ACCT103: Introduction

to the NZ Legal System

Workshop in preparation for the Taxation Section

Presented by Neil Crombie

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Overview and learning objectives
• Law and sources of law
• Explain the concepts of “the law” as opposed to social norms
• Identify sources of law
• NZ law and legal institutions
• Explain how NZ law is created and enforced
• Hierarchy of the courts
• Describe the hierarchy of the courts and explain why it is important
• Legislation and case law
• Illustrate the difference between legislation and case law
• Doctrine of precedent
• Explain how precedent is established and why it is important
• Interpreting legislation and case law
• Outline how Judges interpret and apply legislation and case law
• Taxation
• Discuss how legal concepts apply to the study of taxation
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Law and Sources of Law
• Key concepts:
• Culture: Patterns of behaviour; customs, norms, values, unwritten rules, etc.
• Morality: Principles of behaviour; written rules that are voluntary; aspirations and boundaries
(‘thou shall not…’)
• Law: Formalised principles and rules; minimum standard of behaviour; boundaries that are
enforced, where individuals are subject to society-imposed sanctions
• Penk and Russell (2018, New Zealand Law, p.3):
• “Human relationships are complex and prone to disagreement, requiring some form of
regulation to ensure a largely harmoniously functioning society.”
• “Rules of behaviour may be unwritten and obeyed as a matter of convention or morality, or
may be formalised as laws, which are actively enforced with punishment for transgressors.”
• “So, the term “legal system” is a convenient way of referring to the plethora of legal rules and
legal institutions through which human behaviour is regulated…”
• New Zealand legal system:
• Common law and equity – heavily influenced by English law – administered by the courts
• Constitutional monarchy with a parliamentary system of government that is representative.
• The Queen and Governor-General have a ceremonial role
• The Prime Minister has considerable power
• The constitution is largely “unwritten”
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New Zealand Law

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 New Zealand Law and Legal Institutions
British Tikanga Māori
Treaty of Constitutional English Law International
Monarchy (traditional customs
Waitangi Conventions (up to 1988) law
(The Queen) and values)

Executive Legislative Judicial

Branch Branch Branch

Governor Cabinet Members of Parliament Courts, tribunals

General (Prime Minister) from political parties and Judges
(Government vs.
Ombudsmen Executive Opposition) Hierarchy Common Law
council of the and Equity
Government Local bodies courts
House of
Departments; (e.g. Councils Representatives and Case Law: Ratio decidendi
COEs; SOEs; etc and Mayors) Select Committees and obiter dicta

Delegated legislation: Regulations, Precedent

Statutes
Orders in Council, Notices, Bylaws, (Stare
(or Acts)
Rules and Ordinances decisis) 5
 Hierarchy of the Courts
(See:
https://www.courtsofnz.govt.nz/about-the-judiciary/structure-of-the-court-s
ystem/
)

Hierarchy
for taxation:

Taxation
Review
Authority

Inland Revenue
Department or
IRD
(Commissioner)

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Legislation and Case Law
• Statutes or Acts: https://www.legislation.govt.nz/
• Key pieces of legislation include: Companies Act 1993;
Financial Reporting Act 2013; Contracts and Commercial Law
Act 2017; Income Tax Act 2007
• Delegated legislation: There is no “central” database.
• For example, Ministry of Business, Innovation and
Employment regulates 17 areas:
https://www.mbie.govt.nz/cross-government-functions/regul
atory-stewardship/regulatory-systems/
• For example, Christchurch City Council issues bylaws covering
individuals, property owners and businesses within the city:
https://ccc.govt.nz/the-council/plans-strategies-policies-and-
bylaws/bylaws

• Case law: http://www.nzlii.org/databases.html

• For example, low-value disputes among individuals and 7
businesses that are often managed by the Disputes Tribunal
Example of Legislation: Contracts and
Commercial Law Act 2017
• See:
http://www.legislation.govt.nz/act/public/2017/0005/latest/DLM6844
033.html
• Section 3:
“The purpose of this Act is to re-enact, in an up-to-date and accessible form,
certain legislation relating to—
(a) contracts; and
(b) the sale of goods; and
(c) electronic transactions; and
(d) the carriage of goods; and
(e) various other commercial matters, including mercantile agents and bills of
lading.”
• Section 86:
“Contracts unenforceable against minors but otherwise have effect: (1) Every
contract entered into by a minor is unenforceable against the minor but
otherwise has effect as if the minor were of full age.” 8
Example of Case Law
Hoenig v Isaacs [1952] 2 All ER 176 (CA)
• Facts
• The plaintiff was an interior designer and designer of furniture.
• He entered into a contract to decorate and furnish the defendant’s flat for a lump sum
of £750.
• The work was not completed; a wardrobe door needed to be replaced and a bookshelf
was too short. The cost of remedying these defects was estimated to be £55.
• The defendant refused to pay anything to the plaintiff.
• Issue
• The contract was entire or indivisible, and as the plaintiff has not completed it, in
principle, nothing was payable. Despite this, could the plaintiff be awarded any
payment?
• Decision
• The plaintiff was entitled to some payment.
• Despite incomplete performance, there has been substantial performance.
• The payment would be the sum contracted for, less the cost of remedying the defects
and omissions.
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Doctrine of Precedent (“Stare Decisis”)
• What is the doctrine of precedent?
• The doctrine of precedent governs when a Court is obliged to follow an earlier Court
decision (ratio decidendi), and when it is at liberty not to follow it.
• A Court in a later case is only obliged to follow an earlier decision (ratio decidendi) only, and
only if, the factual situations (material facts) of the earlier and the later case are similar.
• Statements made by Judges that are not related to the material facts and their decisions
are known as obiter dicta (“sayings by the way”)
• These may include discussion of the general area of law and how their decision may have differed if
certain hypothetical facts existed.
• Obiter dicta does not form part of the ratio decidendi and are not binding on later Courts.
• Hierarchy of the courts: Lower courts must follow ratio decidendi of higher courts, but
higher courts do not have follow ratio decidendi of lower courts.
• Courts at same level in the hierarchy normally follow ratio decidendi of that court, but may depart from
it.
• Why is it necessary?
• Fairness, equity and certainty of law
• Ease of decision-making for Judges
• Protection against variations in decision-making by Judges

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Interpreting Legislation
• How do Judges interpret legislation, where words and phrases
have multiple meanings, may be ambiguous or conflict with
other legislation or common law?
• Guidance:
1. Common law rules, maxims and presumptions
• Rules: Literal, golden and mischef
• Maxims: Ejusdem generis (“things of the same kind”) and noscitur a sociss
(words known by their context)
• Presumptions: New legislation adds to existing legislation and should not take
away civil liberties and property rights
2. Assistance derived from within the Acts themselves (intrinsic aids)
3. Assistance from outside the Acts (extrinsic aids)
4. The application of the Interpretation Act 1999
5. The purposive approach: Ascertaining and applying the intention of
Parliament
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 Interpreting Case Law: An Example
Rowland v Divall [1923] 2 KB 500, [1923] All ER Rep 270
• Facts:
1. The defendant sold a car to the plaintiff, a motor vehicle dealer, in May for £334.
2. In July, the plaintiff sold it to a customer for £400.
3. In September, the police took possession of the car, because it was a stolen vehicle. They
returned it to the original owner. It had been stolen from him some time ago, by the person Ratio
from whom the defendant had purchased it. The defendant did not know it was a stolen car. decidendi: Any
4. The plaintiff refunded the customer and sued the defendant for the purchase price in their person that
contract.
sells stolen
5. The defendant claimed that the plaintiff was not entitled to the full amount because he had
goods is liable
had use of the car for three months.
to refund the
• Issue: What amount was the plaintiff entitled to recover?
contract price
• Decision: to the buyer,
1. The defendant was in breach of s 16(1) of the Sale of Goods Act 1893 (UK) (s 135(1)(a) of the irrespective of
Contract and Commercial Law Act 2017). Because the car was stolen, the defendant,
although acting innocently, did not have ownership of the car, and so did not have the right
when the sale
to sell. occurred.
2. The plaintiff was entitled to receive back the full contract price. The fact that the plaintiff had
had possession of the car for three months was irrelevant because it was not based on any
legal right. In fact, there was a total failure of consideration, because the seller had no right
to sell the car at all. Possession and use therefore should not be taken into consideration.

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Introduction to Taxation (1)
• Recall, explain and apply concepts, legislation and case law related to taxation
• See the next slide for a broad overview
• You do not need to be familiar with all of the legal concepts covered on the preceding
slides.
• However, you should have a basic understanding of the legal concepts, so that you can
interpret selected sections of the Income Tax Act 2007 and tax case law.
• You will need to be able to apply the principles and rules from this law to various
scenarios.
• The homework, tutorial and self-study questions are similar to the style of question you
will be expected to answer in the Final Exam.
• Your answers does not need to be as detailed as the suggested solutions for these
questions.
• However, your answers should still make reference to the relevant sections of the ITA
2007 and tax case law.
• Further, the “logic” of your reasoning is also critically important. You should be able to
identify the principles and rules for any given scenario and explain the likely outcome in
the scenario.
• Essentially, you should be able to apply legal precedent to simple tax scenarios.
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Introduction to Taxation (2)
• Introductory concepts
• What? Why? And How? (Principles)
• Categories, types and classifications
• NZ tax system including recent reforms, legislation, case law and
compliance costs
• Capital and income
• Capital gains and income
• Specific receipts: Gambling winnings; amounts from illegal activities;
and gifts & legacies
• Income as defined by legislation and case law
• Business profits
• Defining a business and business profits
• Legislation and case law (e.g. Grieve v CIR [1984])
• Hobby activities vs. organised commercial activities
• Preparatory activities vs. reasonable business structure
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Summary
• Parliament is the supreme lawmaker in NZ.
• The Prime Minister as the head of the legislative and executive branches is particularly powerful.
• This is because NZ has an “unwritten” constitution. Parliament could overturn any constitutional arrangements, e.g.
Bill of Rights Act 1990.
• There has been significant growth (or expansion) of law as Parliament has delegated law-making to
government departments and local authorities.
• For example, the Commerce Commission regulates several industries: https://comcom.govt.nz/regulated-industries
• While the judicial branch is very influential, it makes less new law than in the past. Instead, Judges
tend apply and clarify law.
• In the past, particularly when there were no laws governing a particular situation, Judges were required to decide
what was a fair and equitable outcome given other preceding Judges’ decisions and societal customs/norms.
• Note that NZ Common Law incorporates English Common Law up to 1988.
• The interpretation and application of legislation and case law is governed by the doctrine of precedent
and hierarchy of the courts.
• Precedent (stare decisis) includes the accumulated cases that Judges have decided, and each case included a ratio
decidendi (material facts and reason for the decision) that is binding on future Judges and obiter dicta (legal matters
discussed by the Judge) that is influential on future Judges.
• Precedent can be overturned by higher courts or by Parliament with new legislation.
• Judges aim to apply the law in a manner that is consistent with precedent, the intent of Parliament and
ensures equitable and fair outcomes.
• For the taxation section of this course, you will need to be able to explain and apply taxation concepts,
legislation and case law to various (simple) scenarios.
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