Commissioner of Inland Revenue v Vela Fishing Ltd
[2001] NZCA 371
•5 December 2001
| IN THE COURT OF APPEAL OF NEW ZEALAND | CA270/00 |
| BETWEEN | COMMISSIONER OF INLAND REVENUE |
| Appellant |
| AND | VELA FISHING LIMITED |
| Respondent |
| Hearing: | 19 November 2001 |
| Coram: | Richardson P Blanchard J Tipping J |
| Appearances: | A C Beck for Appellant P R Heath QC for Respondent |
| Judgment: | 5 December 2001 |
| JUDGMENT OF THE COURT DELIVERED BY TIPPING J |
Introduction
Vela Fishing Limited applies for conditional leave to appeal to the Privy Council against a judgment of this Court delivered on 3 July 2001 which allowed an appeal by the Commissioner of Inland Revenue from a judgment of Penlington J. The High Court decision is reported at [2001] 1 NZLR 437. The case concerns the interpretation of the transitional and savings provisions of the income tax legislation relating to the time bar for making assessments and whether waiver of the time bar was possible.
In July 1993 Vela Fishing filed its tax return for the income year ended 31 March 1991. Section 25(1) of the Income Tax Act 1976, which was in force at the time, provided that it was not lawful for the Commissioner to alter an assessment so as to increase its amount after the expiration of four years from the end of the year in which the original notice of assessment was issued. The Act made no provision for any extension of the time bar which, in the light of the date of the original assessment in this case, would have applied from 1 April 1998.
On 24 March 1998, Vela Fishing signed a waiver, extending by six months the time bar which would otherwise have applied from the end of that month. On 30 September 1998 (the last day of the waiver period) the Commissioner reassessed the company in respect of the 1991 year, increasing its liability by some $2m. Vela Fishing subsequently sought judicial review of the decision to reassess on the basis that the waiver it had signed lacked a statutory basis and thus the purported reassessment was time barred.
Penlington J agreed with Vela Fishing’s contention and declared that the assessment, having been made after 31 March 1998, was unlawful and unenforceable. He held that the statutory provision permitting taxpayers to waive the four year time bar on assessments, which had been introduced in 1996, was not intended to have retrospective effect. Section 25 of the Income Tax Act 1976 was therefore intended to continue in full force and effect in relation to income years prior to 1 April 1995 and there was thus no statutory basis for the waiver. The Commissioner appealed.
This Court unanimously held that the effect of the transitional provisions in the legislation was to apply the waiver provisions retrospectively. The Court declared that an assessment made on or before 30 September 1998 (as in this case) was therefore valid, and subject to extant objection procedures, enforceable. Vela Fishing thereby lost the benefit of Penlington J’s decision by which it had avoided its presumptive liability under the Commissioner’s reassessment.
Amendment issue
On behalf of Vela Fishing, Mr Heath submitted that an appeal lies as of right under R2(a) of the Order in Council of 1910. Alternatively he sought to bring the case within the discretionary provisions of R2(b).
The original application did not rely upon R2(b) and, after an objection from Mr Beck for the Commissioner, Mr Heath sought to file an amended notice. Mr Beck objected to this course also, submitting that there is no jurisdiction to amend an application. We are satisfied that this Court has the power to permit an amendment of such a notice in an appropriate case (Rainbow Corporation Limited v Ryde Holdings Limited (1991) 4 PRNZ 317 (CA)). We are also satisfied that this is such a case. The Commissioner has not been prejudiced in any way and was aware of the purported reliance on R(2)(b) well in advance of the hearing.
Issues and submissions
We turn now to consider the application for leave. The relevant provisions of the Order in Council are:
2. Subject to the provisions of these Rules, an Appeal shall lie-
(a) As of right, from any final Judgment of the Court of Appeal where the matter in dispute on the Appeal amounts to or is of the value of five thousand New Zealand dollars or upwards, or where the Appeal involves, directly or indirectly, some claim or question to or respecting property or some civil right amounting to or of the value of five thousand New Zealand dollars or upwards; and
(b) At the discretion of the Court of Appeal from any other Judgment of that Court, whether final or interlocutory, if, in the opinion of that Court, the question involved in the Appeal is one which by reason of its general or public importance or of the magnitude of the interests affected or for any other reason, ought to be submitted to His Majesty in Council for decision.
To show an appeal lies as of right Vela Fishing must point first to a judgment that is final, and secondly to a matter in dispute, or alternatively a claim or question, having the requisite value. A final judgment is one that finally disposes of the parties’ rights in substantive terms. Mr Heath contended, and we accept, that the decision of this Court finally determines the judicial review application as to the legality of the Commissioner’s assessment of 30 September 1998. We did not understand Mr Beck to contend to the contrary.
As to Rule 2(a), Mr Heath submitted that, had the decision of Penlington J been upheld, the Commissioner would have lost the right to claim tax and penalties from the taxpayer of at least $2m. Relying on the judgment of this Court in Bateman Television Limited (In Liquidation) [1974] 2 NZLR 221, Mr Heath submitted that there was a sufficient connection between this sum and this Court’s finding that the reassessment was lawfully made. Also relying on Bateman, Mr Heath contended that Vela Fishing’s right not to have taxes levied against it unlawfully could be seen as a civil right of a value exceeding $5,000.
In contrast, Mr Beck submitted that, as the proceeding was an application for judicial review seeking only a declaratory order, it did not involve any property or right of monetary value. The matter in dispute was the validity of the waiver signed by Vela Fishing. As this did not have any monetary value, R2(a) was inapplicable. Likewise the value of the right to a declaration of validity could not be said to have a monetary value. Mr Beck submitted that the decision of this Court did not determine that Vela Fishing was liable to pay tax, and that whether there is any liability at all must be determined by the Taxation Review Authority.
Discussion - general
There are three alternative ways of looking at Vela Fishing’s contention that it is entitled to conditional leave as of right. The first is that there is a “matter in dispute” of a value of $5000 or more (the first limb). The second is that the appeal involves, directly or indirectly, a question respecting property amounting to or of the value of $5000 or more (the second limb). The third is that the appeal involves, directly or indirectly, some civil right amounting to or of the value of $5000 or more (the third limb).
Under the first limb, the matter in dispute is the validity of the waiver and thus the reassessment. Does that matter have a value and, if so, is that value $5000 or more? Without reference to authority, it might be possible to answer both questions in the affirmative on the following basis. The question whether Vela Fishing has a presumptive liability to pay the Commissioner some $2m turns on the validity of the assessment. The fact that Vela Fishing may challenge the correctness of the assessment on any other ground available to it, cannot be said to deprive the matter in dispute (ie. the validity of the assessment from the time point of view) of any value to Vela Fishing or indeed the Commissioner. Vela Fishing has the onus in ordinary challenge proceedings and its chances of establishing that the assessment ought to be cancelled or reduced to a sum below $5000 must commercially be regarded as such that the benefit to it of the waiver point has a value exceeding $5000. Vela Fishing can be said, at the moment, to have a contingent liability to the Commissioner of $2m. That liability can be defeated either by the waiver point or by total success in a conventional challenge. In these circumstances the view that the waiver point has a financial value to Vela Fishing in excess of $5000 seems tenable.
We will examine the second limb, again, for the moment, without reference to authority. Does the appeal involve, directly or indirectly, a question respecting property of the value of $5000 or more? The first point is whether the words “directly or indirectly” apply to the question respecting property or to the value of that question. The former seems the more logical and natural view because the concept of directly or indirectly then implicitly flows through to value. The issue becomes whether the appeal involves, directly or indirectly, a question respecting property of the requisite value. The concept of a question respecting property is a potentially wide one. The correct connotation of property must, however, introduce a limit. The question is the validity of the assessment. Is that a question indirectly respecting, ie. relating to, property. The answer can be yes only if the validity of the assessment and thus Vela Fishing’s obligation to pay the Commissioner $2m can properly be said indirectly to relate to its property, in the sense that its asset position is indirectly affected. That would be a rather strained construction.
The third limb involves the concept of a civil right amounting to or of the value of $5000 or more. The appeal, to be available under Rule 2(a), must, directly or indirectly, involve such a right. It can fairly be said that the present appeal involves whether the Commissioner has the right (undoubtedly if a right at all, a civil right) to assess Vela Fishing as liable for tax of $2m. The Commissioner says he has such right. Vela Fishing says he does not. The appeal therefore involves what can reasonably be regarded as a civil right. We do not overlook Mr Beck’s argument that the focus should be on the validity of the waiver, an issue prior to the validity of the assessment. In substance, however, it is the validity of the assessment which is in issue. While that assessment turns on the validity of the waiver, the step which is of financial consequence to Vela Fishing is the reassessment and it is the validity of that step which ought to be the central focus. Without the reassessment the validity or otherwise of the waiver would be of no consequence. Hence the declaration in this Court that the assessment was valid.
The remaining question is whether the right to reassess amounts to or has the value of $5000 or more. That must, in our view, be so. The right which the Commissioner asserts and Vela Fishing denies, must be worth more than $5000. It is a right presumptively worth $2m. It is, in a sense, a right which is defeasible if Vela Fishing can demonstrate, on grounds other than the waiver point, that it is not liable for any tax or at least not as much as the Commissioner asserts. But this does not mean that, fairly valued, the Commissioner’s alleged right to reassess has no value or a value of less than $5000. It would, we think, be commercially irresponsible for Vela Fishing to assess its contingent liability (the converse of the Commissioner’s defeasible right) at $5000 or less. Hence, without reference to authority, it seems to us that on this third limb Vela Fishing has a good case for saying that it is entitled to appeal to the Privy Council as of right under Rule 2(a). We will now consider how these views fit with the authorities.
Discussion - authorities
The leading early cases are Macfarlane v Leclaire (1862) 15 Moo. P.C.C. 181; 15 E.R. 462, and Allan v Pratt (1888) 13 App Cas 780. These two cases have consistently been followed by this Court. They establish that in determining the value of the matter in dispute, the correct course is to look at the judgment as it affects the interests of the party prejudiced by it and who wishes to obtain relief from it by an appeal.
It is necessary, however, to view this general approach against the way in which Rule 2(a) is expressed. If a civil right is the basis of the application for leave to appeal, it would be strange if the person claiming the right could appeal, if it was of the necessary value, but the person denying the right could not. If the Commissioner had lost in this Court, he could say that he had a right which had been wrongly denied him, and thus he could rely on the right to found an application for leave to appeal. If, as has happened, Vela Fishing wishes to challenge the existence of a right which this Court has held to exist, it can hardly be correct that, because the case has fallen that way and Vela Fishing seeks to deny rather than assert the right in question, it has no appeal under Rule 2(a). The rule focuses on whether the appeal “involves” a qualifying right. It can hardly matter which party claims the right and which party seeks to deny it. The key question is the value to the intending appellant of the right involved. In this case the value to Vela Fishing of its seeking to deny the right to the Commissioner must logically be the same as the value to the Commissioner of the right if it is upheld. Each will, other issues aside, be better or worse off according to whether the right exists or not. With that introduction we turn to examine the New Zealand cases.
The first is Re White (deceased), Brown & Ors v Free & Ors [1951] NZLR 428. This case involved a question of testamentary capacity. The respondents had succeeded in the Supreme Court in obtaining probate of the disputed will. That judgment was reversed on appeal. The respondents wished to appeal to the Privy Council. It was held they had an appeal as of right under Rule 2(a) because the value of the estate they were to administer, if the will was valid, far exceeded the then figure of £500. After reference to Macfarlane’s case, O’Leary CJ, who delivered the judgment of this Court said at 430:
Here, the judgment from which the respondents seek to be relieved is that of this Court, which has deprived them of the benefit of the Supreme Court judgment by virtue of which they were entitled for an indefinite time to administer the estate of the testatrix, of the value of £8,000 or thereabouts. This right has, no doubt, a value in money, but it is quite impossible to assess it at any approximate figure, still less at any certain figure; but, having regard to the length of time during which the trust is to operate, the trustees and their successors, who may, I think, be properly included as parties, may be regarded as being deprived of a right, directly or indirectly, of the value of five hundred pounds or upwards. The words of the Rule are fulfilled, in that the effect of the judgment is to subject the whole of the estate of the testatrix to be disposed of otherwise than according to the directions contained in the will propounded by the respondents, so that, in effect, the judgment requires them to surrender an estate of many thousands of pounds. Alternatively, if the beneficiaries, though unascertained as yet, are regarded as the real parties, and the respondents as representing them, the ultimate disposition of an amount of approximately £8,000 is involved. The application of the text of the Rule to litigation which was in respect of testamentary capacity is not easy. It is not apt to fit such a case. But, in the Court’s view, the real issue is whether the directions of a testatrix regarding the disposition of approximately £8,000 were valid in law, and the real interest of the respondents is that the testamentary document containing the directions, which was propounded by them, should be upheld. To regard the case as not one in which “directly or indirectly, some claim or question to or respecting property or some civil right amounting to or of the value of five hundred pounds sterling or upwards” seems to us to ignore the realities of the position. We think, therefore, in the circumstances of this case, the consequence of a restoration to the respondents of the grant which was, by the judgment of this Court, taken from them is of a value far exceeding £500, and that there is a right of appeal as of right.
In the present case the issue is whether the Commissioner has a right to make an assessment presumptively increasing Vela Fishing’s tax liability by $2m or so. The High Court ruled that the Commissioner has no such right. This Court had decided he does. Vela Fishing wishes to go to the Privy Council to reinstate the High Court’s view. White’s case was decided upon the “realities of the position”. On that basis at least the third limb of Rule 2(a) can fairly be said to be established.
White’s case was followed in McKenna v Porter Motors Ltd [1955] NZLR 850. That case concerned a judgment of this Court upholding the Supreme Court which had made an order that the appellants surrender possession of premises of which they were the respondent’s tenants. The appellants had contended that they had statutory protection against being required to vacate. They wished to appeal to the Privy Council to relieve themselves of the decisions of the New Zealand Courts on the basis that they had the statutory protection which the New Zealand Courts had declined to acknowledge. On the leave application this Court viewed the Rule 2(a) question as turning on whether the appellants had established their contention that their asserted statutory protection was worth more than £500 to them. North J, who delivered the judgment, put the matter in this way at 853:
We think, then, that the way this matter requires to be approached is to determine whether the appellants have established that it was worth £500 sterling to them that the provisions of the Tenancy Act, 1948, should be held to give them protection against an order to vacate the land; and this, we think, necessarily means that all relevant circumstances, relating both to the premises themselves and to the business conducted on the premises by the appellants, are considerations which require to be taken into account, for it is the value to the appellants that is the test. (original emphasis)
The Court went on to assess the value of the appellant’s contention on that basis, finding that it was worth more than £500 to them. They therefore had an appeal as of right. It can similarly be said that the value to Vela Fishing of its contention that the Commissioner had no right to reassess must be worth $5000 or more on any sensible commercial appraisal.
The next case is Griffin & Sons Ltd v Archer [1957] NZLR 502. The Transport Licencing Authority had refused to revoke a transport licence held by the appellant. The General Manager of Railways, who had applied for such revocation, appealed. The appellant sought a writ of prohibition from the High Court to prevent a particular Judge from hearing the appeal on the basis that he had decided an earlier appeal against it. It was common ground that the transport licence was worth more than £500. The Supreme Court had refused the appellant a writ of prohibition and the Court of Appeal had dismissed an appeal from that refusal. On the question whether the appellant had an appeal as of right to the Privy Council, this Court held that the only civil right involved in the application for the writ of prohibition was the right of the appellant to have its case heard by an impartial Tribunal. The value of this right could not be appraised or reduced to a money value. The transport licence itself was not in issue. If the writ had been granted, it would have been necessary to constitute a new appellate Tribunal to hear the case, and it was entirely speculative as to what the result of that hearing would have been.
A similar approach was taken in Lancaster v Manawatu Catchment Board [1957] NZLR 507. This case involved a decision of a Magistrate who had decided to reject the Catchment Board’s rating list on the ground that it did not provide a basis of rating that was equitable. The Supreme Court held that the Magistrate had been wrong in doing so and he granted an order of mandamus to the Magistrate to hear and determine certain appeals against the list. The judgment of the Supreme Court was unanimously upheld on appeal. At 509 North J said that no civil right in the required sense was involved because the Board had wide powers of rating and how it would exercise those powers no-one could say. Even if the intending appellant was right in his contention that the rating scheme could not be put into operation, all that was likely to happen was that its commencement would be postponed. The Court took the view that in these circumstances the so-called right, if a right at all, was not one which could sensibly be reduced to a money value.
The Lancaster and Griffin cases can be distinguished from the present. In both cases the ultimate outcome (existence or otherwise of the transport licence and final form of the classification list) was not in issue. The litigation concerned procedural or proper process issues. In the present case the ultimate outcome (the right of the Commissioner to make the reassessment) is directly in issue and thus the present case properly belongs in the White and McKenna line of authority rather than that exemplified by the Griffin and Lancaster cases.
The next case is one to which much of the argument before us was directed. It is Re Bateman Television Ltd (in liq) [1974] 2 NZLR 221. The liquidator of the Bateman group of companies sought the Court’s approval of the sale of the greater part of the group’s assets. Certain shareholders opposed the method by which the sale was to be conducted. It was approved in the Supreme Court and in this Court. The opposing shareholders wished to appeal to the Privy Council. They had no direct interest in the assets, so the first limb of Rule 2(a) was held not to apply. The Court was of the view that for this limb to apply, the applicant for leave had to have a direct interest in the subject matter of the litigation.
However, having regard to the value of the assets to be sold, and the possibility of a considerable financial difference between the result of the method of disposition approved and that which the shareholders were contending for, it was held that they had an appeal as of right under the second limb of Rule 2(a). McCarthy P, who delivered the judgment, said at 223:
The motion with which we were concerned does raise a question respecting the assets proposed to be sold but the applicants' interest in the question is, as we have indicated, merely an indirect one; it is not a direct claim to the property. To place a value on this interest is extremely difficult, for there are so many contingencies involved. Not every indirect interest in an issue touching property of a value of $5,000 or more gives the owner of that interest an automatic right to appeal. This Court in Re White (No 2) [1951] NZLR 428, where the executors of a will sought leave to appeal from a judgment of this Court declaring the will invalid because of the testator's lack of testamentary capacity, quoted as applicable the words of the Privy Council in Macfarlane v Leclaire (1862) 15 Moo PCC 181; 15 ER 462, to the effect that the Court of Appeal's judgment is to be looked at as it affects the interest of the party who is prejudiced by it and who seeks to relieve himself from it by appeal. That seems to require that we must first examine the relationship between the applicants and the issue before the Court; especially the extent to which the applicants are affected by the judgment of this Court. Having done that, we must then endeavour to place some value on the applicants' interest. That is what the Court did in Re White, notwithstanding the difficulties in the way of placing any figure on the interests of the executors in that case.
And at 224:
Now, in the present case having regard to the very substantial value of the assets to be sold and bearing in mind the possibility of a considerable divergence between the results of one form of disposition and those of another, we think it best to conclude that the applicants have an indirect interest which is something more than "a nebulous possibility of [their] having some day a claim for damages" – a phrase used in Re Taupo Totara Timber Co Ltd (No 2) [1943] NZLR 672, 676. There is a closer nexus than existed in the Taupo Timber case. We think that in this present case the applicants' interest can fairly be estimated to be worth no less than $5,000, and therefore they are entitled as of right to leave.
While Bateman’s case may not support the view that in the present case Vela Fishing has a right of appeal under what we are calling the second limb, it does not stand in the way of the applicability of the third. It does, however, stand directly in the way of any right of appeal existing under the first limb.
In Royal Hong Kong Jockey Club v Miers [1983] 1 WLR 1049 (PC) the Privy Council ruled that there was no appeal as of right under a comparable rule in the following circumstances. The Jockey Club had refused to renew Mr Miers’ licence to ride for the 1982-83 season. He was offered and accepted a hearing before the stewards. They dismissed what was effectively an appeal from the Club. He appealed to the High Court for a declaration that the rules of natural justice had not been observed at the appeal hearing. The High Court and the Court of Appeal of Hong Kong dismissed that application but held that Mr Miers had an appeal as of right, since his annual earnings as a jockey had amounted to more than the threshold figure. The Privy Council determined that the only question at issue was the right to a fair hearing, and thus the value of the lost licence was not the measure of the value of the claim. This case falls properly in the Griffin/Lancaster line. At issue was a procedural rather than any substantive right. No money value could be ascribed to it, save on a purely speculative basis.
The final case we will mention is the very recent decision of this Court in Rodney District Council v Attorney-General [2001] 1 NZLR 326. At first sight this decision may be thought to have blurred the distinction between the two lines of authority to which we have referred. The only case in either line referred to was Bateman. The High Court had made a declaration that certain levies were unlawful. This Court upheld the High Court. The consequence for the local bodies was that they might have to refund to their ratepayers sums well in excess of $5000. Leave to appeal was given under Rule 2(b) – the discretionary ground – but the Court said that Rule 2(a) did not apply. The 2(a) argument failed primarily because the ratepayers themselves were not parties to the litigation: see the emphasis given to “these” proceedings in the judgment at 328, line 38. As conditional leave was given under Rule 2(b), the Court did not need to go into the Rule 2(a) question at all, let alone in any detail. The Rodney case should not be seen as throwing any doubt on the earlier cases and the conceptual distinction which they demonstrate.
Conclusion
It is now necessary to relate our earlier discussion and the authorities to the present case. Bateman’s interpretation of the first limb precludes reliance on it by Vela Fishing. The authorities do not directly support the application of the second limb; indeed they tend to suggest that limb would not be applicable on account of there being insufficient connection with property. The authorities do, however, support the application of the third limb, which seems to us to apply on a fair reading of its words, for the reasons given in para [15] above. We therefore hold that Vela Fishing has demonstrated that it is entitled to appeal to the Privy Council under Rule 2(a) and give conditional leave on the usual terms, with costs of $1500 plus disbursements, to be fixed if necessary by the Registrar.
Solicitors
Crown Law Office, Wellington, for Appellant
Bradbury & Muir, Auckland, for Respondent
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