” in 75 of them, and only 27 did not concern statutory matters at all.[1] Furthermore, as Lord Diplock has observed, “the words [of a statute] mean whatever they are said to mean by a majority of the members of the appellate committee dealing with the case”.[2]
Statutes, then, are given meaning by the courts, and this in turn suggests that all statutes require some kind of interpretation.
Despite statutory interpretation being such an important part of judging, there is little consensus on how statutes should be interpreted. Many approaches have been described and discerned, and it is best to begin with the three traditional “canons” or “tools” that scholars say have guided interpretation in the past.
The first of these is the literal rule. This requires that words be given their natural or ordinary meaning, and emphasises “the paramountcy of the statutory text”.[3] The second is the golden rule. This allows judges to depart from the literal rule to avoid inconsistency or absurdity.[4] The third is the mischief rule, which, when meaning is unclear, involves construing statutes so as to cure the mischief which the statute sought to remedy.[5]
Despite the fact that the mischief rule can be dated back to the sixteenth century,[6] “far too much” of statutory interpretation before 1900 strictly followed the literal rule.[7] Since then, however, the purposive approach (a relation of the mischief rule) has become the standard approach towards the interpretation of statutes. Under the purposive approach, the words of the legislation are read in their fullest context, and with a view to giving effect to the purpose of the legislation.[8]
New Zealand has had an Act to guide the interpretation of statutes since 1888. The relevant provision of the 1888 Act was later re-enacted (virtually unchanged) as the celebrated s 5(j) of the Acts Interpretation Act 1924, which reads:
Every Act, and every provision or enactment thereof, shall be deemed remedial, whether its immediate purport is to direct the doing of anything Parliament deems to be for the public good, or to prevent or punish the doing of anything it deems contrary to the public good, and shall accordingly receive such fair, large, and liberal construction and interpretation as will best ensure the attainment of the object of the Act and of such provision or enactment according to its true intent, meaning, and spirit.
Section 5(j) says that every statute should be “deemed remedial”, and receive a “fair, large, and liberal” interpretation in accordance with its “true intent, meaning, or spirit”. These words appear to demand that every statute be interpreted purposively. They certainly do not allow a strict literal meaning to be applied if such an interpretation would go against the intention behind the relevant Act.
The Acts Interpretation Act 1924 and s 5(j) were repealed in 1999 and replaced by the Interpretation Act 1999 and s 5(1). The latter Act is considered in more detail later in this article. It should be remembered that, given the language of s 5(j), all judicial decisions on the interpretation of New Zealand statutes between 1888 and 1999 were supposed to follow its directions. As Thomas J recently stated in R v Pora, “it needs to be emphasised that canons of construction are Judge-made”,[9] and so should be “subservient to the purposive approach”.[10]
It is a reasonably common belief among statutory commentators that, traditionally, revenue statutes were interpreted strictly against the state.[11] There is some evidence that this is true. In Warrington v Furbor, Lord Ellenbrough CJ remarked that “where the subject is to be charged with a duty, the cases in which it is to be attached ought to be fairly marked out”.[12] Further, in R v Winstanley, Lord Wynford stated that “if there is any doubt about these words, the benefit of the doubt should be given to the subject”.[13]
One commentator[14] dates the notion that revenue statutes should be interpreted more restrictively than other statutes to the 1869 decision of Partington v A-G, where Lord Cairns stated:
[T]he principle of all fiscal legislation is this. If the person sought to be taxed comes within the letter of the law, he must be taxed .... On the other hand if the Crown, seeking to recover the tax, cannot bring the subject within the letter of the law, the subject is free however apparently within the letter of the law the case might otherwise appear to be.[15]
Lord Cairns commented only 10 years later that the principle of strict interpretation for revenue statutes “probably meant little more than ... [that] the taxpayer had the right to stand on a literal interpretation of the words used”.[16] Lord Cairns seems to be suggesting that revenue statutes should be interpreted on the words used, rather than strictly against the state in all cases. Given that the literal rule was the most common method of interpretation for all statutes before 1900, Lord Cairns’ statements can be seen primarily as a product of their times.
While a literal interpretation for the interpretation of revenue statutes dates back to the nineteenth century in England, Sir Ivor Richardson has suggested that it became the standard method throughout the Anglo-Commonwealth after World War One.[17]
Richardson’s date is accurate in the New Zealand context. In the 1919 case of McNab v Commissioner of Taxes, the Supreme Court commented that “[a] taxing act is the last class of statute in construing which departure from the plain and literal meaning should be allowed”.[18] This approach was adopted regularly in the ensuing years,[19] and in 1960 the Court of Appeal made similar comments in CIR v Lilburn:
A revenue statute must be construed strictly, and the subject is not to be taxed unless the language of the statute clearly imposes the obligation ... and in the case of reasonable doubt the construction most reasonable to the subject is to be adopted.[20]
These comments do not quite reach the extent of the remarks by some English judges in the 1940s,[21] but they make it clear that s 5(j) was not considered relevant to the interpretation of revenue statutes. This is, of course, despite the fact that s 5(j) demands that every statute be deemed remedial.
The case of Mangin v CIR illustrates how a seemingly clear statement on how revenue statutes should be interpreted can conflict with s 5(j). First, the Court stated that the words are to be given their ordinary meaning, and that they are not to be given some other meaning simply because their object is to frustrate legitimate tax avoidance devices.[22] Secondly, the Court adopted the judgment of Rowlatt J that:
one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used.[23]
Thirdly, the Court said that, the object of the construction of a statute being to ascertain the will of the legislature, it may be presumed that neither injustice nor absurdity was intended; and that if a literal interpretation would produce such a result, and the language admits of an interpretation which would avoid it, then such an interpretation may be adopted. Fourthly, the Court said that the history of an enactment and the reasons which led to its being passed may be used as an aid to its construction.[24]
The judgment of Rowlatt J adopted above has been described by Professor John Prebble as “possibly the most cited explanation of the restrictive approach to interpreting tax statutes in English jurisprudence”.[25] There is, continues Prebble, a conflict between this statement and s 5(j) that is “not just apparent but real”:[26] the restrictive and purposive approaches cannot be reconciled. It is worth noting, though, that in the 1994 case of Alcan v CIR the Court cited the passage from Mangin with approval, with McKay J adding that all statutes, whether revenue or otherwise, should be interpreted under the same basic approach.[27]
In CIR v International Importing Ltd, Turner P explicitly considered s 5(j) in relation to the interpretation of revenue legislation. He noted that this provision was “normally of little material assistance” in the construction and interpretation of revenue statutes.[28] He was certainly correct in the sense that it had been little used in the past. His views also correspond with those of Professor Burrows, who has noted that one of the problems with s 5(j) is that, despite the language of the provision, not all statutes are really capable of being deemed remedial, and that revenue statutes are in this category.[29] With this in mind, it is easy to see why few judges have followed the advice of Anthony Molloy, who noted that s 5(j) was the “obligatory starting point” for the interpretation of revenue statutes, and that the Land and Income Tax 1954 (forerunner to the 1976 and 1994 Acts) was no exception.[30]
Sir Ivor Richardson, the current President of the New Zealand Court of Appeal, taught taxation law at Victoria University and was counsel in a number of major revenue cases before his appointment to the bench. He has also adjudicated in a number of cases in this area, and his taxation expertise has been invaluable in moving the New Zealand jurisprudence away from a restrictively literal approach.
In the case of Lowe v CIR, Richardson J observed that “[o]ur interpretation of the paragraph must turn on the scheme and language of the statutory provision giving the words their ordinary meaning in their context”.[31] This “scheme and language” approach is an interesting one, but the notion of “context” seems tacked on. Indeed, Richardson J’s statement seems fairly unhelpful in light of the previous cases discussed. The scheme and language of a statute are obviously important in its interpretation. Richardson J is not providing guidelines of any general use.
Lowe is interesting, however, because the “scheme and language” approach represents an interim stage in Richardson J’s developing interpretation jurisprudence. The next case examined will show that, with the “scheme and language” approach, Richardson J was halfway towards a major interpretation directive.
In Challenge Corporation v CIR, statutory interpretation was an important issue. The relevant section 99 was in an “uneasy compromise” with other sections of the Income Tax Act 1976. In the Court of Appeal, Richardson J went beyond Lowe, and stated:
[T]he twin pillars on which the approach to statutes mandated by section 5(j) of the Acts Interpretation Act 1924 rests are the scheme of the legislation and the purpose of the legislation. Consideration of the scheme of the legislation requires a careful reading in its historical context of the whole statute, analysing its structure and examining the relationships between the various provisions and recognising any discernable themes and patterns and underlying policy considerations.[32]
The “scheme and purpose” approach is not unique to New Zealand. In the English case of Ramsey v IRC, Lord Wilberforce noted that:
The subject is only to be taxed on the clear words, not on the intendment or equity of an Act. Any taxing Act of Parliament is to be construed in accordance with this principle. But what are clear words is to be ascertained on normal principles. Those words do not confine the courts to literal interpretation. There may, indeed should, be considered the context and scheme of the relevant Act as a whole and its purpose may, indeed should, be regarded.[33]
It is submitted that the scheme and purpose approach provides a helpful guideline for the interpretation of revenue statutes. It avoids the “traditional” strictly literal interpretation, as well as the overly-purposive section 5(j). While paying regard to both approaches, it brings them together and avoids the problems that a heavy dependence on either can create.
This article has thus far considered the interpretation of three main pieces of New Zealand revenue legislation: the Land and Income Tax Act 1954, the Income Tax Act 1976, and the Income Tax Act 1994. The 1994 Act is today our primary concern, as it has superseded the previous two Acts.
One of the reasons that the 1976 Act was replaced by the 1994 Act was that the former was poorly structured, a problem exacerbated by the need for repeated amendment.[34] The 1994 Act is considered by some a large improvement in terms of both structure and drafting,[35] though it was never intended to make substantive changes to the law.[36] Two features of the 1994 Act are particularly notable. The first is the alphanumeric section referencing system, which helps accommodate new amendments as well as providing a tidier structure. The second is the presence of purpose and interpretation provisions at the beginning of the Act.
Section AA1 of the Act reads:
AA1 The main purposes of this Act are
(a) to impose tax on income;
(b) to impose obligations in repect of tax;
(c) to set out rules to be used to calculate the tax and to satisfy the obligations imposed.
Section AA3(1) reads:
AA3(1) Principle of Interpretation
The meaning of a provision of this Act is found by reading the words in context and, particularly, in light of the purpose provisions and the way in which the Act is organised.
Section AA1 in particular has been the subject of criticism from a number of scholars. Some have commented that it is “of no perceivable help in interpretation”,[37] and that it is “meaningless”.[38] Professor Prebble has stated that on its face it is “so obvious as to be redundant”.[39]
The references to both “purpose” and “organisation” are curiously analogous to Richardson J’s “scheme and purpose” approach, but, while AA3(1) goes beyond section 5(j) in requiring that words be read in context (rather than simply demanding a purposive-type approach), it also promises more than it achieves.[40] As this article moves onto a discussion of the Interpretation Act 1999, it will become clear that s AA3(1) provides little of use beyond existing principles, and, as a guideline to interpretation, has largely been ignored.
The impact and role of section 5(j) on the interpretation of revenue statutes have thus far been of considerable importance to this article. However, in 1999 this section was repealed and replaced by section 5(1) of the Interpretation Act 1999. Section 5(1) reads:
5. Ascertaining meaning of legislation - (1) The meaning of an enactment must be ascertained from its text and in light of its purpose.
Though the new Interpretation Act had been in gestation for a number of years, [41] there was little alteration between the Law Commission’s draft and the actual Act. Rupert Glover has suggested that neither is there much variance in the approach of the courts between section 5(j) and the new section 5(1). Looking over the first few months of the new section, he commented that “[e]arly indications are that this new provision ... will not be treated as materially different from the earlier section”.[42] It appeared “likely” that jurisprudence on section 5(j) would remain “a canon for the courts” in relation to section 5(1).[43]
So what has happened with section 5(1)? In R v Rongonui, Thomas J stated that while section 5(1) appeared to add “little or nothing” to section 5(j), “there is no doubt that the change in wording was introduced to emphasise to the Courts the importance of the purpose of a statutory provision in arriving at its meaning”.[44] In Warner v United Kingdom, Nicholson J used case law on section 5(j) to back up his application of section 5(1).[45] Elias CJ and Tipping J in R v Pora mentioned section 5(1) but did not suggest that it had wrought any great changes to methods of interpretation.[46]
This kind of approach has generally been followed for the interpretation of revenue statutes as well. In Vela Fishing v CIR, Penlington J stated some “agreed” principles of interpretation, but section 5(1) was not discussed beyond a brief mention.[47] In Newman v CIR; Holdsworth v CIR; Hair v CIR, Smellie J used the new section as an aid to interpretation, but made no suggestion that it would bring any major changes to existing interpretation methods.[48] In CIR v Auckland Harbour Board, the Privy Council briefly considered the issue. Their Lordships noted that the Interpretation Act required a “liberal construction” of the relevant provision, in the “context of the general scheme” of the legislation, and “in the purposive spirit” as prescribed in Challenge Corporation.[49]
These cases and others[50] suggest that Glover’s commentary above is correct: section 5(1) will be treated similarly to the earlier provision. Indeed, section 5(1) may well be ignored in the interpretation of revenue statutes just as section 5(j) has been in the past.
The recent case of CIR v BNZ Investments sheds light on this point. This case hinged on the interpretation of section 99 of the Income Tax Act 1976. Section 99 is an anti-avoidance provision, and, in simple terms, it makes arrangements that have the purpose or effect of avoiding income tax void against the Commissioner of Inland Revenue.[51] The Commissioner may then adjust the assessable income of the relevant person to balance this avoidance.[52]
The Court of Appeal delivered three separate judgments. The dissent of Thomas J is, for our purposes, the most interesting. Thomas J saw the main issues in the case as:
essentially questions of statutory interpretation. The sole objective must be to give effect to Parliament’s intent. For this purpose, the Court is required to examine the text of the section in light of its purpose, the scheme of the statute and, as far as it can be gleaned, the legislative policy. The resulting answers can be said to represent Parliament’s intent.[53]
Thomas J’s references to both “purpose” and “scheme” indicate a nod towards Richardson J’s comments in Challenge Corporation. The reference to “the text of the section in light of its purpose” is, in turn, an allusion to section 5(1). Thomas J seems quite comfortable combining these approaches. Overall, he was adamant that the courts needed to take “a purposive approach to section 99”,[54] and that even in tax statutes, “[t]he purposive approach is to prevail”.[55]
The majority of Richardson P, Keith and Tipping JJ reached a different conclusion in finding that section 99 had not been breached. It is significant that they too took a purposive approach in that they looked at the “function” of section 99 and at the Legislature’s intentions.[56] This kind of “restrictive-purposive” approach taken by the majority highlights the fact that “purposive” can mean different things to different people. Even within one case, it can lead different judges to very different results.
Law as a discipline looks both backwards and forwards. I have examined how revenue statutes have been interpreted in the past. How should judges interpret them in the future?
It is submitted that, in line with the judgment in Alcan, revenue statutes should be interpreted in the same way as other statutes. Thomas J commented in his dissent in BNZ Investments that there are “a baggage of judicial rules” in relation to tax matters, and noted that “[l]egalistic requirements and suppositions overlay the plain task of statutory interpretation”.[57] There is a need to abandon this baggage.
The “scheme and purpose” approach taken by Richardson J in Challenge Corporation should also be considered. Judges should begin with the words in their context and with an eye towards purpose. Relevant legislation points us in this direction as well. Section 5(1) of the Interpretation Act 1999 provides a statutory mandate to consider the text in the light of the purpose. Section AA3(1) takes a similar approach.
By combining section 5(1), Alcan, and the “scheme and purpose” approach, judges required to interpret revenue statutes in the future need not be hindered by the traditional restrictive reading. The interpretation of revenue statutes can be modernised and brought into line with current methods of interpretation for statutes in general.
Professor Prebble has noted that inculcating a fully purposive approach to the interpretation of revenue statutes would require a “fundamental change on the part of the courts”.[58] This kind of fundamental change is perhaps unlikely, given the history of courts’ interpretation, and the majority opinion in BNZ Investments seems to bear this out. While it recognised the importance of the Legislature’s intentions, the majority were not prepared to make this kind of “fundamental change”. Thomas J, on the other hand, was more comfortable with revenue statutes being interpreted in the same way as other statutes.
It is suggested that the approach of Thomas J is to be preferred. In line with both statute and case law, a restrictively literal approach is now outdated. However, the restrictive-purposive approach of the majority in BNZ Investments seems to revert to the special rules that guided the interpretation of revenue statutes in the past. It is submitted that the meaning of a tax statute be ascertained from its text, in the light of its purpose, and with Alcan and Challenge Corporation in mind.
[*] LLB Honours student, University of Waikato.
[1] NZLC R17, 1-2.
[2] Carter v Broadbeer [1975] 3 All ER 158, 160.
[3] Burrows, J F Statute Law in New Zealand (2nd ed, 1999) 108.
[4] Lee, “A Purposive Approach to the Interpretation of Tax Statutes” (1999) 20(2) Statute Law Review 124, 125.
[5] Ibid, 125-126; Burrows, supra note 3.
[6] Heydon’s Case [1584] EngR 9; (1584) 3 Co Rep 7a; 76 ER 637.
[7] Burrows, supra note 3, at 116.
[8] Burrows, supra note 3, at 118.
[9] R v Pora [2000] NZCA 403; [2001] 2 NZLR 37, 68.
[10] At 69.
[11] See Richardson, “Appellate Court Responsibilities and Tax Avoidance” (1985) 2 Australian Tax Forum 3, 4; Lee, supra note 4, at 126 and 132; Burrows, supra note 3, at 130.
[12] Warrington v Furbor (1807) 8 East 242, 245; [1807] EngR 151; 103 ER 334, 335; cited by Williams, “Taxing Statutes are Taxing Statutes: The Interpretation of Revenue Legislation” (1978) 41 Modern Law Review 404, 409.
[13] R v Winstanley (1833) 1 CJ 434, 445; [1831] EngR 202; 148 ER 1492, 1496; cited ibid, at 410.
[14] Vinnelot, “Interpretation of Fiscal Statutes” [1982] Statute Law Review 78.
[15] Partington v A-G [1869] UKLawRpHL 8; (1869) LR 4 HL 100, cited ibid, at 78.
[16] Pryce v Monmouthshire Canal and Railways Cos. (1879) 4 App Cas 197, 202-203, cited ibid, at 79-80.
[17] Richardson, supra note 11, at 5.
[18] McNab v Commissioner of Taxes [1919] NZGazLawRp 46; [1919] NZLR 267, 275.
[19] See Timaru Herald Co Ltd v CIR [1938] NZLR 978; South Island Motor Union Mutual Association v Fire Service Council [1952] NZLR 163; and Laws NZ, “Statutes”, para 185.
[20] CIR v Lilburn [1960] NZLR 1169, 1175-1176.
[21] See eg Russell v Scott [1948] AC 422, 433, per Lord Simonds: “the subject is not to be taxed unless the words of the taxing statute unambiguously impose the tax upon him”; and Mosley v George Wimpey & Co Ltd [1944] 2 All ER 135, 137, per Macnaghten J: “From the very foundation of the Courts of the common law at Westminster it has always been the duty of His Majesty’s judgment to protect the subject from exactions by the Crown”.
[22] Cf Turner J’s (albeit dissenting) judgment in Marx v Commissioner of Inland Revenue [1970] NZLR 182, 208, that moral precepts are not applicable to the interpretation of revenue statutes.
[23] Cape Brandy Syndicate v Inland Revenue Commissioners [1921] 1 KB 64, 71, per Rowlatt J, approved by Viscount Simons LC in R v Canadian Eagle Oil Co Ltd [1946] AC 119; [1945] 2 All ER 499).
[24] Mangin v CIR [1971] NZLR 591, 594.
[25] Prebble, “The Interpretation Provisions in the New Zealand Income Tax Act 1994” (1999) 30 VUWLR 49, 51.
[26] Ibid, 53.
[27] Alcan v CIR [1994] NZCA 213; [1994] 3 NZLR 439, 443.
[28] CIR v International Importing Ltd [1972] NZLR 1095, 1096.
[29] Burrows, supra note 3, at 140.
[30] Molloy, A P Molloy on Income Tax (1976) 1.
[31] Lowe v CIR [1981] 1 NZLR 326, 342.
[32] Challenge Corporation v CIR [1986] 2 NZLR 513, 549 (CA). Note that similar comments were made extra-judicially by Richardson, supra note 11.
[33] Ramsey v IRC [1981] 2 WLR 449, 456 (emphasis added).
[34] Burrows, supra n 3, at 73.
[35] Keith, “The Need to Rewrite Tax Legislation” (1997) 3 NZJTLP 96, 100-101.
[36] Nannestad, “Reading the 1994 tax legislation” (1995) 1 NZ Tax Planning Report 5.
[37] McKay, “Interpreting Statutes – A Judge’s View” [2000] OtaLawRw 10; (2000) 9 Otago LR 743, 749.
[38] Nannestad, supra n 36.
[39] Prebble, supra n 25, at 55.
[40] Ibid, 62.
[41] NZLC, supra n 1.
[42] Glover, R Acts Interpretation (1991) 1-91.
[43] Ibid, 1-92.
[44] R v Rongonui [2000] NZCA 273; [2000] 2 NZLR 385, 431 (emphasis added).
[45] Warner v United Kingdom [2000] NZCA 238; [2001] 1 NZLR 331, 337.
[46] R v Pora [2000] NZCA 403; [2001] 2 NZLR 37, 41.
[47] Vela Fishing Ltd v CIR (2000) 19 NZTC 15885, 15892. Mangin (as cited in Alcan) was described in some detail, however (at 15892-15893).
[48] Newman v CIR; Holdsworth v CIR; Hair v CIR (2000) 19 NZTC 15666, 15685.
[49] CIR v Auckland Harbour Board (2001) 20 NZTC 17008, 17011.
[50] See eg Case V4 (2001) 20 NZTC 10045, 10053.
[51] Income Tax Act 1976, s 99(2).
[52] Income Tax Act 1976, s 99(3).
[53] CIR v BNZ Investments Ltd (2001) 20 NZTC 17103, para 61.
[54] Ibid, para 90.
[55] Ibid, para 117.
[56] Ibid, para 41. This majority judgment was delivered by Richardson P. It is interesting to note that he makes no mention of the “scheme and purpose” approach taken in Challenge Corporation.
[57] Ibid, para 63.
[58] Prebble, supra n 23, at 56. Note that Prebble himself prefers a more purposive interpretation for revenue statutes than is currently taken by the courts (at 62).
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