Faloon v Commissioner of Inland Revenue

[2012] NZHC 307

IN THE HIGH COURT OF NEW ZEALAND TAURANGA REGISTRY

CIV 2010-470-922 [2012] NZHC 307

UNDER  the Tax Administration Act 1994

IN THE MATTER OF     a challenge under ss 138C and 138K(b) of the Act, that the letter dated 16 August

2010 by the defendant to the plaintiff, which contains a "decision" of the defendant which is a "disputable decision", but which is not an assessment, is a "disputable decision" which has not been determined by a hearing authority by judgment delivered on 29 April 2010

BETWEEN  CLARENCE JOHN FALOON Applicant

ANDTHE COMMISSIONER OF INLAND REVENUE

Respondent

Hearing:         7 February 2012 (Heard at Hamilton)

Appearances: Applicant in person

J A L Oliver and K Ross for Defendant

Judgment:      29 February 2012

JUDGMENT OF PETERS J

This judgment was delivered by Justice Peters on

29 February 2012 at 2:30 pm pursuant to r 11.5 of the High Court Rules

Registrar/Deputy Registrar

Date: ...................................

FALOON V THE COMMISSIONER OF INLAND REVENUE HC TAU CIV 2010-470-922 [29 February 2012]

Introduction

[1]      The applicant seeks review of an order or decision of an Associate Judge in

chambers given on 8 November 2011 (“decision”) under s 26P Judicature Act 1908.1

In that decision, following an application by the respondent, the Associate Judge

made an order striking out the applicant’s pleading and dismissing the proceeding.2

[2]      The proceedings concern matters arising under the Tax Administration Act

1994 (“TAA”). The applicant’s case is that a statement that the respondent made in a letter to the applicant is a “disputable decision” for the purposes of the TAA and he seeks to challenge the decision accordingly.

[3]      The Associate Judge struck out the pleading for two reasons.   First, the Associate Judge did not consider it reasonably arguable that the statement in the letter was a disputable decision.3     Secondly, and quite independently of the first reason, the Associate Judge considered the pleading was mischievous, frivolous, vexatious and an abuse of the process of the Court.4

[4]      In reaching that conclusion, the Associate Judge referred to the fact that, just six months earlier, he had struck out another claim that the applicant had issued against the respondent (“CIV 885”), based largely on the same chain  of events pleaded  in  the  present  proceedings.    The Associate  Judge  also  decided  that,  in bringing the proceeding, the applicant was seeking to pursue,  yet again, a long standing  grievance  that  he  has  held  for  many  years,  despite  decisions  of  the High Court and Court of Appeal holding that the applicant has no standing to pursue any legal claim relating to that grievance.

[5]      The decision was made following a defended hearing and is supported by documented  reasons.     Accordingly,  the  application  for  review  proceeds  as  a

rehearing and it is for the applicant to persuade me that the decision is wrong, in that

1 Faloon v The Commissioner of Inland Revenue HC Tauranga CIV 2010-470-922, 8 November 2011.

2 High Court Rules, r 15.1(1).
3 At [27] to [29].

4 At [25], [31], [34] and [35].

it rested on unsupportable findings of fact or that the Associate Judge applied a wrong principle of law.5     For reasons given below, I am not persuaded that the decision is wrong and I dismiss the application for review accordingly.

Background

[6]      The  applicant  commenced  this  proceeding  on  15  October  2010.    The respondent did not file a statement of defence but instead made the application to strike out in November 2010.  The applicant filed an amended statement of claim on

8 August 2011.   Neither a further application to strike out nor a further notice of opposition was filed after the amended pleading was filed.

[7]      The Associate Judge heard the application to strike out on 3 November 2011 and issued his decision on 8 November 2011.   One of the applicant’s grounds of review is that the Associate Judge made his decision on the basis of the statement of claim which the applicant had filed and served at the outset, rather than on the basis of the amended statement of claim.   I accept the applicant’s submission that the Associate Judge was required to determine the application on the amended pleading and that the Associate Judge referred to the earlier pleading in his decision.   For reasons given below, however, I am satisfied that the Associate Judge made his decision on the amended statement of claim.

Amended statement of claim

[8]      In the amended statement of claim, the applicant alleges that he is a trustee (assuming there is only one) of a trust named the 1977-Year Diversion of the Kawau Stream Trust (“the trust”).

[9]      The applicant’s case is that, for the purposes of income tax legislation, he, as trustee, is an “associated person” of a “holder” of a “financial arrangement” for the “disposition” of land.  The holder itself is alleged to be Trade Lines Limited (“Trade Lines”). The disposition is alleged to have been from Trade Lines to the Crown, as a

result of orders that the Planning Tribunal made on 19 June 1987.  The orders were

5 High Court Rules, r 2.3(4).

made in proceedings between Trade Lines as appellant and the Palmerston North City Council and the Minister of Transport (Civil Aviation Division) as first and second  respondents  respectively.   The applicant  took  me to  those  orders at  the hearing and this is a convenient point to refer to them.

[10]     The   Tribunal   ordered   the   Council   to   take   “for   airport   purposes” approximately 1.8 hectares.   That land was part of certificate of title 804/42 (Wellington Registry).   Trade Lines was the registered proprietor of the land in CT 804/42.    The  orders  also  provided  for  compensation  to  Trade  Lines  to  be determined under the Public Works Act 1981.  Trade Lines was a company under the control of the applicant’s father until, shortly before his death, he transferred the shares to individuals or entities associated with the Faloon family.  Trade Lines went into liquidation in the 1990s and was subsequently wound up and struck off.  The grievance that the applicant holds arises out of what did or did not happen to the land after the Planning Tribunal made the orders to which I have referred.

[11]     The applicant contends that, pursuant to the Tribunal’s orders, as at 31 March

2008 the Crown owed capital and income totalling $8,790,852.46 to the “holder”, that is Trade Lines.   The applicant alleges that he, as trustee, is an “associated person” of the holder and must file returns in respect of such of the alleged accrued income as is due to the trustee.  The pleading does not state how the association is said to arise.

[12]     On  17  July  2009  the  applicant  filed  a  Notice  of  Proposed  Adjustment

(“NOPA”)  under  the  TAA,  proposing  to  adjust  the  income  of  the  trust  by

$7,677,702.90.6    The applicant alleges that the respondent did not reject the NOPA by issuing a Notice of Response (“NOR”) within two months and that, as a result, the respondent is deemed to have accepted the NOPA and must issue a notice of assessment on the basis of the amounts proposed in the NOPA.7     It is common ground that the respondent has not issued a notice or notices of assessment on the

basis of the NOPA.8

6 Section 89D.

7 Sections 89G and 89H.

8 Section 89J.

[13]     Although an application to strike out usually proceeds on the basis that an allegation made in the statement of claim will be established at trial, I do have reservations as to applicant’s allegation that the respondent did not issue a NOR in time. The Associate Judge said in his decision that the respondent had issued a comprehensive  Notice  of  Response  (“NOR”)  within  time,  rejecting  the  NOPA.9

Counsel for the respondent said the same at the hearing before me.

[14]     In July 2010, the applicant telephoned the Department of Inland Revenue (“Department”) seeking revised assessments based on the NOPA.   In response the Department wrote to the applicant on 16 August 2010, advising that, in light of the decision in CIV 885, it did not propose to take any further action in response to the NOPA.   In April 2010, the same Associate Judge had struck out the pleading in

CIV 885.10      CIV 885  concerned  the  same  NOPA at  issue  in  this  case  and  the

plaintiffs, being the applicant, his wife and the applicant as trustee of the same trust in this case, had sought a variety of relief including orders requiring the respondent to issue notices of assessment in respect of the income referred to in the NOPA.

[15]     The  applicant’s  case  in  the  amended  statement  of  claim  is  that  the respondent’s decision to decline to take any further action on the NOPA is itself a “disputable decision” for the purposes of the TAA and he wishes to implement the challenge procedures under Part 8A of the TAA.

[16]     The relief the applicant seeks is:

(a)       an order directing the respondent to alter a disputable decision in the letter of 16 August 2010; and

(b)a declaration that, in refusing to supply the applicant with particular forms of return, the respondent acted wrongly; and

9 Faloon v The Commissioner of Inland Revenue HC Tauranga CIV-2010-470-922, 8 November 2011 at [12].

10 Faloon v The Commissioner of Inland Revenue HC Tauranga CIV-2009-470-885, 29 April 2010. The plaintiffs’ application to review the decision in CIV 885 failed for reasons which meant that the merits did not have to be considered, see Faloon v The Commissioner of Inland Revenue HC Tauranga CIV-2009-470-885, 11 June 2010.

(c)       costs.

Associate Judge’s decision

[17]     In  the  8  November  2011  decision  the  Associate  Judge  accepted  the respondent’s  submission  that  the  letter  of  16 August  2010  did  not  contain  a disputable decision for the purposes of the TAA but rather was a statement of the conclusion the respondent had reached after considering the Court’s decision in CIV

885.   The Associate Judge held that no reasonably arguable cause of action arose regarding that matter.

[18]     The Associate Judge also held that the pleading was mischievous, frivolous, vexatious and an abuse of the process of the Court, in that it attempted to relitigate the decision in CIV 885 and previous decisions of the Court to the effect that no-one, other than Trade Lines as registered proprietor or its subsequent liquidators, had standing to pursue the Crown over matters regarding the land in CT 804/42.

Grounds of review

[19]     The applicant submitted that the Associate Judge erred in holding that it was not reasonably arguable that the statement in the letter was a disputable decision.  I do not propose to address this point because it is unnecessary for me to do so.   I am satisfied that the Associate Judge was correct to strike out the pleading on the basis of the other, independent ground on which he relied, namely that the pleading was frivolous, vexatious or otherwise an abuse of process.

[20]    The applicant’s first submission on this point was that there was a real controversy to be determined as between the applicant and respondent under the TAA.  The applicant’s case was that the effect of the provisions of the TAA is that notices of assessment should be issued and he requires, and is entitled to have, those provisions followed.

[21]     Even if the applicant is correct in submitting that there is a real controversy, on an application to strike out, the Court may have regard to wider considerations, as

the Associate Judge did in this case.   Those wider considerations were that the Associate Judge had already decided in CIV 885 that to require the respondent to issue notices  of assessment  on  the basis  in  the NOPA would  be to  require the respondent to act inconsistently with earlier decisions of the Court regarding the applicant’s lack of entitlement to any benefit from or interest in the land subject to the orders of the Planning Tribunal.

[22]     The applicant submitted that different matters were in issue in this proceeding than those that were considered in CIV 885.   That proceeding was based on the NOPA and this one on the letter of 16 August 2010.  I do not accept that submission. The desired end is the same, namely some finding that the trust is required to return income deriving from a claim regarding the land subject to the Planning Tribunal orders.

[23]     Secondly, the applicant submitted that the earlier decisions of the Court were not in fact as the Associate Judge considered them to be.

[24]     I have reviewed the bundle of authorities that counsel for the respondent provided to the Associate Judge, as well as several others.  I am satisfied the Court’s previous findings were as the Associate Judge described them.   Many of the authorities concern the applicant, his sister, the Palmerston North City Council and the respondent.  Many of them refer to a summary by Gendall J of what has been at

the heart of the applicant’s ongoing dispute with the Crown:11

[9]       The relevant facts have their origin in two events. The first was the carrying out of a piped diversion of a stream, (the Kawau Stream) which diversion ... Trade Lines Limited was a Faloon family company. Secondly, there was a taking of a portion of land owned by Trade Lines Limited by the Crown for the purposes of the Palmerston North Airport. At all material times the land was owned by the company and the Crown paid $80,000 to it on account of compensation under the Public Works Act 1981, after the land was taken by proclamation in December 1993. Trades Lines Limited is in liquidation. A claim for further compensation, over and above the $80,000, by the company, remains unresolved but is being pursued by the liquidators of Trade Lines.

[10]      An issue arose in relation to the diversion of the stream ...

11 Faloon & Ors v The Attorney-General HC Wellington CP310/99, 5 October 2000.

[11]     Trade Lines Limited, however had gone into liquidation and the liquidators wished to sell the retained piece of land. This led to the lodging of a number of caveats by Mr Faloon and his sister and also by Mr Faloon’s wife. They sought to prevent the sale. Caveats were also lodged in respect of the airport land which was said to protect an “easement in gross” over such airport land, but was, it seems, really no more than a fiction; see the decision of Ellis J in Faloon and Piesse v District Land Registrar [1997] 3 NZLR

498 ...

[12]      ... The struggle to prevent liquidators selling the larger portion of land resulted in decisions in this Court on 1 October 1996 (Goddard J), 27

April 1997 (Neazor J), 19 May 1997 (myself) and 26 May 1997 (McGechan

J).  Each decision was to the effect that there was no caveatable interest held by Mr Faloon or his sister, in their own right, nor as residuary beneficiaries

in their father’s estate, because they had no interest in the land. The true

position was the land had been owned by Trade Lines and vested in the liquidators of that company.

[25]     I do not know whether the liquidators of Trade Lines succeeded in their claim for compensation.  Regardless, there is no prospect of Trade Lines now bringing a claim for compensation because the company has long been wound up.

[26]   As for whether the applicant had an interest in land or could claim compensation, in [12] of the quote above, Gendall J refers to decisions holding that the applicant  had  no  interest  in  the  affected  land.    In  Bank of  New  Zealand  v Faloon12  the bank as mortgagee sought orders removing a caveat that the applicant had lodged against CT 804/42, claiming an interest through his father’s estate.  The Court held that the applicant had no interest in the land capable of supporting a

caveat.   Traveller and Fatupaito as Liquidators of Trade Lines Limited (In Liquidation) v Faloon13   concerned a second caveat the applicant had lodged against CT 804/42, this time allegedly as a beneficiary of a trust of which Trade Lines was trustee.  Again the Court held that the applicant had no interest in the land.  In this latter case, Neazor J said:14

[The applicant] further claims that there is a right in respect of compensation for the land taken by proclamation on the basis that there is a claim in respect of the land in CT 804/42 because of the effect of the taking of what is now the land in CT 44A/121.   Compensation has been paid for the land actually taken.

12 Bank of New Zealand v Faloon HC Wellington M354/96, 18 October 1996.

13 Traveller & Fatupaito as Liquidators of Trade Lines Limited (In Liquidation) v Faloon HC Wellington M137/97, 1 May 1997.

14 At 6.

It appears that if there is any compensation issue in respect of the land in CT 804/42, it has not been determined, and in any event would be a claim by [Trade Lines]...

[27]     Given these authorities, I am satisfied that the Associate Judge did not err when he determined that previous Court decisions had confirmed that Trade Lines alone, as registered proprietor, had an interest in the land subject to the orders of the Planning Tribunal; that Trade Lines alone would have had standing to pursue a claim for compensation; and that the applicant had no interest in the land.   I am also satisfied  that  the  Associate  Judge  did  not  err  when  he  decided  that,  by  this proceeding, the applicant was, directly or indirectly, seeking to circumvent those findings and that his doing so was vexatious, frivolous and an abuse of process.

[28]     That disposes of the applicant’s two principal submissions.   However, the applicant lists various additional grounds in his application for review, to which I now turn.

Grounds 2.1 and 2.2

[29]     The applicant takes issue with statements the Associate Judge made in the decision regarding another proceeding that the applicant has filed against the respondent,  namely CIV 2011-470-878.   The  applicant  filed that  proceeding on

20 October 2011.  It is an application for judicial review and other orders.  There is nothing in this ground, because the Associate Judge declined to make any orders in respect of that other proceeding.

Grounds 2.3 and 2.4

[30]     These grounds concern statements that the Associate Judge made regarding earlier  proceedings  commenced  by  the  applicant  and/or  related  parties.    The applicant contends that there was no evidential basis for many of the statements the Associate Judge made.

[31]     As I understand it, the Associate Judge made these statements on the basis of the  authorities  made  available  to  him  and,  as  is  apparent  from  the  above,  the Associate Judge would have also been drawing on the knowledge he had obtained in

deciding CIV 885.  There is no error in a judge referring to decided authorities to see what those authorities have held or in drawing on knowledge obtained from a party’s previous appearance before him.

[32]     The applicant also complains that the respondent failed to file evidence by affidavit.  As I have said, on an application to strike out, the Court usually proceeds on the basis that the matters alleged in the statement of claim will be established, unless it is plain that they cannot be correct.

Grounds 2.5 and 2.6

[33]     In these grounds the applicant contends that the Associate Judge erred in referring to earlier judgments in proceedings to which he or entities associated with him  were  parties.    The  applicant  relies  on  s  50(1)  of  the  Evidence Act  2006 (“Evidence Act”).  Section 50 reads as follows:

50       Civil judgment as evidence in civil or criminal proceedings

(1)       Evidence of a judgment or a finding of fact in a civil proceeding is not admissible in a criminal proceeding or another civil proceeding to prove the existence of a fact that was in issue in the proceeding in which the judgment was given.

(2)      This section does not affect the operation of—

(a)      a judgment “in rem”; or

(b)      the law relating to “res judicata” or issue estoppel; or

(c)      the law relating to an action on, or the enforcement of, a

[34]     Section 50(2) specifically provides for the continued operation of the law relating to “res judicata” or issue estoppel.  There is no error in a judge considering what the Court has held in other decisions for those purposes.

[35]     The applicant took another point regarding the bundle of authorities to which I have referred  and  a  further bundle of three  authorities  which  counsel  for the respondent made available to the Associate Judge at the hearing.   The ground of objection were that the authorities were irrelevant and so were inadmissible pursuant to s 7(1)(a) Evidence Act and pursuant to s 110 of the TAA.

[36]     The short answer to this argument is that it was for the Judge to receive such authorities as he saw fit.  The applicant was provided with copies, so there was no breach  of natural justice and he does not suggest that he needed more time to consider those provided at the hearing itself.  The Associate Judge would have put to one side any authority he thought irrelevant.   I note that in his decision the Judge referred to very few of the authorities that were made available.

Ground 2.7

[37]     Ground 2.7 concerns [14] of the Associate Judge’s decision.  The applicant contends that statements made in [14] contradict statements in [33] and [35] of the Associate Judge’s decision in CIV 2009-470-885.  I cannot see the contradiction and nor do I consider the point relevant to the issues which arise on this application.  The relevant paragraphs are as follows:

[14]     On 29 October 2009 the Commissioner applied to strike out that proceeding.  I heard that application on 15 April 2010.  My judgment issued on 29 April 2010.  It confirmed the Commissioner was correct to reject the NOPA dated 16 July 2009.  I struck the proceeding out because I considered it to be an attempt to re litigate matters that had already been determined.

[33]      As to the first cause of action the Commissioner is entitled to apply to [strike] out a challenge commenced by a disputant if the Commissioner considers that disputant has failed to comply with any of the requirements of s 89M or s 138B of the Tax Administration Act. As to the former Mr Faloon failed to file a reply to the Commissioner’s statement of position within the allowable period of two months.  The disputant’s position is not rectified by his purported filing of a second NOPA on 17 July 2009 which provides the basis for the plaintiff’s claim in this proceeding.  I accept the submission that Mr Faloon’s present proceeding demonstrates a certain lack of understanding of the dispute procedure under the Tax Administration Act.   I think Mr Oliver is correct with his submission that Mr Faloon seems to think that any proposition that he puts forward in relation to his alleged taxable income (and the income of associated entities and persons) should be accepted by the  Commissioner  without  question  and  that  the  Commissioner  is  not entitled to rely on previous decisions of the High Court and Court of Appeal which have determined those matters adversely to the interests of the plaintiffs.  Mr Oliver is correct when he submits that Mr Faloon seems to be saying that, notwithstanding all of those earlier decisions, the Commissioner is bound to accept what he says is the position.

...

[35]      It is clear to me that the first  cause of action  is not reasonably arguable.

Ground 2.8

[38]     Ground  2.8  concerns  [11]  of  the  Associate  Judge’s  decision.     In  that paragraph the Associate Judge referred to the applicant’s attempts to file accounts or returns premised on a particular statement of affairs.  In [11] the Associate Judge said that the “ultimate purpose of this exercise is unclear”.

[39]     In ground 2.8 the applicant submits that any enquiry as to his purpose or intention is a “proscribed question” for the purposes of s 3(1) of the TAA.  Whatever the position under the TAA, a party’s purpose may be relevant to an application to strike out under the High Court Rules.

Grounds 2.9 and 2.10

[40]     Grounds  2.9  and  2.10  concern  a  submission  that  I  have  mentioned previously, namely the Associate Judge’s consideration of the statement of claim which the applicant first filed in this proceeding.   The applicant makes the point, correctly, that his amended statement of claim overtook the earlier pleading.  With respect to the applicant however I do not consider any point turns on this.   The Associate Judge was aware of the amended pleading.  Indeed he referred to it in [3], [4], [5] and [19] of his decision.

Ground 2.11

[41]     Ground 2.11 concerns [37] the Associate Judge’s decision.  In that paragraph the Associate Judge said “Mr Faloon’s proceeding is struck out and it is generally dismissed”.

[42]     The applicant’s submission is that, on an application to strike out, r 15.1 anticipates that the Court will decide first whether to strike out the pleading and, only when it has decided to do so, may it strike out and dismiss the proceeding pursuant to r 15.2.  In short, the applicant submits that the Associate Judge erred in striking out the proceeding first and he also submits that the Associate Judge did not in so many words make an order striking out the amended statement of claim.

[43]     Again, I am not persuaded that there is anything in this point.  It is clear that the Associate Judge was striking out the statement of claim under r 15.1 because he said that the case came squarely within r 15.1(d) as mischievous, frivolous, vexatious and an abuse of Court process.15

Ground 2.12

[44]     Ground 2.12 concerns [38] of the decision.  In that paragraph the Associate Judge  said  that  this  case  was  an  appropriate  one  in  which  to  consider  the respondent’s application for costs to be fixed on an indemnity basis and he called for submissions accordingly.  My understanding is that as yet costs have not been fixed. Accordingly, no question can arise as yet in relation to the matter of costs.

Result

[45]     The application for review is dismissed.

[46]     The  applicant  has  failed.    The  respondent  is  entitled  to  costs  on  the application.   The respondent sought an award of indemnity costs but time did not permit me to hear the applicant on the point.  Accordingly, I fix costs on a Category

2B basis, and these are to include reasonable travelling expenses for one counsel. These, and disbursements, are to be fixed, if necessary, by the Registrar.

..................................................................

PETERS J

Solicitors:         Crown Law Wellington for Respondent – email: [email protected]

Counsel:            Mr J A L Oliver, Barrister, Wellington – email:  [email protected]

Copy to:            Mr C J Faloon, Applicant in person – email: [email protected]

15 Faloon v The Commissioner of Inland Revenue HC Tauranga CIV 2010-470-922, 8 November

2011, at [25].