Commissioner of Inland Revenue v Motor Dealers Ltd HC Auckland CIV 2010-404-000331

[2011] NZHC 1576

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV 2010-404-000331

UNDER  The Companies Act 1993

BETWEEN  THE COMMISSIONER OF INLAND REVENUE

Plaintiff

ANDMOTOR DEALERS LIMITED Defendant

Hearing:         18 July 2011

Appearances: C K Wood for the Plaintiff

SRG for the Defendant

Judgment:      20 July 2011

JUDGMENT OF ASSOCIATE JUDGE CHRISTIANSEN

This judgment was delivered by me on

20.07.11 at 4:30pm, pursuant to

Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date……………

Solicitors/Counsel:

C Wood, S J Eisdell Moore SC, Auckland –  [email protected]

S Judd, Barrister, Auckland –  [email protected]

THE COMMISSIONER OF INLAND REVENUE V MOTOR DEALERS LIMITED HC AK CIV 2010-404-

000331 20 July 2011

[1]      This  judgment  addresses  the  defendant’s  (MDL)  stay  and  restraint  of

advertising applications.

Background

[2]      On 27 January 2011 the plaintiff (the Commissioner) filed proceedings for the liquidation of MDL.  On 3 December 2010 the Commissioner served a statutory demand on MDL demanding payment of $807,117.03.  MDL made no payment, nor did it apply to set aside the statutory demand.  Instead on 11 February 2011 it filed the current stay and restraint applications.  MDL wants the liquidation proceeding to await the outcome of a judicial review proceeding that Mr Judd says has a one day hearing date in October this year.  He says that proceeding is dealing with the issue between MDL and other plaintiffs which challenges the Commissioner’s claim for the payment of GST which is at the core of the present liquidation proceeding.

The taxation dispute

[3]      The  Commissioner’s  statutory  demand  related  to  a  GST  assessment  of

$25,353.38 for the tax period ended 31 July 1996.  The amount now claimed by the

Commissioner comprises interest and penalties which have accumulated since.

[4]      The  original  liability  for  GST  was  calculated  on  the  basis  that  certain payments received by MDL called “administration charges” were subject to GST. There was no challenge to the Taxation Review Authority (TRA) to that assessment at  that  time.   A Mr  Russell,  MDL’s  director,  wrote  to  the  Commissioner  on  1

September 1997 purporting to object to the additional tax/late payment penalties.

The Commissioner’s response was to advise him that no right of objection lay.

[5]      MDL is a parent company in a Russell Template arrangement.   MDL is a plaintiff along with other Russell Template parent companies including F B Duvall Limited (Duvall) in the aforesaid judicial review proceeding [1] brought in the name of

Duvall.

[1] F B Duvall Ltd & Ors v CIR (2010) 24 NZTC 24, 053.

[6]      On 23 March 1998 Mr Russell filed an amended GST return for MDL for the period ending 31 July 1996 by which a refund of $396.62 was claimed from the Commissioner.  In that form the amended return constituted a late objection to the Commissioner’s earlier assessment.  Apparently the Commissioner did not respond to the amended return.

[7]      Mr Russell then wrote to the Commissioner on 2 November 1999 noting the Commissioner had not assessed the amended return nor replied to correspondence in connection with same.

[8]      For reasons unclear the Commissioner at that time did not pursue proceedings upon a statutory demand served on MDL.

[9]      Although   there   was   a   lull   from   that   time   until   early  2007   in   the correspondence between Mr Russell and the Commissioner, events were somewhat overtaken by developments affecting Duvall.    The litigation between the Commissioner and Duvall related to GST assessed in respect of the administration charge.

The Duvall litigation

[10] I do not propose to review in detail the history of that litigation because Allan J has provided that in paragraphs 19 – 31 of his 25 February 2010 judgment in the related judicial review proceeding [2]. In brief when Baragwanath J, in the High Court on 11 July 1997 heard Duvall’s appeal of a Taxation Review Authority decision the learned Judge agreed with the Commissioner that Duvall’s appeal ought to be allowed. The Commissioner had come to the viewpoint that no GST liability arose because Duvall had not supplied services for payment of same. Whilst Duvall was prepared to abide the Commissioner’s decision to concede the appeal it objected to

the  Commissioner  raising,  the  way  of  explanation,  the  “no  services”  argument

because it had not been raised before the TRA.   Notwithstanding, the High Court held that the no services contention was open for its consideration and concluded

that no services were supplied by Duvall in return for the administration payments received.

[2] Supra

[11]     Duvall objected to the manner in which the Commissioner applied the result in that and in another two judgments affecting Duvall and the Commissioner.  Duvall appealed.   The Court of Appeal confined the Commissioner to the position taken before the TRA namely that Duvall was liable for GST and therefore the Court of Appeal held that the High Court’s role was confined simply to allow any appeal by consent. The Court of Appeal’s judgment was delivered on 17 May 2000.

[12] When afterwards Duvall asked the Commissioner to amend GST assessments in accordance with the Court of Appeal judgment, the Commissioner did not do so. At Duvall’s request the matter was referred to the TRA and in that outcome the Commissioner requested that TRA to state a case to the High Court. Priestley J’s judgment upon that was delivered on 8 March 2005 [3]. It allowed the Commissioner’s appeal and held the TRA had no jurisdiction in a case where there had been no disallowance of a taxpayer’s objection. Priestley J held the Commissioner could not be compelled to accept the late objection and also had no

statutory duty to reassess prior to accepting a late objection.

[3] CIR v F B Duvall Ltd (2005) 22 NZTC 19, 142.

[13] Duvall appealed to the Court of Appeal. On 7 April 2006 the Court of Appeal dismissed that appeal [4]. The Court of Appeal made pronouncements about how late objections were to be dealt with and stated that if the Commissioner’s decision was to allow or disallow an objection then a taxpayer may require the Commissioner to state a case. If there is unreasonable delay by the Commissioner in considering an objection then judicial review was available in the absence of the TRA having jurisdiction.

The 2009 judicial review application

[4] F B Duvall Ltd v CIR (2006) 22 NZTC 19, 866.

[14]     Nothing further was  undertaken  by Duvall  until  the filing of its  judicial review application in 2009.

[15]     In  March  2007  correspondence  between  MDL  and  the  Commissioner renewed with the filing by the former of a GST return for the period ending 31

January 2007.  It is clear that at this time also there was considerable correspondence between the Commissioner and other parent companies in the control of Mr Russell.

[16]     I  need  not  review  those  events  either.     Since,  matters  between  the Commissioner and the Russell companies have focussed upon the judicial review proceeding that was heard before Allan J.   At the core of those is the Russell companies contention that the factual circumstances of Duvall are identical to those of all other parent companies including MDL but that the Commissioner refuses to apply the same position adopted in the Duvall litigation either to Duvall itself in other tax years (other than those with which the litigation was concerned), or to any of the other parent companies.

[17]     Allan J’s judgment concerned an amended statement of claim filed on behalf of Duvall and others which was the subject of the Commissioner’s strike out application.

[18]     The judicial review application involved five causes of action.   The first included an allegation of failure on the part of the Commissioner to exercise the statutory power to accept late objections to the Commission’s refusal to amend his GST assessments.

[19]     The Russell companies allege that no reasonable person in the position of the Commissioner would refuse to accept late objections when the circumstances that gave rise to those objections did not arise until after the ordinary period for making an objection had expired and were caused by the Commissioner’s own conduct – in the Commissioner’s change of stance which was addressed by the Court of Appeal in

2000.

[20]     Part of the first cause of action related to an allegation that the Commissioner had failed or refused to use his statutory powers under s 113 of the Tax Administration Act 1994 to amend the assessments for GST in the manner required by the Russell companies.

[21]     By his judgment Allan J struck out Duvall’s first cause of action as far as it concerned  the  substance  of  the  Commissioner’s  assessments  of  the  plaintiffs’ taxation liabilities.   It survived however in respect of the plaintiffs whose late objections were not accepted by the Commissioner.  In respect of those plaintiffs the first  cause  of  action  was  struck  out  without  prejudice  to  their  entitlement  to commence fresh properly constituted proceedings.   His Honour directed that the amended proceedings be confined to the procedural issues as opposed to the correctness of assessments.  He indicated each plaintiff should particularise its own circumstances.

[22]     The other causes of action advanced in the Duvall proceeding do not appear to affect MDL.  Also it seems MDL was not a plaintiff which had pleaded its late objection was not accepted by the Commissioner.

[23]     It would appear therefore that MDL is not one of those plaintiffs now entitled by the judgment of Allan J to commence fresh properly constituted proceedings.

[24]     Mr Judd does not accept the affect of Allan J’s judgment is to exclude MDL from filing an amended statement of claim.  He says MDL had filed late objections and refers to the correspondence that ensued in 1998 and 1999, to which I have earlier referred.  As Mr Judd points out the tax legislation puts no time bar on a late objection, although he concedes that the longer the delay in filing an objection the more likely it is to be refused

Considerations

[25]     I consider it is properly the matter for the Review Court in due course to consider  whether  MDL is  entitled  to  appear  before  it  as  a  plaintiff  whose  late objection was refused by the Commissioner and who has an entitlement to file an amended proceeding.

[26]     In its case MDL argues there are matters before the Review Court which may ultimately determine whether or not any GST tax liability is owing by it.   It is an argument focussed upon a decision of the Commissioner made about 12 years ago.

It is a position which assumes other Russell Template parent companies will be wrongly treated if the Commissioner is now able to adopt a different position with respect to their own GST responsibilities.

[27]     On behalf of the Commissioner Mr Wood detailed the process for objections or challenges to a Commissioner’s GST assessments.   In short, these are limited. They must be attended to promptly.   Usually a Notice of Proposed Adjustment (NOPA) is filed but time limits apply and late filing requires exceptional circumstances to be identified.

[28]     Mr Judd’s position is that MDL’s case identifies exceptional circumstances because of an alleged inconsistency of treatment by the decisions and processes of the Commissioner.

[29]     Again it is not a matter that requires any finding by me.  Likely the Review Court will in or about October this year consider whether or not appropriate cases have been identified in which the Commissioner is directed to deal with (allow or disallow) late objections.

[30]     While Associate Judges deal with the bulk of the High Court’s commercial cases they do not have judicial review jurisdiction.   It sometimes occurs that in a proceeding brought before an Associate Judge in his/her insolvency jurisdiction or upon a summary judgment or strike out application a judicial review application is also filed in a related matter between the parties.   In those situations an Associate Judge can be placed in a position of deciding whether or not judicial review is an available remedy.   If it is considered to be so then usually the Associate Judge determines no other ruling should be made by him/her that would adversely affect the conduct of the judicial review.

[31]     Those same circumstances impacted on my consideration of an application by a taxpayer to set aside the Commissioner’s statutory demand for income tax due in the case of Tannadyce Investments Limited v C of IR. [5]    In that case I held the

taxpayer could not dispute the claim under the Tax Administration Act 1994 because

time limits had elapsed.  I held therefore there was no arguable basis to dispute the liability.

[5] Tannadyce Investments Limited v C of IR (2009) 24 NZTC 23, 036.

[32]     In  affirming  that  decision  the  Court  of  Appeal  also  held  Tannadyce

Investments Limited v C of IR [6]:

[6] Tannadyce Investments Limited v C of IR (2010) 24 NZTC 24, 341.

[44]      This Court has recently made some observations about the approach that should be taken in proceedings enforcing payment of a debt owed to a body whose pricing decisions are amenable to judicial review where the non- payer resists summary judgment on the basis that it has issued (or will issue) judicial review proceedings challenging the decision.  Although the factual context is different in this case, the approach is equally applicable.  On the facts of this case, the adoption of that approach would have required Tannadyce to seek interim relief under s 8 of the Judicature Amendment Act

1972  prior  to  the  hearing  of  its  application  to  set  aside  the  statutory demand, rather than arguing before the Associate Judge that its intended

judicial  review  proceeding  would  arguably  provide  a  defence  to  the

Commissioner’s claim for tax owing under the relevant assessments.  That would  have  prevented  the  situation  that  arose  in  the  statutory  demand

decision where Associate Judge Christiansen was required to deal with the

merits of the proposed judicial review claim even though he did not have jurisdiction to deal with the judicial review claim itself.

Conclusion

[33]     In this case the Commissioner’s position is largely that MDL cannot possibly succeed in proving a right to pursue a late objection, much less in that outcome or subsequently to prove it has no liability for payment of GST to the Commissioner.

[34]    But, in essence these are the matters for consideration upon the review proceedings.     I  am  not  therefore  prepared  to  strike  out  MDL’s  applications. However, rather than grant the order sought I propose to adjourn MDL’s application for call in the miscellaneous companies list at 11:45am on 26 August 2011.  At that time I propose dismissing the applications unless MDL has by 19 August 2011 filed and served an application for interim relief under s 8 of the Judicature Amendment Act 1972.

[35]     Costs upon the stay and restraint applications shall be reserved.

[36]     Not infrequently Associate Judges have been asked to suspend Insolvency

Court, summary judgment/strike out management processes until judicial review

proceedings have been resolved.  In the future parties to those processes can expect the Judge to be reluctant to adjourn them if a party seeking an adjournment has not

availed itself of an opportunity to obtain interim relief from the Review Court.

Associate Judge Christiansen