Aokautere Land Holdings Limited v Commissioner of Inland Revenue

[2023] NZHC 2706

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE

CIV-2023-485-129

[2023] NZHC 2706

UNDER THE

Judicial Review Procedure Act 2016

IN THE MATTER OF

An application for judicial review

BETWEEN

AOKAUTERE LAND HOLDINGS LIMITED

Applicant

AND

THE COMMISSIONER OF INLAND REVENUE

Respondent

Hearing:	On the papers.
Counsel:	M Dewhirst and J K Mahuta-Coyle for Applicant K I S Naik-Leong for Respondent
Judgment:	28 September 2023

JUDGMENT OF GRICE J

(Costs)

[1]    Aokautere Land Holdings Ltd (ALHL), the applicant, discontinued these proceedings by notice dated 3 August 2023. The substantive matter in these proceedings was due to be heard on 31 August 2023. The parties now seek a costs determination.

[2]    The proceeding involved an application for judicial review. ALHL applied to review a decision of the Commissioner of Inland Revenue (the Commissioner) to issue a deduction notice under s 157 of the Tax Administration Act 1994 to the liquidators of Vey Group Ltd (Vey), who were in liquidation and receivership. The s 157

AOKAUTERE v CIR [2023] NZHC 2706 [28 September 2023]

deduction notice required the liquidators to pay amounts that were payable by Vey to ALHL to the Commissioner instead.

[3]    The respondent seeks costs pursuant to r 15.23 of the High Court Rules 2016, which requires the plaintiff/applicant to pay costs up to the discontinuance unless the defendant otherwise agrees or the Court orders.

[4]    The respondent submits that costs should be quantified on a category 2B basis. The applicant takes no serious issue with the respondent’s quantification of costs which has been provided.

[5]    Instead, the applicant resists the cost application, saying that the usual presumption is displaced because the Commissioner had taken other steps and exercised other statutory powers which had rendered the proceedings moot. The applicant says that the Commissioner commenced an audit of the applicant’s tax affairs (including in respect of the tax issues in dispute), relying on separate statutory powers, after the commencement of the proceedings. The applicant says that process enables the applicant to dispute the amount of tax owed. Accordingly, it says the proceedings were rendered nugatory. It was for that reason that the applicant says it “responsibly and promptly discontinued these proceedings” within a reasonable period after receiving notice of the audit.

[6]    The applicant says that while r 15.23 represents a starting point, the Court retains a discretion as to costs. The applicant submits the following principles apply when considering whether the presumption is displaced generally:1

(a)The Court will not consider the merits of respective cases, unless they are so obvious that they should influence the costs outcome.

(b)The Court will consider the reasonableness of the stance of both parties up to the point of discontinuance: whether it was reasonable for the plaintiff to bring and continue the proceedings; and for the defendant to

1      New Zealand Motor Caravan Association Inc v Queenstown Lakes District Council [2022] NZHC 425 at [6(c)].

oppose the proceedings. The plaintiff will not be able to avoid the presumption by showing that at one point it has reasonable grounds for believing it would be successful in the proceeding.

(c)The reason for discontinuing may be relevant, for example a change of circumstances rendering the proceeding unnecessary. However, it must be clear that the plaintiffs would have succeeded had the circumstances not changed.2

[7]    The applicant points to a number of decisions in which the Court found that proceedings had been rendered nugatory by the exercise of powers by the respondent. In those cases costs were not awarded. These included Olive Frances Retirement Home Ltd v Director-General of Health, where Simon France J refused to award costs in favour of the discontinuing plaintiff (in a judicial review) because the Director- General of Health had used other powers to close down the plaintiff’s rest home, rendering its judicial review nugatory.3

Analysis

[8]    This judicial review concerned the exercise by the Commissioner of s 157 of the Tax Administration Act. The applicant pleaded that the Commissioner had undermined the applicant’s legitimate expectation that it would comply with the Commissioner’s Statement CS 20/04 – the Disputes Resolution Process and Fair Trial Rights by:

(a)not being required to dispute the Commissioner’s default assessments while he was contemplating prosecuting, or prosecuting Mr Fugle and/or entities related to him; and

(b)not being the subject of civil enforcement action by way of the s 157 notice.

2      The Star Trust v Hamilton City Council [2016] NZHC 821.

3      Olive Frances Retirement Home Ltd v Director-General of Health HC Wellington CIV-205-404- 1367, 15 September 2005.

[9]    The relief sought was an order declaring that the Commissioner’s exercise of the s 157 power was invalid, setting aside the s 157 notice, and an order that the Commissioner refund to the applicant the money seized by him pursuant to the s 157 notice, together with interest.

[10]   The respondent submits that the applicant’s initial disclosure evidence did not support the applicant’s case that the Commissioner was contemplating prosecuting the applicant as at the date the Commissioner issued the relevant default assessment. Without that it appears it would be difficult for the applicant to establish its allegation that the Commissioner had breached the applicant’s legitimate expectation by using  s 157.

[11]   The applicant made a specific discovery application, which was dismissed by Gwyn J on 13 July 2023.4 Her Honour noted:

[59]      The evidence already filed for the Commissioner directly addresses whether, at the relevant times, ALHL was within the scope of the Commissioner’s criminal investigation related to the Woodgate GST default and the “specific reasoning process” engaged in by the Commissioner in exercising the s 157 power.

[60]      As I have noted, the applicant has not filed any evidence in support of the substantive judicial review application, or this discovery application. I understood from counsel that the applicant has no current intention to file any evidence.

[61]      In those circumstances the applicant cannot assert that it has grounds for asserting that further documents exist, in terms of the second of the four steps relevant to a discovery for particular discovery.

[12]In dismissing the specific discovery application, Gwyn J said:

[65]      It is difficult to characterise this discovery application as other than a fishing expedition, searching for a factual basis on which ALHL might retrospectively pin its “legitimate expectation”, in circumstances where the ALHL DAs were not opposed at the time, despite clear notification from the Commissioner of the appropriate statutory procedure for doing so. It will of course be for the Court hearing the substantive judicial review application to determine whether the concept of legitimate expectation has application in the particular circumstances of this case.

[66]      I conclude that the documents sought by the applicant, and not already provided by the Commissioner, are not relevant to the claim. Nor has the

4            Aokautere Land Holdings Ltd v The Commissioner of Inland Revenue [2023] NZHC 1839.

applicant provided any basis on which the Court could conclude that there are sufficient grounds for believing that further documents as sought in fact exist.

[13]   It is impossible for me to form any conclusive judgment in relation to the reasonableness of commencing the proceedings. However, as noted in the unsuccessful specific discovery application, it appears the applicant was on a fishing expedition to support its claim, which gives rise to considerable doubt as to the reasonableness of bringing proceedings.

[14]   In addition, based on the material before me, I consider this is not a situation where due to the actions of the respondent, the proceeding has been rendered moot, for the following reasons.

[15]   The applicant refers to the step of the Commissioner issuing letters to Mr Fugle and the applicant on 9 June 2023 as rendering the proceeding moot. Those letters notified Mr Fugle and the applicant that the Commissioner was auditing them for tax from 1 April 2015 to 31 March 2022 (income tax); and from 1 April 2015 to 31 March 2023 (goods and services tax). That included the years 2016 to 2020, for which the Commissioner previously issued the default assessments for income tax, which were enforced by way of the s 157 notices.

[16]   The applicant argues that its underlying case “has always been that it still ought to be able to pursue, through procedures provided for by the Tax Administration Act 1994, its dispute as to the amount of tax payable in the 2016 – 2020 income tax years”.

[17]   The respondent however points out that the relief sought in the applicant’s statement of claim shows the applicant sought for the $1,185,458.37 paid to the Commissioner by the liquidator to be refunded back to the applicant. The issuing of the audit letters to the applicant (covering income tax in the relevant years) does not foreshadow any amended assessment to be made by the Commissioner to the applicant’s income assessments in those years. Therefore, I accept the respondent’s submission that it is not a certainty that the applicant will be able to dispute the income tax assessments in those years using the dispute resolution procedures under pts 4A and 8A of the Tax Administration Act.

[18]   Accordingly, the presumption that costs should be awarded to the respondent on the filing of a discontinuance has not been displaced.

[19]   Costs are awarded to the Commissioner as itemised in the schedules attached to the respondent’s memorandum dated 16 August 2023 in the sum of $15,650.28.

Grice J

Solicitors:

Dewhirst Law, Whanganui Crown Law, Wellington