CIR v Queen City
[2005] NZHC 1848
•30 March 2005
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV2004-404-3896
IN THE MATTER OF section 16 of the Judicature Act 1908 and
High Court Rules 236A and 236B
BETWEENTHE COMMISSIONER OF INLAND REVENUE
Plaintiff
ANDQUEEN CITY PROPERTY GROUP LIMITED
First Defendant
AND NIGEL FRANCIS ASHBY
Second Defendant
ANDST GEORGE BANK OF NEW ZEALAND LIMITED
Third Defendant
AND CRYSTAL PROPERTIES LIMITED
Fourth Defendant
AND DAYTONA PROPERTIES LIMITED
Fifth Defendant
AND EBONY PROPERTIES LIMITED
Sixth Defendant
AND ELECTRA PROPERTIES LIMITED
Seventh Defendant
AND ENTRICAN PROPERTIES LIMITED
Eighth Defendant
AND FAIRMONT PROPERTIES LIMITED
Ninth Defendant
AND FANTAIL PROPERTIES LIMITED
Tenth Defendant
AND FORREST HIL PROPERTIES LIMITED
Eleventh Defendant
CIR V QUEEN CITY & Ors HC AK CIV2004-404-3896 [30 March 2005]
AND FUCHIA PROPERTIES LIMITED
Twelfth Defendant
AND GANNET PROPERTIES LIMITED
Thirteenth Defendant
AND GARELJA PROPERTIES LIMITED
Fourteenth Defendant
AND GILGIT PROPERTIES LIMITED
Fifteenth Defendant
AND GOSSAMER PROPERTIES LIMITED
Sixteenth Defendant
Hearing: 11 October 2004
Appearances: A Beck and S Wellick for Plaintiff
D. Hayes for First and Fourth - Sixteenth Defendants (Applicants) N F Ashby in person
Judgment: 30 March 2005
RESERVED JUDGMENT OF PRIESTLEY J
Counsel:
A Beck & S Wellick, P O Box 5601, Wellington D Hayes, Barrister, P O Box 9323, Hamilton
Solicitors:
H Ebersohn, Crown Law Office, P O Box 2858, Wellington Central P E Newfield, P O Box 105-499, Auckland
2
The Application
[1] On 23 July 2004 Williams J made interim orders against the second and third defendants in the nature of a Mareva injunction. The plaintiff had applied for those orders on an ex parte basis.
[2] The orders made restrained the third defendant from paying out or dissipating a sum of $177,809.99 which had been paid into its bank account. Similar orders restrained the second defendant who is a company director of the first defendant and effectively its proprietor. It is the second defendant’s bank account with the third defendant where the restrained monies are deposited, the second defendant being the sole signatory of that account.
[3] All defendants have applied for the rescission of the orders. The plaintiff opposes their application.
Background
[4] The fourth to sixteenth defendants are taxpayers. Their tax affairs, as I understand it, are managed by the first defendant. Taxation advice and general taxation management stem from the second defendant.
[5] The fourth to sixteenth defendants (“the 13 taxpayers”) were all incorporated by the second defendant. Their capital is said to be $100 each. The second defendant is not only a director of the first defendant but also the sole director of each of the 13 taxpayers.
[6] The restrained sum of $177,809.99 (“the money”) represents GST paid to the plaintiff by the 13 taxpayers. The plaintiff asserts that GST has been properly assessed and paid. The 13 taxpayers assert that they are entitled to a refund.
[7] The second defendant and the plaintiff are no strangers to each other. A supporting affidavit of the plaintiff placed before Justice Williams in July deposes that the second defendant has been involved in “…substantial ongoing litigation
[over] various deferred settlement arrangements ….”. One such case is Ch’elle Properties (NZ) Ltd v CIR (2004) 21 NZTC 18, 818 which I gather is currently before the Court of Appeal.
[8] There are, perhaps, in this background echoes of the notorious “Russell template” cases which are still rolling their slow and laborious way through the judicial system. It is apparent from the second defendant’s affidavits that he is highly knowledgeable about taxation law and its administration and is dedicated to achieving favourable results, particularly taxation refunds, where there is an arguable entitlement. It is equally clear from the plaintiff’s affidavits that he regards the second defendant’s activities as schemes designed to exploit loopholes in the Goods and Services Tax Act and its administration to obtain financial benefits which violate the Act’s policy.
[9] It is fortunately not my task to adjudicate on the merits of the parties’ respective positions. Resolution is, if the Russell template cases are anything to go by, many years away.
[10] Lying at the core of the application before me are competing contentions. Although both counsel accept this application for rescission is not the proper vehicle to determine the dispute between the plaintiff and the 13 taxpayers, they nonetheless contend that they are entitled to retain the money or have it refunded as the case may be.
[11] Some brief narration of the taxation position will thus be necessary. The parties’ respective taxation positions, however, can only be contextual, not determinative. The sole issue for me to determine is whether the interim injunctions made by Williams J on 23 July should continue in force or be rescinded.
The lead up to 23 July
[12]The money represents GST refunds claimed by the 13 taxpayers. All but
$9,000 (being a “Type 2” refund claimed by the 16th defendant) were “Type 1” refunds. The distinction is immaterial.
[13] An officer of the plaintiff, Jack Zhong Yin, swore an affidavit on 23 July 2004 making it clear that the money was paid out as a result of an administrative error.
[14] In February 2001, and again in July 2001, the plaintiff dispatched letters to the 13 taxpayers informing them GST refunds would be delayed pending an audit of their returns and consequential investigation.
[15] To ensure refunds were not sent out automatically by the plaintiff’s computer system which processed and administered GST returns and linked assessments, an “account halt” was entered into the computer. The account halt was for some reason not renewed and lapsed. It is conceded by Mr Beck this was an administrative error and failure on the part of the plaintiff’s employees.
[16] As a result of this failure an automatic direct transfer of the money was made into the first defendant’s account with the Newmarket branch of the Bank of New Zealand.
[17] The plaintiff’s initial efforts to recover the money, the error having been discovered, were misconceived. On 19 July 2004 he dispatched to the Bank of New Zealand an “urgent notice” pursuant to s 157 of the Tax Administration Act 1994 and s 43 of the Goods and Services Tax Act 1985. Those provisions, designed to force banks to disgorge to the Commissioner money deposited into the accounts of defaulting taxpayers, had no possible application in this situation. The 13 taxpayers were not in default.
[18] The dispute over the money came about this way. On 28 April 1997 each of the 13 taxpayers purchased an apartment in a block being developed in Hobson Street, Auckland. The agreements, along with agreements to purchase by 32 other companies with the same directors and shareholders as the 13 taxpayers (which are not involved in this proceeding), were all conditional.
[19] Two days later, on 30 April 1997, each of the 13 taxpayers on-sold the properties on a ten year deferred settlement basis to one of two non-associated
companies, North Shore Holdings Limited (“NSHL”) or Pennylane Investments Limited (PIL”). These sales were unconditional.
[20] On the basis of their anticipated annual turnover, each of the 13 taxpayers had elected under s 19 of the Goods and Services Tax Act to account for GST on a non payments basis. NSHL and PIL, however, were registered for GST on an invoice basis.
[21] In August 1997 both NSHL and PIL paid the relevant deposits to the 13 taxpayers. These deposits were in fact paid to the first defendant as agent. It appears from the evidence the source of those deposits was GST refunds received on the transactions by NSHL and PIL.
[22] Each of the 13 taxpayers paid output tax on the received deposit for the tax period ending 31 August 1997. The balance of the deposit was applied by the 13 taxpayers to pay the deposit on the apartments they had purchased.
[23] Two years later, on 17 December 1999 the vendor of the apartments cancelled each of its agreements with the 13 taxpayers. None of the transactions proceeded.
[24] On 17 January 2001 each of the 13 taxpayers filed a GST return for the taxation period ending 31 December 2000 claiming a refund of input tax in respect of the deposits it had paid on the now cancelled agreements. (These were Type 1 refunds). About four months later, in May 2001, the 13 taxpayers gave notice cancelling their on sale agreements with NSHL and PIL. They additionally filed GST returns for the taxation period ending 31 May 2001 claiming a refund of the output tax paid for the period ending 31 August 1997. (These were Type 2 refunds).
[25] None of the 13 taxpayers have repaid to the on-purchasers (NSHL and PIL) the deposits they received. Those companies have been placed into liquidation.
[26] Whether or not the 13 taxpayers were involved in any other trading activities is problematic. The second defendant in his affidavit of 25 August 2004 asserts that
Dr Susan Glazebrook, who was then a taxation specialist and partner of a large Auckland firm, wrote to the plaintiff in 1999 with details of more than 600 other contracts involving the 13 taxpayers. The plaintiff for his part deposes that no other GST returns have been filed by the thirteen relating to any taxable activity in any other period.
[27] The dispute between the parties gave rise, and properly so, to the disputes procedure under the Taxation Administration Act 1994. The plaintiff asserts that, so far as the Type 2 refunds are concerned, the procedure is still in train before the plaintiff’s adjudication unit. So far as the Type 1 refunds are concerned the plaintiff asserts that on 30 September 2002 the plaintiff and defendants agreed refunds were not payable to the 13 taxpayers. The plaintiff says that conference notes, clearly recording such an agreement, were supplied to the second defendant who has hitherto not denied such an agreement. The second defendant, however, in his affidavit of 30 September 2004 disputes there was any agreement beyond him accepting that the plaintiff had an arguable position. He contends he and the plaintiff were at cross purposes.
[28] There can be no dispute that, from the defendants’ standpoint, payment of the money as a result of the plaintiff’s administrative error into the first defendant’s bank account was, like mannah from heaven, unheralded. There is no current evidence to suggest there was any prior conduct by, or intimations from, the plaintiff that the money, representing GST refunds, would be forthcoming.
Discussion
[29] The parties, understandably perhaps, have devoted much of their submissions to whether or not the defendants are entitled to the money as GST refunds.
[30] Mr Hayes, for the defendants, echoed by the second defendant, submits that the plaintiff has acted in an unlawful way because the defendants were always entitled to GST refunds. He further submits that the interim relief the plaintiff claimed on 23 July was attributable in large measure to incorrect information placed before the Court.
[31] Mr Beck for the plaintiff submits that in terms of the normal principles of injunctive relief, particularly those applying to Mareva type injunctions, the plaintiff is entitled to the orders it obtained. He further submits the defendants have no current legal entitlement to the money which should be preserved to ensure the sum representing the defendants’ GST obligations is not dissipated or becomes irrecoverable.
[32] Mr Hayes, in robust submissions claims the plaintiff has been caught in the web of his own duplicity and has used the Court (a reference to the ex parte application) to achieve his own unlawful ends. In his submission the defendants have a clear entitlement to the money. Any argument by the plaintiff that his assessments, which like the automatic transfer of the money to the first defendant’s bank account were computer generated, were invalid, is patently not available. Section 28 of the Goods and Services Tax Act 1985 provides an assessment is not invalidated because of non-compliance with the Act.
[33] In counsel’s submission the plaintiff should be denied an opportunity to bolster his case at this interlocutory stage, particularly if inadequate or incorrect information was supplied to Williams J. That information did not contend the notices of assessment, which were issued on 14 July 2004, were the result of administrative error. In counsel’s submission they clearly were not. The GST assessments include the words “amended as per investigation”. Some form of human input was required to produce the assessments’ words and figures.
[34] Counsel accepts that if monies are paid in error to a person who has no entitlement, then the payee has a clear legal and equitable obligation either to hold those monies on trust or to refund them. These principles, however, do not apply in this situation, according to counsel, because the defendants had an entitlement to their GST refunds.
[35] Mr Hayes submits strongly, and in my judgment correctly so, that this Court currently has no jurisdiction to inquire into the tax position of the defendants or to go behind the assessments. Any attempt to make an interlocutory decision the basis of a
determination of the 13 taxpayers’ taxation liability is impermissible. (Allen v CIR
(CA82/03 12 August 2004)).
[36] In counsel’s submission, on the face of the relevant documents, the 14 July 2004 notices of assessment are precisely that. In terms of the disputes procedure under the Tax Administration Act 1994 the plaintiff issued a NOPA on 22 May 2002 to which the taxpayers responded on 26 July 2002. In the intervening years, in counsel’s submission, no resolution or outcome was notified. The 13 taxpayers are entitled to rely on the notices of assessment dated 14 July 2004 which accompanied the money. Section 105 of the Tax Administration Act specifically refers to computer generated assessments. It is not open to the plaintiff to contend the notices and the money were issued in error.
[37] Mr Hayes submits that a high obligation is placed on any counsel moving ex parte and that full disclosure is necessary. (United Peoples Organisation (Worldwide) Inc v Rakino Farms Limited (No:1) [1964] NZLR 737). In his submission the plaintiff did not inform Williams J that he had neglected to exercise his statutory right under s 46(1)(a) of the Goods and Services Tax Act to withhold a refund within 15 working days. Improperly the plaintiff had attempted to blind the Court by providing full information about the 13 taxpayers taxation history without alerting the Court that it had no jurisdiction to consider that history on its merits. Nor, (a reference to para 27 of the supporting affidavit of Mr Yin), was it accurate to depose there had been a “disallowance” of the GST claims particularly since the plaintiff had availed himself of the NOPA procedure.
[38] Furthermore the plaintiff’s supporting affidavit failed to place before the Court an accurate summary of the second defendant’s involvement in the Ch’elle litigation (supra paragraph [7]). Nor did it spell out in clear terms the plaintiff’s totally misconceived attempt a few days earlier to force the Bank of New Zealand to disgorge the money by making a demand under s 43(2) of the Goods and Services Tax Act.
[39] Interestingly, identical transactions to these involving other companies in which the second defendant had an interest have been the subject of litigation
culminating in the Court of Appeal in Almond Properties Limited and Others v CIR (2003) 21 NZTC 18, 289. This feature was covered in Mr Yin’s affidavit. Properties purchased from the same vendor and on-sold to the same purchasers within the same two day period were involved. As here, the vendor of the Hobson Street apartments cancelled the contracts with the taxpayers and forfeited the deposits. The taxpayers in turn purported to cancel the contracts between them and three on-purchasers.
[40] In July 2001 the taxpayers filed GST returns claiming a refund in respect of the GST they had paid in 1997 on the deposits they received from the on-purchasers. Letters were written by the Commissioner to the effect that a refund would be delayed and that the circumstances were being reviewed. Further information was later sought.
[41] The taxpayers complained about the Commissioner’s failure to make the refund and issued proceedings seeking summary judgment for it. This was refused by a High Court Master. From that refusal the taxpayers appealed.
[42] As here the taxpayers raised an argument that the Commissioner had failed to comply with the requirements of s 46 of the Goods and Services Tax Act 1985. The Court of Appeal held the Commissioner had complied sufficiently with s 46 (a point to which I shall return at a later point in this judgment (infra).
[43] The Court of Appeal held that the s 46 threshold for the Commissioner’s lack of satisfaction was a low one and that, once an intention to investigate had been notified, the Commissioner was entitled to defer making GST refunds. In short the Court of Appeal held that the taxpayers were not entitled to summary judgment. In cases of inordinate delay in an investigation a tax payer had a remedy by way of judicial review.
[44] Finally, Mr Hayes, relied heavily on the Court of Appeal decision CIR v Sea Hunter Fishing Ltd (2002) 20 NZTC 17, 478. That case involved a scrutiny by the Court of Appeal of a summary judgment entered against the Commissioner. The taxpayer had claimed an input tax credit for just over $2.5 million relating to the
purchase of a fishing vessel. The Inland Revenue Department activated a “temporary halt”, (as here) in its electronic database to prevent any GST credit adjustments. That halt expired a month later, whereupon the computer generated a cheque.
[45] The Court of Appeal held that the combined effect of ss 20(5) and 46(1) of the Goods and Services Tax Act 1985 obliged the Commissioner to refund the amount claimed by a registered tax payer within 15 working days unless either further information was requested or an intention to investigate was notified. The Commissioner’s letter of request was not received within the 15 day period. This, in the High Court’s view, entitled the tax payer to judgment. That decision was upheld. Therefore in counsel’s submission the plaintiff’s failure, through administrative error, to renew the account halt is, on the authority of that case, irrelevant.
[46] The second defendant submitted in a succinct way that the plaintiff’s disclosure to Williams J was at best sloppy and at worst deceitful. He referred to the tardy compliance by the plaintiff of the NOPA procedures under the Tax Administration Act. As yet a statement of position had not been issued.
[47] For the plaintiff Mr Beck submitted that, despite the defendants’ argument, this was not a case where the plaintiff had made an assessment. The notices of assessment had been computer generated and were not the product of a conscious decision by the plaintiff.
[48] In counsel’s submission all the requirements for a Mareva injunction have been met. The defendants’ application to rescind the ex parte orders gave the Court a legitimate opportunity to assess the merits of the interlocutory order on a de novo basis.
[49] The plaintiff had an arguable case that the defendants were not entitled to a GST refund. There was, on the basis of the evidence before the Court both on 23 July 2004 and now, a substantial risk that the money might be dissipated or become irrecoverable.
Decision
Disclosure at ex parte phase.
[50] There is substance to many of Mr Hayes’s criticisms of the plaintiff. The facts disclose an alarming level of administrative incompetence.
[51] I have no doubt at all that since July 2001 the plaintiff formed the strong preliminary view that the defendants had no entitlement to a refund. That stance has been maintained. The plaintiff asserts the defendants acquiesced in that stance in October 2002. It was a stance which, subject only to any dispute resolution procedure which may be in train, had been vindicated in the Court of Appeal in Almond Properties Limited (op cit). At best, the competing claims of the plaintiff and the defendants are arguable.
[52] Whether or not the plaintiff has been tardy in advancing the Tax Administration Act dispute procedure is not for me to comment. What is abundantly clear is that the plaintiff had no intention in July 2004 of capitulating and paying out refunds to the defendants. Against that background it is startling that an administrative error of the type which occurred did occur.
[53] Equally alarming is the preliminary attempt made by the plaintiff to invoke unlawfully a statutory power to have the money repaid to him. The integrity of the tax system which, under s 6 of the Tax Administration Act the plaintiff is obliged to promote, carries with it some expectation that the extensive powers vested in New Zealand’s taxation authorities will be used lawfully. But for the fact that the second defendant had speedily transferred the money out of the first defendant’s account the next day by an internet banking transaction, the Bank of New Zealand might well have taken the Notice to Deduct as being valid on its face and complied with it.
[54] There is force too in Mr Hayes’s observation that the plaintiff’s misguided attempt to retrieve the money by this means has been glossed over in Mr Yin’s supporting affidavit of 23 July 2003.
[55] The plaintiff’s case for ex parte relief focused, perhaps understandably, on the error which led to the money being paid. A history of the defendants’ taxation positions is précised in Mr Yin’s affidavit. There is a significant, and in my mind a justifiable and potent reference, to Almond Properties Limited (op cit). The evidence contained in Mr Yin’s affidavit is somewhat scanty with regard to the history of the parties’ post-2001 dealings.
[56] Finally, the supporting affidavit makes no reference at all to the simultaneous computer generation of notices of assessment. As will be apparent in a later passage of this judgment (infra para [63]) I did not regard this omission as being fatally determinative. However, there should have been a reference, particularly since courts are well aware that notices of assessment have legal consequences and are subject to statutory safeguards.
[57] An ex parte order is a powerful weapon in the armoury of any litigator. It behoves a party seeking it to ensure that the prerequisites of urgency and irreparable harm are present. The effect of an order made ex parte can be enormous. The relatively modern remedies of Mareva injunctions and Anton Pillar orders can in some circumstances be draconian. An ex parte order will frequently be the preliminary skirmish which wins the war. Orders will frequently have an enormous impact on the lives of citizens.
[58] For these reasons it behoves the Court to ensure the criteria have been satisfied. In that regard, particularly when the Pickwick procedure is inappropriate, judges are totally dependent on the accuracy of materials placed before them by counsel. Courts will expect focussed relevance. But they are also entitled to full disclosure of information which might weaken an applicant’s case and/or favour the absent party.
[59] In United Peoples Organisation (Worldwide) Inc v Rakino Farms Limited No: 1 [1964] NZLR 737, 738 T A Gresson J stated, in respect of an ex parte injunction restraining the exercise of the power of sale under a mortgage:
It is well settled that it is the duty of a solicitor certifying to an ex parte
application to make the fullest disclosure to the Court of all matters relevant
to such an application, whether or not such solicitor considered any such matter unimportant. He has a duty to disclose to the Court the defence to the action if he knows it, and the facts on which it is based, so that the Court can judge for itself whether they are material or not. Failure to do so may in itself furnish ground for dissolving the injunction….
If on a motion to dissolve an ex parte interim injunction it appears that the plaintiff has misstated his case, either by misrepresentation or by the suppression of material facts, so that an injunction has been obtained which might have been refused if all the facts had been stated, that in itself is a sufficient ground for dissolving the injunction.
[60] It is apparent, however, from a number of authorities that omission or non- disclosure will not ipso facto lead to the rescission of an injunction. Accidental omission or overlooking information in the hurry to prepare documents as a matter of urgency may occur. (See Wilson (NZ) Portland Cement Limited v Gatx-Fuller Australasia Pty Limited [1985] 2 NZLR 11, 23).
[61] More recently in Allen v CIR (CA 82/03 2 August 2004) the Court of Appeal observed:
[93] The Mareva injunction was obtained ex parte. Consequently there was a requirement on the part of the Commissioner to make appropriate disclosure: see for instance Brink's - MAT Ltd v Elcombe [1988] 3 All ER 188. No doubt a plaintiff who fails to make appropriate disclosure is at risk of adverse consequences which may, perhaps, extend to the discharge of the order inappropriately obtained (albeit that if the order was otherwise warranted, a further order is likely to be made, as in the Brinks - MAT case). But, given that there is an entitlement to seek review of orders made ex parte and such review proceeds on a de novo basis, the power to discharge an ex parte order on this ground is likely to be exercised only in egregious cases.
[per William Young J]
Exactly what is “egregious”, may, like the length of a piece of string, not always be evident. Although Mr Beck relied on this dictum I do not see it as being an authority or licence to depart from the rigorous standards to which I have referred (supra paras
[57] to [58]). Certainly the Court of Appeal is not signalling a relaxation of standards permitting inadequate disclosure, the conveying of misleading impressions, or a “once over lightly” set of supporting documents in the expectation that things can be put to right on a rescission application.
[62] Having given anxious thought to the material placed before Williams J, I do not consider the matters which were omitted from Mr Yin’s affidavit materially
affected the strong core of the plaintiff’s case, which was that a large sum of money had been paid out as a result of administrative error . The money was designated as GST refunds to which the plaintiff considered the defendants had no entitlement. There was a risk that the money might disappear.
[63] The omissions to which I have referred, and particularly the notices of assessment (dealt with in the next section) are worrying. But those omissions, in my judgment, are not sufficiently serious or potentially determinative to justify the injunction’s rescission.
Notices of assessment
[64] The defendants’ counsel places heavy emphasis on the fact that the notices of assessment, clearly varying the words “amended as per investigation”.
[65]In his affidavit of 23 August 2004 Mr Yin deposes:
“Notices of assessment” attached to the affidavit of the second defendant were automatically produce by the plaintiff’s computer system. The words “amended as per investigation” are merely the standard words on this type of notice”
[66] On the basis of the evidence so far produced in this proceeding there is no reason to disbelieve that assertion, despite Mr Hayes’s submissions to the contrary. I am not in a position to assess, at this interlocutory phase, Mr Yin’s credibility. The same deponent asserts the plaintiff did not personally make any assessments in respect of the GST returns claiming the refunds. Absent any rebutting evidence I must accept what Mr Yin has to say.
[67] The same issue has been before the courts before. In Paul Finance Limited v CIR (1995) 17 NZTC 12,379 Richardson J, referring to CIR v Canterbury Frozen Meat Co Ltd [1994] 2 NZLR 681, said:
…this court held that the making of an assessment requires the exercise of judgment on the part of the Commissioner in quantifying this statutorily imposed liability on the information then in the Commissioner’s possession. To constitute an assessment for income tax purposes the decision of the Commissioner must be definitive as to the liability of the tax payer at the time it is made…. [at 12,382]
[68] And on the issue of computer generated assessments Richardson J commented:
There are obvious difficulties in applying s 21D relating to electronically generated results of data processing operations, in tandem with the general assessment provisions of the GST legislation designed for the pretechnology world of tax collecting. An assessment conventionally involves the exercise of judgment as to the tax liability and so may involve considerations of how, when and by whom the decision said to amount to the exercise of that judgment was made….[Counsel] said it was conclusive evidence from the Commissioner’s own records of the fact of an assessment, with respect it does not follow. It may well be that the computer input was simply a record at that point of material provided by the tax payer in its return without any acceptance or consideration at that time of its correctness….
We can deal very shortly with [counsel’s] submissions that apply in s 21D the notice of assessment was the product of an actual assessment [T]he section requires that the act of the Commissioner have the character of an assessment and the assessment must be made in response to or as a result of information entered into or held in the computer, not due to an incorrect or mistaken command.
[69] Although s 105 of the Tax Administration Act 1984 provides that any assessment or determination made automatically by a computer in response to information entered into it shall be treated as an assessment or determination under proper delegated authority, it does not necessarily follow that an assessment produced in error by the computer (as these ones apparently were because of a failure to renew the account halt) will represent an assessment or determination to which an officer of the plaintiff has turned his or her mind.
[70] Thus, on the basis of Mr Yin’s evidence and the authorities, I do not consider that the production of the notices of assessment concurrently with the refund payment gave to the defendants an unarguable legal entitlement to the money or disentitled the plaintiff from claiming it back.
CIR v Sea Hunter Fishing Limited distinguished.
[71] The computer generated cheque for $2.5 million received by the tax payer in Sea Hunter Fishing Ltd is in a different category from the money here. Relevant to this discussion is s 46 of the Goods and Services Tax Act 1985 which provides:
46.Commissioner’s right to withhold payments —
(1)Subject to this section, if the Commissioner is required to refund an amount to a registered person under section 19C(8) or section 20(5) of this Act, the Commissioner shall refund the amount—
(a)Except when paragraph (b) applies, not later than 15 working days following the day on which the registered person's return was received by the Commissioner; or
(b)The day after the working day on which the Commissioner—
(i)Determines the amount is refundable, after first having—
(A)Investigated the circumstances of the return in accordance with subsection (2); or
(B)Reviewed the information requested in accordance with subsection (2); and
(ii)Is satisfied that the registered person has complied with the person's tax obligations.
(2)If the Commissioner is not satisfied with a return made by a registered person, the Commissioner—
(a)May investigate the circumstances of the return:
(b)May request the registered person to provide further information concerning the return.
…
[72] Central to the tax payer obtaining summary judgment in Sea Hunter Fishing Limited was the fact that the Commissioner had not given notice within the requisite 15 day period that he wished to investigate or provide further information under ss 2.
[73] As is apparent from Almond Properties Limited v CIR (op cit) dealing with identically situated taxpayers, in this case the defendants were notified in July 2001 that matters were being investigated. In that situation the Commissioner’s s 46(1)(a) obligation is not applicable. The plaintiff’s obligation to pay the refund cannot arise in this case (as in Almond Properties Limited) until the s 46(1)(b)(ii) obligation cuts in. Clearly the plaintiff was not so satisfied.
Mareva Injunction
[74] I consider that the basis for granting a Mareva injunction was made out both on 23 July 2004 and at the hearing before me.
[75] In general terms a claimant must have a good arguable case. A defendant must hold assets within the jurisdiction. There must be some ground for holding those assets may be dissipated, disposed of, or otherwise transferred before judgment. (See generally Wilson Cement v Gatx-Fuller [1985] 2 NZLR 11; Bank of New Zealand v Hawkins (1989) 1 PRNZ 451(CA)).
[76] There must be some factual basis from which a prudent, sensible, commercial person can properly infer the danger of removal exists. Proof of an intent to defeat a creditor does not have to be established. It is sufficient to establish the likelihood that assets may be put out of reach of a plaintiff. (See generally Third Chandris Shipping Corp v Unimarine SA [1979] 2 All ER 972, 977, 987; Ninemia Corp v Trove Schiffahrtsgesellschaft [1984] 1All ER 398, 419.)
[77] Although the defendants through their counsel, and the second defendant asserted that they had a desire to trade with the money and carry on their normal commercial activities, there is a dearth of evidence as to what those trading activities are or how successful they might be. There is, however, evidence that apart from the GST returns I have mentioned, none of the defendants have filed other GST returns which might evidence ongoing activity. The 13 taxpayers do not have separate bank accounts. The money, once distributed to the first defendant’s bank account, was transferred not to the 13 tax payers but to the bank account of the second defendant who, until recently was an undischarged bankrupt.
[78] I am informed the plaintiff’s costs as the successful party in Almond Properties Limited and Others v CIR (2003 21 NZTC 18, 289) have not been paid. There was also undisputed evidence before Williams J that a similarly erroneous refund of $4,979.80 paid to Derwert Properties Limited, a company associated with the second defendant, has not been repaid, there being no evidence of any explanation.
[79] These matters in combination lead me to conclude that the threshold for making a Mareva injunction has been reached. The evidence relating to all defendants suggests that in the context of the plaintiff’s cause of action, which is for the recovery of the money paid out in error, there is indeed a risk the money might be dissipated, transferred or rendered irrecoverable.
Conclusion
[80] The plaintiff’s statement of claim, filed pursuant to the 23 July orders of Williams J, alleges that the money was paid to the first defendant in error; that the defendants (other than the third defendant) all knew that the money was paid in error; and that the 13 taxpayers and the second defendant are unjustly enriched. Payment of the money is claimed.
[81] Whether or not, given that the disputes procedure is still afoot under Part IV of the Tax Administration Act 1994, the parties wish to set this substantive application down for hearing is for them to decide. Certainly that substantive proceeding is not the appropriate forum in which the parties’ respective stances on the 13 taxpayers’ GST rights and obligations can be ventilated.
[82] However, for all the reasons set out in this section of my judgment I am satisfied that orders made ex parte by Williams J on 23 July 2004 were correctly made. In my judgment no grounds for rescission have been made out. On the basis of the evidence so far before the Court I do not consider the plaintiff paid the money to the first defendant pursuant to an assessment to which he had turned his mind. Nor do I consider it is arguable that the 13 taxpayers have an absolute right to the money.
[83] I also consider that there is a risk attaching to the money if it is not restrained pending the substantive hearing.
Result
[84] The application to rescind the orders made ex parte by Williams J on 23 July 2004 is dismissed.
Costs
[85] In terms of Rule 48E the plaintiff is entitled to costs on this interlocutory application. Costs are reserved to be dealt with by me on the basis of memoranda if counsel are unable to agree.
Next event
[86] I direct the Registrar to allocate a 30 minute pretrial conference before an Associate Judge on the first available date after 15 May 2005. At that conference orders for setting down of the substantive proceeding and any necessary timetables and directions can be made.
. ...................................................
Priestley J
Delivered at 3.15 p.m. on the 30th day of March 2005.
0
0
0