Faqiryar v Commissioner of Inland Revenue
[2022] NZHC 552
•24 March 2022
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV 2020-404-170
[2022] NZHC 552
UNDER Part VIIIA of the Tax Administration Act 1994 BETWEEN
AHMAD JAMIL FAQIRYAR
Plaintiff
AND
COMMISSIONER OF INLAND REVENUE
Defendant
On the papers Counsel:
G Clews for the plaintiff
A B Goosen and G Du Preez for the defendant
Judgment:
24 March 2022
JUDGMENT OF CAMPBELL J
This judgment was delivered by me on 24 March 2022 at 10:00 am pursuant to Rule 11.5 of the High Court Rules
Registrar/Deputy Registrar
FAQIRYAR v COMMISSIONER OF INLAND REVENUE [2022] NZHC 552 [24 March 2022]
[1] The plaintiff challenges tax assessments made by the defendant, the Commissioner of Inland Revenue (the Commissioner), of the plaintiff’s income tax in each of the 2009–2013 income years.
[2] Under s 138B of the Tax Administration Act 1994 (the Act), the plaintiff was entitled to bring his challenge either in the Taxation Review Authority (the TRA) or the High Court. The plaintiff chose the latter course, starting this proceeding on 7 February 2020.
[3] The plaintiff now wants to change course. He requests that the Court exercise its own motion jurisdiction, under s 138N of the Act, to transfer the challenge to the TRA. In support of his request, the plaintiff relies on a change in his personal financial circumstances caused by the COVID-19 pandemic.
Background
[4] The issue in the plaintiff’s tax challenge is whether certain deposits from overseas into the plaintiff’s bank accounts totalling $953,706 are gross income of the plaintiff. The Commissioner says the disputed deposits are income from exporting second-hand car parts. The plaintiff says the disputed deposits are inheritance payments and a deposit belonging to a third party. The core income tax in respect of the disputed deposits is $325,081.75.
[5] In May 2020, soon after the plaintiff started his proceeding, the parties filed a joint memorandum requesting a six-day hearing. The plaintiff said he anticipated calling eight witnesses. Three of his witnesses reside in New Zealand. They all require translation services (from Farsi or Pashto). The other five witnesses reside overseas (in either Dubai or Afghanistan) and also require translation services (again, from Farsi or Pashto). The parties agree the overseas witnesses should give evidence by video link.
[6]A six-day hearing was allocated, beginning 19 July 2021.
[7] In May 2021, counsel for the plaintiff filed a memorandum explaining that, among other things, the plaintiff’s export business had ceased to be viable as a result
of ongoing disruptions to maritime trade caused by the COVID-19 pandemic. It was therefore difficult for the plaintiff to fund litigation. Counsel advised that, because of these matters, serious settlement discussions were underway.
[8] In June 2021, a joint memorandum was filed advising that an agreement in principle had been reached. Both parties requested that the 19 July 2021 hearing be vacated. That hearing was vacated.
[9] A concluded settlement was not reached. In part, that was because of the apparent inability to also resolve a separate restraint and forfeiture proceeding brought against the plaintiff by the Commissioner of Police under the Criminal Proceeds (Recovery) Act 2009.
[10] On 10 December 2021, counsel for the plaintiff filed a memorandum stating that an overall settlement had not been reached and that the plaintiff’s tax challenge would therefore have to proceed. Counsel also advised that the plaintiff wished to apply for the tax challenge to be transferred from the High Court to the TRA. The plaintiff proposed a timetable for that application.
[11] The Commissioner responded that there was no jurisdictional basis for such an application. The Commissioner referred to s 138N(1) of the Act, which provides:
(a)If a disputant commences a challenge in the High Court,—
(a)the Commissioner may apply to the High Court to have the challenge transferred to a Taxation Review Authority; or
(b)the High Court may, of its own motion, transfer the challenge to Taxation Review Authority.
[12] The Commissioner’s position was that, under s 138N(1), only the Commissioner could apply to transfer a challenge from the High Court to the TRA. The High Court could also do so of its “own motion”, but a plaintiff had no right to make an application.
[13] On 15 December 2021, Gordon J directed that the issue whether there was jurisdiction for the plaintiff to apply for a transfer should be resolved first, before
potentially unnecessary affidavit evidence was filed. Her Honour allocated a hearing on 10 February 2022 and made directions for submissions to be filed and served.
[14] I was scheduled to hear the argument on the jurisdictional issue. I read the submissions in advance of the hearing. There had been a change of position by the plaintiff. Both the plaintiff and the Commissioner agreed that:
(a)The plaintiff had no right to formally apply for a transfer of the tax challenge to the TRA.
(b)The plaintiff could request the Court to consider exercising its own motion jurisdiction to transfer the tax challenge to the TRA and seek to persuade the Court to do so.
[15] It was clear that the plaintiff was requesting the Court to consider exercising its own motion jurisdiction to transfer the tax challenge to the TRA. Accordingly, after hearing from counsel on 10 February 2022, I made directions for the filing and service of any affidavits and submissions in support of or opposition to the request. The parties agreed that I should then determine the matter on the papers.
The plaintiff’s grounds for requesting a transfer
[16] The plaintiff has made an affidavit in support of his request. He explains that he owns a company that exports used car parts. He says that that export market has dried up as a result of the COVID-19 pandemic. The pandemic has caused shipping costs to rise dramatically, pushing the price of used car parts beyond the reach of the plaintiff’s typical customers. The plaintiff says that his business has more than halved, whereas before the pandemic his business was growing. The plaintiff also explains that he is the sole provider for his family and that their financial circumstances are difficult.
[17] The plaintiff says that when he started this proceeding (in February 2020) his company was doing reasonably well, and he was willing to take the risk of an adverse costs order in the High Court if he was unsuccessful. He says he therefore elected to bring his tax challenge in the High Court. He states that if he had known then what
his financial situation would be like now, he would not have elected to bring the challenge in the High Court. He wants his tax challenge transferred to the TRA for financial reasons, because the TRA has a very limited jurisdiction to award costs and because it has less formal processes that might lead to a saving in his legal costs and hearing fees.
Should the challenge be transferred to the TRA?
Relevant legal principles
[18] There is only one decision referring to the exercise of the Court’s own motion jurisdiction in s 138N(1)(b). In Reefdale Investments Ltd v Commissioner of Inland Revenue,1 Associate Judge Gendall dealt briefly with a request by plaintiffs that the Court, of its own motion, transfer a tax challenge to the TRA. His Honour said that the plaintiffs had not provided any specific reasons why the Court should transfer the challenge, and in the absence of specific reasons he was not persuaded that it was appropriate that the TRA, rather than the High Court, hear the challenge.
[19] The High Court has a similar jurisdiction, under s 138N(2), to transfer a tax challenge from the TRA to the High Court. Section 138N(2) applies where a taxpayer commences a tax challenge in the TRA. In those circumstances the Commissioner may apply to the High Court to have the challenge transferred to it. The principles governing such applications are:2
(a)The TRA was designed to provide a more informal and less complex forum as evidenced by the anonymity provisions, and the fact that costs cannot be awarded in favour of any party. Although it is a specialist tribunal for dealing with taxation disputes, there is no presumption in the legislation that taxation disputes should normally be dealt with in the TRA at first instance.
1 Reefdale Investments Ltd v Commissioner of Inland Revenue (2008) 23 NZTC 21,795 (HC).
2 Commissioner of Inland Revenue v Erris Promotions [2003] 1 NZLR 506 (CA) at [22]–[23]; Commissioner of Inland Revenue v Deepsea Seafoods (No 1) Ltd (2004) 21 NZTC 18,469 (HC) at 18,473; and Kensington Developments Ltd v Commissioner of Inland Revenue [2015] NZCA 60 at [9].
(b)Because the taxpayer has the initial choice of forum, the onus is on the Commissioner to show why proceedings commenced in the TRA should be transferred to the High Court.
(c)Because the High Court is the Court of first instance jurisdiction for major and significant litigation, transfer to the High Court may be justified by the magnitude of the tax in dispute, the general or public importance of the matter, or its complexity or difficulty.
(d)The amount of money involved does not necessarily equate with complexity but it does bear upon the issue of significance, both for the taxpayer and the Commissioner.
(e)There may be added reason for hearing the matter in the High Court where the matter in dispute is likely to arise again in future assessments, the challenge involves significant legal issues of precedent, or the facts of the challenge are in dispute.
(f)If an appeal seems likely, that may favour a High Court proceeding given the additional appeal level if the proceeding commences in the TRA.
[20] The parties were agreed that these principles were of assistance in deciding whether to exercise the High Court’s “own motion” jurisdiction in s 138N(1)(b). I agree, except in respect of the second principle above. The onus must be on the plaintiff to persuade the Court to exercise its jurisdiction to transfer a tax challenge to the TRA.
Applying those principles here
[21] The plaintiff must persuade me that I should transfer his tax challenge to the TRA.
[22] The amount of money involved in the challenge is reasonably significant. This factor favours leaving the matter in the High Court.
[23] There will be some difficulty in dealing with the challenge. The overseas witnesses mean that there is a need for translators and video links. The difficulty is reflected in the parties’ estimate that a six-day hearing is needed. The High Court deals regularly with translated evidence and video links, more so than the TRA. This tends to favour the High Court over the TRA.
[24] The facts of the challenge are in dispute. The challenge also seems to have some complexity. These matters are, again, reflected in the trial estimate. They also favour the High Court as the appropriate forum. Even moderate complexity favours the High Court over the TRA.3
[25] There is a related proceeding in the High Court under the Criminal Proceeds (Recovery) Act. This factor is neutral. I accept the submission of Mr Clews, for the plaintiff, that the two proceedings are not linked in the sense of having to advance together.
[26] There is nothing before me to suggest that an appeal would be likely. I therefore regard the additional appeal level (if the challenge were transferred) as neutral.
[27] In arguing for a transfer, the plaintiff relies on the fact the TRA has a limited jurisdiction to award costs and that his legal costs and hearing fees will be lower in the TRA than in the High Court. I accept that that means a transfer would be beneficial to the plaintiff. In Kensington Developments Ltd v Commissioner of Inland Revenue,4 the Court of Appeal noted that the TRA was more informal and that costs could generally not be awarded in favour of any party, but then immediately said that there was no presumption in the legislation that tax disputes should normally be dealt with in the TRA. I therefore regard the potential financial benefits of a transfer, arising from the matters identified by the plaintiff, as providing only weak support for a transfer.
3 Kensington Developments Ltd v Commissioner of Inland Revenue [2015] NZCA 60 at [29]; and
Commissioner of Inland Revenue v Great North Motor Co Ltd [2015] NZHC 1645 at [29].
Kensington Developments Ltd v Commissioner of Inland Revenue [2015] NZCA 60 at [9].
[28] On balance, these factors favour the challenge remaining in the High Court. The plaintiff has not persuaded me that I should transfer the challenge to the TRA.
Result
[29] I decline to exercise the Court’s own motion jurisdiction to transfer the plaintiff’s tax challenge to the TRA.
[30] The Commissioner is entitled to costs for steps relating to the plaintiff’s initial contention that it could apply to transfer the tax challenge to the TRA and relating to the plaintiff’s request that the Court exercise its jurisdiction to transfer the challenge. If costs cannot be agreed, brief memoranda can be filed.
Campbell J
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